Republic Act No. 10142 The Financial Rehabilitation and Insolvency Act of 2010.

Republic Act No. 10142Republic Act No. 10142

The Financial Rehabilitation and The Financial Rehabilitation and Insolvency Act of 2010Insolvency Act of 2010

I.I. IntroductionIntroduction February 2, 2010, Congress adopted R.A. No. February 2, 2010, Congress adopted R.A. No.

10142, the Financial Rehabilitation and 10142, the Financial Rehabilitation and Insolvency Act of 2010 (“FRIA”).Insolvency Act of 2010 (“FRIA”).

The FRIA lapsed into law and became effective on The FRIA lapsed into law and became effective on July 18, 2010.July 18, 2010.

The FRIA replaces and repeals the Insolvency Law The FRIA replaces and repeals the Insolvency Law (Act No. 1956), which was enacted in 1909.(Act No. 1956), which was enacted in 1909.

The FRIA impliedly amends the Rules of The FRIA impliedly amends the Rules of Procedure on Corporate Rehabilitation (2008).Procedure on Corporate Rehabilitation (2008).

I.I. Introduction Introduction The Supreme Court to designate courts to hear and The Supreme Court to designate courts to hear and

resolve cases under the FRIA, and to promulgate resolve cases under the FRIA, and to promulgate rules.rules.

Proceedings are in rem; jurisdiction is acquired Proceedings are in rem; jurisdiction is acquired through publication.through publication.

A debtor is considered “insolvent” if it is “generally A debtor is considered “insolvent” if it is “generally unable to pay its or his liabilities as they fall due in unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities the ordinary course of business or has liabilities that are greater than its or his assets.”that are greater than its or his assets.”

I.I. Introduction Introduction Exclusions: (1) Banks (New Central Bank Act, Exclusions: (1) Banks (New Central Bank Act,

R.A. No. 7653); (2) Insurance companies R.A. No. 7653); (2) Insurance companies (Insurance Code, P.D. No. 1460); (3) Pre-need (Insurance Code, P.D. No. 1460); (3) Pre-need companies; (4) National and local government companies; (4) National and local government agencies or units. agencies or units.

((NoteNote: Government financial institutions other : Government financial institutions other than banks and GOCCs are covered by the than banks and GOCCs are covered by the FRIA, unless their charters provide otherwise).FRIA, unless their charters provide otherwise).

II.II. Court-supervised RehabilitationCourt-supervised Rehabilitation

A.A. Initiation ProceedingsInitiation Proceedings

1.1. Voluntary ProceedingsVoluntary Proceedings• File petition for rehabilitationFile petition for rehabilitation

o Sole proprietorship – ownerSole proprietorship – ownero Partnership – majority of Partnership – majority of

partnerspartnerso Corporation – majority of BOD Corporation – majority of BOD

and 2/3 of SHand 2/3 of SHNoteNote: A group of debtors may : A group of debtors may

jointly file a petition for jointly file a petition for rehabilitation.rehabilitation.


2.2. Involuntary ProceedingsInvoluntary Proceedings• File petition for rehabilitationFile petition for rehabilitation

o Initiated by any creditor or group of Initiated by any creditor or group of creditors with a claim of, or the creditors with a claim of, or the aggregate of whose claims is at aggregate of whose claims is at least P1M or at least 25% of the least P1M or at least 25% of the subscribed capital stock or partners’ subscribed capital stock or partners’ contributions, whichever is higher.contributions, whichever is higher.


B.B. Action on the Petition and Action on the Petition and Commencement of ProceedingsCommencement of Proceedings

1.1. Action on the PetitionAction on the Petition• If petition for rehabilitation sufficient in If petition for rehabilitation sufficient in

form and substance, court issues a form and substance, court issues a commencement order within five working commencement order within five working days from the filing of the petition. days from the filing of the petition. Otherwise, court may give petitioner(s) Otherwise, court may give petitioner(s) reasonable time to amend or supplement reasonable time to amend or supplement the petitionthe petitiono The Commencement Order shall, among others:The Commencement Order shall, among others:

Appoint a rehabilitation receiverInclude a Stay or Suspension Order

o Exceptions to Stay or Suspension Order:Exceptions to Stay or Suspension Order:

Cases already pending appeal in the Supreme Court as of commencement date. (Note: Any final and executory judgment arising from such appeal shall be referred to the lower court for appropriate action);Cases pending or filed at a specialized court or quasi-judicial agency which, upon determination by the court, is capable of resolving the claim more quickly, fairly and efficiently than the court. (Note: Any final and executory judgment of such court or agency shall be referred to the court and shall be treated as a non-disputed claim).Enforcement of claims against sureties and other persons solidarily liable with the debtor, and third party or accommodation mortgagors as well as issuers of letters of credit.

o Exceptions to Stay or Suspension Order:Exceptions to Stay or Suspension Order:

Actions of customers or clients of a securities market participant to recover or otherwise claim moneys and securities entrusted to the latter.Actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin agreementClearing and settlement of financial transactions through the facilities of a clearing agency or similar entities duly authorized, registered and/or recognized regulatory agencies like the BSP and the SEC.Criminal actions against the individual debtor or owner, partner, director or officer of a debtor.(Note: The Stay or Suspension order, as regards the suspension of rights to foreclose or otherwise pursue legal remedies, shall apply to government financial institutions.)

