The Republic of the Philippines (PDF)

Republic of the Philippines
CONGRESS OF THE PHILIPPINES
Metro Manila
Fourteenth Congress
Third Regular Session
Begun and held in Metro Manila, on Monday, the twenty-seventh day of July, two thousand
nine.
REPUBLIC ACT No. 10142
AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF
FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:
CHAPTER I
GENERAL PROVISIONS
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and Insolvency
Act (FRIA) of 2010".
Section 2. Declaration of Policy. - It is the policy of the State to encourage 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. The
rehabilitation or liquidation shall be made with a view to ensure or maintain certainly and
predictability in commercial affairs, preserve and maximize the value of the assets of these
debtors, recognize creditor rights and respect priority of claims, and ensure equitable
treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in
the interest of the State to facilities a speedy and orderly liquidation of these debtor's assets
and the settlement of their obligations.
Section 3. Nature of Proceedings. - The proceedings under this Act shall be 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.
The proceedings shall be conducted in a summary and non-adversarial manner consistent
with the declared policies of this Act and in accordance with the rules of procedure that the
Supreme Court may promulgate.
Section 4. Definition of Terms. - As used in this Act, the term:
(a) Administrative expenses shall refer to those reasonable and necessary expenses:

(1) incurred or arising from the filing of a petition under the provisions of this
Act;
(2) arising from, or in connection with, the conduct of the proceedings under
this Act, including those incurred for the rehabilitation or liquidation of the
debtor;
(3) incurred in the ordinary course of business of the debtor after the
commencement date;
(4) for the payment of new obligations obtained after the commencement date
to finance the rehabilitation of the debtor;
(5) incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and
(6) that are otherwise authorized or mandated under this Act or such other
expenses as may be allowed by the Supreme Court in its rules.
(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the common control of another
corporation.
(c) Claim shall refer to all claims or demands of whatever nature or character against
the debtor or its property, whether for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not
limited to; (1) all claims of the government, whether national or local, including taxes,
tariffs and customs duties; and (2) claims against directors and officers of the debtor
arising from acts done in the discharge of their functions falling within the scope of
their authority: Provided, That, this inclusion does not prohibit the creditors or third
parties from filing cases against the directors and officers acting in their personal
capacities.
(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the petition
for voluntary or involuntary proceedings.
(e) Commencement Order shall refer to the order issued by the court under Section 16
of this Act.
(f) Control shall refer to the power of a parent corporation to direct or govern the
financial and operating policies of an enterprise so as to obtain benefits from its
activities. Control is presumed to exist when the parent owns, directly or indirectly
through subsidiaries or affiliates, more than one-half (1/2) of the voting power of an
enterprise unless, in exceptional circumstances, it can clearly be demonstrated that
such ownership does not constitute control. Control also exists even when the parent
owns one-half (1/2) or less of the voting power of an enterprise when there is power:
(1) over more than one-half (1/2) of the voting rights by virtue of an
agreement with investors;

(2) to direct or govern the financial and operating policies of the enterprise
under a statute or an agreement;
(3) to appoint or remove the majority of the members of the board of directors
or equivalent governing body; or
(4) to cast the majority votes at meetings of the board of directors or
equivalent governing body.
(g) Court shall refer to the court designated by the Supreme Court to hear and
determine, at the first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim against the
debtor that arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation
Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), a
partnership duly registered with the Securities and Exchange Commission (SEC), a
corporation duly organized and existing under Philippine laws, or an individual debtor
who has become insolvent as defined herein.
(l) Encumbered property shall refer to real or personal property of the debtor upon
which a lien attaches.
(m) General unsecured creditor shall refer to a creditor whose claim or a portion
thereof its neither secured, preferred nor subordinated under this Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that are
financially related to one another as parent corporations, subsidiaries or affiliates; (2)
partnerships that are owned more than fifty percent (50%) by the same person; and (3)
single proprietorships that are owned by the same person. When the petition covers a
group of debtors, all reference under these rules to debtor shall include and apply to
the group of debtors.
(o) Individual debtor shall refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent as defined herein.
(p) Insolvent shall refer 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.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which
includes all the property and assets of the debtor as of commencement date, plus the
property and assets acquired by the rehabilitation receiver or liquidator after that date,
as well as all other property and assets in which the debtor has an ownership interest,

whether or not these property and assets are in the debtor's possession as of
commencement date: Provided, That trust assets and bailment, and other property and
assets of a third party that are in the possession of the debtor as of commencement
date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(s) Liabilities shall refer to monetary claims against the debtor, including
stockholder's advances that have been recorded in the debtor's audited financial
statements as advances for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or
personal property that legality entities a creditor to resort to said property for payment
of the claim or debt secured by such lien.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of
this Act.
(w) Liquidator shall refer to the natural person or juridical entity appointed as such by
the court and entrusted with such powers and duties as set forth in this Act: Provided,
That, if the liquidator is a juridical entity, it must designated a natural person who
possesses all the qualifications and none of the disqualifications as its representative,
it being understood that the juridical entity and the representative are solidarity liable
for all obligations and responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a management position described in
or contemplated by a juridical entity's articles of incorporation, bylaws or equivalent
documents, except for the corporate secretary, the assistant corporate secretary and
the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of the
individual debtor's or debtor's business operations prior to rehabilitation or insolvency
proceedings and on ordinary business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in property
held by the debtor, including those covered by trust receipts or assignments of
receivables.
(aa) Parent shall refer to a corporation which has control over another corporation
either directly or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured
creditors' committee, a stakeholder, a party with an ownership interest in property
held by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any
other juridical or natural person who stands to be benefited or injured by the outcome
of the proceedings and whose notice of appearance is accepted by the court.

