Individual debtors under financial distress may be covered by any of the following options: (a) Suspension of payments; (b) Voluntary liquidation; and (c) Involuntary liquidation. This discussion covers only suspension of payments under Republic Act No. 10142, also known as the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010“, as fleshed out in the FLSP Rules. Moreover, the discussion below on Suspension of Payments applies only to individual debtors.

Options – Corporations:	Other options – Individuals:
* Court-supervised rehabilitation * Pre-negotiated rehabilitation * Informal restructuring * Liquidation	* Voluntary insolvency * Involuntary insolvency

1. PETITION FOR SUSPENSION OF PAYMENTS

The petition for suspension of payments is filed by the individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting them when they respectively fall due. In case of insufficient property to cover all debts, the proper remedy is insolvency proceedings, whether voluntary or involuntary). An individual debtor is a natural person who is a resident and citizen of the Philippines that has become insolvent.

The verified petition filed (see Jurisdiction) by the debtor must indicate the names of at least 3 nominees to the position of commissioner and must include, as minimum attachments, the following: 

• (a) a schedule of debts and liabilities, including a list of creditors with their addresses, amount of claims and collaterals, if any; 

• (b) an inventory of all the debtor’s assets, including receivables and claims against third parties; 

• (c) a schedule of current income and expenditures within 3 months prior to the filing of the petition; 

• (d) the income tax return of the debtor for the immediately preceding year; 

• (e) a list of all properties acquired by the debtor in the immediately preceding 2 years; 

• (f) a list of all properties sold, disposed of, or donated by the debtor in the immediately preceding 2 years; 

• (g) a schedule of the debtor’s executory contracts and unexpired leases; and 

• (h) a proposed agreement with the creditors. 

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

[See also Introduction to Insolvency in the Philippines: Suspension of Payments, Financial Rehabilitation and Liquidation]

2. COURT ACTION ON PETITION

If the Court finds the petition sufficient in form and substance, it must, within 5 working days from the filing of the petition, issue a Suspension of Payments Order: 

• (a) prohibiting creditors from suing or instituting proceedings for collection against the debtor, except: (i) creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred within 60 days immediately prior to the filing of the petition; and (ii) secured creditors; 

• (b) calling a meeting of all the creditors named in the schedule of debts and liabilities at a time not less than 15 days nor more than 40 days from the date of such order and designating the date, time, and place of the meeting; 

• (c) directing such creditors to present written evidence of their claims before the scheduled creditors’ meeting; 

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

• (e) directing the clerk of court to send or cause the sending of a copy of the order by registered mail, postage prepaid, to all creditors named in the schedule of debts and liabilities; 

• (f) prohibiting the petitioner from selling, transferring, encumbering or disposing his property, except those used in the ordinary operations of commerce or of industry in which the petitioner is engaged as long as the proceedings are pending; 

• (g) prohibiting the petitioner from making any payment outside of the necessary or legitimate expenses of his business or industry, as long as the proceedings are pending; and 

• (h) appointing a commissioner to preside over the creditors’ meeting, who may or may not be from among the nominees of the debtor. 

[See also Cross-Border Rehabilitation and Insolvency: Actions of Foreign Creditors and Enforcement Framework of Foreign Proceedings in the Philippines]

3. SUSPENSION ORDER; ACTIONS SUSPENDED

Upon motion filed by the individual debtor, the court may issue an order suspending any pending execution against the individual debtor. Properties held as security by secured creditors shall not be the subject of such suspension order. The suspension order shall lapse when 3 months shall have passed without the proposed agreement being accepted by the creditors or as soon as such agreement is denied.

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: (a) 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 (b) secured creditors. 

4. WHO MAY BE APPOINTED COMMISSIONER

The commissioner, who shall preside over the creditors’ meeting in connection with the proceedings, must be a natural person who must have the following minimum qualifications: 

• (a) a citizen of the Philippines or a resident thereof for 6 months immediately preceding his appointment; 

• (b) of good moral character and with acknowledged integrity, impartiality and independence; 

• (c) has the requisite knowledge of insolvency laws, rules and procedures; and 

• (d) has no conflict of interest. However, any conflict of interest may be waived, expressly or impliedly, by a party who may be prejudiced thereby. An individual shall be deemed to have a conflict of interest if he is so situated as to be materially influenced in the exercise of his judgment for or against any party to the proceedings. 