•Upon issuance of the Commencement Order, Upon issuance of the Commencement Order, and until the approval of the Rehabilitation and until the approval of the Rehabilitation Plan or dismissal of the petition, whichever is Plan or dismissal of the petition, whichever is earlier, earlier, the imposition of taxes and fees, the imposition of taxes and fees, including penalties, interests and charges including penalties, interests and charges thereof, due to the national government or to thereof, due to the national government or to the LGUs shall be considered waivedthe LGUs shall be considered waived..


B.B. Action on the Petition and Action on the Petition and Commencement of ProceedingsCommencement of Proceedings

2.2. Initial HearingInitial Hearing• Creditors whose claims are not listed Creditors whose claims are not listed

in the schedule of debts and in the schedule of debts and liabilities and who fail to file notices liabilities and who fail to file notices of claim but subsequently file of claim but subsequently file belated claims shall not be entitled belated claims shall not be entitled to participate in the rehabilitation to participate in the rehabilitation proceedings but shall be entitled to proceedings but shall be entitled to receive distributionsreceive distributions..


3.3. Report of the Rehabilitation ReceiverReport of the Rehabilitation Receiver• Within 40 days from the initial hearing.Within 40 days from the initial hearing.

4.4. Giving due course to or dismissal of Giving due course to or dismissal of petition, or conversion of proceedings to petition, or conversion of proceedings to liquidationliquidation

• Within 10 days from receipt of the Within 10 days from receipt of the rehabilitation receiver’s report.rehabilitation receiver’s report.

• If the petition is given due course, court If the petition is given due course, court shall direct rehabilitation receiver to shall direct rehabilitation receiver to review, revise and/or recommend action review, revise and/or recommend action on the rehabilitation plan and submit on the rehabilitation plan and submit the same within 90 days. Court may the same within 90 days. Court may refer any dispute relating to the refer any dispute relating to the rehabilitation plan or the rehabilitation rehabilitation plan or the rehabilitation proceedings pending before it to proceedings pending before it to arbitration or ADR. If the petition is arbitration or ADR. If the petition is dismissed, court may order petitioner to dismissed, court may order petitioner to pay damages.pay damages.


C.C. Rehabilitation Receiver, Management Rehabilitation Receiver, Management Committee and Creditors’ CommitteeCommittee and Creditors’ Committee

1.1. Displacement of Existing Management by Displacement of Existing Management by the Rehabilitation Receiver of Management the Rehabilitation Receiver of Management Committee.Committee.

• Upon motion of any interested party, Upon motion of any interested party, the court may appoint and direct the the court may appoint and direct the rehabilitation receiver to assume the rehabilitation receiver to assume the powers of management of the debtor, or powers of management of the debtor, or appoint a management committee that appoint a management committee that will undertake the management of the will undertake the management of the debtor.debtor.

• When appointed, the management When appointed, the management committee shall take the place of the committee shall take the place of the management and the governing body of management and the governing body of the debtor and assume their rights and the debtor and assume their rights and responsibilities.responsibilities.


C.C. Rehabilitation Receiver, Management Committee Rehabilitation Receiver, Management Committee and Creditors’ Committeeand Creditors’ Committee

2.2. Constitution of Creditors’ CommitteeConstitution of Creditors’ Committee• After the creditors’ meeting is called, After the creditors’ meeting is called,

creditors belonging to a class may creditors belonging to a class may formally organize a committee among formally organize a committee among themselves. In addition, the creditors themselves. In addition, the creditors may, as a body, agree to form a creditors’ may, as a body, agree to form a creditors’ committee composed of a representative committee composed of a representative from each class of creditors, such as the from each class of creditors, such as the following: (a) secured creditors, (b) following: (a) secured creditors, (b) unsecured creditors, (c) trade creditors unsecured creditors, (c) trade creditors and suppliers, and (d) employees of the and suppliers, and (d) employees of the debtor.debtor.

• The creditors’ committee shall assist the The creditors’ committee shall assist the rehabilitation receiver in communicating rehabilitation receiver in communicating with the creditors and shall be the primary with the creditors and shall be the primary liaison between the rehabilitation receiver liaison between the rehabilitation receiver and the creditors.and the creditors.


D.D. Determination of ClaimsDetermination of Claims

1.1. Registry of ClaimsRegistry of Claims• Within 20 days from his assumption Within 20 days from his assumption

into office, rehabilitation receiver into office, rehabilitation receiver establishes preliminary registry of establishes preliminary registry of claimsclaims

2.2. Opposition or Challenge of ClaimsOpposition or Challenge of Claims• Within 30 days from the expiration of Within 30 days from the expiration of

the 20-day period within which the the 20-day period within which the rehabilitation receiver should establish rehabilitation receiver should establish a preliminary registry of claims.a preliminary registry of claims.


E.E. GovernanceGovernance

• The management of the juridical debtor The management of the juridical debtor generally remains with existing generally remains with existing management. However, all management. However, all disbursements, payments or sale, disbursements, payments or sale, disposal, assignment, transfer or disposal, assignment, transfer or encumbrance of property, or any other encumbrance of property, or any other act affecting title or interest in act affecting title or interest in property, shall be subject to the property, shall be subject to the approval of the rehabilitation receiver approval of the rehabilitation receiver and/or the court.and/or the court.


