INSOLVENCY IN THE PHILIPPINES

Insolvency laws in the Philippines do not provide for any special rule, regulation, treatment and/or circumstance applicable only to European Corporations.  Insolvency laws apply the same way to European Corporations, as other domestic or foreign corporations.

OVERVIEW AND INTRODUCTION TO THE JURISDICTION/APPLICABLE LEGISLATION

 

There are three types of remedies available to a financially distressed individual or juridical person: suspension of payments (only available to individuals), corporate rehabilitation (voluntary / involuntary, pre-negotiated, or out-of-court or informal restructuring agreements) and liquidation. The applicable laws and regulations are the Civil Code of the Philippines (Civil Code), the Financial Rehabilitation and Insolvency Act (FRIA), Presidential Decree No. 902-A (PD 902-A)23, the Financial Rehabilitation Rules of Procedure (Financial Rehabilitation Rules)24, and the Financial Liquidation and Suspension of Payments Rules for Procedure for Insolvent Debtors (FLSP Rules25). The type of proceeding that applies to a debtor depends on the particular relief sought.

 

The FRIA became effective on 31 August 2010. It provides for a more comprehensive framework for rehabilitation and liquidation of debtors. More importantly, the FRIA has made available to partnerships and sole proprietorships, the benefits of rehabilitation proceedings. This is advantageous for small businesses as they are more commonly formed as partnerships or individual enterprises. Banks, insurance companies and pre-need companies, and national and local government agencies or units, however, are not covered under the FRIA.

 

On 27 August 2013, the Supreme Court promulgated the Financial Rehabilitation Rules which provides for the procedure governing rehabilitation proceedings under the FRIA. On 21 April 2015, the Supreme Court also promulgated the FLSP Rules which provides for the procedure governing liquidation proceedings of insolvent juridical and individual debtors and suspension of payments of insolvent individual debtors under the FRIA. On 21 June 2016, the Supreme Court expanded the coverage of the current Special Commercial Courts to include cases governed by the FRIA26. On 5 October 2016, the Supreme Court also issued the schedule of legal fees for proceedings under the FRIA27.

 

If what is sought is merely a little financial breathing space, then the remedy is suspension of payments (available to individual debtors), which provides for the deferment of payments and temporary protection against actions/ executions by unsecured creditors. 

 

If, on the other hand, a company would need to undergo rehabilitation which would of a company entail more radical measures such as changes in organization, management and/or strategy, and requires temporary protection against both secured and unsecured creditors, then the remedy is to seek corporate rehabilitation. Finally, if the debtor company has become insolvent and incapable of being rehabilitated, it may apply for liquidation and have its assets distributed accordingly among its creditors. In all cases under the FRIA, the debtor shall be insolvent or 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.

 

Each of these remedies is discussed in more detail in the Doing Business in the Philippines Booklet. 

To read more on the following topics:

  • Suspension of Payment and Rehabilitation

    • Suspension of Payments​

    • Court-Supervised Rehabilitation

    • Pre-Negotiated Rehabilitation

    • Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans

  • Liquidation Proceedings (Individuals or Corporations)​

    • Voluntary Liquidation​

    • Effects of Liquidation Order

    • Rights of Secured Creditors

    • Liquidation Plan

    • Concurrence and Preference of Credits

    • Claw-back Provisions

  • Cross-Border Insolvency Proceedings

 

Click here to download the full Doing Business in the Philippines Book here, and refer to page 85 - 92 »

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