The debtor or any creditor may file a written objection to the commissioner appointed by the court on the ground that he does not meet the foregoing minimum requirements. If the court finds merit in the objection, it must appoint a new commissioner. 

5. CREDITORS’ MEETING

The presence of creditors, either in person or through a representative duly authorized in writing, holding claims amounting to at least 3/5 of the liabilities of the petitioner, excluding liabilities unaffected by the Suspension of Payments, shall be necessary to hold a creditors’ meeting. The court-appointed commissioner shall preside over the meeting and the clerk of court shall act as meeting secretary, subject to the following rules: 

• (a) The clerk of court must record the creditors present and the amount of their respective claims; 

• (b) The commissioner must examine the written evidence of the claims. If the creditors present hold at least 3/5 of the liabilities of the debtor as above-qualified, he shall declare a quorum; 

• (c) The creditors and the debtor shall discuss the proposed agreement and any amendment thereto, and put it to a vote. No creditor who incurred his credit within 90 days prior to the filing of the petition shall be allowed to vote; 

• (d) To form a majority, it is necessary: (i) that 2/3 of the creditors voting unite upon the matter on the table; and (ii) that the claims represented by said majority vote amount to at least 3/5 of the total liabilities of the debtor as above-qualified; and 

• (e)  After the announcement of the results, all the protests against the majority vote shall be drawn up, and the commissioner, the debtor and all creditors who took part in the voting must sign the affirmed propositions. 

The commissioner must prepare a report of the proceedings that must include the voting results, the affirmed propositions mentioned in paragraph (e) above, if any, and submit the report to the court not later than 3 days after the last creditors’ meeting. 

6. WHO MAY REFRAIN FROM ATTENDING

The following need not attend the creditors’ meeting:

• (a) Secured creditors 

• (b) Creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred within 60 days immediately prior to the filing of the petition 

These creditors shall not be bound by any agreement arrived at in such meeting, unless, being aware of this right, they attend the meeting, participate in the discussions and vote therein. 

7. REJECTION OF PROPOSED AGREEMENT

If no creditors’ meeting with the required quorum is held within 90 days from the date of the last publication, or, there being such meeting or meetings, the debtor’s proposal is not approved within the said period, the same shall be deemed rejected. In such a case, the court, within 5 days from the lapse of the 90-day period, or from receiving the report of the commissioner mentioned in the preceding section that the debtor’s proposal has been rejected, shall issue an order dismissing the petition. 

8. OBJECTIONS

If the proposal of the debtor, or any amendment thereto, made during the creditors’ meeting, is approved by the majority of creditors, any creditor who attended the meeting and who dissented from and protested against the vote of the majority may file an objection with the court within 10 days from the date of the meeting on any of the following grounds: 

• (a) defects in the call for the meeting, in the holding thereof, and in the deliberations had thereat which prejudice the rights of the creditors; 

• (b) fraudulent connivance between one or more creditors and the individual debtor to vote in favor of the proposed agreement, or any amendment thereto; or 

• (c) fraudulent conveyance of claims for the purpose of obtaining a majority. 

The court shall hear and pass upon such objection in a summary manner, within 30 days from the filing of the objection. If the decision of the majority of creditors to approve the debtor’s proposal, or any amendment thereto, is annulled by the court, the petition must be dismissed. 

9. EFFECTS OF APPROVAL

If the decision of the majority of the creditors to approve the proposed agreement, or any amendment thereto, 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 issue an order confirming the approval of the proposed agreement, or any amendment thereto, and directing all parties bound thereby to comply with its terms. 

10. RESIDUAL POWERS OF THE COURT

If the individual debtor fails, wholly or in part, to perform the The court, upon motion of any affected party, may issue any order which may be necessary or proper to enforce the agreement. If the debtor fails, wholly or in part, to perform his obligations under the agreement, or to comply with any order of the court, the court, upon motion of any creditor, shall declare the agreement terminated, and all the rights which the creditors had against the debtor before the agreement shall revest in them.