F.F. Use, Preservation and Disposal of Assets Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after and Treatment of Assets and Claims after CommencementCommencement

1.1. Treatment of Employees, ClaimsTreatment of Employees, Claims• Compensation of employees required to Compensation of employees required to

carry on the business shall be considered carry on the business shall be considered an administrative expense. Claims of an administrative expense. Claims of separation pay for months worked prior to separation pay for months worked prior to the commencement date shall be the commencement date shall be considered a pre-commencement claim. considered a pre-commencement claim. Claims for salary and separation pay for Claims for salary and separation pay for work performed after the commencement work performed after the commencement date shall be an administrative expense.date shall be an administrative expense.


F.F. Use, Preservation and Disposal of Assets Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after and Treatment of Assets and Claims after CommencementCommencement

2.2. Treatment of ContractsTreatment of Contracts• The debtor is granted the option to choose The debtor is granted the option to choose

which of its contracts it wishes to which of its contracts it wishes to “confirm,” by delivering written notice of “confirm,” by delivering written notice of confirmation to the relevant counterparties. confirmation to the relevant counterparties. Any contract that is not so confirmed by Any contract that is not so confirmed by the debtor within a period of 90 days from the debtor within a period of 90 days from the commencement of the rehabilitation the commencement of the rehabilitation proceedings shall be considered proceedings shall be considered terminated. Damages arising therefrom terminated. Damages arising therefrom will be considered a claim arising prior to will be considered a claim arising prior to the commencement of the proceedings. the commencement of the proceedings.


G.G. Avoidance ProceedingsAvoidance Proceedings

• Any transaction occurring prior to Any transaction occurring prior to commencement date entered into by commencement date entered into by the debtor or involving its funds or the debtor or involving its funds or assets may be rescinded or declared assets may be rescinded or declared null and void on the ground that the null and void on the ground that the same was executed with intent to same was executed with intent to defraud a creditor or creditors or which defraud a creditor or creditors or which constitute undue preference to constitute undue preference to creditorscreditors. .


H.H. Treatment of Secured CreditorsTreatment of Secured Creditors

No Diminution of Secured Creditor RightsNo Diminution of Secured Creditor Rights• The issuance of the Commencement Order The issuance of the Commencement Order

and the Suspension or Stay Order shall not and the Suspension or Stay Order shall not be deemed in any way to diminish or impair be deemed in any way to diminish or impair the security or lien of a secured creditor, or the security or lien of a secured creditor, or the value of his lien or security, except that the value of his lien or security, except that his right to enforce said security or lien his right to enforce said security or lien may be suspended during the term of the may be suspended during the term of the Stay OrderStay Order. .


I.I. Administration of ProceedingsAdministration of Proceedings

Creditor Approval of Rehabilitation PlanCreditor Approval of Rehabilitation Plan• The rehabilitation plan shall be deemed The rehabilitation plan shall be deemed

rejected unless approved by all classes rejected unless approved by all classes of creditors whose rights are adversely of creditors whose rights are adversely modified or affected by the plan. The modified or affected by the plan. The rehabilitation plan shall be deemed to rehabilitation plan shall be deemed to have been approved by a class of have been approved by a class of creditors if members of the said class creditors if members of the said class holding more than 50% of the total holding more than 50% of the total claims of the said class vote in favor of claims of the said class vote in favor of the plan. the plan.


J.J. Termination of ProceedingsTermination of Proceedings– The rehabilitation proceedings shall, The rehabilitation proceedings shall,

upon motion by any stakeholder or the upon motion by any stakeholder or the rehabilitation receiver, be terminated rehabilitation receiver, be terminated by order of the court either declaring a by order of the court either declaring a successful implementation of the successful implementation of the Rehabilitation Plan or a failure of Rehabilitation Plan or a failure of rehabilitation.rehabilitation.

III.III. Pre-negotiated RehabilitationPre-negotiated Rehabilitation

A.A. Initiation ProceedingsInitiation Proceedings

1.1. Petition by DebtorPetition by Debtor• Verified petitionVerified petition• Endorsed or approved by creditors Endorsed or approved by creditors

holding at least 2/3 of the total liabilities holding at least 2/3 of the total liabilities of the debtor,, including secured of the debtor,, including secured creditors holding more than 50% of the creditors holding more than 50% of the total secured claims of the debtor and total secured claims of the debtor and unsecured creditors holding more than unsecured creditors holding more than 50% of the total unsecured claims of the 50% of the total unsecured claims of the debtor.debtor.

2.2. Issuance of OrderIssuance of Order3.3. Approval of the PlanApproval of the Plan4.4. Objection to the Petition or Rehabilitation Objection to the Petition or Rehabilitation

PlanPlan5.5. Hearing on ObjectionsHearing on Objections

IV.IV. Out-of-court or Informal Out-of-court or Informal Restructuring Agreements or Restructuring Agreements or Rehabilitation PlansRehabilitation Plans

A.A. Minimum Requirements of Out-of-Court or Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and Informal Restructuring Agreements and Rehabilitation Plans: Rehabilitation Plans:

1.1. Debtor must agree to the out-of-court or Debtor must agree to the out-of-court or informal restructuring/workout agreement or informal restructuring/workout agreement or Rehabilitation Plan; Rehabilitation Plan;

2.2. It must be approved by creditors It must be approved by creditors representing at least 67% of the secured representing at least 67% of the secured obligations of the debtor; obligations of the debtor;

