Financial Rehabilitation and Insolvency Act (FRIA) of 2010

Section 1

These Rules shall be known and cited as the "Financial Rehabilitation Rules of Procedure (2013)."

Section 2

These Rules shall apply to petitions for rehabilitation of corporations, partnerships, and sole proprietorships, filed pursuant to Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010. These Rules shall similarly govern all further proceedings in suspension of payments and rehabilitation cases already pending, except to the extent that, in the opinion of the court, its application would not be feasible or would work injustice, in which event the procedures originally applicable shall continue to govern.

Section 3

These 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 Act.

Section 4

The proceedings under these Rules shall be in rem. 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. The following pleadings are prohibited: motion to dismiss; motion for a bill of particulars; petition for relief; motion for extension; motion for postponement and other motions of similar intent; reply; rejoinder; intervention; and any pleading or motion that is similar to or of like effect as any of the foregoing. 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. 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. Any order issued by the court under these Rules is immediately executory. Review of any order of the court shall be in accordance with Rule 6 of these 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.

Section 5

In addition to the terms already defined in the Act, the following terms are hereunder defined for purposes of rehabilitation: Administrative expenses shall refer to those reasonable and necessary expenses incurred in connection with the filing of a petition under these Rules, including filing and reasonable and necessary professional fees in preparing the petition;arising from, or in connection with the conduct of the rehabilitation proceedings under these Rules;incurred in the ordinary course of business of the debtor after the commencement date;for the payment of new obligations obtained after the commencement date to finance the rehabilitation of the debtor;incurred for the reasonable and necessary fees of the rehabilitation receiver, the management committee, and/or of the professionals they may engage; and those otherwise authorized or mandated under the Act or such other expenses authorized under these Rules. Administrative expenses shall refer to those reasonable and necessary expenses incurred in connection with the filing of a petition under these Rules, including filing and reasonable and necessary professional fees in preparing the petition; arising from, or in connection with the conduct of the rehabilitation proceedings under these Rules; incurred in the ordinary course of business of the debtor after the commencement date; for the payment of new obligations obtained after the commencement date to finance the rehabilitation of the debtor; incurred for the reasonable and necessary fees of the rehabilitation receiver, the management committee, and/or of the professionals they may engage; and those otherwise authorized or mandated under the Act or such other expenses authorized under these Rules. Affidavit of General Financial Condition (Annex "A" of these Rules) shall refer to a verified statement on the general financial condition of the debtor, as required in Section 2 (B) (10), Rule 2 of these Rules. Asset is anything of value which may be either tangible or intangible. Tangible assets can be current assets or fixed assets. Current assets may include cash on hand, money in banks or inventory, while fixed assets may include plant, building, property and equipment. Intangible assets may include intellectual property (such as copyrights, patents, and trademarks) and financial assets (such as accounts receivable, subscription receivables, and bonds and stocks).The value of these assets must appear in the latest audited financial statements immediately preceding the filing of the petition. In case the debtor is less than three (3) years in operation, it is sufficient that the book value is based on the audited financial statement/s for the two (2) years or year immediately preceding the filing of the petition, as the case may be. Business day shall refer to any day other than Saturday, Sunday, or any non-working day. Commencement date shall refer to the date on which the court issues a commencement order. The effects of the commencement order shall retroact to the date of filing of the petition for voluntary or involuntary proceedings. Foreign court means a judicial or other authority competent to control or supervise a foreign proceeding. Foreign proceeding means a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency, in which proceeding, the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of rehabilitation, re-organization, or liquidation. Foreign main proceeding means a foreign proceeding taking place in the State where the debtor has the center of its main interests. Foreign non-main proceeding means a foreign proceeding, other than a foreign main proceeding, taking place in a State where the debtor has an establishment, or any place of operations where the debtor carries out a non-transitory economic activity with human means and goods or services. Foreign representative means a person or entity, including one appointed on an interim basis, authorized in a foreign proceeding to administer the reorganization or rehabilitation of the debtor or to act as a representative of the foreign proceeding. Insolvency shall refer to the financial incapacity of the debtors to pay their liabilities as they fall due in the ordinary course of business or whenever their liabilities are greater than their assets. Liquidation shall refer to the proceedings under Chapter V of the Act. Management committee is composed of persons, natural or juridical, appointed by the court, pursuant to Section 32, Rule 2 of these Rules. It shall take the place of the management and governing body of the debtor, and assume their powers, rights and responsibilities under the law. Proceedings, unless the term is used in a different context, shall refer to court-supervised rehabilitation proceedings or pre-negotiated rehabilitation proceedings, which are commenced by the court's issuance of a commencement order and which shall last until the court declares the termination of the proceedings pursuant to Section 73, Rule 2 of these Rules. 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. Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as such by the court pursuant to the Act and which shall be entrusted with such powers, duties, and responsibilities as set forth herein. Where the rehabilitation receiver is a juridical entity, the term includes the juridical entity's designated representative. Standstill period shall refer to the period agreed upon by the debtor and its creditors to enable them to negotiate and enter into an out-of-court or informal restructuring/workout agreement or rehabilitation plan pursuant to Rule 4 of these Rules. The standstill agreement may include provisions identical with or similar to the legal effects of a commencement order under Section 9, Rule 2 of these Rules. Stay or Suspension Order shall refer to an order issued in conjunction with the commencement order that shall suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor; suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor; prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein. Working day shall have the same meaning as business day.

