SUMMARY

Republic Act No. 10142, also known as the "Financial Rehabilitation and Insolvency Act (FRIA) of
2010" (full text), is an act providing for the rehabilitation or liquidation of financially distressed
enterprises and individuals. R.A. 10142 is a consolidation of House Bill No. 7090 and Senate Bill No. 61,
passed by the House of Representatives and the Senate on 1 February 2010 and 2 February 2010,
respectively. It lapsed into law on 18 July 2010 without the signature of the President and published on
16 August 2010 (Philippine Star)

http://wiki.lawcenter.ph/index.php?title=Financial_Rehabilitation_and_Insolvency_Act_(FRIA)_of_2010

In June 30, 2010, a new law was approved. It was Republic Act No. 10142, or the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010, which was passed by the House of Representatives on
February 1, 2010 and the Senate on February 3, 2010. The FRIA expressly repealed the Insolvency Law
(Act No. 1956), and impliedly repealed, to the extent that they are inconsistent with the provisions of
the Act, all other laws, orders, rules and regulations. Such new law covers the rehabilitation of sole
proprietorships, partnerships and corporations, provides the legal basis for the procedural rules on
corporate rehabilitation, and consolidates the laws on insolvency and rehabilitation.
The FRIA provides for different types of rehabilitation proceedings for sole proprietorships,
partnerships and corporations. The Court-Supervised Rehabilitation includes the Voluntary Proceedings
and involuntary proceedings. First, the Voluntary Proceedings is a rehabilitation petition initiated by the
sole proprietor, by a majority of the partners, or by a majority of the board of directors/trustees and
authorized by the corporations stockholders representing at least 2/3 of the outstanding capital stock
or 2/3 of the members. Second, the Involuntary Proceedings which is a rehabilitation petition initiated
by creditors with an aggregate claim of at least P1 Million or at least 25% of the subscribed capital stock
or partners contribution, whichever is higher. The Pre-Negotiated Rehabilitation is initiated by the
insolvent debtor, by itself or jointly with any of its creditors, and seeks the approval of a pre-negotiated
Rehabilitation Plan endorsed or approved by creditors holding at least 2/3 of the debtors total
liabilities, including secured creditors holding more than 50% of the secured claims, and unsecured
creditors holding more than 50% of the unsecured claims.
The key features of FRIA are faster rehabilitation proceedings, exemptions from the suspension
order, and priority of claims.

https://lexoterica.wordpress.com/2010/08/20/


The Fria mandate a faster rehabilitation proceeding for debtors including listed companies and
market participants such as clearing and settlement companies, stockbrokers, underwriters, stock
transfer agents and similar entities. For the traditional court-supervised rehabilitation, the rehabilitation
court is mandated to decide on the matter not later than one year from the filing of the rehabilitation
case. While for pre-negotiated rehabilitation, the maximum period is 120 days from the filing of the
petition. If the court fails to approve the rehabilitation plan within the said period, the plan is deemed
approved. This mode of rehabilitation can be utilized if the debtor can secure the consent of its
creditors representing two-thirds of its total liabilities. But most importantly, the Fria authorize out-of-
court rehabilitation if the debtor is able to obtain the approval or consent of its creditors representing
85 percent of its total liabilities. The restructuring or rehabilitation plan does not need court approval to
be effective. It is binding on all creditors of the debtor under rehabilitation, including non-participating
and objecting creditors. Court intervention is necessary only if it is needed to enforce the terms of the
plan.


The suspension order is an essential part of the commencement order that is issued by the court
to signal the start of the rehabilitation proceedings. It suspends the enforcement of all claims, in court or
otherwise, against the debtor under rehabilitation. Nonetheless, Fria specifically exempts from the
coverage of the stay order the clearing and settlement of financial transactions through clearing
agencies duly authorized by the regulatory agencies. Similarly exempted from the stay order are cases
filed by clients or customers to recover securities or money entrusted to market participants (e.g., a
stock transfer agent) in the event of rehabilitation proceedings filed in respect of the latter. This is an
express recognition that the clients money or securities in the possession of the market participants are
not part of the assets and, therefore, immediately recoverable by the clients despite the fact that the
market participant is under rehabilitation. Also exempted from the suspension order are criminal cases
filed against the directors and officers of listed companies and market participants for fraud committed
against the investing public. Moreover, the suspension order also does not apply to the action of a
licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin
agreement for the settlement of securities transactions. Fria also exempts from the suspension order
any form of action of market participants to reimburse themselves for any transactions settled for the
debtor
Fria also gives absolute priority to claims of clients on trade-related assets of market participants
in the event a liquidation proceeding is filed in respect of the latter. So if a stock transfer agent goes
under liquidation in insolvency, its clients have priority over its assets that are used in the ordinary
course of its business even vis--vis the mortgage creditors of the stock transfer agent.