3.3. It must be approved by creditors It must be approved by creditors representing at least 75% of the undersigned representing at least 75% of the undersigned obligations of the debtor; and obligations of the debtor; and

4.4. It must be approved by creditors holding at It must be approved by creditors holding at least 85% of the total liabilities, secured and least 85% of the total liabilities, secured and unsecured, of theunsecured, of the

IV.IV. Out-of-court or Informal Restructuring Out-of-court or Informal Restructuring Agreements or Rehabilitation PlansAgreements or Rehabilitation Plans

B.B. Standstill PeriodStandstill Period• A standstill period that may be agreed upon by A standstill period that may be agreed upon by

the parties pending negotiation and finalization the parties pending negotiation and finalization of the out-of-court or informal of the out-of-court or informal restructuring/workout agreement or restructuring/workout agreement or rehabilitation plan shall be effective and rehabilitation plan shall be effective and enforceable not only against the contracting enforceable not only against the contracting parties but also against the other creditors.parties but also against the other creditors.

• Requirements: Requirements: o Such agreement is approved by creditors Such agreement is approved by creditors

representing more than 50% of the debtor’s total representing more than 50% of the debtor’s total liabilities;liabilities;

o Notice thereof is published in a newspaper of Notice thereof is published in a newspaper of general circulation once a week for two general circulation once a week for two consecutive weeks; andconsecutive weeks; and

o The standstill period does not exceed 120 days The standstill period does not exceed 120 days from effectivity date. (The notice must invite from effectivity date. (The notice must invite creditors to participate in the negotiation for out-creditors to participate in the negotiation for out-of-court rehabilitation or restructuring agreement of-court rehabilitation or restructuring agreement and notify them that said agreement will be and notify them that said agreement will be binding to all creditors if the required majority binding to all creditors if the required majority votes (in IV. A.) are met.votes (in IV. A.) are met.


C.C. Cram Down Effect Cram Down Effect • A restructuring/workout agreement or A restructuring/workout agreement or

rehabilitation plan that is approved rehabilitation plan that is approved pursuant to an informal workout framework pursuant to an informal workout framework shall have the same legal effect as judicial shall have the same legal effect as judicial confirmation of a plan. confirmation of a plan.

• Notice of the rehabilitation plan or Notice of the rehabilitation plan or restructuring agreement or plan shall be restructuring agreement or plan shall be published once a week for at least three published once a week for at least three consecutive weeks in a newspaper of consecutive weeks in a newspaper of general circulation.general circulation.

• The rehabilitation plan or restructuring The rehabilitation plan or restructuring agreement shall take effect upon the lapse agreement shall take effect upon the lapse of 15 days from the date of the last of 15 days from the date of the last publication of the notice thereofpublication of the notice thereof..


D.D. Amendment or ModificationAmendment or Modification• Any amendment of an out-of-court Any amendment of an out-of-court

restructuring/workout agreement or restructuring/workout agreement or rehabilitation plan must be made in rehabilitation plan must be made in accordance with the terms of the accordance with the terms of the agreement and with due notice on all agreement and with due notice on all creditorscreditors. .

IV.IV. Out-of-court or Informal Out-of-court or Informal Restructuring Agreements or Restructuring Agreements or Rehabilitation PlansRehabilitation Plans

E.E. Effect of Court Action or Other ProceedingsEffect of Court Action or Other Proceedings• Any court action or other proceedings Any court action or other proceedings

arising from, or relating to, the out-of-court arising from, or relating to, the out-of-court or informal restructuring/workout or informal restructuring/workout agreement or rehabilitation plan shall not agreement or rehabilitation plan shall not stay its implementation, unless the stay its implementation, unless the relevant party is able to secure a relevant party is able to secure a temporary restraining order or injunctive temporary restraining order or injunctive relief from the CA. relief from the CA.


F. Court AssistanceF. Court Assistance • The insolvent debtor and/or creditor The insolvent debtor and/or creditor

may seek court assistance for the may seek court assistance for the execution or implementation of a execution or implementation of a rehabilitation plan. rehabilitation plan.

• The SC shall promulgate rules in this The SC shall promulgate rules in this regard.regard.

V.V. Liquidation of Insolvent Juridical DebtorsLiquidation of Insolvent Juridical Debtors

A.A. Voluntary LiquidationVoluntary Liquidation

1.1. Insolvent debtor files verified petition for Insolvent debtor files verified petition for liquidation liquidation

• At any time during the pendency of At any time during the pendency of court-supervised or pre-negotiated court-supervised or pre-negotiated rehabilitation proceedings, the debtor rehabilitation proceedings, the debtor may also initiate liquidation proceedings may also initiate liquidation proceedings by filing a verified motion in the same by filing a verified motion in the same court where rehabilitation proceedings court where rehabilitation proceedings are pending to convert the rehabilitation are pending to convert the rehabilitation proceedings into liquidation proceedings into liquidation proceedings.proceedings.

2.2. If the petition or the motion, as the case If the petition or the motion, as the case may be, is sufficient in form and substance, may be, is sufficient in form and substance, the court shall issue a Liquidationthe court shall issue a Liquidation


B.B. Involuntary LiquidationInvoluntary Liquidation

1.1. Three or more creditors whose aggregate Three or more creditors whose aggregate claims are at least P1M or at least 25% of the claims are at least P1M or at least 25% of the subscribed capital stock or partner’s subscribed capital stock or partner’s contributions of the debtor, whichever is contributions of the debtor, whichever is higher, may apply for and seek the liquidation higher, may apply for and seek the liquidation of an insolvent debtor by filing a petition for of an insolvent debtor by filing a petition for liquidation of the debtor with the court. liquidation of the debtor with the court.

