Republic of the Philippines rem.

Jurisdiction over all persons

Congress of the Philippines affected by the proceedings shall be
Metro Manila considered as acquired upon
Fourteenth Congress publication of the notice of the
Third Regular Session commencement of the proceedings in
Begun and held in Metro Manila, on any newspaper of general circulation in
Monday, the twenty-seventh day of the Philippines in the manner
July, two thousand nine. prescribed by the rules of procedure to
be promulgated by the Supreme Court.
[REPUBLIC ACT NO. 10142]
The proceedings shall be conducted in a
AN ACT PROVIDING FOR THE summary and non-adversarial manner
REHABILITATION OR consistent with the declared policies of
LIQUIDATION OF FINANCIALLY this Act and in accordance with the
DISTRESSED ENTERPRISES AND rules of procedure that the Supreme
INDIVIDUALS Court may promulgate.

Be it enacted by the Senate and House of SEC. 4. Definition of Terms. — As used in

Representatives of the Philippines in this Act, the term:
Congress assembled:
(a) Administrative expenses shall refer to
CHAPTER I those reasonable and necessary
expenses:
GENERAL PROVISIONS
(1) incurred or arising from the filing of
SECTION 1. Title. — This Act shall be a petition under the provisions of this
known as the “Financial Rehabilitation Act;
and Insolvency Act (FRIA) of 2010”.
(2) arising from, or in connection with,
SEC. 2. Declaration of Policy. — It is the the conduct of the proceedings under
policy of the State to encourage debtors, this Act, including those incurred for the
both juridical and natural persons, and rehabilitation or liquidation of the
their creditors to collectively and debtor;
realistically resolve and adjust
competing claims and property rights. (3) incurred in the ordinary course of
In furtherance thereof, the State shall business of the debtor after the
ensure a timely, fair, transparent, commencement date;
effective and efficient rehabilitation or
liquidation of debtors. The rehabilitation (4) for the payment of new obligations
or liquidation shall be made with a view obtained after the commencement date
to ensure or maintain certainty and to finance the rehabilitation of the
predictability in commercial affairs, debtor;
preserve and maximize the value of the
assets of these debtors, recognize (5) incurred for the fees of the
creditor rights and respect priority of rehabilitation receiver or liquidator and
claims, and ensure equitable treatment of the professionals engaged by them;
of creditors who are similarly situated. and
When rehabilitation is not feasible, it is
in the interest of the State to facilitate a (6) that are otherwise authorized or
speedy and orderly liquidation of these mandated under this Act or such other
debtors’ assets and the settlement of expenses as may be allowed by the
their obligations. Supreme Court in its rules.

SEC. 3. Nature of Proceedings. — The (b) Affiliate shall refer to a corporation

proceedings under this Act shall be in that directly or indirectly, through one

1
or more intermediaries, is controlled by, (1) over more than one-half (1/2) of the
or is under the common control of voting rights by virtue of an agreement
another corporation. with investors;

(c) Claim shall refer to all claims or (2) to direct or govern the financial and
demands of whatever nature or operating policies of the enterprise
character against the debtor or its under a statute or an agreement;
property, whether for money or
otherwise, liquidated or unliquidated, (3) to appoint or remove the majority of
fixed or contingent, matured or the members of the board of directors or
unmatured, disputed or undisputed, equivalent governing body; or
including, but not limited to: (1) all
claims of the government, whether (4) to cast the majority votes at meetings
national or local, including taxes, tariffs of the board of directors or equivalent
and customs duties; and (2) claims governing body.
against directors and officers of the
debtor arising from acts done in the (g) Court shall refer to the court
discharge of their functions falling designated by the Supreme Court to
within the scope of their hear and determine, at the first instance,
authority: Provided, That, this inclusion the cases brought under this Act.
does not prohibit the creditors or third
parties from filing cases against the (h) Creditor shall refer to a natural or
directors and officers acting in their juridical person which has a claim
personal capacities. against the debtor that arose on or
before the commencement date.
(d) Commencement date shall refer to the
date on which the court issues the (i) Date of liquidation shall refer to the
Commencement Order, which shall be date on which the court issues the
retroactive to the date of filing of the Liquidation Order.
petition for voluntary or involuntary
proceedings. (j) Days shall refer to calendar days
unless otherwise specifically stated in
(e) Commencement Order shall refer to the this Act.
order issued by the court under Section
16 of this Act. (k) Debtor shall refer to, unless
specifically excluded by a provision of
(f) Control shall refer to the power of a this Act, a sole proprietorship duly
parent corporation to direct or govern registered with the Department of Trade
the financial and operating policies of an and Industry (DTI), a partnership duly
enterprise so as to obtain benefits from registered with the Securities and
its activities. Control is presumed to Exchange Commission (SEC), a
exist when the parent owns, directly or corporation duly organized and existing
indirectly through subsidiaries or under Philippine laws, or an individual
affiliates, more than one-half (1/2) of the debtor who has become insolvent as
voting power of an enterprise unless, in defined herein.
exceptional circumstances, it can clearly
be demonstrated that such ownership (l) Encumbered property shall refer to real
does not constitute control. Control also or personal property of the debtor upon
exists even when the parent owns one- which a lien attaches.
half (1/2) or less of the voting power of
an enterprise when there is power: (m) General unsecured creditor shall refer
to a creditor whose claim or a portion
thereof is neither secured, preferred nor
subordinated under this Act.

2
(n) Group of debtors shall refer to and can (t) Lien shall refer to a statutory or
cover only: (1) corporations that are contractual claim or judicial charge on
financially related to one another as real or personal property that legally
parent corporations, subsidiaries or entitles a creditor to resort to said
affiliates; (2) partnerships that are property for payment of the claim or
owned more than fifty percent (50%) by debt secured by such lien.
the same person; and (3) single
proprietorships that are owned by the (u) Liquidation shall refer to the
same person. When the petition covers a proceedings under Chapter V of this
group of debtors, all reference under Act.
these rules to debtor shall include and
apply to the group of debtors. (v) Liquidation Order shall refer to the
Order issued by the court under Section
(o) Individual debtor shall refer to a 112 of this Act.
natural person who is a resident and
citizen of the Philippines that has (w) Liquidator shall refer to the natural
become insolvent as defined herein. person or juridical entity appointed as
such by the court and entrusted with
(p) Insolvent shall refer to the financial such powers and duties as set forth in
condition of a debtor that is generally this Act: Provided, That, if the liquidator
unable to pay its or his liabilities as they is a juridical entity, it must designate a
fall due in the ordinary course of natural person who possesses all the
business or has liabilities that are greater qualifications and none of the
than its or his assets. disqualifications as its representative, it
being understood that the juridical
(q) Insolvent debtor’s estate shall refer entity and the representative are
to the estate of the insolvent debtor, solidarily liable for all obligations and
which includes all the property and responsibilities of the liquidator.
assets of the debtor as of
commencement date, plus the property (x) Officer shall refer to a natural person
and assets acquired by the rehabilitation holding a management position
receiver or liquidator after that date, as described in or contemplated by a
well as all other property and assets in juridical entity’s articles of
which the debtor has an ownership incorporation, bylaws or equivalent
interest, whether or not these property documents, except for the corporate
and assets are in the debtor’s possession secretary, the assistant corporate
as of commencement secretary and the external auditor.
date: Provided, That trust assets and
bailment, and other property and assets (y) Ordinary course of business shall
of a third party that are in the refer to transactions in the pursuit of the
possession of the debtor as of individual debtor’s or debtor’s business
commencement date, are excluded operations prior to rehabilitation or
therefrom. insolvency proceedings and on ordinary
business terms.
(r) Involuntary proceedings shall refer
to proceedings initiated by creditors. (z) Ownership interest shall refer to the
ownership interest of third parties in
(s) Liabilities shall refer to monetary property held by the debtor, including
claims against the debtor, including those covered by trust receipts or
stockholder’s advances that have been assignments of receivables.
recorded in the debtor’s audited
financial statements as advances for (aa) Parent shall refer to a corporation
future subscriptions. which has over another corporation
either directly or indirectly through one
or more intermediaries.
3
(bb) Party to the proceedings shall refer including, but not limited to, debt
to the debtor, a creditor, the unsecured forgiveness, debt rescheduling,
creditors’ committee, a stakeholder, a reorganization or quasi-reorganization,
party with an ownership interest in dacion en pago, debt-equity conversion
property held by the debtor, a secured and sale of the business (or parts of it) as
creditor, the rehabilitation receiver, a going concern, or setting-up of new
liquidator or any other juridical or business entity as prescribed in Section
natural person who stands to be 62 hereof, or other similar arrangements
benefited or injured by the outcome of as may be approved by the court or
the proceedings and whose notice of creditors.
appearance is accepted by the court.
(jj) Secured claim shall refer to a claim
(cc) Possessory lien shall refer to a lien that is secured by a lien.
on property, the possession of which
has been transferred to a creditor or a (kk) Secured creditor shall refer to a
representative or agent thereof. creditor with a secured claim.

(dd) Proceedings shall refer to judicial (ll) Secured party shall refer to a secured
proceedings commenced by the court’s creditor or the agent or representative of
acceptance of a petition filed under this such secured creditor.
Act.
(mm) Securities market participant shall
(ee) Property of others shall refer to refer to a broker, dealer, underwriter,
property held by the debtor in which transfer agent or other juridical persons
other persons have an ownership transacting securities in the capital
interest. market.

(ff) Publication notice shall refer to (nn) Stakeholder shall refer, in addition
notice through publication in a to a holder of shares of a corporation, to
newspaper of general circulation in the a member of a nonstock corporation or
Philippines on a business day for two association or a partner in a partnership.
(2) consecutive weeks.
(oo) Subsidiary shall refer to a
(gg) Rehabilitation shall refer to the corporation more than fifty percent
restoration of the debtor to a condition (50%) of the voting stock of which is
of successful operation and solvency, if owned or controlled directly or
it is shown that its continuance of indirectly through one or more
operation is economically feasible and intermediaries by another corporation,
its creditors can recover by way of the which thereby becomes its parent
present value of payments projected in corporation.
the plan, more if the debtor continues as
a going concern than if it is immediately (pp) Unsecured claim shall refer to a
liquidated. claim that is not secured by a lien.

(hh) Rehabilitation receiver shall refer to (qq) Unsecured creditor shall refer to a
the person or persons, natural or creditor with an unsecured claim.
juridical, appointed as such by the court
pursuant to this Act and which shall be (rr) Voluntary proceedings shall refer to
entrusted with such powers and duties proceedings initiated by the debtor.
as set forth herein.
(ss) Voting creditor shall refer to a
(ii) Rehabilitation Plan shall refer to a creditor that is a member of a class of
plan by which the financial well-being creditors, the consent of which is
and viability of an insolvent debtor can necessary for the approval of a
be restored using various means Rehabilitation Plan under this Act.

4
SEC. 5. Exclusions. — The term debtor and liabilities of the debtor with those of
does not include banks, insurance a related enterprise may only be
companies, pre-need companies, and allowed where:
national and local government agencies
or units. (a) there was commingling in fact of
assets and liabilities of the debtor and
For purposes of this section: the related enterprise prior to the
commencement of the proceedings;
(a) Bank shall refer to any duly licensed
bank or quasi-bank that is potentially or (b) the debtor and the related enterprise
actually subject to conservatorship, have common creditors and it will be
receivership or liquidation proceedings more convenient to treat them together
under the New Central Bank Act rather than separately;
(Republic Act No. 7653) or successor
legislation; (c) the related enterprise voluntarily
accedes to join the debtor as party
(b) Insurance company shall refer to petitioner and to commingle its assets
those companies that are potentially or and liabilities with the debtor’s; and
actually subject to insolvency
proceedings under the Insurance Code (d) The consolidation of assets and
(Presidential Decree No. 1460) or liabilities of the debtor and the related
successor legislation; and enterprise is beneficial to all concerned
and promotes the objectives of
(c) Pre-need company shall refer to any rehabilitation.
corporation authorized/licensed to sell
or offer to sell pre-need plans. Provided, finally, that nothing in this
section shall prevent the court from
Provided, That government financial joining other entities affiliated with the
institutions other than banks and debtor as parties pursuant to the rules of
government-owned or -controlled procedure as may be promulgated by
corporations shall be covered by this the Supreme Court.
Act, unless their specific charter
provides otherwise. SEC. 8. Decisions of Creditors. —
Decisions of creditors shall be made
SEC. 6. Designation of Courts and according to the relevant provisions of
Promulgation of Procedural Rules. — The the Corporation Code in the case of
Supreme Court shall designate the court stock or nonstock corporations or the
or courts that will hear and resolve cases Civil Code in the case of partnerships
brought under this Act and shall that are not inconsistent with this Act.
promulgate the rules of pleading,
practice and procedure to govern the SEC. 9. Creditors’ Representatives. —
proceedings brought under this Act. Creditors may designate representatives
to vote or otherwise act on their behalf
SEC. 7. Substantive and Procedural by filing notice of such representation
Consolidation. — Each juridical entity with the court and serving a copy on the
shall be considered as a separate entity rehabilitation receiver or liquidator.
under the proceedings in this Act.
Under these proceedings, the assets and SEC. 10. Liability of Individual Debtor,
liabilities of a debtor may not be Owner of a Sole Proprietorship, Partners in
commingled or aggregated with those of a Partnership, or Directors and Officers. —
another, unless the latter is a related Individual debtor, owner of a sole
enterprise that is owned or controlled proprietorship, partners in a
directly or indirectly by the same partnership, or directors and officers of
interests: Provided, however, That the a debtor shall be liable for double the
commingling or aggregation of assets value of the property sold, embezzled or

