REPUBLIC ACT No.

10142
AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY DISTRESSED
ENTERPRISES AND INDIVIDUALS
The "Financial Rehabilitation and Insolvency Act (FRIA) of 2010"
AND
THE FINANCIAL REHABILITATION RULES OF PROCEDURE
(AM NO. 12-12-11-SC)
***LP IGNACIO***
SALIENT FEATURES & CASES
Corporate rehabilitation in general
Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation and solvency ( New Frontier Sugar
Corp. v. RTC, Branch 39, Iloilo City, GR No. 165001, 31 January 2007; Metrobank v. ASB Holdings, Inc.,
GR No. 166197, 27 Feb. 2007).
A rehabilitation case is commercial in nature that should be resolved expeditiously for the benefit of all
parties concerned and the economy in general (ibid.)
Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation and solvency (Ruby Industrial Corp.
V. CA, 284 SCRA 445 [1998]); also PNB v. CA, 576 SCRA 537, 20 January 2009)
Declaration of Policy under the FRIA
The State encourages 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. (Sec.
2, FRIA)
Construction of the FRIA Rules (F-Rules) (AM No. 12-12-11-SC)
The F-Rules shall be liberally construed to promote a timely, fair, transparent, effective, and efficient
rehabilitation of debtors, in accordance with the declared policy of the FRIA (Sec. 3, Rule 1, F-Rules).
Nature of Proceedings
The proceedings under FRIA shall be in rem in nature and shall be conducted in a summary and nonadversarial matter. It covers all persons affected upon publication in a newspaper of general circulation
(Sec. 3, FRIA).
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 (Sec. 4, Rule 1, F-Rules).
In rem A technical term used to designate proceedings or actions instituted against the thing, in
contradistinction to personal actions, which are said to be in personam (Blacks Law Dictionary, 6th ed).
Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate
adjudication of claims that must be threshed out in ordinary court proceedings (Advent Capital and
Finance Corp. v. Alcantara, 665 SCRA 224, 25 January 2012).
A rehabilitation case is commercial in nature that should be resolved expeditiously for the benefit of all
parties concerned and the economy in general (New Frontier Sugar Corp. v. RTC, Branch 39, Iloilo City,
GR No. 165001, 31 January 2007; Metrobank v. ASB Holdings, Inc., GR No. 166197, 27 Feb. 2007).
Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United States, have
equitable and rehabilitative purposes. On the one hand, they attempt to provide for the efficient and
equitable distribution of an insolvent debtors remaining assets to its creditors; and on the other, to
provide debtors with a fresh start by relieving of the weight of their outstanding debts and permitting
them to reorganize their affairs (BPI v. SEC, et al., GR No. 164641, 20 December 2007 citing US cases).
Court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the
total liabilities of the debtor (Pacific Wide Realty and Devt. Corp. v. Puerto Azul Land Inc., 605 SCRA
503, 25 November 2009).
Notification to foreign creditors (Sec. 7, Rule 1, F-Rules)

FRIA LPIgnacio
2
Whenever notice is to be given to creditors in the Philippines, such notice shall also be given to the known
foreign creditors with no addresses in the Philippines. The court may order that appropriate steps be
taken with a view to notifying any foreign creditor whose address is not yet known.

Prohibited pleadings (Sec. 4, Rule 1, F-Rules)

The following pleadings are prohibited:
(A) motion to dismiss;
(B) motion for a bill of particulars;
(C) petition for relief;
(D) motion for extension;
(E) motion for postponement and other motions of similar intent;
(F) reply;
(G) rejoinder;
(H) intervention; and
(I) any pleading or motion that is similar to or of like effect as any of the foregoing.
(Sec. 4, Rule 1, F-Rules)
When motion for extension/postponement is allowed
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. (Sec. 4, Rule 1, FRules)
Any motion/pleading shall be verified
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. (Sec. 4, Rule 1, F-Rules)
Any order is immediately executory
Any order issued by the court under the F-Rules is immediately executory. Review of any order of the
court shall be in accordance with Rule 6 of the 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. (Sec. 4, Rule 1, F-Rules)
In a case, it was ruled that a motion for new trial or reconsideration is a prohibited pleading (BPI Family
Savings Bank, Inc. v. Pryce Gases, Inc., 653 SCRA 42, 29 June 2011). However, Sec. 1, Rule 6, F-Rules
provides that a party may file a motion for reconsideration of any order issued by the court prior to the
approval of the Rehabilitation Plan. No relief can be extended to the party aggrieved by the court's order
on the motion through a special civil action for certiorari under Rule 65 of the Rules of Court. An order
issued after the approval of the Rehabilitation Plan can be reviewed only through a special civil action for
certiorari under Rule 65 of the Rules of Court.
Further, an order approving or disapproving a rehabilitation plan can only be reviewed through a petition
for certiorari to the Court of Appeals under Rule 65 of the Rules of Court within fifteen (15) days from
notice of the decision or order (Sec. 2, Rule 6, F-Rules).
Powers of officer/directors of a corporation during rehabilitation
There is nothing in the corporate rehabilitation that would ipso facto deprive the Board of Directors and
corporate officers of a debtor corporation of control such that it can no longer enforce its right to recover
its property from an errant lessee (Umale v. ASB Realty Corp., 652 SCRA 215, 15 June 2011).
In Sec. 9, Rule 1, F-Rules, creditors are allowed to decide in accordance with the relevant provisions of
the Corporation Code in the case of stock or non-stock corporations or the Civil Code in the case of
partnerships.