• At any time during the pendency of or after a At any time during the pendency of or after a court-supervised or pre-negotiated court-supervised or pre-negotiated rehabilitation proceeding, three or more rehabilitation proceeding, three or more creditors whose claims are at least P1M or at creditors whose claims are at least P1M or at least 25% of the subscribed capital or least 25% of the subscribed capital or partner’s contributions of the debtor, partner’s contributions of the debtor, whichever is higher, may also initiate whichever is higher, may also initiate liquidation proceedings by filing a verified liquidation proceedings by filing a verified motion in the same court where the motion in the same court where the rehabilitation proceedings are pending to rehabilitation proceedings are pending to convert the rehabilitation proceedings into convert the rehabilitation proceedings into liquidation proceedings.liquidation proceedings.


B.B. Involuntary LiquidationInvoluntary Liquidation

2.2. If the petition or the motion, as the case If the petition or the motion, as the case may be, is sufficient in form and substance, may be, is sufficient in form and substance, the court orders the publication of the the court orders the publication of the petition or motion in a newspaper of petition or motion in a newspaper of general circulation and the filing of general circulation and the filing of comment on the petition or motion. comment on the petition or motion. Thereafter, if the court determines that the Thereafter, if the court determines that the petition or motion is meritorious, it shall petition or motion is meritorious, it shall issue a Liquidation Order.issue a Liquidation Order.


C.C. Conversion by the Court into Liquidation Conversion by the Court into Liquidation ProceedingsProceedings

• During the pendency of court-During the pendency of court-supervised or pre-negotiation supervised or pre-negotiation proceedings, the court may order the proceedings, the court may order the conversion of rehabilitation proceedings conversion of rehabilitation proceedings upon the recommendation of the upon the recommendation of the rehabilitation receiver that the rehabilitation receiver that the rehabilitation of the debtor is not rehabilitation of the debtor is not feasible . feasible .


D.D. Powers of the SEC Powers of the SEC

• Liquidation under R.A. 10142 shall not Liquidation under R.A. 10142 shall not affect the regulatory powers of the SEC affect the regulatory powers of the SEC under Sec. 6 of P.D. No. 902-A, as under Sec. 6 of P.D. No. 902-A, as amended, with respect to any amended, with respect to any dissolution and liquidation proceeding dissolution and liquidation proceeding initiated and heard before it. initiated and heard before it.

VI.VI. Insolvency of Individual DebtorsInsolvency of Individual Debtors

A.A. Suspension of PaymentsSuspension of Payments

1.1. Filing of verified petition by debtorFiling of verified petition by debtor2.2. Court issues an Order:Court issues an Order:

a.a. Calling a meeting of creditors;Calling a meeting of creditors;b.b. Directing such creditors to prepare Directing such creditors to prepare

and present written claims;and present written claims;c.c. Directing the publication of the Directing the publication of the

Order in a newspaper of general Order in a newspaper of general circulation once a week for two circulation once a week for two consecutive weeks, with the first consecutive weeks, with the first publication to be made within seven publication to be made within seven days from the time of the issuance days from the time of the issuance of the Order;of the Order;


d.d. Directing the clerk of court to cause the Directing the clerk of court to cause the sending of a copy of the Order by sending of a copy of the Order by registered mail, postage prepaid, to all registered mail, postage prepaid, to all creditors named in the schedule of creditors named in the schedule of debts and liabilities; debts and liabilities;

e.e. Forbidding the individual debtor from Forbidding the individual debtor from selling, transferring, encumbering or selling, transferring, encumbering or disposing in any manner of his disposing in any manner of his peroperty, except those used in the peroperty, except those used in the ordinary operations of commerce or of ordinary operations of commerce or of industry in which the petitioning industry in which the petitioning individual debtor is engaged, so long as individual debtor is engaged, so long as the proceedings relative to the the proceedings relative to the suspension of payments are pending; suspension of payments are pending;


f.f. Prohibiting the individual debtor from Prohibiting the individual debtor from making any payment outside of the making any payment outside of the necessary or legitimate expenses of his necessary or legitimate expenses of his business or industry, so long as the business or industry, so long as the proceedings relative to the suspension proceedings relative to the suspension of payments are pending; andof payments are pending; and

g.g. Appointing a commissioner to preside Appointing a commissioner to preside over the creditors’ meeting.over the creditors’ meeting.


Actions suspendedActions suspended• Upon motion filed by the individual debtor, Upon motion filed by the individual debtor,

the court may issue an order suspending the court may issue an order suspending any pending execution against the any pending execution against the individual debtor, provided that properties individual debtor, provided that properties held as security by secured creditors shall held as security by secured creditors shall not be subject to the suspension order. not be subject to the suspension order.

• The suspension order shall lapse when The suspension order shall lapse when three months shall have passed without the three months shall have passed without the proposed agreement being accepted by the proposed agreement being accepted by the creditors or as soon as such agreement is creditors or as soon as such agreement is denied.denied.