5
disposed of or double the amount of the pursuant to this section shall be
transaction involved, whichever is disposed by the bank within a period of
higher, to be recovered for the benefit of five (5) years or as may be prescribed by
the debtor and the creditors, if they, the Monetary Board.
having notice of the commencement of
the proceedings, or having reason to CHAPTER II
believe that proceedings are about to be
commenced, or in contemplation of the COURT-SUPERVISED
proceedings, willfully commit the REHABILITATION
following acts:
(A) Initiation Proceedings.
(a) Dispose or cause to be disposed of
any property of the debtor other than in (1) Voluntary Proceedings.
the ordinary course of business or
authorize or approve any transaction in SEC. 12. Petition to Initiate Voluntary
fraud of creditors or in a manner grossly Proceedings by Debtor. — When
disadvantageous to the debtor and/or approved by the owner in case of a sole
creditors; or proprietorship, or by a majority of the
partners in case of a partnership, or, in
(b) Conceal, or authorize or approve the case of a corporation, by a majority vote
concealment, from the creditors, or of the board of directors or trustees and
embezzles or misappropriates, any authorized by the vote of the
property of the debtor. stockholders representing at least two-
thirds (2/3) of the outstanding capital
The court shall determine the extent of stock, or in case of nonstock
the liability of an owner, partner, corporation, by the vote of at least two-
director or officer under this section. In thirds (2/3) of the members, in a
this connection, in case of partnerships stockholder’s or member’s meeting duly
and corporations, the court shall called for the purpose, an insolvent
consider the amount of the shareholding debtor may initiate voluntary
or partnership or equity interest of such proceedings under this Act by filing a
partner, director or officer, the degree of petition for rehabilitation with the court
control of such partner, director or and on the grounds hereinafter
officer over the debtor, and the extent of specifically provided. The petition shall
the involvement of such partner, be verified to establish the insolvency of
director or debtor in the actual the debtor and the viability of its
management of the operations of the rehabilitation, and include, whether as
debtor. an attachment or as part of the body of
the petition, as a minimum, the
SEC. 11. Authorization to Exchange Debt following:
for Equity. — Notwithstanding
applicable banking legislation to the (a) Identification of the debtor, its
contrary, any bank, whether universal principal activities and its addresses;
or not, may acquire and hold an equity
interest or investment in a debtor or its (b) Statement of the fact of and the cause
subsidiaries when conveyed to such of the debtor’s insolvency or inability to
bank in satisfaction of debts pursuant to pay its obligations as they become due;
a Rehabilitation or Liquidation Plan
approved by the court: Provided, That (c) The specific relief sought pursuant to
such ownership shall be subject to the this Act;
ownership limits applicable to universal
banks for equity investments (d) The grounds upon which the
and: Provided, further, That any equity petition is based;
investment or interest acquired or held

6
(e) Other information that may be payments thereon have not been made
required under this Act depending on for at least sixty (60) days or that the
the form of relief requested; debtor has failed generally to meet its
liabilities as they fall due; or
(f) Schedule of the debtor’s debts and
liabilities including a list of creditors (b) a creditor, other than the
with their addresses, amounts of claims petitioner/s, has initiated foreclosure
and collaterals, or securities, if any; proceedings against the debtor that will
prevent the debtor from paying its debts
(g) An inventory of all its assets as they become due or will render it
including receivables and claims against insolvent.
third parties;
SEC. 14. Petition to Initiate Involuntary
(h) A Rehabilitation Plan; Proceedings. — The creditor/s’ petition
for rehabilitation shall be verified to
(i) The names of at least three (3) establish the substantial likelihood that
nominees to the position of the debtor may be rehabilitated, and
rehabilitation receiver; and include:

(j) Other documents required to be filed (a) identification of the debtor, its
with the petition pursuant to this Act principal activities and its address;
and the rules of procedure as may be
promulgated by the Supreme Court. (b) the circumstances sufficient to
support a petition to initiate involuntary
A group of debtors may jointly file a rehabilitation proceedings under Section
petition for rehabilitation under this Act 13 of this Act;
when one or more of its members
foresee the impossibility of meeting (c) the specific relief sought under this
debts when they respectively fall due, Act;
and the financial distress would likely
adversely affect the financial condition (d) a Rehabilitation Plan;
and/or operations of the other members
of the group and/or the participation of (e) the names of at least three (3)
the other members of the group is nominees to the position of
essential under the terms and conditions rehabilitation receiver;
of the proposed Rehabilitation Plan.
(f) other information that may be
(2) Involuntary Proceedings. required under this Act depending on
the form of relief requested; and
SEC. 13. Circumstances Necessary to
Initiate Involuntary Proceedings. — Any (g) other documents required to be filed
creditor or group of creditors with a with the petition pursuant to this Act
claim of, or the aggregate of whose and the rules of procedure as may be
claims is, at least One million pesos promulgated by the Supreme Court.
(Php1,000,000.00) or at least twenty-five
percent (25%) of the subscribed capital (B) Action on the Petition and
stock or partners’ contributions, Commencement of Proceedings.
whichever is higher, may initiate
involuntary proceedings against the SEC. 15. Action on the Petition. — If the
debtor by filing a petition for court finds the petition for rehabilitation
rehabilitation with the court if: to be sufficient in form and substance, it
shall, within five (5) working days from
(a) there is no genuine issue of fact or the filing of the petition, issue a
law on the claim/s of the petitioner/s, Commencement Order. If, within the
and that the due and demandable same period, the court finds the petition

7
deficient in form or substance, the court the petition on the debtor within five (5)
may, in its discretion, give the days;
petitioner/s a reasonable period of time
within which to amend or supplement (h) appoint a rehabilitation receiver who
the petition, or to submit such may or may not be from among the
documents as may be necessary or nominees of the petitioner/s, and who
proper to put the petition in proper shall exercise such powers and duties
order. In such case, the five (5) working defined in this Act as well as the
days provided above for the issuance of procedural rules that the Supreme Court
the Commencement Order shall be will promulgate;
reckoned from the date of the filing of
the amended or supplemental petition (i) summarize the requirements and
or the submission of such documents. deadlines for creditors to establish their
claims against the debtor and direct all
 SEC. 16. Commencement of Proceedings creditors to file their claims with the
and Issuance of a Commencement Order. — court at least five (5) days before the
The rehabilitation proceedings shall initial hearing;
commence upon the issuance of the
Commencement Order, which shall: (j) direct the Bureau of Internal Revenue
(BIR) to file and serve on the debtor its
(a) identify the debtor, its principal comment on or opposition to the
business or activity/ies and its principal petition or its claim/s against the debtor
place of business; under such procedures as the Supreme
Court may hereafter provide;
(b) summarize the ground/s for
initiating the proceedings; (k) prohibit the debtor’s suppliers of
goods or services from withholding the
(c) state the relief sought under this Act supply of goods and services in the
and any requirement or procedure ordinary course of business for as long
particular to the relief sought; as the debtor makes payments for the
services or goods supplied after the
(d) state the legal effects of the issuance of the Commencement Order;
Commencement Order, including those
mentioned in Section 17 hereof; (l) authorize the payment of
administrative expenses as they become
(e) declare that the debtor is under due;
rehabilitation;
(m) set the case for initial hearing, which
(f) direct the publication of the shall not be more than forty (40) days
Commencement Order in a newspaper from the date of filing of the petition for
of general circulation in the Philippines the purpose of determining whether
once a week for at least two (2) there is substantial likelihood for the
consecutive weeks, with the first debtor to be rehabilitated;
publication to be made within seven (7)
days from the time of its issuance; (n) make available copies of the petition
and rehabilitation plan for examination
(g) if the petitioner is the debtor, direct and copying by any interested party;
the service by personal delivery of a
copy of the petition on each creditor (o) indicate the location or locations at
holding at least ten percent (10%) of the which documents regarding the debtor
total liabilities of the debtor as and the proceedings under this Act may
determined from the schedule attached be reviewed and copied;
to the petition within five (5) days; if the
petitioner/s is/are creditor/s, direct the (p) state that any creditor or debtor, who
service by personal delivery of a copy of is not the petitioner, may submit the

8
name or nominate any other qualified allowed in this Act, subject to the
person to the position of rehabilitation provisions of Section 50 hereof;
receiver at least five (5) days before the
initial hearing; (c) serve as the legal basis for rendering
null and void any set-off after the
(q) include a Stay or Suspension Order commencement date of any debt owed
which shall: to the debtor by any of the debtor’s
creditors;
(1) suspend all actions or proceedings,
in court or otherwise, for the (d) serve as the legal basis for rendering
enforcement of claims against the null and void the perfection of any lien
debtor; against the debtor’s property after the
commencement date; and
(2) suspend all actions to enforce any
judgment, attachment or other (e) consolidate the resolution of all legal
provisional remedies against the debtor; proceedings by and against the debtor
to the court: Provided, however, That the
(3) prohibit the debtor from selling, court may allow the continuation of
encumbering, transferring or disposing cases in other courts where the debtor
in any manner any of its properties had initiated the suit.
except in the ordinary course of
business; and Attempts to seek legal or other recourse
against the debtor outside these
(4) prohibit the debtor from making any proceedings shall be sufficient to
payment of its liabilities outstanding as support a finding of indirect contempt
of the commencement date except as of court.
may be provided herein.
SEC. 18. Exceptions to the Stay or
SEC. 17. Effects of the Commencement Suspension Order. — The Stay or
Order. — Unless otherwise provided for Suspension Order shall not apply:
in this Act, the court’s issuance of a
Commencement Order shall, in addition (a) to cases already pending appeal in
to the effects of a Stay or Suspension the Supreme Court as of commencement
Order described in Section 16 hereof: date: Provided, That any final and
executory judgment arising from such
(a) vest the rehabilitation receiver with appeal shall be referred to the court for
all the powers and functions provided appropriate action;
for in this Act, such as the right to
review and obtain all records to which (b) subject to the discretion of the court,
the debtor’s management and directors to cases pending or filed at a specialized
have access, including bank accounts of court or quasi-judicial agency which,
whatever nature of the debtor, subject to upon determination by the court, is
the approval by the court of the capable of resolving the claim more
performance bond filed by the quickly, fairly and efficiently than the
rehabilitation receiver; court: Provided, That any final and
executory judgment of such court or
(b) prohibit, or otherwise serve as the agency shall be referred to the court and
legal basis for rendering null and void shall be treated as a non-disputed claim;
the results of any extrajudicial activity
or process to seize property, sell (c) to the enforcement of claims against
encumbered property, or otherwise sureties and other persons solidarily
attempt to collect on or enforce a claim liable with the debtor, and third party or
against the debtor after the accommodation mortgagors as well as
commencement date unless otherwise issuers of letters of credit, unless the
property subject of the third party or

