FRIA Flashcards
Proceedings covered by FRIA
- suspension of payments
- rehabilitation
a. voluntary or involuntary
b. pre-negotiated - liquidation
a. voluntary
b. involuntary
nature of proceedings
- in rem
- non adversarial and summary
- jurisdiction overall persons affected is acquired upon publication of the notice of commencement in a newspaper of general circulation in the Philippines
Debtors
- Sole Prop DTI registered
- SEC registered partnership
- Domestic corporations
- Individual debtors - natural and RC
Group of debtors
- financially related (P/S or affiliates)
- Partnerships - more than 50% is owned by persons
- Single proprietorship - owned by the same individual
Insolvent
- unable to pay obligations as they fall due
- L > A
Creditors
natural or juridical who has a claim against the debtor
Claim of debtor must be incurred _____
on or before commencement date
suspension of payments is available only to individuals (not part/ not sole prop)
True
Features of suspension of Payments
- sufficient properties, only cash flow problems
- suspend payments
- liabilities are not affected
- number of creditors are ignored
a motion filed by the debtor to suspend any pending execution against the the individual debtor
Suspension order
excluded debtor under FRIA
banks, pre need companies, insurance companies and government agencies
suspension of Payment Rule
GR: all payments are suspended
Exc: if incurred 60 days before filing - *personal labor
*maintenance
*expense of last illness of wife or children
Validity of suspension order
3 months without proposed agreement
Required meeting in Suspension of payment
Creditor’s meeting
A petition must be approved in this meeting
creditor’s meeting
Creditor’s meeting
Quorum: (clue: ABC is 123)
Approval: (clue- double majority)
Quorum: at least 3/5
Approval: Double majority
2/3 of creditors voting and
claims of majority vote amount to at least 3/5 of total liabilities
creditors entitled to vote in creditor’s meeting
GR: all
Exc: those incurred within 90 days prior to filing of petition
unaffected creditors of suspension order may refrain from attending the meeting and shall not be bound by the agreement
True
If proposal is denied in the creditor’s meeting, what will happen
proceeding is terminated and creditors may enforce their rights
Restoration of the debtor to a condition of successful operation and solvency
Rehabilitation
Three types of rehabilitation
(VIP)
Voluntary
Involuntary
Pre- negotiated
Requisites for Voluntary Rehabilitation
- Insolvent
- viability of rehabilitation
Requisites for Involuntary REHABILITATION
- no issue of fact on claims
- no payment on liabilities for at least 60 days from its due date
- failure to meet obligations as they fall due
- creditors other than petitioners initiated foreclosure that will lead to insolvency
Who files for
Voluntary
Involuntary
Pre-negotiated
debtor
creditor
n/a (out of court kasi)
Who files for rehabilitation
1. Voluntary
- sole - owner
- part- majority partnership
- corporation - maj BOD/ BOt + 2/3 outstanding SH
Who files for rehabilitation
1. Involuntary
at least 1M or 25% of subscribed capital stock or partner’s contribution
(HIGHER)
Who files for rehabilitation
an out of court/ informal restructuring agreement
N/A
agreed upon by the debtor and approved by the creditor
creditor’s approval:
at least 67% Secured
at least 75% Unsecured -AND-
holding at least 85% of total liabilities, secured and unsecured
Order issued by the court in a voluntary/ involuntary rehabilitation
Commencement/ Stay order
date when the court issues commencement order
commencement date
effect of commencement date
retroacts to the date of filing of the petition for voluntary or involuntary proceedings
when is commencement order issued?
5 days from filing of petition
Effect of stay order
retain creditor’s preference; only suspended
Exceptions to stay order
- pending SC appeal as of commencement date
- securities transaction
- criminal action against individual debtor
clearing and settlement of financial transaction through facilities of clearing agency
court action over filed rehabilitation
- grant
- deny
- convert it into liquidation
During rehabilitation, who manages the business
- existing BOD/ management
- upon motion of court
a. rehabilitation receiver
b. management committee
Why does the court appoint rehabilitation receiver / management committee?
- actual or eminent danger….
