• The proceedings involved under FRIA are considered as in

rem, which means that it binds the whole world. Jurisdiction

Summary OF FRIA - Lecture over all persons affected by the proceedings shall be
considered as acquired upon publication of the notice of the

notes 1 commencement of the proceedings in any newspaper of general

circulation in the Philippines.

Financial Rehabilitation and Insolvency Act The definition of a debtor is important to be able to determine
if the parties may avail of the proceedings provided by FRIA.
FINANCIAL REHABILITATION AND The term debtor covers a sole proprietorship duly registered
INSOLVENCY ACT OF 20 10 with the Department of Trade and Industry (DTI), a partnership
duly registered with the Securities and Exchange Commission
The Purpose and Scope of the FRIA Law (SEC), a corporation duly organized and existing under
Philippine laws, or an individual debtor who has become
To encourage debtors, both juridical and natural persons, and insolvent.
their creditors to collectively and realistically resolve and
adjust competing claims and property rights, Republic Act No. However, the term debtor does not include banks, insurance
10142, or otherwise known as the Financial Rehabilitation and companies, pre-need companies, and national and local
Insolvency Act of 2010 (“FRIA”) was enacted. government agencies or units.

Basically, FRIA is a law which governs the rehabilitation or Rehabilitation under the FRIA Law
liquidation of debtors, may it be a sole proprietorship,
partnership, corporation or an individual debtor. It guarantees a Rehabilitation refers to the restoration of the debtor to a
timely, fair, transparent, effective and efficient rehabilitation or condition of successful operation and solvency, if it is shown
liquidation of debtors. that its continuance of operation is economically feasible and
its creditors can recover by way of the present value of
Under this law, rehabilitation refers to the restoration of the payments projected in the plan, more if the debtor continues as
debtor to a condition of successful operation and solvency. a going concern than if it is immediately liquidated.
When rehabilitation is not feasible, it is in the interest of the
State to facilitate a speedy and orderly liquidation of these There are three types of rehabilitation, namely:
debtor’s assets and the settlement of their obligations. On the
other hand, liquidation is a process by which assets are 1. Court-supervised rehabilitation
converted to cash. 2. Pre-negotiated rehabilitation; and
 3. Out-of-court/Formal Restructuring Rehabilitation Plan shall refer to a plan by which the financial
well-being and viability of an insolvent debtor can be restored
Court-Supervised Rehabilitation using various means including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-
Court-supervised rehabilitation may be initiated through reorganization, dacion en pago, debt-equity conversion and
voluntary proceedings or involuntary proceedings. sale of the business (or parts of it) as a going concern, or
setting-up of new business entity, or other similar arrangements
1. Voluntary Proceedings as may be approved by the court or creditors.

Voluntary Proceedings may be initiated by an insolvent debtor 2. Involuntary Proceedings