9
accommodation mortgage is necessary government or to LGUs shall be
for the rehabilitation of the debtor as considered waived, in furtherance of the
determined by the court upon objectives of rehabilitation.
recommendation by the rehabilitation
receiver; SEC. 20. Application of Stay or Suspension
Order to Government Financial
(d) to any form of action of customers or Institutions. — The provisions of this Act
clients of a securities market participant concerning the effects of the
to recover or otherwise claim moneys Commencement Order and the Stay or
and securities entrusted to the latter in Suspension Order on the suspension of
the ordinary course of the latter’s rights to foreclose or otherwise pursue
business as well as any action of such legal remedies shall apply to
securities market participant or the government financial institutions,
appropriate regulatory agency or self- notwithstanding provisions in their
regulatory organization to pay or settle charters or other laws to the contrary.
such claims or liabilities;
SEC. 21. Effectivity and Duration of
(e) to the actions of a licensed broker or Commencement Order. — Unless lifted by
dealer to sell pledged securities of a the court, the Commencement Order
debtor pursuant to a securities pledge or shall be effective for the duration of the
margin agreement for the settlement of rehabilitation proceedings for as long as
securities transactions in accordance there is a substantial likelihood that the
with the provisions of the Securities debtor will be successfully rehabilitated.
Regulation Code and its implementing In determining whether there is
rules and regulations; substantial likelihood for the debtor to
be successfully rehabilitated, the court
(f) the clearing and settlement of shall ensure that the following
financial transactions through the minimum requirements are met:
facilities of a clearing agency or similar
entities duly authorized, registered (a) The proposed Rehabilitation Plan
and/or recognized by the appropriate submitted complies with the minimum
regulatory agency like the Bangko contents prescribed by this Act;
Sentral ng Pilipinas (BSP) and the SEC
as well as any form of actions of such (b) There is sufficient monitoring by the
agencies or entities to reimburse rehabilitation receiver of the debtor’s
themselves for any transactions settled business for the protection of creditors;
for the debtor; and
(c) The debtor has met with its creditors
(g) any criminal action against the to the extent reasonably possible in
individual debtor or owner, partner, attempts to reach a consensus on the
director or officer of a debtor shall not proposed Rehabilitation Plan;
be affected by any proceeding
commenced under this Act. (d) The rehabilitation receiver submits a
report, based on preliminary evaluation,
SEC. 19.  Waiver of Taxes and Fees Due to stating that the underlying assumptions
the National Government and to Local and the financial goals stated in the
Government Units (LGUs). — Upon petitioner’s Rehabilitation Plan are
issuance of the Commencement Order realistic, feasible and reasonable; or, if
by the court, and until the approval of not, there is, in any case, a substantial
the Rehabilitation Plan or dismissal of likelihood for the debtor to be
the petition, whichever is earlier, the successfully rehabilitated because,
imposition of all taxes and fees, among others:
including penalties, interests and
charges thereof, due to the national (1) there are sufficient assets with which
to rehabilitate the debtor;
10
(2) there is sufficient cash flow to to the rehabilitation receiver within a
maintain the operations of the debtor; period of not more than twenty (20)
days; and
(3) the debtor’s owner/s, partners,
stockholders, directors and officers have (d) direct the rehabilitation receiver to
been acting in good faith and with due evaluate the financial condition of the
diligence; debtor and to prepare and submit to the
court within forty (40) days from the
(4) the petition is not a sham filing initial hearing the report provided in
intended only to delay the enforcement Section 24 hereof.
of the rights of the creditor/s or of any
group of creditors; and SEC. 23. Effect of Failure to File Notice of
Claim. — A creditor whose claim is not
(5) the debtor would likely be able to listed in the schedule of debts and
pursue a viable Rehabilitation Plan; liabilities and who fails to file a notice of
claim in accordance with the
(e) The petition, the Rehabilitation Plan Commencement Order but
and the attachments thereto do not subsequently files a belated claim shall
contain any materially false or not be entitled to participate in the
misleading statement; rehabilitation proceedings but shall be
entitled to receive distributions arising
(f) If the petitioner is the debtor, that the therefrom.
debtor has met with its creditor/s
representing at least three-fourths (3/4) SEC. 24. Report of the Rehabilitation
of its total obligations to the extent Receiver. — Within forty (40) days from
reasonably possible and made a good the initial hearing, and with or without
faith effort to reach a consensus on the the comments of the creditors or any of
proposed Rehabilitation Plan; if the them, the rehabilitation receiver shall
petitioner/s is/are a creditor or group submit a report to the court stating his
of creditors, that the petitioner/s preliminary findings and
has/have met with the debtor and made recommendations on whether:
a good faith effort to reach a consensus
on the proposed Rehabilitation Plan; (a) the debtor is insolvent and if so, the
and causes thereof and any unlawful or
irregular act or acts committed by the
(g) The debtor has not committed acts of owner/s of a sole proprietorship,
misrepresentation or in fraud of its partners of a partnership, or directors or
creditor/s or a group of creditors. officers of a corporation in
contemplation of the insolvency of the
SEC. 22. Action at the Initial Hearing. — debtor or which may have contributed
At the initial hearing, the court shall: to the insolvency of the debtor;

(a) determine the creditors who have (b) the underlying assumptions, the
made timely and proper filing of their financial goals and the procedures to
notice of claims; accomplish such goals as stated in the
petitioner’s Rehabilitation Plan are
(b) hear and determine any objection to realistic, feasible and reasonable;
the qualifications or the appointment of
the rehabilitation receiver and, if (c) there is a substantial likelihood for
necessary, appoint a new one in the debtor to be successfully
accordance with this Act; rehabilitated;

(c) direct the creditors to comment on (d) the petition should be dismissed;
the petition and the Rehabilitation Plan, and
and to submit the same to the court and

11
(e) the debtor should be dissolved Plan and submit the same or a new one
and/or liquidated. to the court within a period of not more
than ninety (90) days.
SEC. 25. Giving Due Course to or
Dismissal of Petition, or Conversion of The court may refer any dispute relating
Proceedings. — Within ten (10) days from to the Rehabilitation Plan or the
receipt of the report of the rehabilitation rehabilitation proceedings pending
receiver mentioned in Section 24 hereof, before it to arbitration or other modes of
the court may: dispute resolution, as provided for
under Republic Act No. 9285, or the
(a) give due course to the petition upon Alternative Dispute Resolution Act of
a finding that: 2004, should it determine that such
mode will resolve the dispute more
(1) the debtor is insolvent; and quickly, fairly and efficiently than the
court.
(2) there is a substantial likelihood for
the debtor to be successfully SEC. 27. Dismissal of Petition. — If the
rehabilitated; petition is dismissed pursuant to
paragraph (b) of Section 25 hereof, then
(b) dismiss the petition upon a finding the court may, in its discretion, order
that: the petitioner to pay damages to any
creditor or to the debtor, as the case may
(1) debtor is not insolvent; be, who may have been injured by the
filing of the petition, to the extent of any
(2) the petition is a sham filing intended such injury.
only to delay the enforcement of the
rights of the creditor/s or of any group (C) The Rehabilitation Receiver,
of creditors; Management Committee and Creditors’
Committee.
(3) the petition, the Rehabilitation Plan
and the attachments thereto contain any SEC. 28. Who May Serve as a
materially false or misleading Rehabilitation Receiver. — Any qualified
statements; or natural or juridical person may serve as
a rehabilitation receiver: Provided, That if
(4) the debtor has committed acts of the rehabilitation receiver is a juridical
misrepresentation or in fraud of its entity, it must designate a natural
creditor/s or a group of creditors; person/s who possess/es all the
qualifications and none of the
(c) convert the proceedings into one for disqualifications as its representative, it
the liquidation of the debtor upon a being understood that the juridical
finding that: entity and the representative/s are
solidarily liable for all obligations and
(1) the debtor is insolvent; and responsibilities of the rehabilitation
receiver.
(2) there is no substantial likelihood for
the debtor to be successfully SEC. 29. Qualifications of a Rehabilitation
rehabilitated as determined in Receiver. — The rehabilitation receiver
accordance with the rules to be shall have the following minimum
promulgated by the Supreme Court. qualifications:

SEC. 26.  Petition Given Due Course. — If (a) A citizen of the Philippines or a
the petition is given due course, the resident of the Philippines in the six (6)
court shall direct the rehabilitation months immediately preceding his
receiver to review, revise and/or nomination;
recommend action on the Rehabilitation

12
(b) Of good moral character and with SEC. 31. Powers, Duties and
acknowledged integrity, impartiality Responsibilities of the Rehabilitation
and independence; Receiver. — The rehabilitation receiver
shall be deemed an officer of the court
(c) Has the requisite knowledge of with the principal duty of preserving
insolvency and other relevant and maximizing the value of the assets
commercial laws, rules and procedures, of the debtor during the rehabilitation
as well as the relevant training and/or proceedings, determining the viability
experience that may be necessary to of the rehabilitation of the debtor,
enable him to properly discharge the preparing and recommending a
duties and obligations of a rehabilitation Rehabilitation Plan to the court, and
receiver; and implementing the approved
Rehabilitation Plan. To this end, and
(d) Has no conflict of without limiting the generality of the
interest: Provided, That such conflict of foregoing, the rehabilitation receiver
interest may be waived, expressly or shall have the following powers, duties
impliedly, by a party who may be and responsibilities:
prejudiced thereby.
(a) To verify the accuracy of the factual
Other qualifications and allegations in the petition and its
disqualifications of the rehabilitation annexes;
receiver shall be set forth in procedural
rules, taking into consideration the (b) To verify and correct, if necessary,
nature of the business of the debtor and the inventory of all of the assets of the
the need to protect the interest of all debtor, and their valuation;
stakeholders concerned.
(c) To verify and correct, if necessary,
SEC. 30. Initial Appointment of the the schedule of debts and liabilities of
Rehabilitation Receiver. — The court shall the debtor;
initially appoint the rehabilitation
receiver, who may or may not be from (d) To evaluate the validity, genuineness
among the nominees of the petitioner. and true amount of all the claims
However, at the initial hearing of the against the debtor;
petition, the creditors and the debtor
who are not petitioners may nominate (e) To take possession, custody and
other persons to the position. The court control, and to preserve the value of all
may retain the rehabilitation receiver the property of the debtor;
initially appointed or appoint another
who may or may not be from among (f) To sue and recover, with the
those nominated. approval of the court, all amounts owed
to, and all properties pertaining to the
In case the debtor is a securities market debtor;
participant, the court shall give priority
to the nominee of the appropriate (g) To have access to all information
securities or investor protection fund. necessary, proper or relevant to the
operations and business of the debtor
If a qualified natural person or entity is and for its rehabilitation;
nominated by more than fifty percent
(50%) of the secured creditors and the (h) To sue and recover, with the
general unsecured creditors, and approval of the court, all property or
satisfactory evidence is submitted, the money of the debtor paid, transferred or
court shall appoint the creditors’ disbursed in fraud of the debtor or its
nominee as rehabilitation receiver. creditors, or which constitute undue
preference of creditor/s;

13
(i) To monitor the operations and the provide which shall include, but are not
business of the debtor to ensure that no limited to, the following:
payments or transfers of property are
made other than in the ordinary course (a) Incompetence, gross negligence,
of business; failure to perform or failure to exercise
the proper degree of care in the
(j) With the court’s approval, to engage performance of his duties and powers;
the services of or to employ persons or
entities to assist him in the discharge of (b) Lack of a particular or specialized
his functions; competency required by the specific
case;
(k) To determine the manner by which
the debtor may be best rehabilitated, to (c) Illegal acts or conduct in the
review, revise and/or recommend performance of his duties and powers;
action on the Rehabilitation Plan and
submit the same or a new one to the (d) Lack of qualification or presence of
court for approval; any disqualification;

(l) To implement the Rehabilitation Plan (e) Conflict of interest that arises after
as approved by the court, if so provided his appointment; and
under the Rehabilitation Plan;
(f) Manifest lack of independence that is
(m) To assume and exercise the powers detrimental to the general body of the
of management of the debtor, if directed stakeholders.
by the court pursuant to Section 36
hereof; SEC. 33. Compensation and Terms of
Service. — The rehabilitation receiver
(n) To exercise such other powers as and his direct employees or
may, from time to time, be conferred independent contractors shall be
upon him by the court; and entitled to compensation for reasonable
fees and expenses from the debtor
(o) To submit a status report on the according to the terms approved by the
rehabilitation proceedings every quarter court after notice and hearing. Prior to
or as may be required by the court motu such hearing, the rehabilitation receiver
proprio, or upon motion of any creditor, and his direct employees shall be
or as may be provided, in the entitled to reasonable compensation
Rehabilitation Plan. based on quantum meruit. Such costs
shall be considered administrative
Unless appointed by the court, pursuant expenses.
to Section 36 hereof, the rehabilitation
receiver shall not take over the SEC. 34. Oath and Bond of the
management and control of the debtor Rehabilitation Receiver. — Prior to
but may recommend the appointment of entering upon his powers, duties and
a management committee over the responsibilities, the rehabilitation
debtor in the cases provided by this Act. receiver shall take an oath and file a
bond, in such amount to be fixed by the
SEC. 32. Removal of the Rehabilitation court, conditioned upon the faithful and
Receiver. — The rehabilitation receiver proper discharge of his powers, duties
may be removed at any time by the and responsibilities.
court, either motu proprio or upon
motion by any creditor/s holding more SEC. 35. Vacancy. — In case the position
than fifty percent (50%) of the total of rehabilitation receiver is vacated for
obligations of the debtor, on such any reason whatsoever, the court shall
grounds as the rules of procedure may direct the debtor and the creditors to
submit the name/s of their nominee/s

