REPUBLIC ACT No. 10142
AN ACT PROVIDING FOR THE REHABILITATION OR
LIQUIDATION OF FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS
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.
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