FRIA LPIgnacio

Venue (Sec. 6, F-Rules)

1) For a debtor that is a corporation, partnership or sole proprietorship: in the Regional Trial Court which
has jurisdiction over the principal office as specified in its articles of incorporation or partnership or in its
registration papers with the Department of Trade and Industry (DTI) in cases of sole proprietorship. If
located in Metro Manila, in the Regional Trial Court of the city or municipality where the head office is
located.
2) For group of debtors: in the Regional Trial Court which has jurisdiction over the principal office of any of
the debtors alleged to be insolvent, as specified in its articles of incorporation or partnership, or
registration papers with the DTI in cases of sole proprietorship.
Coverage, Exclusion and Applicability
Coverage
The FRIA covers insolvent individual debtor and juridical entities duly organized and existing under
Philippine laws, and their affiliates and subsidiaries, sole proprietorship duly registered with the DTI, a
partnership duly registered with the SEC (Sec. 4k, FRIA); government financial institutions other than
banks and government owned or controlled corporations, unless their specific charter provides otherwise
(Sec. 5, FRIA).
Exclusion
The FRIA does not include within its coverage banks, insurance companies, pre-need companies, and
national and local government agencies or units (Sec. 5, FRIA).
The FRIA is unavailable to non-resident citizens and aliens/foreigners as it covers only an individual
debtor, a natural person who is a resident and citizen of the Philippines who becomes insolvent (Sec. 4o,
FRIA).
Sureties or solidary debtors are excluded. It was ruled that a creditor can demand payment from the
surety solidarily liable with the corporation seeking rehabilitation (Banco de Oro-EPCI, Inc. v. JAPRL
Devt. Corp., 551 SCRA 342 [2008]). In Section 10c, Rule 1, F-Rules, the suspension or stay order shall
not apply to the enforcement of claims against sureties and other persons solidarily liable with the debtor,
and third party or accommodation mortgagors as well as issuers of letters of credit, unless the property
subject of the third party or accommodation mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation receiver.
Applicability
The FRIA shall apply to pending insolvency, suspension of payments and rehabilitation cases except if
not feasible or would work injustice in the opinion of the court (Sec. 146, FRIA; Sec. 2, F-Rules).
The FRIA shall apply to all contracts of the debtor regardless of the date of perfection (Sec. 147, FRIA).
What is insolvency?
It refers 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 (Sec. 4p,
FRIA; Sec. 5k, Rule 1, F-Rules).
The first insolvency contemplated above is otherwise known as technical insolvency and the second is
referred to as actual insolvency (Philippine National Bank v. CA, 576 SCRA 537, 20 January 2009).
Remedies under the FRIA
There are three remedies under the FRIA: court-supervised rehabilitation (CSR), pre-negotiated
rehabilitation (PNR), and out-of-court or informal restructuring agreements or rehabilitation plans (OCRA).
A debtor may also choose to directly undergo, or convert any of the aforementioned relief into, liquidation.
Court Supervised Rehabilitation (CSR)
Initiation of Proceedings
Court supervised rehabilitation (CSR) may be initiated by either the insolvent debtor or creditor/s. An
insolvent debtor may file a verified petition for CSR with the court. The petition shall establish the
insolvency of the debtor and include the schedule of debts, inventory of assets, rehabilitation plan and
names of the nominees for rehabilitation receiver (Sec. 12, FRIA).

