REPUBLIC ACT No.

10142
AN ACT PROVIDING FOR THE
REHABILITATION OR LIQUIDATION OF
FINANCIALLY DISTRESSED ENTERPRISES
AND INDIVIDUALS
Be it enacted by the Senate and House of
Representatives of the Philippines in Congress
assembled:

incurred for the rehabilitation or liquidation of the

debtor;
(3) incurred in the ordinary course of business of the
debtor after the commencement date;
(4) for the payment of new obligations obtained after
the commencement date to finance the rehabilitation
of the debtor;

CHAPTER I
GENERAL PROVISIONS

(5) incurred for the fees of the rehabilitation receiver

or liquidator and of the professionals engaged by
them; and

Section 1. Title. - This Act shall be known as

the "Financial Rehabilitation and Insolvency Act
(FRIA) of 2010".

(6) that are otherwise authorized or mandated under

this Act or such other expenses as may be allowed by
the Supreme Court in its rules.

Section 2. Declaration of Policy. - It is the policy of

the State to encourage debtors, both juridical and
natural persons, and their creditors to collectively and
realistically resolve and adjust competing claims and
property rights. In furtherance thereof, the State shall
ensure a timely, fair, transparent, effective and
efficient rehabilitation or liquidation of debtors. The
rehabilitation or liquidation shall be made with a
view to ensure or maintain certainly and
predictability in commercial affairs, preserve and
maximize the value of the assets of these debtors,
recognize creditor rights and respect priority of
claims, and ensure equitable treatment of creditors
who are similarly situated. When rehabilitation is not
feasible, it is in the interest of the State to facilities a
speedy and orderly liquidation of these debtor's assets
and the settlement of their obligations.

(b) Affiliate shall refer to a corporation that directly

or indirectly, through one or more intermediaries, is
controlled by, or is under the common control of
another corporation.

Section 3. Nature of Proceedings. - The proceedings

under this Act shall be in rem. Jurisdiction over all
persons affected by the proceedings shall be
considered as acquired upon publication of the notice
of the commencement of the proceedings in any
newspaper of general circulation in the Philippines in
the manner prescribed by the rules of procedure to be
promulgated by the Supreme Court.
The proceedings shall be conducted in a summary
and non-adversarial manner consistent with the
declared policies of this Act and in accordance with
the rules of procedure that the Supreme Court may
promulgate.
Section 4. Definition of Terms. - As used in this Act,
the term:
(a) Administrative expenses shall refer to those
reasonable and necessary expenses:
(1) incurred or arising from the filing of a petition
under the provisions of this Act;
(2) arising from, or in connection with, the conduct of
the proceedings under this Act, including those

(c) Claim shall refer to all claims or demands of

whatever nature or character against the debtor or its
property, whether for money or otherwise, liquidated
or unliquidated, fixed or contingent, matured or
unmatured, disputed or undisputed, including, but not
limited to; (1) all claims of the government, whether
national or local, including taxes, tariffs and customs
duties; and (2) claims against directors and officers of
the debtor arising from acts done in the discharge of
their functions falling within the scope of their
authority:Provided, That, this inclusion does not
prohibit the creditors or third parties from filing cases
against the directors and officers acting in their
personal capacities.
(d) Commencement date shall refer to the date on
which the court issues the Commencement Order,
which shall be retroactive to the date of filing of the
petition for voluntary or involuntary proceedings.
(e) Commencement Order shall refer to the order
issued by the court under Section 16 of this Act.
(f) Control shall refer to the power of a parent
corporation to direct or govern the financial and
operating policies of an enterprise so as to obtain
benefits from its activities. Control is presumed to
exist when the parent owns, directly or indirectly
through subsidiaries or affiliates, more than one-half
(1/2) of the voting power of an enterprise unless, in
exceptional circumstances, it can clearly be
demonstrated that such ownership does not constitute
control. Control also exists even when the parent
owns one-half (1/2) or less of the voting power of an
enterprise when there is power:
(1) over more than one-half (1/2) of the voting rights
by virtue of an agreement with investors;

(2) to direct or govern the financial and operating

policies of the enterprise under a statute or an
agreement;
(3) to appoint or remove the majority of the members
of the board of directors or equivalent governing
body; or
(4) to cast the majority votes at meetings of the board
of directors or equivalent governing body.
(g) Court shall refer to the court designated by the
Supreme Court to hear and determine, at the first
instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person
which has a claim against the debtor that arose on or
before the commencement date.
(i) Date of liquidation shall refer to the date on which
the court issues the Liquidation Order.
(j) Days shall refer to calendar days unless otherwise
specifically stated in this Act.
(k) 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.
(l) Encumbered property shall refer to real or
personal property of the debtor upon which a lien
attaches.
(m) General unsecured creditor shall refer to a
creditor whose claim or a portion thereof its neither
secured, preferred nor subordinated under this Act.
(n) Group of debtors shall refer to and can cover
only: (1) corporations that are financially related to
one another as parent corporations, subsidiaries or
affiliates; (2) partnerships that are owned more than
fifty percent (50%) by the same person; and (3)
single proprietorships that are owned by the same
person. When the petition covers a group of debtors,
all reference under these rules to debtor shall include
and apply to the group of debtors.
(o) Individual debtor shall refer to a natural person
who is a resident and citizen of the Philippines that
has become insolvent as defined herein.
(p) Insolvent shall refer to the financial condition of a
debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of
business or has liabilities that are greater than its or
his assets.

(q) Insolvent debtor's estate shall refer to the estate of

the insolvent debtor, which includes all the property
and assets of the debtor as of commencement date,
plus the property and assets acquired by the
rehabilitation receiver or liquidator after that date, as
well as all other property and assets in which the
debtor has an ownership interest, whether or not these
property and assets are in the debtor's possession as
of commencement date: Provided, That trust assets
and bailment, and other property and assets of a third
party that are in the possession of the debtor as of
commencement date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings
initiated by creditors.
(s) Liabilities shall refer to monetary claims against
the debtor, including stockholder's advances that have
been recorded in the debtor's audited financial
statements as advances for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim
or judicial charge on real or personal property that
legality entities a creditor to resort to said property
for payment of the claim or debt secured by such lien.
(u) Liquidation shall refer to the proceedings under
Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued
by the court under Section 112 of this Act.
(w) Liquidator shall refer to the natural person or
juridical entity appointed as such by the court and
entrusted with such powers and duties as set forth in
this Act: Provided, That, if the liquidator is a juridical
entity, it must designated a natural person who
possesses all the qualifications and none of the
disqualifications as its representative, it being
understood that the juridical entity and the
representative are solidarity liable for all obligations
and responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a
management position described in or contemplated
by a juridical entity's articles of incorporation, bylaws
or equivalent documents, except for the corporate
secretary, the assistant corporate secretary and the
external auditor.
(y) Ordinary course of business shall refer to
transactions in the pursuit of the individual debtor's
or debtor's business operations prior to rehabilitation
or insolvency proceedings and on ordinary business
terms.
(z) Ownership interest shall refer to the ownership
interest of third parties in property held by the debtor,
including those covered by trust receipts or
assignments of receivables.

(aa) Parent shall refer to a corporation which has

control over another corporation either directly or
indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor,
a creditor, the unsecured creditors' committee, a
stakeholder, a party with an ownership interest in
property held by the debtor, a secured creditor, the
rehabilitation receiver, liquidator or any other
juridical or natural person who stands to be benefited
or injured by the outcome of the proceedings and
whose notice of appearance is accepted by the court.
(cc) Possessory lien shall refer to a lien on property,
the possession of which has been transferred to a
creditor or a representative or agent thereof.
(dd) Proceedings shall refer to judicial proceedings
commenced by the court's acceptance of a petition
filed under this Act.

(mm) Securities market participant shall refer to a

broker dealer, underwriter, transfer agent or other
juridical persons transacting securities in the capital
market.
(nn) Stakeholder shall refer, in addition to a holder of
shares of a corporation, to a member of a nonstock
corporation or association or a partner in a
partnership.
(oo) Subsidiary shall refer to a corporation more than
fifty percent (50%) of the voting stock of which is
owned or controlled directly or indirectly through one
or more intermediaries by another corporation, which
thereby becomes its parent corporation.
(pp) Unsecured claim shall refer to a claim that is not
secured by a lien.
(qq) Unsecured creditor shall refer to a creditor with
an unsecured claim.

(ee) Property of others shall refer to property held by

the debtor in which other persons have an ownership
interest.

(rr) Voluntary proceedings shall refer to proceedings

initiated by the debtor.

(ff) Publication notice shall refer to notice through

publication in a newspaper of general circulation in
the Philippines on a business day for two (2)
consecutive weeks.

(ss) Voting creditor shall refer to a creditor that is a

member of a class of creditors, the consent of which
is necessary for the approval of a Rehabilitation Plan
under this Act.

(gg) Rehabilitation shall refer to the restoration of the

debtor to a condition of successful operation and
solvency, if it is shown that its continuance of
operation is economically feasible and its creditors
can recover by way of the present value of payments
projected in the plan, more if the debtor continues as
a going concern than if it is immediately liquidated.

Section 5. Exclusions. - The term debtor does not

include banks, insurance companies, pre-need
companies, and national and local government
agencies or units.

(hh) Rehabilitation receiver shall refer to the person

or persons, natural or juridical, appointed as such by
the court pursuant to this Act and which shall be
entrusted with such powers and duties as set forth
herein.
(ii) Rehabilitation Plan shall refer to a plan by which
the financial well-being and viability of an insolvent
debtor can be restored using various means including,
but not limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-reorganization,
dacion en pago, debt-equity conversion and sale of
the business (or parts of it) as a going concern, or
setting-up of new business entity as prescribed in
Section 62 hereof, or other similar arrangements as
may be approved by the court or creditors.
(jj) Secured claim shall refer to a claim that is secured
by a lien.
(kk) Secured creditor shall refer to a creditor with a
secured claim.
(ll) Secured party shall refer to a secured creditor or
the agent or representative of such secured creditor.

For purposes of this section:

(a) Bank shall refer to any duly licensed bank or
quasi-bank that is potentially or actually subject to
conservatorship,
receivership
or
liquidation
proceedings under the New Central Bank Act
(Republic Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies
that are potentially or actually subject to insolvency
proceedings under the Insurance Code (Presidential
Decree No. 1460) or successor legislation; and
(c) Pre-need company shall refer to any corporation
authorized/licensed to sell or offer to sell pre-need
plans.
Provided, 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.
Section 6. Designation of Courts and Promulgation
of Procedural Rules. - The Supreme Court shall
designate the court or courts that will hear and
resolve cases brought under this Act and shall
promulgate the rules of pleading, practice and

procedure to govern the proceedings brought under

this Act.

be commenced, or in contemplation of the

proceedings, willfully commit the following acts:

Section
7. Substantive
and
Procedural
Consolidation. - Each juridical entity shall be
considered as a separate entity under the proceedings
in this Act. Under these proceedings, the assets and
liabilities of a debtor may not be commingled or
aggregated with those of another, unless the latter is a
related enterprise that is owned or controlled directly
or indirectly by the same interests: Provided,
however, That the commingling or aggregation of
assets and liabilities of the debtor with those of a
related enterprise may only be allowed where:

(a) Dispose or cause to be disposed of any property

of the debtor other than in the ordinary course of
business or authorize or approve any transaction in
fraud of creditors or in a manner grossly
disadvantageous to the debtor and/or creditors; or

(a) there was commingling in fact of assets and

liabilities of the debtor and the related enterprise prior
to the commencement of the proceedings;
(b) the debtor and the related enterprise have
common creditors and it will be more convenient to
treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join
the debtor as party petitioner and to commingle its
assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the
debtor and the related enterprise is beneficial to all
concerned and promotes the objectives of
rehabilitation.
Provided, finally, That nothing in this section shall
prevent the court from joining other entities affiliated
with the debtor as parties pursuant to the rules of
procedure as may be promulgated by the Supreme
Court.
Section 8. Decisions of Creditors. - Decisions of
creditors shall be made according to the relevant
provisions of the Corporation Code in the case of
stock or nonstock corporations or the Civil Code in
the case of partnerships that are not inconsistent with
this Act.
Section 9. Creditors Representatives. - Creditors may
designate representatives to vote or otherwise act on
their behalf by filing notice of such representation
with the court and serving a copy on the
rehabilitation receiver or liquidator.
Section 10. Liability of Individual Debtor, Owner of
a Sole Proprietorship, Partners in a Partnership, or
Directors and Officers. - Individual debtor, owner of
a sole proprietorship, partners in a partnership, or
directors and officers of a debtor shall be liable for
double the value of the property sold, embezzled or
disposed of or double the amount of the transaction
involved, whichever is higher to be recovered for
benefit of the debtor and the creditors, if they, having
notice of the commencement of the proceedings, or
having reason to believe that proceedings are about to