http://www.accralaw.com/publications/capital-market-friendly-insolvency-law

http://www.syciplaw.com/Documents/RI2013%20Philippines.pdf

Book of Villanueva


Insolvency Law FRIA
Does not include law on corporate recovery. Such
is under PD 902-A







Insolvent debtors family home is not excluded
from the insolvency proceeding; only the
paraphernal property of debtors wife

Does not provide for exemptions for suspension
order


In case of voluntary insolvency, the effect of
declaring debtor insolvent is that payment of any
debt due to him is forbidden

In case of involuntary insolvency, the
jurisdictional requirement must be that there
must be at least 3 creditors whose credits
accrued in the Philippines, total sum of credits is
at least P1,000, and petition filed in RTC where
debtor has residence; petitioner must show that
debtor is about to depart in fraud of creditors,
conceals himself or his property to avoid legal
processes or attachments

Preference of credits are on Articles 2241 to 2244
of the Civil Code



Upon appointment of an assignee, the sheriff
shall turn over to the former all debtors
provides the legal basis for the procedural rules
on corporate rehabilitation, and consolidates the
laws on insolvency and rehabilitation.
--FOR ACADEMIC and LEGAL RESEARCH purposes,
much convenient; AS RESULT OF STATUTORY
CONSTRUCTION, to re-align and unify all
decisions regarding this issue, better and easier
enforcement of law

Family home excluded; all other assets excluded
differ from the exclusions compared to the old
insolvency law

Provides exemption for suspension order shows
that the law is not biased to debtor


In case of voluntary liquidation, direct payments
of any claims and conveyance of any property
due the debtor are sent to the liquidator

In case of involuntary insolvency, three or more
creditors with an aggregate claim of at least
P1,000,000 or at least 25percent of the
subscribed capital stock and must show the fact
that the debtor has failed generally to meet the
meets its liabilities as they fall due or that due
and demandable payments had not been made
for at least 180 days


Fria also gives absolute priority to claims of
clients on trade-related assets of market
participants in the event a liquidation proceeding
is filed in respect of the latter

The sheriff remains in control of the debtors
properties. Court merely direct payments of any
properties.


Assignee

claims and conveyance of any property
due the debtor to the liquidator

Liquidator
PD 902 A Fria
Only court-supervised rehabilitation






Only voluntary reorganization

Claims covered refers to debts or demands of a
pecuniary nature.
It also does not contain and exception for
secured creditors
Court-supervised rehabilitation, pre-negotiated
rehabilitation, or out of court / informal
restructuring (LAST mode: discuss ratio of
speedier cases and Liberality of contracts under
oblicon)

May be voluntary or involuntary reorganization

specifically exempts from the coverage of the
stay order the clearing and settlement of
financial transactions through clearing agencies
duly authorized by the regulatory agencies ;
cases filed by clients or customers to recover
securities or money entrusted to market
participants in the event of rehabilitation
proceedings filed in respect of the latter ;
Also exempted from the suspension order are
criminal cases filed against the directors and
officers of listed companies and market
participants for fraud committed against the
investing public ;
suspension order also does not apply to the
action of a licensed broker or dealer to sell
pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the
settlement of securities transactions ;
exempts from the suspension order any form of
action of market participants to reimburse
themselves for any transactions settled for the
debtor (KUHA NG SAMPLES DUN SA SITE NA
KINUHANAN MO NITO)


http://www.ateneolawjournal.com/Media/uploads/18428e3cd242efda1fde8ae3667fce5a.pdf

LECA case
CA rules, There is no non-impairment clause violation because of PD902-A as police power to
govern the rehabilitation plan hence there is valid decrease of claim for the LECA creditor. LECA argued
that what is allowed under pD902A is only the suspension of payments or stay of all actions for claims of
a distressed corporation but upon its successful rehabilitation, the claims must be settled in FULL.

SC agreed with LECA, hence voided the Rehabilitation Plan. The Court voided the Rehabilitation
Plan insofar as it amends the rental rates agreed upon by the parties. It opined that the change is not
justified as the amount of rent is an essential condition of any lease contract; thus, any alteration on
the rate is tantamount to impairment of stipulation of the parties. It also noted that there is nothing in
Section 6 (c) of Presidential Decree No. 902-A which authorizes the modification of contracts entered
into by the company being rehabilitated and its creditors. In addition, the Stay Order issued by the trial
court decreed full settlement of all administrative expenses, which include rents.27 Manuela was
directed by the Court to update its payment of rental arrears and continue to pay rent at the stipulated
rate in the lease agreement. It also noted that the rentals shall bear interest at the proper rates
pursuant to the Court rulings on the matter.

COMMENT ON CASE: TOO MUCH FOR OLD LAWS
While there is state recognition of the need to help distressed corporations rehabilitate
themselves, this must not trample upon the interest of the creditors to be adequately and promptly
paid.
Corporate rehabilitation is defined as a process by which a corporate debtor tries to conserve and
administer its assets so that it may be able to return to its former condition of successful operations
and financial stability.
It is curious to note, however, that Congress has yet to enact a substantive law dealing with corporate
rehabilitation. There are a number of bankruptcy bills filed in the present Congress that are still pending
in the committee level

Until an enactment of the much-needed Corporate Recovery and Insolvency Act, corporations will have
to be content with the antiquated Insolvency Law59 and the preliminary attempt of incorporating the
corporate rehabilitation concept under the SEC Reorganization Act (P.D. 902-A)

The provisions on rehabilitation was found not in the original text but in the first 1981 amendment of
P.D. No. 902-A.61 Presidential Decree 1758, which was principally meant to extend the power of SEC,
included in passing the rehabilitation concept for corporations and other juridical entities.

The Supreme Court, invoking its rule-making power under the Constitution, has supplied the deficiency
of P.D. 902-A through the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules) issued

The law in allowing suspension of claims of creditors of a distressed corporation is of the view, and
rightly so, that maintaining the business as a going concern is more conducive to economic development
than a straight liquidation. The central assumption of the reorganization provisions is that the value
of an enterprise as a going concern will often exceed the liquidation value of the enterprises assets.67
The thrust of the rehabilitation process under Philippine jurisdiction is to conserve and administer the
corporations assets and business operations in an effort to restore and reinstate the corporation to
its former position of successful operation and solvency

Hence, while there is general recognition to stay all claims against distressed companies
undergoing rehabilitation, the security interests of creditors must be respected. These claims still enjoy
preference over unsecured creditors and must be satisfied to the extent of the value of the collateral.

The claim of Leca against Manuela is anchored on a lease contract without the safeguard of any
security in case of default or non-payment. It does not, however, belong to that class of unsecured
claims that the law requires to be satisfied only after secured obligations. Instead, rent falls under
administrative expense claims that enjoy first distributive priority against the assets of the debtors
after the conclusion of the rehabilitation process.8

The Supreme Court is correct in discrediting the reliance of the appellate court in the automatic stay
provision under P.D. No. 902-A in justifying impairment of the obligation of contract. The raison dtre
behind the suspension of claims, regardless if secured or not, is to release the management committee
or rehabilitation receiver from the additional burden of dealing with these claims instead of directing
time, effort, and resources in the restructuring and rehabilitation.89 It is not intended by this provision
to change the terms stipulated by the parties. The creditors claims remain throughout the duration of
the stay. In case of successful rehabilitation, all claims will be satisfied; otherwise the rule on preference
of credits will apply.
What is the prospect of viability of the current set-up in todays precarious situation? The
Philippines cannot afford to deal complacently with the global financial crunch. The relatively solid
performance of the country way back in the Asian financial crisis cannot be the benchmark of how the
country will fare in the ongoing economic dilemma. Neighboring countries, like Indonesia and Thailand,
took time to institute reforms in their bankruptcy laws after the region-wide crisis in 1997. The
Philippines, more than a decade after, is yet to enact a substantive law on corporate rehabilitation.
The Philippine model can easily discourage investors since they have to contend with the
instability of the rules and decisions promulgated by the Supreme Court in resolving disputes.
Furthermore, questioning corporate rehabilitation laws and procedures may turn out to be a futile
exercise since the body that issued these rules and policies is the same body that will decide on the
challenge

