FINANCIAL REHABILITATION AND INSOLVENCY ACT 1

FINANCIAL
REHABILITATION
AND INSOLVENCY
ACT
BARAWID, LEANE ANNE G.

BUAQUEN, LOURDES THERESA L.

LAGMAY, NOREEN J.

TAMAYO, IRIS MARA S.

TAMONDONG, MARIE JOY P.

Submitted to:

ATTY. CLIFFORD C. CHAN

2:30-3:30 MWF GD 411

Introduction
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Under Republic Act No. 10142 or known as the Financial Rehabilitation and
Insolvency Act of 2010 , 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 maintain certainly
and predictability in commercial affairs, preserve and maximize the value of the assets of
these debtors, recognize creditor rights and respect priority of claims, and ensure
equitable treatment of creditors who are similarly situated. When rehabilitation is not
feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation of
these debtor's assets and the settlement of their obligations. (Sec.2, R.A.no 10142)

The Insolvency Law of the Philippines is in fact a derivative of even older laws from other
jurisdictions, such as the California Insolvency Law of 1895 and the American bankruptcy Act of
1867.

On 2 February 2010, the Philippine Congress adopted Republic Act No. 10142, entitled the
Financial Rehabilitation and Insolvency Act of 2010 (or Fria). The Fria lapsed into law and
became effective on 18 July 2010.

The FRIA replaces and repeals the Insolvency Law (Act No. 1956), which was enacted in
1909 and was almost universally acknowledged as outdated and obsolete. The FRIA also
impliedly amends the Interim Rules on Corporate Rehabilitation first issued by the Supreme
Court in 2000 (and amended in 2008), given several inconsistencies between those rules and the
new FRIA. It is expected that the Supreme Court will issue new rules on procedure to govern
corporate rehabilitation in conformity with the FRIA. (Hernandez & Gatmaitan, 2010)

Insolvency proceedings may cover: (a) an individual debtor, referring to a natural person
who is a resident and citizen of the Philippines that has become insolvent as defined
under Republic Act No. 10142; or (b) a debtor, referring to, unless specifically excluded by a
provision of Republic Act No. 10142, a sole proprietorship duly registered with the Department
of Trade and Industry (DTI), a partnership duly registered with the Securities and Exchange
Commission (SEC), a corporation duly organized and existing under Philippine laws, or an
individual debtor who has become insolvent as defined in Republic Act No. 10142.

Under Section 5 of RA No. 10142 the purposes of this section are as follows:

(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or
actually subject to conservatorship, receivership or liquidation proceedings under
the New Central Bank Act (Republic Act No. 7653) or successor legislation;

(b) Insurance company shall refer to those companies that are potentially or
actually subject to insolvency proceedings under the Insurance Code (Presidential
Decree No. 1460) or successor legislation; and
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(c) Pre-need company shall refer to any corporation authorized/licensed to sell or

offer to sell pre-need plans.

Provided, that government financial institutions other than banks and

government-owned or controlled corporations shall be covered by this Act, unless
their specific charter provides otherwise.

The Lower House approved House Bill (HB) 7090, its version of the
Financial Rehabilitation and Insolvency Act of 2010 (the FRIA) off the bat, it would be
accurate to conclude that the FRIA is not a simple codification of the existing rules on corporate
rehabilitation but a veritable system overhaul. Broadly speaking, the FRIA integrates
rehabilitation and restructuring along with insolvency law. Furthermore, it moves from the debtor
controlled process of the older system to a framework where the creditors take the fore in
determining the future of the distressed corporation.

This Act which is a consolidation of House Bill No. 7090 and Senate Bill No. 61 was finally
passed by the House of Representatives and the Senate on February 1. 2010 and February 2,
2010, respectively. (Dime, 2010)

These Rules shall apply to petitions for rehabilitation of corporations, partnerships, and sole
proprietorships, filed pursuant to Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010.