Actions suspendedActions suspended• No creditor shall sue or institute No creditor shall sue or institute

proceedings to collect his claim from the proceedings to collect his claim from the debtor from the time of the filing of the debtor from the time of the filing of the petition for suspension of payments and for petition for suspension of payments and for as long as proceedings remain pending as long as proceedings remain pending except:except:

a.a. Those creditors having claims for Those creditors having claims for personal labor, maintenance, expense personal labor, maintenance, expense of last illness and funeral of the wife or of last illness and funeral of the wife or children of the debtor incurred in the 60 children of the debtor incurred in the 60 days immediately prior to the filing of days immediately prior to the filing of the petition; andthe petition; and

b.b. Secured creditors.Secured creditors.


3.3. Creditors’ Meeting Creditors’ Meeting

• The presence of creditors holding claims The presence of creditors holding claims amounting to at least 3/5 of the liabilities amounting to at least 3/5 of the liabilities shall be necessary for holding a meeting. shall be necessary for holding a meeting.

• To form a majority, it is necessary: (a) that To form a majority, it is necessary: (a) that 2/3 of the creditors voting unite upon the 2/3 of the creditors voting unite upon the same proposition, and (b) that the claims same proposition, and (b) that the claims represented by said majority vote amount represented by said majority vote amount to at least 3/5 of the total liabilities of the to at least 3/5 of the total liabilities of the debtor mentioned in the petition.debtor mentioned in the petition.

• No creditor who incurred his credit within No creditor who incurred his credit within 90 days prior to the filing of the petition 90 days prior to the filing of the petition shall be entitled to vote.shall be entitled to vote.


• Creditors who are unaffected by the Creditors who are unaffected by the Suspension Order may refrain from Suspension Order may refrain from attending the meeting and from voting attending the meeting and from voting therein. Such persons shall not be bound therein. Such persons shall not be bound by any agreement determined upon at by any agreement determined upon at such meeting, but if they should join in the such meeting, but if they should join in the voting they shall be bound in the same voting they shall be bound in the same manner as are the other creditors. manner as are the other creditors.

• The proposed agreement shall be deemed The proposed agreement shall be deemed rejected if the number of creditors required rejected if the number of creditors required for holding a meeting does not attend for holding a meeting does not attend thereat, or if the two majorities thereat, or if the two majorities aforementioned are not in favor thereof.aforementioned are not in favor thereof.


4.4. ObjectionsObjections

• May be filed within 10 days from the date May be filed within 10 days from the date of the last creditors’ meeting. of the last creditors’ meeting.

• Grounds: (a) defects in the call for the Grounds: (a) defects in the call for the meeting, in the holding thereof, and in the meeting, in the holding thereof, and in the deliberations had thereat which prejudice deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent the rights of the creditors; (b) fraudulent connivance between one or more creditors connivance between one or more creditors and the individual debtor to vote in favor of and the individual debtor to vote in favor of the proposed agreement; or (c) fraudulent the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of conveyance of claims for the purpose of obtaining a majority.obtaining a majority.

5.5. Approval of the Proposed Agreement Approval of the Proposed Agreement


B.B. Voluntary Liquidation (previously Voluntary Voluntary Liquidation (previously Voluntary Insolvency under the old Insolvency Law)Insolvency under the old Insolvency Law)

1.1. Filing of verified petition by debtorFiling of verified petition by debtor• An individual debtor whose properties An individual debtor whose properties

are not sufficient to cover his liabilities, are not sufficient to cover his liabilities, and owing debts exceeding P500,000 and owing debts exceeding P500,000 may apply to be discharged from his may apply to be discharged from his debts and liabilities. (Amount of debts and liabilities. (Amount of liabilities previously “exceeding P1,000” liabilities previously “exceeding P1,000” under the old Insolvency Law).under the old Insolvency Law).

2.2. Liquidation Order Liquidation Order • If the court finds the petition sufficient in If the court finds the petition sufficient in

form and substance, it shall issue a form and substance, it shall issue a Liquidation Order within five working Liquidation Order within five working days.days.


C.C. Involuntary Liquidation (previously Involuntary Involuntary Liquidation (previously Involuntary Insolvency under the old Insolvency Law)Insolvency under the old Insolvency Law)

1.1. Filing of verified petition by creditor or Filing of verified petition by creditor or group of creditors group of creditors

• Any creditor or group of creditors with a Any creditor or group of creditors with a claim or, or with claims aggregating, at claim or, or with claims aggregating, at least P500,000 may file a verified petition least P500,000 may file a verified petition for liquidation with the court of the for liquidation with the court of the province or city in which the individual province or city in which the individual debtor resides. (Amount of liabilities debtor resides. (Amount of liabilities previously “not less than P1,000” under previously “not less than P1,000” under the old Insolvency Law).the old Insolvency Law).

• Creditors must allege one or more acts of Creditors must allege one or more acts of insolvency insolvency

• Creditors must post bond.Creditors must post bond.


2.2. Order to individual debtor to show causeOrder to individual debtor to show cause• Upon filing of such creditors’ petition, the Upon filing of such creditors’ petition, the

court shall issue an order requiring the court shall issue an order requiring the individual debtor to show cause why he individual debtor to show cause why he should not be adjudged an insolvent. should not be adjudged an insolvent.

• If the individual debtor shall default or if after If the individual debtor shall default or if after trial, the issues are found in favor of the trial, the issues are found in favor of the petitioning creditors, the court shall issue the petitioning creditors, the court shall issue the Liquidation Order.Liquidation Order.

