Financial Rehabilitation and Insolvency Act (FRIA) of 2010 Notes - Part 1

What happens here is that there is an ailing corporation needing reprieve from its creditor/s. The corporation files a petition in the Regional Trial Court for the purpose of approving a Rehabilitation Plan. In the meantime, all claims against the corporation are suspended.   

Policies (Sec. 2)

1.To encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights. (achieve compromise/ amicable settlement)  

2. Ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors.

3. The rehabilitation or liquidation shall be made with a view to:

- ensure or maintain certainty and predictability in commercial affairs

- preserve and maximize the value of the assets of these debtors

- recognize creditor rights and respect priority of claims

- ensure equitable treatment of creditors who are similarly situated.

When rehabilitation is not feasible

Resort to speedy and orderly liquidation of the debtor's assets and the settlement of their obligations.

Meaning of Rehabilitation

Restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated. 

Difference between Rehabilitation and Liquidation

Rehabilitation – connotes reopening or reorganization. Aim is to restore corporation to its successful operation and continue corporate life

Liquidation – connotes winding up or settling with creditors and debtors.

Kinds of Proceedings

Involuntary proceedings shall refer to proceedings initiated by creditors.

Voluntary proceedings shall refer to proceedings initiated by the debtor.

Nature of Proceedings (Sec. 3)

Petition for Rehabilitation is:

1. In rem - Jurisdiction over all persons affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner prescribed by the rules of procedure to be promulgated by the Supreme Court.

This is not in personam where jurisdiction is acquired only thru personal service.

2. Summary – Because it establishes a status or fact (that the corporation needs to be rehabilitated)

3. Non-adversarial – Parties to achieve win-win solution

Petition for rehabilitation is a special proceedings since its purpose is to establish a fact.