(b) Conceal or authorize or approve the concealment,

from the creditors, or embezzles or misappropriates,
any property of the debtor.
The court shall determine the extent of the liability of
an owner, partner, director or officer under this
section. In this connection, in case of partnerships
and corporations, the court shall consider the amount
of the shareholding or partnership or equity interest
of such partner, director or officer, the degree of
control of such partner, director or officer over the
debtor, and the extent of the involvement of such
partner, director or debtor in the actual management
of the operations of the debtor.
Section 11. Authorization to Exchange Debt for
Equity. - Notwithstanding applicable banking
legislation to the contrary, any bank, whether
universal or not, may acquire and hold an equity
interest or investment in a debtor or its subsidiaries
when conveyed to such bank in satisfaction of debts
pursuant to a Rehabilitation or Liquidation Plan
approved by the court: Provided, That such
ownership shall be subject to the ownership limits
applicable to universal banks for equity investments
and: Provided, further, That any equity investment or
interest acquired or held pursuant to this section shall
be disposed by the bank within a period of five (5)
years or as may be prescribed by the Monetary
Board.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
Section
12. Petition
to
Initiate
Voluntary
Proceedings by Debtor. - When approved by the
owner in case of a sole proprietorship, or by a
majority of the partners in case of a partnership, or in
case of a corporation, by a majority vote of the board
of directors or trustees and authorized by the vote of
the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock, or in case of
nonstock corporation, by the vote of at least twothirds (2/3) of the members, in a stockholder's or
member's meeting duly called for the purpose, an
insolvent debtor may initiate voluntary proceedings
under this Act by filing a petition for rehabilitation
with the court and on the grounds hereinafter
specifically provided. The petition shall be verified to
establish the insolvency of the debtor and the

viability of its rehabilitation, and include, whether as

an attachment or as part of the body of the petition, as
a minimum the following:
(a) Identification of the debtor, its principal activities
and its addresses;
(b) Statement of the fact of and the cause of the
debtor's insolvency or inability to pay its obligations
as they become due;
(c) The specific relief sought pursuant to this Act;

failed generally to meet its liabilities as they fall due;

or
(b) a creditor, other than the petitioner/s, has initiated
foreclosure proceedings against the debtor that will
prevent the debtor from paying its debts as they
become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary
Proceedings. The
creditor/s'
petition
for
rehabilitation shall be verified to establish the
substantial likelihood that the debtor may be
rehabilitated, and include:

(d) The grounds upon which the petition is based;

(e) Other information that may be required under this
Act depending on the form of relief requested;
(f) Schedule of the debtor's debts and liabilities
including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if
any;
(g) An inventory of all its assets including receivables
and claims against third parties;

(a) identification of the debtor its principal activities

and its address;
(b) the circumstances sufficient to support a petition
to initiate involuntary rehabilitation proceedings
under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;

(h) A Rehabilitation Plan;

(e) the names of at least three (3) nominees to the

position of rehabilitation receiver;

(i) The names of at least three (3) nominees to the

position of rehabilitation receiver; and

(f) other information that may be required under this

Act depending on the form of relief requested; and

(j) Other documents required to be filed with the

petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme
Court.

(g) other documents required to be filed with the

petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme
Court.

A group of debtors may jointly file a petition for

rehabilitation under this Act when one or more of its
members foresee the impossibility of meeting debts
when they respectively fall due, and the financial
distress would likely adversely affect the financial
condition and/or operations of the other members of
the group and/or the participation of the other
members of the group is essential under the terms and
conditions of the proposed Rehabilitation Plan.

(B) Action on the Petition and Commencement of

Proceedings.

(2) Involuntary Proceedings.

Section 13. Circumstances Necessary to Initiate
Involuntary Proceedings. - Any creditor or group of
creditors with a claim of, or the aggregate of whose
claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent
(25%) of the subscribed capital stock or partners'
contributions, whichever is higher, may initiate
involuntary proceedings against the debtor by filing a
petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the
claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made
for at least sixty (60) days or that the debtor has

Section 15. Action on the Petition. - If the court finds

the petition for rehabilitation to be sufficient in form
and substance, it shall, within five (5) working days
from the filing of the petition, issue a
Commencement Order. If, within the same period, the
court finds the petition deficient in form or substance,
the court may, in its discretion, give the petitioner/s a
reasonable period of time within which to amend or
supplement the petition, or to submit such documents
as may be necessary or proper to put the petition in
proper order. In such case, the five (5) working days
provided above for the issuance of the
Commencement Order shall be reckoned from the
date of the filing of the amended or supplemental
petition or the submission of such documents.
Section 16. Commencement of Proceedings and
Issuance of a Commencement Order. - The
rehabilitation proceedings shall commence upon the
issuance of the Commencement Order, which shall:
(a) identify the debtor, its principal business or
activity/ies and its principal place of business;

(b) summarize the ground/s for initiating the

proceedings;
(c) state the relief sought under this Act and any
requirement or procedure particular to the relief
sought;
(d) state the legal effects of the Commencement
Order, including those mentioned in Section 17
hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement
Order in a newspaper of general circulation in the
Philippines once a week for at least two (2)
consecutive weeks, with the first publication to be
made within seven (7) days from the time of its
issuance;

(n) make available copies of the petition and

rehabilitation plan for examination and copying by
any interested party;
(o) indicate the location or locations at which
documents regarding the debtor and the proceedings
under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the
petitioner, may submit the name or nominate any
other qualified person to the position of rehabilitation
receiver at least five (5) days before the initial
hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims against the
debtor;

(g) If the petitioner is the debtor direct the service by

personal delivery of a copy of the petition on each
creditor holding at least ten percent (10%) of the total
liabilities of the debtor as determined from the
schedule attached to the petition within five (5) days;
if the petitioner/s is/are creditor/s, direct the service
by personal delivery of a copy of the petition on the
debtor within five (5) days;

(2) suspend all actions to enforce any judgment,

attachment or other provisional remedies against the
debtor;

(h) appoint a rehabilitation receiver who may or not

be from among the nominees of the petitioner/s and
who shall exercise such powers and duties defined in
this Act as well as the procedural rules that the
Supreme Court will promulgate;

(4) prohibit the debtor from making any payment of

its liabilities outstanding as of the commencement
date except as may be provided herein.

(i) summarize the requirements and deadlines for

creditors to establish their claims against the debtor
and direct all creditors to their claims with the court
at least five (5) days before the initial hearing;
(j) direct Bureau of internal Revenue (BIR) to file
and serve on the debtor its comment on or opposition
to the petition or its claim/s against the debtor under
such procedures as the Supreme Court provide;
(k) prohibit the debtor's suppliers of goods or services
from withholding the supply of goods and services in
the ordinary course of business for as long as the
debtor makes payments for the services or goods
supplied after the issuance of the Commencement
Order;
(l) authorize the payment of administrative expenses
as they become due;
(m) set the case for initial hearing, which shall not be
more than forty (40) days from the date of filing of
the petition for the purpose of determining whether
there is substantial likelihood for the debtor to be
rehabilitated;

(3) prohibit the debtor from selling, encumbering,

transferring or disposing in any manner any of its
properties except in the ordinary course of business;
and

Section 17. Effects of the Commencement Order. Unless otherwise provided for in this Act, the court's
issuance of a Commencement Order shall, in addition
to the effects of a Stay or Suspension Order described
in Section 16 hereof:
(a) vest the rehabilitation with all the powers and
functions provided for this Act, such as the right to
review and obtain records to which the debtor's
management and directors have access, including
bank accounts or whatever nature of the debtor
subject to the approval by the court of the
performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis
rendering null and void the results of any
extrajudicial activity or process to seize property, sell
encumbered property, or otherwise attempt to
collection or enforce a claim against the debtor after
commencement date unless otherwise allowed in this
Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void
any setoff after the commencement date of any debt
owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void
the perfection of any lien against the debtor's
property after the commencement date; and

(e) consolidate the resolution of all legal proceedings

by and against the debtor to the court Provided.
However, That the court may allow the continuation
of cases on other courts where the debtor had
initiated the suit.
Attempts to seek legal of other resource against the
debtor outside these proceedings shall be sufficient to
support a finding of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension
Order. - The Stay or Suspension Order shall not
apply:
(a) to cases already pending appeal in the Supreme
Court as of commencement date Provided, That any
final and executory judgment arising from such
appeal shall be referred to the court for appropriate
action;
(b) subject to the discretion of the court, to cases
pending or filed at a specialized court or quasijudicial agency which, upon determination by the
court is capable of resolving the claim more quickly,
fairly and efficiently than the court: Provided, That
any final and executory judgment of such court or
agency shall be referred to the court and shall be
treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and
other persons solidarily liable with the debtor, and
third party or accommodation mortgagors as well as
issuers of letters of credit, unless the property subject
of the third party or accommodation mortgage is
necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the
rehabilitation receiver;
(d) to any form of action of customers or clients of a
securities market participant to recover or otherwise
claim moneys and securities entrusted to the latter in
the ordinary course of the latter's business as well as
any action of such securities market participant or the
appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell
pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of
securities transactions in accordance with the
provisions of the Securities Regulation Code and its
implementing rules and regulations;
(f) the clearing and settlement of financial
transactions through the facilities of a clearing agency
or similar entities duly authorized, registered and/or
recognized by the appropriate regulatory agency like
the Bangko Sentral ng Pilipinas (BSP) and the SEC
as well as any form of actions of such agencies or
entities to reimburse themselves for any transactions
settled for the debtor; and

(g) any criminal action against individual debtor or

owner, partner, director or officer of a debtor shall not
be affected by any proceeding commend under this
Act.
Section 19. Waiver of taxes and Fees Due to the
National Government and to Local Government
Units
(LGUs). Upon
issuance
of
the
Commencement Order by the court, and until the
approval of the Rehabilitation Plan or dismissal of
the petition, whichever is earlier, the imposition of all
taxes and fees including penalties, interests and
charges thereof due to the national government or to
LGUs shall be considered waived, in furtherance of
the objectives of rehabilitation.
Section 20. Application of Stay or Suspension Order
to Government Financial Institutions. - The
provisions of this Act concerning the effects of the
Commencement Order and the Stay or Suspension
Order on the suspension of rights to foreclose or
otherwise pursue legal remedies shall apply to
government financial institutions, notwithstanding
provisions in their charters or other laws to the
contrary.
Section
21. Effectivity
and
Duration
of
Commencement Order. - Unless lifted by the court,
the Commencement Order shall be for the effective
for the duration of the rehabilitation proceedings for
as long as there is a substantial likelihood that the
debtor will be successfully rehabilitated. In
determining whether there is substantial likelihood
for the debtor to be successfully rehabilitated, the
court shall ensure that the following minimum
requirements are met:
(a) The proposed Rehabilitation Plan submitted
complies with the minimum contents prescribed by
this Act;
(b) There is sufficient monitoring by the
rehabilitation receiver of the debtor's business for the
protection of creditors;
(c) The debtor has met with its creditors to the extent
reasonably possible in attempts to reach consensus on
the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based
on preliminary evaluation, stating that the underlying
assumptions and the goals stated in the petitioner's
Rehabilitation Plan are realistic reasonable and
reasonable or if not, there is, in any case, a substantial
likelihood for the debtor to be successfully
rehabilitated because, among others:
(1) there are sufficient assets with/which to
rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the
operations of the debtor;

(3) the debtor's, partners, stockholders, directors and

officers have been acting in good faith and which due
diligence;
(4) the petition is not s sham filing intended only to
delay the enforcement of the rights of the creditor's or
of any group of creditors; and
(5) the debtor would likely be able to pursue a viable
Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the
attachments thereto do not contain any materially
false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has
met with its creditor/s representing at least threefourths (3/4) of its total obligations to the extent
reasonably possible and made a good faith effort to
reach a consensus on the proposed Rehabilitation
Plan if the petitioner/s is/are a creditor or group of
creditors, that/ the petitioner/s has/have met with the
debtor and made a good faith effort to reach a
consensus on the proposed Rehabilitation Plan; and
(g) The debtor has not committed acts
misrepresentation or in fraud of its creditor/s or a
group of creditors.
Section 22. Action at the Initial Hearing. - At the
initial hearing, the court shall:

report to the court stating his preliminary findings

and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof
and any unlawful or irregular act or acts committed
by the owner/s of a sole proprietorship partners of a
partnership or directors or officers of a corporation in
contemplation of the insolvency of the debtor or
which may have contributed to the insolvency of the
debtor;
(b) the underlying assumptions, the financial goals
and the procedures to accomplish such goals as stated
in the petitioner's Rehabilitation Plan are realistic,
feasible and reasonable;
(c) there is a substantial likelihood for the debtor to
be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of
Petition, or Conversion of Proceedings. - Within ten
(10) days from receipt of the report of the
rehabilitation receiver mentioned in Section 24 hereof
the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and

(a) determine the creditors who have made timely and

proper filing of their notice of claims;
(b) hear and determine any objection to the
qualifications of the appointment of the rehabilitation
receiver and, if necessary appoint a new one in
accordance with this Act;
(c) direct the creditors to comment on the petition and
the Rehabilitation Plan, and to submit the same to the
court and to the rehabilitation receiver within a period
of not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the
financial condition of the debtor and to prepare and
submit to the court within forty (40) days from initial
hearing the report provided in Section 24 hereof.
Section 23. Effect of Failure to File Notice of
Claim. - A creditor whose claim is not listed in the
schedule of debts and liabilities and who fails to file a
notice of claim in accordance with the
Commencement Order but subsequently files a
belated claim shall not be entitled to participate in the
rehabilitation proceedings but shall be entitled to
receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. Within forty (40) days from the initial hearing and
with or without the comments of the creditors or any
of them, the rehabilitation receiver shall submit a

