The Philippines labored under archaic bankruptcy law for more than a century.
The Financial Rehabilitation and Insolvency Act (FRIA) was passed into law by the Philippine Congress in early 2010. As well as providing for the liquidation of bankrupt companies, the legislation also allows possible rehabilitation for debtors who are able to get more than a 50 percent approval rate from their creditors.
History
Prior to the Financial Rehabilitation and Insolvency Act, the Philippines operated according to century-old bankruptcy legislation. The Insolvency Act of 1909 was, in reality, virtually never used in dealing with the claims of either corporations or individuals. In its place, the Philippine state has developed a unique process based on rules outlined by the Supreme Court in 2000. These involve petitions for insolvency being heard by 60 specifically designed regional trial courts.
Economy
When the International Bank for Reconstruction and Development surveyed the Philippines in 2009, it ranked the economy as 151st out of 181. One of the reasons given for this ranking related to the country's archaic insolvency legislation. The "Doing Business 2009" snapshot found that the average time it took to complete a bankruptcy proceeding in the Philippines was 5.7 years compared with 2.7 years for other countries in the region.
Function
Under the Financial Rehabilitation and Insolvency Act, shareholders will be able to recover value from collapsed listed companies much more speedily, thus improving lender confidence in the country. Furthermore, both businesses and individuals on the verge of bankruptcy can ask for a suspension of payments to their creditors. If their assets amount to less than their liabilities, they may also petition for a discharge from their debts.