FRIA LPIgnacio

A creditor or group of creditors with claims of at least P1.0 million or 25% of the subscribed capital stock
or partners contributions of the debtor may file a verified petition for CSR. The petition shall include the
rehabilitation plan and names of the nominees for rehabilitation receiver (Sec. 13, FRIA).
Creditors may initiate a rehabilitation proceedings based on the following grounds:
(A) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least sixty (60) days; or
(B) the debtor has failed generally to meet its liabilities as they fall due; or
(C) at least one creditor, other than the petitioner/s, has initiated foreclosure proceedings against the
debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent.
(Sec. 5, Rule 2, F-Rules)
A debtor-initiated rehabilitation is a voluntary rehabilitation. A creditor-initiated rehabilitation is an
involuntary rehabilitation.
Administration of the Proceedings
Action on the petition
If the court finds the petition sufficient in form and substance, it will issue a commencement order within
five (5) working days from the filing of the petition. If deficient in form or substance, the court may, in its
discretion, a) allow the amendment or supplement of the petition, or b) to submit the necessary
documents (Sec. 15, FRIA). The court shall dismiss the petition if the deficiency is not complied within the
extended 5-day period (Sec. 7, Rule 2, F-Rules).
The issuance of the commencement order signals the start of the rehabilitation proceedings. The
commencement order shall, among others (a) appoint a rehabilitation receiver, (b) prohibit the debtors
suppliers from withholding supply of goods and services, (c) direct all creditors to file their claims, and (d)
set the case for initial hearing (Sec. 15, FRIA). The creditors shall file their verified notices of claims with
the court at least five (5) days before the initial hearing date, their failure to do so on time will bar them
from participating in the rehabilitation proceedings but will not prejudice their right to receive distributions
if recommended by the rehabilitation receiver and approved by the Court (Sec. 8M, Rule 1, F-Rules).
Effects of the commencement order
The effects of the court's issuance of a Commencement Order shall retroact to the date of the filing of the
petition (Sec. 9, Rule 1, F-Rules).
Issuance of suspension or stay order/effects
The commencement order (Sec. 16, FRIA) shall also include a suspension or stay order suspending all
actions or proceedings for the enforcement of claims or judgments against the debtor and prohibiting
debtor from selling, encumbering or disposing of any of its properties and from making any payment of its
liabilities (Sec. 16q). In Section 8V, Rule 1, F-Rules, the Stay or Suspension Order shall:
(i) suspend all actions or proceedings in court or otherwise, for the enforcement of all claims
against the debtor;
(ii) suspend all actions to enforce any judgment, attachment or other provisional remedies against
the debtor;
(iii) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of
its properties except in the ordinary course of business; and
(iv) prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.
The suspension order, however shall not apply (Sec. 18, FRIA) to cases on appeal in the Supreme Court
at the time of the issuance of the commencement order (Sec. 18a, FRIA); the enforcement of claims
against sureties and other persons solidarily liable with the debtor and third party/accommodation
mortgagors (Sec. 18c, FRIA); the sale by licensed brokers or dealers of pledged securities pursuant to a
securities pledge or margin agreement (Sec. 18e, FRIA); any criminal action against the individual debtor
or owner, partner, director or officer of a debtor (Sec. 18g, FRIA).
Obligation of issuing bank under a letter of credit is primary and solidary. It is not enjoined by the stay
order (MWSS v. Daway, 432 SCRA 559 [2004]).
The issuance of stay order cannot suspend foreclosure of accommodation mortgages (Situs Dev. Corp. v.
Asiatrust Bank, 688 SCRA 621, 16 January 2013).

FRIA LPIgnacio
5
The issuance of a stay order does not affect the right to commence actions or proceedings in order to
preserve ad cautelam a claim against the debtor and to toll the running of the prescriptive period to file the
claim (Sec. 8, last par., Rule 2, F-Rules).
During rehabilitation, the only payments sanctioned by the Interim Rules are those made to creditors in
accordance with the provisions of the plan (Express Investments III v. Bayantel, 687 SCRA 50, 05
December 2012).
The Commencement Order and the Stay or Suspension Order on the suspension of rights to foreclose or
otherwise pursue legal remedies shall apply to government financial institutions, notwithstanding
provisions in their charters or other laws to the contrary (Sec. 20, FRIA).
Parri Passu Principle
- During rehabilitation, the assets of the distressed corporation are held in trust for the equal
benefit of all creditors to preclude one from obtaining an advantage or preference over another. All
creditors should stand on equal footing.
- Both secured and unsecured creditors shall suffer a write-off of penalties and default interest
and the escalating interest rates shall equally be imposed on them.
- The commitment embodied in the parri passu principle only goes so far as to ensure that the
assets of the distressed corporation are held in trust for the equal benefit of all creditors.
(Express Investments III Private Ltd. and Export Dev't. Canada v. Bayantel, Inc., 687 SCRA 50,
05 December 2012)
Treatment of contracts
All contracts not confirmed in writing by the debtor within ninety (90) days following the issuance
of the commencement order shall be considered automatically terminated (Sections 8U & 56, Rule
1, F-Rules).
Rulings on what is a claim that maybe included in the stay order
A claim shall include all claims or demand of whatever nature or character against a debtor or its property,
whether of money or otherwise (Philippine Airlines, Inc. v. CA, 576 SCRA, 20 January 2009).
The definition is all-encompassing as it refers to all actions whether for money or otherwise. There are no
distinctions or exemptions (Sps. Sobrejuanite v. ASB Development Corp., 471 SCRA 763, 30 September
2005; PAL v. Zamora, GR No. 166996, 06 February 2007).
All actions for claims against a corporation pending before any court, tribunal or board shall ipso facto be
suspended in whatever stage such actions may be found (Pacific Wide Realty and Devt. Corp. v. Puerto
Azul Land Inc., 605 SCRA 503, 25 November 2009).
What are automatically stayed or suspended are the proceedings of an action or suit and not just the
payment of claimsthe actions that are suspended cover all claims against a distressed corporation
whether for damages founded on a breach of contract of carriage, labor cases, collection suits or any
other claims or a pecuniary nature (Malayan Insurance Company, Inc. v. Victorias Milling Co., Inc., 585
SCRA 45, 17 April 2009).
The date when the claim arose, or when the action is filed, is of no momentas long as the corporation is
under a management committee or a rehabilitation receiver, all actions for claims against it must yield to
the greater imperative or corporate rehabilitation, excepting only claims for payment of obligations
incurred by the corporation in the ordinary course of business (Malayan Insurance Company, Inc. v.
Victorias Milling Co., Inc., 585 SCRA 45, 17 April 2009).
Enforcement of writs of execution issued by judicial or quasi-judicial tribunals, since such writs emanate
from actions for claims, likewise, be suspended (Malayan Insurance Company, Inc. v. Victorias Milling
Co., Inc., 585 SCRA 45, 17 April 2009).
The automatic suspension of an action for claims against a corporation under a rehabilitation receiver or
management committee embraces all phases of the suit, that is, the entire proceedings of an action or
suit and not just the payment of claims during the execution stage after the case had become final and
executory (Castillo v. Uniwide, 619 SCRA 641, 30 April 2010 Garcia, et al. vs. Philippine Airlines, Inc.,
G.R. No. 164856, August 29, 2007).
Even if the relationship is one of trust, there is no provisions in the Interim Rules that a claim arising from
a trust relationship is excluded from the Stay Orderthe stay order is effective on all creditors of the
corporation without distinction, ether secured or unsecured (Abrera v. Barza, 599 SCRA 534, 11
September 2009).
Even ejectment proceedings are suspended (Tyson v. CA, 461 SCRA 469).
"Claims" that are not suspended