(2) there is a substantial likelihood for the debtor to

be successfully rehabilitated;
(b) dismiss the petition upon a finding that:
(1)debtor is not insolvent;
(2) the petition i8 a sham filing intended only to
delay the enforcement of the rights of the creditor/s
or of any group of creditors;
(3)the petition, the Rehabilitation Plan and the
attachments thereto contain any materially false or
misleading statements; or
(4)the debtor has committed acts of misrepresentation
or in fraud of its creditor/s or a group of creditors;
(c)convert the proceedings into one for
liquidation of the debtor upon a finding that:

the

(1)the debtor is insolvent; and

(2)there is no substantial likelihood for the debtor to
be successfully rehabilitated as determined in
accordance with the rules to be promulgated by the
Supreme Court.
Section 26.Petition Given Due Course. - If the
petition is given due course, the court shall direct the

rehabilitation receiver to review, revise and/or

recommend action on the Rehabilitation Plan and
submit the same or a new one to the court within a
period of not more than ninety (90) days.
The court may refer any dispute relating to the
Rehabilitation Plan or the rehabilitation proceedings
pending before it to arbitration or other modes of
dispute resolution, as provided for under Republic
Act No. 9285, Or the Alternative Dispute Resolution
Act of 2004, should it determine that such mode will
resolve the dispute more quickly, fairly and
efficiently than the court.
Section 27.Dismissal of Petition. - If the petition is
dismissed pursuant to paragraph (b) of Section 25
hereof, then the court may, in its discretion, order the
petitioner to pay damages to any creditor or to the
debtor, as the case may be, who may have been
injured by the filing of the petition, to the extent of
any such injury.
(C) The Rehabilitation Receiver, Management
Committee and Creditors' Committee.
Section 28.Who May Serve as a Rehabilitation
Receiver. - Any qualified natural or juridical person
may serve as a rehabilitation receiver: Provided, That
if the rehabilitation receiver is a juridical entity, it
must designate a natural person/s who possess/es all
the qualifications and none of the disqualifications as
its representative, it being understood that the
juridical entity and the representative/s are solidarily
liable for all obligations and responsibilities of the
rehabilitation receiver.
Section 29.Qualifications of a Rehabilitation
Receiver. - The rehabilitation receiver shall have the
following minimum qualifications:
(a)A citizen of the Philippines or a resident of the
Philippines in the six (6) months immediately
preceding his nomination;
(b)Of good moral character and with acknowledged
integrity, impartiality and independence;
(c)Has the requisite knowledge of insolvency and
other relevant commercial laws, rules and procedures,
as well as the relevant training and/or experience that
may be necessary to enable him to properly discharge
the duties and obligations of a rehabilitation receiver;
and
(d)Has no conflict of interest: Provided, That such
conflict of interest may be waived, expressly or
impliedly, by a party who may be prejudiced thereby.
Other qualifications and disqualifications of the
rehabilitation receiver shall be set forth in procedural
rules, taking into consideration the nature of the
business of the debtor and the need to protect the
interest of all stakeholders concerned.

Section 30.Initial Appointment of the Rehabilitation

Receiver. - The court shall initially appoint the
rehabilitation receiver, who mayor may not be from
among the nominees of the petitioner, However, at
the initial hearing of the petition, the creditors and the
debtor who are not petitioners may nominate other
persons to the position. The court may retain the
rehabilitation receiver initially appointed or appoint
another who mayor may not be from among those
nominated.
In case the debtor is a securities market participant,
the court shall give priority to the nominee of the
appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by
more than fifty percent (50%) of the secured creditors
and the general unsecured creditors, and satisfactory
evidence is submitted, the court shall appoint the
creditors' nominee as rehabilitation receiver.
Section 31.Powers, Duties and Responsibilities of
the Rehabilitation Receiver. - The rehabilitation
receiver shall be deemed an officer of the court with
the principal duty of preserving and maximizing the
value of the assets of the debtor during the
rehabilitation proceedings, determining the viability
of the rehabilitation of the debtor, preparing and
recommending a Rehabilitation Plan to the court, and
implementing the approved Rehabilitation Plan, To
this end, and without limiting the generality of the
foregoing, the rehabilitation receiver shall have the
following powers, duties and responsibilities:
(a)To verify the accuracy of the factual allegations in
the petition and its annexes;
(b)To verify and correct, if necessary, the inventory
of all of the assets of the debtor, and their valuation;
(c)To verify and correct, if necessary, the schedule of
debts and liabilities of the debtor;
(d)To evaluate the validity, genuineness and true
amount of all the claims against the debtor;
(e)To take possession, custody and control, and to
preserve the value of all the property of the debtor;
(f)To sue and recover, with the approval of the court,
all amounts owed to, and all properties pertaining to
the debtor;
(g)To have access to all information necessary, proper
or relevant to the operations and business of the
debtor and for its rehabilitation;
(h) To sue and recover, with the. approval of the
court, all property or money of the debtor paid,
transferred or disbursed in fraud of the debtor or its
creditors, or which constitute undue preference of
creditor/s;

(i) To monitor the operations and the business of the

debtor to ensure that no payments or transfers of
property are made other than in the ordinary course
of business;
(j) With the court's approval, to engage the services of
or to employ persons or entities to assist him in the
discharge of his functions;
(k) To determine the manner by which the debtor may
be best rehabilitated, to review) revise and/or
recommend action on the Rehabilitation Plan and
submit the same or a new one to the court for
approval;
(1) To implement the Rehabilitation Plan as approved
by the court, if 80 provided under the Rehabilitation
Plan;
(m) To assume and exercise the powers of
management of the debtor, if directed by the court
pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time
to time, be conferred upon him by the court; and
To submit a status report on the rehabilitation
proceedings every quarter or as may be required by
the courtmotu proprio. or upon motion of any
creditor. or as may be provided, in the Rehabilitation
Plan.
Unless appointed by the court, pursuant to Section 36
hereof, the rehabilitation receiver shall not take over
the management and control of the debtor but may
recommend the appointment of a management
committee over the debtor in the cases provided by
this Act.
Section 32.Removal of the Rehabilitation Receiver.
The rehabilitation receiver may be removed at any
time by the court either motu proprio or upon motion
by any creditor/s holding more than fifty percent
(50%) of the total obligations of the debtor, on such
grounds as the rules of procedure may provide which
shall include, but are not limited to, the following:
(a) Incompetence, gross negligence, failure to
perform or failure to exercise the proper degree of
care in the performance of his duties and powers;
(b) Lack of a particular or specialized competency
required by the specific case;

(f) Manifest lack of independence that is detrimental

to the general body of the stakeholders.
Section 33.Compensation and Terms of Service. The
rehabilitation receiver and his direct employees or
independent contractors shall be entitled to
compensation for reasonable fees and expenses from
the debtor according to the terms approved by the
court after notice and hearing. Prior to such hearing,
the rehabilitation receiver and his direct employees
shall be entitled to reasonable compensation based
on quantum meruit. Such costs shall be considered
administrative expenses.
Section 34.Oath and Bond of the Rehabilitation
Receiver. Prior to entering upon his powers, duties
and responsibilities, the rehabilitation receiver shall
take an oath and file a bond, in such amount to be
fixed by the court, conditioned upon the faithful and
proper discharge of his powers, duties and
responsibilities.
Section 35.Vacancy. - Incase the position of
rehabilitation receiver is vacated for any reason
whatsoever. the court shall direct the debtor and the
creditors to submit the name/s of their nominee/s to
the position. The court may appoint any of the
qualified nominees. or any other person qualified for
the position.
Section 36.Displacement of Existing Management by
the
Rehabilitation
Receiver or Management
Committee. Upon motion of any interested party,
the court may appoint and direct the rehabilitation
receiver to assume the powers of management of the
debtor, or appoint a management committee that will
undertake the management of the debtor. upon clear
and convincing evidence of any of the following
circumstances:
(a) Actual or imminent danger of dissipation, loss,
wastage or destruction of the debtors assets or other
properties;
(b) Paralyzation of the business operations of the
debtor; or
(c) Gross mismanagement of the debtor. or fraud or
other wrongful conduct on the part of, or gross or
willful violation of this Act by. existing management
of the debtor Or the owner, partner, director, officer
or representative/s in management of the debtor.

(c) Illegal acts or conduct in the performance of his

duties and powers;

In case the court appoints the rehabilitation receiver

to assume the powers of management of the debtor.
the court may:

(d) Lack of qualification or presence of any

disqualification;

(1) require the rehabilitation receiver to post an

additional bond;

(e) Conflict of interest that arises after his

appointment; and

(2) authorize him to engage the services or to employ

persona or entities to assist him in the discharge of
his managerial functions; and

(3) authorize a commensurate increase in his

compensation.
Section 37.Role of the Management Committee.
When appointed pursuant to the foregoing section,
the management committee shall take the place of the
management and the governing body of the debtor
and assume their rights and responsibilities.
The specific powers and duties of the management
committee, whose members shall be considered as
officers of the court, shall be prescribed by the
procedural rules.
Section 38.Qualifications of Members of the
Management Committee. - The qualifications and
disqualifications of the members of the management
committee shall be set forth in the procedural rules,
taking into consideration the nature of the business of
the debtor and the need to protect the interest of all
stakeholders concerned.
Section 39.Employment of Professionals. - Upon
approval of the court, and after notice and hearing,
the rehabilitation receiver or the management
committee may employ specialized professionals and
other experts to assist each in the performance of
their duties. Such professionals and other experts
shall be considered either employees or independent
contractors of the rehabilitation receiver or the
management committee, as the case may be. The
qualifications and disqualifications of the
professionals and experts may be set forth in
procedural rules, taking into consideration the nature
of the business of the debtor and the need to protect
the interest of all stakeholders concerned.
Section 40.Conflict of Interest. - No person may be
appointed as a rehabilitation receiver, member of a_
management committee, or be employed by the
rehabilitation receiver or the management committee
if he has a conflict of interest.

(d) he is, or was, within two (2) years from the filing
of the petition, an underwriter of the outstanding
securities of the debtor;
(e) he is related by consanguinity or affinity within
the fourth civil degree to any individual creditor,
owners of a sale proprietorship-debtor, partners of a
partnership- debtor or to any stockholder, director,
officer, employee or underwriter of a corporationdebtor; or
(f) he has any other direct or indirect material interest
in the debtor or any of the creditors.
Any rehabilitation receiver, member of the
management committee or persons employed or
contracted by them possessing any conflict of interest
shall make the appropriate disclosure either to the
court or to the creditors in case of out-of-court
rehabilitation proceedings. Any party to the
proceeding adversely affected by the appointment of
any person with a conflict of interest to any of the
positions enumerated above may however waive his
right to object to such appointment and, if the waiver
is unreasonably withheld, the court may disregard the
conflict of interest, taking into account the general
interest of the stakeholders.
Section 41.Immunity. - The rehabilitation receiver
and all persons employed by him, and the members
of the management committee and all persons
employed by it, shall not be subject to any action.
claim or demand in connection with any act done or
omitted to be done by them in good faith in
connection with the exercise of their powers and
functions under this Act or other actions duly
approved by the court.1awp++il
Section 42.Creditors' Committee. - After the
creditors' meeting called pursuant to Section 63
hereof, the creditors belonging to a class may
formally organize a committee among

An individual shall be deemed to have a conflict of

interest if he is so situated as to be materially
influenced in the exercise of his judgment for or
against any party to the proceedings. Without limiting
the generality of the foregoing, an individual shall be
deemed to have a conflict of interest if:

themselves. In addition, the creditors may, as a body,

agree to form a creditors' committee composed of a
representative from each class of creditors, such as
the following:

(a) he is a creditor, owner, partner or stockholder of

the debtor;

(b) Unsecured creditors;

(a) Secured creditors;

(c) Trade creditors and suppliers; and

(b) he is engaged in a line of business which
competes with that of the debtor;

(d) Employees of the debtor.

(c) he is, or was, within five (5) years from the filing
of the petition, a director, officer, owner, partner or
employee of the debtor or any of the creditors, or the
auditor or accountant of the debtor;

In the . election of the creditors' representatives, the

rehabilitation receiver or his representative shall
attend such meeting and extend the appropriate
assistance as may be defined in the procedural rules.
Section 43.Role of Creditors' Committee. - The
creditors' committee when constituted pursuant to

Section 42 of this Act shall assist the rehabilitation

receiver in communicating with the creditors and
shall be the primary liaison between the rehabilitation
receiver and the creditors. The creditors' committee
cannot exercise or waive any right or give any
consent on behalf of any creditor unless specifically
authorized in writing by such creditor. The creditors'
committee may be authorized by the court or by the
rehabilitation receiver to perform such other tasks
and functions as may be defined by the procedural
rules in order to facilitate the rehabilitation process.

ordinary course of business of the debtor, or unless

necessary to finance the administrative expenses of
the rehabilitation proceedings.