These Rules shall similarly govern all further proceedings in suspension of payments and
rehabilitation cases already pending, except to the extent that, in the opinion of the court, its
application would not be feasible or would work injustice, in which event the procedures
originally applicable shall continue to govern.

The proceedings under these Rules shall be in rem. Jurisdiction over all persons affected by
the proceedings is acquired upon publication of the notice of the commencement of the
proceedings and the commencement order or any similar order of the proceedings in one (1)
newspaper of general circulation in the Philippines for two (2) consecutive weeks.

The proceedings shall be summary and non-adversarial in nature. The following pleadings
are prohibited:

o motion to dismiss;
o motion for a bill of particulars;
o petition for relief;
o motion for extension;
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o motion for postponement and other motions of similar intent;

o reply
o rejoinder;
o intervention; and
o Any pleading or motion that is similar to or of like effect as any of the foregoing.

For stated and fully supported compelling reasons, the court may allow the filing of motions
for extension or postponement, provided, the same shall be verified and under oath.

Any pleading, motion, or other submission submitted by any interested party shall be
supported by verified statements that the affiant has read the submission and its factual
allegations are true and correct of his personal knowledge or based on authentic records, and
shall contain supporting annexes, which the submitting party shall attest as faithful reproductions
of the originals. An unverified submission shall be considered as not filed. An improperly
verified submission may be considered as not filed, at the discretion of the judge. Upon motion,
the originals of the annexes to a submission may be produced in court for examination or
comparison by a party to the proceedings.

All pleadings or motions shall be filed in three (3) printed and two (2) digital copies in CD
format. Annexes to the pleadings and other submissions shall be in printed form.

The court may decide matters on the basis of affidavits, counter-affidavits, and other
documentary evidence, conducting clarificatory hearings when necessary.

Any order issued by the court under these Rules is immediately executory. Review of any
order of the court shall be in accordance with Rule 6 of these Rules. Provided, however, that the
reliefs ordered by the trial or appellate courts shall take into account the need for resolution of
the proceedings in a just, equitable, and speedy manner.

In voluntary proceedings:

Who May Petition when approved by:

the owner, in case of a sole proprietorship;

a majority of the partners, in case of a partnership; or
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 at least
two-thirds (2/3) of the members in a non-stock corporation, in case of a corporation;
An insolvent debtor may initiate voluntary proceedings under this Rule by filing a petition
far rehabilitation with the court based on the grounds hereinafter specifically provided.
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A group of debtors may file a petition for rehabilitation under this Rule when (1) one or
more of its members foresee the impossibility of meeting debts when they respectively fall due,
and (2) the financial distress would likely adversely affect the financial condition and/or
operations of the other members of the group or the participation of the other members of the
group is essential under the terms and conditions of the proposed Rehabilitation Plan.

Involuntary Proceedings:

Who May Petition Any creditor or group of creditors with a claim of, or the aggregate of
whose claims is at least One Million Pesos (P1,000,000.00) or at least twenty-five percent (25%)
of the subscribed capital stock or partners' contributions, whichever is higher, may initiate
involuntary proceedings under this Rule by filing a petition for rehabilitation of a debtor with the
court and on the grounds hereinafter specifically provided. (Pamaos, 2013)

Statement of the problem

In order for a law to be effectively implemented, it must first be clearly understood not
only by the courts but also by the people who are covered by this act. This does not only pertains
to current debtors and creditors, but also future generations of businessmen and women to come.
However, society now encounters problems such as the vague understanding of the provisions of
the Financial Rehabilitation and Insolvency Act, making it harder for our government to
implement the law efficiently.
Through this study, the researchers aspire to find the answers to the following questions:
a. What is the Financial Rehabilitation and Insolvency Act?
b. What are the advantages of the Financial Rehabilitation and Insolvency Act of 2010?
c. What are the current obstacles faced by the Financial Rehabilitation and Insolvency
Act?
d. How does it affect the society?

