10 - FRIA Flashcards
What is the short title of Republic Act No. 10142?
The “Financial Rehabilitation and Insolvency Act (FRIA) of 2010”.
What is the primary policy stated in Section 2?
To encourage debtors and creditors to collectively resolve and adjust competing claims and ensure a fair, timely, and efficient rehabilitation or liquidation of debtors.
What type of legal proceedings are provided under this Act?
The proceedings are in rem, which means they affect the property rather than the person.
How is jurisdiction acquired under this Act?
Jurisdiction is acquired upon the publication of the notice of the commencement of proceedings in a newspaper of general circulation.
What is meant by “administrative expenses” in the context of the Act?
Reasonable and necessary expenses incurred related to the filing of a petition, conduct of proceedings, ordinary business, new obligations, and fees for the rehabilitation receiver or liquidator.
Define “claim” as per the FRIA.
All demands against the debtor or its property, including government claims, taxes, and unliquidated or contingent claims.
What does “commencement date” refer to?
The date on which the court issues the Commencement Order, retroactive to the petition’s filing date.
What is a “Commencement Order”?
The order issued by the court initiating the proceedings under Section 16 of the Act.
What constitutes the “court” in the Act?
The court designated by the Supreme Court to hear and determine cases under this Act.
Who is referred to as a “debtor” under the Financial Rehabilitation and Insolvency Act?
A sole proprietorship, partnership, corporation, or an individual debtor who has become insolvent as defined by the Act.
Define “insolvent”.
A financial condition where a debtor cannot pay its liabilities as they come due or has liabilities greater than its assets.
What does the term “individual debtor” refer to?
A natural person who is a resident and citizen of the Philippines that has become insolvent.
Explain the concept of “rehabilitation” as per the Act.
The process of restoring the financial viability of a debtor through debt restructuring or other means.
Explain the concept of “liquidation” as per the Act.
The process of distributing an insolvent debtor’s assets to settle its obligations under the supervision of a court-appointed liquidator.
What is the purpose of “pre-packaged rehabilitation” provided under the Act?
It allows debtors to propose a rehabilitation plan prior to filing a petition with the court, aiming to facilitate a more efficient and streamlined rehabilitation process.
Who is referred to as a “rehabilitation creditor” in the Act?
A creditor who votes to accept the rehabilitation plan filed by the debtor.
What are the roles of the “rehabilitation receiver”?
A person appointed to oversee the debtor’s business while it restructures debt, to sell certain assets or conduct other business as the debtor’s agent, to manage property, to provide information to the court, and report to the court as ordered.
What is the role of the “liquidator” in the rehabilitation and insolvency process?
A person appointed by the court to take control and manage the assets and properties of the debtor.
Define “related enterprise” under the Financial Rehabilitation and Insolvency Act.
A person, entity, or business that has been previously or is currently connected with another person, entity, or business in a way that might affect the outcome if the proceedings were treated separately.
What is the concept of “security” under the Act?
A charge or lien on an asset given by a debtor to secure a loan or credit, which may be enforceable by a creditor if the debt is not repaid.
Explain what constitutes a valid rehabilitation plan under the Act.
It must include a detailed description of proposed financial reorganization, a description of the debtor’s financial situation, a plan to deal with creditors, and a schedule to be completed.
When can a rehabilitation receiver be replaced?
A replacement can take place if the court orders the removal of the rehabilitation receiver upon application by the debtor, any interested person, the rehabilitation receiver, or the court on its own motion.
Can the rehabilitation receiver or liquidator be a foreign person or entity?
Yes, but the foreign person or entity must meet the requirements stated in the Act.
When does the term “unsecured creditor” apply?
When the secured creditor has failed to perfect its security within a specified timeline after notice is served and there is failure to pay on time.
What does “voluntary proceedings” mean in the Financial Rehabilitation and Insolvency Act?
These proceedings are initiated by the debtor for rehabilitation.
What is the concept of “liquidation” in relation to related enterprises?
It involves treating related enterprises separately, except when prior commingling, common creditors, and voluntary accession occur, or benefits to all parties concerned.
Can an unsecured creditor be a foreign person or entity?
Yes, if permitted by the Act.
Explain the concept of “exclusions” under this Act.
The exemptions state which entities are not covered under the FRIA, such as banks, insurance companies, and pre-need plans.
Define “claimant under a claim” in the context of this Act.
An entity that asserts a claim against the debtor and has an entitlement to share in the debtor’s assets.
What happens if the debtor fails to file a rehabilitation plan with the court within the stipulated time frame?
