Point of Law

Does FRIA cover banks, financial institutions?

/ 05:03 AM March 05, 2015

The Financial Rehabilitation and Insolvency Act of 2010 (FRIA) is the new law. It replaces the 1909 Insolvency Act.

The new law contains three main parts. The first is rehabilitation, whose purpose is to restore the financial health of insolvent debtors. The second is liquidation, which provides for the orderly liquidation of the debtor’s assets and liabilities, once it has been determined that operations can no longer be successfully restored. The third is cross-border insolvency, which is patterned after the UNCitral Model Law, whose purpose is to address insolvency-related matters involving foreign companies with Philippine-based assets or foreign-based assets of Philippine companies.


Recently, the Supreme Court promulgated the Financial Rehabilitation Rules of Procedure (FR Rules) to implement the provisions of FRIA on rehabilitation.

Unlike the Insolvency Act of 1909, FRIA and the FR Rules do not limit insolvency to a situation where the debtor’s assets are less than its liabilities. It now covers a situation where the debtor is unable to meet its obligations as they fall due even if its assets are more than its liabilities.


Relevant provisions

FRIA expressly provides that the term debtor “shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership duly registered with the Securities and Exchange Commission (SEC), a corporation duly organized and existing under Philippine laws, or an individual debtor who has become insolvent as defined herein” (Section 4(k)).

Section 5 of FRIA further provides that “[t]he term debtor does not include banks, insurance companies, pre-need companies, and national and local government agencies or units.”

The same section, however, provides that “government financial institutions other than banks and government-owned or controlled corporations shall be covered by this Act, unless their specific charter provides otherwise.”

To further complicate the issue, Section 138 of FRIA provides that the “liquidation of banks, financial institutions, insurance companies and pre-need companies shall be determined by relevant legislation. The provisions in this Act shall apply in a suppletory manner.” FRIA also has special provisions on the liquidation of securities market participants, which refer to a broker, dealer, underwriter, transfer agent or other juridical persons transacting securities in the capital markets.


Some questions


Some have personally raised to me the following questions under FRIA and FR Rules:

Rehabilitation. Are banks, insurance companies and pre-need companies entitled to get rehabilitated under FRIA? Does it make any difference whether the foregoing entities are privately owned or government owned? Are there financial institutions that can be rehabilitated under FRIA? If so, what are these financial institutions?

Liquidation. Does FRIA govern the liquidation of banks and financial institutions? If not, what law governs their liquidation? When and to what extent do the the provisions of FRIA apply? Are there financial institutions whose liquidation is governed by FRIA?


Possible answers

Given the technical nature of FRIA and FR Rules, the answers to the foregoing questions are not as simple as they appear to be. Luckily though, there will be a seminar-forum entitled “Bankruptcy: Not the End of the World-There’s Hope for All Under the FRIA” on March 17 at the Dusit Hotel. Speakers will include BSP Governor Amando Tetangco, Jr. and members of the Supreme Court committee that drafted the FR Rules led by Associate Justice Estela Perlas-Bernabe, a highly respected insolvency expert.

If you want answers to the questions or at least some of them, you may wish to attend it. For details, you may want to access any of these websites:; www.finex.; or Alternatively, you may email [email protected] for inquiries about the seminar-forum.


The author is senior partner of Angara Abello Concepcion Regala & Cruz Law Offices (Accralaw) and is a professor in the Ateneo Law School. He is also president of Shareholders’ Association of the Philippines (SharePHIL). The views in this column are exclusively his, and should not be attributed in any way to the institutions with which he is currently affiliated. He may be contacted through [email protected]

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TAGS: 1909 Insolvency Act, Banking, Financial Institutions, Financial Rehabilitation and Insolvency Act of 2010, Fria, new law
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