The well-established doctrine that an exercise of police power can trounce upon contractual
obligations operates in the stay of the enforcement of creditors claims against the debtor-corporation
undergoing rehabilitation. It does not justify altering the terms and conditions the parties mutually
decided on when they entered the contract. While the State has an interest in rescuing corporations
from financial distress so the latter can contribute to the countrys economic development, such
exercise must be tempered so as not to violate the contracting parties freedom of contract

http://www.chanrobles.com/acts/actsno1956.html
http://www.lawphil.net/statutes/repacts/ra2010/ra_10142_2010.html

Bibliography
Foundation, T. L.-A. (2010, August 16). REPUBLIC ACT No. 10142. Retrieved from LawPhil:
http://www.lawphil.net/statutes/repacts/ra2010/ra_10142_2010.html
group, C. (1998, July 19). ACT NO. 1956. Retrieved from Chan Robles Virtual Library:
http://www.chanrobles.com/acts/actsno1956.html
Leonard, B. (2012). Restructuring and Insolvency in 52 Jurisdictions Worldwide. Retrieved from SycipLaw:
http://www.syciplaw.com/Documents/RI2013%20Philippines.pdf
Lim, F. E. (2014, April 15). A Capital Market-friendly Insolvency Law. Retrieved from Angara Abello
Concepcion Regala & Cruz Law Offices: http://www.accralaw.com/publications/capital-market-
friendly-insolvency-law
Ongkiko, R. M. (2010, August 20). Philippine Laws: July 2010. Retrieved from LEXOTERICA: A PHILIPPINE
BLAWG: https://lexoterica.wordpress.com/2010/08/20/
Philippines, L. (2011, June 21). Financial Rehabilitation and Insolvency Act (FRIA) of 2010. Retrieved from
LawCenter Philippines:
http://wiki.lawcenter.ph/index.php?title=Financial_Rehabilitation_and_Insolvency_Act_(FRIA)_
of_2010
Bibliography
Foundation, T. L.-A. (2010, August 16). REPUBLIC ACT No. 10142. Retrieved from LawPhil:
http://www.lawphil.net/statutes/repacts/ra2010/ra_10142_2010.html
group, C. (1998, July 19). ACT NO. 1956. Retrieved from Chan Robles Virtual Library:
http://www.chanrobles.com/acts/actsno1956.html
Leonard, B. (2012). Restructuring and Insolvency in 52 Jurisdictions Worldwide. Retrieved from SycipLaw:
http://www.syciplaw.com/Documents/RI2013%20Philippines.pdf
Lim, F. E. (2014, April 15). A Capital Market-friendly Insolvency Law. Retrieved from Angara Abello
Concepcion Regala & Cruz Law Offices: http://www.accralaw.com/publications/capital-market-
friendly-insolvency-law
Ongkiko, R. M. (2010, August 20). Philippine Laws: July 2010. Retrieved from LEXOTERICA: A PHILIPPINE
BLAWG: https://lexoterica.wordpress.com/2010/08/20/
Philippines, L. (2011, June 21). Financial Rehabilitation and Insolvency Act (FRIA) of 2010. Retrieved from
LawCenter Philippines:
http://wiki.lawcenter.ph/index.php?title=Financial_Rehabilitation_and_Insolvency_Act_(FRIA)_
of_2010
Roberto Santiago, J. (2008). The Contract Clause and Corporate Rehabilitation: A Comment on Leca
Realty Corporation v Manuela Corporation. Retrieved from Ateneo Law Journal.com:
http://www.ateneolawjournal.com/Media/uploads/18428e3cd242efda1fde8ae3667fce5a.pdf



FORMAT
Summary According to NAME (year) _____ Gawin mong alternate na yung iba may quote,
yung iba kunwari own words mo

Comments
Insolvency v fria
- According to NAME (year) _____
- Sa bawat comparison, sabihin mo:
o Kung paano mo nagets in your own words
o Background academic knowledge in OBLICON or NEGO
Pd902a v fria
- According to NAME (year) ______
- Sa bawat comparison, sabihin mo:
o Kung paano mo nagets in your own words
o Background academic knowledge in OBLICON or NEGO
Comment on case
- Brief ruling
- According to NAME (year) ______
- Background academic knowledge in OBLICON or NEGO