Week - 1 FRIA Edited
Week - 1 FRIA Edited
Week - 1 FRIA Edited
Rehabilitation
and
Insolvency
Act
Brief History
• 1909 – Insolvency Law (Act No.
1956)
• PD No. 902-A
• SRC
• Interim Rules of Procedure on
Corporate Rehabilitation
Objectives
1.Equitable purpose
2.Rehabilitative purpose
Definition of
Terms
Claim
It shall refer to all claims or demands of whatever nature or
character against the debtor or its property xxx 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: Provided, That, this inclusion does not prohibit
the creditors or third parties from filing cases against the directors
and officers acting in their personal capacities.
Debtor
It shall refer to, unless specifically excluded by a
provision of this Act, 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
herein.
Creditor
shall refer to a natural or juridical person which
has a claim against the debtor that arose on or
before the commencement date.
Group of debtors
They shall refer to and can cover only:
(1) corporations that are financially related to one another as parent
corporations, subsidiaries or affiliates;
(2) partnerships that are owned more than fifty percent (50%) by
the same person; and
(3) single proprietorships that are owned by the same person.
When the petition covers a group of debtors, all reference under
these rules to debtor shall include and apply to the group of
debtors.
Insolvent
It shall refer to the financial condition of a debtor
that is generally unable to pay its or his liabilities
as they fall due in the ordinary course of business
or has liabilities that are greater than its or his
assets.
Two types of insolvency
(1)Actual insolvency, i.e., the corporation’s assets are not enough to
cover its liabilities; and
(2)Technical insolvency defined under Sec. 3-12, i.e., the
corporation has enough assets but it foresees its inability to pay
its obligations for more than one year. (PNB vs. Hon. Court of
Appeals, G.R. No. 165571, January 20, 2009)
Rehabilitation It shall refer to a plan by which the
financial well-being and viability of
Plan an insolvent debtor can be restored
using various means including, but
not limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-
reorganization, dacion en pago, debt-
equity conversion and sale of the
business (or parts of it) as a going
concern, or setting-up of new
business entity as prescribed in
Section 62 hereof, or other similar
arrangements as may be approved by
the court or creditors.
Exclusions
Exclusions
Banks,
Insurance companies,
Within forty (40) days from the initial hearing, and with or without
the comments of the creditors or any of them, the rehabilitation
receiver shall submit a report to the court stating his preliminary
findings and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any
unlawful or irregular act or acts committed by the owner/s of a sole
proprietorship, partners of a partnership, or directors or officers of
a corporation in contemplation of the insolvency of the debtor or
which may have contributed to the insolvency of the debtor;
Report of the Rehabilitation Receiver
The rehabilitation receiver may be removed at any time by the court, either
motu proprio or upon motion by the debtor or any creditor/s holding more
than fifty percent (50%) of the total obligations of the debtor, on such
grounds as these Rules may provide, which shall include, but not limited
to, the following:
1.incompetence, gross negligence, failure to perform or failure to exercise
the proper degree of care in the performance of his duties and powers;
2.lack of a particular or specialized competency required by the specific
case;
3.illegal acts or conduct in the performance of his duties and powers;
4.lack of qualification or presence of any disqualification;
Removal of a Rehabilitation Receiver
Within twenty (20) days from his assumption into office, the
rehabilitation receiver shall establish a preliminary registry of claims
based on the schedule of debts and liabilities provided in the petition.
The rehabilitation receiver shall make the registry available for public
inspection and give notice to the debtor, creditors and stakeholders on
where and when they may inspect it by causing the publication of the
place/s and date/s of inspection in a newspaper of general circulation in
the Philippines once every week for two (2) consecutive weeks.
The period of inspection shall not exceed fifteen (15) days from the last
publication. All claims included in the registry of claims must be duly
supported by sufficient evidence. (Sec. 44, Rule 2
(F) Use, Preservation
and Disposal of
Assets and Treatment
of Assets and Claims
after Commencement
Date.
Use or disposition of assets
The court may, upon motion and after notice and hearing, rescind or
declare as null and void any sale, payment, transfer or conveyance of
the debtor’s unencumbered property or any encumbering thereof by the
debtor or its agents or representatives after the commencement date
which are not in the ordinary course of the business of the debtor. (Sec.
49 FRIA, and Sec. 51, Rule 2)
The court may also rescind or declare as null and void any transaction
that occurred prior to the commencement date and was entered into by
the debtor or involved its funds or assets, on the ground that the same
was executed with intent to defraud a creditor(s) or constitutes undue
preference of creditors.
Clawback Provisions
The court may also rescind or declare as null and void any
transaction that occurred prior to the commencement date and
was entered into by the debtor or involved its funds or assets,
on the ground that the same was executed with intent to
defraud a creditor(s) or constitutes undue preference of
creditors. (Global Restructuring and Insolvency Guide, Baker
McKenzie)
Clawback Provisions inapplicable
The claims for separation pay and salary of employees for months
worked prior to the commencement date shall be considered a pre-
commencement claims.
The compensation of employees required to carry on the business
during the rehabilitation proceedings shall be considered an
administrative expense.
Claims for salary and separation pay for work actually performed after
the commencement date shall be an administrative expense. (Sec. 55,
Rule 2)
(I)
Administration of
Proceedings.
Rehabilitation Plan
a. the Plan and its provisions shall bind the debtor and all
persons who may be affected thereby, including the creditors;
b. the debtor shall comply with the provisions of the Plan and
shall take all actions necessary to carry them out;
c. payments shall be made to the creditors in accordance with
the provisions of the Plan;
Effects of confirmation
1.Approval by the:
1. debtor;
2. creditors representing at least sixty-seven percent (67%) of the secured
obligations of the debtor;
3. creditors representing at least seventy-five percent (75%) of the unsecured
obligations of the debtor; and,
4. creditors holding at least eighty-five percent (85%) of the total liabilities,
secured and unsecured, of the debtor; and,
2.Publication of the notice of the OCRA once a week for at least three
(3) consecutive weeks in a newspaper of general circulation in the
Philippines, as prescribed in Section 4 of this Rule. (Sec. 1, Rule 4)
Standstill period