FRIA LPIgnacio

The suspension of all claims as an incident to corporate rehabilitation does NOT contemplate the
suspension of criminal charges filed against the corporate officers of the distressed corporation (Jose
Marcel Panlilio, et al., vs. RTC Branch 51, Manila, GR No. 173846, 02 February 2011; Rosario v. Co., GR
No. 133608, 563 SCRA 239, 26 August 2008). Criminal actions against the individual officer of a
corporation are not subject to the Stay or Suspension Order in rehabilitation proceedings (Sec. 18, FRIA).
BP 22 case is not a "claim."
The filing of a case for BP 22 is not a "claim" that can be enjoined within the purview of PD 902-A on stay
order. True, although conviction of the accused for the alleged crime could result in the restitution,
reparation or indemnification of the private offended party for the damage or injury he sustained by reason
of the felonious act of the accused, nevertheless, prosecution for violation of BP 22 is a criminal action,
the purpose of which is to punish the mere issuance of a bad check, rather than for its non-payment
(Rosario v. Co., 563 SCRA 239 [2008]).
Suspension of all actions for claims against corporations pertains to those who stand in the category of
debtors and creditors. Unit buyers in a condominium are not in the same category.
Section 24 of the interim rules limits the coverage of the Rules on rehabilitation and consequently the rule
of suspension of action to those who stand in the category or debtors and creditors; the relationship
between the petitioner banks, as mortgagor of the ASB property, on one hand, and respondents SLGT
and Dylanco, as unit buyers, on the other, cannot be that of a debtor-creditor as to bring the case within
the purview of the rules on corporate recovery, let alone the Sobrejuanite case; then, too, the vinculum
that binds SLGT/Dylanco, as unit buyers and as suitors before the HLURB, and ASB is far from being
akin to that of debtor-creditor; as it were, SLGT/Dylanco sued ASB for having constituted, in breach of PD
957, a mortgage on the condominium project without prior HLURB approval and so much as notifying
them of the loan release for which reason they prayed for the delivery of their units free from all liens and
encumbrances; with the view we take of the case, the complaint of individual respondents is not in the
nature of claims that should be covered by the suspensive effect of a rehabilitation proceeding
(Metrobank vs. SLGT Holdings, Inc., et al., G.R. Nos. 175181-82, Sept 14, 2007).
The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud
(Banco de Oro-EPCI, Inc. v. JAPRL Devt. Corp., 551 SCRA 342 [2008]).
There is nothing in the corporate rehabilitation that would ipso facto deprive the Board of Directors and
corporate officers of a debtor corporation of control such that it can no longer enforce its right to recover
its property from an errant lessee (Umale v. ASB Realty Corp., 652 SCRA 215, 15 June 2011).
Effectivity and duration of suspension/stay order
Unless lifted by the court, the Commencement Order shall be effective for the duration of the rehabilitation
proceedings for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated
(Sec. 21, FRIA) unless (a) earlier lifted by the court, (b) the rehabilitation plan is seasonably confirmed or
approved, or (c) the rehabilitation proceedings are ordered terminated by the court pursuant to Section 73
of the F-Rules (Sec. 11, Rule 2, F-Rules).
The issuance of the commencement order or stay/suspension order shall not diminish or impair the
security of the secured creditors, except that the stay order may suspend their rights to enforce their
security (Sec. 60, FRIA). The court, however, may allow the secured creditor to enforce his security or
foreclose on the property of the debtor constituting the security if said security or property is not
necessary for rehabilitation (Sec. 60, FRIA).
The stay order simply suspends all actions for claims against a corporation undergoing rehabilitation -- it
does not work to oust a court of its jurisdiction over a case properly filed before it (de Castro v. Liberty
Broadcasting network, Inc., GR No. 165153, 25 August 2010, 629 SCRA 77).
Notice of claim (Sec. 12, Rule 1, F-Rules)
Every creditor of the debtor or any interested party whose claim is not yet listed in the schedule of debts
and liabilities shall file his verified notice of claim not later than five (5) days before the first initial hearing
date fixed in the Commencement Order. If a creditor files a belated claim, he shall not be entitled to
participate in the proceedings but shall be entitled to receive distributions arising therefrom if
recommended and approved by the rehabilitation receiver, and approved by the court.

