REPUBLIC ACT No.

10142 (2) arising from, or in connection with, the

AN ACT PROVIDING FOR THE conduct of the proceedings under this Act,
REHABILITATION OR LIQUIDATION OF including those incurred for the rehabilitation
FINANCIALLY DISTRESSED ENTERPRISES or liquidation of the debtor;
AND INDIVIDUALS (3) incurred in the ordinary course of business
Be it enacted by the Senate and House of of the debtor after the commencement date;
Representatives of the Philippine Congress (4) for the payment of new obligations
Assembled: obtained after the commencement date to
CHAPTER I finance the rehabilitation of the debtor;
GENERAL PROVISIONS (5) incurred for the fees of the rehabilitation
Section 1. Title. - This Act shall be known as receiver or liquidator and of the professionals
the "Financial Rehabilitation and Insolvency engaged by them; and
Act (FRIA) of 2010". (6) that are otherwise authorized or mandated
Section 2. Declaration of Policy. - It is the under this Act or such other expenses as may
policy of the State to encourage debtors, both be allowed by the Supreme Court in its rules.
juridical and natural persons, and their (b) Affiliate shall refer to a corporation that
creditors to collectively and realistically directly or indirectly, through one or more
resolve and adjust competing claims and intermediaries, is controlled by, or is under
property rights. In furtherance thereof, the the common control of another corporation.
State shall ensure a timely, fair, transparent, (c) Claim shall refer to all claims or demands
effective and efficient rehabilitation or of whatever nature or character against the
liquidation of debtors. The rehabilitation or debtor or its property, whether for money or
liquidation shall be made with a view to ensure otherwise, liquidated or unliquidated, fixed or
or maintain certainly and predictability in contingent, matured or unmatured, disputed
commercial affairs, preserve and maximize the or undisputed, including, but not limited to; (1)
value of the assets of these debtors, recognize all claims of the government, whether national
creditor rights and respect priority of claims, or local, including taxes, tariffs and customs
and ensure equitable treatment of creditors duties; and (2) claims against directors and
who are similarly situated. When rehabilitation officers of the debtor arising from acts done in
is not feasible, it is in the interest of the State to the discharge of their functions falling within
facilities a speedy and orderly liquidation of the scope of their authority: Provided, That, this
these debtor's assets and the settlement of inclusion does not prohibit the creditors or
their obligations. third parties from filing cases against the
Section 3. Nature of Proceedings. - The directors and officers acting in their personal
proceedings under this Act shall be in rem. capacities.
Jurisdiction over all persons affected by the (d) Commencement date shall refer to the date
proceedings shall be considered as acquired on which the court issues the Commencement
upon publication of the notice of the Order, which shall be retroactive to the date of
commencement of the proceedings in any filing of the petition for voluntary or
newspaper of general circulation in the involuntary proceedings.
Philippines in the manner prescribed by the (e) Commencement Order shall refer to the
rules of procedure to be promulgated by the order issued by the court under Section 16 of
Supreme Court. this Act.
The proceedings shall be conducted in a (f) Control shall refer to the power of a parent
summary and non-adversarial manner corporation to direct or govern the financial
consistent with the declared policies of this Act and operating policies of an enterprise so as to
and in accordance with the rules of procedure obtain benefits from its activities. Control is
that the Supreme Court may promulgate. presumed to exist when the parent owns,
Section 4. Definition of Terms. - As used in this directly or indirectly through subsidiaries or
Act, the term: affiliates, more than one-half (1/2) of the voting
(a) Administrative expenses shall refer to those power of an enterprise unless, in exceptional
reasonable and necessary expenses: circumstances, it can clearly be demonstrated
(1) incurred or arising from the filing of a that such ownership does not constitute
petition under the provisions of this Act; control. Control also exists even when the
parent owns one-half (1/2) or less of the voting Philippines that has become insolvent as
power of an enterprise when there is power: defined herein.
(1) over more than one-half (1/2) of the voting (p) Insolvent shall refer to the financial
rights by virtue of an agreement with condition of a debtor that is generally unable
investors; to pay its or his liabilities as they fall due in the
(2) to direct or govern the financial and ordinary course of business or has liabilities
operating policies of the enterprise under a that are greater than its or his assets.
statute or an agreement; (q) Insolvent debtor's estate shall refer to the
(3) to appoint or remove the majority of the estate of the insolvent debtor, which includes
members of the board of directors or all the property and assets of the debtor as of
equivalent governing body; or commencement date, plus the property and
(4) to cast the majority votes at meetings of the assets acquired by the rehabilitation receiver
board of directors or equivalent governing or liquidator after that date, as well as all other
body. property and assets in which the debtor has an
(g) Court shall refer to the court designated by ownership interest, whether or not these
the Supreme Court to hear and determine, at property and assets are in the debtor's
the first instance, the cases brought under this possession as of commencement
Act. date: Provided, That trust assets and bailment,
(h) Creditor shall refer to a natural or juridical and other property and assets of a third party
person which has a claim against the debtor that are in the possession of the debtor as of
that arose on or before the commencement commencement date, are excluded therefrom.
date. (r) Involuntary proceedings shall refer to
(i) Date of liquidation shall refer to the date on proceedings initiated by creditors.
which the court issues the Liquidation Order. (s) Liabilities shall refer to monetary claims
(j) Days shall refer to calendar days unless against the debtor, including stockholder's
otherwise specifically stated in this Act. advances that have been recorded in the
(k) Debtor shall refer to, unless specifically debtor's audited financial statements as
excluded by a provision of this Act, a sole advances for future subscriptions.
proprietorship duly registered with the (t) Lien shall refer to a statutory or contractual
Department of Trade and Industry (DTI), a claim or judicial charge on real or personal
partnership duly registered with the Securities property that legality entities a creditor to
and Exchange Commission (SEC), a resort to said property for payment of the
corporation duly organized and existing under claim or debt secured by such lien.
Philippine laws, or an individual debtor who (u) Liquidation shall refer to the proceedings
has become insolvent as defined herein. under Chapter V of this Act.
(l) Encumbered property shall refer to real or (v) Liquidation Order shall refer to the Order
personal property of the debtor upon which a issued by the court under Section 112 of this
lien attaches. Act.
(m) General unsecured creditor shall refer to a (w) Liquidator shall refer to the natural person
creditor whose claim or a portion thereof its or juridical entity appointed as such by the
neither secured, preferred nor subordinated court and entrusted with such powers and
under this Act. duties as set forth in this Act: Provided, That, if
(n) Group of debtors shall refer to and can the liquidator is a juridical entity, it must
cover only: (1) corporations that are financially designated a natural person who possesses all
related to one another as parent corporations, the qualifications and none of the
subsidiaries or affiliates; (2) partnerships that disqualifications as its representative, it being
are owned more than fifty percent (50%) by understood that the juridical entity and the
the same person; and (3) single representative are solidarity liable for all
proprietorships that are owned by the same obligations and responsibilities of the
person. When the petition covers a group of liquidator.
debtors, all reference under these rules to (x) Officer shall refer to a natural person
debtor shall include and apply to the group of holding a management position described in
debtors. or contemplated by a juridical entity's articles
(o) Individual debtor shall refer to a natural of incorporation, bylaws or equivalent
person who is a resident and citizen of the documents, except for the corporate
secretary, the assistant corporate secretary (ii) Rehabilitation Plan shall refer to a plan by
and the external auditor. which the financial well-being and viability of
(y) Ordinary course of business shall refer to an insolvent debtor can be restored using
transactions in the pursuit of the individual various means including, but not limited to,
debtor's or debtor's business operations prior debt forgiveness, debt rescheduling,
to rehabilitation or insolvency proceedings reorganization or quasi-reorganization, dacion
and on ordinary business terms. en pago, debt-equity conversion and sale of
(z) Ownership interest shall refer to the the business (or parts of it) as a going concern,
ownership interest of third parties in property or setting-up of new business entity as
held by the debtor, including those covered prescribed in Section 62 hereof, or other
by trust receipts or assignments of similar arrangements as may be approved by
receivables. the court or creditors.
(aa) Parent shall refer to a corporation which (jj) Secured claim shall refer to a claim that is
has control over another corporation either secured by a lien.
directly or indirectly through one or more (kk) Secured creditor shall refer to a creditor
intermediaries. with a secured claim.
(bb) Party to the proceedings shall refer to the (ll) Secured party shall refer to a secured
debtor, a creditor, the unsecured creditors' creditor or the agent or representative of such
committee, a stakeholder, a party with an secured creditor.
ownership interest in property held by the (mm) Securities market participant shall refer to
debtor, a secured creditor, the rehabilitation a broker dealer, underwriter, transfer agent or
receiver, liquidator or any other juridical or other juridical persons transacting securities in
natural person who stands to be benefited or the capital market.
injured by the outcome of the proceedings and (nn) Stakeholder shall refer, in addition to a
whose notice of appearance is accepted by the holder of shares of a corporation, to a member
court. of a nonstock corporation or association or a
(cc) Possessory lien shall refer to a lien on partner in a partnership.
property, the possession of which has been (oo) Subsidiary shall refer to a corporation
transferred to a creditor or a representative or more than fifty percent (50%) of the voting
agent thereof. stock of which is owned or controlled directly
(dd) Proceedings shall refer to judicial or indirectly through one or more
proceedings commenced by the court's intermediaries by another corporation, which
acceptance of a petition filed under this Act. thereby becomes its parent corporation.
(ee) Property of others shall refer to property (pp) Unsecured claim shall refer to a claim that
held by the debtor in which other persons is not secured by a lien.
have an ownership interest. (qq) Unsecured creditor shall refer to a creditor
(ff) Publication notice shall refer to notice with an unsecured claim.
through publication in a newspaper of general (rr) Voluntary proceedings shall refer to
circulation in the Philippines on a business day proceedings initiated by the debtor.
for two (2) consecutive weeks. (ss) Voting creditor shall refer to a creditor that
(gg) Rehabilitation shall refer to the restoration is a member of a class of creditors, the consent
of the debtor to a condition of successful of which is necessary for the approval of a
operation and solvency, if it is shown that its Rehabilitation Plan under this Act.
continuance of operation is economically Section 5. Exclusions. - The term debtor does
feasible and its creditors can recover by way not include banks, insurance companies, pre-
of the present value of payments projected in need companies, and national and local
the plan, more if the debtor continues as a government agencies or units.
going concern than if it is immediately For purposes of this section:
liquidated. (a) Bank shall refer to any duly licensed bank
(hh) Rehabilitation receiver shall refer to the or quasi-bank that is potentially or actually
person or persons, natural or juridical, subject to conservatorship, receivership or
appointed as such by the court pursuant to this liquidation proceedings under the New
Act and which shall be entrusted with such Central Bank Act (Republic Act No. 7653) or
powers and duties as set forth herein. successor legislation;
(b) Insurance company shall refer to those Section 8. Decisions of Creditors. - Decisions of
companies that are potentially or actually creditors shall be made according to the
subject to insolvency proceedings under the relevant provisions of the Corporation Code in
Insurance Code (Presidential Decree No. the case of stock or nonstock corporations or
1460) or successor legislation; and the Civil Code in the case of partnerships that
(c) Pre-need company shall refer to any are not inconsistent with this Act.
corporation authorized/licensed to sell or offer Section 9. Creditors Representatives. -
to sell pre-need plans. Creditors may designate representatives to
Provided, That government financial vote or otherwise act on their behalf by filing
institutions other than banks and government- notice of such representation with the court
owned or controlled corporations shall be and serving a copy on the rehabilitation
covered by this Act, unless their specific receiver or liquidator.
charter provides otherwise. Section 10. Liability of Individual Debtor,
Section 6. Designation of Courts and Owner of a Sole Proprietorship, Partners in a
Promulgation of Procedural Rules. - The Partnership, or Directors and Officers. -
Supreme Court shall designate the court or Individual debtor, owner of a sole
courts that will hear and resolve cases brought proprietorship, partners in a partnership, or
under this Act and shall promulgate the rules directors and officers of a debtor shall be
of pleading, practice and procedure to govern liable for double the value of the property
the proceedings brought under this Act. sold, embezzled or disposed of or double the
Section 7. Substantive and Procedural amount of the transaction involved, whichever
Consolidation. - Each juridical entity shall be is higher to be recovered for benefit of the
considered as a separate entity under the debtor and the creditors, if they, having notice
proceedings in this Act. Under these of the commencement of the proceedings, or
proceedings, the assets and liabilities of a having reason to believe that proceedings are
debtor may not be commingled or aggregated about to be commenced, or in contemplation
with those of another, unless the latter is a of the proceedings, willfully commit the
related enterprise that is owned or controlled following acts:
directly or indirectly by the same (a) Dispose or cause to be disposed of any
interests: Provided, however, That the property of the debtor other than in the
commingling or aggregation of assets and ordinary course of business or authorize or
liabilities of the debtor with those of a related approve any transaction in fraud of creditors
enterprise may only be allowed where: or in a manner grossly disadvantageous to the
(a) there was commingling in fact of assets and debtor and/or creditors; or
liabilities of the debtor and the related (b) Conceal or authorize or approve the
enterprise prior to the commencement of the concealment, from the creditors, or embezzles
proceedings; or misappropriates, any property of the
(b) the debtor and the related enterprise have debtor.
common creditors and it will be more The court shall determine the extent of the
convenient to treat them together rather than liability of an owner, partner, director or
separately; officer under this section. In this connection, in
(c) the related enterprise voluntarily accedes case of partnerships and corporations, the
to join the debtor as party petitioner and to court shall consider the amount of the
commingle its assets and liabilities with the shareholding or partnership or equity interest
debtor's; and of such partner, director or officer, the degree
(d) The consolidation of assets and liabilities of of control of such partner, director or officer
the debtor and the related enterprise is over the debtor, and the extent of the
beneficial to all concerned and promotes the involvement of such partner, director or
objectives of rehabilitation. debtor in the actual management of the
Provided, finally, That nothing in this section operations of the debtor.
shall prevent the court from joining other Section 11. Authorization to Exchange Debt for
entities affiliated with the debtor as parties Equity. - Notwithstanding applicable banking
pursuant to the rules of procedure as may be legislation to the contrary, any bank, whether
promulgated by the Supreme Court. universal or not, may acquire and hold an
equity interest or investment in a debtor or its
subsidiaries when conveyed to such bank in (h) A Rehabilitation Plan;
satisfaction of debts pursuant to a (i) The names of at least three (3) nominees to
Rehabilitation or Liquidation Plan approved by the position of rehabilitation receiver; and
the court: Provided, That such ownership shall (j) Other documents required to be filed with
be subject to the ownership limits applicable the petition pursuant to this Act and the rules of
to universal banks for equity investments procedure as may be promulgated by the
and: Provided, further, That any equity Supreme Court.
investment or interest acquired or held A group of debtors may jointly file a petition
pursuant to this section shall be disposed by for rehabilitation under this Act when one or
the bank within a period of five (5) years or as more of its members foresee the impossibility
may be prescribed by the Monetary Board. of meeting debts when they respectively fall
CHAPTER II due, and the financial distress would likely
COURT-SUPERVISED REHABILITATION adversely affect the financial condition and/or
(A) Initiation Proceedings. operations of the other members of the group
(1) Voluntary Proceedings. and/or the participation of the other members
Section 12. Petition to Initiate Voluntary of the group is essential under the terms and
Proceedings by Debtor. - When approved by conditions of the proposed Rehabilitation Plan.
the owner in case of a sole proprietorship, or (2) Involuntary Proceedings.
by a majority of the partners in case of a Section 13. Circumstances Necessary to Initiate
partnership, or in case of a corporation, by a Involuntary Proceedings. - Any creditor or
majority vote of the board of directors or group of creditors with a claim of, or the
trustees and authorized by the vote of the aggregate of whose claims is, at least One
stockholders representing at least two-thirds Million Pesos (Php1,000,000.00) or at least
(2/3) of the outstanding capital stock, or in twenty-five percent (25%) of the subscribed
case of nonstock corporation, by the vote of at capital stock or partners' contributions,
least two-thirds (2/3) of the members, in a whichever is higher, may initiate involuntary
stockholder's or member's meeting duly called proceedings against the debtor by filing a
for the purpose, an insolvent debtor may petition for rehabilitation with the court if:
initiate voluntary proceedings under this Act (a) there is no genuine issue of fact on law on
by filing a petition for rehabilitation with the the claim/s of the petitioner/s, and that the due
court and on the grounds hereinafter and demandable payments thereon have not
specifically provided. The petition shall be been made for at least sixty (60) days or that
verified to establish the insolvency of the the debtor has failed generally to meet its
debtor and the viability of its rehabilitation, liabilities as they fall due; or
and include, whether as an attachment or as (b) a creditor, other than the petitioner/s, has
part of the body of the petition, as a minimum initiated foreclosure proceedings against the
the following: debtor that will prevent the debtor from
(a) Identification of the debtor, its principal paying its debts as they become due or will
activities and its addresses; render it insolvent.
(b) Statement of the fact of and the cause of the Section 14. Petition to Initiate Involuntary
debtor's insolvency or inability to pay its Proceedings. - The creditor/s' petition for
obligations as they become due; rehabilitation shall be verified to establish the
(c) The specific relief sought pursuant to this substantial likelihood that the debtor may be
Act; rehabilitated, and include:
(d) The grounds upon which the petition is (a) identification of the debtor its principal
based; activities and its address;
(e) Other information that may be required (b) the circumstances sufficient to support a
under this Act depending on the form of relief petition to initiate involuntary rehabilitation
requested; proceedings under Section 13 of this Act;
(f) Schedule of the debtor's debts and (c) the specific relief sought under this Act;
liabilities including a list of creditors with their (d) a Rehabilitation Plan;
addresses, amounts of claims and collaterals, (e) the names of at least three (3) nominees to
or securities, if any; the position of rehabilitation receiver;
(g) An inventory of all its assets including
receivables and claims against third parties;
(f) other information that may be required debtor as determined from the schedule
under this Act depending on the form of relief attached to the petition within five (5) days; if
requested; and the petitioner/s is/are creditor/s, direct the
(g) other documents required to be filed with service by personal delivery of a copy of the
the petition pursuant to this Act and the rules of petition on the debtor within five (5) days;
procedure as may be promulgated by the (h) appoint a rehabilitation receiver who may
Supreme Court. or not be from among the nominees of the
(B) Action on the Petition and petitioner/s and who shall exercise such
Commencement of Proceedings. powers and duties defined in this Act as well
Section 15. Action on the Petition. - If the court as the procedural rules that the Supreme Court
finds the petition for rehabilitation to be will promulgate;
sufficient in form and substance, it shall, within (i) summarize the requirements and deadlines
five (5) working days from the filing of the for creditors to establish their claims against
petition, issue a Commencement Order. If, the debtor and direct all creditors to their
within the same period, the court finds the claims with the court at least five (5) days
petition deficient in form or substance, the before the initial hearing;
court may, in its discretion, give the (j) direct Bureau of internal Revenue (BIR) to
petitioner/s a reasonable period of time within file and serve on the debtor its comment on or
which to amend or supplement the petition, or opposition to the petition or its claim/s against
to submit such documents as may be the debtor under such procedures as the
necessary or proper to put the petition in Supreme Court provide;
proper order. In such case, the five (5) (k) prohibit the debtor's suppliers of goods or
working days provided above for the issuance services from withholding the supply of goods
of the Commencement Order shall be and services in the ordinary course of business
reckoned from the date of the filing of the for as long as the debtor makes payments for
amended or supplemental petition or the the services or goods supplied after the
submission of such documents. issuance of the Commencement Order;
Section 16. Commencement of Proceedings (l) authorize the payment of administrative
and Issuance of a Commencement Order. - The expenses as they become due;
rehabilitation proceedings shall commence (m) set the case for initial hearing, which shall
upon the issuance of the Commencement not be more than forty (40) days from the date
Order, which shall: of filing of the petition for the purpose of
(a) identify the debtor, its principal business determining whether there is substantial
or activity/ies and its principal place of likelihood for the debtor to be rehabilitated;
business; (n) make available copies of the petition and
(b) summarize the ground/s for initiating the rehabilitation plan for examination and
proceedings; copying by any interested party;
(c) state the relief sought under this Act and (o) indicate the location or locations at which
any requirement or procedure particular to the documents regarding the debtor and the
relief sought; proceedings under Act may be reviewed and
(d) state the legal effects of the copied;
Commencement Order, including those (p) state that any creditor or debtor who is not
mentioned in Section 17 hereof; the petitioner, may submit the name or
(e) declare that the debtor is under nominate any other qualified person to the
rehabilitation; position of rehabilitation receiver at least five
(f) direct the publication of the (5) days before the initial hearing;
Commencement Order in a newspaper of (q) include s Stay or Suspension Order which
general circulation in the Philippines once a shall:
week for at least two (2) consecutive weeks, (1) suspend all actions or proceedings, in
with the first publication to be made within court or otherwise, for the enforcement of
seven (7) days from the time of its issuance; claims against the debtor;
(g) If the petitioner is the debtor direct the (2) suspend all actions to enforce any
service by personal delivery of a copy of the judgment, attachment or other provisional
petition on each creditor holding at least ten remedies against the debtor;
percent (10%) of the total liabilities of the
(3) prohibit the debtor from selling, (b) subject to the discretion of the court, to
encumbering, transferring or disposing in any cases pending or filed at a specialized court or
manner any of its properties except in the quasi-judicial agency which, upon
ordinary course of business; and determination by the court is capable of
(4) prohibit the debtor from making any resolving the claim more quickly, fairly and
payment of its liabilities outstanding as of the efficiently than the court: Provided, That any
commencement date except as may be final and executory judgment of such court or
provided herein. agency shall be referred to the court and shall
Section 17. Effects of the Commencement be treated as a non-disputed claim;
Order. - Unless otherwise provided for in this (c) to the enforcement of claims against
Act, the court's issuance of a Commencement sureties and other persons solidarily liable
Order shall, in addition to the effects of a Stay with the debtor, and third party or
or Suspension Order described in Section 16 accommodation mortgagors as well as issuers
hereof: of letters of credit, unless the property subject
(a) vest the rehabilitation with all the powers of the third party or accommodation mortgage
and functions provided for this Act, such as the is necessary for the rehabilitation of the debtor
right to review and obtain records to which the as determined by the court upon
debtor's management and directors have recommendation by the rehabilitation
access, including bank accounts or whatever receiver;
nature of the debtor subject to the approval by (d) to any form of action of customers or clients
the court of the performance bond filed by the of a securities market participant to recover or
rehabilitation receiver; otherwise claim moneys and securities
(b) prohibit or otherwise serve as the legal entrusted to the latter in the ordinary course of
basis rendering null and void the results of any the latter's business as well as any action of
extrajudicial activity or process to seize such securities market participant or the
property, sell encumbered property, or appropriate regulatory agency or self-
otherwise attempt to collection or enforce a regulatory organization to pay or settle such
claim against the debtor after commencement claims or liabilities;
date unless otherwise allowed in this Act, (e) to the actions of a licensed broker or
subject to the provisions of Section 50 hereof; dealer to sell pledged securities of a debtor
(c) serve as the legal basis for rendering null pursuant to a securities pledge or margin
and void any setoff after the commencement agreement for the settlement of securities
date of any debt owed to the debtor by any of transactions in accordance with the provisions
the debtor's creditors; of the Securities Regulation Code and its
(d) serve as the legal basis for rendering null implementing rules and regulations;
and void the perfection of any lien against the (f) the clearing and settlement of financial
debtor's property after the commencement transactions through the facilities of a clearing
date; and agency or similar entities duly authorized,
(e) consolidate the resolution of all legal registered and/or recognized by the
proceedings by and against the debtor to the appropriate regulatory agency like the
court Provided. However, That the court may Bangko Sentral ng Pilipinas (BSP) and the SEC
allow the continuation of cases on other courts as well as any form of actions of such agencies
where the debtor had initiated the suit. or entities to reimburse themselves for any
Attempts to seek legal of other resource transactions settled for the debtor; and
against the debtor outside these proceedings (g) any criminal action against individual
shall be sufficient to support a finding of debtor or owner, partner, director or officer of
indirect contempt of court. a debtor shall not be affected by any
Section 18. Exceptions to the Stay or proceeding commend under this Act.
Suspension Order. - The Stay or Suspension Section 19. Waiver of taxes and Fees Due to the
Order shall not apply: National Government and to Local Government
(a) to cases already pending appeal in the Units (LGUs). - Upon issuance of the
Supreme Court as of commencement Commencement Order by the court, and until
date Provided, That any final and executory the approval of the Rehabilitation Plan or
judgment arising from such appeal shall be dismissal of the petition, whichever is earlier,
referred to the court for appropriate action; the imposition of all taxes and fees including
penalties, interests and charges thereof due to (e) The petition, the Rehabilitation Plan and the
the national government or to LGUs shall be attachments thereto do not contain any
considered waived, in furtherance of the materially false or misleading statement;
objectives of rehabilitation. (f) If the petitioner is the debtor, that the
Section 20. Application of Stay or Suspension debtor has met with its creditor/s representing
Order to Government Financial Institutions. - at least three-fourths (3/4) of its total
The provisions of this Act concerning the obligations to the extent reasonably possible
effects of the Commencement Order and the and made a good faith effort to reach a
Stay or Suspension Order on the suspension of consensus on the proposed Rehabilitation Plan
rights to foreclose or otherwise pursue legal if the petitioner/s is/are a creditor or group of
remedies shall apply to government financial creditors, that/ the petitioner/s has/have met
institutions, notwithstanding provisions in their with the debtor and made a good faith effort to
charters or other laws to the contrary. reach a consensus on the proposed
Section 21. Effectivity and Duration of Rehabilitation Plan; and
Commencement Order. - Unless lifted by the (g) The debtor has not committed acts
court, the Commencement Order shall be for misrepresentation or in fraud of its creditor/s
the effective for the duration of the or a group of creditors.
rehabilitation proceedings for as long as there Section 22. Action at the Initial Hearing. - At the
is a substantial likelihood that the debtor will initial hearing, the court shall:
be successfully rehabilitated. In determining (a) determine the creditors who have made
whether there is substantial likelihood for the timely and proper filing of their notice of
debtor to be successfully rehabilitated, the claims;
court shall ensure that the following minimum (b) hear and determine any objection to the
requirements are met: qualifications of the appointment of the
(a) The proposed Rehabilitation Plan rehabilitation receiver and, if necessary
submitted complies with the minimum appoint a new one in accordance with this Act;
contents prescribed by this Act; (c) direct the creditors to comment on the
(b) There is sufficient monitoring by the petition and the Rehabilitation Plan, and to
rehabilitation receiver of the debtor's business submit the same to the court and to the
for the protection of creditors; rehabilitation receiver within a period of not
(c) The debtor has met with its creditors to the more than twenty (20) days; and
extent reasonably possible in attempts to (d) direct the rehabilitation receiver to
reach consensus on the proposed evaluate the financial condition of the debtor
Rehabilitation Plan; and to prepare and submit to the court within
(d) The rehabilitation receiver submits a forty (40) days from initial hearing the report
report, based on preliminary evaluation, provided in Section 24 hereof.
stating that the underlying assumptions and Section 23. Effect of Failure to File Notice of
the goals stated in the petitioner's Claim. - A creditor whose claim is not listed in
Rehabilitation Plan are realistic reasonable the schedule of debts and liabilities and who
and reasonable or if not, there is, in any case, a fails to file a notice of claim in accordance with
substantial likelihood for the debtor to be the Commencement Order but subsequently
successfully rehabilitated because, among files a belated claim shall not be entitled to
others: participate in the rehabilitation proceedings
(1) there are sufficient assets with/which to but shall be entitled to receive distributions
rehabilitate the debtor; arising therefrom.
(2) there is sufficient cash flow to maintain the Section 24. Report of the Rehabilitation
operations of the debtor; Receiver. - Within forty (40) days from the
(3) the debtor's, partners, stockholders, initial hearing and with or without the
directors and officers have been acting in comments of the creditors or any of them, the
good faith and which due diligence; rehabilitation receiver shall submit a report to
(4) the petition is not s sham filing intended the court stating his preliminary findings and
only to delay the enforcement of the rights of recommendations on whether:
the creditor's or of any group of creditors; and (a) the debtor is insolvent and if so, the causes
(5) the debtor would likely be able to pursue a thereof and any unlawful or irregular act or
viable Rehabilitation Plan; acts committed by the owner/s of a sole
proprietorship partners of a partnership or should it determine that such mode will
directors or officers of a corporation in resolve the dispute more quickly, fairly and
contemplation of the insolvency of the debtor efficiently than the court.
or which may have contributed to the Section 27.Dismissal of Petition. - If the petition
insolvency of the debtor; is dismissed pursuant to paragraph (b) of
(b) the underlying assumptions, the financial Section 25 hereof, then the court may, in its
goals and the procedures to accomplish such discretion, order the petitioner to pay
goals as stated in the petitioner's Rehabilitation damages to any creditor or to the debtor, as
Plan are realistic, feasible and reasonable; the case may be, who may have been injured
(c) there is a substantial likelihood for the by the filing of the petition, to the extent of any
debtor to be successfully rehabilitated; such injury.
(d) the petition should be dismissed; and (C) The Rehabilitation Receiver,
(e) the debtor should be dissolved and/or Management Committee and Creditors'
liquidated. Committee.
Section 25. Giving Due Course to or Dismissal Section 28.Who May Serve as a Rehabilitation
of Petition, or Conversion of Proceedings. - Receiver. - Any qualified natural or juridical
Within ten (10) days from receipt of the report person may serve as a rehabilitation
of the rehabilitation receiver mentioned in receiver: Provided, That if the rehabilitation
Section 24 hereof the court may: receiver is a juridical entity, it must designate
(a) give due course to the petition upon a a natural person/s who possess/es all the
finding that: qualifications and none of the disqualification’s
(1) the debtor is insolvent; and as its representative, it being understood that
(2) there is a substantial likelihood for the the juridical entity and the representative/s
debtor to be successfully rehabilitated; are solidarily liable for all obligations and
(b) dismiss the petition upon a finding that: responsibilities of the rehabilitation receiver.
(1)debtor is not insolvent; Section 29.Qualifications of a Rehabilitation
(2) the petition i8 a sham filing intended only Receiver. - The rehabilitation receiver shall
to delay the enforcement of the rights of the have the following minimum qualifications:
creditor/s or of any group of creditors; (a)A citizen of the Philippines or a resident of
(3)the petition, the Rehabilitation Plan and the the Philippines in the six (6) months
attachments thereto contain any materially immediately preceding his nomination;
false or misleading statements; or (b)Of good moral character and with
(4)the debtor has committed acts of acknowledged integrity, impartiality and
misrepresentation or in fraud of its creditor/s independence;
or a group of creditors; (c)Has the requisite knowledge of insolvency
(c)convert the proceedings into one for the and other relevant commercial laws, rules and
liquidation of the debtor upon a finding that: procedures, as well as the relevant training
(1)the debtor is insolvent; and and/or experience that may be necessary to
(2)there is no substantial likelihood for the enable him to properly discharge the duties
debtor to be successfully rehabilitated as and obligations of a rehabilitation receiver;
determined in accordance with the rules to be and
promulgated by the Supreme Court. (d)Has no conflict of interest: Provided, That
Section 26.Petition Given Due Course. - If the such conflict of interest may be waived,
petition is given due course, the court shall expressly or impliedly, by a party who may be
direct the rehabilitation receiver to review, prejudiced thereby.
revise and/or recommend action on the Other qualifications and disqualification’s of
Rehabilitation Plan and submit the same or a the rehabilitation receiver shall be set forth in
new one to the court within a period of not procedural rules, taking into consideration the
more than ninety (90) days. nature of the business of the debtor and the
The court may refer any dispute relating to the need to protect the interest of all stakeholders
Rehabilitation Plan or the rehabilitation concerned.
proceedings pending before it to arbitration Section 30.Initial Appointment of the
or other modes of dispute resolution, as Rehabilitation Receiver. - The court shall
provided for under Republic Act No. 9285, Or initially appoint the rehabilitation receiver,
the Alternative Dispute Resolution Act of 2004, who mayor may not be from among the
nominees of the petitioner, However, at the debtor or its creditors, or which constitute
initial hearing of the petition, the creditors and undue preference of creditor/s;
the debtor who are not petitioners may (i) To monitor the operations and the business
nominate other persons to the position. The of the debtor to ensure that no payments or
court may retain the rehabilitation receiver transfers of property are made other than in
initially appointed or appoint another who the ordinary course of business;
mayor may not be from among those (j) With the court's approval, to engage the
nominated. services of or to employ persons or entities to
In case the debtor is a securities market assist him in the discharge of his functions;
participant, the court shall give priority to the (k) To determine the manner by which the
nominee of the appropriate securities or debtor may be best rehabilitated, to review)
investor protection fund. revise and/or recommend action on the
If a qualified natural person or entity is Rehabilitation Plan and submit the same or a
nominated by more than fifty percent (50%) of new one to the court for approval;
the secured creditors and the general (1) To implement the Rehabilitation Plan as
unsecured creditors, and satisfactory evidence approved by the court, if 80 provided under
is submitted, the court shall appoint the the Rehabilitation Plan;
creditors' nominee as rehabilitation receiver. (m) To assume and exercise the powers of
Section 31.Powers, Duties and Responsibilities management of the debtor, if directed by the
of the Rehabilitation Receiver. - The court pursuant to Section 36 hereof;
rehabilitation receiver shall be deemed an (n) To exercise such other powers as may,
officer of the court with the principal duty of from time to time, be conferred upon him by
preserving and maximizing the value of the the court; and
assets of the debtor during the rehabilitation To submit a status report on the rehabilitation
proceedings, determining the viability of the proceedings every quarter or as may be
rehabilitation of the debtor, preparing and required by the court motu proprio. or upon
recommending a Rehabilitation Plan to the motion of any creditor. or as may be provided,
court, and implementing the approved in the Rehabilitation Plan.
Rehabilitation Plan, To this end, and without Unless appointed by the court, pursuant to
limiting the generality of the foregoing, the Section 36 hereof, the rehabilitation receiver
rehabilitation receiver shall have the following shall not take over the management and
powers, duties and responsibilities: control of the debtor but may recommend the
(a)To verify the accuracy of the factual appointment of a management committee over
allegations in the petition and its annexes; the debtor in the cases provided by this Act.
(b)To verify and correct, if necessary, the Section 32.Removal of the Rehabilitation
inventory of all of the assets of the debtor, and Receiver. – The rehabilitation receiver may be
their valuation; removed at any time by the court either motu
(c)To verify and correct, if necessary, the proprio or upon motion by any creditor/s
schedule of debts and liabilities of the debtor; holding more than fifty percent (50%) of the
(d)To evaluate the validity, genuineness and total obligations of the debtor, on such
true amount of all the claims against the grounds as the rules of procedure may
debtor; provide which shall include, but are not
(e)To take possession, custody and control, limited to, the following:
and to preserve the value of all the property of (a) Incompetence, gross negligence, failure to
the debtor; perform or failure to exercise the proper
(f)To sue and recover, with the approval of the degree of care in the performance of his duties
court, all amounts owed to, and all properties and powers;
pertaining to the debtor; (b) Lack of a particular or specialized
(g)To have access to all information necessary, competency required by the specific case;
proper or relevant to the operations and (c) Illegal acts or conduct in the performance
business of the debtor and for its of his duties and powers;
rehabilitation; (d) Lack of qualification or presence of any
(h) To sue and recover, with the. approval of disqualification;
the court, all property or money of the debtor (e) Conflict of interest that arises after his
paid, transferred or disbursed in fraud of the appointment; and
(f) Manifest lack of independence that is (1) require the rehabilitation receiver to post
detrimental to the general body of the an additional bond;
stakeholders. (2) authorize him to engage the services or to
Section 33.Compensation and Terms of employ persona or entities to assist him in the
Service. The rehabilitation receiver and his discharge of his managerial functions; and
direct employees or independent contractors (3) authorize a commensurate increase in his
shall be entitled to compensation for compensation.
reasonable fees and expenses from the debtor Section 37.Role of the Management
according to the terms approved by the court Committee. – When appointed pursuant to the
after notice and hearing. Prior to such hearing, foregoing section, the management committee
the rehabilitation receiver and his direct shall take the place of the management and the
employees shall be entitled to reasonable governing body of the debtor and assume
compensation based on quantum meruit. Such their rights and responsibilities.
costs shall be considered administrative The specific powers and duties of the
expenses. management committee, whose members
Section 34.Oath and Bond of the Rehabilitation shall be considered as officers of the court,
Receiver. Prior to entering upon his powers, shall be prescribed by the procedural rules.
duties and responsibilities, the rehabilitation Section 38.Qualifications of Members of the
receiver shall take an oath and file a bond, in Management Committee. - The qualifications
such amount to be fixed by the court, and disqualification’s of the members of the
conditioned upon the faithful and proper management committee shall be set forth in
discharge of his powers, duties and the procedural rules, taking into consideration
responsibilities. the nature of the business of the debtor and the
Section 35.Vacancy. - Incase the position of need to protect the interest of all stakeholders
rehabilitation receiver is vacated for any concerned.
reason whatsoever. the court shall direct the Section 39.Employment of Professionals. -
debtor and the creditors to submit the name/s Upon approval of the court, and after notice
of their nominee/s to the position. The court and hearing, the rehabilitation receiver or the
may appoint any of the qualified nominees. or management committee may employ
any other person qualified for the position. specialized professionals and other experts to
Section 36.Displacement of Existing assist each in the performance of their duties.
Management by the Rehabilitation Such professionals and other experts shall be
Receiver or Management Committee. – Upon considered either employees or independent
motion of any interested party, the court may contractors of the rehabilitation receiver or the
appoint and direct the rehabilitation receiver management committee, as the case may be.
to assume the powers of management of the The qualifications and disqualification’s of the
debtor, or appoint a management committee professionals and experts may be set forth in
that will undertake the management of the procedural rules, taking into consideration the
debtor. upon clear and convincing evidence of nature of the business of the debtor and the
any of the following circumstances: need to protect the interest of all stakeholders
(a) Actual or imminent danger of dissipation, concerned.
loss, wastage or destruction of the debtor’s Section 40.Conflict of Interest. - No person may
assets or other properties; be appointed as a rehabilitation receiver,
(b) Paralyzation of the business operations of member of a_ management committee, or be
the debtor; or employed by the rehabilitation receiver or the
(c) Gross mismanagement of the debtor. or management committee if he has a conflict of
fraud or other wrongful conduct on the part of, interest.
or gross or willful violation of this Act by. An individual shall be deemed to have a
existing management of the debtor Or the conflict of interest if he is so situated as to be
owner, partner, director, officer or materially influenced in the exercise of his
representative/s in management of the debtor. judgment for or against any party to the
In case the court appoints the rehabilitation proceedings. Without limiting the generality of
receiver to assume the powers of management the foregoing, an individual shall be deemed
of the debtor. the court may: to have a conflict of interest if:
(a) he is a creditor, owner, partner or (c) Trade creditors and suppliers; and
stockholder of the debtor; (d) Employees of the debtor.
(b) he is engaged in a line of business which In the . election of the creditors'
competes with that of the debtor; representatives, the rehabilitation receiver or
(c) he is, or was, within five (5) years from the his representative shall attend such meeting
filing of the petition, a director, officer, owner, and extend the appropriate assistance as may
partner or employee of the debtor or any of be defined in the procedural rules.
the creditors, or the auditor or accountant of Section 43.Role of Creditors' Committee. - The
the debtor; creditors' committee when constituted
(d) he is, or was, within two (2) years from the pursuant to Section 42 of this Act shall assist
filing of the petition, an underwriter of the the rehabilitation receiver in communicating
outstanding securities of the debtor; with the creditors and shall be the primary
(e) he is related by consanguinity or affinity liaison between the rehabilitation receiver and
within the fourth civil degree to any individual the creditors. The creditors' committee cannot
creditor, owners of a sale proprietorship- exercise or waive any right or give any
debtor, partners of a partnership- debtor or to consent on behalf of any creditor unless
any stockholder, director, officer, employee or specifically authorized in writing by such
underwriter of a corporation-debtor; or creditor. The creditors' committee may be
(f) he has any other direct or indirect material authorized by the court or by the rehabilitation
interest in the debtor or any of the creditors. receiver to perform such other tasks and
Any rehabilitation receiver, member of the functions as may be defined by the procedural
management committee or persons employed rules in order to facilitate the rehabilitation
or contracted by them possessing any conflict process.
of interest shall make the appropriate (D) Determination of Claims.
disclosure either to the court or to the Section 44.Registry of Claims. - Within twenty
creditors in case of out-of-court rehabilitation (20) days from his assumption into office, the
proceedings. Any party to the proceeding rehabilitation receiver shall establish a
adversely affected by the appointment of any preliminary registry of claims. The
person with a conflict of interest to any of the rehabilitation receiver shall make the registry
positions enumerated above may however available for public inspection and provide
waive his right to object to such appointment publication notice to the debtor, creditors and
and, if the waiver is unreasonably withheld, stakeholders on where and when they may
the court may disregard the conflict of interest, inspect it. All claims included in the registry of
taking into account the general interest of the claims must be duly supported by sufficient
stakeholders. evidence.
Section 41.Immunity. - The rehabilitation Section 45.Opposition or Challenge of
receiver and all persons employed by him, Claims. – Within thirty (30) days from the
and the members of the management expiration of the period stated in the
committee and all persons employed by it, immediately preceding section, the debtor,
shall not be subject to any action. claim or creditors, stakeholders and other interested
demand in connection with any act done or parties may submit a challenge to claim/s to
omitted to be done by them in good faith in the court, serving a certified copy on the
connection with the exercise of their powers rehabilitation receiver and the creditor
and functions under this Act or other actions holding the challenged claim/so Upon the
duly approved by the court.1awp++il expiration of the thirty (30)-day period, the
Section 42.Creditors' Committee. - After the rehabilitation receiver shall submit to the court
creditors' meeting called pursuant to Section the registry of claims which shall include
63 hereof, the creditors belonging to a class undisputed claims that have not been subject
may formally organize a committee among to challenge.
themselves. In addition, the creditors may, as Section 46.Appeal. - Any decision of the
a body, agree to form a creditors' committee rehabilitation receiver regarding a claim may
composed of a representative from each class be appealed to the court.
of creditors, such as the following: (E) Governance.
(a) Secured creditors; Section 47.Management. - Unless otherwise
(b) Unsecured creditors; provided herein, the management of the
juridical debtor shall remain with the existing such sale or disposal is necessary for the
management subject to the applicable law/s operation of the debtor's business, and the
and agreement/s, if any, on the election or debtor has made arrangements to provide a
appointment of directors, managers Or substitute lien or ownership right that provides
managing partner. However, all an equal level of security for the counter-
disbursements, payments or sale, disposal, party's claim or right.
assignment, transfer or encumbrance of Sale or disposal of property under this section
property , or any other act affecting title or shall not give rise to any criminal liability
interest in property, shall be subject to the under applicable laws.
approval of the rehabilitation receiver and/or Section 51.Assets of Debtor Held by Third
the court, as provided in the following Parties. – In the case of possessory pledges,
subchapter. mechanic's liens or similar claims, third parties
(F) Use, Preservation and Disposal of Assets who have in their possession or control
and Treatment of Assets and Claims after property of the debtor shall not transfer,
Commencement Date. conveyor otherwise dispose of the same to
Section 48.Use or Disposition of Assets. - persons other than the debtor, unless upon
Except as otherwise provided herein, no funds prior approval of the rehabilitation receiver.
or property of the debtor shall he used or The rehabilitation receiver may also:
disposed of except in the ordinary course of (a) demand the surrender or the transfer of the
business of the debtor, or unless necessary to possession or control of such property to the
finance the administrative expenses of the rehabilitation receiver or any other person,
rehabilitation proceedings. subject to payment of the claims secured by
Section 49.Sale of Assets. - The court, upon any possessory Iien/s thereon;
application of the rehabilitation receiver, may (b) allow said third parties to retain possession
authorize the sale of unencumbered property or control, if such an arrangement would more
of the debtor outside the ordinary course of likely preserve or increase the value of the
business upon a showing that the property, by property in question or the total value of the
its nature or because of other circumstance, is assets of the debtor; or
perishable, costly to maintain, susceptible to (c) undertake any otI1er disposition of the said
devaluation or otherwise injeopardy. property as may be beneficial for the
Section 50.Sale or Disposal of Encumbered rehabilitation of the debtor, after notice and
Property of the Debtor and Assets of Third hearing, and approval of the court.
Parties Held by Debtor. The court may Section 52.Rescission or Nullity of Sale,
authorize the sale, transfer, conveyance or Payment, Transfer or Conveyance of Assets. -
disposal of encumbered property of the The court may rescind or declare as null and
debtor, or property of others held by the void any sale, payment, transfer or
debtor where there is a security interest conveyance of the debtor's unencumbered
pertaining to third parties under a financial, property or any encumbering thereof by the
credit or other similar transactions if, upon debtor or its agents or representatives after
application of the rehabilitation receiver and the commencement date which are not in the
with the consent of the affected owners of the ordinary course of the business of the
property, or secured creditor/s in the case of debtor: Provided, however, That the
encumbered property of the debtor and, after unencumbered property may be sold,
notice and hearing, the court determines that: encumbered or otherwise disposed of upon
(a) such sale, transfer, conveyance or disposal order of the court after notice and hearing:
is necessary for the continued operation of the (a) if such are in the interest of administering
debtor's business; and the debtor and facilitating the preparation and
(b) the debtor has made arrangements to implementation of a Rehabilitation Plan;
provide a substitute lien or ownership right (b) in order to provide a substitute lien,
that provides an equal level of security for the mortgage or pledge of property under this
counter-party's claim or right. Act;
Provided, That properties held by the debtor (c) for payments made to meet administrative
where the debtor has authority to sell such as expenses as they arise;
trust receipt or consignment arrangements (d) for payments to victims of quasi delicts
may be sold or disposed of by the .debtor, if upon a showing that the claim is valid and the
debtor has insurance to reimburse the debtor provided for in the approved Rehabilitation
for the payments made; Plan.
(e) for payments made to repurchase property Section 55.Post-commencement Loans and
of the debtor that is auctioned off in a judicial Obligations. - With the approval of the court
or extrajudicial sale under. This Act; or upon the recommendation of the rehabilitation
(f) for payments made to reclaim property of receiver, the debtor, in order to enhance its
the debtor held pursuant to a possessory lien. rehabilitation. may:
Section 53.Assets Subject to Rapid (a) enter into credit arrangements; or
Obsolescence, Depreciation and Diminution of (b) enter into credit arrangements, secured by
Value. - Upon the application of a secured mortgages of its unencumbered property or
creditor holding a lien against or holder of an secondary mortgages of encumbered
ownership interest in property held by the property with the approval of senior secured
debtor that is subject to potentially rapid parties with regard to the encumbered
obsolescence, depreciation or diminution in property; or
value, the court shall, after notice and hearing, (c) incur other obligations as may be essential
order the debtor or rehabilitation receiver to for its rehabilitation.
take reasonable steps necessary to prevent The payment of the foregoing obligations shall
the depreciation. If depreciation cannot be be considered administrative expenses under
avoided and such depreciation is jeopardizing this Act.
the security or property interest of the secured Section 56.Treatment of Employees,
creditor or owner, the court shall: Claims. Compensation of employees required
(a) allow the encumbered property to be to carry on the business shall be considered
foreclosed upon by the secured creditor an administrative expense. Claims of
according to the relevant agreement between separation pay for months worked prior to the
the debtor and the secured creditor, commencement date shall be considered a
applicable rules of procedure and relevant pre- ommencement claim. Claims for salary
legislation: Provided. That the proceeds of the and separation pay for work performed after
sale will be distributed in accordance with the the commencement date shall be an
order prescribed under the rules of administrative expense.
concurrence and preference of credits; or Section 57.Treatment of Contracts. - Unless
(b) upon motion of, or with the consent of the cancelled by virtue of a final judgment of a
affected secured creditor or interest owner. court of competent jurisdiction issued prior to
order the conveyance of a lien against or the issuance of the Commencement Order, or
ownership interest in substitute property of the at anytime thereafter by the court before
debtor to the secured creditor: Provided. That which the rehabilitation proceedings are
other creditors holding liens on such property, pending, all valid and subbsisting contracts of
if any, do not object thereto, or, if such the debtor with creditors and other third
property is not available; parties as at the commencement date shall
(c) order the conveyance to the secured continue in
creditor or holder . of an ownership interest of force: Provided, That within ninety (90) days
a lien on the residual funds from the sale of following the commencement of proceedings,
encumbered property during the the debtor, with the consent of the
proceedings; or rehabilitation receiver, shall notify each
(d) allow the sale or disposition of the contractual counter-party of whether it is
property: Provided. That the sale or disposition confirming the particular contract. Contractual
will maximize the value of the property for the obligations of the debtor arising or performed
benefit of the secured creditor and the debtor, during this period, and afterwards for
and the proceeds of the sale will be confirmed contracts, shall be considered
distributed in accordance with the order administrative expenses. Contracts not
prescribed under the rules of concurrence and confirmed within the required deadline shall
preference of credits. be considered terminated. Claims for actual
Section 54.Post-commencement Interest. - The damages, if any, arising as a result of the
rate and term of interest, if any, on secured election to terminate a contract shall be
and unsecured claims shall be determined and considered a pre-commencement claim
against the debtor. Nothing contained herein
shall prevent the cancellation or termination of subject matter of the proceeding, including
any contract of the debtor for any ground any document in support thereof.
provided by law. (c) Any benefit derived from a proceeding
(G) Avoidance Proceedings. taken pursuant to subsection (a), to the extent
Section 58.Rescission or Nullity of Certain Pre- of his claim and the costs, belongs exclusively
commencement Transactions. Any transaction to the creditor instituting the proceeding, and
occurring prior to commencement date the surplus, if any, belongs to the estate.
entered into by the debtor or involving its (d) Where, before an order is made under
funds or assets may be rescinded or declared subsection (a), the rehabilitation receiver (or
null and void on the ground that the same was liquidator) signifies to the court his readiness
executed with intent to defraud a creditor or to institute the proceeding for the benefit of
creditors or which constitute undue the creditors, the order shall fix the time within
preference of creditors. Without limiting the which he shall do so and, m that case, the
generality of the foregoing, a disputable benefit derived from the proceeding, if
presumption of such design shall arise if the instituted within the time limits so fixed,
transaction: belongs to the estate.
(a) provides unreasonably inadequate (H) Treatment of Secured Creditors.
consideration to the debtor and is executed Section 60.No Diminution of Secured Creditor
within ninety (90) days prior to the Rights. The issuance of the Commencement
commencement date; Order and the Suspension or Stay Order, and
(b) involves an accelerated payment of a claim any other provision of this Act, shall not be
to a creditor within ninety (90) days prior to deemed in any way to diminish or impair the
the commencement date; security or lien of a secured creditor, or the
(c) provides security or additional security value of his lien or security, except that his
executed within ninety (90) days prior to the right to enforce said security or lien may be
commencement date; suspended during the term of the Stay Order.
(d) involves creditors, where a creditor The court, upon motion or recommendation of
obtained, or received the benefit of, more than the rehabilitation receiver, may allow a
its pro rata share in the assets of the debtor, secured creditor to enforce his security or lien,
executed at a time when the debtor was or foreclose upon property of the debtor
insolvent; or securing his/its claim, if the said property is
(e) is intended to defeat, delay or hinder the not necessary for the rehabilitation of the
ability of the creditors to collect claims where debtor. The secured creditor and/or the other
the effect of the transaction is to put assets of lien holders shall be admitted to the
the debtor beyond the reach of creditors or to rehabilitation proceedings only for the
otherwise prejudice the interests of creditors. balance of his claim, if any.
Provided, however, That nothing in this section Section 61.Lack of Adequate Protection. - The
shall prevent the court from rescinding or court, on motion or motu proprio, may
declaring as null and void a transaction on terminate, modify or set conditions for the
other grounds provided by relevant legislation continuance of suspension of payment, or
and jurisprudence: Provided, further, That the relieve a claim from the coverage thereof,
provisions of the Civil Code on rescission shall upon showing that: (a) a creditor does not have
in any case apply to these transactions. adequate protection over property securing its
Section 59.Actions for Rescission or Nullity. - claim; or
(a) The rehabilitation receiver or, with his (b) the value of a claim secured by a lien on
conformity, any creditor may initiate and property which is not necessary for
prosecute any action to rescind, or declare rehabilitation of the debtor exceeds the fair
null and void any transaction described in market value of the said property.
Section 58 hereof. If the rehabilitation receiver For purposes of this section, a creditor shall be
does not consent to the filing or prosecution of deemed to lack adequate protection if it can
such action, be shown that:
(b) If leave of court is granted under (a) the debtor fails or refuses to honor a pre-
subsection (a), the rehabilitation receiver shall existing agreement with the creditor to keep
assign and transfer to the creditor all rights, the property insured;
title and interest in the chose in action or
(b) the debtor fails or refuses to take (h) provide for equal treatment of all claims
commercially reasonable steps to maintain the within the same class or subclass, unless a
property; or particular creditor voluntarily agrees to less
(c) the property has depreciated to an extent favorable treatment;
that the creditor is under secured. (i) ensure that the payments made under the
Upon showing of a lack of protection, the court plan follow the priority established under the
shall order the debtor or the rehabilitation provisions of the Civil Code on concurrence
receiver to make arrangements to provide for and preference of credits and other applicable
the insurance or maintenance of the property; laws;
or to make payments or otherwise provide (j) maintain the security interest of secured
additional or replacement security such that creditors and preserve the liquidation value of
the obligation is fully secured. If such the security unless such has been waived or
arrangements are not feasible, the court may modified voluntarily;
modify the Stay Order to allow the secured (k) disclose all payments to creditors for pre-
creditor lacking adequate protection to commencement debts made during the
enforce its security claim against the proceedings and the justifications thereof;
debtor: Provided, however, That the court may (1) describe the disputed claims and the
deny the creditor the remedies in this provisioning of funds to account for
paragraph if the property subject of the appropriate payments should the claim be
enforcement is required for the rehabilitation ruled valid or its amount adjusted;
of the debtor. (m) identify the debtor's role in the
(i) Administration of Proceedings. implementation of the Plan;
Section 62.Contents of a Rehabilitation Plan. – (n) state any rehabilitation covenants of the
The Rehabilitation Plan shall, as a minimum: debtor, the breach of which shall be
(a) specify the underlying assumptions, the considered a material breach of the Plan;
financial goals and the procedures proposed (o) identify those responsible for the future
to accomplish such goals; management of the debtor and the supervision
(b) compare the amounts expected to be and implementation of the Plan, their affiliation
received by the creditors under the with the debtor and their remuneration;
Rehabilitation Plan with those that they will (p) address the treatment of claims arising
receive if liquidation ensues within the next after the confirmation of the Rehabilitation
one hundred twenty (120) days; Plan;
(c) contain information sufficient to give the (q) require the debtor and its counter-parties
various classes of creditors a reasonable basis to adhere to the terms of all contracts that the
for determining whether supporting the Plan is debtor has chosen to confirm;
in their financial interest when compared to (r) arrange for the payment of all outstanding
the immediate liquidation of the debtor, administrative expenses as a condition to the
including any reduction of principal interest Plan's approval unless such condition has been
and penalties payable to the creditors; waived in writing by the creditors concerned;
(d) establish classes of voting creditors; (s) arrange for the payment" of all outstanding
(e) establish subclasses of voting creditors if taxes and assessments, or an adjusted amount
prior approval has been granted by the court; pursuant to a compromise settlement with the
(f) indicate how the insolvent debtor will be BlR Or other applicable tax authorities;
rehabilitated including, but not limited to, debt (t) include a certified copy of a certificate of
forgiveness, debt rescheduling, tax clearance or evidence of a compromise
reorganization or quasi-reorganization. dacion settlement with the BIR;
en pago, debt-equity conversion and sale of (u) include a valid and binding r(,solution of a
the business (or parts of it) as a going concern, meeting of the debtor's stockholders to
or setting-up of a new business entity or other increase the shares by the required amount in
similar arrangements as may be necessary to cases where the Plan contemplates an
restore the financial well-being and visibility additional issuance of shares by the debtor;
of the insolvent debtor; (v) state the compensation and status, if any, of
(g) specify the treatment of each class or the rehabilitation receiver after the approval of
subclass described in subsections (d) and (e); the Plan; and
(w) contain provisions for conciliation and/or Rehabilitation Plan, the court shall notify the
mediation as a prerequisite to court assistance creditors that the Rehabilitation Plan has been
or intervention in the event of any submitted for confirmation, that any creditor
disagreement in the interpretation or may obtain copies of the Rehabilitation Plan
implementation of the Rehabilitation Plan. and that any creditor may file an objection
Section 63.Consultation with Debtor and thereto.
Creditors. – if the court gives due course to the Section 66.Filing of Objections to Rehabilitation
petition, the rehabilitation receiver shall Plan. – A creditor may file an objection to the
confer with the debtor and all the classes of Rehabilitation Plan within twenty (20) days
creditors, and may consider their views and from receipt of notice from the court that the
proposals ill the review, revision or Rehabilitation Plan has been submitted for
preparation of a new Rehabilitation Plan. confirmation. Objections to a Rehabilitation
Section 64.Creditor Approval of Rehabilitation Plan shall be limited to the following:
Plan. – The rehabilitation receiver shall notify (a) The creditors' support was induced by
the creditors and stakeholders that the Plan is fraud;
ready for their examination. Within twenty (b)The documents or data relied upon in the
(2Q) days from the said notification, the Rehabilitation Plan are materially false or
rehabilitation receiver shall convene the misleading; or
creditors, either as a whole or per class, for (c)The Rehabilitation Plan is in fact not
purposes of voting on the approval of the Plan. supported by the voting creditors.
The Plan shall be deemed rejected unless Section 67.Hearing on the Objections. - If
approved by all classes of creditors w hose objections have been submitted during the
rights are adversely modified or affected by relevant period, the court shall issue an order
the Plan. For purposes of this section, the Plan setting the time and date for the hearing or
is deemed to have been approved by a class hearings on the objections.
of creditors if members of the said class If the court finds merit in the objection, it shall
holding more than fifty percent (50%) of the order the rehabilitation receiver or other party
total claims of the said class vote in favor of the to cure the defect, whenever feasible. If the
Plan. The votes of the creditors shall be based court determines that the debtor acted in bad
solely on the amount of their respective claims faith, or that it is not feasible to cure the defect,
based on the registry of claims submitted by the court shall convert the proceedings into
the rehabilitation receiver pursuant to Section one for the liquidation of the debtor under
44 hereof. Chapter V of this Act.
Notwithstanding the rejection of the Section 68.Confirmation of the Rehabilitation
Rehabilitation Plan, the court may confirm the Plan. – If no objections are filed within the
Rehabilitation Plan if all of the following relevant period or, if objections are filed, the
circumstances are present: court finds them lacking in merit, or
(a)The Rehabilitation Plan complies with the determines that the basis for the objection has
requirements specified in this Act. been cured, or determines that the debtor has
(b) The rehabilitation receiver recommends complied with an order to cure the objection,
the confirmation of the Rehabilitation Plan; the court shall issue an order confirming the
(c) The shareholders, owners or partners of Rehabilitation Plan.
the juridical debtor lose at least their The court may confirm the Rehabilitation Plan
controlling interest as a result of the notwithstanding unresolved disputes over
Rehabilitation Plan; and claims if the Rehabilitation Plan has made
(d) The Rehabilitation Plan would likely adequate provisions for paying such claims.
provide the objecting class of creditors with For the avoidance of doubt, the provisions of
compensation which has a net present value other laws to the contrary notwithstanding, the
greater than that which they would have court shall have the power to approve or
received if the debtor were under liquidation. implement the Rehabilitation Plan despite the
Section 65.Submission of Rehabilitation Plan to lack of approval, or objection from the owners,
the Court. - 1fthe Rehabilitation Plan is partners or stockholders of the insolvent
approved, the rehabilitation receiver shall debtor: Provided, That the terms thereof are
submit the same to the court for confirmation. necessary to restore the financial well-being
Within five (5) days from receipt of the and viability of the insolvent debtor.
Section 69.Effect of Confirmation of the of the filing of the petition to confirm a
Rehabilitation Plan, - The confirmation of the Rehabilitation Plan.
Rehabilitation Plan by the court shall result in If no Rehabilitation Plan is confirmed within the
the following: said period, the proceedings may upon motion
(a) The Rehabilitation Plan and its provisions or motu propio, be converted into one for the
shall be binding upon the debtor and all liquidation of the debtor .
persons who may be affected by . it, including Section 73. Accounting Discharge of
the creditors, whether or not such persons Rehabilitation Receiver. - Upon the
have participated in the proceedings or confirmation of the Rehabilitation Plan, the
opposed the Rehabilitation Plan or whether or rehabilitation receiver shall provide a final
not their claims have been scheduled; report and accounting to the court. Unless the
(b) The debtor shall comply with the Rehabilitation Plan specifically requires and
provisions of the Rehabilitation Plan and shall describes the role of the rehabilitation
take all actions necessary to carry out the Plan; receiver after the approval of the
(c) Payments shall be made to the creditors in Rehabilitation Plan, the court shall discharge
accordance with the provisions of the the rehabilitation receiver of his duties.
Rehabilitation Plan; (j) Termination of Proceedings
(d) Contracts and other arrangements Section 74. Termination of Proceedings. - The
between the debtor and its creditors shall be rehabilitation proceedings under Chapter II
interpreted as continuing to apply to the extent shall, upon motion by any stakeholder or the
that they do not conflict with the provisions of rehabilitation receiver be terminated by order
the Rehabilitation Plan; of the court either declaring a successful
(e) Any compromises on amounts or implementation of the Rehabilitation Plan or a
rescheduling of timing of payments by the failure of rehabilitation.
debtor shall be binding on creditors There is failure of rehabilitation in the
regardless of whether or not the Plan is following cases:
successfully implement; and (a) Dismissal of the petition by the court;
(f) Claims arising after approval of the Plan (b) The debtor fails to submit a Rehabilitation
that are otherwise not treated by the Plan are Plan;
not subject to any Suspension Order. (c) Under the Rehabilitation Plan submitted by
The Order confirming the Plan shall comply the debtor, there is no substantial likelihood
with Rules 36 of the Rules of Court: Provided, that the debtor can be rehabilitated within a
however, That the court may maintain reasonable period;
jurisdiction over the case in order to resolve (d) The Rehabilitation Plan or its amendment is
claims against the debtor that remain approved by the court but in the
contested and allegations that the debtor has implementation thereof, the debtor fails to
breached the Plan. perform its obligations thereunder or there is a
Section 70. Liability of General Partners of a failure to realize the objectives, targets or
Partnership for Unpaid Balances Under an goals set forth therein, including the timelines
Approved Plan. - The approval of the Plan shall and conditions for the settlement of the
not affect the rights of creditors to pursue obligations due to the creditors and other
actions against the general partners of a claimants;
partnership to the extent they are liable under (e) The commission of fraud in securing the
relevant legislation for the debts thereof. approval of the Rehabilitation Plan or its
Section 71. Treatment of Amounts of amendment; and
Indebtedness or Obligations Forgiven or (f) Other analogous circumstances as may be
Reduced. - Amounts of any indebtedness or defined by the rules of procedure.
obligations reduced or forgiven in connection Upon a breach of, or upon a failure of the
with a Plan's approval shall not be subject to Rehabilitation Plan the court, upon motion by
any tax in furtherance of the purposes of this an affected party may:
Act. (1) Issue an order directing that the breach be
Section 72. Period for Confirmation of the cured within a specified period of time, falling
Rehabilitation Plan. - The court shall have a which the proceedings may be converted to a
maximum period of one (1) year from the date liquidation;
(2) Issue an order converting the proceedings Section 77. Issuance of Order. - Within five (5)
to a liquidation; working days, and after determination that the
(3) Allow the debtor or rehabilitation receiver petition is sufficient in form and substance, the
to submit amendments to the Rehabilitation court shall issue an Order which shall;
Plan, the approval of which shall be governed (a) identify the debtor, its principal business of
by the same requirements for the approval of a activity/ies and its principal place of business;
Rehabilitation Plan under this subchapter; (b) declare that the debtor is under
(4) Issue any other order to remedy the breach rehabilitation;
consistent with the present regulation, other (c) summarize the ground./s for the filling of
applicable law and the best interests of the the petition;
creditors; or (d) direct the publication of the Order in a
(5) Enforce the applicable provisions of the newspaper of general circulation in the
Rehabilitation Plan through a writ of execution. Philippines once a week for at least two (2)
Section 75. Effects of Termination. - consecutive weeks, with the first publication to
Termination of the proceedings shall result in be made within seven (7) days from the time of
the following: its issuance;
(a) The discharge of the rehabilitation receiver (e) direct the service by personal delivery of a
subject to his submission of a final accounting; copy of the petition on each creditor who is not
and a petitioner holding at least ten percent (10%)
(b) The lifting of the Stay Order and any other of the total liabilities of the debtor, as
court order holding in abeyance any action for determined in the schedule attached to the
the enforcement of a claim against the debtor. petition, within three (3) days;
Provided, however, That if the termination of (f) state that copies of the petition and the
proceedings is due to failure of rehabilitation Rehabilitation Plan are available for
or dismissal of the petition for reasons other examination and copying by any interested
than technical grounds, the proceedings shall party;
be immediately converted to liquidation as (g) state that creditors and other interested
provided in Section 92 of this Act. parties opposing the petition or Rehabilitation
CHAPTER III Plan may file their objections or comments
PRE-NEGOTIATED REHABILITATION thereto within a period of not later than twenty
Section 76. Petition by Debtor. - An insolvent (20) days from the second publication of the
debtor, by itself or jointly with any of its Order;
creditors, may file a verified petition with the (h) appoint a rehabilitation receiver, if
court for the approval of a pre-negotiated provided for in the Plan; and
Rehabilitation Plan which has been endorsed (i) include a Suspension or Stay Order as
or approved by creditors holding at least two- described in this Act.
thirds (2/3) of the total liabilities of the debtor, Section 78. Approval of the Plan. - Within ten
including secured creditors holding more than (10) days from the date of the second
fifty percent (50%) of the total secured claims publication of the Order, the court shall
of the debtor and unsecured creditors holding approve the Rehabilitation Plan unless a
more than fifty percent (50%) of the total creditor or other interested party submits an
unsecured claims of the debtor. The petition objection to it in accordance with the next
shall include as a minimum: succeeding section.
(a) a schedule of the debtor's debts and Section 79. Objection to the Petition or
liabilities; Rehabilitation Plan. - Any creditor or other
(b) an inventory of the debtor's assets; interested party may submit to the court a
(c) the pre-negotiated Rehabilitation Plan, verified objection to the petition or the
including the names of at least three (3) Rehabilitation Plan not later than eight (8) days
qualified nominees for rehabilitation receiver; from the date of the second publication of the
and Order mentioned in Section 77 hereof. The
(d) a summary of disputed claims against the objections shall be limited to the following:
debtor and a report on the provisioning of (a) The allegations in the petition or the
funds to account for appropriate payments Rehabilitation Plan or the attachments thereto
should any such claims be ruled valid or their are materially false or misleading;
amounts adjusted.
(b) The majority of any class of creditors do Section 84. Minimum Requirements of Out-of-
not in fact support the Rehabilitation Plan; Court or Informal Restructuring Agreements and
(c) The Rehabilitation Plan fails to accurately Rehabilitation Plans. - For an out-of-court or
account for a claim against the debtor and the informal restructuring/workout agreement or
claim in not categorically declared as a Rehabilitation Plan to qualify under this
contested claim; or chapter, it must meet the following minimum
(d) The support of the creditors, or any of them requirements:
was induced by fraud. (a) The debtor must agree to the out-of-court
Copies of any objection to the petition of the or informal restructuring/workout agreement
Rehabilitation Plan shall be served on the or Rehabilitation Plan;
debtor, the rehabilitation receiver (if (b) It must be approved by creditors
applicable), the secured creditor with the representing at least sixty-seven (67%) of the
largest claim and who supports the secured obligations of the debtor;
Rehabilitation Plan, and the unsecured (c) It must be approved by creditors
creditor with the largest claim and who representing at least seventy-five percent
supports the Rehabilitation Plan. (75%) of the unsecured obligations of the
Section 80. Hearing on the Objections. - After debtor; and
receipt of an objection, the court shall set the (d) It must be approved by creditors holding
same for hearing. The date of the hearing shall at least eighty-five percent (85%) of the total
be no earlier than twenty (20) days and no liabilities, secured and unsecured, of the
later than thirty (30) days from the date of the debtor.
second publication of the Order mentioned in Section 85. Standstill Period. - A standstill
Section 77 hereof. If the court finds merit in the period that may be agreed upon by the parties
objection, it shall direct the debtor, when pending negotiation and finalization of the out-
feasible to cure the detect within a reasonable of-court or informal restructuring/workout
period. If the court determines that the debtor agreement or Rehabilitation Plan
or creditors supporting the Rehabilitation Plan contemplated herein shall be effective and
acted in bad faith, or that the objection is non- enforceable not only against the contracting
curable, the court may order the conversion of parties but also against the other
the proceedings into liquidation. A finding by creditors: Provided, That (a) such agreement is
the court that the objection has no substantial approved by creditors representing more than
merit, or that the same has been cured shall be fifty percent (50%) of the total liabilities of the
deemed an approval of the Rehabilitation Plan. debtor; (b) notice thereof is publishing in a
Section 81. Period for Approval of newspaper of general circulation in the
Rehabilitation Plan. - The court shall have a Philippines once a week for two (2)
maximum period of one hundred twenty (120) consecutive weeks; and (c) the standstill
days from the date of the filing of the petition period does not exceed one hundred twenty
to approve the Rehabilitation Plan. If the court (120) days from the date of effectivity. The
fails to act within the said period, the notice must invite creditors to participate in
Rehabilitation Plan shall be deemed approved. the negotiation for out-of-court rehabilitation
Section 82. Effect of Approval. - Approval of a or restructuring agreement and notify them
Plan under this chapter shall have the same that said agreement will be binding on all
legal effect as confirmation of a Plan under creditors if the required majority votes
Chapter II of this Act. prescribed in Section 84 of this Act are met.
CHAPTER IV Section 86. Cram Down Effect. - A
OUT-OF-COURT OR INFORMAL restructuring/workout agreement or
RESTRUCTURING AGREEMENTS OR Rehabilitation Plan that is approved pursuant
REHABILITATION PLANS to an informal workout framework referred to
Section 83. Out-of-Court or Informal in this chapter shall have the same legal effect
Restructuring Agreements and Rehabilitation as confirmation of a Plan under Section 69
Plans. - An out-of-curt or informal restructuring hereof. The notice of the Rehabilitation Plan or
agreement or Rehabilitation Plan that meets restructuring agreement or Plan shall be
the minimum requirements prescribed in this published once a week for at least three (3)
chapter is hereby recognized as consistent consecutive weeks in a newspaper of general
with the objectives of this Act. circulation in the Philippines. The
Rehabilitation Plan or restructuring agreement dissolution and termination of its corporate
shall take effect upon the lapse of fifteen (15) existence.
days from the date of the last publication of the If the petition or the motion, as the case may
notice thereof. be, is sufficient in form and substance, the
Section 87. Amendment or Modification. - Any court shall issue a Liquidation Order
amendment of an out-of-court mentioned in Section 112 hereof.
restructuring/workout agreement or Section 91. Involuntary Liquidation. - Three (3)
Rehabilitation Plan must be made in or more creditors the aggregate of whose
accordance with the terms of the agreement claims is at least either One million pesos
and with due notice on all creditors. (Php1,000,000,00) or at least twenty-five
Section 88. Effect of Court Action or Other percent (25%0 of the subscribed capital stock
Proceedings. - Any court action or other or partner's contributions of the debtor,
proceedings arising from, or relating to, the whichever is higher, may apply for and seek
out-of-court or informal restructuring/workout the liquidation of an insolvent debtor by filing
agreement or Rehabilitation Plan shall not stay a petition for liquidation of the debtor with the
its implementation, unless the relevant party is court. The petition shall show that:
able to secure a temporary restraining order (a) there is no genuine issue of fact or law on
or injunctive relief from the Court of Appeals. the claims/s of the petitioner/s, and that the
Section 89. Court Assistance. - The insolvent due and demandable payments thereon have
debtor and/or creditor may seek court not been made for at least one hundred eighty
assistance for the execution or implementation (180) days or that the debtor has failed
of a Rehabilitation Plan under this Chapter, generally to meet its liabilities as they fall due;
under such rules of procedure as may be and
promulgated by the Supreme Court. (b) there is no substantial likelihood that the
CHAPTER V debtor may be rehabilitated.
LIQUIDATION OF INSOLVENT JURIDICAL At any time during the pendency of or after a
DEBTORS rehabilitation court-supervised or pre-
Section 90. Voluntary Liquidation. - An negotiated rehabilitation proceedings, three
insolvent debtor may apply for liquidation by (3) or more creditors whose claims is at least
filing a petition for liquidation with the court. either One million pesos (Php1,000,000.00) or
The petition shall be verified, shall establish at least twenty-five percent (25%) of the
the insolvency of the debtor and shall contain, subscribed capital or partner's contributions of
whether as an attachment or as part of the the debtor, whichever is higher, may also
body of the petition; initiate liquidation proceedings by filing a
(a) a schedule of the debtor's debts and motion in the same court where the
liabilities including a list of creditors with their rehabilitation proceedings are pending to
addresses, amounts of claims and collaterals, convert the rehabilitation proceedings into
or securities, if any; liquidation proceedings. The motion shall be
(b) an inventory of all its assets including verified, shall contain or set forth the same
receivables and claims against third parties; matters required in the preceding paragraph,
and and state that the movants are seeking the
(c) the names of at least three (3) nominees to immediate liquidation of the debtor.
the position of liquidator. If the petition or motion is sufficient in form
At any time during the pendency of court- and substance, the court shall issue an Order:
supervised or pre-negotiated rehabilitation (1) directing the publication of the petition or
proceedings, the debtor may also initiate motion in a newspaper of general circulation
liquidation proceedings by filing a motion in once a week for two (2) consecutive weeks;
the same court where the rehabilitation and
proceedings are pending to convert the (2) directing the debtor and all creditors who
rehabilitation proceedings into liquidation are not the petitioners to file their comment on
proceedings. The motion shall be verified, the petition or motion within fifteen (15) days
shall contain or set forth the same matters from the date of last publication.
required in the preceding paragraph, and If, after considering the comments filed, the
state that the debtor is seeking immediate court determines that the petition or motion is
meritorious, it shall issue the Liquidation petition is filed once a week for two (2)
Order mentioned in Section 112 hereof. consecutive weeks, with the first publication to
Section 92. Conversion by the Court into be made within seven (7) days from the time of
Liquidation Proceedings. - During the the issuance of the Order;
pendency of court-supervised or pre- (d) directing the clerk of court to cause the
negotiated rehabilitation proceedings, the sending of a copy of the Order by registered
court may order the conversion of mail, postage prepaid, to all creditors named
rehabilitation proceedings to liquidation in the schedule of debts and liabilities;
proceedings pursuant to (a) Section 25(c) of (e) forbidding the individual debtor from
this Act; or (b) Section 72 of this Act; or (c) selling, transferring, encumbering or
Section 75 of this Act; or (d) Section 90 of this disposing in any manner of his property,
Act; or at any other time upon the except those used in the ordinary operations
recommendation of the rehabilitation receiver of commerce or of industry in which the
that the rehabilitation of the debtor is not petitioning individual debtor is engaged so
feasible. Thereupon, the court shall issue the long as the proceedings relative to the
Liquidation Order mentioned in Section 112 suspension of payments are pending;
hereof. (f) prohibiting the individual debtor from
Section 93. Powers of the Securities and making any payment outside of the necessary
Exchange Commission (SEC). - The provisions or legitimate expenses of his business or
of this chapter shall not affect the regulatory industry, so long as the proceedings relative to
powers of the SEC under Section 6 of the suspension of payments are pending; and
Presidential Decree No. 902-A, as amended, (g) appointing a commissioner to preside over
with respect to any dissolution and liquidation the creditors' meeting.
proceeding initiated and heard before it. Section 96. Actions Suspended. - Upon motion
CHAPTER VI filed by the individual debtor, the court may
INSOLVENCY OF INDIVIDUAL DEBTORS issue an order suspending any pending
(A) Suspension of Payments. execution against the individual debtor.
Section 94. Petition. - An individual debtor Provide, That properties held as security by
who, possessing sufficient property to cover secured creditors shall not be the subject of
all his debts but foreseeing the impossibility of such suspension order. The suspension order
meeting them when they respectively fall due, shall lapse when three (3) months shall have
may file a verified petition that he be declared passed without the proposed agreement being
in the state of suspension of payments by the accepted by the creditors or as soon as such
court of the province or city in which he has agreement is denied.
resides for six (6) months prior to the filing of No creditor shall sue or institute proceedings
his petition. He shall attach to his petition, as a to collect his claim from the debtor from the
minimum: (a) a schedule of debts and time of the filing of the petition for suspension
liabilities; (b) an inventory of assess; and (c) a of payments and for as long as proceedings
proposed agreement with his creditors. remain pending except:
Section 95. Action on the Petition. - If the court (a) those creditors having claims for personal
finds the petition sufficient in form and labor, maintenance, expense of last illness and
substance, it shall, within five (5) working days funeral of the wife or children of the debtor
from the filing of the petition, issue an Order: incurred in the sixty (60) days immediately
(a) calling a meeting of all the creditors named prior to the filing of the petition; and
in the schedule of debts and liabilities at such (b) secured creditors.
time not less than fifteen (15) days nor more Section 97. Creditors' Meeting. - The presence
than forty (40) days from the date of such of creditors holding claims amounting to at
Order and designating the date, time and least three-fifths (3/5) of the liabilities shall be
place of the meeting; necessary for holding a meeting. The
(b) directing such creditors to prepare and commissioner appointed by the court shall
present written evidence of their claims before preside over the meeting and the clerk of
the scheduled creditors' meeting; court shall act as the secretary thereof, subject
(c) directing the publication of the said order to the following rules:
in a newspaper of general circulation (a) The clerk shall record the creditors present
published in the province or city in which the and amount of their respective claims;
(b) The commissioner shall examine the (a) defects in the call for the meeting, in the
written evidence of the claims. If the creditors holding thereof and in the deliberations had
present hold at least three-fifths (3/5) of the thereat which prejudice the rights of the
liabilities of the individual debtor, the creditors; (b) fraudulent connivance between
commissioner shall declare the meeting open one or more creditors and the individual
for business; debtor to vote in favor of the proposed
(c) The creditors and individual debtor shall agreement; or (c) fraudulent conveyance of
discuss the propositions in the proposed claims for the purpose of obtaining a majority.
agreement and put them to a vote; The court shall hear and pass upon such
(d) To form a majority, it is necessary: objection as soon as possible and in a
(1) that two-thirds (2/3) of the creditors voting summary manner.
unite upon the same proposition; and In case the decision of the majority of creditors
(2) that the claims represented by said to approve the individual debtor's proposal or
majority vote amount to at least three-fifths any amendment thereof made during the
(3/5) of the total liabilities of the debtor creditors' meeting is annulled by the court, the
mentioned in the petition; and court shall declare the proceedings
(e) After the result of the voting has been terminated and the creditors shall be at liberty
announced, all protests made against the to exercise the rights which may correspond to
majority vote shall be drawn up, and the them.
commissioner and the individual debtor Section 101. Effects of Approval of Proposed
together with all creditors taking part in the Agreement. - If the decision of the majority of
voting shall sign the affirmed propositions. the creditors to approve the proposed
No creditor who incurred his credit within agreement or any amendment thereof made
ninety (90) days prior to the filing of the during the creditors' meeting is uphold by the
petition shall be entitled to vote. court, or when no opposition or objection to
Section 98. Persons Who May Refrain From said decision has been presented, the court
Voting. - Creditors who are unaffected by the shall order that the agreement be carried out
Suspension Order may refrain from attending and all parties bound thereby to comply with
the meeting and from voting therein. Such its terms.
persons shall not be bound by any agreement The court may also issue all orders which may
determined upon at such meeting, but if they be necessary or proper to enforce the
should join in the voting they shall be bound in agreement on motion of any affected party.
the same manner as are the other creditors. The Order confirming the approval of the
Section 99. Rejection of the Proposed proposed agreement or any amendment
Agreement. - The proposed agreement shall thereof made during the creditors' meeting
be deemed rejected if the number of creditors shall be binding upon all creditors whose
required for holding a meeting do not attend claims are included in the schedule of debts
thereat, or if the two (2) majorities mentioned and liabilities submitted by the individual
in Section 97 hereof are not in favor thereof. In debtor and who were properly summoned, but
such instances, the proceeding shall be not upon: (a) those creditors having claims for
terminated without recourse and the parties personal labor, maintenance, expenses of last
concerned shall be at liberty to enforce the illness and funeral of the wife or children of the
rights which may correspond to them. debtor incurred in the sixty (60) days
Section 100. Objections. - If the proposal of the immediately prior to the filing of the petition;
individual debtor, or any amendment thereof and (b) secured creditors who failed to attend
made during the creditors' meeting, is the meeting or refrained from voting therein.
approved by the majority of creditors in Section 102. Failure of Individual Debtor to
accordance with Section 97 hereof, any Perform Agreement. - If the individual debtor
creditor who attended the meeting and who fails, wholly or in part, to perform the
dissented from and protested against the vote agreement decided upon at the meeting of the
of the majority may file an objection with the creditors, all the rights which the creditors had
court within ten (10) days from the date of the against the individual debtor before the
last creditors' meeting. The causes for which agreement shall revest in them. In such case
objection may be made to the decision made the individual debtor may be made subject to
by the majority during the meeting shall be:
the insolvency proceedings in the manner (g) That he has willfully suffered judgment to
established by this Act. be taken against him by default for the
(B) Voluntary Liquidation. purpose of hindering or delaying the
Section 103. Application. - An individual liquidation or of defrauding his creditors;
debtor whose properties are not sufficient to (h) That he has suffered or procured his
cover his liabilities, and owing debts property to be taken on legal process with
exceeding Five hundred thousand pesos intent to give a preference to one or more of
(Php500,000.00), may apply to be discharged his creditors and thereby hinder or delay the
from his debts and liabilities by filing a liquidation or defraud any one of his creditors;
verified petition with the court of the province (i) That he has made any assignment, gift, sale,
or city in which he has resided for six (6) conveyance or transfer of his estate, property,
months prior to the filing of such petition. He rights or credits with intent to hinder or delay
shall attach to his petition a schedule of debts the liquidation or defraud his creditors;
and liabilities and an inventory of assets. The (j) That he has, in contemplation of insolvency,
filing of such petition shall be an act of made any payment, gift, grant, sale,
insolvency. conveyance or transfer of his estate, property,
Section 104. Liquidation Order. - If the court rights or credits;
finds the petition sufficient in form and (k) That being a merchant or tradesman, he
substance it shall, within five (5) working days has generally defaulted in the payment of his
issue the Liquidation Order mentioned in current obligations for a period of thirty (30)
Section 112 hereof. days;
(C) In voluntary Liquidation. (l) That for a period of thirty (30) days, he has
Section 105. Petition; Acts of Insolvency. - Any failed, after demand, to pay any moneys
creditor or group of creditors with a claim of, deposited with him or received by him in a
or with claims aggregating at least Five fiduciary; and
hundred thousand pesos (Php500, 000.00) may (m) That an execution having been issued
file a verified petition for liquidation with the against him on final judgment for money, he
court of the province or city in which the shall have been found to be without sufficient
individual debtor resides. property subject to execution to satisfy the
The following shall be considered acts of judgment.
insolvency, and the petition for liquidation The petitioning creditor/s shall post a bond in
shall set forth or allege at least one of such such as the court shall direct, conditioned that
acts: if the petition for liquidation is dismissed by
(a) That such person is about to depart or has the court, or withdrawn by the petitioner, or if
departed from the Republic of the Philippines, the debtor shall not be declared an insolvent
with intent to defraud his creditors; the petitioners will pay to the debtor all costs,
(b) That being absent from the Republic of the expenses, damages occasioned by the
Philippines, with intent to defraud his proceedings and attorney's fees.
creditors, he remains absent; Section 106. Order to Individual Debtor to
(c) That he conceals himself to avoid the Show Cause. - Upon the filing of such creditors'
service of legal process for the purpose of petition, the court shall issue an Order
hindering or delaying the liquidation or of requiring the individual debtor to show cause,
defrauding his creditors; at a time and place to be fixed by the said
(d) That he conceals, or is removing, any of his court, why he should not be adjudged an
property to avoid its being attached or taken insolvent. Upon good cause shown, the court
on legal process; may issue an Order forbidding the individual
(e) That he has suffered his property to remain debtor from making payments of any of his
under attachment or legal process for three (3) debts, and transferring any property
days for the purpose of hindering or delaying belonging to him. However, nothing contained
the liquidation or of defrauding his creditors; herein shall affect or impair the rights of a
(f) That he has confessed or offered to allow secured creditor to enforce his lien in
judgment in favor of any creditor or claimant accordance with its terms.
for the purpose of hindering or delaying the Section 107. Default. - If the individual debtor
liquidation or of defrauding any creditors or shall default or if, after trial, the issues are
claimant; found in favor of the petitioning creditors the
court shall issue the Liquidation Order sheriff by virtue of the giving of any such
mentioned in Section 112 hereof. bonds shall be held by him for the benefit of
Section 108. Absent Individual Debtor. - In all all creditors of the individual debtor whose
cases where the individual debtor resides out claims shall be duly proved as provided in this
of the Republic of the Philippines; or has Act. The bonds provided for in this section and
departed therefrom; or cannot, after due the preceding section to procure the order for
diligence, be found therein; or conceals custody of the property and effects of the
himself to avoid service of the Order to show individual debtor shall be conditioned that if,
cause, or any other preliminary process or upon final hearing of the petition in insolvency,
orders in the matter, then the petitioning the court shall find in favor of the petitioners,
creditors, upon submitting the affidavits such bonds and all of them shall be void; if the
requisite to procedure an Order of decision be in favor of the individual debtor,
publication, and presenting a bond in double the proceedings shall be dismissed, and the
the amount of the aggregate sum of their individual debtor, his heirs, administrators,
claims against the individual debtor, shall be executors or assigns shall be entitled to
entitled to an Order of the court directing the recover such sum of money as shall be
sheriff of the province or city in which the sufficient to cover the damages sustained by
matter is pending to take into his custody a him, not to exceed the amount of the
sufficient amount of property of the individual respective bonds. Such damages shall be
debtor to satisfy the demands of the fixed and allowed by the court. If either the
petitioning creditors and the costs of the petitioners or the debtor shall appeal from the
proceedings. Upon receiving such Order of decision of the court, upon final hearing of the
the court to take into custody of the property of petition, the appellant shall be required to
the individual debtor, it shall be the duty of the give bond to the successful party in a sum
sheriff to take possession of the property and double the amount of the value of the property
effects of the individual debtor, not exempt in controversy, and for the costs of the
from execution, to an extent sufficient to cover proceedings.
the amount provided for and to prepare within Any person interested in the estate may take
three (3) days from the time of taking such exception to the sufficiency of the sureties on
possession, a complete inventory of all the such bond or bonds. When excepted to the
property so taken, and to return it to the court petitioner's sureties, upon notice to the person
as soon as completed. The time for taking the excepting of not less than two (2) nor more
inventory and making return thereof may be than five (5) days, must justify as to their
extended for good cause shown to the court. sufficiency; and upon failure to justify, or of
The sheriff shall also prepare a schedule of the others in their place fail to justify at the time
names and residences of the creditors, and the and place appointed the judge shall issue an
amount due each, from the books of the Order vacating the order to take the property
debtor, or from such other papers or data of of the individual debtor into the custody of the
the individual debtor available as may come to sheriff, or denying the appeal, as the case may
his possession, and shall file such schedule or be.
list of creditors and inventory with the clerk of Section 110. Sale Under Execution. - If, in any
court. case, proper affidavits and bonds are
Section 109. All Property Taken to be Held for presented to the court or a judge thereof,
All Creditors; Appeal Bonds; Exemptions to asking for and obtaining an Order of
Sureties. - In all cases where property is taken publication and an Order for the custody of the
into custody by the sheriff, if it does not property of the individual debtor and
embrace all the property and effects of the thereafter the petitioners shall make it appear
debtor not exempt from execution, any other satisfactorily to the court or a judge thereof
creditor or creditors of the individual debtor, that the interest of the parties to the
upon giving bond to be approved by the court proceedings will be subserved by a sale
in double the amount of their claims, singly or thereof, the court may order such property to
jointly, shall be entitled to similar orders and be sold in the same manner as property is sold
to like action, by the sheriff; until all claims be under execution, the proceeds to de deposited
provided for, if there be sufficient property or in the court to abide by the result of the
effects. All property taken into custody by the proceedings.
CHAPTER VII date of his assumption of office, declares
PROVISIONS COMMON TO LIQUIDATION otherwise and the contracting party agrees;
IN INSOLVENCY OF INDIVIDUAL AND (d) no separate action for the collection of an
JURIDICAL DEBTORS unsecured claim shall be allowed. Such actions
Section 111. Use of Term Debtor. - For already pending will be transferred to the
purposes of this chapter, the term debtor shall Liquidator for him to accept and settle or
include both individual debtor as defined in contest. If the liquidator contests or disputes
Section 4(o) and debtor as defined in Section the claim, the court shall allow, hear and
4(k) of this Act. resolve such contest except when the case is
(A) The Liquidation Order. already on appeal. In such a case, the suit may
Section 112. Liquidation Order. - The proceed to judgment, and any final and
Liquidation Order shall: executor judgment therein for a claim against
(a) declare the debtor insolvent; the debtor shall be filed and allowed in court;
(b) order the liquidation of the debtor and, in and
the case of a juridical debtor, declare it as (e) no foreclosure proceeding shall be
dissolved; allowed for a period of one hundred eighty
(c) order the sheriff to take possession and (180) days.
control of all the property of the debtor, Section 114. Rights of Secured Creditors. - The
except those that may be exempt from Liquidation Order shall not affect the right of a
execution; secured creditor to enforce his lien in
(d) order the publication of the petition or accordance with the applicable contract or
motion in a newspaper of general circulation law. A secured creditor may:
once a week for two (2) consecutive weeks; (a) waive his right under the security or lien,
(e) direct payments of any claims and prove his claim in the liquidation proceedings
conveyance of any property due the debtor to and share in the distribution of the assets of the
the liquidator; debtor; or
(f) prohibit payments by the debtor and the (b) maintain his rights under the security or
transfer of any property by the debtor; lien:
(g) direct all creditors to file their claims with If the secured creditor maintains his rights
the liquidator within the period set by the rules under the security or lien:
of procedure; (1) the value of the property may be fixed in a
(h) authorize the payment of administrative manner agreed upon by the creditor and the
expenses as they become due; liquidator. When the value of the property is
(i) state that the debtor and creditors who are less than the claim it secures, the liquidator
not petitioner/s may submit the names of other may convey the property to the secured
nominees to the position of liquidator; and creditor and the latter will be admitted in the
(j) set the case for hearing for the election and liquidation proceedings as a creditor for the
appointment of the liquidator, which date shall balance. If its value exceeds the claim
not be less than thirty (30) days nor more than secured, the liquidator may convey the
forty-five (45) days from the date of the last property to the creditor and waive the debtor's
publication. right of redemption upon receiving the excess
Section 113. Effects of the Liquidation Order. - from the creditor;
Upon the issuance of the Liquidation Order: (2) the liquidator may sell the property and
(a) the juridical debtor shall be deemed satisfy the secured creditor's entire claim from
dissolved and its corporate or juridical the proceeds of the sale; or
existence terminated; (3) the secure creditor may enforce the lien or
(b) legal title to and control of all the assets of foreclose on the property pursuant to
the debtor, except those that may be exempt applicable laws.
from execution, shall be deemed vested in the (B) The Liquidator.
liquidator or, pending his election or Section 115. Election of Liquidator. - Only
appointment, with the court; creditors who have filed their claims within the
(c) all contracts of the debtor shall be deemed period set by the court, and whose claims are
terminated and/or breached, unless the not barred by the statute of limitations, will be
liquidator, within ninety (90) days from the allowed to vote in the election of the
liquidator. A secured creditor will not be
allowed to vote, unless: (a) he waives his (b) to take possession of all the property of the
security or lien; or (b) has the value of the debtor except property exempt by law from
property subject of his security or lien fixed by execution;
agreement with the liquidator, and is admitted (c) to sell, with the approval of the court, any
for the balance of his claim. property of the debtor which has come into his
The creditors entitled to vote will elect the possession or control;
liquidator in open court. The nominee (d) to redeem all mortgages and pledges, and
receiving the highest number of votes cast in so satisfy any judgement which may be an
terms of amount of claims, ad who is qualified encumbrance on any property sold by him;
pursuant to Section 118 hereof, shall be (e) to settle all accounts between the debtor
appointed as the liquidator. and his creditors, subject to the approval of
Section 116. Court-Appointed Liquidator. - The the court;
court may appoint the liquidator if: (f) to recover any property or its value,
(a) on the date set for the election of the fraudulently conveyed by the debtor;
liquidator, the creditors do not attend; (g) to recommend to the court the creation of a
(b) the creditors who attend, fail or refuse to creditors' committee which will assist him in
elect a liquidator; the discharge of the functions and which shall
(c) after being elected, the liquidator fails to have powers as the court deems just,
qualify; or reasonable and necessary; and
(d) a vacancy occurs for any reason (h) upon approval of the court, to engage such
whatsoever, In any of the cases provided professional as may be necessary and
herein, the court may instead set another reasonable to assist him in the discharge of his
hearing of the election of the liquidator. duties.
Provided further, That nothing in this section In addition to the rights and duties of a
shall be construed to prevent a rehabilitation rehabilitation receiver, the liquidator, shall
receiver, who was administering the debtor have the right and duty to take all reasonable
prior to the commencement of the liquidation, steps to manage and dispose of the debtor's
from being appointed as a liquidator. assets with a view towards maximizing the
Section 117. Oath and Bond of the Liquidator. - proceedings therefrom, to pay creditors and
Prior to entering upon his powers, duties and stockholders, and to terminate the debtor's
responsibilities, the liquidator shall take an legal existence. Other duties of the liquidator
oath and file a bond, In such amount to be in accordance with this section may be
fixed by the court, conditioned upon the established by procedural rules.
proper and faithful discharge of his powers, A liquidator shall be subject to removal
duties and responsibilities. pursuant to procedures for removing a
Section 118. Qualifications of the Liquidator. - rehabilitation receiver.
The liquidator shall have the qualifications Section 120. Compensation of the Liquidator. -
enumerated in Section 29 hereof. He may be The liquidator and the persons and entities
removed at any time by the court for cause, engaged or employed by him to assist in the
either motu propio or upon motion of any discharge of his powers and duties shall be
creditor entitled to vote for the election of the entitled to such reasonable compensation as
liquidator. may determined by the liquidation court,
Section 119. Powers, Duties and which shall not exceed the maximum amount
Responsibilities of the Liquidator. - The as may be prescribed by the Supreme Court.
liquidator shall be deemed an officer of the Section 121. Reporting Requiremen5ts. - The
court with the principal duly of preserving and liquidator shall make and keep a record of all
maximizing the value and recovering the moneys received and all disbursements mad
assets of the debtor, with the end of liquidating by him or under his authority as liquidator. He
them and discharging to the extent possible all shall render a quarterly report thereof to the
the claims against the debtor. The powers, court , which report shall be made available to
duties and responsibilities of the liquidator all interested parties. The liquidator shall also
shall include, but not limited to: submit such reports as may be required by the
(a) to sue and recover all the assets, debts and court from time to time as well as a final report
claims, belonging or due to the debtor; at the end of the liquidation proceedings.
Section 122. Discharge of Liquidator. - In and may be subsequently set aside only on
preparation for the final settlement of all the grounds or fraud, accident, mistake or
claims against the debtor , the liquidator will inexcusable neglect.
notify all the creditors, either by publication in Section 126. Submission of Disputed to the
a newspaper of general circulation or such Court. - The liquidator shall resolve disputed
other mode as the court may direct or allow, claims and submit his findings thereon to the
that will apply with the court for the settlement court for final approval. The liquidator may
of his account and his discharge from liability disallow claims.
as liquidator. The liquidator will file a final (D) Avoidance Proceedings.
accounting with the court, with proof of notice Section 127. Rescission or Nullity of Certain
to all creditors. The accounting will be set for Transactions. - Any transaction occurring prior
hearing. If the court finds the same in order, to the issuance of the Liquidation Order or, in
the court will discharge the liquidator. case of the conversion of the rehabilitation
(C) Determination of Claims proceedings prior to the commencement date,
Section 123. Registry of Claims. - Within entered into by the debtor or involving its
twenty (20) days from his assumption into assets, may be rescinded or declared null and
office the liquidator shall prepare a void on the ground that the same was executed
preliminary registry of claims of secured and with intent to defraud a creditor or creditors or
unsecured creditors. Secured creditors who which constitute undue preference of
have waived their security or lien, or have creditors. The presumptions set forth in
fixed the value of the property subject of their Section 58 hereof shall apply.
security or lien by agreement with the Section 128. Actions for Rescission or Nullity. -
liquidator and is admitted as a creditor for the (a) The liquidator or, with his conformity, a
balance , shall be considered as unsecured creditor may initiate and prosecute any action
creditors. The liquidator shall make the to rescind, or declare null and void any
registry available for public inspection and transaction described in the immediately
provide publication notice to creditors, preceding paragraph. If the liquidator does
individual debtors owner/s of the sole not consent to the filling or prosecution of such
proprietorship-debtor, the partners of the action, any creditor may seek leave of the
partnership-debtor and shareholders or court to commence said action.
members of the corporation-debtor, on where (b) if leave of court is granted under
and when they may inspect it. All claims must subsection (a) hereof, the liquidator shall
be duly proven before being paid. assign and transfer to the creditor all rights,
Section 124. Right of Set-off. - If the debtor and title and interest in the chose in action or
creditor are mutually debtor and creditor of subject matter of the proceeding, including
each other one debt shall be set off against the any document in support thereof.
other, and only the balance, if any shall be (c) Any benefit derived from a proceeding
allowed in the liquidation proceedings. taken pursuant to subsection (a) hereof, to the
Section 125. - Opposition or Challenge to extent of his claim and the costs, belongs
Claims. - Within thirty (30 ) days from the exclusively to the creditor instituting the
expiration of the period for filing of proceeding, and the surplus, if any, belongs to
applications for recognition of claims, the estate.
creditors, individual debtors, owner/s of the (d) Where, before an orders is made under
sole proprietorship-debtor, partners of the subsection (a) hereof, the liquidator signifies
partnership-debtor and shareholders or to the court his readiness to the institute the
members of the corporation -debtor and other proceeding for the benefit of the creditors, the
interested parties may submit a challenge to order shall fix the time within which he shall
claim or claims to the court, serving a certified do so and, in that case the benefit derived
copy on the liquidator and the creditor holding from the proceedings, if instituted within the
the challenged claim. Upon the expiration of time limits so fixed, belongs to the estate.
the (30) day period, the rehabilitation receiver (E) The Liquidation Plan.
shall submit to the court the registry of claims Section 129. The Liquidation Plan. - Within
containing the undisputed claims that have not three (3) months from his assumption into
been subject to challenge. Such claims shall office, the Liquidator shall submit a Liquidation
become final upon the filling of the register Plan to the court. The Liquidation Plan shall, as
a minimum enumerate all the assets of the purposes of this chapter, credits for services
debtor and a schedule of liquidation of the rendered by employees or laborers to the
assets and payment of the claims. debtor shall enjoy first preference under
Section 130. Exempt Property to be Set Apart. - Article 2244 of the Civil Code, unless the
It shall be the duty of the court, upon petition claims constitute legal liens under Article 2241
and after hearing, to exempt and set apart, for and 2242 thereof.
the use and benefit of the said insolvent, such Section 134. Order Removing the Debtor from
real and personal property as is by law the List of Registered Entitles at the Securities
exempt from execution, and also a homestead; and Exchange Commission. - Upon determining
but no such petition shall be heard as that the liquidation has been completed
aforesaid until it is first proved that notice of according to this Act and applicable law, the
the hearing of the application therefor has court shall issue an Order approving the
been duly given by the clerk, by causing such report and ordering the SEC to remove the
notice to be posted it at least three (3) public debtor from the registry of legal entities.
places in the province or city at least ten (10) Section 135. Termination of Proceedings. -
days prior to the time of such hearing, which Upon receipt of evidence showing that the
notice shall set forth the name of the said debtor has been removed from the registry of
insolvent debtor, and the time and place legal entities at the SEC. The court shall issue
appointed for the hearing of such application, an Order terminating the proceedings.
and shall briefly indicate the homestead (F) Liquidation of a Securities Market
sought to be exempted or the property sought Participant.
to be set aside; and the decree must show that Section 136. Liquidation of a Securities Market
such proof was made to the satisfaction of the Participant. - The foregoing provisions of this
court, and shall be conclusive evidence of that chapter shall be without prejudice to the
fact. power of a regulatory agency or self-
Section 131. Sale of Assets in Liquidation. - The regulatory organization to liquidate trade-
liquidator may sell the unencumbered assets related claims of clients or customers of a
of the debtor and convert the same into securities market participant which, for
money. The sale shall be made at public purposes of investor protection, are hereby
auction. However, a private sale may be deemed to have absolute priority over other
allowed with the approval of the court if; (a) claims of whatever nature or kind insofar as
the goods to be sold are of a perishable trade-related assets are concerned.
nature, or are liable to quickly deteriorate in For purposes of this section, trade -related
value, or are disproportionately expensive to assets include cash, securities, trading right
keep or maintain; or (b) the private sale is for and other owned and used by the securities
the best interest of the debtor and his market participant in the ordinary course of
creditors. this business.
With the approval of the court, unencumbered CHAPTER VIII
property of the debtor may also be conveyed PROCEEDINGS ANCILLARY TO OTHER
to a creditor in satisfaction of his claim or part INSOLVENCY OR REHABILITAION
thereof. PROCEEDINGS
Section 132. manner of Implementing the (A) Banks and Other Financial Institutions
Liquidation Plan. - The Liquidator shall Under Rehabilitation Receivership
implement the Liquidation Plan as approved Pursuant to a State-funded or State-
by the court. Payments shall be made to the mandated Insurance System.
creditors only in accordance with the Section 137. Provision of Assistance. - The court
provisions of the Plan. shall issue orders, adjudicate claims and
Section 133. Concurrence and Preference of provide other relief necessary to assist in the
Credits. - The Liquidation Plan and its liquidation of a financial under rehabilitation
Implementation shall ensure that the receivership established by a state-funded or
concurrence and preference of credits as state-mandated insurance system.
enumerated in the Civil Code of the Section 138. Application of Relevant
Philippines and other relevant laws shall be Legislation. - The liquidation of bank, financial
observed, unless a preferred creditor institutions, insurance companies and pre-
voluntarily waives his preferred right. For need companies shall be determined by
relevant legislation. The provisions in this Act rehabilitation of government-owned and
shall apply in a suppletory manner. controlled corporations shall be released only
(B) Cross-Border Insolvency Proceedings. pursuant to an appropriation by Congress and
Section 139. Adoption of Uncitral Model Law on shall be supported by funds actually available
Cross-Border Insolvency. - Subject to the as certified by the National Treasurer.
provision of Section 136 hereof and the rules of The Department of Finance, in collaboration
procedure that may be adopted by the with the Department of Budget and
Supreme Court, the Model Law on Cross- Management, shall promulgate the rules for
Border Insolvency of the United Nations the use and release of said funds.
Center for International Trade and CHAPTER X
Development is hereby adopted as part of this MISCELLANEOUS PROVISIOS
Act. Section 144. Applicability of Provisions. - The
Section 140. Initiation of Proceedings. - The provisions in Chapter II, insofar as they are
court shall set a hearing in connection with an applicable, shall likewise apply to
insolvency or rehabilitation proceeding taking proceedings in Chapters II and IV.
place in a foreign jurisdiction, upon the Section 145. Penalties. - An owner, partner,
submission of a petition by the representative director, officer or other employee of the
of the foreign entity that is the subject of the debtor who commits any one of the following
foreign proceeding. acts shall, upon conviction thereof, be
Section 141. Provision of Relief. - The court punished by a fine of not more than One
may issue orders: million pesos (Php 1, 000,000.00) and
(a) suspending any action to enforce claims imprisonment for not less than three(3) months
against the entity or otherwise seize or nor more than five (5) years for each offense;
foreclose on property of the foreign entity (a) if he shall, having notice of the
located in the Philippines; commencement of the proceedings, or having
(b) requiring the surrender property of the reason to believe that proceedings are about
foreign entity to the foreign representative; or to be commented, or in contemplation of the
(c) providing other necessary relief. proceedings hide or conceal, or destroy or
Section 142. Factors in Granting Relief. - In cause to be destroyed or hidden any property
determining whether to grant relief under this belonging to the debtor or if he shall hide,
subchapter, the court shall consider; destroy, after mutilate or falsify, or cause to be
(a) the protection of creditors in the hidden, destroyed, altered, mutilated or
Philippines and the inconvenience in pursuing falsified, any book, deed, document or writing
their claim in a foreign proceeding; relating thereto; if he shall, with intent to
(b) the just treatment of all creditors through defraud the creditors of the debtor, make any
resort to a unified insolvency or rehabilitation payment sale, assignment, transfer or
proceedings; conveyance of any property belongings to the
(c) whether other jurisdictions have given debtor
recognition to the foreign proceeding; (b) if he shall, having knowledge belief of any
(d) the extent that the foreign proceeding person having proved a false or fictitious claim
recognizes the rights of creditors and other against the debtor, fail to disclose the same to
interested parties in a manner substantially in the rehabilitation receiver of liquidator within
accordance with the manner prescribed in this one (1) month after coming to said knowledge
Act; and or belief; or if he shall attempt to account for
(e) the extent that the foreign proceeding has any of the debtors property by fictitious losses
recognized and shown deference to or expense; or
proceedings under this Act and previous (c) if he shall knowingly violate a prohibition
legislation. or knowingly fail to undertake an obligation
CHAPTER IX established by this Act.
FUNDS FOR REHABILITATION OF Section 146. Application to Pending Insolvency,
GOVERNMENT-OWNED AND Suspension of Payments and Rehabilitation
CONTROLLED CORPORATIONS Cases. - This Act shall govern all petitions filed
Section 143. Funds for Rehabilitation of after it has taken effect. All further
Government -owned and Controlled proceedings in insolvency, suspension of
Corporations. - Public funds for the 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.