Section 6

All petitions pursuant to these Rules shall be filed in the Regional Trial Court which has jurisdiction over the principal office of the debtor alleged to be insolvent 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, as the case may be. Where the principal office of the corporation, partnership or association as registered in the Securities and Exchange Commission (SEC) is in Metro Manila, the action must be filed in the Regional Trial Court of the city or municipality where the head office is located. A petition for voluntary or involuntary rehabilitation involving a group of debtors shall be filed 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, as the case may be.

Section 7

Except when otherwise indicated under a particular rule, whenever under these Rules 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. such notice shall be made to the foreign creditors individually, unless the court considers that, under the circumstances, some other form of notice would be more appropriate. when a notice of commencement of a proceeding under these Rules is to be given to foreign creditors, the notice shall:indicate a reasonable time period for filing claims and specify the place for their filing;indicate whether secured creditors need to file their secured claims; and contain any other information required to be included in such notice to creditors pursuant to these Rules and the orders of the court. when a notice of commencement of a proceeding under these Rules is to be given to foreign creditors, the notice shall: indicate a reasonable time period for filing claims and specify the place for their filing; indicate whether secured creditors need to file their secured claims; and contain any other information required to be included in such notice to creditors pursuant to these Rules and the orders of the court.

Section 8

Each juridical entity shall be considered as a separate entity under the proceedings in these Rules and its assets and liabilities 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. The commingling or aggregation of assets and liabilities of the debtor with those of a related enterprise may only be allowed where: there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to the commencement of the proceedings; the debtor and the related enterprise have common creditors and it will be more convenient to treat them together rather than separately; the related enterprise voluntarily accedes to join the debtor as party-petitioner and to commingle its assets and liabilities with the debtor's; and the consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all concerned and promotes the objectives of rehabilitation. The court, upon proper motion, may join other entities affiliated with the debtor as parties for a complete determination of the claims in the proceedings.

Section 9

Decisions of creditors shall be made according to 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 that are not inconsistent with the Act and these Rules.

Section 10

Creditors may designate representatives to vote or otherwise act on their behalf or on behalf of their class, by filing notice of such representation, with supporting documents, with the court and serving a copy on the rehabilitation receiver and the parties whose appearances have been accepted by the court.

Section 11

Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or Directors and Officers. — The owner of a sole proprietorship, the partners in a partnership, or the directors and officers of a corporate 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 the 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: 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 Conceal, authorize or approve the concealment from the creditors, or embezzle or misappropriate, 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 12

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 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. A. Initiation of Proceedings 1. Voluntary Proceedings