• If the debtor is absent, the court may order If the debtor is absent, the court may order the sheriff of the province or city in which the the sheriff of the province or city in which the matter is pending to seize the debtor’s matter is pending to seize the debtor’s property sufficient to satisfy the demands of property sufficient to satisfy the demands of the petitioning creditors, upon the creditors’ the petitioning creditors, upon the creditors’ filing of a bond in double the amount of their filing of a bond in double the amount of their claims.claims.

VII.VII. Provisions Common to Liquidation in Provisions Common to Liquidation in Insolvency of Individual and Juridical Insolvency of Individual and Juridical DebtorsDebtors

A.A. Effects of Liquidation OrderEffects of Liquidation Order1.1. Juridical debtor shall be deemed dissolved Juridical debtor shall be deemed dissolved

and its corporate or juridical existence and its corporate or juridical existence terminated; terminated;

2.2. Legal title to and control of the assets of Legal title to and control of the assets of the debtor, except those that may be the debtor, except those that may be exempt from execution, shall be deemed exempt from execution, shall be deemed vested in the liquidator or, pending his vested in the liquidator or, pending his election or appointment, with the court;election or appointment, with the court;

3.3. All contracts of the debtor shall be deemed All contracts of the debtor shall be deemed terminated and/or breached, unless the terminated and/or breached, unless the liquidator, within 90 days from the date of liquidator, within 90 days from the date of his assumption of office, declares otherwise his assumption of office, declares otherwise and the contracting party agrees;and the contracting party agrees;

VII.VII. Provisions Common to Liquidation in Provisions Common to Liquidation in Insolvency of Individual and Juridical DebtorsInsolvency of Individual and Juridical Debtors

4.4. No separate action for the collection of an No separate action for the collection of an unsecured claim shall be allowed. Such unsecured claim shall be allowed. Such actions already pending will be transferred actions already pending will be transferred to the Liquidator for him to accept and to the Liquidator for him to accept and settle or contest. If the liquidator contests settle or contest. If the liquidator contests or disputes the claim, the court shall allow, or disputes the claim, the court shall allow, hear and resolve such contest except when hear and resolve such contest except when the case is already on appeal. In such a the case is already on appeal. In such a case, the suit may proceed to judgment, case, the suit may proceed to judgment, and any final and executory judgment and any final and executory judgment therein for a claim against the debtor shall therein for a claim against the debtor shall be filed and allowed in court; andbe filed and allowed in court; and

5.5. No foreclosure proceeding shall be allowed No foreclosure proceeding shall be allowed for a period of 180 days. for a period of 180 days.


B.B. Rights of Secured CreditorsRights of Secured Creditors • The Liquidation Order shall not affect The Liquidation Order shall not affect

the right of a secured creditor to the right of a secured creditor to enforce his lien in accordance with the enforce his lien in accordance with the applicable contract or law. A secured applicable contract or law. A secured creditor may:creditor may:

a.a. Waive his rights under the security Waive his rights under the security or lien, prove his claim in the or lien, prove his claim in the liquidation proceedings and share in liquidation proceedings and share in the distribution of the assets of the the distribution of the assets of the debtor; ordebtor; or

b.b. Maintain his rights under his security Maintain his rights under his security or lienor lien


If the secured creditor maintains his rights under the If the secured creditor maintains his rights under the security or lien:security or lien:

a.a. The value of the property may be fixed in a The value of the property may be fixed in a manner agreed upon by the creditor and the manner agreed upon by the creditor and the liquidator. When the value of the property liquidator. When the value of the property is less than the claim it secures, the is less than the claim it secures, the liquidator may convey the property to the liquidator may convey the property to the secured creditor and the latter will be secured creditor and the latter will be admitted in the liquidation proceedings as a admitted in the liquidation proceedings as a creditor for the balance; if its value exceeds creditor for the balance; if its value exceeds the claim secured, the liquidator may the claim secured, the liquidator may convey the property to the creditor and convey the property to the creditor and waive the debtor’s right of redemption upon waive the debtor’s right of redemption upon receiving the excess from the creditor; receiving the excess from the creditor;

b.b. The liquidator may sell the property and The liquidator may sell the property and satisfy the secured satisfy the secured

c.c. The secured creditor may enforce the lien or The secured creditor may enforce the lien or foreclose on the property pursuant to foreclose on the property pursuant to applicable laws.applicable laws.


C.C. Avoidance ProceedingsAvoidance Proceedings • Any transaction occurring prior to the Any transaction occurring prior to the

issuance of the Liquidation Order or, in issuance of the Liquidation Order or, in case of the conversion of the case of the conversion of the rehabilitation proceedings to liquidation rehabilitation proceedings to liquidation proceedings prior to the proceedings prior to the commencement date, entered into by commencement date, entered into by the debtor or involving its assets, may the debtor or involving its assets, may be rescinded or declared null and void be rescinded or declared null and void on the ground that the same was on the ground that the same was executed with intent to defraud a executed with intent to defraud a creditor or creditors or which constitute creditor or creditors or which constitute undue preference of creditors. undue preference of creditors.


D.D. Liquidation PlanLiquidation Plan• Submitted within three months from Submitted within three months from

liquidator’s assumption into office. liquidator’s assumption into office. • Exempt property of debtor shall be set Exempt property of debtor shall be set

apart.apart.


