I. Introduction

Debt restructuring in the Philippine jurisdiction refers to the legal and quasi-legal mechanisms that allow financially distressed debtors (individuals, corporations, partnerships, or cooperatives) to renegotiate, suspend, or restructure their obligations with creditors under court supervision or pre-negotiated frameworks in order to avoid liquidation or bankruptcy.

The principal laws and rules currently governing debt restructuring in the Philippines are:

Financial Rehabilitation and Insolvency Act (FRIA) of 2010 (Republic Act No. 10142) and its 2013 Implementing Rules and Regulations (FRIA-IRR, A.M. No. 12-12-11-SC);
Financial Rehabilitation Rules of Procedure (2013) (A.M. No. 12-12-11-SC);
Pre-Negotiated Rehabilitation under the FRIA;
Out-of-Court or Informal Restructuring Agreement (OCRA/Standstill Agreement) under the FRIA and BSP/SEC/IC guidelines;
Court-Supervised Rehabilitation (voluntary or involuntary);
Suspension of Payments (for individual debtors);
Corporate Recovery Rules for micro and small enterprises under the Financial Rehabilitation and Sustainability Program for Micro and Small Enterprises (FSSP) (A.M. No. 20-12-01-SC, effective 2021);
Specialized frameworks for banks and financial institutions under BSP Circular No. 681 (2009, as amended) and the Philippine Deposit Insurance Corporation (PDIC) rehabilitation powers.

II. Types of Debt Restructuring Proceedings Available

Type	Who May File	Court Involvement	Key Feature
Suspension of Payments	Natural persons (individuals)	Required	4-month moratorium; no asset liquidation
Voluntary Rehabilitation	Any debtor (individual or juridical)	Required	Debtor remains in possession; rehabilitation plan
Involuntary Rehabilitation	Creditors holding ≥25% of total liabilities or any three (3) creditors with aggregate claim ≥₱1M	Required	Initiated by creditors
Pre-Negotiated Rehabilitation	Debtor with endorsement of creditors representing >50% (secured) + >67% (unsecured) or majority under FRIA thresholds	Required (for approval only)	Plan already agreed before filing
Out-of-Court Restructuring (OCRA)	Any debtor	None (voluntary)	Contractual; may be court-assisted later
Liquidation (Voluntary/Involuntary)	Debtor or creditors	Required	Asset sale and distribution

III. Court-Supervised Rehabilitation Proceedings (Main Track)

A. Jurisdiction and Venue

Regional Trial Courts designated as Special Commercial Courts (SEC-designated RTCs).
Venue: Principal office of the debtor (for juridical persons) or residence (for individuals) for at least six (6) months prior to filing.

B. Commencement Order (The “Stay Order” or “Automatic Stay”)

Upon filing of a proper petition and posting of bond (if involuntary), the court shall issue a Commencement Order within five (5) working days containing:

A universal stay or suspension of enforcement of all claims (180 days, extendible up to maximum 360 days in total);
Prohibition on termination of essential contracts;
Appointment of a Rehabilitation Receiver (mandatory if assets ≥₱50 million or by court discretion);
Debtor-in-possession (DIP) model if no receiver is appointed.

C. Rehabilitation Receiver

Must be licensed insolvency practitioner (accredited by SEC or BSP).
Powers: examine books, manage operations (if not DIP), verify claims, submit recommendations.
Compensation: fixed by the court (usually 2–5% of realized assets or fixed fee).

D. Creditors’ Meeting and Claims Verification

First creditors’ meeting within 40–60 days from Commencement Order.
Creditors file Proofs of Claim within period set by court (usually 30–60 days).
Rehabilitation Receiver submits verified List of Creditors.

E. Rehabilitation Plan

Submitted by debtor (or receiver) within 120 days from commencement (extendible).
Minimum contents under Sec. 62, FRIA:
1. Material financial commitments;
2. Treatment of claims (haircuts, conversion to equity, dacion en pago, debt-to-asset swaps);
3. Cram-down provisions (binding dissenting classes if fair and equitable).
Approval thresholds:
- At least 3 classes of creditors must approve;
- Majority of creditors in each class;
- Secured creditors: ≥50% of secured debt;
- Unsecured creditors: ≥67% of unsecured debt;
- Total approved creditors must represent >50% of total liabilities.

F. Cram-Down Power

The court may confirm a plan even over dissenting classes if:

The plan is fair and equitable;
Dissenting class is paid at least liquidation value;
No unfair subordination.

G. Termination of Proceedings

Successful rehabilitation → court issues Termination Order; debtor regains full control.
Failure → conversion to liquidation.

IV. Pre-Negotiated Rehabilitation (Fast-Track)

Debtor negotiates plan with creditors before filing.
Obtains written endorsement from:
- Creditors representing at least 67% of secured obligations;
- Creditors representing at least 75% of unsecured obligations;
- Creditors representing at least 85% of total liabilities (alternative threshold under FRIA-IRR).
Files petition attaching the pre-negotiated plan and endorsements.
Court approves within 30–60 days without lengthy hearings (no need for receiver in most cases).

V. Out-of-Court or Informal Restructuring Agreement (OCRA)

Purely contractual; no court involvement required.
Requires Standstill Agreement (minimum 90 days, renewable).
Minimum participating creditors:
- 67% secured + 75% unsecured + 85% total liabilities (same thresholds as pre-negotiated).
May be submitted to SEC or BSP for certification (makes it binding on non-signatories under certain conditions).
If later breached, may be converted into court-supervised rehabilitation.

VI. Suspension of Payments (For Individuals Only)

Available to natural persons unable to pay debts as they fall due but with sufficient assets.
Filing triggers 4-month stay.
Creditors’ meeting to approve a payment schedule (simple majority).
Court approves schedule → debtor pays in installments over maximum 5 years.

VII. Special Rules for Micro and Small Enterprises (FSSP Rules, A.M. No. 20-12-01-SC)

Simplified petition (only 5 pages).
No rehabilitation receiver required.
Summary proceedings (target 180 days).
Pre-packaged rehabilitation allowed.
Lower filing fees.

VIII. Liquidation Proceedings Under FRIA

A. Voluntary Liquidation

Debtor files petition admitting insolvency and willingness to be liquidated.

B. Involuntary Liquidation

Creditors with aggregate claim of at least ₱1 million or 25% of subscribed capital stock file petition.

C. Liquidator

Court appoints licensed liquidator who sells assets and distributes proceeds according to priority under Civil Code and FRIA:

Taxes and statutory obligations;
Secured creditors (up to collateral value);
Preferred claims (wages, benefits);
Unsecured creditors (pari passu).

IX. Cross-Border Insolvency

The Philippines adopted the UNCITRAL Model Law on Cross-Border Insolvency via FRIA (Chapter VI). Foreign representatives may seek recognition of foreign proceedings and obtain local stay orders.

X. Practical Tips and Common Pitfalls

Timing is critical – File before foreclosure or attachment becomes final.
Good faith requirement – Fraudulent petitions are dismissed with prejudice and may lead to criminal liability.
Secured creditors’ rights – Automatic stay does not prevent enforcement after 180 days if no viable plan is in sight.
Directors’ liability – Directors may be held personally liable for continuing to trade while insolvent (wrongful trading provisions under FRIA).
Tax implications – Debt forgiveness income may be taxable unless covered by BIR rulings for rehabilitation.

XI. Conclusion

The Philippine debt restructuring regime under the FRIA is one of the most modern in Southeast Asia, adopting debtor-in-possession, cram-down, and cross-border provisions. Successful rehabilitation, however, still hinges on early filing, credible financial projections, and the willingness of creditors to accept haircuts. The combination of court-supervised, pre-negotiated, and out-of-court mechanisms provides flexible tools for both debtors and creditors to maximize going-concern value and avoid the destructive effects of piecemeal liquidation.