14
to the position. The court may appoint governing body of the debtor and
any of the qualified nominees, or any assume their rights and responsibilities.
other person qualified for the position.
The specific powers and duties of the
SEC. 36. Displacement of Existing management committee, whose
Management by the Rehabilitation Receiver members shall be considered as officers
or Management Committee. — Upon of the court, shall be prescribed by the
motion of any interested party, the court procedural rules.
may appoint and direct the
rehabilitation receiver to assume the SEC. 38. Qualifications of Members of the
powers of management of the debtor, or Management Committee. — The
appoint a management committee that qualifications and disqualifications of
will undertake the management of the the members of the management
debtor, upon clear and convincing committee shall be set forth in the
evidence of any of the following procedural rules, taking into
circumstances: consideration the nature of the business
of the debtor and the need to protect the
(a) Actual or imminent danger of interest of all stakeholders concerned.
dissipation, loss, wastage or destruction
of the debtor’s assets or other SEC. 39. Employment of Professionals. —
properties; Upon approval of the court, and after
notice and hearing, the rehabilitation
(b) Paralyzation of the business receiver or the management committee
operations of the debtor; or may employ specialized professionals
and other experts to assist each in the
(c) Gross mismanagement of the debtor, performance of their duties. Such
or fraud or other wrongful conduct on professionals and other experts shall be
the part of, or gross or willful violation considered either employees or
of this Act by, existing management of independent contractors of the
the debtor or the owner, partner, rehabilitation receiver or the
director, officer or representative/s in management committee, as the case
management of the debtor. may be. The qualifications and
disqualifications of the professionals
In case the court appoints the and experts may be set forth in
rehabilitation receiver to assume the procedural rules, taking into
powers of management of the debtor, consideration the nature of the business
the court may: of the debtor and the need to protect the
interest of all stakeholders concerned.
(1) require the rehabilitation receiver to
post an additional bond; SEC. 40. Conflict of Interest. — No person
may be appointed as a rehabilitation
(2) authorize him to engage the services receiver, member of a management
or to employ persons or entities to assist committee, or be employed by the
him in the discharge of his managerial rehabilitation receiver or the
functions; and management committee if he has a
conflict of interest.
(3) authorize a commensurate increase
in his compensation. An individual shall be deemed to have a
conflict of interest if he is so situated as
SEC. 37. Role of the Management to be materially influenced in the
Committee. — When appointed pursuant exercise of his judgment for or against
to the foregoing section, the any party to the proceedings. Without
management committee shall take the limiting the generality of the foregoing,
place of the management and the

15
an individual shall be deemed to have a employed by it, shall not be subject to
conflict of interest if: any action, claim or demand in
connection with any act done or omitted
(a) he is a creditor, owner, partner or to be done by them in good faith in
stockholder of the debtor; connection with the exercise of their
powers and functions under this Act or
(b) he is engaged in a line of business other actions duly approved by the
which competes with that of the debtor; court.

(c) he is, or was, within five (5) years SEC. 42. Creditors’ Committee. — After
from the filing of the petition, a director, the creditors’ meeting called pursuant to
officer, owner, partner or employee of Section 63 hereof, the creditors
the debtor or any of the creditors, or the belonging to a class may formally
auditor or accountant of the debtor; organize a committee among
themselves. In addition, the creditors
(d) he is, or was, within two (2) years may, as a body, agree to form a
from the filing of the petition, an creditors’ committee composed of a
underwriter of the outstanding representative from each class of
securities of the debtor; creditors, such as the following:

(e) he is related by consanguinity or (a) Secured creditors;

affinity within the fourth civil degree to
any individual creditor, owner/s of a (b) Unsecured creditors;
sole proprietorship-debtor, partners of a
partnership-debtor or to any (c) Trade creditors and suppliers; and
stockholder, director, officer, employee
or underwriter of a corporation-debtor; (d) Employees of the debtor.
or
In the election of the creditors’
(f) he has any other direct or indirect representatives, the rehabilitation
material interest in the debtor or any of receiver or his representative shall
the creditors. attend such meeting and extend the
appropriate assistance as may be
Any rehabilitation receiver, member of defined in the procedural rules.
the management committee or persons
employed or contracted by them SEC. 43. Role of Creditors’ Committee. —
possessing any conflict of interest shall The creditors’ committee when
make the appropriate disclosure either constituted pursuant to Section 42 of
to the court or to the creditors in case of this Act shall assist the rehabilitation
out-of-court rehabilitation proceedings. receiver in communicating with the
Any party to the proceeding adversely creditors and shall be the primary
affected by the appointment of any liaison between the rehabilitation
person with a conflict of interest to any receiver and the creditors. The creditors’
of the positions enumerated above may committee cannot exercise or waive any
however waive his right to object to right or give any consent on behalf of
such appointment and, if the waiver is any creditor unless specifically
unreasonably withheld, the court may authorized in writing by such creditor.
disregard the conflict of interest, taking The creditors’ committee may be
into account the general interest of the authorized by the court or by the
stakeholders. rehabilitation receiver to perform such
other tasks and functions as may be
SEC. 41. Immunity. — The rehabilitation defined by the procedural rules in order
receiver and all persons employed by to facilitate the rehabilitation process.
him, and the members of the
management committee and all persons (D) Determination of Claims.

16
SEC. 44. Registry of Claims. — Within SEC. 48. Use or Disposition of Assets. —
twenty (20) days from his assumption Except as otherwise provided herein, no
into office, the rehabilitation receiver funds or property of the debtor shall be
shall establish a preliminary registry of used or disposed of except in the
claims. The rehabilitation receiver shall ordinary course of business of the
make the registry available for public debtor, or unless necessary to finance
inspection and provide publication the administrative expenses of the
notice to the debtor, creditors and rehabilitation proceedings.
stakeholders on where and when they
may inspect it. All claims included in SEC. 49. Sale of Assets. — The court,
the registry of claims must be duly upon application of the rehabilitation
supported by sufficient evidence. receiver, may authorize the sale of
unencumbered property of the debtor
SEC. 45. Opposition or Challenge of Claims. outside the ordinary course of business
— Within thirty (30) days from the upon a showing that the property, by its
expiration of the period stated in the nature or because of other circumstance,
immediately preceding section, the is perishable, costly to maintain,
debtor, creditors, stakeholders and other susceptible to devaluation or otherwise
interested parties may submit a in jeopardy.
challenge to claim/s to the court,
serving a certified copy on the SEC. 50. Sale or Disposal of Encumbered
rehabilitation receiver and the creditor Property of the Debtor and Assets of Third
holding the challenged claim/s. Upon Parties Held by Debtor. — The court may
the expiration of the thirty (30)-day authorize the sale, transfer, conveyance
period, the rehabilitation receiver shall or disposal of encumbered property of
submit to the court the registry of claims the debtor, or property of others held by
which shall include undisputed claims the debtor where there is a security
that have not been subject to challenge. interest pertaining to third parties under
a financial, credit or other similar
SEC. 46. Appeal. — Any decision of the transactions if, upon application of the
rehabilitation receiver regarding a claim rehabilitation receiver and with the
may be appealed to the court. consent of the affected owners of the
property, or secured creditor/s in the
(E) Governance. case of encumbered property of the
debtor and, after notice and hearing, the
SEC. 47. Management. — Unless court determines that:
otherwise provided herein, the
management of the juridical debtor shall (a) such sale, transfer, conveyance or
remain with the existing management disposal is necessary for the continued
subject to the applicable law/s and operation of the debtor’s business; and
agreement/s, if any, on the election or
appointment of directors, managers or (b) the debtor has made arrangements to
managing partner. However, all provide a substitute lien or ownership
disbursements, payments or sale, right that provides an equal level of
disposal, assignment, transfer or security for the counter-party’s claim or
encumbrance of property, or any other right.
act affecting title or interest in property,
shall be subject to the approval of the Provided, That properties held by the
rehabilitation receiver and/or the court, debtor where the debtor has authority to
as provided in the following subchapter. sell such as trust receipt or consignment
arrangements may be sold or disposed
(F) Use, Preservation and Disposal of of by the debtor, if such sale or disposal
Assets and Treatment of Assets and is necessary for the operation of the
Claims after Commencement Date. debtor’s business, and the debtor has

17
made arrangements to provide a upon order of the court after notice and
substitute lien or ownership right that hearing:
provides an equal level of security for
the counter-party’s claim or right. (a) if such are in the interest of
administering the debtor and facilitating
Sale or disposal of property under this the preparation and implementation of a
section shall not give rise to any Rehabilitation Plan;
criminal liability under applicable laws.
(b) in order to provide a substitute lien,
SEC. 51. Assets of Debtor Held by Third mortgage or pledge of property under
Parties. — In the case of possessory this Act;
pledges, mechanic’s liens or similar
claims, third parties who have in their (c) for payments made to meet
possession or control property of the administrative expenses as they arise;
debtor shall not transfer, convey or
otherwise dispose of the same to (d) for payments to victims of quasi
persons other than the debtor, unless delicts upon a showing that the claim is
upon prior approval of the valid and the debtor has insurance to
rehabilitation receiver. The reimburse the debtor for the payments
rehabilitation receiver may also: made;

(a) demand the surrender or the transfer (e) for payments made to repurchase
of the possession or control of such property of the debtor that is auctioned
property to the rehabilitation receiver or off in a judicial or extrajudicial sale
any other person, subject to payment of under this Act; or
the claims secured by any possessory
lien/s thereon; (f) for payments made to reclaim
property of the debtor held pursuant to
(b) allow said third parties to retain a possessory lien.
possession or control, if such an
arrangement would more likely SEC. 53. Assets Subject to Rapid
preserve or increase the value of the Obsolescence, Depreciation and Diminution
property in question or the total value of of Value. — Upon the application of a
the assets of the debtor; or secured creditor holding a lien against
or holder of an ownership interest in
(c) undertake any other disposition of property held by the debtor that is
the said property as may be beneficial subject to potentially rapid
for the rehabilitation of the debtor, after obsolescence, depreciation or
notice and hearing, and approval of the diminution in value, the court shall,
court. after notice and hearing, order the
debtor or rehabilitation receiver to take
SEC. 52. Rescission or Nullity of Sale, reasonable steps necessary to prevent
Payment, Transfer or Conveyance of Assets. the depreciation. If depreciation cannot
— The court may rescind or declare as be avoided and such depreciation is
null and void any sale, payment, jeopardizing the security or property
transfer or conveyance of the debtor’s interest of the secured creditor or
unencumbered property or any owner, the court shall:
encumbering thereof by the debtor or its
agents or representatives after the (a) allow the encumbered property to be
commencement date which are not in foreclosed upon by the secured creditor
the ordinary course of the business of according to the relevant agreement
the debtor: Provided, however, That the between the debtor and the secured
unencumbered property may be sold, creditor, applicable rules of procedure
encumbered or otherwise disposed of and relevant legislation: Provided, That
the proceeds of the sale will be

18
distributed in accordance with the order The payment of the foregoing
prescribed under the rules of obligations shall be considered
concurrence and preference of credits; administrative expenses under this Act.
or
SEC. 56. Treatment of Employees, Claims.
(b) upon motion of, or with the consent — Compensation of employees required
of the affected secured creditor or to carry on the business shall be
interest owner, order the conveyance of considered an administrative expense.
a lien against or ownership interest in Claims of separation pay for months
substitute property of the debtor to the worked prior to the commencement
secured creditor: Provided, That other date shall be considered a pre-
creditors holding liens on such commencement claim. Claims for salary
property, if any, do not object thereto, and separation pay for work performed
or, if such property is not available; after the commencement date shall be
an administrative expense.
(c) order the conveyance to the secured
creditor or holder of an ownership SEC. 57. Treatment of Contracts. — Unless
interest of a lien on the residual funds cancelled by virtue of a final judgment
from the sale of encumbered property of a court of competent jurisdiction
during the proceedings; or issued prior to the issuance of the
Commencement Order, or at anytime
(d) allow the sale or disposition of the thereafter by the court before which the
property: Provided, That the sale or rehabilitation proceedings are pending,
disposition will maximize the value of all valid and subsisting contracts of the
the property for the benefit of the debtor with creditors and other third
secured creditor and the debtor, and the parties as at the commencement date
proceeds of the sale will be distributed shall continue in force: Provided, That
in accordance with the order prescribed within ninety (90) days following the
under the rules of concurrence and commencement of proceedings, the
preference of credits. debtor, with the consent of the
rehabilitation receiver, shall notify each
SEC. 54.  Post-commencement Interest. — contractual counter-party of whether it
The rate and term of interest, if any, on is confirming the particular contract.
secured and unsecured claims shall be Contractual obligations of the debtor
determined and provided for in the arising or performed during this period,
approved Rehabilitation Plan. and afterwards for confirmed contracts,
shall be considered administrative
SEC. 55. Post-commencement Loans and expenses. Contracts not confirmed
Obligations. — With the approval of the within the required deadline shall be
court upon the recommendation of the considered terminated. Claims for
rehabilitation receiver, the debtor, in actual damages, if any, arising as a
order to enhance its rehabilitation, may: result of the election to terminate a
contract shall be considered a pre-
(a) enter into credit arrangements; or commencement claim against the
debtor. Nothing contained herein shall
(b) enter into credit arrangements, prevent the cancellation or termination
secured by mortgages of its of any contract of the debtor for any
unencumbered property or secondary ground provided by law.
mortgages of encumbered property with
the approval of senior secured parties (G) Avoidance Proceedings.
with regard to the encumbered
property; or SEC. 58. Rescission or Nullity of Certain
Pre-commencement Transactions. — Any
(c) incur other obligations as may be transaction occurring prior to
essential for its rehabilitation.

19
commencement date entered into by the not consent to the filing or prosecution
debtor or involving its funds or assets of such action, any creditor may seek
may be rescinded or declared null and leave of the court to commence said
void on the ground that the same was action.
executed with intent to defraud a
creditor or creditors or which constitute (b) If leave of court is granted under
undue preference of creditors. Without subsection (a), the rehabilitation receiver
limiting the generality of the foregoing, shall assign and transfer to the creditor
a disputable presumption of such all rights, title and interest in the chose
design shall arise if the transaction: in action or subject matter of the
proceeding, including any document in
(a) provides unreasonably inadequate support thereof.
consideration to the debtor and is
executed within ninety (90) days prior (c) Any benefit derived from a
to the commencement date; proceeding taken pursuant to
subsection (a), to the extent of his claim
(b) involves an accelerated payment of a and the costs, belongs exclusively to the
claim to a creditor within ninety (90) creditor instituting the proceeding, and
days prior to the commencement date; the surplus, if any, belongs to the estate.

(c) provides security or additional (d) Where, before an order is made

security executed within ninety (90) under subsection (a), the rehabilitation
days prior to the commencement date; receiver (or liquidator) signifies to the
court his readiness to institute the
(d) involves creditors, where a creditor proceeding for the benefit of the
obtained, or received the benefit of, creditors, the order shall fix the time
more than its pro rata share in the assets within which he shall do so and, in that
of the debtor, executed at a time when case, the benefit derived from the
the debtor was insolvent; or proceeding, if instituted within the time
limits so fixed, belongs to the estate.
(e) is intended to defeat, delay or hinder
the ability of the creditors to collect (H) Treatment of Secured Creditors.
claims where the effect of the
transaction is to put assets of the debtor SEC. 60. No Diminution of Secured
beyond the reach of creditors or to Creditor Rights. — The issuance of the
otherwise prejudice the interests of Commencement Order and the
creditors. Suspension or Stay Order, and any other
provision of this Act, shall not be
Provided, however, That nothing in this deemed in any way to diminish or
section shall prevent the court from impair the security or lien of a secured
rescinding or declaring as null and void creditor, or the value of his lien or
a transaction on other grounds provided security, except that his right to enforce
by relevant legislation and said security or lien may be suspended
jurisprudence: Provided, further, That the during the term of the Stay Order.
provisions of the Civil Code on
rescission shall in any case apply to The court, upon motion or
these transactions. recommendation of the rehabilitation
receiver, may allow a secured creditor to
SEC. 59. Actions for Rescission or Nullity. enforce his security or lien, or foreclose
— (a) The rehabilitation receiver or, upon property of the debtor securing
with his conformity, any creditor may his/its claim, if the said property is not
initiate and prosecute any action to necessary for the rehabilitation of the
rescind, or declare null and void any debtor. The secured creditor and/or the
transaction described in Section 58 other lien holders shall be admitted to
hereof. If the rehabilitation receiver does
20
the rehabilitation proceedings only for SEC. 62. Contents of a Rehabilitation Plan.
the balance of his claim, if any. — The Rehabilitation Plan shall, as a
minimum:
SEC. 61. Lack of Adequate Protection. —
The court, on motion or motu proprio, (a) specify the underlying assumptions,
may terminate, modify or set conditions the financial goals and the procedures
for the continuance of suspension of proposed to accomplish such goals;
payment, or relieve a claim from the
coverage thereof, upon showing that: (b) compare the amounts expected to be
received by the creditors under the
(a) a creditor does not have adequate Rehabilitation Plan with those that they
protection over property securing its will receive if liquidation ensues within
claim; or the next one hundred twenty (120) days;

(b) the value of a claim secured by a lien (c) contain information sufficient to give
on property which is not necessary for the various classes of creditors a
rehabilitation of the debtor exceeds the reasonable basis for determining
fair market value of the said property. whether supporting the Plan is in their
financial interest when compared to the
For purposes of this section, a creditor immediate liquidation of the debtor,
shall be deemed to lack adequate including any reduction of principal
protection if it can be shown that: interest and penalties payable to the
creditors;
(a) the debtor fails or refuses to honor a
pre-existing agreement with the creditor (d) establish classes of voting creditors;
to keep the property insured;
(e) establish subclasses of voting
(b) the debtor fails or refuses to take creditors if prior approval has been
commercially reasonable steps to granted by the court;
maintain the property; or
(f) indicate how the insolvent debtor
(c) the property has depreciated to an will be rehabilitated including, but not
extent that the creditor is under secured. limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-
Upon showing of a lack of protection, reorganization, dacion en pago, debt-
the court shall order the debtor or the equity conversion and sale of the
rehabilitation receiver to make business (or parts of it) as a going
arrangements to provide for the concern, or setting-up of a new business
insurance or maintenance of the entity or other similar arrangements as
property; or to make payments or may be necessary to restore the financial
otherwise provide additional or well-being and viability of the insolvent
replacement security such that the debtor;
obligation is fully secured. If such
arrangements are not feasible, the court (g) specify the treatment of each class or
may modify the Stay Order to allow the subclass described in subsections (d)
secured creditor lacking adequate and (e);
protection to enforce its security claim
against the debtor: Provided, (h) provide for equal treatment of all
however, That the court may deny the claims within the same class or subclass,
creditor the remedies in this paragraph unless a particular creditor voluntarily
if the property subject of the agrees to less favorable treatment;
enforcement is required for the
rehabilitation of the debtor. (i) ensure that the payments made
under the plan follow the priority
(I) Administration of Proceedings. established under the provisions of the

21
Civil Code on concurrence and (t) include a certified copy of a
preference of credits and other certificate of tax clearance or evidence of
applicable laws; a compromise settlement with the BIR;

(j) maintain the security interest of (u) include a valid and binding
secured creditors and preserve the resolution of a meeting of the debtor’s
liquidation value of the security unless stockholders to increase the shares by
such has been waived or modified the required amount in cases where the
voluntarily; Plan contemplates an additional
issuance of shares by the debtor;
(k) disclose all payments to creditors for
pre-commencement debts made during (v) state the compensation and status, if
the proceedings and the justifications any, of the rehabilitation receiver after
thereof; the approval of the Plan; and

(l) describe the disputed claims and the (w) contain provisions for conciliation
provisioning of funds to account for and/or mediation as a prerequisite to
appropriate payments should the claim court assistance or intervention in the
be ruled valid or its amount adjusted; event of any disagreement in the
interpretation or implementation of the
(m) identify the debtor’s role in the Rehabilitation Plan.
implementation of the Plan;
SEC. 63. Consultation with Debtor and
(n) state any rehabilitation covenants of Creditors. — If the court gives due
the debtor, the breach of which shall be course to the petition, the rehabilitation
considered a material breach of the Plan; receiver shall confer with the debtor and
all the classes of creditors, and may
(o) identify those responsible for the consider their views and proposals in
future management of the debtor and the review, revision or preparation of a
the supervision and implementation of new Rehabilitation Plan.
the Plan, their affiliation with the debtor
and their remuneration; SEC. 64. Creditor Approval of
Rehabilitation Plan. — The rehabilitation
(p) address the treatment of claims receiver shall notify the creditors and
arising after the confirmation of the stakeholders that the Plan is ready for
Rehabilitation Plan; their examination. Within twenty (20)
days from the said notification, the
(q) require the debtor and its counter- rehabilitation receiver shall convene the
parties to adhere to the terms of all creditors, either as a whole or per class,
contracts that the debtor has chosen to for purposes of voting on the approval
confirm; of the Plan. The Plan shall be deemed
rejected unless approved by all classes
(r) arrange for the payment of all of creditors whose right are adversely
outstanding administrative expenses as modified or affected by the Plan. For
a condition to the Plan’s approval unless purposes of this section, the Plan is
such condition has been waived in deemed to have been approved by a
writing by the creditors concerned; class of creditors if members of the said
class holding more than fifty percent
(s) arrange for the payment of all (50%) of the total claims of the said class
outstanding taxes and assessments, or vote in favor of the Plan. The votes of
an adjusted amount pursuant to a the creditors shall be based solely on the
compromise settlement with the BIR or amount of their respective claims based
other applicable tax authorities; on the registry of claims submitted by

22
the rehabilitation receiver pursuant to (b) The documents or data relied upon
Section 44 hereof. in the Rehabilitation Plan are materially
false or misleading; or
Notwithstanding the rejection of the
Rehabilitation Plan, the court may (c) The Rehabilitation Plan is in fact not
confirm the Rehabilitation Plan if all of supported by the voting creditors.
the following circumstances are present:
SEC. 67. Hearing on the Objections. — If
(a) The Rehabilitation Plan complies objections have been submitted during
with the requirements specified in this the relevant period, the court shall issue
Act; an order setting the time and date for
the hearing or hearings on the
(b) The rehabilitation receiver objections.
recommends the confirmation of the
Rehabilitation Plan; If the court finds merit in the objection,
it shall order the rehabilitation receiver
(c) The shareholders, owners or partners or other party to cure the defect,
of the juridical debtor lose at least their whenever feasible. If the court
controlling interest as a result of the determines that the debtor acted in bad
Rehabilitation Plan; and faith, or that it is not feasible to cure the
defect, the court shall convert the
(d) The Rehabilitation Plan would likely proceedings into one for the liquidation
provide the objecting class of creditors of the debtor under Chapter V of this
with compensation which has a net Act.
present value greater than that which
they would have received if the debtor SEC. 68. Confirmation of the Rehabilitation
were under liquidation. Plan. — If no objections are filed within
the relevant period or, if objections are
SEC. 65. Submission of Rehabilitation Plan filed, the court finds them lacking in
to the Court. — If the Rehabilitation Plan merit, or determines that the basis for
is approved, the rehabilitation receiver the objection has been cured, or
shall submit the same to the court for determines that the debtor has complied
confirmation. Within five (5) days from with an order to cure the objection, the
receipt of the Rehabilitation Plan, the court shall issue an order confirming the
court shall notify the creditors that the Rehabilitation Plan.
Rehabilitation Plan has been submitted
for confirmation, that any creditor may The court may confirm the
obtain copies of the Rehabilitation Plan Rehabilitation Plan notwithstanding
and that any creditor may file an unresolved disputes over claims if the
objection thereto. Rehabilitation Plan has made adequate
provisions for paying such claims.
SEC. 66. Filing of Objections to
Rehabilitation Plan. — A creditor may file For the avoidance of doubt, the
an objection to the Rehabilitation Plan provisions of other laws to the contrary
within twenty (20) days from receipt of notwithstanding, the court shall have
notice from the court that the the power to approve or implement the
Rehabilitation Plan has been submitted Rehabilitation Plan despite the lack of
for confirmation. Objections to a approval, or objection from the owners,
Rehabilitation Plan shall be limited to partners or stockholders of the insolvent
the following: debtor: Provided, That the terms thereof
are necessary to restore the financial
(a) The creditors’ support was induced well-being and viability of the insolvent
by fraud; debtor.

23
SEC. 69. Effect of Confirmation of the creditors to pursue actions against the
Rehabilitation Plan. — The confirmation general partners of a partnership to the
of the Rehabilitation Plan by the court extent they are liable under relevant
shall result in the following: legislation for the debts thereof.

(a) The Rehabilitation Plan and its SEC. 71. Treatment of Amounts of

provisions shall be binding upon the Indebtedness or Obligations Forgiven or
debtor and all persons who may be Reduced. — Amounts of any
affected by it, including the creditors, indebtedness or obligations reduced or
whether or not such persons have forgiven in connection with a Plan’s
participated in the proceedings or approval shall not be subject to any tax,
opposed the Rehabilitation Plan or in furtherance of the purposes of this
whether or not their claims have been Act.
scheduled;
SEC. 72. Period for Confirmation of the
(b) The debtor shall comply with the Rehabilitation Plan. — The court shall
provisions of the Rehabilitation Plan have a maximum period of one (1) year
and shall take all actions necessary to from the date of the filing of the petition
carry out the Plan; to confirm a Rehabilitation Plan.

