Does FRIA cover banks, financial institutions?

By: Francis Ed Lim - @inquirerdotnetPhilippine Daily Inquirer / 05:03 AM March 05, 2015
The Financial Rehabilitation and Insolvency Act of 2010 (FRIA) is the new law. It replaces the 1909 Insolvency Act.
The new law contains three main parts. The first is rehabilitation, whose purpose is to restore the financial health of
insolvent debtors. The second is liquidation, which provides for the orderly liquidation of the debtors assets and liabilities,
once it has been determined that operations can no longer be successfully restored. The third is cross-border insolvency,
which is patterned after the UNCitral Model Law, whose purpose is to address insolvency-related matters involving foreign
companies with Philippine-based assets or foreign-based assets of Philippine companies.
Recently, the Supreme Court promulgated the Financial Rehabilitation Rules of Procedure (FR Rules) to implement the
provisions of FRIA on rehabilitation.
Unlike the Insolvency Act of 1909, FRIA and the FR Rules do not limit insolvency to a situation where the debtors assets
are less than its liabilities. It now covers a situation where the debtor is unable to meet its obligations as they fall due even
if its assets are more than its liabilities.
Relevant provisions
FRIA expressly provides that the term 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 (Section 4(k)).
Section 5 of FRIA further provides that [t]he term debtor does not include banks, insurance companies, pre-need
companies, and national and local government agencies or units.
The same section, however, provides 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.
To further complicate the issue, Section 138 of FRIA provides that the liquidation of banks, financial institutions, insurance
companies and pre-need companies shall be determined by relevant legislation. The provisions in this Act shall apply in a
suppletory manner. FRIA also has special provisions on the liquidation of securities market participants, which refer to a
broker, dealer, underwriter, transfer agent or other juridical persons transacting securities in the capital markets.
Some questions
Some have personally raised to me the following questions under FRIA and FR Rules:
Rehabilitation. Are banks, insurance companies and pre-need companies entitled to get rehabilitated under FRIA? Does it
make any difference whether the foregoing entities are privately owned or government owned? Are there financial
institutions that can be rehabilitated under FRIA? If so, what are these financial institutions?
Liquidation. Does FRIA govern the liquidation of banks and financial institutions? If not, what law governs their liquidation?
When and to what extent do the the provisions of FRIA apply? Are there financial institutions whose liquidation is
governed by FRIA?
Filing for individual bankruptcy
By: Efren Ll. Cruz - @inquirerdotnetPhilippine Daily Inquirer / 12:24 AM June 01, 2016
Question: In other countries, particularly the United States, there are bankruptcy laws pertaining to individuals. Is there
such a law in the Philippines? asked at Ask a friend, ask Efren free service available at www.personalfinance.ph and
Facebook.
Answer: There is such a law in the Philippines and it is called the Financial Rehabilitation and Insolvency Act or FRIA.
Republic Act No. 10142 is a law providing for the rehabilitation or liquidation of financially distressed enterprises and
individuals.
Let us focus on the provisions of the law for individuals.
Chapter VI of FRIA talks in particular about the insolvency of individual debtors.

FRIA presents three scenarios on dealing with the insolvency, namely: suspension of payments; voluntary liquidation and
involuntary liquidation.
Under suspension of payments, an individual debtor may file a (verified) petition that he be declared in the state of
suspension of payments by the court of the province or city in which he was a resident for six months prior to the filing.
The minimum evidence to be presented would be: (a) a schedule of debts and liabilities; (b) an inventory of assets; and
(c) a proposed agreement with his creditors.
The evidence must show that the individual debtor has sufficient assets to cover all of his debts but not the capacity to
meeting the payment of his obligations when they fall due.
The evidence needed for suspension of payments underscores the importance of tracking ones personal finances
through the generation of at least yearly balance sheets and income statements.
Combined with the use of financial ratios, an individual can easily say whether trouble is brewing on the horizon or if
financial goals are being met.
Back to suspension of payments, if the court finds merit in the petition filed, it will issue an order calling for a meeting of all
creditors named in the schedule of debts and liabilities not less than fifteen days and not more than forty days from the
date of the order.
In addition, the court may issue an order suspending any pending execution against the individual debtor except in
situations where the properties are held as security by secured creditors.
This suspension of pending execution will lapse when three months have passed without the proposed agreement being
accepted by the creditors or as soon as the proposed agreement is denied by the court.
The presence of creditors holding claims amounting to at least three-fifths or sixty percent of the liabilities of the individual
debtor is necessary for holding a creditors meeting.
The proposed agreement with creditors will be approved if: (a) two-thirds of the creditors voting agree to the proposition;
and (b) the claims represented those voting in favor of the proposed agreement amount to at least three-fifths of the total
liabilities of the individual debtor.
On the voluntary liquidation, if an individual has insufficient assets to cover his liabilities, which are in excess of five
hundred thousand Pesos, he may apply to be discharged from his debts and liabilities by filing a (verified) petition with the
court of the province or city in which he was a resident for six months prior to the filing.
The pieces of evidence needed are his schedule of debts and liabilities and inventory of assets. If the court finds merit in
the petition, it will issue a liquidation order.
Among others, the liquidation order involves the liquidation of the properties of the individual debtor with the sheriff taking
possession and control of all the properties of the individual debtor, except those that may be exempt from execution.
Under involuntary liquidation, any creditor or group of creditors with a claim or claims totaling at least P500,000 may file a
(verified) petition for the liquidation of the individual debtor with the court of the province or city in which the individual
debtor resides.
Among the allegations to be stated in this petition for involuntary liquidation are that the individual debtor is a flight risk
and/or intends to defraud his creditors through various means.
If the court finds merit in the petition for involuntary liquidation, it will issue a liquidation order.
They say the devil is in the details. That is why I advise that you study well the entire law including its implementing rules
and regulations or get a lawyer to help you sort things out.
So far we have discussed solving bankruptcy in court or under the law of man.
The best strategy is really to solve bankruptcy under the law of God. Matthew 5:25-26 states: Come to terms with your
opponent in good time while you are still on the way to the court with him, or he may hand you over to the judge and the
judge to the officer, and you will be thrown into prison. In truth I tell you, you will not get out till you have paid the last
penny.