(D) Determination of Claims.

Section 50.Sale or Disposal of Encumbered Property

of the Debtor and Assets of Third Parties Held by
Debtor. The court may authorize the sale, transfer,
conveyance or disposal of encumbered property of
the debtor, or property of others held by the debtor
where there is a security interest pertaining to third
parties under a financial, credit or other similar
transactions if, upon application of the rehabilitation
receiver and with the consent of the affected owners
of the property, or secured creditor/s in the case of
encumbered property of the debtor and, after notice
and hearing, the court determines that:

Section 44.Registry of Claims. - Within twenty (20)

days from his assumption into office, the
rehabilitation receiver shall establish a preliminary
registry of claims. The rehabilitation receiver shall
make the registry available for public inspection and
provide
publication notice to the debtor, creditors and
stakeholders on where and when they may inspect it.
All claims included in the registry of claims must be
duly supported by sufficient evidence.
Section 45.Opposition or Challenge of Claims.
Within thirty (30) days from the expiration of the
period stated in the immediately preceding section,
the debtor, creditors, stakeholders and other interested
parties may submit a challenge to claim/s to the court,
serving a certified copy on the rehabilitation receiver
and the creditor holding the challenged claim/so
Upon the expiration of the thirty (30)-day period, the
rehabilitation receiver shall submit to the court the
registry of claims which shall include undisputed
claims that have not been subject to challenge.
Section 46.Appeal. - Any decision of the
rehabilitation receiver regarding a claim may be
appealed to the court.

Section 49.Sale of Assets. - The court, upon

application of the rehabilitation receiver, may
authorize the sale of unencumbered property of the
debtor outside the ordinary course of business upon a
showing that the property, by its nature or because of
other circumstance, is perishable, costly to maintain,
susceptible to devaluation or otherwise injeopardy.

(a) such sale, transfer, conveyance or disposal is

necessary for the continued operation of the debtor's
business; and
(b) the debtor has made arrangements to provide a
substitute lien or ownership right that provides an
equal level of security for the counter-party's claim or
right.
Provided, That properties held by the debtor where
the debtor has authority to sell such as trust receipt or
consignment arrangements may be sold or disposed
of by the .debtor, if such sale or disposal is necessary
for the operation of the debtor's business, and the
debtor has made arrangements to provide a substitute
lien or ownership right that provides an equal level of
security for the counter-party's claim or right.

(E) Governance.
Section 47.Management. - Unless otherwise provided
herein, the management of the juridical debtor shall
remain with the existing management subject to the
applicable law/s and agreement/s, if any, on the
election or appointment of directors, managers Or
managing partner. However, all disbursements,
payments or sale, disposal, assignment, transfer or
encumbrance of property , or any other act affecting
title or interest in property, shall be subject to the
approval of the rehabilitation receiver and/or the
court, as provided in the following subchapter.
(F) Use, Preservation and Disposal of Assets and
Treatment of Assets and Claims after
Commencement Date.
Section 48.Use or Disposition of Assets. - Except as
otherwise provided herein, no funds or property of
the debtor shall he used or disposed of except in the

Sale or disposal of property under this section shall

not give rise to any criminal liability under applicable
laws.
Section 51.Assets of Debtor Held by Third Parties.
In the case of possessory pledges, mechanic's liens or
similar claims, third parties who have in their
possession or control property of the debtor shall not
transfer, conveyor otherwise dispose of the same to
persons other than the debtor, unless upon prior
approval of the rehabilitation receiver. The
rehabilitation receiver may also:
(a) demand the surrender or the transfer of the
possession or control of such property to the
rehabilitation receiver or any other person, subject to
payment of the claims secured by any possessory
Iien/s thereon;

(b) allow said third parties to retain possession or

control, if such an arrangement would more likely
preserve or increase the value of the property in
question or the total value of the assets of the debtor;
or
(c) undertake any otI1er disposition of the said
property as may be beneficial for the rehabilitation of
the debtor, after notice and hearing, and approval of
the court.
Section 52.Rescission or Nullity of Sale, Payment,
Transfer or Conveyance of Assets. - The court may
rescind or declare as null and void any sale, payment,
transfer or conveyance of the debtor's unencumbered
property or any encumbering thereof by the debtor or
its agents or representatives after the commencement
date which are not in the ordinary course of the
business of the debtor: Provided, however, That the
unencumbered property may be sold, encumbered or
otherwise disposed of upon order of the court after
notice and hearing:
(a) if such are in the interest of administering the
debtor and facilitating the preparation and
implementation of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or
pledge of property under this Act;
(c) for payments made to meet administrative
expenses as they arise;
(d) for payments to victims of quasi delicts upon a
showing that the claim is valid and the debtor has
insurance to reimburse the debtor for the payments
made;

will be distributed in accordance with the order

prescribed under the rules of concurrence and
preference of credits; or
(b) upon motion of, or with the consent of the
affected secured creditor or interest owner. order the
conveyance of a lien against or ownership interest in
substitute property of the debtor to the secured
creditor:Provided. That other creditors holding liens
on such property, if any, do not object thereto, or, if
such property is not available;
(c) order the conveyance to the secured creditor or
holder . of an ownership interest of a lien on the
residual funds from the sale of encumbered property
during the proceedings; or
(d) allow the sale or disposition of the
property: Provided. That the sale or disposition will
maximize the value of the property for the benefit of
the secured creditor and the debtor, and the proceeds
of the sale will be distributed in accordance with the
order prescribed under the rules of concurrence and
preference of credits.
Section 54.Post-commencement Interest. - The rate
and term of interest, if any, on secured and unsecured
claims shall be determined and provided for in the
approved Rehabilitation Plan.
Section
55.Post-commencement
Loans
and
Obligations. - With the approval of the court upon the
recommendation of the rehabilitation receiver, the
debtor, in order to enhance its
rehabilitation. may:
(a) enter into credit arrangements; or

(e) for payments made to repurchase property of the

debtor that is auctioned off in a judicial or
extrajudicial sale under. This Act; or
(f) for payments made to reclaim property of the
debtor held pursuant to a possessory lien.
Section 53.Assets Subject to Rapid Obsolescence,
Depreciation and Diminution of Value. - Upon the
application of a secured creditor holding a lien
against or holder of an ownership interest in property
held by the debtor that is subject to potentially rapid
obsolescence, depreciation or diminution in value, the
court shall, after notice and hearing, order the debtor
or rehabilitation receiver to take reasonable steps
necessary to prevent the depreciation. If depreciation
cannot be avoided and such depreciation is
jeopardizing the security or property interest of the
secured creditor or owner, the court shall:
(a) allow the encumbered property to be foreclosed
upon by the secured creditor according to the relevant
agreement between the debtor and the secured
creditor, applicable rules of procedure and relevant
legislation: Provided. That the proceeds of the sale

(b) enter into credit arrangements, secured by

mortgages of its unencumbered property or secondary
mortgages of encumbered property with the approval
of senior secured parties with regard to the
encumbered property; or
(c) incur other obligations as may be essential for its
rehabilitation.
The payment of the foregoing obligations shall be
considered administrative expenses under this Act.
Section
56.Treatment
of
Employees,
Claims. Compensation of employees required to
carry on the business shall be considered an
administrative expense. Claims of separation pay for
months worked prior to the commencement date shall
be considered a pre- ommencement claim. Claims for
salary and separation pay for work performed after
the commencement date shall be an administrative
expense.
Section 57.Treatment of Contracts. - Unless
cancelled by virtue of a final judgment of a court of

competent jurisdiction issued prior to the issuance of

the Commencement Order, or at anytime thereafter
by the court before which the rehabilitation
proceedings are pending, all valid and subbsisting
contracts of the debtor with creditors and other third
parties as at the commencement date shall continue in
force: Provided, That within ninety (90) days
following the commencement of proceedings, the
debtor, with the consent of the rehabilitation receiver,
shall notify each contractual counter-party of whether
it is confirming the particular contract. Contractual
obligations of the debtor arising or performed during
this period, and afterwards for confirmed contracts,
shall be considered administrative expenses.
Contracts not confirmed within the required deadline
shall be considered terminated. Claims for actual
damages, if any, arising as a result of the election to
terminate a contract shall be considered a precommencement claim against the debtor. Nothing
contained herein shall prevent the cancellation or
termination of any contract of the debtor for any
ground provided by law.

further, That the provisions of the Civil Code on

rescission shall in any case apply to these
transactions.
Section 59.Actions for Rescission or Nullity. - (a) The
rehabilitation receiver or, with his conformity, any
creditor may initiate and prosecute any action to
rescind, or declare null and void any transaction
described in Section 58 hereof. If the rehabilitation
receiver does not consent to the filing or prosecution
of such action,
(b) If leave of court is granted under subsection (a),
the rehabilitation receiver shall assign and transfer to
the creditor all rights, title and interest in the chose in
action or subject matter of the proceeding, including
any document in support thereof.
(c) Any benefit derived from a proceeding taken
pursuant to subsection (a), to the extent of his claim
and the costs, belongs exclusively to the creditor
instituting the proceeding, and the surplus, if any,
belongs to the estate.

(G) Avoidance Proceedings.

Section 58.Rescission or Nullity of Certain Precommencement Transactions. Any
transaction
occurring prior to commencement date entered into
by the debtor or involving its funds or assets may be
rescinded or declared null and void on the ground
that the same was executed with intent to defraud a
creditor or creditors or which constitute undue
preference of creditors. Without limiting the
generality of the foregoing, a disputable presumption
of such design shall arise if the transaction:
(a) provides unreasonably inadequate consideration
to the debtor and is executed within ninety (90) days
prior to the commencement date;
(b) involves an accelerated payment of a claim to a
creditor within ninety (90) days prior to the
commencement date;
(c) provides security or additional security executed
within ninety (90) days prior to the commencement
date;
(d) involves creditors, where a creditor obtained, or
received the benefit of, more than its pro rata share in
the assets of the debtor, executed at a time when the
debtor was insolvent; or
(e) is intended to defeat, delay or hinder the ability of
the creditors to collect claims where the effect of the
transaction is to put assets of the debtor beyond the
reach of creditors or to otherwise prejudice the
interests of creditors.
Provided, however, That nothing in this section shall
prevent the court from rescinding or declaring as null
and void a transaction on other grounds provided by
relevant legislation and jurisprudence: Provided,

(d) Where, before an order is made under subsection

(a), the rehabilitation receiver (or liquidator) signifies
to the court his readiness to institute the proceeding
for the benefit of the creditors, the order shall fix the
time within which he shall do so and, m that case, the
benefit derived from the proceeding, if instituted
within the time limits so fixed, belongs to the estate.
(H) Treatment of Secured Creditors.
Section 60.No Diminution of Secured Creditor
Rights. The issuance of the Commencement Order
and the Suspension or Stay Order, and any other
provision of this Act, shall not be
deemed in any way to diminish or impair the security
or lien of a secured creditor, or the value of his lien or
security, except that his right to enforce said security
or lien may be suspended during the term of the Stay
Order.
The court, upon motion or recommendation of the
rehabilitation receiver, may allow a secured creditor
to enforce his security or lien, or foreclose upon
property of the debtor
securing his/its claim, if the said property is not
necessary for the rehabilitation of the debtor. The
secured creditor and/or the other lien holders shall be
admitted to the rehabilitation proceedings only for the
balance of his claim, if any.
Section 61.Lack of Adequate Protection. - The court,
on motion or motu proprio, may terminate, modify or
set conditions for the continuance of suspension of
payment, or relieve a claim from the coverage
thereof, upon showing that: (a) a creditor does not
have adequate protection over property securing its
claim; or

(b) the value of a claim secured by a lien on property

which is not necessary for rehabilitation of the debtor
exceeds the fair market value of the said property.

a going concern, or setting-up of a new business

entity or other similar arrangements as may be
necessary to restore the financial well-being and
visibility of the insolvent debtor;

For purposes of this section, a creditor shall be

deemed to lack adequate protection if it can be shown
that:

(g) specify the treatment of each class or subclass

described in subsections (d) and (e);

(a) the debtor fails or refuses to honor a pre-existing

agreement with the creditor to keep the property
insured;

(h) provide for equal treatment of all claims within

the same class or subclass, unless a particular creditor
voluntarily agrees to less favorable treatment;

(b) the debtor fails or refuses to take commercially

reasonable steps to maintain the property; or

(i) ensure that the payments made under the plan

follow the priority established under the provisions of
the Civil Code on concurrence and preference of
credits and other applicable laws;