(c) Payments shall be made to the If no Rehabilitation Plan is confirmed

creditors in accordance with the within the said period, the proceedings
provisions of the Rehabilitation Plan; may, upon motion or motu proprio, be
converted into one for the liquidation of
(d) Contracts and other arrangements the debtor.
between the debtor and its creditors
shall be interpreted as continuing to SEC. 73. Accounting Discharge of
apply to the extent that they do not Rehabilitation Receiver. — Upon the
conflict with the provisions of the confirmation of the Rehabilitation Plan,
Rehabilitation Plan; the rehabilitation receiver shall provide
a final report and accounting to the
(e) Any compromises on amounts or court. Unless the Rehabilitation Plan
rescheduling of timing of payments by specifically requires and describes the
the debtor shall be binding on creditors role of the rehabilitation receiver after
regardless of whether or not the Plan is the approval of the Rehabilitation Plan,
successfully implemented; and the court shall discharge the
rehabilitation receiver of his duties.
(f) Claims arising after approval of the
Plan that are otherwise not treated by (J) Termination of Proceedings.
the Plan are not subject to any
Suspension Order. SEC. 74. Termination of Proceedings. —
The rehabilitation proceedings under
The Order confirming the Plan shall Chapter II shall, upon motion by any
comply with Rule 36 of the Rules of stakeholder or the rehabilitation
Court: Provided, however, That the court receiver, be terminated by order of the
may maintain jurisdiction over the case court either declaring a successful
in order to resolve claims against the implementation of the Rehabilitation
debtor that remain contested and Plan or a failure of rehabilitation.
allegations that the debtor has breached
the Plan. There is failure of rehabilitation in the
following cases:
SEC. 70. Liability of General Partners of a
Partnership for Unpaid Balances Under an (a) Dismissal of the petition by the court;
Approved Plan. — The approval of the
Plan shall not affect the rights of

24
(b) The debtor fails to submit a (5) enforce the applicable provisions of
Rehabilitation Plan; the Rehabilitation Plan through a writ of
execution.
(c) Under the Rehabilitation Plan
submitted by the debtor, there is no SEC. 75. Effects of Termination. —
substantial likelihood that the debtor Termination of the proceedings shall
can be rehabilitated within a reasonable result in the following:
period;
(a) The discharge of the rehabilitation
(d) The Rehabilitation Plan or its receiver, subject to his submission of a
amendment is approved by the court final accounting; and
but in the implementation thereof, the
debtor fails to perform its obligations (b) The lifting of the Stay Order and any
thereunder, or there is a failure to other court order holding in abeyance
realize the objectives, targets or goals set any action for the enforcement of a
forth therein, including the timelines claim against the debtor.
and conditions for the settlement of the
obligations due to the creditors and Provided, however, That if the termination
other claimants; of proceedings is due to failure of
rehabilitation or dismissal of the petition
(e) The commission of fraud in securing for reasons other than technical
the approval of the Rehabilitation Plan grounds, the proceedings shall be
or its amendment; and immediately converted to liquidation as
provided in Section 92 of this Act.
(f) Other analogous circumstances as
may be defined by the rules of CHAPTER III
procedure.
PRE-NEGOTIATED REHABILITATION
Upon a breach of, or upon a failure of
the Rehabilitation Plan, the court, upon SEC. 76. Petition by Debtor. — An
motion by an affected party, may: insolvent debtor, by itself or jointly with
any of its creditors, may file a verified
(1) issue an order directing that the petition with the court for the approval
breach be cured within a specified of a pre-negotiated Rehabilitation Plan
period of time, failing which the which has been endorsed or approved
proceedings may be converted to a by creditors holding at least two-thirds
liquidation; (2/3) of the total liabilities of the debtor,
including secured creditors holding
(2) issue an order converting the more than fifty percent (50%) of the total
proceedings to a liquidation; secured claims of the debtor and
unsecured creditors holding more than
(3) allow the debtor or rehabilitation fifty percent (50%) of the total
receiver to submit amendments to the unsecured claims of the debtor. The
Rehabilitation Plan, the approval of petition shall include, as a minimum:
which shall be governed by the same
requirements for the approval of a (a) a schedule of the debtor’s debts and
Rehabilitation Plan under this liabilities;
subchapter;
(b) an inventory of the debtor’s assets;
(4) issue any other order to remedy the
breach consistent with the present (c) the pre-negotiated Rehabilitation
regulation, other applicable law and the Plan, including the names of at least
best interests of the creditors; or three (3) qualified nominees for
rehabilitation receiver; and

25
(d) a summary of disputed claims (i) include a Suspension or Stay Order
against the debtor and a report on the as described in this Act.
provisioning of funds to account for
appropriate payments should any such SEC. 78. Approval of the Plan. — Within
claims be ruled valid or their amounts ten (10) days from the date of the second
adjusted. publication of the Order, the court shall
approve the Rehabilitation Plan unless a
SEC. 77. Issuance of Order. — Within five creditor or other interested party
(5) working days, and after submits an objection to it in accordance
determination that the petition is with the next succeeding section.
sufficient in form and substance, the
court shall issue an Order which shall: SEC. 79. Objection to the Petition or
Rehabilitation Plan. — Any creditor or
(a) identify the debtor, its principal other interested party may submit to the
business or activity/ies and its principal court a verified objection to the petition
place of business; or the Rehabilitation Plan not later than
eight (8) days from the date of the
(b) declare that the debtor is under second publication of the Order
rehabilitation; mentioned in Section 77 hereof. The
objections shall be limited to the
(c) summarize the ground/s for the following:
filing of the petition;
(a) The allegations in the petition or the
(d) direct the publication of the Order in Rehabilitation Plan, or the attachments
a newspaper of general circulation in thereto, are materially false or
the Philippines once a week for at least misleading;
two (2) consecutive weeks, with the first
publication to be made within seven (7) (b) The majority of any class of creditors
days from the time of its issuance; do not in fact support the Rehabilitation
Plan;
(e) direct the service by personal
delivery of a copy of the petition on (c) The Rehabilitation Plan fails to
each creditor who is not a petitioner accurately account for a claim against
holding at least ten percent (10%) of the the debtor and the claim is not
total liabilities of the debtor, as categorically declared as a contested
determined in the schedule attached to claim; or
the petition, within three (3) days;
(d) The support of the creditors, or any
(f) state that copies of the petition and of them, was induced by fraud.
the Rehabilitation Plan are available for
examination and copying by any Copies of any objection to the petition or
interested party; the Rehabilitation Plan shall be served
on the debtor, the rehabilitation receiver
(g) state that creditors and other (if applicable), the secured creditor with
interested parties opposing the petition the largest claim and who supports the
or Rehabilitation Plan may file their Rehabilitation Plan, and the unsecured
objections or comments thereto within a creditor with the largest claim and who
period of not later than twenty (20) days supports the Rehabilitation Plan.
from the second publication of the
Order; SEC. 80. Hearing on the Objections. —
After receipt of an objection, the court
(h) appoint a rehabilitation receiver, if shall set the same for hearing. The date
provided for in the Plan; and of the hearing shall be no earlier than
twenty (20) days and no later than thirty
(30) days from the date of the second

26
publication of the Order mentioned in (a) The debtor must agree to the out-of-
Section 77 hereof. If the court finds merit court or informal
in the objection, it shall direct the restructuring/workout agreement or
debtor, when feasible, to cure the defect Rehabilitation Plan;
within a reasonable period. If the court
determines that the debtor or creditors (b) It must be approved by creditors
supporting the Rehabilitation Plan acted representing at least sixty-seven percent
in bad faith, or that the objection is non- (67%) of the secured obligations of the
curable, the court may order the debtor;
conversion of the proceedings into
liquidation. A finding by the court that (c) It must be approved by creditors
the objection has no substantial merit, or representing at least seventy-five
that the same has been cured, shall be percent (75%) of the unsecured
deemed an approval of the obligations of the debtor; and
Rehabilitation Plan.
(d) It must be approved by creditors
SEC. 81. Period for Approval of holding at least eighty-five percent
Rehabilitation Plan. — The court shall (85%) of the total liabilities, secured and
have a maximum period of one hundred unsecured, of the debtor.
twenty (120) days from the date of the
filing of the petition to approve the SEC. 85. Standstill Period. — A standstill
Rehabilitation Plan. If the court fails to period that may be agreed upon by the
act within the said period, the parties pending negotiation and
Rehabilitation Plan shall be deemed finalization of the out-of-court or
approved. informal restructuring/workout
agreement or Rehabilitation Plan
SEC. 82. Effect of Approval. — Approval contemplated herein shall be effective
of a Plan under this chapter shall have and enforceable not only against the
the same legal effect as confirmation of a contracting parties but also against the
Plan under Chapter II of this Act. other creditors: Provided, That (a) such
agreement is approved by creditors
CHAPTER IV representing more than fifty percent
(50%) of the total liabilities of the debtor;
OUT-OF-COURT OR INFORMAL (b) notice thereof is published in a
RESTRUCTURING AGREEMENTS newspaper of general circulation in the
OR REHABILITATION PLANS Philippines once a week for two (2)
consecutive weeks; and (c) the standstill
SEC. 83. Out-of-Court or Informal period does not exceed one hundred
Restructuring Agreements and twenty (120) days from the date of
Rehabilitation Plans. — An out-of-court effectivity. The notice must invite
or informal restructuring agreement or creditors to participate in the
Rehabilitation Plan that meets the negotiation for out-of-court
minimum requirements prescribed in rehabilitation or restructuring
this chapter is hereby recognized as agreement and notify them that said
consistent with the objectives of this Act. agreement will be binding on all
creditors if the required majority votes
SEC. 84. Minimum Requirements of Out- prescribed in Section 84 of this Act are
of-Court or Informal Restructuring met.
Agreements and Rehabilitation Plans. —
For an out-of-court or informal SEC. 86. Cram Down Effect. — A
restructuring/workout agreement or restructuring/workout agreement or
Rehabilitation Plan to qualify under this Rehabilitation Plan that is approved
chapter, it must meet the following pursuant to an informal workout
minimum requirements: framework referred to in this chapter

27
shall have the same legal effect as (a) a schedule of the debtor’s debts and
confirmation of a Plan under Section 69 liabilities including a list of creditors
hereof. The notice of the Rehabilitation with their addresses, amounts of claims
Plan or restructuring agreement or Plan and collaterals, or securities, if any;
shall be published once a week for at
least three (3) consecutive weeks in a (b) an inventory of all its assets
newspaper of general circulation in the including receivables and claims against
Philippines. The Rehabilitation Plan or third parties; and
restructuring agreement shall take effect
upon the lapse of fifteen (15) days from (c) the names of at least three (3)
the date of the last publication of the nominees to the position of liquidator.
notice thereof.
At any time during the pendency of
SEC. 87. Amendment or Modification. — court-supervised or pre-negotiated
Any amendment of an out-of-court rehabilitation proceedings, the debtor
restructuring/workout agreement or may also initiate liquidation
Rehabilitation Plan must be made in proceedings by filing a motion in the
accordance with the terms of the same court where the rehabilitation
agreement and with due notice on all proceedings are pending to convert the
creditors. rehabilitation proceedings into
liquidation proceedings. The motion
SEC. 88. Effect of Court Action or Other shall be verified, shall contain or set
Proceedings. — Any court action or other forth the same matters required in the
proceedings arising from, or relating to, preceding paragraph, and state that the
the out-of-court or informal debtor is seeking immediate dissolution
restructuring/workout agreement or and termination of its corporate
Rehabilitation Plan shall not stay its existence.
implementation, unless the relevant
party is able to secure a temporary If the petition or the motion, as the case
restraining order or injunctive relief may be, is sufficient in form and
from the Court of Appeals. substance, the court shall issue a
Liquidation Order mentioned in Section
SEC. 89. Court Assistance. — The 112 hereof.
insolvent debtor and/or creditor may
seek court assistance for the execution SEC. 91. Involuntary Liquidation. — Three
or implementation of a Rehabilitation (3) or more creditors the aggregate of
Plan under this chapter, under such whose claims is at least either One
rules of procedure as may be million pesos (Php1,000,000.00) or at
promulgated by the Supreme Court. least twenty-five percent (25%) of the
subscribed capital stock or partner’s
CHAPTER V contributions of the debtor, whichever is
higher, may apply for and seek the
LIQUIDATION OF INSOLVENT liquidation of an insolvent debtor by
JURIDICAL DEBTORS filing a petition for liquidation of the
debtor with the court. The petition shall
SEC. 90. Voluntary Liquidation. — An show that:
insolvent debtor may apply for
liquidation by filing a petition for (a) there is no genuine issue of fact or
liquidation with the court. The petition law on the claim/s of the petitioner/s,
shall be verified, shall establish the and that the due and demandable
insolvency of the debtor and shall payments thereon have not been made
contain, whether as an attachment or as for at least one hundred eighty (180)
part of the body of the petition: days or that the debtor has failed

28
generally to meet its liabilities as they (c) of this Act; or (b) Section 72 of this
fall due; and Act; or (c) Section 75 of this Act; or (d)
Section 90 of this Act; or at any other
(b) there is no substantial likelihood that time upon the recommendation of the
the debtor may be rehabilitated. rehabilitation receiver that the
rehabilitation of the debtor is not
At any time during the pendency of or feasible. Thereupon, the court shall issue
after a rehabilitation court-supervised or the Liquidation Order mentioned in
pre-negotiated rehabilitation Section 112 hereof.
proceedings, three (3) or more creditors
whose claims is at least either One SEC. 93. Powers of the Securities and
million pesos (Php1,000,000.00) or at Exchange Commission (SEC). — The
least twenty-five percent (25%) of the provisions of this chapter shall not affect
subscribed capital or partner’s the regulatory powers of the SEC under
contributions of the debtor, whichever is Section 6 of Presidential Decree No. 902-
higher, may also initiate liquidation A, as amended, with respect to any
proceedings by filing a motion in the dissolution and liquidation proceeding
same court where the rehabilitation initiated and heard before it.
proceedings are pending to convert the
rehabilitation proceedings into CHAPTER VI
liquidation proceedings. The motion
shall be verified, shall contain or set INSOLVENCY OF INDIVIDUAL
forth the same matters required in the DEBTORS
preceding paragraph, and state that the
movants are seeking the immediate (A) Suspension of Payments.
liquidation of the debtor.
SEC. 94. Petition. — An individual
If the petition or motion is sufficient in debtor who, possessing sufficient
form and substance, the court shall issue property to cover all his debts but
an Order: foreseeing the impossibility of meeting
them when they respectively fall due,
(1) directing the publication of the may file a verified petition that he be
petition or motion in a newspaper of declared in the state of suspension of
general circulation once a week for two payments by the court of the province
(2) consecutive weeks; and or city in which he has resided for six (6)
months prior to the filing of his petition.
(2) directing the debtor and all creditors He shall attach to his petition, as a
who are not the petitioners to file their minimum: (a) a schedule of debts and
comment on the petition or motion liabilities; (b) an inventory of assets; and
within fifteen (15) days from the date of (c) a proposed agreement with his
last publication. creditors.