A petition for liquidation can be filed against the debtor.
What does “control” refer to in the context of corporations?
Control is defined as the ability of a parent corporation to govern the financial and operating policies of another corporate entity.
Define “creditor” in the Act.
A person who has a claim against the debtor, such as a claim for payment, delivery of property, or other remedies.
What is the purpose of designating representatives under this Act?
To enable creditors to act collectively or represent their interests in the rehabilitation and liquidation proceedings.
Explain the process and requirements for voting on a rehabilitation plan.
Creditors will vote yes or no on a plan. Creditors must receive written notice and may vote in person, by proxy, or by absentee ballot as stated in the plan.
Define “debt restructuring” under the Financial Rehabilitation and Insolvency Act?
The process of altering the terms or conditions of a debt to make it more manageable for the debtor, usually involving changes to repayment schedules, interest rates, and amounts.
What type of claim does a “government claim” represent?
Claims against the debtor by the government, including those related to taxes, fees, fines, and other obligations owed to the state.
What happens to an insolvent corporation under the FRIA?
Its affairs can be taken over, and liquidation may be initiated, allowing for the distribution of assets to creditors according to the Act’s provisions.
Who are considered as “interested parties” under the Act?
Debtors, creditors, rehabilitation receivers, liquidators, and their representatives.
What is the definition of “liquidation order”?
The order issued by the court to officially begin the liquidation process.
Can creditors request the substitution of the rehabilitation receiver or liquidator?
They may do so with the consent of the majority of creditors, subject to the court’s approval.
Explain the concept of “preliminary hearing” in the context of the Act.
A hearing to determine if there are enough grounds for proceeding with a petition under this Act.
When is a foreign entity deemed “incapacitated”?
When its registration is annulled, revoked, or it fails to meet the requirements stated in the Act.
What is required for an “individual debtor” to initiate rehabilitation proceedings voluntarily?
The owner must give written authority for filing a petition and the approval of a majority vote of partners or directors.
Define “insider” in the context of related enterprises.
An entity that has a direct or indirect significant interest in, control of, or connection to another entity.
Explain the process of “notice and proof of debt” under this Act.
Creditors must serve written notice to the debtor, the court, the liquidator, and other creditors to submit proof of their claim within a specific period.
Define “non-voluntary” or “involuntary” proceedings under this Act?
These proceedings are initiated by creditors who are dissatisfied with the debtor’s financial dealings.
When may a rehabilitation plan be approved?
If the court determines the plan fairly represents the debtor’s financial situation and is feasible, and if the rehabilitation receiver and a majority of creditors vote in its favor.
What is the definition of “pre-packaged rehabilitation” under the Act?
A process that allows debtors to propose a rehabilitation plan before filing a petition with the court to streamline the rehabilitation process.
What is the concept of “provisional liquidation” under this Act?
A temporary measure to protect an insolvent debtor’s assets while a formal decision on liquidation is pending.
What does the term “provisional liquidator” refer to?
An individual appointed by the court to manage the affairs of a debtor temporarily, usually while a decision on liquidation is under consideration.
Explain the concept of “related corporations” under the Act.
Corporations where an individual, partnership, or parent company controls the operations of another.
Define “resolution” in the context of creditor meetings.
A decision made by a majority vote of creditors in attendance to settle on a specific course of action, usually related to voting on proposals.
What is the concept of “restructuring” in the Act?
The process of reformulating terms or conditions of a debt to make it more manageable for the borrower.
Can the Act be applied to foreign entities or individuals?
Yes, under specific circumstances and requirements stated in the Act.
Define “security interest” in the context of the Act.
A right of a creditor against specific assets or collateral in the event of non-payment by the debtor.
What is the role of the “secured creditor” in the rehabilitation and insolvency proceedings?
They have a higher priority in the settlement of claims against the debtor’s assets due to their secured claim.
Explain the concept of “subjection” under this Act.
The process by which the court can order a person, entity, or property to be under the jurisdiction of the court for the purposes of the Act.
What must be filed by the rehabilitation receiver to proceed with rehabilitation?
A rehabilitation plan that is feasible and meets the Act’s requirements.
Define “unsecured creditor” in the context of the Act.
A creditor who does not have a claim secured by a lien or collateral.
How are “voluntary rehabilitation” and “involuntary liquidation” treated in this Act?
They are handled as two separate processes, with different requirements and consequences.
What is R.A. No. 10142?
The Financial Rehabilitation and Insolvency Act (FRIA) of the Philippines.
What is the main policy under Sec. 2 of FRIA?
