Financial Rehabilitation and Insolvency Act (FRIA) of 2010

Section 1

An out-of-court or informal restructuring/ workout agreement or rehabilitation plan (OCRA) under the Act shall comply with both requirements: Approval by the:debtor;creditors representing at least sixty-seven percent (67%) of the secured obligations of the debtor;creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and,creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor; and, Approval by the: debtor; creditors representing at least sixty-seven percent (67%) of the secured obligations of the debtor; creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and, creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor; and, Publication of the notice of the OCRA once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the Philippines, as prescribed in Section 4 of this Rule.

Section 2

A standstill period may be agreed upon by the parties and shall be effective and enforceable not only against the contracting parties but also against the other creditors provided it complies with the following conditions: approval of the agreement for a standstill period by creditors representing more than fifty percent (50%) of the total liabilities of the debtor; publication of the notice of the agreement in a newspaper of general circulation in the Philippines, once a week for two (2) consecutive weeks; and the standstill period shall not exceed one hundred twenty (120) days from the date of effectivity. The notice of the standstill agreement shall substantially state the following minimum requirements: the identity of the debtor, its principal business or activity/ies, and its principal place of business; the total amount of the liabilities of the debtor, classified into secured and unsecured; that a contact person is identified, together with his contact details, which should include existing office address, phone numbers, and e-mail addresses; that creditors are invited to participate in the negotiations for an OCRA and may do so by contacting the person specified in the notice; that the creditors representing more than fifty percent (50%) of the total liabilities of the debtor have agreed to observe a standstill period which shall not exceed one hundred twenty (120) days from its date of effectivity; that the terms and conditions agreed upon by the parties shall be strictly observed during the standstill period; that 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; and that the OCRA shall be binding on the debtor and all affected persons, including the creditors, whether or not they will participate in the negotiations, if approved by all of the following:the debtor;the creditors representing at least sixty-seven percent (67%) of the secured obligations of the debtor;the creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and the creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor. that the OCRA shall be binding on the debtor and all affected persons, including the creditors, whether or not they will participate in the negotiations, if approved by all of the following: the debtor; the creditors representing at least sixty-seven percent (67%) of the secured obligations of the debtor; the creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and the creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor.

Section 3

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.

Section 4

The notice of the OCRA shall be published once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The notice shall contain the following: the salient provisions of the OCRA; the OCRA is available for inspection or reproduction in the offices of the debtor at the expense of the requesting party; the number of secured creditors who approved the OCRA, indicating how much they represent, in terms of percentage, among the secured obligations of the debtor, which should be at least sixty-seven percent (67%); the number of unsecured creditors who approved the OCRA, indicating how much they represent, in terms of percentage, among the unsecured obligations of the debtor, which should be at least seventy-five percent (75%); the total number of creditors, secured or unsecured, who approved the OCRA, indicating how much they represent, in terms of percentage, among the total liabilities of the debtor, which should be at least eighty-five percent (85%); upon its effectivity, the OCRA and its provisions shall be binding upon the debtor and all affected persons, including the creditors, whether or not they participated in the proceedings or opposed the plan or whether or not their claims have been scheduled; payments shall be made to the creditors in accordance with the provisions of the OCRA; and the manner and other requirements for the amendment or modification of the OCRA. The OCRA shall take effect upon the lapse of fifteen (15) days from the date of the last publication of its notice.

Section 5

An OCRA that is approved pursuant to this Rule shall have the same legal effect as the confirmation of a rehabilitation plan under a court-supervised rehabilitation under Section 66, Rule 2 of these Rules.

Section 6

No amendment or modification of the OCRA shall be valid unless it (a) conforms to the manner and other requirements specified by the parties for the amendment or modification of the OCRA, and (b) complies with the requirements listed in Section 1 of this Rule. The amended or modified OCRA shall take effect upon the lapse of fifteen (15) days from the date of the last publication of the required notice.

Section 7

The Regional Trial Courts, as courts of general jurisdiction, shall have jurisdiction over the following: a petition for court assistance to execute or implement the standstill agreement of the OCRA under Section 9 of this Rule; and a petition for annulment of the standstill agreement or the OCRA under Section 11 of this Rule. Any court action or other proceedings arising from, or relating to, the OCRA shall not stay its implementation, unless a temporary restraining order or preliminary prohibitory injunction is issued by the Court of Appeals in an original action under Rule 65 of the Rules of Court.

Section 8

The petition for court assistance to execute or implement, or for the annulment of either the standstill agreement or the OCRA may be filed with the Regional Trial Court having jurisdiction over the place in which the insolvent debtor resides or has its principal place of business.