E.E. Concurrence and Preference of Concurrence and Preference of CreditsCredits

• The liquidation plan and its The liquidation plan and its implementation shall ensure that the implementation shall ensure that the concurrence and preference of credits concurrence and preference of credits as enumerated in the Civil Code of the as enumerated in the Civil Code of the Philippines and other relevant laws Philippines and other relevant laws shall be observed, unless a preferred shall be observed, unless a preferred creditor voluntarily waives his preferred creditor voluntarily waives his preferred right. Credits for services rendered by right. Credits for services rendered by employees or laborers to the debtor employees or laborers to the debtor shall enjoy first preference under shall enjoy first preference under Articles 2244 of the Civil Code, unless Articles 2244 of the Civil Code, unless the claims constitute legal liens under the claims constitute legal liens under Articles 2241 and 2242 thereof. Articles 2241 and 2242 thereof.


F.F. Order Removing the Debtor from the List of Order Removing the Debtor from the List of Registered Entities at the SEC.Registered Entities at the SEC.

Upon determining that the liquidation has Upon determining that the liquidation has been completed, the court shall issue an been completed, the court shall issue an order approving the report and ordering order approving the report and ordering the SEC to remove the debtor from the the SEC to remove the debtor from the registry of legal entities.registry of legal entities.

G.G. Termination of ProceedingsTermination of Proceedings• Upon receipt of evidence showing that Upon receipt of evidence showing that

the debtor has been removed from the the debtor has been removed from the registry of legal entities at the SEC, the registry of legal entities at the SEC, the court shall issue an Order terminating court shall issue an Order terminating the proceedings.the proceedings.


H.H. Liquidation of a Securities Market ParticipantLiquidation of a Securities Market Participant The provisions on liquidation shall be without The provisions on liquidation shall be without

prejudice to the power of a regulatory agency prejudice to the power of a regulatory agency or self-regulatory organization to liquidate or self-regulatory organization to liquidate trade-related claims of clients or customers of trade-related claims of clients or customers of a securities market participant which, for a securities market participant which, for purposes of investor protection, are hereby purposes of investor protection, are hereby deemed to have absolute priority over all deemed to have absolute priority over all other claims of whatever nature or kind other claims of whatever nature or kind insofar as the trade-related assets are insofar as the trade-related assets are concerned. Trade-related assets include cash, concerned. Trade-related assets include cash, securities, trading right and other assets securities, trading right and other assets owned and used by the securities market owned and used by the securities market participant in the ordinary course of its participant in the ordinary course of its business. business.

VIII.VIII. Proceedings Ancillary to other Insolvency Proceedings Ancillary to other Insolvency or Rehabilitation Proceedingsor Rehabilitation Proceedings

A.A. Banks and other financial institutions under Banks and other financial institutions under rehabilitation receivership pursuant to a rehabilitation receivership pursuant to a state-funded or state-mandated insurance state-funded or state-mandated insurance system. system.

The liquidation of banks, financial The liquidation of banks, financial institutions, insurance companies and pre-institutions, insurance companies and pre-need companies shall be determined by need companies shall be determined by relevant legislation. The provisions in this relevant legislation. The provisions in this Act shall apply in a suppletory manner. Act shall apply in a suppletory manner.

VIII.VIII. Proceedings Ancillary to other Insolvency Proceedings Ancillary to other Insolvency or Rehabilitation Proceedingsor Rehabilitation Proceedings

B.B. Cross-border insolvency proceedingsCross-border insolvency proceedings The Model Law on Cross-Border The Model Law on Cross-Border

Insolvency of the United Nations Center Insolvency of the United Nations Center for International Trade and Development for International Trade and Development has been adopted by RA 10142. has been adopted by RA 10142.

The court shall set a hearing in The court shall set a hearing in connection with an insolvency or connection with an insolvency or rehabilitation proceeding taking place in a rehabilitation proceeding taking place in a foreign jurisdiction, upon the submission foreign jurisdiction, upon the submission of a petition by the representative of the of a petition by the representative of the foreign entity that is subject of the foreign foreign entity that is subject of the foreign proceeding.proceeding.

IX.IX. Miscellaneous ProvisionsMiscellaneous Provisions

A.A. Application to pending insolvency, suspension Application to pending insolvency, suspension of payments and rehabilitation cases. of payments and rehabilitation cases.

RA 10142 shall govern all petitions filed after RA 10142 shall govern all petitions filed after it has taken effect. All further proceedings in it has taken effect. All further proceedings in insolvency, suspension of payments and insolvency, suspension of payments and rehabilitation cases then pending, except to rehabilitation cases then pending, except to the extent that in the opinion of the court the extent that in the opinion of the court their application would not be feasible or their application would not be feasible or would work injustice, in which event the would work injustice, in which event the procedures set forth in prior laws and procedures set forth in prior laws and regulations shall apply.regulations shall apply.

B.B. Application to pending contracts Application to pending contracts RA 10142 shall apply to all contracts of the RA 10142 shall apply to all contracts of the

debtor regardless of the date of perfection. debtor regardless of the date of perfection.

ENDEND

Thank you.Thank you.

Republic Act No. 10142 The Financial Rehabilitation and Insolvency Act of 2010.

Documents

Transcript of Republic Act No. 10142 The Financial Rehabilitation and Insolvency Act of 2010.