Modification of suspension of payments

FRIA LPIgnacio
7
The court, on motion or motu proprio, may modify or terminate, or set conditions, for the continuance of
suspension of payment, or relieve a claim from coverage, if it is proven that a creditor does not have
adequate protection over the property securing its claim (Sec. 61a, FRIA) or that the value of the claim
secured by the debtors property (which is not necessary for rehabilitation) exceeds the fair market value
of the said property (Sec. 61b, FRIA).
Initial hearing
The initial hearing shall be set at a date no later than forty (40) days from the date of the filing of the
petition (Sec. 8Q, Rule 1, F-Rules). At the initial hearing, the court shall determine compliance with the
jurisdictional requirements; i.e. filing of a publisher's affidavit showing that the publication requirements
and a petitioner's affidavit showing that the service requirement for local creditors and notification
requirement for foreign creditors had been complied with, as required in the commencement order (Sec.
13, Rule 2, F-Rules)
Thereafter, the court shall determine which creditors timely filed their claims and hear any objection to the
appointed rehabilitation receiver or to the rehabilitation plan (Sec. 22, FRIA). A creditor who failed to file
its claim shall not be entitled to participate in the rehabilitation proceedings, but shall be entitled to receive
distributions therefrom (Sec. 23,FRIA).
Additional hearings
The court may hold additional hearings as may be necessary to continue the initial hearing process but
these hearings must be concluded not later than ninety (90) days from the first hearing date fixed in the
Commencement Order (Sec. 15, Rule 1, F-Rules).
Action of the rehabilitation receiver
After the initial hearing, the rehabilitation receiver shall submit to the court his report on whether or not to
give due course to the petition. The rehabilitation receiver may likewise recommend the liquidation of the
debtor (Sec. 24, FRIA). The report shall be submitted within forty (40) days from the termination of the
initial hearing, with or without the comments from the creditors (Sec. 16, Rule 2, F-Rules).
The rehabilitation receiver shall establish a preliminary registry of claims (Sec. 44, FRIA) within twenty
(20) days from assumption (Sec. 44, Rule 2, F-Rules). Interested parties may challenge or oppose any
claim therein (Sec. 45, FRIA). The confirmation of the rehabilitation plan shall bind the debtor and persons
who may be affected by it, including the creditors, whether or not such persons have participated in the
proceedings or opposed the Rehabilitation Plan or whether or not their claims have been scheduled (Sec.
69a, FRIA).
Determination of claims
The rehabilitation receiver shall make the registry available for public inspection providing the place/s and
date/s of inspection and publish the same 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 (5) days from
the last publication (Sec. 44, Rule 2, F-Rules).
Challenge to the claim/s must be made and submitted to the court within thirty (30) days from the
expiration of the period to inspect. Upon the expiration of the thirty (30)-day period, the rehabilitation
receiver shall submit to the court the registry of claims. The registry of claims shall include the following
lists of (1) claims that have not been subject to challenge; (2) claims resolved by the rehabilitation
receiver after these have been challenged; and (3) disputed but unresolved claims. (Sec. 45, Rule 2, FRules)
The aggrieved party may seek the review of the decision of the rehabilitation receiver on a claim by filing
a motion with the rehabilitation court within five (5) days from receipt of the rehabilitation receiver's
assailed decision, which shall be decided by the court at the soonest possible time. (Sec. 46, Rule 2, FRules)
Action of the court upon receipt of the rehabilitation report
Within ten (10) days from receipt of the report the court may give due course to the petition, dismiss the
petition or convert the proceedings into one for the liquidation of the debtor (Sec. 17, Rule 2, F-Rules).
If the petition is given due course, the rehabilitation plan must be submitted within a period of not more
than ninety (90) days from the date of the order giving due course to the petition (Sec. 18, Rule 2, FRules).
The Rehabilitation Receiver
A rehabilitation receiver must be a resident citizen, knowledgeable of insolvency, possess good moral
character and have no conflict of interest (Sec. 29, FRIA). His role is to preserve the value of the assets of