If, after considering the comments filed, SEC. 95. Action on the Petition. — If the

the court determines that the petition or court finds the petition sufficient in
motion is meritorious, it shall issue the form and substance, it shall, within five
Liquidation Order mentioned in Section (5) working days from the filing of the
112 hereof. petition, issue an Order:

SEC. 92. Conversion by the Court into (a) calling a meeting of all the creditors
Liquidation Proceedings.  — During the named in the schedule of debts and
pendency of court-supervised or pre- liabilities at such time not less than
negotiated rehabilitation proceedings, fifteen (15) days nor more than forty (40)
the court may order the conversion of days from the date of such Order and
rehabilitation proceedings to liquidation designating the date, time and place of
proceedings pursuant to: (a) Section 25 the meeting;
29
(b) directing such creditors to prepare No creditor shall sue or institute
and present written evidence of their proceedings to collect his claim from the
claims before the scheduled creditors’ debtor from the time of the filing of the
meeting; petition for suspension of payments and
for as long as proceedings remain
(c) directing the publication of the said pending except:
order in a newspaper of general
circulation published in the province or (a) those creditors having claims for
city in which the petition is filed once a personal labor, maintenance, expense of
week for two (2) consecutive weeks, last illness and funeral of the wife or
with the first publication to be made children of the debtor incurred in the
within seven (7) days from the time of sixty (60) days immediately prior to the
the issuance of the Order; filing of the petition; and

(d) directing the clerk of court to cause (b) secured creditors.

the sending of a copy of the Order by
registered mail, postage prepaid, to all SEC. 97. Creditors’ Meeting. — The
creditors named in the schedule of debts presence of creditors holding claims
and liabilities; amounting to at least three-fifths (3/5)
of the liabilities shall be necessary for
(e) forbidding the individual debtor holding a meeting. The commissioner
from selling, transferring, encumbering appointed by the court shall preside
or disposing in any manner of his over the meeting and the clerk of court
property, except those used in the shall act as the secretary thereof, subject
ordinary operations of commerce or of to the following rules:
industry in which the petitioning
individual debtor is engaged, so long as (a) The clerk shall record the creditors
the proceedings relative to the present and amount of their respective
suspension of payments are pending; claims;

(f) prohibiting the individual debtor (b) The commissioner shall examine the
from making any payment outside of written evidence of the claims. If the
the necessary or legitimate expenses of creditors present hold at least three-
his business or industry, so long as the fifths (3/5) of the liabilities of the
proceedings relative to the suspension individual debtor, the commissioner
of payments are pending; and shall declare the meeting open for
business;
(g) appointing a commissioner to
preside over the creditors’ meeting. (c) The creditors and individual debtor
shall discuss the propositions in the
SEC. 96. Actions Suspended. — Upon proposed agreement and put them to a
motion filed by the individual debtor, vote;
the court may issue an order
suspending any pending execution (d) To form a majority, it is necessary:
against the individual
debtor: Provided, that properties held as (1) that two-thirds (2/3) of the creditors
security by secured creditors shall not voting unite upon the same proposition;
be the subject of such suspension order. and
The suspension order shall lapse when
three (3) months shall have passed (2) that the claims represented by said
without the proposed agreement being majority vote amount to at least three-
accepted by the creditors or as soon as fifths (3/5) of the total liabilities of the
such agreement is denied. debtor mentioned in the petition; and

30
(e) After the result of the voting has prejudice the rights of the creditors; (b)
been announced, all protests made fraudulent connivance between one or
against the majority vote shall be drawn more creditors and the individual
up, and the commissioner and the debtor to vote in favor of the proposed
individual debtor together with all agreement; or (c) fraudulent conveyance
creditors taking part in the voting shall of claims for the purpose of obtaining a
sign the affirmed propositions. majority. The court shall hear and pass
upon such objection as soon as possible
No creditor who incurred his credit and in a summary manner.
within ninety (90) days prior to the
filing of the petition shall be entitled to In case the decision of the majority of
vote. creditors to approve the individual
debtor’s proposal or any amendment
SEC. 98. Persons Who May Refrain from thereof made during the creditors’
Voting. — Creditors who are unaffected meeting is annulled by the court, the
by the Suspension Order may refrain court shall declare the proceedings
from attending the meeting and from terminated and the creditors shall be at
voting therein. Such persons shall not be liberty to exercise the rights which may
bound by any agreement determined correspond to them.
upon at such meeting, but if they should
join in the voting they shall be bound in SEC. 101. Effects of Approval of Proposed
the same manner as are the other Agreement. — If the decision of the
creditors. majority of the creditors to approve the
proposed agreement or any amendment
SEC. 99. Rejection of the Proposed thereof made during the creditors’
Agreement. — The proposed agreement meeting is upheld by the court, or when
shall be deemed rejected if the number no opposition or objection to said
of creditors required for holding a decision has been presented, the court
meeting do not attend thereat, or if the shall order that the agreement be carried
two (2) majorities mentioned in Section out and all parties bound thereby to
97 hereof are not in favor thereof. In comply with its terms.
such instances, the proceeding shall be
terminated without recourse and the The court may also issue all orders
parties concerned shall be at liberty to which may be necessary or proper to
enforce the rights which may enforce the agreement on motion of any
correspond to them. affected party. The Order confirming
the approval of the proposed agreement
SEC. 100. Objections. — If the proposal on any amendment thereof made during
of the individual debtor, or any the creditors’ meeting shall be binding
amendment thereof made during the upon all creditors whose claims are
creditors’ meeting, is approved by the included in the schedule of debts and
majority of creditors in accordance with liabilities submitted by the individual
Section 97 hereof, any creditor who debtor and who were properly
attended the meeting and who summoned, but not upon: (a) those
dissented from and protested against creditors having claims for personal
the vote of the majority may file an labor, maintenance, expenses of last
objection with the court within ten (10) illness and funeral of the wife or
days from the date of the last creditors’ children of the debtor incurred in the
meeting. The causes for which objection sixty (60) days immediately prior to the
may be made to the decision made by filing of the petition, and (b) secured
the majority during the meeting shall creditors who failed to attend the
be: (a) defects in the call for the meeting, meeting on refrained from voting
in the holding thereof, and in the therein.
deliberations had thereat which

31
SEC. 102. Failure of Individual Debtor to (b) That being absent from the Republic
Perform Agreement. — If the individual of the Philippines, with intent to
debtor fails, wholly or in part, to defraud his creditors, he remains absent;
perform the agreement decided upon at
the meeting of the creditors, all the (c) That he conceals himself to avoid the
rights which the creditors had against service of legal process for the purpose
the individual debtor before the of hindering or delaying the liquidation
agreement shall revest in them. In such or of defrauding his creditors;
case the individual debtor may be made
subject to the insolvency proceedings in (d) That he conceals, or is removing, any
the manner established by this Act. of his property to avoid its being
attached or taken on legal process;
(B) Voluntary Liquidation.
(e) That he has suffered his property to
SEC. 103. Application. — An individual remain under attachment or legal
debtor whose properties are not process for three (3) days for the
sufficient to cover his liabilities, and purpose of hindering or delaying the
owing debts exceeding Five hundred liquidation or of defrauding his
thousand pesos (Php500,000.00), may creditors;
apply to be discharged from his debts
and liabilities by filing a verified (f) That he has confessed or offered to
petition with the court of the province allow judgment in favor of any creditor
or city in which he has resided for six (6) or claimant for the purpose of hindering
months prior to the filing of such or delaying the liquidation or of
petition. He shall attach to his petition a defrauding any creditor or claimant;
schedule of debts and liabilities and an
inventory of assets. The filing of such (g) That he has willfully suffered
petition shall be an act of insolvency. judgment to be taken against him by
default for the purpose of hindering or
SEC. 104. Liquidation Order. — If the delaying the liquidation or of
court finds the petition sufficient in defrauding his creditors;
form and substance, it shall, within five
(5) working days, issue the Liquidation (h) That he has suffered or procured his
Order mentioned in Section 112 hereof. property to be taken on legal process
with intent to give a preference to one or
(C) Involuntary Liquidation. more of his creditors and thereby hinder
or delay the liquidation or defraud any
SEC. 105. Petition; Acts of Insolvency. — one of his creditors;
Any creditor or group of creditors with
a claim of, or with claims aggregating, at (i) That he has made any assignment,
least Five hundred thousand pesos gift, sale, conveyance or transfer of his
(Php500,000.00) may file a verified estate, property, rights or credits with
petition for liquidation with the court of intent to hinder or delay the liquidation
the province or city in which the or defraud his creditors;
individual debtor resides.
(j) That he has, in contemplation of
The following shall be considered acts of insolvency, made any payment, gift,
insolvency, and the petition for grant, sale, conveyance or transfer of his
liquidation shall set forth or allege at estate, property, rights or credits;
least one of such acts:
(k) That being a merchant or tradesman,
(a) That such person is about to depart he has generally defaulted in the
or has departed from the Republic of the payment of his current obligations for a
Philippines, with intent to defraud his period of thirty (30) days;
creditors;
32
(l) That for a period of thirty (30) days, in the matter, then the petitioning
he has failed, after demand, to pay any creditors, upon submitting the affidavits
moneys deposited with him or received requisite to procure an Order of
by him in a fiduciary capacity; and publication, and presenting a bond in
double the amount of the aggregate sum
(m) That an execution having been of their claims against the individual
issued against him on final judgment for debtor, shall be entitled to an Order of
money, he shall have been found to be the court directing the sheriff of the
without sufficient property subject to province or city in which the matter is
execution to satisfy the judgment. pending to take into his custody a
sufficient amount of property of the
The petitioning creditor/s shall post a individual debtor to satisfy the
bond in such sum as the court shall demands of the petitioning creditors
direct, conditioned that if the petition and the costs of the proceedings. Upon
for liquidation is dismissed by the court, receiving such Order of the court to take
or withdrawn by the petitioner, or if the into custody property of the individual
debtor shall not be declared an debtor, it shall be the duty of the sheriff
insolvent, the petitioners will pay to the to take possession of the property and
debtor all costs, expenses, damages effects of the individual debtor, not
occasioned by the proceedings, and exempt from execution, to an extent
attorney’s fees. sufficient to cover the amount provided
for, and to prepare, within three (3) days
SEC. 106. Order to Individual Debtor to from the time of taking such possession,
Show Cause. — Upon the filing of such a complete inventory of all the property
creditors’ petition, the court shall issue so taken, and to return it to the court as
an Order requiring the individual soon as completed. The time for taking
debtor to show cause, at a time and the inventory and making return thereof
place to be fixed by the said court, why may be extended for good cause shown
he should not be adjudged an insolvent. to the court. The sheriff shall also
Upon good cause shown, the court may prepare a schedule of the names and
issue an Order forbidding the residences of the creditors, and the
individual debtor from making amount due each, from the books of the
payments of any of his debts, and debtor, or from such other papers or
transferring any property belonging to data of the individual debtor available
him. However, nothing contained as may come to his possession, and shall
herein shall affect or impair the rights of file such schedule or list of creditors and
a secured creditor to enforce his lien in inventory with the clerk of court.
accordance with its terms.
SEC. 109. All Property Taken to be Held
SEC. 107. Default. — If the individual for All Creditors; Appeal Bonds; Exceptions
debtor shall default or if, after trial, the to Sureties. — In all cases where property
issues are found in favor of the is taken into custody by the sheriff, if it
petitioning creditors, the court shall does not embrace all the property and
issue the Liquidation Order mentioned effects of the debtor not exempt from
in Section 112 hereof. execution, any other creditor or
creditors of the individual debtor, upon
SEC. 108. Absent Individual Debtor. — In giving bond to be approved by the court
all cases where the individual debtor in double the amount of their claims,
resides out of the Republic of the singly or jointly, shall be entitled to
Philippines; or has departed therefrom; similar orders and to like action, by the
or cannot, after due diligence, be found sheriff, until all claims be provided for,
therein; or conceals himself to avoid if there be sufficient property or effects.
service of the Order to show cause, or All property taken into custody by the
any other preliminary process or orders sheriff by virtue of the giving of any