Objective

This study aims to contribute to the general welfare of society and to the swift
implementation of the Financial Rehabilitation and Insolvency Act of 2010 by contributing
wisdom on the benefits of this act, and also to update the readers on the current problems faced
by the Financial Rehabilitation and Insolvency Act of 2010.

Significance of the study

The researchers chose to study the Financial Rehabilitation and Insolvency Act of 2010, its
benefits and problems for it is important to encourage debtors, and their creditors to resolve
 FINANCIAL REHABILITATION AND INSOLVENCY ACT 6

competing claims and property rights justly and within the context of law.

The relevance of this study is to be able to broaden the knowledge of its readers regarding
the pros and cons of the Financial Rehabilitation and Insolvency Act. Furthermore, this act was
initiated in order to enable the readers to grasp the full concept of this act. This involves learning
about the origin of the act, and what this act aims to fulfill.

Data Analysis

Conclusion

In conclusion, the Financial Rehabilitation and Insolvency Act or also known as

FRIA yielded to attain its aim which are: (1) To sustain the business confidence in our
country and achieve financial stability. (2) To help reduce market disruption. (3) To
ensure or maintain certainly and predictability in commercial affairs. (4) Reaping the
advantages of an effective insolvency regime.

The relevance of Financial Rehabilitation and Insolvency Act is it provides us with a

menu of remedies for the distressed debtors and new approaches to rehabilitation and
insolvency furthermore it gives foreign creditors in liquidation proceedings direct access
to Philippine courts which means opportunities for cooperation between domestic and
foreign courts and domestic and foreign insolvency administrators in cross-border
insolvencies and restructurings are available. If so possible the Financial Rehabilitation
and Insolvency Act is made truly and explicitly effective it can save struggling regimes
by reallocating assets of failing firms more productively and so it will result in
diminishing market disruptions.

Yet still despite of the pertinence of the Financial Rehabilitation and Insolvency Act
the researchers descry the fact that mar R.A 10142 or what is known as Financial
Rehabilitation and Insolvency Act. Which is that FRIA is toothless, for the mere fact of
fixing the insolvency statute is not sufficient to create a well-functioning insolvency
regime. The researchers also encountered some articles which indicates the failure of
insolvency systems in countries that have already modernized their laws is due to
inadequate implementation. We all know that without prior stringent implementation the
laws that our legislative bodies create is inept or useless. You see if FRIA or RA 10142 is
well implemented it will help not only to promote nevertheless advance financial stability
in our country, which by precise thinking will benefit our country to attract not only local
investors yet so as foreign investors.

For it to be stringent enough the researchers through readings and researching come
into inference that we can attain financial stability by actively playing our role in creating
an environment with adequate and functioning legal framework, where laws and rules are
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clear and well defined thereby enabling a consistent application by the members of
judiciary moreover, for courts to continually be more dynamic and responsive to such
economic and Financial developments.

References
Dime, R. B. (2010). Corporate Rescue and the New Financial Rehabilitation and Insolvency Act
of 2010 . Retrieved from dldtelaw.com: http://www.dldtelaw.com/wp-
content/uploads/2011/04/New-FRIA-paper-v1.6.pdf
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Hernandez, S., & Gatmaitan. (2010, August). Philippines Adopts New Corporate Rehabilitation
and Insolvency Framework. Retrieved from Legal500:
http://www.legal500.com/c/philippines/developments/11272
Pamaos, F. (2013, October 2013). Insolvency Proceedings under the Financial Rehabilitation
and Insolvency Act (FRIA) of 2010. Retrieved from attyatwork.com:
http://attyatwork.com/insolvency-proceedings-under-the-financial-rehabilitation-and-
insolvency-act-fria-of-2010/

Republic Act No. 10142 an Act providing for the Rehabilitation or Liquidation of Financially
Distressed Enterprises and Individuals
http://www.lawphil.net/statutes/repacts/ra2010/ra_10142_2010.html