FRIA LPIgnacio
8
the debtor and implement the rehabilitation plan (Sec. 31, FRIA). He may be removed for cause by the
court, motu proprio or upon motion of creditors holding 50% of the total liabilities of the debtor (Sec. 32,
FRIA).
Management of the debtor or appointment of a Management Committee
Upon motion of interested party, the receiver may manage the debtor or appoint a management
committee (MC) (Sec. 36, FRIA; Sec. 31, Rule 2, F-Rules).
Organization of a Creditors Committee (Secs. 39-42, Rule 2, F-Rules).
After the petition is given due course, a Creditors Committee may be organized to be represented by
each class of creditors such as secured creditors, unsecured creditors, trade creditors and suppliers, and
employees of the debtor. It shall the primary liaison between the rehabilitation receiver and the creditors.
The creditors' committee cannot exercise or waive any right or give any consent on behalf of any creditor
unless specifically authorized in writing by such creditor. The creditors' committee may be authorized by
the court or by the rehabilitation receiver to perform such other tasks and functions to facilitate the
rehabilitation process.
Immunity from suit
The rehabilitation receiver and all persons employed by him shall not be subject to any action, claim or
demand in connection with any act done or omitted to be done by them in good faith in connection with
the exercise of their powers and functions or other actions duly approved by the court (Sec. 41, FRIA).
Post-Commencement Date Actions
The court may, upon the recommendation of the rehabilitation receiver, authorize the sale of the debtors
assets if the assets are perishable, susceptible to devaluation or are otherwise in jeopardy (Sec. 49,
FRIA).
The rate and term of interest, if any, on secured and unsecured claims shall be determined and provided
for in the rehabilitation plan (Sec. 54, FRIA; Sec. 53, Rule 1, F-Rules).
The court may rescind or declare null and void (a) any sale or disposal of debtors property which is not
made in the ordinary course of business or (b) any transaction of the debtor occurring prior to the
issuance of the commencement order which was executed with intent to defraud creditor/s or gives undue
preference to any creditor (Sec. 58, FRIA).
There shall be no diminution of security or lien; they are merely suspended during the stay order (Sec. 60,
FRIA). The court, on motion or motu proprio, may terminate, modify or set conditions for the continuance
of suspension of payment, or relieve a claim from the coverage thereof, upon showing that: (a) a creditor
does not have adequate protection over the property securing its claim; or (b) the value of a claim
secured by a lien on property which is not necessary for rehabilitation of the debtor exceeds the fair
market value of the property. (Sec. 60, Rule 2, F-Rules)
By that statutory provision, it is clear that the approval of the Rehabilitation Plan and the appointment of a
rehabilitation receiver merely suspend the actions for claims against respondent corporations. Petitioner
banks preferred status over the unsecured creditors relative to the mortgage liens is retained, but the
enforcement of such preference is suspended. The loan agreements between the parties have not been
set aside and petitioner bank may still enforce its preference when the assets of ASB Group of
Companies will be liquidated. Considering that the provisions of the loan agreements are merely
suspended, there is no impairment of contracts, specifically its lien in the mortgaged properties
(Metrobank v. ASB Holdings, Inc., GR No. 166197, 27 February 2007).
Liability of Directors and Officers
Directors and officers of the debtor shall be liable up to double the value of the property sold, embezzled
or otherwise disposed of if they knowingly dispose of debtors property other than in the ordinary course
of business, approve fraudulent or grossly disadvantageous transactions, or conceal, embezzle or
misappropriate debtors property (Sec. 10,FRIA).

Rehabilitation Plan
The FRIA provides for the minimum contents of a rehabilitation plan (Sec. 62, FRIA). As a rule, the
rehabilitation plan is submitted upon filing of the petition for CSR. The rehabilitation receiver may propose
changes thereto, considering the views and comments of the debtor and creditors Sec. (63, FRIA). The
rehabilitation plan is approved by a majority of each class of creditors, the majority being based on the

FRIA LPIgnacio
9
value of claims held by the creditors in each class. If no such majority is obtained, the rehabilitation plan is
considered rejected (Sec. 64). The court, however, exercise its cram-down power and approve the
rehabilitation plan over the objection of any class of creditors under the following circumstances: (a) the
rehabilitation receiver recommended the confirmation of the rehabilitation plan; (b) the rehabilitation plan
would give the objecting class of creditors greater compensation (computed at net present value) than at
liquidation; or (c) the shareholders of debtor loses their controlling interest in the debtor as a result of the
rehabilitation plan. A breach of the rehabilitation plan may result in the liquidation of the debtor (Sec. 64,
second par., FRIA).
The provisions of other laws to the contrary notwithstanding, the court shall have the power to approve or
implement the Rehabilitation Plan despite the lack of approval, or objection from the owners, partners or
stockholders of the insolvent debtor (Sec. 68 last par., FRIA).
The court shall have a maximum period of one (1) year from the date of filing of the petition to confirm
a rehabilitation plan. If no rehabilitation plan is confirmed within the said period, the proceedings may
upon motion or motu propio, be converted into one for the liquidation of the debtor (Sec. 72, FRIA).
The rehabilitation plan is an indispensable requirement in corporate rehabilitation proceedings (Siochi
Fishery Ent. Inc. v. BPI, GR No. 193872, 19 October 2011).
Court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the
total liabilities of the debtor (Pacific Wide Realty and Devt. Corp. v. Puerto Azul Land Inc., 605 SCRA
503, 25 November 2009).
Filing of objections to rehabilitation plan (Sec. 64, Rule 1, F-Rules)
A creditor may file a verified opposition containing its written objections to the Rehabilitation Plan
accompanied by affidavits and supporting documents within twenty (20) days from receipt of notice from
the court that the Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation
Plan shall be limited to the following:
(A) the creditors' support was induced by fraud;
(B) the documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or
(C) the Rehabilitation Plan is in fact not supported by the voting creditors.
The court shall hear and decide on the objections which shall not be later than ten (10) days from
expiration of the filing of the objections. If the court finds merit in the objection, it shall order the
rehabilitation receiver or other party to cure the defect, whenever feasible. If the court determines that the
debtor acted in bad faith, or that it is not feasible to cure the defect, the court shall convert the
proceedings into one for the liquidation of the debtor (Sec. 65, Rule 1, F-Rules).
Confirmation of rehabilitation plan
The provisions of other laws to the contrary notwithstanding, the court shall have the power to approve or
implement the Rehabilitation Plan despite the lack of approval, or objection from the owners, partners or
stockholders of the insolvent debtor: provided, that the terms thereof are necessary to restore the
financial wellbeing and viability of the insolvent debtor (Sec. 66, Rule 1, F-Rules).
The rehabilitation plan, once approved, is binding upon the debtor and all persons who may be effected
by it, including the creditors, whether such persons have or have not participated in the proceedings or
have opposed the plan or whether their claims have or have not been scheduled ( Veterans Philippine
Scout Security Agency, Inc. v. First Dominion Prime Holdings, Inc., 679 SCRA 168, 23 August 2012).
Review of decision or order on rehabilitation plan
An order approving or disapproving a rehabilitation plan can only be reviewed through a petition for
certiorari to the Court of Appeals under Rule 65 of the Rules of Court within fifteen (15) days from notice
of the decision or order (Sec. 2, Rule 6, F-Rules).