(c) the property has depreciated to an extent that the

creditor is under secured.
Upon showing of a lack of protection, the court shall
order the debtor or the rehabilitation receiver to make
arrangements to provide for the insurance or
maintenance of the property; or to make payments or
otherwise provide additional or replacement security
such that the obligation is fully secured. If such
arrangements are not feasible, the court may modify
the Stay Order to allow the secured creditor lacking
adequate protection to enforce its security claim
against the debtor: Provided, however, That the court
may deny the creditor the remedies in this paragraph
if the property subject of the enforcement is required
for the rehabilitation of the debtor.
(i) Administration of Proceedings.
Section 62.Contents of a Rehabilitation Plan. The
Rehabilitation Plan shall, as a minimum:
(a) specify the underlying assumptions, the financial
goals and the procedures proposed to accomplish
such goals;
(b) compare the amounts expected to be received by
the creditors under the Rehabilitation Plan with those
that they will receive if liquidation ensues within the
next one hundred twenty (120) days;
(c) contain information sufficient to give the various
classes of creditors a reasonable basis for determining
whether supporting the Plan is in their financial
interest when compared to the immediate liquidation
of the debtor, including any reduction of principal
interest and penalties payable to the creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior
approval has been granted by the court;
(f) indicate how the insolvent debtor will be
rehabilitated including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or
quasi-reorganization. dacion en pago, debt-equity
conversion and sale of the business (or parts of it) as

(j) maintain the security interest of secured creditors

and preserve the liquidation value of the security
unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for precommencement debts made during the proceedings
and the justifications thereof;
(1) describe the disputed claims and the provisioning
of funds to account for appropriate payments should
the claim be ruled valid or its amount adjusted;
(m) identify the debtor's role in the implementation of
the Plan;
(n) state any rehabilitation covenants of the debtor,
the breach of which shall be considered a material
breach of the Plan;
(o) identify those responsible for the future
management of the debtor and the supervision and
implementation of the Plan, their affiliation with the
debtor and their remuneration;
(p) address the treatment of claims arising after the
confirmation of the Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere
to the terms of all contracts that the debtor has chosen
to confirm;
(r) arrange for the payment of all outstanding
administrative expenses as a condition to the Plan's
approval unless such condition has been waived in
writing by the creditors concerned;
(s) arrange for the payment" of all outstanding taxes
and assessments, or an adjusted amount pursuant to a
compromise settlement with the BlR Or other
applicable tax authorities;
(t) include a certified copy of a certificate of tax
clearance or evidence of a compromise settlement
with the BIR;

(u) include a valid and binding r(,solution of a

meeting of the debtor's stockholders to increase the
shares by the required amount in cases where the
Plan contemplates an additional issuance of shares by
the debtor;
(v) state the compensation and status, if any, of the
rehabilitation receiver after the approval of the Plan;
and
(w) contain provisions for conciliation and/or
mediation as a prerequisite to court assistance or
intervention in the event of any disagreement in the
interpretation or implementation of the Rehabilitation
Plan.
Section 63.Consultation with Debtor and Creditors.
if the court gives due course to the petition, the
rehabilitation receiver shall confer with the debtor
and all the classes of creditors, and may consider
their views and proposals ill the review, revision or
preparation of a new Rehabilitation Plan.
Section 64.Creditor Approval of Rehabilitation
Plan. The rehabilitation receiver shall notify the
creditors and stakeholders that the Plan is ready for
their examination. Within twenty (2Q) days from the
said notification, the rehabilitation receiver shall
convene the creditors, either as a whole or per class,
for purposes of voting on the approval of the Plan.
The Plan shall be deemed rejected unless approved
by all classes of creditors w hose rights are adversely
modified or affected by the Plan. For purposes of this
section, the Plan is deemed to have been approved by
a class of creditors if members of the said class
holding more than fifty percent (50%) of the total
claims of the said class vote in favor of the Plan. The
votes of the creditors shall be based solely on the
amount of their respective claims based on the
registry of claims submitted by the rehabilitation
receiver pursuant to Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation
Plan, the court may confirm the Rehabilitation Plan if
all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the
requirements specified in this Act.
(b) The rehabilitation receiver recommends the
confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the
juridical debtor lose at least their controlling interest
as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the
objecting class of creditors with compensation which
has a net present value greater than that which they
would have received if the debtor were under
liquidation.

Section 65.Submission of Rehabilitation Plan to the

Court. - 1fthe Rehabilitation Plan is approved, the
rehabilitation receiver shall submit the same to the
court for confirmation. Within five (5) days from
receipt of the Rehabilitation Plan, the court shall
notify the creditors that the Rehabilitation Plan has
been submitted for confirmation, that any creditor
may obtain copies of the Rehabilitation Plan and that
any creditor may file an objection thereto.
Section 66.Filing of Objections to Rehabilitation
Plan. A creditor may file an objection to the
Rehabilitation Plan within twenty (20) days from
receipt of notice from the court that the Rehabilitation
Plan has been submitted for confirmation. Objections
to a Rehabilitation Plan shall be limited to the
following:
(a) The creditors' support was induced by fraud;
(b)The documents or data relied upon in the
Rehabilitation Plan are materially false or misleading;
or
(c)The Rehabilitation Plan is in fact not supported by
the voting creditors.
Section 67.Hearing on the Objections. - If objections
have been submitted during the relevant period, the
court shall issue an order setting the time and date for
the hearing or hearings on the objections.
If the court finds merit in the objection, it shall order
the rehabilitation receiver or other party to cure the
defect, whenever feasible. If the court determines that
the debtor acted in bad faith, or that it is not feasible
to cure the defect, the court shall convert the
proceedings into one for the liquidation of the debtor
under Chapter V of this Act.
Section 68.Confirmation of the Rehabilitation
Plan. If no objections are filed within the relevant
period or, if objections are filed, the court finds them
lacking in merit, or determines that the basis for the
objection has been cured, or determines that the
debtor has complied with an order to cure the
objection, the court shall issue an order confirming
the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan
notwithstanding unresolved disputes over claims if
the Rehabilitation Plan has made adequate provisions
for paying such claims.
For the avoidance of doubt, the provisions of other
laws to the contrary notwithstanding, the court shall
have the power to approve or implement the
Rehabilitation Plan despite the lack of approval, or
objection from the owners, partners or stockholders
of the insolvent debtor: Provided, That the terms
thereof are necessary to restore the financial wellbeing and viability of the insolvent debtor.

Section 69.Effect of Confirmation of the

Rehabilitation Plan, - The confirmation of the
Rehabilitation Plan by the court shall result in the
following:
(a) The Rehabilitation Plan and its provisions shall be
binding upon the debtor and all persons who may be
affected by . it, including the creditors, whether or not
such persons have participated in the proceedings or
opposed the Rehabilitation Plan or whether or not
their claims have been scheduled;
(b) The debtor shall comply with the provisions of the
Rehabilitation Plan and shall take all actions
necessary to carry out the Plan;
(c) Payments shall be made to the creditors in
accordance with the provisions of the Rehabilitation
Plan;
(d) Contracts and other arrangements between the
debtor and its creditors shall be interpreted as
continuing to apply to the extent that they do not
conflict with the provisions of the Rehabilitation
Plan;

propio, be converted into one for the liquidation of

the debtor .
Section 73. Accounting Discharge of Rehabilitation
Receiver. - Upon the confirmation of the
Rehabilitation Plan, the rehabilitation receiver shall
provide a final report and accounting to the court.
Unless the Rehabilitation Plan specifically requires
and describes the role of the rehabilitation receiver
after the approval of the Rehabilitation Plan, the court
shall discharge the rehabilitation receiver of his
duties.
(j) Termination of Proceedings
Section 74. Termination of Proceedings. - The
rehabilitation proceedings under Chapter II shall,
upon motion by any stakeholder or the rehabilitation
receiver be terminated by order of the court either
declaring a successful implementation of the
Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following
cases:
(a) Dismissal of the petition by the court;

(e) Any compromises on amounts or rescheduling of

timing of payments by the debtor shall be binding on
creditors regardless of whether or not the Plan is
successfully implement; and
(f) Claims arising after approval of the Plan that are
otherwise not treated by the Plan are not subject to
any Suspension Order.
The Order confirming the Plan shall comply with
Rules 36 of the Rules of Court: Provided,
however, That the court may maintain jurisdiction
over the case in order to resolve claims against the
debtor that remain contested and allegations that the
debtor has breached the Plan.
Section 70. Liability of General Partners of a
Partnership for Unpaid Balances Under an Approved
Plan. - The approval of the Plan shall not affect the
rights of creditors to pursue actions against the
general partners of a partnership to the extent they are
liable under relevant legislation for the debts thereof.
Section 71. Treatment of Amounts of Indebtedness or
Obligations Forgiven or Reduced. - Amounts of any
indebtedness or obligations reduced or forgiven in
connection with a Plan's approval shall not be subject
to any tax in furtherance of the purposes of this Act.
Section 72. Period for Confirmation of the
Rehabilitation Plan. - The court shall have a
maximum period of one (1) year from the date of the
filing of the petition to confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said
period, the proceedings may upon motion or motu

(b) The debtor fails to submit a Rehabilitation Plan;

(c) Under the Rehabilitation Plan submitted by the
debtor, there is no substantial likelihood that the
debtor can be rehabilitated within a reasonable
period;
(d) The Rehabilitation Plan or its amendment is
approved by the court but in the implementation
thereof, the debtor fails to perform its obligations
thereunder or there is a failure to realize the
objectives, targets or goals set forth therein, including
the timelines and conditions for the settlement of the
obligations due to the creditors and other claimants;
(e) The commission of fraud in securing the approval
of the Rehabilitation Plan or its amendment; and
(f) Other analogous circumstances as may be defined
by the rules of procedure.
Upon a breach of, or upon a failure of the
Rehabilitation Plan the court, upon motion by an
affected party may:
(1) Issue an order directing that the breach be cured
within a specified period of time, falling which the
proceedings may be converted to a liquidation;
(2) Issue an order converting the proceedings to a
liquidation;
(3) Allow the debtor or rehabilitation receiver to
submit amendments to the Rehabilitation Plan, the
approval of which shall be governed by the same

requirements for the approval of a Rehabilitation Plan

under this subchapter;
(4) Issue any other order to remedy the breach
consistent with the present regulation, other
applicable law and the best interests of the creditors;
or
(5) Enforce the applicable provisions of the
Rehabilitation Plan through a writ of execution.
Section 75. Effects of Termination. - Termination of
the proceedings shall result in the following:

(b) declare that the debtor is under rehabilitation;

(c) summarize the ground./s for the filling of the
petition;
(d) direct the publication of the Order in a newspaper
of general circulation in the Philippines once a week
for at least two (2) consecutive weeks, with the first
publication to be made within seven (7) days from
the time of its issuance;

(a) The discharge of the rehabilitation receiver

subject to his submission of a final accounting; and

(e) direct the service by personal delivery of a copy

of the petition on each creditor who is not a petitioner
holding at least ten percent (10%) of the total
liabilities of the debtor, as determined in the schedule
attached to the petition, within three (3) days;

(b) The lifting of the Stay Order and any other court
order holding in abeyance any action for the
enforcement of a claim against the debtor.

(f) state that copies of the petition and the

Rehabilitation Plan are available for examination and
copying by any interested party;

Provided, however, That if the termination of

proceedings is due to failure of rehabilitation or
dismissal of the petition for reasons other than
technical grounds, the proceedings shall be
immediately converted to liquidation as provided in
Section 92 of this Act.

(g) state that creditors and other interested parties

opposing the petition or Rehabilitation Plan may file
their objections or comments thereto within a period
of not later than twenty (20) days from the second
publication of the Order;

CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor,
by itself or jointly with any of its creditors, may file a
verified petition with the court for the approval of a
pre-negotiated Rehabilitation Plan which has been
endorsed or approved by creditors holding at least
two-thirds (2/3) of the total liabilities of the debtor,
including secured creditors holding more than fifty
percent (50%) of the total secured claims of the
debtor and unsecured creditors holding more than
fifty percent (50%) of the total unsecured claims of
the debtor. The petition shall include as a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including
the names of at least three (3) qualified nominees for
rehabilitation receiver; and
(d) a summary of disputed claims against the debtor
and a report on the provisioning of funds to account
for appropriate payments should any such claims be
ruled valid or their amounts adjusted.
Section 77. Issuance of Order. - Within five (5)
working days, and after determination that the
petition is sufficient in form and substance, the court
shall issue an Order which shall;
(a) identify the debtor, its principal business of
activity/ies and its principal place of business;

(h) appoint a rehabilitation receiver, if provided for in

the Plan; and
(i) include a Suspension or Stay Order as described in
this Act.
Section 78. Approval of the Plan. - Within ten (10)
days from the date of the second publication of the
Order, the court shall approve the Rehabilitation Plan
unless a creditor or other interested party submits an
objection to it in accordance with the next succeeding
section.
Section 79. Objection to the Petition or
Rehabilitation Plan. - Any creditor or other interested
party may submit to the court a verified objection to
the petition or the Rehabilitation Plan not later than
eight (8) days from the date of the second publication
of the Order mentioned in Section 77 hereof. The
objections shall be limited to the following:
(a) The allegations in the petition or the
Rehabilitation Plan or the attachments thereto are
materially false or misleading;
(b) The majority of any class of creditors do not in
fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account
for a claim against the debtor and the claim in not
categorically declared as a contested claim; or
(d) The support of the creditors, or any of them was
induced by fraud.

