FINANCIAL REHABILITATION AND
INSOLVENCY ACT (RA No. 10142)
DECLARATION OF POLICY: It is the policy of the State to
encourage debtors, both juridical and natural persons, and
their creditors to collectively and realistically resolve and
adjust competing claims and property rights. In furtherance
thereof, the State shall ensure a timely, fair, transparent,
effective and efficient rehabilitation or liquidation of debtors.
The rehabilitation or liquidation shall be made with a view to
ensure or m aintain certainly and predictability in commercial
affairs, preserve and maximize the value of the assets of
these debtors, recognize creditor r ights and respect priority
of claims, and ensure equitable treatment of creditors who
are similarly situated. When r ehabilitation is not feasible, it is
in the interest o f the State to facilities a speedy and orderly
liquidation of these debtor's
assets and the settlement of their obligations. (Section 2)
NATURE OF PROCEEDINGS:
1. In rem. Meaning it is a proceeding which binds the whole
world.
2. Jurisdiction over all persons affected shall be acquired
upon publication of the notice of commencement in a
newspaper of general circulation in the Philippines.
3. Proceedings shall be summary and non-adversarial.
(Section 3)
DEBTORS: as defined under the law are insolvent:
1. Sole proprietorship registered with the DTI;
2. Partnership registered with the SEC
3. Corporations organized and existing under the laws of the
Philippines; or
4. Individual debtors which are natural persons who are
residents and citizens of the Philippines.
GROUP OF DEBTORS: refer to:
1. Financially related corporations – parent, subsidiary or
affiliates
2. Partnerships – more than 50% of which is owned by the
same person
3. Single Proprietorships – owned by the same individual
EXCLUDED DEBTORS: Banks, pre-need companies,
insurance companies and government agencies or units –
governed by their respective special laws.
INSOLVENT: shall refer to the financial condition of a debtor
that is generally 1. Unable to pay its or his liabilities as they
fall due; or 2. Has liabilities greater than its or his assets
CREDITORS: include natural or juridical p ersons which has
a claim against the debtor that arose on or before
commencement date, which can either be secured or
unsecured.
1. Unsecured creditors are those whose claim or a portion
thereof is neither secured, preferred nor subordinated
2. Secured creditors are those whose claims are secured by
a lien (either by law, agreement or by judicial judgment)
which legally entitles a creditor to r esort the property subject
of a lien for payment of his claim. Example: loan secured by
a mortgage. Lien of workers and suppliers on inventory.
Attachment issued by the court.
Claim shall refer to all claims or demands of whatever nature
or character against the debtor or its property, whether for
money or otherwise, liquidated or unliquidated, fixed or
contingent, matured or u nmatured, disputed or undisputed,
including, but not limited to;
1. All claims of the government, whether national or local,
including taxes, tariffs and customs duties; and
2. Claims against directors and officers of the debtor arising
from acts done in the discharge of their functions falling
within the scope of their authority.
This inclusion does not, however, prohibit the creditors or
third parties from filing cases against the directors and
officers acting in their personal capacities
PROCEEDINGS COVERED BY THE PRIA:
1. Rehabilitation
2. Pre-negotiated Rehabilitation
3. Out of Court Rehabilitation
4. Suspension of payments
5. Liquidation
I. REHABILITATION
Rehabilitation is the restoration of the debtor to a condition of
successful operation and solvency. If it is shown 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
TYPES OF REHABILITATION:
1. Voluntary – initiated by the debtor, upon showing that:
a. The debtor is insolvent; and
b. The viability of rehabilitation
Who will file?
Sole proprietorship- Owner/proprietor
Partnership- Majority of partners
Corporation- Majority of the directors or trustees; AND
Stockholders representing 2/3 of outstanding
capital/members of non-stock corporation
2. Involuntary – initiated by the creditor or group of
creditors, if there is no genuine issue of fact or law on the
claim/s of the petitioner/s, and that
a. No payments on the due and demandable debts
have been made for at least 60 days; or
b. That the debtor has failed generally to meet its
liabilities as they fall due; or
c. A creditor, other than p etitioner/s has initiated
foreclosure proceedings against the debtor that will prevent
the debtor from paying its debts as they become due or will
render it insolvent.
Who will file? Creditors with claims or aggregate of whose
claim is at least P1M or 25% of the subscribed capital
stock
or partners’ contributions, whichever is higher
COMMENCEMENT/STAY ORDER: the court shall issue a
Commencement Order which shall include a Stay Order,
which shall:
1. Suspend all actions or proceedings, in court or
otherwise for the enforcement of claims against the debtor;
2. Suspend all actions to enforce any judgment,
attachment or other provisional remedies against the debtor;
3. Prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of its properties
except in the ordinary course of business;