Pre-Negotiated Rehabilitation (PNR)

An insolvent debtor may choose to initially negotiate a rehabilitation plan with its creditors out-of-court. If
creditors holding two-thirds of the total liabilities of the debtor, including those holding 50% each of the
secured and unsecured claims, approve or endorse the rehabilitation plan, the debtor may file a verified
petition with the court for the approval of such pre-negotiated rehabilitation plan (PNR) (Sec. 76, FRIA).

FRIA LPIgnacio
10
If the court determines that the petition is sufficient in form and substance within five (5) days from the
filing of the petition (Sec. 2, Rule 2, F-Rules), it shall issue an order allowing any creditor to oppose the
petition and a suspension or stay order (similar to the one discussed under CSR) (Sec. 77). If there are
no objections, the court will approve the rehabilitation plan (Sec. 78, FRIA). If there are objections, the
court will hear them (Sec. 80). The court has a maximum of 120 days from the time of the filing of petition
to approve the rehabilitation plan. The rehabilitation plan shall be deemed approved if the court fails to act
within the 120-day period (Sec. 81, FRIA).
Effectivity and duration of stay or suspension order
It shall retroact to the date of the filing of the petition and shall be effective for one hundred twenty (120)
days from the filing of the petition unless earlier lifted by the court on account of (a) the approval of the
Pre-Negotiated Rehabilitation Plan, or (b) the termination of the rehabilitation proceedings (Sec. 3, Rule 3,
F-Rules).
Limited grounds to object the petition for rehabilitation (Sec. 5, Rule 3, F-Rules)
Any creditor or other interested party can only object on the following limited grounds:
(A) the allegations in the petition or the Pre-Negotiated Rehabilitation Plan, or the attachments thereto,
are materially false or misleading;
(B) the majority of any class of creditors do not in fact support the Pre-Negotiated Rehabilitation Plan;
(C) the support of the creditors or any of them was induced by fraud; or
(D) the Pre-Negotiated Rehabilitation Plan fails to accurately account for a claim against the debtor and
the claim is not categorically declared as a contested claim.
The court shall hear and decide objections not earlier than twenty (20) days nor later than thirty (30) days
from the date of the second publication of the Order. If the court finds the objection meritorious, it shall
direct the debtor, when feasible, to cure the defect within fifteen (15) days from receipt of the order. If the
court determines that the debtor or creditors supporting the Pre Negotiated Rehabilitation Plan acted in
bad faith, or that the objection is non curable, the court may convert the rehabilitation proceedings into
liquidation. A finding by the court that the objection has no substantial merit or that the same has been
cured shall be deemed an approval of the Pre-Negotiated Rehabilitation Plan. (Sec. 7, Rule 3, F-Rules)
Out-of-court or Informal Restructuring Agreements or Rehabilitation Plans (OCRA)
The FRIA sets the minimum requirements for out-of-court or informal restructuring agreements or
rehabilitation plans such as debtors consent thereto and approval of creditors holding 67% of the secured
claims, 75% of the unsecured claims and 85% of the total obligations, secured or unsecured (Sec.
84,FRIA). There shall be a standstill period pending the negotiation and finalization of the out-of-court or
informal restructuring agreements or rehabilitation plans which shall not exceed 120 days. The standstill
period shall be approved by creditors holding 50% of the total liabilities of the debtor (Sec. 85, FRIA).
Effective and expiration of the standstill period
The standstill period shall be effective after publication of the notice once a week for two (2) consecutive
weeks in a newspaper of general circulation in the Philippines (Sec. 3[7], Rule 4, F-Rules).
The standstill period shall expire upon (1) the lapse of 120 days from the effectivity of the standstill
agreement, (2) the effectivity of the OCRA, or (3) the termination of the negotiations for the OCRA as
declared by creditors representing more than fifty percent (50%) of the total liabilities of the debtor,
whichever comes first (Sec. 3, Rule 4, F-Rules).
Binding effect of the OCRA
If duly approved, the OCRA shall be binding on the debtor and all affected persons, including the
creditors, whether or not they will participate in the negotiations (Sec. 2, Rule 4, F-Rules).