Copies of any objection to the petition of the

Rehabilitation Plan shall be served on the debtor, the
rehabilitation receiver (if applicable), the secured
creditor with the largest claim and who supports the
Rehabilitation Plan, and the unsecured creditor with
the largest claim and who supports the Rehabilitation
Plan.

(c) It must be approved by creditors representing at

least seventy-five percent (75%) of the unsecured
obligations of the debtor; and

Section 80. Hearing on the Objections. - After receipt

of an objection, the court shall set the same for
hearing. The date of the hearing shall be no earlier
than twenty (20) days and no later than thirty (30)
days from the date of the second publication of the
Order mentioned in Section 77 hereof. If the court
finds merit in the objection, it shall direct the debtor,
when feasible to cure the detect within a reasonable
period. If the court determines that the debtor or
creditors supporting the Rehabilitation Plan acted in
bad faith, or that the objection is non-curable, the
court may order the conversion of the proceedings
into liquidation. A finding by the court that the
objection has no substantial merit, or that the same
has been cured shall be deemed an approval of the
Rehabilitation Plan.

Section 85. Standstill Period. - A standstill period

that may be agreed upon by the parties pending
negotiation and finalization of the out-of-court or
informal restructuring/workout agreement or
Rehabilitation Plan contemplated herein shall be
effective and enforceable not only against the
contracting parties but also against the other
creditors:Provided, That (a) such agreement is
approved by creditors representing more than fifty
percent (50%) of the total liabilities of the debtor; (b)
notice thereof is publishing in a newspaper of general
circulation in the Philippines once a week for two (2)
consecutive weeks; and (c) the standstill period does
not exceed one hundred twenty (120) days from the
date of effectivity. The notice must invite creditors to
participate in the negotiation for out-of-court
rehabilitation or restructuring agreement and notify
them that said agreement will be binding on all
creditors if the required majority votes prescribed in
Section 84 of this Act are met.

Section 81. Period for Approval of Rehabilitation

Plan. - The court shall have a maximum period of
one hundred twenty (120) days from the date of the
filing of the petition to approve the Rehabilitation
Plan. If the court fails to act within the said period,
the Rehabilitation Plan shall be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan
under this chapter shall have the same legal effect as
confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL
RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS
Section 83. Out-of-Court or Informal Restructuring
Agreements and Rehabilitation Plans. - An out-ofcurt or informal restructuring agreement or
Rehabilitation Plan that meets the minimum
requirements prescribed in this chapter is hereby
recognized as consistent with the objectives of this
Act.
Section 84. Minimum Requirements of Out-of-Court
or Informal Restructuring Agreements and
Rehabilitation Plans.- For an out-of-court or informal
restructuring/workout agreement or Rehabilitation
Plan to qualify under this chapter, it must meet the
following minimum requirements:
(a) The debtor must agree to the out-of-court or
informal restructuring/workout agreement or
Rehabilitation Plan;
(b) It must be approved by creditors representing at
least sixty-seven (67%) of the secured obligations of
the debtor;

(d) It must be approved by creditors holding at least

eighty-five percent (85%) of the total liabilities,
secured and unsecured, of the debtor.

Section
86. Cram
Down
Effect. A
restructuring/workout agreement or Rehabilitation
Plan that is approved pursuant to an informal
workout framework referred to in this chapter shall
have the same legal effect as confirmation of a Plan
under Section 69 hereof. The notice of the
Rehabilitation Plan or restructuring agreement or
Plan shall be published once a week for at least three
(3) consecutive weeks in a newspaper of general
circulation in the Philippines. The Rehabilitation Plan
or restructuring agreement shall take effect upon the
lapse of fifteen (15) days from the date of the last
publication of the notice thereof.
Section 87. Amendment or Modification. - Any
amendment of an out-of-court restructuring/workout
agreement or Rehabilitation Plan must be made in
accordance with the terms of the agreement and with
due notice on all creditors.
Section 88. Effect of Court Action or Other
Proceedings. - Any court action or other proceedings
arising from, or relating to, the out-of-court or
informal restructuring/workout agreement or
Rehabilitation Plan shall not stay its implementation,
unless the relevant party is able to secure a temporary
restraining order or injunctive relief from the Court
of Appeals.
Section 89. Court Assistance. - The insolvent debtor
and/or creditor may seek court assistance for the
execution or implementation of a Rehabilitation Plan
under this Chapter, under such rules of procedure as
may be promulgated by the Supreme Court.

CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL
DEBTORS
Section 90. Voluntary Liquidation. - An insolvent
debtor may apply for liquidation by filing a petition
for liquidation with the court. The petition shall be
verified, shall establish the insolvency of the debtor
and shall contain, whether as an attachment or as part
of the body of the petition;
(a) a schedule of the debtor's debts and liabilities
including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if
any;
(b) an inventory of all its assets including receivables
and claims against third parties; and
(c) the names of at least three (3) nominees to the
position of liquidator.
At any time during the pendency of court-supervised
or pre-negotiated rehabilitation proceedings, the
debtor may also initiate liquidation proceedings by
filing a motion in the same court where the
rehabilitation proceedings are pending to convert the
rehabilitation
proceedings
into
liquidation
proceedings. The motion shall be verified, shall
contain or set forth the same matters required in the
preceding paragraph, and state that the debtor is
seeking immediate dissolution and termination of its
corporate existence.
If the petition or the motion, as the case may be, is
sufficient in form and substance, the court shall issue
a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or
more creditors the aggregate of whose claims is at
least either One million pesos (Php1,000,000,00) or
at least twenty-five percent (25%0 of the subscribed
capital stock or partner's contributions of the debtor,
whichever is higher, may apply for and seek the
liquidation of an insolvent debtor by filing a petition
for liquidation of the debtor with the court. The
petition shall show that:
(a) there is no genuine issue of fact or law on the
claims/s of the petitioner/s, and that the due and
demandable payments thereon have not been made
for at least one hundred eighty (180) days or that the
debtor has failed generally to meet its liabilities as
they fall due; and
(b) there is no substantial likelihood that the debtor
may be rehabilitated.
At any time during the pendency of or after a
rehabilitation court-supervised or pre-negotiated
rehabilitation proceedings, three (3) or more creditors
whose claims is at least either One million pesos
(Php1,000,000.00) or at least twenty-five percent

(25%) of the subscribed capital or partner's

contributions of the debtor, whichever is higher, may
also initiate liquidation proceedings by filing a
motion in the same court where the rehabilitation
proceedings are pending to convert the rehabilitation
proceedings into liquidation proceedings. The motion
shall be verified, shall contain or set forth the same
matters required in the preceding paragraph, and state
that the movants are seeking the immediate
liquidation of the debtor.
If the petition or motion is sufficient in form and
substance, the court shall issue an Order:
(1) directing the publication of the petition or motion
in a newspaper of general circulation once a week for
two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not
the petitioners to file their comment on the petition or
motion within fifteen (15) days from the date of last
publication.
If, after considering the comments filed, the court
determines that the petition or motion is meritorious,
it shall issue the Liquidation Order mentioned in
Section 112 hereof.
Section 92. Conversion by the Court into Liquidation
Proceedings. - During the pendency of courtsupervised
or
pre-negotiated
rehabilitation
proceedings, the court may order the conversion of
rehabilitation proceedings to liquidation proceedings
pursuant to (a) Section 25(c) of this Act; or (b)
Section 72 of this Act; or (c) Section 75 of this Act;
or (d) Section 90 of this Act; or at any other time
upon the recommendation of the rehabilitation
receiver that the rehabilitation of the debtor is not
feasible. Thereupon, the court shall issue the
Liquidation Order mentioned in Section 112 hereof.
Section 93. Powers of the Securities and Exchange
Commission (SEC). - The provisions of this chapter
shall not affect the regulatory powers of the SEC
under Section 6 of Presidential Decree No. 902-A, as
amended, with respect to any dissolution and
liquidation proceeding initiated and heard before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who,
possessing sufficient property to cover all his debts
but foreseeing the impossibility of meeting them
when they respectively fall due, may file a verified
petition that he be declared in the state of suspension
of payments by the court of the province or city in
which he has resides for six (6) months prior to the
filing of his petition. He shall attach to his petition, as
a minimum: (a) a schedule of debts and liabilities; (b)

an inventory of assess; and (c) a proposed agreement

with his creditors.
Section 95. Action on the Petition. - If the court finds
the petition sufficient in form and substance, it shall,
within five (5) working days from the filing of the
petition, issue an Order:
(a) calling a meeting of all the creditors named in the
schedule of debts and liabilities at such time not less
than fifteen (15) days nor more than forty (40) days
from the date of such Order and designating the date,
time and place of the meeting;
(b) directing such creditors to prepare and present
written evidence of their claims before the scheduled
creditors' meeting;
(c) directing the publication of the said order in a
newspaper of general circulation published in the
province or city in which the petition is filed once a
week for two (2) consecutive weeks, with the first
publication to be made within seven (7) days from
the time of the issuance of the Order;
(d) directing the clerk of court to cause the sending of
a copy of the Order by registered mail, postage
prepaid, to all creditors named in the schedule of
debts and liabilities;

(a) those creditors having claims for personal labor,

maintenance, expense of last illness and funeral of
the wife or children of the debtor incurred in the sixty
(60) days immediately prior to the filing of the
petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of
creditors holding claims amounting to at least threefifths (3/5) of the liabilities shall be necessary for
holding a meeting. The commissioner appointed by
the court shall preside over the meeting and the clerk
of court shall act as the secretary thereof, subject to
the following rules:
(a) The clerk shall record the creditors present and
amount of their respective claims;
(b) The commissioner shall examine the written
evidence of the claims. If the creditors present hold at
least three-fifths (3/5) of the liabilities of the
individual debtor, the commissioner shall declare the
meeting open for business;
(c) The creditors and individual debtor shall discuss
the propositions in the proposed agreement and put
them to a vote;
(d) To form a majority, it is necessary:

(e) forbidding the individual debtor from selling,

transferring, encumbering or disposing in any manner
of his property, except those used in the ordinary
operations of commerce or of industry in which the
petitioning individual debtor is engaged so long as
the proceedings relative to the suspension of
payments are pending;

(1) that two-thirds (2/3) of the creditors voting unite

upon the same proposition; and
(2) that the claims represented by said majority vote
amount to at least three-fifths (3/5) of the total
liabilities of the debtor mentioned in the petition; and

(f) prohibiting the individual debtor from making any

payment outside of the necessary or legitimate
expenses of his business or industry, so long as the
proceedings relative to the suspension of payments
are pending; and

(e) After the result of the voting has been announced,

all protests made against the majority vote shall be
drawn up, and the commissioner and the individual
debtor together with all creditors taking part in the
voting shall sign the affirmed propositions.

(g) appointing a commissioner to preside over the

creditors' meeting.

No creditor who incurred his credit within ninety (90)

days prior to the filing of the petition shall be entitled
to vote.

Section 96. Actions Suspended. - Upon motion filed

by the individual debtor, the court may issue an order
suspending any pending execution against the
individual debtor. Provide, That properties held as
security by secured creditors shall not be the subject
of such suspension order. The suspension order shall
lapse when three (3) months shall have passed
without the proposed agreement being accepted by
the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to
collect his claim from the debtor from the time of the
filing of the petition for suspension of payments and
for as long as proceedings remain pending except:

Section 98. Persons Who May Refrain From Voting. Creditors who are unaffected by the Suspension
Order may refrain from attending the meeting and
from voting therein. Such persons shall not be bound
by any agreement determined upon at such meeting,
but if they should join in the voting they shall be
bound in the same manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. The proposed agreement shall be deemed rejected if
the number of creditors required for holding a
meeting do not attend thereat, or if the two (2)
majorities mentioned in Section 97 hereof are not in
favor thereof. In such instances, the proceeding shall
be terminated without recourse and the parties

concerned shall be at liberty to enforce the rights

which may correspond to them.
Section 100. Objections. - If the proposal of the
individual debtor, or any amendment thereof made
during the creditors' meeting, is approved by the
majority of creditors in accordance with Section 97
hereof, any creditor who attended the meeting and
who dissented from and protested against the vote of
the majority may file an objection with the court
within ten (10) days from the date of the last
creditors' meeting. The causes for which objection
may be made to the decision made by the majority
during the meeting shall be: (a) defects in the call for
the meeting, in the holding thereof and in the
deliberations had thereat which prejudice the rights of
the creditors; (b) fraudulent connivance between one
or more creditors and the individual debtor to vote in
favor of the proposed agreement; or (c) fraudulent
conveyance of claims for the purpose of obtaining a
majority. The court shall hear and pass upon such
objection as soon as possible and in a summary
manner.
In case the decision of the majority of creditors to
approve the individual debtor's proposal or any
amendment thereof made during the creditors'
meeting is annulled by the court, the court shall
declare the proceedings terminated and the creditors
shall be at liberty to exercise the rights which may
correspond to them.
Section 101. Effects of Approval of Proposed
Agreement. - If the decision of the majority of the
creditors to approve the proposed agreement or any
amendment thereof made during the creditors'
meeting is uphold by the court, or when no
opposition or objection to said decision has been
presented, the court shall order that the agreement be
carried out and all parties bound thereby to comply
with its terms.
The court may also issue all orders which may be
necessary or proper to enforce the agreement on
motion of any affected party. The Order confirming
the approval of the proposed agreement or any
amendment thereof made during the creditors'
meeting shall be binding upon all creditors whose
claims are included in the schedule of debts and
liabilities submitted by the individual debtor and who
were properly summoned, but not upon: (a) those
creditors having claims for personal labor,
maintenance, expenses of last illness and funeral of
the wife or children of the debtor incurred in the sixty
(60) days immediately prior to the filing of the
petition; and (b) secured creditors who failed to
attend the meeting or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform
Agreement. - If the individual debtor fails, wholly or
in part, to perform the agreement decided upon at the
meeting of the creditors, all the rights which the
creditors had against the individual debtor before the

agreement shall revest in them. In such case the

individual debtor may be made subject to the
insolvency proceedings in the manner established by
this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor
whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred
thousand pesos (Php500,000.00), may apply to be
discharged from his debts and liabilities by filing a
verified petition with the court of the province or city
in which he has resided for six (6) months prior to the
filing of such petition. He shall attach to his petition a
schedule of debts and liabilities and an inventory of
assets. The filing of such petition shall be an act of
insolvency.
Section 104. Liquidation Order. - If the court finds
the petition sufficient in form and substance it shall,
within five (5) working days issue the Liquidation
Order mentioned in Section 112 hereof.
(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any
creditor or group of creditors with a claim of, or with
claims aggregating at least Five hundred thousand
pesos (Php500, 000.00) may file a verified petition
for liquidation with the court of the province or city
in which the individual debtor resides.
The following shall be considered acts of insolvency,
and the petition for liquidation shall set forth or
allege at least one of such acts:
(a) That such person is about to depart or has
departed from the Republic of the Philippines, with
intent to defraud his creditors;
(b) That being absent from the Republic of the
Philippines, with intent to defraud his creditors, he
remains absent;
(c) That he conceals himself to avoid the service of
legal process for the purpose of hindering or delaying
the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his
property to avoid its being attached or taken on legal
process;
(e) That he has suffered his property to remain under
attachment or legal process for three (3) days for the
purpose of hindering or delaying the liquidation or of
defrauding his creditors;
(f) That he has confessed or offered to allow
judgment in favor of any creditor or claimant for the
purpose of hindering or delaying the liquidation or of
defrauding any creditors or claimant;

(g) That he has willfully suffered judgment to be

taken against him by default for the purpose of
hindering or delaying the liquidation or of defrauding
his creditors;
(h) That he has suffered or procured his property to
be taken on legal process with intent to give a
preference to one or more of his creditors and thereby
hinder or delay the liquidation or defraud any one of
his creditors;
(i) That he has made any assignment, gift, sale,
conveyance or transfer of his estate, property, rights
or credits with intent to hinder or delay the
liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made
any payment, gift, grant, sale, conveyance or transfer
of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has
generally defaulted in the payment of his current
obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed,
after demand, to pay any moneys deposited with him
or received by him in a fiduciary; and
(m) That an execution having been issued against him
on final judgment for money, he shall have been
found to be without sufficient property subject to
execution to satisfy the judgment.
The petitioning creditor/s shall post a bond in such as
the court shall direct, conditioned that if the petition
for liquidation is dismissed by the court, or
withdrawn by the petitioner, or if the debtor shall not
be declared an insolvent the petitioners will pay to
the debtor all costs, expenses, damages occasioned by
the proceedings and attorney's fees.
Section 106. Order to Individual Debtor to Show
Cause. - Upon the filing of such creditors' petition,
the court shall issue an Order requiring the individual
debtor to show cause, at a time and place to be fixed
by the said court, why he should not be adjudged an
insolvent. Upon good cause shown, the court may
issue an Order forbidding the individual debtor from
making payments of any of his debts, and transferring
any property belonging to him. However, nothing
contained herein shall affect or impair the rights of a
secured creditor to enforce his lien in accordance
with its terms.
Section 107. Default. - If the individual debtor shall
default or if, after trial, the issues are found in favor
of the petitioning creditors the court shall issue the
Liquidation Order mentioned in Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases
where the individual debtor resides out of the
Republic of the Philippines; or has departed
therefrom; or cannot, after due diligence, be found

therein; or conceals himself to avoid service of the

Order to show cause, or any other preliminary
process or orders in the matter, then the petitioning
creditors, upon submitting the affidavits requisite to
procedure an Order of publication, and presenting a
bond in double the amount of the aggregate sum of
their claims against the individual debtor, shall be
entitled to an Order of the court directing the sheriff
of the province or city in which the matter is pending
to take into his custody a sufficient amount of
property of the individual debtor to satisfy the
demands of the petitioning creditors and the costs of
the proceedings. Upon receiving such Order of the
court to take into custody of the property of the
individual debtor, it shall be the duty of the sheriff to
take possession of the property and effects of the
individual debtor, not exempt from execution, to an
extent sufficient to cover the amount provided for and
to prepare within three (3) days from the time of
taking such possession, a complete inventory of all
the property so taken, and to return it to the court as
soon as completed. The time for taking the inventory
and making return thereof may be extended for good
cause shown to the court. The sheriff shall also
prepare a schedule of the names and residences of the
creditors, and the amount due each, from the books of
the debtor, or from such other papers or data of the
individual debtor available as may come to his
possession, and shall file such schedule or list of
creditors and inventory with the clerk of court.
Section 109. All Property Taken to be Held for All
Creditors; Appeal Bonds; Exemptions to Sureties. - In
all cases where property is taken into custody by the
sheriff, if it does not embrace all the property and
effects of the debtor not exempt from execution, any
other creditor or creditors of the individual debtor,
upon giving bond to be approved by the court in
double the amount of their claims, singly or jointly,
shall be entitled to similar orders and to like action,
by the sheriff; until all claims be provided for, if there
be sufficient property or effects. All property taken
into custody by the sheriff by virtue of the giving of
any such bonds shall be held by him for the benefit of
all creditors of the individual debtor whose claims
shall be duly proved as provided in this Act. The
bonds provided for in this section and the preceding
section to procure the order for custody of the
property and effects of the individual debtor shall be
conditioned that if, upon final hearing of the petition
in insolvency, the court shall find in favor of the
petitioners, such bonds and all of them shall be void;
if the decision be in favor of the individual debtor, the
proceedings shall be dismissed, and the individual
debtor, his heirs, administrators, executors or assigns
shall be entitled to recover such sum of money as
shall be sufficient to cover the damages sustained by
him, not to exceed the amount of the respective
bonds. Such damages shall be fixed and allowed by
the court. If either the petitioners or the debtor shall
appeal from the decision of the court, upon final
hearing of the petition, the appellant shall be required
to give bond to the successful party in a sum double

the amount of the value of the property in

controversy, and for the costs of the proceedings.
Any person interested in the estate may take
exception to the sufficiency of the sureties on such
bond or bonds. When excepted to the petitioner's
sureties, upon notice to the person excepting of not
less than two (2) nor more than five (5) days, must
justify as to their sufficiency; and upon failure to
justify, or of others in their place fail to justify at the
time and place appointed the judge shall issue an
Order vacating the order to take the property of the
individual debtor into the custody of the sheriff, or
denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case,
proper affidavits and bonds are presented to the court
or a judge thereof, asking for and obtaining an Order
of publication and an Order for the custody of the
property of the individual debtor and thereafter the
petitioners shall make it appear satisfactorily to the
court or a judge thereof that the interest of the parties
to the proceedings will be subserved by a sale
thereof, the court may order such property to be sold
in the same manner as property is sold under
execution, the proceeds to de deposited in the court to
abide by the result of the proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN
INSOLVENCY OF INDIVIDUAL AND
JURIDICAL DEBTORS
Section 111. Use of Term Debtor. - For purposes of
this chapter, the term debtor shall include both
individual debtor as defined in Section 4(o) and
debtor as defined in Section 4(k) of this Act.
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation
Order shall:

(g) direct all creditors to file their claims with the

liquidator within the period set by the rules of
procedure;
(h) authorize the payment of administrative expenses
as they become due;
(i) state that the debtor and creditors who are not
petitioner/s may submit the names of other nominees
to the position of liquidator; and
(j) set the case for hearing for the election and
appointment of the liquidator, which date shall not be
less than thirty (30) days nor more than forty-five
(45) days from the date of the last publication.
Section 113. Effects of the Liquidation Order. - Upon
the issuance of the Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and
its corporate or juridical existence terminated;
(b) legal title to and control of all the assets of the
debtor, except those that may be exempt from
execution, shall be deemed vested in the liquidator or,
pending his election or appointment, with the court;
(c) all contracts of the debtor shall be deemed
terminated and/or breached, unless the liquidator,
within ninety (90) days from the date of his
assumption of office, declares otherwise and the
contracting party agrees;
(d) no separate action for the collection of an
unsecured claim shall be allowed. Such actions
already pending will be transferred to the Liquidator
for him to accept and settle or contest. If the
liquidator contests or disputes the claim, the court
shall allow, hear and resolve such contest except
when the case is already on appeal. In such a case,
the suit may proceed to judgment, and any final and
executor judgment therein for a claim against the
debtor shall be filed and allowed in court; and

(a) declare the debtor insolvent;

(b) order the liquidation of the debtor and, in the case
of a juridical debtor, declare it as dissolved;
(c) order the sheriff to take possession and control of
all the property of the debtor, except those that may
be exempt from execution;
(d) order the publication of the petition or motion in a
newspaper of general circulation once a week for two
(2) consecutive weeks;

(e) no foreclosure proceeding shall be allowed for a

period of one hundred eighty (180) days.
Section 114. Rights of Secured Creditors. - The
Liquidation Order shall not affect the right of a
secured creditor to enforce his lien in accordance
with the applicable contract or law. A secured creditor
may:
(a) waive his right under the security or lien, prove
his claim in the liquidation proceedings and share in
the distribution of the assets of the debtor; or

(e) direct payments of any claims and conveyance of

any property due the debtor to the liquidator;

(b) maintain his rights under the security or lien:

(f) prohibit payments by the debtor and the transfer of

any property by the debtor;

If the secured creditor maintains his rights under the

security or lien:

(1) the value of the property may be fixed in a

manner agreed upon by the creditor and the
liquidator. When the value of the property is less than
the claim it secures, the liquidator may convey the
property to the secured creditor and the latter will be
admitted in the liquidation proceedings as a creditor
for the balance. If its value exceeds the claim secured,
the liquidator may convey the property to the creditor
and waive the debtor's right of redemption upon
receiving the excess from the creditor;

file a bond, In such amount to be fixed by the court,

conditioned upon the proper and faithful discharge of
his powers, duties and responsibilities.

(2) the liquidator may sell the property and satisfy the
secured creditor's entire claim from the proceeds of
the sale; or

Section 119. Powers, Duties and Responsibilities of

the Liquidator. - The liquidator shall be deemed an
officer of the court with the principal duly of
preserving and maximizing the value and recovering
the assets of the debtor, with the end of liquidating
them and discharging to the extent possible all the
claims against the debtor. The powers, duties and
responsibilities of the liquidator shall include, but not
limited to:

(3) the secure creditor may enforce the lien or

foreclose on the property pursuant to applicable laws.
(B) The Liquidator.
Section 115. Election of Liquidator. - Only creditors
who have filed their claims within the period set by
the court, and whose claims are not barred by the
statute of limitations, will be allowed to vote in the
election of the liquidator. A secured creditor will not
be allowed to vote, unless: (a) he waives his security
or lien; or (b) has the value of the property subject of
his security or lien fixed by agreement with the
liquidator, and is admitted for the balance of his
claim.
The creditors entitled to vote will elect the liquidator
in open court. The nominee receiving the highest
number of votes cast in terms of amount of claims, ad
who is qualified pursuant to Section 118 hereof, shall
be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court
may appoint the liquidator if:
(a) on the date set for the election of the liquidator,
the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a
liquidator;
(c) after being elected, the liquidator fails to qualify;
or
(d) a vacancy occurs for any reason whatsoever, In
any of the cases provided herein, the court may
instead set another hearing of the election of the
liquidator.
Provided further, That nothing in this section shall be
construed to prevent a rehabilitation receiver, who
was administering the debtor prior to the
commencement of the liquidation, from being
appointed as a liquidator.
Section 117. Oath and Bond of the Liquidator. -Prior
to entering upon his powers, duties and
responsibilities, the liquidator shall take an oath and

Section 118. Qualifications of the Liquidator. - The

liquidator shall have the qualifications enumerated in
Section 29 hereof. He may be removed at any time by
the court for cause, either motu propio or upon
motion of any creditor entitled to vote for the election
of the liquidator.

