Financial Rehabilitation and Insolvency Act (FRIA)

Comprehensive vocabulary flashcards covering the Financial Rehabilitation and Insolvency Act (FRIA) including key legal definitions, procedural orders, and rehabilitation roles.

Financial Rehabilitation and Insolvency Act

The law (Section 2) that establishes the State policy of encouraging debtors and creditors to collectively and realistically resolve competing claims and property rights to maintain commercial predictability.

In rem

The nature of proceedings under FRIA, meaning they bind the whole world; jurisdiction is acquired upon publication of the notice of commencement in a newspaper of general circulation.

Summary and non-adversarial

The procedural nature of FRIA proceedings (Section 3), designed for efficient and timely resolution rather than protracted litigation.

Insolvent

The financial condition where a debtor is generally unable to pay liabilities as they fall due or has liabilities that are greater than their assets.

Debtors under FRIA

Includes sole proprietorships registered with the DTI, partnerships registered with the SEC, corporations organized under Philippine laws, and individual debtors who are natural persons residing in and citizens of the Philippines.

Excluded Debtors

Entities not covered by FRIA, specifically banks, pre-need companies, insurance companies, and government agencies or units.

Claim

All demands of whatever nature against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed.

Secured Creditors

Creditors whose claims are secured by a lien (by law, agreement, or judicial judgment) entitling them to resort to specific property for payment.

Suspension of Payments

A proceeding for an individual debtor who possesses sufficient property to cover all debts but foresees the impossibility of meeting them when they fall due.

Double Majority

The approval requirement for a proposed agreement in suspension of payments: a vote by $2/3$ of the creditors where the claims of the majority vote amount to at least $3/5$ of the total liabilities.

Rehabilitation

The restoration of a debtor to a condition of successful operation and solvency, applicable when continuance is economically feasible and provides more value than immediate liquidation.

Involuntary Rehabilitation

Rehabilitation initiated by creditors with claims of at least $1,000,000.00$ or $25\%$ of subscribed capital/partnership contributions, whichever is higher, upon showing the debtor generally fails to meet liabilities.

Commencement Order

A court order issued within $5$ days of filing a rehabilitation petition that marks the start of proceedings and includes a Stay Order.

Stay Order

A component of the Commencement Order that suspends all actions for enforcement of claims against the debtor and prohibits the disposal of property outside the ordinary course of business.

Rehabilitation Receiver

A person appointed by the court responsible for preserving asset value, determining rehabilitation viability, and preparing or recommending a Rehabilitation Plan.

Management Committee

A body appointed by the court to take over the management and governing body of the debtor in cases of actual danger of asset dissipation, business paralyzation, or gross mismanagement.

Rehabilitation Plan

A plan to restore an insolvent debtor's viability using means such as debt forgiveness, debt rescheduling, reorganization, dacion en pago, or debt-equity conversion.

Cram Down Effect

The court's power to approve a Rehabilitation Plan despite objections from certain creditors, owners, or stockholders, provided it is necessary for the debtor's financial well-being.

Pre-negotiated Rehabilitation

An out-of-court rehabilitation plan requiring approval by creditors holding at least $67\%$ of secured obligations, $75\%$ of unsecured obligations, and $85\%$ of total liabilities.

Standstill Period

An agreed period during out-of-court negotiations (not exceeding $120$ days) that is binding on all creditors if approved by those holding more than $50\%$ of total liabilities.

Liquidation

The proceeding where the assets of an insolvent debtor are disposed of and the proceeds are divided among creditors.

Liquidator

An individual appointed by the court or elected by creditors to facilitate the liquidation process and settle the debtor's obligations.

Acts of Insolvency

Specific actions, such as departing the country with intent to defraud or concealing property to avoid attachment, that can justify a petition for involuntary liquidation.

Liquidation Order

An order that declares the debtor insolvent, dissolves the juridical debtor, and prohibits the debtor from making payments or transferring property.

Registry of Claims

A preliminary list of secured and unsecured claims prepared by the liquidator within $20$ days of assumption of office for public inspection.