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

Under Republic Act No. 10142 or known as the Financial

Rehabilitation and Insolvency Act of 2010 , 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
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 facilities 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acknowledged as outdated and obsolete.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
 (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),
on 02 February 2010 or just before the end of its 14th Session.
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;
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.

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 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?
b.
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
import to encourage debtors, and their creditors to resolve
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.

Conclusion
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
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/