FRIA-liquidation-1.docx - LIQUIDATION The high court said a trial court would declare a company bankrupt in order that its creditors could begin filing

FRIA-liquidation-1.docx - LIQUIDATION The high court said a...

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LIQUIDATION The high court said a trial court would declare a company bankrupt in order that its creditors could begin filing claims in the settlement of the corporation’s debts and obligations. 1 It is similar to the settlement of estate of deceased persons. In the case of bankruptcy, there is a determination of all the assets and the consequent payment of all the debts and liabilities of the company or estate in question. What are the governing rules regarding the Liquidation? The FLSP (Financial Liquidation and Suspension of Payments Rules of Procedure) is the second of two sets of rules of procedure promulgated by the Supreme Court to implement the Financial Rehabilitation and Insolvency Act (“FRIA” ). The first set was the Financial Rehabilitation Rules of Procedure (FR Rules) , which became effective on October 22, 2013. Similar to the FR Rules, the FLSP Rules, which became effective on July 27, 2015, was designed to provide a timely, fair, transparent, effective and efficient liquidation of the assets and liabilities of an insolvent debtor. Scope of application The FLSP Rules applies to liquidation in times of insolvency. It governs petitions for the liquidation of insolvent juridical and individual debtors. It also governs petitions for the suspension of payments of insolvent individual debtors. The FLSP Rules applies to proceedings that started as a rehabilitation proceeding but was later converted by a rehabilitation court into a liquidation proceeding pursuant to the FRIA and FR Rules. The FLSP Rules also remedies deficiencies in the liquidation of entities expressly excluded from the coverage of the FRIA. Examples of these entities are banks, pre- need companies and insurance companies. Where to file petition The petition for liquidation in insolvency should be filed in the regional trial courts. Specifically, when the debtor’s principal office is stated to be in Metro Manila, the petition should be filed in the city or municipality where its head office is located. 2 1 Pacific Banking Corp. Employees Organization v. Court of Appeals (312 Phil. 578, 592-593 2 Gonzales vs. GJH Land, Inc., G.R. No. 202664, November 20, 2015
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A liquidation case should be assigned or raffled to the trial court designated as a special commercial court by the SC. Where the case is assigned or raffled to the wrong court, it must be re-assigned or re-raffled to the proper court. Where there is no special commercial court in the place where the debtor holds its principal office, it must be assigned to the nearest special commercial court. Note: For the FLSP to apply, the key requirement is insolvency. Insolvency does not only contemplate a situation where the debtor’s assets are less than its liabilities. A debtor is also considered insolvent, for purposes of the FRIA and FLSP Rules, if it is generally unable to pay its liabilities as they fall due in the ordinary course of business.
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