(cc) Possessory lien shall refer to a lien on property, the possession of which has been
transferred to a creditor or a representative or agent thereof.
(dd) Proceedings shall refer to judicial proceedings commenced by the court's
acceptance of a petition filed under this Act.
(ee) Property of others shall refer to property held by the debtor in which other
persons have an ownership interest.
(ff) Publication notice shall refer to notice through publication in a newspaper of
general circulation in the Philippines on a business day for two (2) consecutive weeks.
(gg) Rehabilitation shall refer to the 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.
(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical,
appointed as such by the court pursuant to this Act and which shall be entrusted with
such powers and duties as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and
viability of an insolvent debtor can be restored using various means including, but not
limited to, debt forgiveness, debt rescheduling, reorganization or quasi-reorganization,
dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a
going concern, or setting-up of new business entity as prescribed in Section 62 hereof,
or other similar arrangements as may be approved by the court or creditors.
(jj) Secured claim shall refer to a claim that is secured by a lien.
(kk) Secured creditor shall refer to a creditor with a secured claim.
(ll) Secured party shall refer to a secured creditor or the agent or representative of
such secured creditor.
(mm) Securities market participant shall refer to a broker dealer, underwriter, transfer
agent or other juridical persons transacting securities in the capital market.
(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a
member of a nonstock corporation or association or a partner in a partnership.
(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting
stock of which is owned or controlled directly or indirectly through one or more
intermediaries by another corporation, which thereby becomes its parent corporation.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.

(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the
consent of which is necessary for the approval of a Rehabilitation Plan under this Act.
Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-
need companies, and national and local government agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or
actually subject to conservatorship, receivership or liquidation proceedings under the
New Central Bank Act (Republic Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially or actually
subject to insolvency proceedings under the Insurance Code (Presidential Decree No.
1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell or
offer to sell pre-need plans.
Provided, That government financial institutions other than banks and government-owned or
controlled corporations shall be covered by this Act, unless their specific charter provides
otherwise.
Section 6. Designation of Courts and Promulgation of Procedural Rules. - The Supreme
Court shall designate the court or courts that will hear and resolve cases brought under this
Act and shall promulgate the rules of pleading, practice and procedure to govern the
proceedings brought under this Act.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be
considered as a separate entity under the proceedings in this Act. Under these proceedings,
the assets and liabilities of a debtor may not be commingled or aggregated with those of
another, unless the latter is a related enterprise that is owned or controlled directly or
indirectly by the same interests: Provided, however, That the commingling or aggregation of
assets and liabilities of the debtor with those of a related enterprise may only be allowed
where:
(a) there was commingling in fact of assets and liabilities of the debtor and the related
enterprise prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and
to commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related enterprise is
beneficial to all concerned and promotes the objectives of rehabilitation.

Provided, finally, That nothing in this section shall prevent the court from joining other
entities affiliated with the debtor as parties pursuant to the rules of procedure as may be
promulgated by the Supreme Court.
Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to the
relevant provisions of the Corporation Code in the case of stock or nonstock corporations or
the Civil Code in the case of partnerships that are not inconsistent with this Act.
Section 9. Creditors Representatives. - Creditors may designate representatives to vote or
otherwise act on their behalf by filing notice of such representation with the court and serving
a copy on the rehabilitation receiver or liquidator.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a
Partnership, or Directors and Officers. - Individual debtor, owner of a sole proprietorship,
partners in a partnership, or directors and officers of a debtor shall be liable for double the
value of the property sold, embezzled or disposed of or double the amount of the transaction
involved, whichever is higher to be recovered for benefit of the debtor and the creditors, if
they, having notice of the commencement of the proceedings, or having reason to believe that
proceedings are about to be commenced, or in contemplation of the proceedings, willfully
commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in the
ordinary course of business or authorize or approve any transaction in fraud of
creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles
or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer
under this section. In this connection, in case of partnerships and corporations, the court shall
consider the amount of the shareholding or partnership or equity interest of such partner,
director or officer, the degree of control of such partner, director or officer over the debtor,
and the extent of the involvement of such partner, director or debtor in the actual
management of the operations of the debtor.
Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable
banking legislation to the contrary, any bank, whether universal or not, may acquire and hold
an equity interest or investment in a debtor or its subsidiaries when conveyed to such bank in
satisfaction of debts pursuant to a Rehabilitation or Liquidation Plan approved by the court:
Provided, That such ownership shall be subject to the ownership limits applicable to
universal banks for equity investments and: Provided, further, That any equity investment or
interest acquired or held pursuant to this section shall be disposed by the bank within a period
of five (5) years or as may be prescribed by the Monetary Board.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.

Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the
owner in case of a sole proprietorship, or by a majority of the partners in case of a
partnership, or in case of a corporation, by a majority vote of the board of directors or trustees
and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds
(2/3) of the members, in a stockholder's or member's meeting duly called for the purpose, an
insolvent debtor may initiate voluntary proceedings under this Act by filing a petition for
rehabilitation with the court and on the grounds hereinafter specifically provided. The
petition shall be verified to establish the insolvency of the debtor and the viability of its
rehabilitation, and include, whether as an attachment or as part of the body of the petition, as
a minimum the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay
its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the form of
relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver;
and
(j) Other documents required to be filed with the petition pursuant to this Act and the
rules of procedure as may be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when one or
more of its members foresee the impossibility of meeting debts when they respectively fall
due, and the financial distress would likely adversely affect the financial condition and/or
operations of the other members of the group and/or the participation of the other members of
the group is essential under the terms and conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or
group of creditors with a claim of, or the aggregate of whose claims is, at least One Million
Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock
or partners' contributions, whichever is higher, may initiate involuntary proceedings against
the debtor by filing a petition for rehabilitation with the court if: