Plain-English, practice-oriented explainer of how FRIA works for companies and individuals: when to use it, what you file, what instantly happens, how debts are treated, what creditors can and can’t do, how cases end (rehabilitation vs. liquidation), and how to protect yourself while it’s ongoing.

1) FRIA in one page

What FRIA is: The Philippines’ main law for rescuing financially distressed but viable debtors (rehabilitation) and orderly winding up those that are not (liquidation).
Who can use it:
- Corporations/partnerships/sole proprietors (business debtors)
- Individuals (natural persons), through suspension of payments or liquidation
Where cases go: Special Commercial Courts (designated RTC branches).
Two big paths:
1. Rehabilitation (save the business) – court-supervised, pre-negotiated, or out-of-court/workout.
2. Liquidation (close and pay fairly) – sell assets, pay in legal order, discharge remaining unpaid debts (with limits).

2) When to consider FRIA (warning signs & triggers)

You can’t pay debts as they fall due (cash-flow insolvency).
Total liabilities exceed total assets (balance-sheet insolvency).
Covenant defaults and lenders are about to foreclose or file multiple suits.
Snowballing taxes, payroll, or supplier arrears endanger operations.

Rule of thumb: If the business is still viable (there’s a realistic plan to fix cash, restructure, or sell assets and live), think rehabilitation. If the business is no longer viable, think liquidation before losses and legal risks get worse.

3) What instantly happens when a rehab case “commences”

When the court finds your petition in order, it issues a Commencement Order. In plain terms, this:

Freezes most creditor actions: new lawsuits, foreclosures, enforcement of judgments, and most collection attempts are stayed.
Preserves the business: suppliers and service providers can’t cut you off solely because you filed (subject to payment for post-filing use).
Appoints a Rehabilitation Receiver: an independent officer who oversees the debtor, gathers claims, and works on a Rehabilitation Plan.
Keeps management in place—usually: the debtor typically remains as debtor-in-possession. The court can install a Management Committee to take over if there’s fraud, gross mismanagement, or risk of asset dissipation.

What the stay does not cover: criminal cases and certain regulatory or police-power actions; some special claims may proceed with court leave. (Ask counsel about taxes, customs, and labor claims in your exact scenario.)

4) Your options under FRIA (company cases)

A) Court-Supervised Rehabilitation (CSR)

Who starts: The debtor (voluntary) or creditors (involuntary).
Key steps: Petition → Commencement Order (stay) → Receiver vets claims → Rehabilitation Plan is proposed, negotiated, and submitted to court → Court confirms if feasible, fair, and better than liquidation.
Outcome: If confirmed, the Plan binds all affected creditors, including dissenters, and you operate under the Plan’s terms.

B) Pre-Negotiated Rehabilitation

Idea: Debtor negotiates a plan with key creditors first, then files in court only to confirm the plan.
Upside: Faster; fight is narrower (on plan confirmation standards).
Prerequisite: Supermajority approvals set by the law and plan. (Exact voting thresholds are in the statute.)

C) Out-of-Court or Informal Restructuring/Workout (OCCRA)

Purely contractual, but FRIA recognizes it and allows standstill agreements and, if certain supermajorities sign on, the deal can bind dissenters (cram-down).
When to use: When you can reach creditors, avoid publicity, and keep courts to a minimum.

Practical tip: If you can herd the big creditors around one credible plan, pre-negotiated or out-of-court paths are cheaper and faster than a full CSR.

5) Anatomy of a Rehabilitation Plan (what it usually contains)

Snapshot of the business: assets, liabilities, cash flows, key contracts, lawsuits.
Why it failed and why it can live: root-cause analysis and viability metrics.
Treatment of claims: who gets paid when and how (cash, new terms, haircuts, debt-to-equity swaps, payment holidays).
Post-commencement financing (PCF): new money gets priority liens or superpriority with court approval to keep the lights on.
Asset sales: which assets can be sold free and clear (with liens attaching to proceeds).
Governance: monitoring, covenants, budgets, receiver’s or plan administrator’s powers, reporting.
Milestones & defaults: triggers to convert to liquidation if the plan fails.

6) What creditors need to know (and prepare)

File your claim on time with documents (contracts, invoices, SOAs, judgments, mortgage/pledge papers).
Watch classification:
- Secured – you have collateral; you’re stayed from foreclosing but your lien stays.
- Administrative/post-commencement – expenses after the filing (e.g., utilities, necessary suppliers) rank high.
- Unsecured – you share pro-rata after higher ranks are paid.
Set-off/compensation: Often restricted after commencement; get court guidance.
Guarantors/sureties: Actions against third-party guarantors may or may not be stayed; courts weigh equity and plan feasibility.
Voting: In plan approvals, majorities by amount (and sometimes by class) matter. Dissenters can be crammed down if legal tests are met.

7) Contracts, leases, and “ipso facto” clauses

“You filed, so you’re terminated” clauses generally can’t be enforced just because of the filing.
Debtor (with court oversight) may assume beneficial contracts (and cure defaults) or reject onerous ones (with resulting unsecured claims for damages).
Leases & essential services: Expect the court to ensure continuity if the debtor pays post-filing charges.

8) Post-Commencement Financing (PCF) in plain words

If the company needs fresh cash after filing:

The court can grant superpriority to the new lender (even priming older liens with protections), because no rehab works without fuel.
Existing secured creditors get adequate protection (substitute liens, cash payments, or other safeguards).

9) What happens if rehabilitation won’t work

The case may convert to liquidation, either by plan failure, creditor motion, or debtor’s own request.
Conversion ends the attempt to rescue and moves to sell assets and pay in order (see next section).

10) Liquidation (companies)

Voluntary (debtor files) or involuntary (creditors file on set grounds).
Court issues a Liquidation Order → Liquidator is appointed → Assets are gathered and sold.
Order of payment (simplified):
1. Administrative expenses (costs of the case)
2. Secured creditors (from their collateral or its proceeds)
3. Claims with statutory preferences (e.g., certain employee wage claims up to caps, specific taxes, as the law orders)
4. Unsecured creditors (pro-rata)
5. Owners/shareholders (if anything remains)
After due process, the court may issue a discharge for the debtor entity (winding up ends corporate life).

11) Individuals: suspension of payments & liquidation

Suspension of Payments (for individuals who are temporarily illiquid but solvent):
- You ask the court to hold off collections while you propose a payment schedule acceptable to a required majority of creditors.
- Useful when: you have income or realizable assets and just need time.
Individual Liquidation (voluntary or involuntary):
- If you’re insolvent, you or your creditors may petition.
- Court appoints a liquidator, sells non-exempt assets, pays creditors in order, and you may obtain a discharge from remaining provable debts (subject to exceptions).
- Exempt property (basic necessities as defined by law) is protected.

12) Creditor fairness tools: avoiding “bad transfers”

FRIA allows undoing certain transactions made before filing to cheat or favor some creditors—e.g., fraudulent conveyances or unfair preferences during a “suspect period.” The receiver/liquidator can claw back those assets or values to treat everyone fairly.

13) What you should do if you’re the debtor

Decide early: Rehab while viable; liquidate if not. Delay burns cash and weakens options.
Pick a path and prepare a data room: accurate AR/AP aging, contracts, litigation list, tax status, fixed-asset register, cash-flow model.
Engage major creditors early: Explain the problem and the fix, not just the pain.
Protect the estate: Stop insider transfers, secure inventory/receivables, maintain insurance.
Comply with orders and timelines: Missed filings can sink the case or trigger conversion.

14) What you should do if you’re a creditor

Diary the case: note bar dates for filing claims and objections.
Document your lien: mortgages, pledges, and chattel mortgages should be properly registered.
Engage on the plan: propose realistic terms; insist on transparency and feasibility (not wishful thinking).
Watch PCF: ensure adequate protection if you’re a secured creditor.
Consider alliances: creditor committees have leverage and lower costs.

15) Common myths—debunked

“Filing = guaranteed salvation.” No. Rehab is a business plan with court protection, not a magic wand.
“All debts vanish.” No. Debts are restructured in rehab; in liquidation, debts are paid as far as assets go and the rest may be discharged (per rules and exceptions).
“I can secretly pay favorites before filing.” Risky—clawback rules can reverse those transfers.
“Suppliers must keep supplying for free.” No. Post-filing supply is paid; otherwise they can ask the court for relief.

16) Practical timelines (indicative, not rigid)

Rehab filing → Commencement Order: fast, if papers are complete.
Claims gathering and plan drafting: weeks to a few months.
Plan confirmation fight: depends on objections and feasibility evidence.
Liquidation: asset gathering and sales can run months; big, complex estates take longer.

17) Quick decision trees

Business debtor

Viable? Yes → Pick CSR / Pre-negotiated / OCCRA → Draft credible plan → Seek confirmation
Viable? No → Liquidation now (don’t burn cash and risk personal liability)

Individual

Solvent but can’t meet due dates? → Suspension of Payments
Insolvent? → Voluntary Liquidation (or prepare to defend Involuntary)

18) Clean checklists

Debtor filing (rehab)

Board resolution/authority
Latest FS + aging schedules + projected cash flows
List of creditors (secured/unsecured), collateral, major contracts
Inventory of assets and cases
Draft Rehab Plan outline & proposed receiver candidates

Creditor claim

Proof of claim form
Contract/PO/invoices/judgments
Security documents + registrations
Computation of principal, interest, penalties (as of filing date)

19) Frequent pain points—and how to avoid them

Fantasy plans: Courts reject plans that are spreadsheets of hope. Build credible assumptions.
Insider dealing: Disclose all related-party transactions; expect scrutiny.
Tax and labor blind spots: Coordinate early; surprises here derail plans.
Silence with small creditors: Communicate. Angry small claimants can cause big delays.

20) Bottom line

FRIA gives structured breathing room to fix a viable business and a fair exit when rescue isn’t possible. Used well, it:

Stops the legal pile-on long enough to craft a plan,
Shares pain fairly through court-blessed restructuring,
Protects value via orderly liquidation when needed, and
Offers individuals a path to regroup (suspension) or reset (liquidation with discharge).

Act early, be transparent, and anchor every step on feasibility and fairness. That’s how FRIA works best—for debtors, creditors, employees, and the broader economy.