- business paralyzation
- gross mismanagement/ fraud/ other wrongful conduct of the management
duties of rehabilitation receiver
- preserve the asset value
- determine viability of the rehabilitation
- prepare and recommend rehabilitation plan
- implement the rehab plan
qualifications of a rehabilitation receiver
(CHR0
- citizen of the PH
- resident for 6 months immediately preceding the nomination
- Knowledge of insolvency and commercial laws
- no conflict of interest; if there is, the party affected may expressly or impliedly waive the same
Management committee vs. creditor committee
- takes the place of management
- creditors belonging to any class may formally organize a committee, or as a body create committee for COMMUNICATION
Prohibited act of the director/ officer in rehabilitaion
- disposal of property
- concealment from creditors
Liability in case of prohibited acts done
- 2x value of sold properties
- 2x of transaction involved
Rehabilitation Plan
Approval required
Option 1:
more than 50% of total claims + Court confirmation
Option 2: without creditor’s approval or despite objection (ALL)
a. FRIA compliant
b. rehab receiver recommendation
c. s/h or owner lose their controlling interest as a result of rehab plan
d. rehab plan will give objecting creditors a NPV > NPV under liquidation
Rehab plan is submitted to court for _____
confirmation
Notification by the court to creditors regarding the rehabilitation plan
Period to object
within 5 days from receipt of rehab plan
to allow creditors to obtain copies and object 20 days from notification made by the court
Grounds for creditor’s objection in rehabilitation plan
- creditor’s support was induced by fraud
- documents relied upon were misleading
- plan is in fact not supported by the voting creditor
Period of court confirmation for rehabilitation
1 year from filing of petition
Cram down effect in rehabilitation
the rehabilitation plan approved by court shall be binding upon
a. the debtor
b. all persons who may be affected affected, WHETHER OR NOT,
- they participated in the proceedings
- opposed the plan
- payments are scheduled
If no plan is confirmed for rehabilitaion
the proceedings, may upon motion, or motu propio, be converted into one for liquidation of the debtor
for a standstill period to be effective and enforceable in a pre negotiated rehabilitation
- approved by creditors: more than 50% liabilities
- notice in general circulation 1: 2 AND
- standstill period does not exceed 120 days from effectivity
to effect an approved Notice of Rehabilitation or workout agreement
- Publish in general circulation: once a week for at least three consecutive weeks (1:3)
- effective upon the lapse of 15 days from the date of the last publication
Determination of claims:
Registry of claims in Liquidation
preparation period
within 20 days from liquidator’s assumption into office.
Threshold for insolvent debtor
Voluntary vs. Involuntary
Involuntary - At least 500k
Voluntary - more than 500k
Voluntary vs. Involuntary Liquidation
(who initiates)
Debtor vs. creditor
Involuntary Liquidation
must be 3 or more creditor whose claim = at least 1M or at least 25% of the …. HIGHER
- no genuine issue of fact/ law + no payments made for at least 180 days on demandable oblgigations or failed to meet them + no substantial likelihood of rehabilitation
also posting of bond is required
conversion of rehabilitation to liquidation
- rehab plan is filed, insolvent debtor, insubstantial likelihood for successful rehabilitation
- non confirmation within 1 year from filing
- failure of rehab / dismissal of such
- filing of verified motion
effect of liquidation order to the secured creditors
not affect his rights
Election of liquidator
only those who have claim filed on time and not barred can elect liquidator
Qualifications of liquidator
same as that of receiver
Is right of set off allowed in liquidation?
Yes
Right to challenge the claims in liquidation
Yes, 30 days from expiration of filing period
Liquidation Plan submission
3 months from assumption into office
Items included in the liquidation plan
- all assets
- schedule of liquidation
- payment of claims
if liquidator is juridical entity, what is the liability of the appointed natural person and juridical person
juridical entity and liquidator are solidarily liable for all obligations and responsibilities of the liquidator.
GOCCs and government financial institutions are covered by FRIA
GR: True
Exc: When special laws provide therwise
Effect of failure to file a claim a notice of claim by the creditor in accordance with commencement order but subsequently files
shall not be allowed to participate in the rehabilitation
still entitled to receive distributions arising thereon
what constitutes conflict of interest in the appointment of rehabilitation receiver or member of a management committee?
GR: materially influenced in the exercise of his judgment
instances of conflict of interest in the appointment of rehabilitation receiver or member of a management committee
creditor, owner, partner, s/h of the debtor
instances of conflict of interest in the appointment of rehabilitation receiver or member of a management committee
within 5 years from filing of petition, he is an owner/partner/ director/ officer/ employee of debtor OR creditor
within 2 years from filing, UNDERWRITER of outstanding securities
related by consanguinity/ affinity within 4th civil degree
current creditor, owner, partner, s/h of the debtor
competitor business
he has direct/ indirect MATERIAL interest in the debtor/ creditor
transactions prior to commence date of rehab proceeding may be rescinded or declared null or void if ______
Rule: intent to defraud creditors
Specific:
90 days prior to commencement date
-unreasonable inadequate consideration to the debtor
- accelerated payment to creditor
- provides security or additional security
Remedies to a creditor upon showing of lack of adequate protection during stay or suspension order
court may order
1. make the debtor insure or maintain the property
2. pay or provide additional security
if not feasible, court may modify Stay or Suspension order so the creditor may enforce claim
EXCEPT if the property is required for rehabilitation
mechanics of pre-negotiated paln
- insolvent debtor alone or with other creditors files verified petition
- creditors: at least 2/3 of the total claims
- secured creditor: more than 50% of total SECURED
- unsecured creditor: more than 50% of total SECURED
court order in a pre negotiated plan
issued within 5 working days after determination on the ff:
- publication order 1: 2
1st publication to be made within 7 days from the time of its issuance - persoanl service of a copy on each creditor who is not a petitioner holding at least 10% o the total liabilities of the debotr within 3 days
- appointment of receiver, if in the plan
- stay or suspension order.
period to file an objection in pre negotiated plan
within 8 days from the 2nd publication of the order
liquidation order:
no foreclosure proceedings for a period of _______
all contracts of the debtor shall be deemed terminated/ or breached, unless the liquidator wthin _______ days from the dte of his assumption, declares otherwise and contracting parties agree
180 days
90 days
actions pending upon issuance of liquidation order will be ____
transferred to the liquidator to accept, settle, contest