through filing a petition for rehabilitation with the court and on
the grounds provided under the FRIA. Any creditor or group of creditors with a claim of, or the
aggregate of whose claims is, at least One Million Pesos
The filing of the petition for rehabilitation must be approved by (Php1,000,000) or at least twenty-five percent (25%) of the
the owner in case of a sole proprietorship, or by a majority of subscribed capital stock or partners’ contributions, whichever
the partners in case of a partnership, or in case of a corporation, is higher, may initiate involuntary proceedings against the
by a majority vote of the board of directors or trustees and debtor by filing a petition for rehabilitation with the court if:
authorized by the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock, or in case of (a) there is no genuine issue of fact on law on the claim/s of the
nonstock corporation, by the vote of at least two-thirds (2/3) of petitioner/s, and that the due and demandable payments thereon
the members, in a stockholder’s or member’s meeting duly have not been made for at least sixty (60) days or that the
called for the purpose. debtor has failed generally to meet its liabilities as they fall
due; or
A group of debtors may jointly file a petition for rehabilitation
when one or more of its members foresee the impossibility of (b) a creditor, other than the petitioner/s, has initiated
meeting debts when they respectively fall due, and the financial foreclosure proceedings against the debtor that will prevent the
distress would likely adversely affect the financial condition debtor from paying its debts as they become due or will render
and/or operations of the other members of the group and/or the it insolvent.
participation of the other members of the group is essential
under the terms and conditions of the proposed Rehabilitation Pre-negotiated Rehabilitation
Plan.
The second way of rehabilitation is the pre-negotiated. Under
this preceding, an insolvent debtor, by itself or jointly with any
of its creditors, may file a verified petition with the court for of the out-of-court or informal restructuring/workout
the approval of a pre-negotiated Rehabilitation Plan which has agreement or Rehabilitation Plan.
been endorsed or approved by creditors holding at least two-
thirds (2/3) of the total liabilities of the debtor, including At any time during the pendency of court-supervised or pre-
secured creditors holding more than fifty percent (50%) of the negotiated rehabilitation proceedings, the debtor may also
total secured claims of the debtor and unsecured creditors initiate liquidation proceedings by filing a motion in the same
holding more than fifty percent (50%) of the total unsecured court where the rehabilitation proceedings are pending to
claims of the debtor. convert the rehabilitation proceedings into liquidation
proceedings.
Out-of-court or Informal Restructuring Agreements or
Rehabilitation Plans If the petition or the motion, as the case may be, is sufficient in
form and substance, the court shall issue a Liquidation Order.
For an out-of-court or informal restructuring/workout An individual debtor whose properties are not sufficient to
agreement or Rehabilitation Plan to qualify, it must meet the cover his liabilities, and owing debts exceeding Five hundred
following minimum requirements: thousand pesos (Php500,000), may apply to be discharged from
his debts and liabilities by filing a verified petition with the
1. The debtor must agree to the out-of-court or informal court of the province or city in which he has resided for six (6)
restructuring/workout agreement or Rehabilitation Plan; months prior to the filing of such petition. He shall attach to his
2. It must be approved by creditors representing at least petition a schedule of debts and liabilities and an inventory of
sixty-seven (67%) of the secured obligations of the assets. The filing of such petition shall be an act of insolvency.
debtor;
3. It must be approved by creditors representing at least Involuntary Liquidation
seventy-five percent (75%) of the unsecured obligations
of the debtor; and In case of Involuntary Liquidation, three (3) or more creditors
4. It must be approved by creditors holding at least eighty- the aggregate of whose claims is at least either One million
five percent (85%) of the total liabilities, secured and pesos (Php1,000,000,00) or at least twenty-five percent (25%)
unsecured, of the debtor. of the subscribed capital stock or partner’s contributions of the
debtor, whichever is higher, may apply for and seek the
What is a Standstill Period? liquidation of an insolvent debtor by filing a petition for
liquidation of the debtor with the court. The petition shall show
A standstill period, which does not exceed one hundred twenty that:
(120) days from the date of effectivity, is a period that may be
agreed upon by the parties pending negotiation and finalization
 • there is no genuine issue of fact or law on the claims/s FRIA is a law which governs the rehabilitation or liquidation of
of the petitioner/s, and that the due and demandable debtors, may it be a sole proprietorship, partnership,
payments thereon have not been made for at least one corporation or an individual debtor. It guarantees a timely, fair,
hundred eighty (180) days or that the debtor has failed transparent, effective and efficient rehabilitation or liquidation
generally to meet its liabilities as they fall due; and of debtors.
• there is no substantial likelihood that the debtor may be Under this law, rehabilitation refers to the restoration of the
rehabilitated. debtor to a condition of successful operation and solvency.
When rehabilitation is not feasible, it is in the interest of the
At any time during the pendency of or after a rehabilitation State to facilitate a speedy and orderly liquidation of these
court-supervised or pre-negotiated rehabilitation proceedings, debtor’s assets and the settlement of their obligations. On the
three (3) or more creditors whose claims is at least either One other hand, liquidation is a process by which assets are
million pesos (Php1,000,000) or at least twenty-five percent converted to cash.
(25%) of the subscribed capital or partner’s contributions of the The proceedings involved under FRIA are considered as in
debtor, whichever is higher, may also initiate liquidation rem, which means that it binds the whole world. Jurisdiction
proceedings by filing a motion in the same court where the over all persons affected by the proceedings shall be
rehabilitation proceedings are pending to convert the considered as acquired upon publication of the notice of the
rehabilitation proceedings into liquidation proceedings. commencement of the proceedings in any newspaper of general
circulation in the Philippines. The definition of a debtor is
In case of an individual debtor, involuntary liquidation takes important to be able to determine if the parties may avail of the
place when a creditor or group of creditors with a claim of, or proceedings provided by FRIA. The term debtor covers a sole
with claims aggregating at least Five hundred thousand pesos proprietorship duly registered with the Department of Trade
(Php500, 000) files a verified petition for liquidation with the and Industry (DTI), a partnership duly registered with the
court of the province or city in which the individual debtor Securities and Exchange Commission (SEC), a corporation
resides. duly organized and existing under Philippine laws, or an
individual debtor who has become insolvent. However, the
FINANCIAL REHABILITATION AND INSOLVENCY ACT term debtor does not include banks, insurance companies, pre-
OF 2010 need companies, and national and local government agencies
The Purpose and Scope of the FRIA Law or units.
To encourage debtors, both juridical and natural persons, and
their creditors to collectively and realistically resolve and Rehabilitation under the FRIA Law
adjust competing claims and property rights, Republic Act No. Rehabilitation refers to the restoration of the debtor to a
10142, or otherwise known as the Financial Rehabilitation and condition of successful operation and solvency, if it is shown
Insolvency Act of 2010 (“FRIA”) was enacted. Basically, that its continuance of operation is economically feasible and
its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as
a going concern than if it is immediately liquidated.

There are three types of rehabilitation, namely:

1. Court-supervised rehabilitation
2. Pre-negotiated rehabilitation; and
3. Out-of-court/Formal Restructuring
Court-Supervised Rehabilitation
Court-supervised rehabilitation may be initiated through
voluntary proceedings or involuntary proceedings.
1. Voluntary Proceedings
Voluntary Proceedings may be initiated by an insolvent debtor
through filing a petition for rehabilitation with the court and on
the grounds provided under the FRIA. The filing of the petition
for rehabilitation must be approved by the owner in case of a
sole proprietorship, or by a
majority of the partners in case of a partnership, or in case of a
corporation, by a majority vote of the board of directors or
trustees and authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital
stock, or in case of nonstock corporation, by the vote of at least
two-thirds (2/3) of the members, in a stockholder’s or
member’s meeting duly called for the purpose.