FRIA REMEDIES FOR INSOLVENT FILIPINOS
By: Atty Gerardo Maximo Francisco on May 7,2020
Covid-19 has caused financial injury and distress to many Filipinos. By early 2021, after the grace periods for loans and other forms of financial assistance granted under Bayanihan 2 will have been exhausted, many more Filipinos will experience the stress and burden of their creditors demanding repayment. Unless a Bayanihan 3 or other legislative relief measure is enacted, defaults on debts are likely be the norm in 2021.
Some Filipinos may find some relief from their debts under Republic Act 10142, or the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010.” For individuals, the remedies under the FRIA apply only to “residents and citizens of the Philippines” who are insolvent.
Under the FRIA, the term “insolvent” means 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.”
Suspension of payments
A Filipino who possesses sufficient property to cover his debts but foresees the impossibility of meeting them when they respectively fall due may file a verified petition that he be declared in the state of suspension of payments with a special commercial court in the province or city in which he has resided for six months prior to the filing. He shall attach to his petition a schedule of debts and liabilities, an inventory of assets, and a proposed agreement with his creditors.
If the court finds the petition sufficient in form and substance, it shall, within five working days from the filing, issue an order calling a meeting of all the creditors named in the schedule of debts and liabilities; directing such creditors to prepare and present written evidence of their claims before the scheduled creditors’ meeting; directing the publication of this order in a newspaper of general circulation; directing the clerk of court to send the order to all named creditors; forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his property, except those used in the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged, so long as the proceedings relative to the suspension of payments are pending; prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of payments are pending; and appointing a commissioner to preside over the creditors’ meeting.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except: those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the 60 days immediately prior to the filing of the petition; and secured creditors.
If the decision of the required majority of creditors to approve the proposed agreement or any amendment thereof made during the creditors’ meeting is upheld by the court, or when no opposition or objection to said decision has been presented, the court shall order that the agreement be carried out and all parties bound thereby to comply with its terms.
Voluntary liquidation
A Filipino whose properties are not sufficient to cover his liabilities and owes debts exceeding P500,000 may apply to be discharged from them by filing a verified petition with the special commercial court in the province or city in which he has resided for six months prior to filing. He shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing of this petition shall be an act of insolvency.
If the court finds the petition sufficient in form and substance, it shall, within five working days, issue a liquidation order that shall declare the debtor insolvent; order the liquidation of the debtor; order the sheriff to take possession and control of all the properties of the debtor, except those that may be exempt from execution; order the publication of the petition in a newspaper of general circulation; direct payments of any claim and conveyance of any property due the debtor to the liquidator; prohibit payments by the debtor and the transfer of any property by him; direct all creditors to file their claims with the liquidator; authorize the payment of administrative expenses as they become due; direct the submission of names of nominees to the position of liquidator; and set the case for hearing for the election and appointment of the liquidator.
Upon the issuance of the liquidation order, a legal title to and control of all the assets of the debtor, except those that may be exempt from execution, shall be deemed vested in the liquidator or, pending his election or appointment, with the court; generally, all contracts of the debtor shall be deemed terminated and/or breached; no separate action for the collection of an unsecured claim shall be allowed; and no foreclosure proceeding shall be allowed for 180 days.
The liquidation order shall not affect the right of a secured creditor to enforce his lien in accordance with the applicable contract or law.
The elected liquidator shall prepare a liquidation plan for approval of the court, which shall enumerate all the assets of and claims against the debtor, and a schedule of liquidation of these assets and payment of the claims.
Upon determining that the liquidation has been completed according to the FRIA and/or applicable law, the court shall issue an order discharging the individual debtor from his liabilities under the liquidation plan.
While pursuing a suspension of payments or voluntary liquidation petition may entail significant costs associated with court suits, these are two available remedies (among limited legal options) to help relieve Filipinos who are hurting financially because of Covid-19.
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Gerardo Maximo V. Francisco is a partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). He is a corporate, deal, litigation and employment lawyer. The contents of this article are intended for general information purposes only and do not constitute legal advice. If you have any question or comment about this article, email the author at info@mtfcounsel.com or visit www.mtfcounsel.com.