Rehabilitation refers 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. Under the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010” (Republic Act No. 10142), rehabilitation proceedings may be: (a) Pre-negotiated rehabilitation; (b) Out-of-court or informal restructuring agreements or rehabilitation plans; or (c) Court-supervised rehabilitation proceedings.

Other options – Corporations:	Options – Individuals:
* Court-supervised rehabilitation * Informal restructuring * Liquidation	* Suspension of payments * Voluntary insolvency * Involuntary insolvency

A. PETITION BY DEBTOR

An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a Pre-Negotiated Rehabilitation Plan. The petition shall comply with same requirements as a voluntary court-supervised rehabilitation proceedings.

The petition shall be supported by an affidavit showing the written approval or endorsement of creditors holding at least 2/3 of the total liabilities of the debtor, including secured creditors holding more than 50% of the total secured claims of the debtor and unsecured creditors holding more than 50% of the total unsecured claims of the debtor. The petition shall also include as a minimum the following:

1. Schedule of Debts and Liabilities which lists all the creditors of the debtor, indicating the name and last address of record of each creditor; the amount of each claim as to principal, interest, or penalties due 30 days prior to the date of filing; the nature of the claim; and any pledge, lien, mortgage, judgment or other security given for the payment thereof.

2. Inventory of Assets which must list with reasonable particularity all the assets of the debtor, whether in the possession of the debtor or third parties, stating the nature of each asset, its location and condition, its book value and market value, and attaching the corresponding certified copy of the certificate of title thereof in case of real property, or the evidence of title or ownership in case of movable property, the encumbrances, liens or claims thereon, if any; and the identities and addresses of the lien holders and claimants. The Inventory shall include:

• (i) a Schedule of Accounts Receivable which must indicate the amount of each account, the persons from whom due and their correct addresses, the dates of maturity, and the potential for collectability categorizing them as highly collectible to remotely collectible; and

• (ii) a Schedule of Existing Claims against third parties which must indicate the name and last address of record of each third party against whom the debtor has a claim; the nature and amount of the claim, including the principal, interest, or penalties due from each third party and any pledge, lien, mortgage, judgment or other security or collateral given for the payment of each claim; and a brief statement of the facts which gave rise to the claim.

3. Summary of disputed claims against the debtor and a report on the provisioning of funds to account for appropriate payments should any such claims be ruled valid or their amounts adjusted.

4. Affidavit of General Financial Condition, which shall contain answers to the questions or matters in the prescribed form.

5. Pre-Negotiated Rehabilitation Plan, including the names of at least 3 qualified nominees for rehabilitation receiver.

All attachments to the petition shall be deemed part and parcel of the verified petition.

B. ISSUANCE OF ORDER

Within 5 working days, and after determination that the petition is sufficient in form and substance, the court shall issue an Order which shall:

• (a) identify the debtor, its principal business or activity/ies and its principal place of business;

• (b) declare that the debtor is under rehabilitation;

• (c) summarize the ground/s for the filing of the petition;

• (d) direct the publication of the Order in a newspaper of general circulation in the Philippines once a week for at least 2 consecutive weeks, with the first publication to be made within 7 days from the time of its issuance;

• (e) direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner holding at least 10% of the total liabilities of the debtor, as determined in the schedule attached to the petition, within 3 days;

• (f) state that copies of the petition and the Rehabilitation Plan are available for examination and copying by any interested party;

• (g) State that if no verified objection to the petition or the Pre-Negotiated Rehabilitation Plan is submitted with the court within 8 days from the date of the second publication of the, the court shall approve the Pre-Negotiated Rehabilitation Plan within 10 days from the date of the second publication of the Order;

• (h) state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file their objections or comments thereto within a period of not later than 20 days from the second publication of the Order;

• (i) appoint a rehabilitation receiver, if provided for in the Plan; and

• (j) include a Suspension or Stay Order as described in R.A. 11042.

C. APPROVAL OF PLAN

If no verified objection to the petition or the Rehabilitation Plan is filed within 8 days from the date of the second publication of the Order, the court shall approve the rehabilitation plan within 10 days from the date of the second publication of such order. 

The approved rehabilitation plan shall not be implemented until after the lapse of 20 days from the date of the second publication of the Order, unless the court conducts a hearing to consider the comments filed within 20 days from the date of the second publication of the Order.

D. OBJECTION TO PETITION OR REHABILITATION PLAN

Any creditor or other interested party can only object on the following limited grounds:

• 1. The allegations in the petition or the Pre-Negotiated Rehabilitation Plan, or the attachments thereto, are materially false or misleading;

• 2. The majority of any class of creditors do not in fact support the Pre-Negotiated Rehabilitation Plan;

• 3. The support of the creditors or any of them was induced by fraud; or

• 4. The Pre-Negotiated Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim is not categorically declared as a contested claim.

The objection must be submitted to and received by the court not later than 8 days from the date of the second publication of the Commencement Order. Copies of any objection to the petition or the Pre-Negotiated Rehabilitation Plan shall be served on the debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports the Pre-Negotiated Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the Pre-Negotiated Rehabilitation Plan.

E. COMMENTS

Any creditor or other interested party may submit his comments on the petition or the Pre-Negotiated Rehabilitation Plan based on other grounds.

F. HEARING ON THE OBJECTIONS AND COMMENTS

After receipt of objections and comments, the court shall set the case for hearing not earlier than 20 days nor later than 30 days from the date of the second publication of the Order. 

• If the court finds the objection meritorious, it shall direct the debtor, when feasible, to cure the defect within 15 days from receipt of the order.

• If the court determines that the debtor or creditors supporting the Pre-Negotiated Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the court may convert the rehabilitation proceedings into liquidation.

A finding by the court that the objection has no substantial merit or that the same has been cured shall be deemed an approval of the Pre-Negotiated Rehabilitation Plan.

G. PERIOD FOR APPROVAL OF REHABILITATION PLAN

The court shall have a maximum period of 120 days from the filing of the petition to approve or disapprove the Pre-Negotiated Rehabilitation Plan.

If the court fails to so act within the said period, the Pre-Negotiated Rehabilitation Plan shall be deemed approved. In such a case, the court shall certify that no action has been made within the 120-day period and the Pre-Negotiated Plan is deemed approved.

H. EFFECT OF APPROVAL

Approval of a Plan in pre-negotiated rehabilitation shall have the same legal effect as confirmation of a Plan in court-supervised rehabilitation proceedings. [See Court-Supervised Rehabilitation Proceedings under the Financial Rehabilitation and Insolvency Act (FRIA) of 2010]