Stay of implementation of OCRA

Any court action or other proceedings arising from or relating to, the out-of-court or informal
restructuring/workout or rehabilitation plan shall not stay its implementation, unless the relevant party is
able to secure a temporary restraining order or injunctive relief from the Court of Appeals (Sec. 88, FRIA)
via an original action under Rule 65 of the Rules of Court (Sec. 7, Rule 4, F-Rules).
Court assistance

FRIA LPIgnacio
11
An insolvent debtor and/or creditor may file a petition with the Regional Trial Court where the insolvent
debtor resides or where the principal business is located for court assistance to execute or implement a
standstill agreement or an OCRA (Secs. 8 & 9, Rule 4, F-Rules). The court may issue a writ of execution
to enforce its terms or issue other forms of additional assistance as maybe necessary to execute or
implement the standstill agreement or OCRA, including the award of damages properly pleaded and
proved, and to protect the interests of the creditors, the debtor, and other interested parties (Sec. 10, Rule
4, F-Rules).
The judgment of the court shall be final and immediately executory (Sec. 16, Rule 4, F-Rules). However,
any judgment of the court may be elevated to the Court of Appeals under Rule 65 of the Rules of Court
(ibid.).
Annulment of OCRA or standstill agreement
The debtor or creditor may file a petition to annul (1) the standstill agreement or (2) the OCRA based on
the ground of non-compliance with the requirements for a standstill agreement or an OCRA. Vitiation of
consent due to fraud, intimidation, or violence may be raised as a ground to annul the standstill
agreement or the OCRA if committed against such number of creditors required for the approval of the
standstill agreement or OCRA, as the case may be (Sec. 10, Rule 4, F-Rules).
The respondent shall file a verified comment or opposition within five (5) days from receipt of summons
(Sec. 13, Rule 4, F-Rules).
The court will determine the existence of a genuine issue of material facts or whether the petition will be
granted. If no comment is filed, a clarificatory hearing may be conducted. Upon a determination of
genuine issue of material facts, the court shall conduct a summary hearing not later than 20-days from the
filing of the petition. A judgement shall be rendered not later than 60-days from filing of the petition (Secs.
14 & 15, Rule 4, F-Rules).
The judgment shall be final within 10-days from receipt of the decision and is immediately executory.
However, any judgment of the court may be elevated to the Court of Appeals under Rule 65 of the Rules
of Court (Sec. 16, Rule 4, F-Rules).
Liquidation in Insolvency
There are two kinds of liquidation proceedings voluntary and involuntary. In voluntary liquidation, the
insolvent debtor may directly file a verified petition for liquidation with the court attaching a schedule of its
debts, inventory of assets and names of nominees for liquidator. The insolvent debtor may also convert
proceedings for CSR or PNR into liquidation by filing a motion with the court (Sec. 90, FRIA). In
involuntary liquidation, three or more creditors with claims of at least P1 million or holding 25% of the total
paid-up capital or partners contributions of the debtor may directly file a verified petition for the liquidation
of the debtor. Such creditors may also convert proceedings for CSR or PNR into liquidation by filing a
motion with the court (Sec. 91, FRIA).
If the court finds the petition sufficient in form and substance, it shall issue a liquidation order declaring
the debtor insolvent which shall have the following effects: the debtor shall be deemed dissolved, and its
corporate or juridical existence terminated, legal title to the assets of the debtor shall be deemed vested in
the liquidator, and all contracts of the debtor are deemed terminated, no foreclosure proceedings shall be
allowed for a period of one hundred eighty (180) days (Sec. 113, FRIA). The liquidation order shall not
affect the rights of the secured creditors to enforce his security, although he may waive his security
(Sec.114, FRIA).
The Liquidator is elected by creditors who filed their claims within the period set by the court. A secured
creditor cannot vote unless he waives his security (Sec. 115, FRIA). The liquidator has the power to
recover all the assets belonging to the debtor, take possession thereof, and sell the same (Sec. 119,
FRIA). The liquidator also has the duty to prepare the registry of claims which, after entertaining any
opposition or challenge, shall be submitted to the court for final approval (Sec. 123, FRIA).

The liquidator may sell, but only at public auction, unencumbered assets of the debtor and convert them
to money. Private sale may be allowed if a) the goods are perishable, quickly deteriorate or
disproportionately expensive to keep or maintain, or b) it is to the best interest of the debtors and creditors
(Sec. 131, FRIA).
Within three (3) months from assumption of office, the liquidator shall submit a liquidation plan which shall
govern the manner of disposition of the assets of the debtor (Sec. 129, FRIA). In the disposition of the
assets, the Civil Code provisions on concurrence and preference of credits shall be observed (Sec. 133,
FRIA).
Cross-Border Insolvency

12

FRIA LPIgnacio

The Court may issue orders, in connection with an insolvency or rehabilitation proceedings taking place in
a foreign jurisdiction (Sec. 140, FRIA), suspending any actions to enforce claims against the entity or
otherwise seize or foreclose on property of the foreign entity located in the Philippines, requiring the
surrender of property of the foreign entity to the foreign representative, or providing other necessary relief
(Sec. 141, FRIA).
Scope of application
This Rule applies where:
(A) assistance is sought in a Philippine court by a foreign court or a foreign representative in connection
with a foreign proceeding;
(B) assistance is sought in a foreign State in connection with a proceeding governed by the FRIA and
these Rules; or
(C) a foreign proceeding and a proceeding governed by the FRIA and the F-Rules are concurrently taking
place; or
(D) Creditors in a foreign State have an interest in requesting the commencement of, or participating in, a
proceeding under Rules 2, 3, and 4 of the F-Rules.
The mere filing of a petition does not subject the foreign representative or the foreign assets and affairs of
the debtor to the jurisdiction of the local Courts for any purpose other than the petition for recognition and
resulting related proceedings (Sec. 1, Rule 5, F-Rules).
*****

LPIgnacio

*****