This pandemic is crushing businesses all over the country. With the loss of economic activity debts will soon start to pile up and perhaps leading to the closure of many establishments. Worse, experts are seemingly not expecting a bounce back even after the lifting of the Enhanced Community Quarantine.
However, businesses should not just stop there and hang up their gloves. In 2010 the Congress enacted the Financial Rehabilitation and Insolvency Act (FRIA) aiming to save industries from bankruptcy and regain their economic status.
Who may avail this?
Under the said law an INSOLVENT DEBTOR (one who is unable to pay liabilities as they fall due or whose liabilities are greater than his assets), whether natural or juridical person may ask for a Court-Supervised Rehabilitation. Similarly, any creditor or group of creditors can take such remedial measure on the behalf of the debtor to ensure recoupment of their investments.
Basic features of the FRIA
By seeking Court-Supervised Rehabilitation businesses will have opportunity to re-structure their loans, minimize their losses, implement a rehabilitation plan, and further get the following benefits:
- Suspension of all actions or proceedings against the debtor – companies will obviously not recover if there are cases, left and right being filed by their creditors. Fortunately, the FRIA prevents this situation and so makes the corporate rehabilitation more feasible.
- Brings the company and its creditors together – With the assistance from the court, the company and its creditors will sit together, discuss the rehabilitation plan and the restructuring of the existing loans.
- Suspension of payments – Section 16 (q) of the law prohibits the debtor from making any payment of its liabilities once a Stay Order is issued by the court. This enables the debtor to save its remaining assets while recuperating from losses.
- Waiver of national and local taxes – To fully help businesses the Congress deemed it proper to include a provision waiving national and local taxes (including penalties, interests and surcharges) in favor of the debtor until the approval of the rehabilitation plan or dismissal of the case.
This action is supposed to be SUMMARY in nature.
Not intended to put the creditors at a disadvantage
FRIA is of course not intended to put the creditors at a disadvantage. On the contrary, they will surely reap the benefits once a successful rehabilitation has taken place. More so, in the case of BPI FAMILY SAVINGS BANK V. ST MICHAEL MEDICAL CENTER (G.R. No. 205469, March 25, 2015) the Supreme Court has put a safeguard and thus preventing unscrupulous individuals to simply run way from creditors. The High Court said:
While the Court recognizes the financial predicaments of upstart corporations under
the prevailing economic climate, it must nonetheless remain forthright in limiting
the remedy of rehabilitation only to meritorious cases. As above-mentioned, the
purpose of rehabilitation proceedings is not only to enable the company to gain a
new lease on life but also to allow creditors to be paid their claims from its earnings,
when so rehabilitated. Hence, the remedy must be accorded only after a judicious
regard of all stakeholders’ interests; it is not a one-sided tool that may be graciously
invoked to escape every position of distress.
In conclusion, though this law brings fresh hope to dying businesses, it also protects the interests of creditors by making sure, that at the end of the day, they too will receive the fruits of their investments.