RULE OF LAW
By: Atty. Gregorio B. Austral, CPA
Resolving competing claims and property rights under the FRIA
Distressed debtors can consider the Financial Rehabilitation and Insolvency Act (FRIA) as a possible source of relief. The FRIA encourages debtors and their creditors to collectively and realistically resolve and adjust competing claims and property rights; ensures a timely, fair, transparent, effective, and efficient rehabilitation or liquidation of debtors in order to ensure/maintain certainty and predictability in commercial affairs, preserve and maximize the value of debtors’ assets, recognize creditor rights, and respect priority of claims, and ensure equitable treatment of creditors similarly situated; and facilitates speedy and orderly liquidation of debtors’ assets, and settlement of obligations, when rehabilitation is no longer feasible.Based on the law’s declared policy, rehabilitation is preferred over liquidation. The rationale for this is to effect a feasible and viable rehabilitation by preserving a floundering business as a going concern because the assets of a business are often more valuable when so maintained than they would be when liquidated.The proceedings covered by FRIA include: (a) suspension of payments proceedings for individual debtors; (b) court-supervised corporate rehabilitation; (c) pre-negotiated rehabilitation; (d) out-of-court rehabilitation or informal restructuring agreements; (e) liquidation of insolvent juridical debtors; (f) insolvency of individual debtors; and (g) cross-border proceedings.FRIA proceedings have been characterized as “in rem” , which means that 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 pursuant to the FR Rules. Rehabilitation proceedings are summary and non-adversarial in nature. Unlike in adversarial proceedings, the court in rehabilitation proceedings appoints a receiver to study the best means to revive the debtor and to ensure that the value of the debtor’s property is reasonable maintained pending determination of whether or not the debtor should be rehabilitated.