To encourage debtors and creditors to resolve claims and property rights collectively and realistically, ensuring timely, fair, transparent, effective, and efficient rehabilitation or liquidation.
What is the nature of FRIA proceedings (Sec. 3)?
In rem, summary, and non-adversarial. Jurisdiction over all affected persons is acquired upon publication of the notice of commencement.
Who qualifies as a debtor under FRIA?
Individual debtors (citizens and residents of the Philippines), sole proprietorships (DTI-registered), partnerships (SEC-registered), and corporations (organized under Philippine laws).
Who is excluded from the definition of debtor (Sec. 5)?
Banks, insurance companies, pre-need companies, and national/local government agencies/units.
How is “insolvent” defined under FRIA?
Generally unable to pay liabilities as they become due (technical insolvency) OR liabilities are greater than assets (actual insolvency).
Who may file a petition for suspension of payments under FRIA?
An individual debtor who has enough property to cover all debts but foresees the impossibility of meeting them as they fall due.
Where should a petition for suspension of payments be filed?
In the court of the province or city where the debtor has resided for at least six (6) months prior to the filing of the petition.
What documents must be attached to a petition for suspension of payments?
A schedule of debts and liabilities, an inventory of assets, and a proposed agreement with creditors.
What is the purpose of a petition for suspension of payments?
To suspend or delay debt payments by calling a meeting of creditors and proposing a payment schedule.
What is a Suspension Order (Sec. 96)?
A court order suspending any pending execution against the debtor. It remains in effect for three (3) months unless an agreement with creditors is accepted or denied.
What is the general rule for creditors during suspension of payments?
A creditor cannot sue to collect claims from the debtor once the petition has been filed and while the proceedings are pending.
What are the exceptions where creditors can sue during suspension?
Claims for personal labor, maintenance, expenses of the last illness and funeral of the debtor’s wife or children (incurred within 60 days prior to filing).
When can’t the debtor sell/transfer property during suspension (Sec. 95)?
The debtor cannot sell, transfer, or encumber property except for those used in ordinary business operations and cannot make unnecessary payments outside legitimate business expenses.
What is required in a creditors’ meeting (Sec. 97)?
Debtor must attach a proposed agreement to the petition. Quorum: Creditors holding at least 3/5 of total liabilities. Approval: Double majority (2/3 of present creditors AND claims of at least 3/5 of total liabilities).
Can the court approve if not all creditors agree?
No, if the double majority requirement is not met.
Define voluntary rehabilitation (Sec. 12).
Initiated by the debtor. Requires approval: Sole Proprietorship (owner), Partnership (majority of partners), Corporation (majority or 2/3 approval).
Define involuntary rehabilitation (Sec. 13).
Initiated by any creditor/group of creditors with claims of at least ₱1 million OR 25% of the subscribed capital stock.
What does a Commencement Order include (Sec. 15 & 16q)?
Suspends all claims and enforcement actions, prohibits debtor from selling/transferring property (except in ordinary course of business), and prohibits payment of pre-commencement liabilities (unless provided by law).
Who manages the debtor’s business during rehabilitation?
The existing board/management OR a Rehabilitation Receiver or Management Committee appointed by the court.
What are grounds for appointing a receiver/committee?
Risk of asset loss/dissipation, paralysis of business operations, gross mismanagement, or serious FRIA violation.
What qualifications must a Rehabilitation Receiver have (Sec. 29)?
Filipino citizen and resident, good moral character, knowledge of insolvency law, and no conflict of interest.
What is a rehabilitation plan?
A strategy to restore the debtor’s financial viability. Requires approval from creditors holding over 50% of total claims and court confirmation.
What is the Cram Down Effect?
A court-approved rehabilitation plan is binding on the debtor and all affected persons, regardless of participation or opposition.
What is liquidation?
The process of filing claims, disposing of the debtor’s assets, and distributing proceeds among creditors.
Criteria for voluntary liquidation (individual debtors)?
Liabilities exceeding ₱500,000 AND insufficient property to cover them.
Criteria for involuntary liquidation (individual debtors)?
Any creditor/group of creditors with claims of at least ₱500,000 may file.
What does a juridical debtor’s voluntary liquidation involve?
Insolvent debtor files a verified petition for liquidation with the court.
What does a juridical debtor’s involuntary liquidation involve?
At least 3 creditors with aggregate claims of at least ₱1 million OR 25% of the subscribed capital stock may file.
Remedies for an individual insolvent debtor?
Suspension of payments OR liquidation.
Remedies for a juridical insolvent debtor?
Rehabilitation OR liquidation.