Section 9

An application for court assistance to execute or implement a standstill agreement or an OCRA may be filed by the insolvent debtor and/or creditor, as the case may be, and shall be in the form of a petition which contains, as a minimum, the following: the identity of the debtor, its principal business of activity/ies, and its principal place of business; if the petition is filed by the creditor, the identity of the creditor and its principal place of business; the identity and addresses of the party/ies against whom the assistance is sought; a statement of the dates the standstill agreement or the OCRA was executed and became effective; an allegation that the requisite creditor approval for a standstill agreement or for an OCRA has been obtained, in accordance with Section 2 (A) or Section 1 (A) of this Rule, respectively; an allegation that the notice of the standstill agreement or the OCRA has been duly published in accordance with Section 2 (B) or 1 (C) of this Rule, respectively; The salient provisions of the standstill agreement or the OCRA, including the provisions sought to be enforced; and the specific form of assistance or relief sought. A petition for court assistance shall be accompanied by a copy of the standstill agreement or the OCRA.

Section 10

The court may assist in the execution or implementation of the standstill agreement or the OCRA by issuing a writ of execution to enforce its terms. Nothing in this Rule limits the power of the court to provide any other form of additional assistance as may be necessary to execute or implement the standstill agreement or the OCRA, including the award of damages properly pleaded and proved, and to protect the interests of the creditors, the debtor, and other interested parties.

Section 11

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 under Section 2 of this Rule, or an OCRA under Section 1 of this Rule. 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. The petition shall allege, as a minimum, the following: the identity of the debtor, its principal business or activity/ies, and its principal place of business; and the ground for the petition. The petition shall be accompanied by a copy of the standstill agreement or the OCRA and the amendments/modifications, if any, and shall be filed not later than thirty (30) days from the effectivity thereof.

Section 12

Upon the filing of the petition, the court shall immediately issue and cause to be served the corresponding summons to the respondents within five (5) days from receipt of the petition. The summons shall be accompanied with a copy of the petition, with all its attachments, and shall be served on all the person(s) indicated as respondents. The summons shall direct the respondent to file a comment and/or opposition to the petition within a non-extendible period of five (5) days from receipt of the summons. The summons, orders and other court processes may be served by the sheriff, his deputy or other proper court officer or, for justifiable reasons, by the counsel or representative of the petitioner, or any suitable person authorized or deputized by the court issuing the summons. Any private person who is authorized or deputized by the court to serve summons, orders and other court processes shall, for that purpose, be considered an officer of the court. Service of summons to a respondent residing in the Philippines shall be made in person or by substituted service, in accordance with the Rules of Court. Should either personal or substituted service fail, summons may be served by publication in a manner the court deems appropriate under the circumstances. In the case of juridical entities, summons by publication shall be done by indicating the names of its officers or its duly authorized representative. Service of summons to a respondent not residing in the Philippines shall be effected out of the Philippines through any of the following means: By personal service coursed through the appropriate court in the foreign country, with the assistance of the Department of Foreign Affairs; By publication once in a newspaper of general circulation in the country where the respondent may be found and by serving a copy of the summons and the court order by registered mail at the last known address of the respondent; By facsimile or any recognized electronic means that could generate proof of service; or By such other means as the court may in its discretion direct.

Section 13

The respondent shall file a verified comment or opposition to the petition, together with supporting affidavits and documents, within five (5) days from receipt of the summons and ensuring receipt thereof by the petitioner and the court not less than three (3) days before the date of the summary healing under Section 15 of this Rule. In an action for court assistance, a respondent may raise the defense that the standstill agreement or the OCRA is void for failure to comply with the requirements under Section 2 or Section 1 of this Rule, respectively. A respondent may raise the invalidity of the standstill agreement or the OCRA on the ground of vitiation of consent only if it affects such number of creditors required for the approval of the standstill agreement of the OCRA, as the case may be. The failure to raise either defense shall constitute as waiver and preclude the respondent from filing a separate petition to annul the standstill agreement or the OCRA.

Section 14

On the basis of the allegations of the petition and the comment or opposition, and their supporting documents, the court shall determine whether there is a genuine issue of material facts. In case the respondent fails to file a comment or opposition the petition, the court may conduct clarificatory hearings. If the court determines that there is no genuine issue of material fact, the court shall rule whether the petition shall be granted. The court shall issue the order within five (5) days from receipt of the comment or opposition.

Section 15

If the court determines that there exists a genuine issue of material facts, it shall conduct a summary hearing not later than twenty (20) days from the filing of the petition. The 120-day standstill period shall continue to run during the pendency of an action involving a standstill agreement. Upon the finality of the decision, the parties shall have the remaining balance of the period to enforce the decision, which in any case shall not be less than sixty (60) days. The court shall render judgment which shall be not later than sixty (60) days from the filing of the petition.

Section 16

The judgment in an action to implement or enforce a standstill agreement shall be final and immediately executory. The judgment in any action involving the OCRA shall be final within ten (10) days from receipt of the decision and is immediately executory. A judgment of the court under this Rule may be elevated to the Court of Appeals under Rule 65 of the Rules of Court. A final judgment shall be without prejudice to the parties availing of the other modes of rehabilitation under Rule 2 or 3 of these Rules.