Financial Rehabilitation and Insolvency Act

Question 1

Nature of Proceedings

Answer 1

1. In rem. Meaning its proceedings binds the whole worlds
2. Jurisdiction over all persons affected shall be required upon publication of the notice of commencement in newspaper of general circulation.
3. Proceedings shall be summary and non-adversarial

Question 2

Purpose of Rehabilitation

Answer 2

1. To encourage debtors and creditors to collectively and realistically resolve and adjust competing claims and property rights through rehabilitations

Question 3

Debtors defined in the Law

Answer 3

1. Sole Proprietorship
2. Partnership registered with SEC
3. Corporations organized and existing under the laws of the Philippines
4. Individual debtors which are natural persons who are residents and citizens of the Philippines

Question 4

Group of Debtors under the Law

Answer 4

1. Financially related companies
2. Partnership- more than 50% is owned by the same person
3. Single proprietorships owned by the same individual

Question 5

When is one considered insolvent

Answer 5

1. Unable to pay its or his liabilities as they fall due; or
2. Has liabilities greater than its or his asses

Question 6

Proceedings covered by the FRIA1

Answer 6

1. Rehabilitation
2. Pre-negotiated rehabilitation
3. Liquidation
4. Suspension of Payments

Question 7

Coverage of Suspension of Payemnts

Answer 7

Only Individual DEBTORS

Question 8

Suspension of Payments

Answer 8

Propose and agree on a schedule of payments to prevent debtor from making any payment outside the necessary or legitimate expenses of the business, and the issuance of a suspension order to prevent pending executions against the debtor

Question 9

Suspension Order

Answer 9

Order suspending any pending execution against the individual debtor

Question 10

Exception from Suspension Order

Answer 10

1. Creditors who have claims for:
   - Personal Labor
   - Maintenance
   - Expense of last illness and funeral of the wife or children of the debtor
   if incurred 60 days immediateely prior to the filing of petition
2. Secured Creditors

Question 11

Prohibited Acts of the Debtor

Answer 11

1. Sell, Transfer, encumber or dispose in any manner his property except those used in ordinary operation of commerce or industry in which the petitioning individual is engaged
2. Making any payment outside of necessary or legitimate expenses of his business or industry

Question 12

Quorum of Creditor’s Meeting in Suspension of Payment

Answer 12

Presence of creditors holding at least 3/5 of the liabilities of the debtor

Question 13

Approval in Creditor’s Meeting

Answer 13

Double approval is required:
1. 2/3 of creditors voting
2. Claims of the majority vote amount to at least 3/5 of the total liabilities

Question 14

Rehabilitation

Answer 14

Restoration of the debtor to a condition of successful operation and solvency

Question 15

Types of Rehabilitation

Answer 15

1. Voluntary
2. Involuntary

Question 16

Voluntary Rehabilitation

Answer 16

Initiated by debtor upon showing:
1. Debtor is insolvent
2. Viability of Rehabilitation

Question 17

Who will file Rehabilitation

Answer 17

Sole Proprietor- Owner/Proprietor
Partnership- Majority of Partners
Corporation- Majority of directors/ trustees + 2/3 of outstanding capital/ members

Question 18

Involuntary Rehabilitation

Answer 18

Initiated by creditor or group of creditor, if:
1. No genuine issue of fact or law on the claim of the petitioner
2. No payments on the due and demandable debts have been made for at least 60 days
3. Debtor has generally failed to meet its liabilities
4. A creditor other than petitioners has initiated foreclosure proceedings

Question 19

Who will file involuntary Rehabilitation

Answer 19

Creditors with claims of aggregate of whose claim is at least 1M or 25% of Subscribed capital stock or partners contributions whichever is higher

Question 20

Purpose of Commencement or Stay Order

Answer 20

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 judgement, 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
4. Prohibit the debtor from making any payment of its liabilities outstanding as of commencement date

Question 21

Who will manage the business of the debtor

Answer 21

1. Existing board and/or management; or
2. Upon motion, the court may appoint:
   a. Rehabilitation Receiver; or
   b. Management Committee

Question 22

Grounds for Appointment of Rehab Receiver/Management Committee

Answer 22

1. Actual or eminent danger of loss or destruction of debtor’s assets
2. Paralyzation of the business operations
3. Gross mismanagement of the debtor

Question 23

Qualifications of Rehab Receiver

Answer 23

1. Citizen of the Philippines
2. Resident in the 6 months preceding nomination
3. Has requisite knowledge of insolvency and commercial laws
4. No conflict of interest

Question 24

Rehabilitation Plan

Answer 24

Plan by which the financial well-being and viability of an insolvent debtor can be restored using various means

Question 25

Approval required for Rehabilitation Plan

Answer 25

1. Creditors representing 50% of total claims and the confirmation of the court
2. The court even without approval of the creditors or even over the objections of the creditor

Question 26

Requirements for Pre-Negotiated Rehabilitation

Answer 26

1. Debtor must agree to the out-of-court or informal restructuring
2. Approval by creditors:
   a. @ least 67% of secured obligations
   b. @ least 75% of the unsecured obligations
   c. @least 85% of the total liabilities, secured and unsecured

Question 27

Liquidation

Answer 27

Proceeding where:
1. Claims are filed; and
2. Assets of insolvent debtor are disposed; and
3. Proceeds are divided among creditors

Question 28

Similarities of Voluntary and Involuntary Liquidation

Answer 28

1. Debtors is insolvent
2. Debts must at least be 500,000

Question 29

Election of Liquidator

Answer 29

Only unsecured creditors are allowed to vote, and whose claims are not barred by the statute of limitations. Court may appoint the liquidator