(a) to sue and recover all the assets, debts and claims,
belonging or due to the debtor;
(b) to take possession of all the property of the debtor
except property exempt by law from execution;
(c) to sell, with the approval of the court, any
property of the debtor which has come into his
possession or control;
(d) to redeem all mortgages and pledges, and so
satisfy any judgement which may be an encumbrance
on any property sold by him;
(e) to settle all accounts between the debtor and his
creditors, subject to the approval of the court;
(f) to recover any property or its value, fraudulently
conveyed by the debtor;
(g) to recommend to the court the creation of a
creditors' committee which will assist him in the
discharge of the functions and which shall have
powers as the court deems just, reasonable and
necessary; and
(h) upon approval of the court, to engage such
professional as may be necessary and reasonable to
assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation
receiver, the liquidator, shall have the right and duty
to take all reasonable steps to manage and dispose of
the debtor's assets with a view towards maximizing
the proceedings therefrom, to pay creditors and
stockholders, and to terminate the debtor's legal
existence. Other duties of the liquidator in accordance
with this section may be established by procedural
rules.
A liquidator shall be subject to removal pursuant to
procedures for removing a rehabilitation receiver.

Section 120. Compensation of the Liquidator. - The

liquidator and the persons and entities engaged or
employed by him to assist in the discharge of his
powers and duties shall be entitled to such reasonable
compensation as may determined by the liquidation
court, which shall not exceed the maximum amount
as may be prescribed by the Supreme Court.
Section 121. Reporting Requiremen5ts. - The
liquidator shall make and keep a record of all moneys
received and all disbursements mad by him or under
his authority as liquidator. He shall render a quarterly
report thereof to the court , which report shall be
made available to all interested parties. The liquidator
shall also submit such reports as may be required by
the court from time to time as well as a final report at
the end of the liquidation proceedings.
Section 122. Discharge of Liquidator. - In
preparation for the final settlement of all the claims
against the debtor , the liquidator will notify all the
creditors, either by publication in a newspaper of
general circulation or such other mode as the court
may direct or allow, that will apply with the court for
the settlement of his account and his discharge from
liability as liquidator. The liquidator will file a final
accounting with the court, with proof of notice to all
creditors. The accounting will be set for hearing. If
the court finds the same in order, the court will
discharge the liquidator.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20)
days from his assumption into office the liquidator
shall prepare a preliminary registry of claims of
secured and unsecured creditors. Secured creditors
who have waived their security or lien, or have fixed
the value of the property subject of their security or
lien by agreement with the liquidator and is admitted
as a creditor for the balance , shall be considered as
unsecured creditors. The liquidator shall make the
registry available for public inspection and provide
publication notice to creditors, individual debtors
owner/s of the sole proprietorship-debtor, the partners
of the partnership-debtor and shareholders or
members of the corporation-debtor, on where and
when they may inspect it. All claims must be duly
proven before being paid.
Section 124. Right of Set-off. - If the debtor and
creditor are mutually debtor and creditor of each
other one debt shall be set off against the other, and
only the balance, if any shall be allowed in the
liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. Within thirty (30 ) days from the expiration of the
period for filing of applications for recognition of
claims, creditors, individual debtors, owner/s of the
sole proprietorship-debtor, partners of the
partnership-debtor and shareholders or members of
the corporation -debtor and other interested parties

may submit a challenge to claim or claims to the

court, serving a certified copy on the liquidator and
the creditor holding the challenged claim. Upon the
expiration of the (30) day period, the rehabilitation
receiver shall submit to the court the registry of
claims containing the undisputed claims that have not
been subject to challenge. Such claims shall become
final upon the filling of the register and may be
subsequently set aside only on grounds or fraud,
accident, mistake or inexcusable neglect.
Section 126. Submission of Disputed to the Court. The liquidator shall resolve disputed claims and
submit his findings thereon to the court for final
approval. The liquidator may disallow claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain
Transactions. - Any transaction occurring prior to the
issuance of the Liquidation Order or, in case of the
conversion of the rehabilitation proceedings prior to
the commencement date, entered into by the debtor or
involving its assets, may be rescinded or declared
null and void on the ground that the same was
executed with intent to defraud a creditor or creditors
or which constitute undue preference of creditors.
The presumptions set forth in Section 58 hereof shall
apply.
Section 128. Actions for Rescission or Nullity. - (a)
The liquidator or, with his conformity, a creditor may
initiate and prosecute any action to rescind, or declare
null and void any transaction described in the
immediately preceding paragraph. If the liquidator
does not consent to the filling or prosecution of such
action, any creditor may seek leave of the court to
commence said action.
(b) if leave of court is granted under subsection (a)
hereof, the liquidator shall assign and transfer to the
creditor all rights, title and interest in the chose in
action or subject matter of the proceeding, including
any document in support thereof.
(c) Any benefit derived from a proceeding taken
pursuant to subsection (a) hereof, to the extent of his
claim and the costs, belongs exclusively to the
creditor instituting the proceeding, and the surplus, if
any, belongs to the estate.
(d) Where, before an orders is made under subsection
(a) hereof, the liquidator signifies to the court his
readiness to the institute the proceeding for the
benefit of the creditors, the order shall fix the time
within which he shall do so and, in that case the
benefit derived from the proceedings, if instituted
within the time limits so fixed, belongs to the estate.
(E) The Liquidation Plan.
Section 129. The Liquidation Plan. - Within three (3)
months from his assumption into office, the

Liquidator shall submit a Liquidation Plan to the

court. The Liquidation Plan shall, as a minimum
enumerate all the assets of the debtor and a schedule
of liquidation of the assets and payment of the claims.
Section 130. Exempt Property to be Set Apart. - It
shall be the duty of the court, upon petition and after
hearing, to exempt and set apart, for the use and
benefit of the said insolvent, such real and personal
property as is by law exempt from execution, and
also a homestead; but no such petition shall be heard
as aforesaid until it is first proved that notice of the
hearing of the application therefor has been duly
given by the clerk, by causing such notice to be
posted it at least three (3) public places in the
province or city at least ten (10) days prior to the time
of such hearing, which notice shall set forth the name
of the said insolvent debtor, and the time and place
appointed for the hearing of such application, and
shall briefly indicate the homestead sought to be
exempted or the property sought to be set aside; and
the decree must show that such proof was made to the
satisfaction of the court, and shall be conclusive
evidence of that fact.
Section 131. Sale of Assets in Liquidation. - The
liquidator may sell the unencumbered assets of the
debtor and convert the same into money. The sale
shall be made at public auction. However, a private
sale may be allowed with the approval of the court if;
(a) the goods to be sold are of a perishable nature, or
are liable to quickly deteriorate in value, or are
disproportionately expensive to keep or maintain; or
(b) the private sale is for the best interest of the
debtor and his creditors.
With the approval of the court, unencumbered
property of the debtor may also be conveyed to a
creditor in satisfaction of his claim or part thereof.
Section 132. manner of Implementing the
Liquidation Plan. - The Liquidator shall implement
the Liquidation Plan as approved by the court.
Payments shall be made to the creditors only in
accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of
Credits. - The
Liquidation
Plan
and
its
Implementation shall ensure that the concurrence and
preference of credits as enumerated in the Civil Code
of the Philippines and other relevant laws shall be
observed, unless a preferred creditor voluntarily
waives his preferred right. For purposes of this
chapter, credits for services rendered by employees or
laborers to the debtor shall enjoy first preference
under Article 2244 of the Civil Code, unless the
claims constitute legal liens under Article 2241 and
2242 thereof.
Section 134. Order Removing the Debtor from the
List of Registered Entitles at the Securities and
Exchange Commission. - Upon determining that the
liquidation has been completed according to this Act

and applicable law, the court shall issue an Order

approving the report and ordering the SEC to remove
the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon
receipt of evidence showing that the debtor has been
removed from the registry of legal entities at the
SEC. The court shall issue an Order terminating the
proceedings.
(F) Liquidation of a Securities Market
Participant.
Section 136. Liquidation of a Securities Market
Participant. - The foregoing provisions of this
chapter shall be without prejudice to the power of a
regulatory agency or self- regulatory organization to
liquidate trade-related claims of clients or customers
of a securities market participant which, for purposes
of investor protection, are hereby deemed to have
absolute priority over other claims of whatever nature
or kind insofar as trade-related assets are concerned.
For purposes of this section, trade -related assets
include cash, securities, trading right and other
owned and used by the securities market participant
in the ordinary course of this business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER
INSOLVENCY OR REHABILITAION
PROCEEDINGS
(A) Banks and Other Financial Institutions Under
Rehabilitation Receivership Pursuant to a Statefunded or State-mandated Insurance System.
Section 137. Provision of Assistance. - The court
shall issue orders, adjudicate claims and provide
other relief necessary to assist in the liquidation of a
financial under rehabilitation receivership established
by a state-funded or state-mandated insurance
system.
Section 138. Application of Relevant Legislation. The liquidation of bank, 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.
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on
Cross-Border Insolvency. - Subject to the provision of
Section 136 hereof and the rules of procedure that
may be adopted by the Supreme Court, the Model
Law on Cross-Border Insolvency of the United
Nations Center for International Trade and
Development is hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court
shall set a hearing in connection with an insolvency
or rehabilitation proceeding taking place in a foreign

jurisdiction, upon the submission of a petition by the

representative of the foreign entity that is the subject
of the foreign proceeding.
Section 141. Provision of Relief. - The court may
issue orders:
(a) suspending any action to enforce claims against
the entity or otherwise seize or foreclose on property
of the foreign entity located in the Philippines;
(b) requiring the surrender property of the foreign
entity to the foreign representative; or
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In
determining whether to grant relief under this
subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and
the inconvenience in pursuing their claim in a foreign
proceeding;
(b) the just treatment of all creditors through resort to
a unified insolvency or rehabilitation proceedings;
(c) whether other jurisdictions have given recognition
to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes
the rights of creditors and other interested parties in a
manner substantially in accordance with the manner
prescribed in this Act; and
(e) the extent that the foreign proceeding has
recognized and shown deference to proceedings
under this Act and previous legislation.
CHAPTER IX
FUNDS FOR REHABILITATION OF
GOVERNMENT-OWNED AND CONTROLLED
CORPORATIONS
Section 143. Funds for Rehabilitation of Government
-owned and Controlled Corporations. - Public funds
for the rehabilitation of government-owned and
controlled corporations shall be released only
pursuant to an appropriation by Congress and shall be
supported by funds actually available as certified by
the National Treasurer.
The Department of Finance, in collaboration with the
Department of Budget and Management, shall
promulgate the rules for the use and release of said
funds.
CHAPTER X
MISCELLANEOUS PROVISIOS
Section 144. Applicability of Provisions. - The
provisions in Chapter II, insofar as they are

applicable, shall likewise apply to proceedings in

Chapters II and IV.
Section 145. Penalties. - An owner, partner, director,
officer or other employee of the debtor who commits
any one of the following acts shall, upon conviction
thereof, be punished by a fine of not more than One
million pesos (Php 1, 000,000.00) and imprisonment
for not less than three(3) months nor more than five
(5) years for each offense;
(a) if he shall, having notice of the commencement of
the proceedings, or having reason to believe that
proceedings are about to be commented, or in
contemplation of the proceedings hide or conceal, or
destroy or cause to be destroyed or hidden any
property belonging to the debtor or if he shall hide,
destroy, after mutilate or falsify, or cause to be
hidden, destroyed, altered, mutilated or falsified, any
book, deed, document or writing relating thereto; if
he shall, with intent to defraud the creditors of the
debtor, make any payment sale, assignment, transfer
or conveyance of any property belongings to the
debtor
(b) if he shall, having knowledge belief of any person
having proved a false or fictitious claim against the
debtor, fail to disclose the same to the rehabilitation
receiver of liquidator within one (1) month after
coming to said knowledge or belief; or if he shall
attempt to account for any of the debtors property by
fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or
knowingly fail to undertake an obligation established
by this Act.
Section 146. Application to Pending Insolvency,
Suspension of Payments and Rehabilitation Cases. This Act shall govern all petitions filed after it has
taken effect. All further proceedings in insolvency,
suspension of payments and rehabilitation cases then
pending, except to the extent that in opinion of the
court their application would not be feasible or would
work injustice, in which event the procedures set
.forth in prior laws and regulations shall apply
Section 147. Application to Pending Contracts. This Act shall apply to all contracts of the debtor
regardless of the date of perfection.
Section 148. Repeating Clause. - The Insolvency
Law (Act No. 1956). As amended is hereby repealed.
All other laws, orders, rules and regulations or parts
thereof inconsistent with any provision of this Act are
hereby repealed or modified accordingly.
Section 149. Separability Clause. - If any provision
of this Act shall be held invalid, the remainder of this
Act not otherwise affected shall remain in full force
effect

Section 150. Effectivity Clause. - This Act shall take

effect fifteen (15) days after its complete publication
in the Official Gazette or in at least two (2) national
newspaper of general circulation.
Approved,

(Sgd.) JUAN PONCE (Sgd.) PROSPERO C.

ENRILE
NOGRALES
President of the Senate Speaker of the House
of Representatives
This Act which is a consolidation of House Bill No.
7090 and Senate Bill No. 61 was finally passed by
the House of Representatives and the Senate on
February 1. 2010 and February 2, 2010, respectively.

(Sgd.) EMMA LIRIO- (Sgd.) MARILYN B.

REYES
BARUA-YAP
Secretary of Senate
Secretary General
House of
Representatives

(Sgd.) GLORIA MACAPAGAL-ARROYO

President of the Philippines