33
such bonds shall be held by him for the satisfactorily to the court or a judge
benefit of all creditors of the individual thereof that the interest of the parties to
debtor whose claims shall be duly the proceedings will be subserved by a
proved as provided in this Act. The sale thereof, the court may order such
bonds provided for in this section and property to be sold in the same manner
the preceding section to procure the as property is sold under execution, the
order for custody of the property and proceeds to be deposited in the court to
effects of the individual debtor shall be abide by the result of the proceedings.
conditioned that if, upon final hearing
of the petition in insolvency, the court CHAPTER VII
shall find in favor of the petitioners,
such bonds and all of them shall be PROVISIONS COMMON TO
void; if the decision be in favor of the LIQUIDATION IN INSOLVENCY OF
individual debtor, the proceedings shall INDIVIDUAL AND JURIDICAL
be dismissed, and the individual debtor, DEBTORS
his heirs, administrators, executors or
assigns shall be entitled to recover such SEC. 111. Use of Term Debtor. — For
sum of money as shall be sufficient to purposes of this chapter, the term
cover the damages sustained by him, debtor shall include both individual
not to exceed the amount of the debtor as defined in Section 4 (o) and
respective bonds. Such damages shall be debtor as defined in Section 4 (k) of this
fixed and allowed by the court. If either Act.
the petitioners or the debtor shall appeal
from the decision of the court, upon (A) The Liquidation Order.
final hearing of the petition, the
appellant shall be required to give bond SEC. 112. Liquidation Order. — The
to the successful party in a sum double Liquidation Order shall:
the amount of the value of the property
in controversy, and for the costs of the (a) declare the debtor insolvent;
proceedings.
(b) order the liquidation of the debtor
Any person interested in the estate may and, in the case of a juridical debtor,
take exception to the sufficiency of the declare it as dissolved;
sureties on such bond or bonds. When
excepted to, the petitioner’s sureties, (c) order the sheriff to take possession
upon notice to the person excepting of and control of all the property of the
not less than two (2) nor more than five debtor, except those that may be exempt
(5) days, must justify as to their from execution;
sufficiency; and upon failure to justify,
or if others in their place fail to justify at (d) order the publication of the petition
the time and place appointed, the judge or motion in a newspaper of general
shall issue an Order vacating the order circulation once a week for two (2)
to take the property of the individual consecutive weeks;
debtor into the custody of the sheriff, or
denying the appeal, as the case may be. (e) direct payments of any claims and
conveyance of any property due the
SEC. 110. Sale Under Execution. — If, in debtor to the liquidator;
any case, proper affidavits and bonds
are presented to the court or a judge (f) prohibit payments by the debtor and
thereof, asking for and obtaining an the transfer of any property by the
Order of publication and an Order for debtor;
the custody of the property of the
individual debtor and thereafter the (g) direct all creditors to file their claims
petitioners shall make it appear with the liquidator within the period set
by the rules of procedure;

34
(h) authorize the payment of SEC. 114. Rights of Secured Creditors. —
administrative expenses as they become The Liquidation Order shall not affect
due; the right of a secured creditor to enforce
his lien in accordance with the
(i) state that the debtor and creditors applicable contract or law. A secured
who are not petitioner/s may submit creditor may:
the names of other nominees to the
position of liquidator; and (a) waive his rights under the security or
lien, prove his claim in the liquidation
(j) set the case for hearing for the proceedings and share in the
election and appointment of the distribution of the assets of the debtor;
liquidator, which date shall not be less or
than thirty (30) days nor more than
forty-five (45) days from the date of the (b) maintain his rights under his
last publication. security or lien.

SEC. 113. Effects of the Liquidation Order. If the secured creditor maintains his
— Upon the issuance of the Liquidation rights under the security or lien:
Order:
(1) the value of the property may be
(a) the juridical debtor shall be deemed fixed in a manner agreed upon by the
dissolved and its corporate or juridical creditor and the liquidator. When the
existence terminated; value of the property is less than the
claim it secures, the liquidator may
(b) legal title to and control of all the convey the property to the secured
assets of the debtor, except those that creditor and the latter will be admitted
may be exempt from execution, shall be in the liquidation proceedings as a
deemed vested in the liquidator or, creditor for the balance; if its value
pending his election or appointment, exceeds the claim secured, the liquidator
with the court; may convey the property to the creditor
and waive the debtor’s right of
(c) all contracts of the debtor shall be redemption upon receiving the excess
deemed terminated and/or breached, from the creditor;
unless the liquidator, within ninety (90)
days from the date of his assumption of (2) the liquidator may sell the property
office, declares otherwise and the and satisfy the secured creditor’s entire
contracting party agrees; claim from the proceeds of the sale; or

(d) no separate action for the collection (3) the secured creditor may enforce the
of an unsecured claim shall be allowed. lien or foreclose on the property
Such actions already pending will be pursuant to applicable laws.
transferred to the Liquidator for him to
accept and settle or contest. If the (B) The Liquidator.
liquidator contests or disputes the claim,
the court shall allow, hear and resolve SEC. 115. Election of Liquidator. — Only
such contest except when the case is creditors who have filed their claims
already on appeal. In such a case, the within the period set by the court, and
suit may proceed to judgment, and any whose claims are not barred by the
final and executory judgment therein for statute of limitations, will be allowed to
a claim against the debtor shall be filed vote in the election of the liquidator. A
and allowed in court; and secured creditor will not be allowed to
vote, unless: (a) he waives his security
(e) no foreclosure proceeding shall be or lien; or (b) has the value of the
allowed for a period of one hundred property subject of his security or lien
eighty (180) days. fixed by agreement with the liquidator,

35
and is admitted for the balance of his SEC. 119. Powers, Duties and
claim. Responsibilities of the Liquidator. — The
liquidator shall be deemed an officer of
The creditors entitled to vote will elect the court with the principal duty of
the liquidator in open court. The preserving and maximizing the value
nominee receiving the highest number and recovering the assets of the debtor,
of votes cast in terms of amount of with the end of liquidating them and
claims, and who is qualified pursuant to discharging to the extent possible all the
Section 118 hereof, shall be appointed as claims against the debtor. The powers,
the liquidator. duties and responsibilities of the
liquidator shall include, but not be
SEC. 116. Court-Appointed Liquidator. — limited to:
The court may appoint the liquidator if:
(a) to sue and recover all the assets,
(a) on the date set for the election of the debts and claims, belonging or due to
liquidator, the creditors do not attend; the debtor;

(b) the creditors who attend, fail or (b) to take possession of all the property
refuse to elect a liquidator; of the debtor except property exempt by
law from execution;
(c) after being elected, the liquidator
fails to qualify; or (c) to sell, with the approval of the court,
any property of the debtor which has
(d) a vacancy occurs for any reason come into his possession or control;
whatsoever. In any of the cases
provided herein, the court may instead (d) to redeem all mortgages and
set another hearing for the election of pledges, and to satisfy any judgment
the liquidator. which may be an encumbrance on any
property sold by him;
Provided, further, That nothing in this
section shall be construed to prevent a (e) to settle all accounts between the
rehabilitation receiver, who was debtor and his creditors, subject to the
administering the debtor prior to the approval of the court;
commencement of the liquidation, from
being appointed as a liquidator. (f) to recover any property or its value,
fraudulently conveyed by the debtor;
SEC. 117. Oath and Bond of the Liquidator.
— Prior to entering upon his powers, (g) to recommend to the court the
duties and responsibilities, the creation of a creditors’ committee which
liquidator shall take an oath and file a will assist him in the discharge of his
bond, in such amount to be fixed by the functions and which shall have powers
court, conditioned upon the proper and as the court deems just, reasonable and
faithful discharge of his powers, duties necessary; and
and responsibilities.
(h) upon approval of the court, to
SEC. 118. Qualifications of the Liquidator. engage such professionals as may be
— The liquidator shall have the necessary and reasonable to assist him
qualifications enumerated in Section 29 in the discharge of his duties.
hereof. He may be removed at any time
by the court for cause, either motu In addition to the rights and duties of a
proprio or upon motion of any creditor rehabilitation receiver, the liquidator
entitled to vote for the election of the shall have the right and duty to take all
liquidator. reasonable steps to manage and dispose
of the debtor’s assets with a view
towards maximizing the proceedings

36
therefrom, to pay creditors and SEC. 123. Registry of Claims. — Within
stockholders, and to terminate the twenty (20) days from his assumption
debtor’s legal existence. Other duties of into office, the liquidator shall prepare a
the liquidator in accordance with this preliminary registry of claims of secured
section may be established by and unsecured creditors. Secured
procedural rules. creditors who have waived their
security or lien, or have fixed the value
A liquidator shall be subject to removal of the property subject of their security
pursuant to procedures for removing a or lien by agreement with the liquidator
rehabilitation receiver. and is admitted as a creditor for the
balance, shall be considered as
SEC. 120. Compensation of the Liquidator. unsecured creditors. The liquidator shall
— The liquidator and the persons and make the registry available for public
entities engaged or employed by him to inspection and provide publication
assist in the discharge of his powers and notice to creditors, individual debtors,
duties shall be entitled to such owner/s of the sole proprietorship-
reasonable compensation as may be debtor, the partners of the partnership-
determined by the liquidation court, debtor and shareholders or members of
which shall not exceed the maximum the corporation-debtor, on where and
amount as may be prescribed by the when they may inspect it. All claims
Supreme Court. must be duly proven before being paid.

SEC. 121. Reporting Requirements. — The SEC. 124. Right of Set-off. — If the debtor

liquidator shall make and keep a record and a creditor are mutually debtor and
of all moneys received and all creditor of each other, one debt shall be
disbursements made by him or under set off against the other, and only the
his authority as liquidator. He shall balance, if any, shall be allowed in the
render a quarterly report thereof to the liquidation proceedings.
court, which report shall be made
available to all interested parties. The SEC. 125. Opposition or Challenge to
liquidator shall also submit such reports Claims. — Within thirty (30) days from
as may be required by the court from the expiration of the period for filing of
time to time as well as a final report at applications for recognition of claims,
the end of the liquidation proceedings. creditors, individual debtors, owner/s
of the sole proprietorship-debtor,
SEC. 122. Discharge of Liquidator. — In partners of the partnership-debtor and
preparation for the final settlement of all shareholders or members of the
the claims against the debtor, the corporation-debtor and other interested
liquidator will notify all the creditors, parties may submit a challenge to a
either by publication in a newspaper of claim or claims to the court, serving a
general circulation or such other mode certified copy on the liquidator and the
as the court may direct or allow, that he creditor holding the challenged claim.
will apply with the court for the Upon the expiration of the thirty (30)-
settlement of his account and his day period, the rehabilitation receiver
discharge from liability as liquidator. shall submit to the court the registry of
The liquidator will file a final claims containing the undisputed claims
accounting with the court, with proof of that have not been subject to challenge.
notice to all creditors. The accounting Such claims shall become final upon the
will be set for hearing. If the court finds filing of the register and may be
the same in order, the court will subsequently set aside only on grounds
discharge the liquidator. of fraud, accident, mistake or
inexcusable neglect.
(C) Determination of Claims.

37
SEC. 126. Submission of Disputed Claims readiness to institute the proceeding for
to Court. — The liquidator shall resolve the benefit of the creditors, the order
disputed claims and submit his findings shall fix the time within which he shall
thereon to the court for final approval. do so and, in that case, the benefit
The liquidator may disallow claims. derived from the proceedings, if
instituted within the time limits so fixed,
(D) Avoidance Proceedings. belongs to the estate.

SEC. 127. Rescission or Nullity of Certain (E) The Liquidation Plan.

Transactions. — Any transaction
occurring prior to the issuance of the SEC. 129. The Liquidation Plan. — Within
Liquidation Order or, in case of the three (3) months from his assumption
conversion of the rehabilitation into office, the Liquidator shall submit a
proceedings to liquidation proceedings Liquidation Plan to the court. The
prior to the commencement date, Liquidation Plan shall, as a minimum,
entered into by the debtor or involving enumerate all the assets of the debtor,
its assets, may be rescinded or declared all the claims against the debtor and a
null and void on the ground that the schedule of liquidation of the assets and
same was executed with intent to payment of the claims.
defraud a creditor or creditors or which
constitute undue preference of creditors. SEC. 130. Exempt Property to be Set
The presumptions set forth in Section 58 Apart. — It shall be the duty of the
hereof shall apply. court, upon petition and after hearing,
to exempt and set apart, for the use and
SEC. 128. Actions for Rescission or Nullity. benefit of the said insolvent, such real
— (a) The liquidator or, with his and personal property as is by law
conformity, a creditor may initiate and exempt from execution, and also a
prosecute any action to rescind, or homestead; but no such petition shall be
declare null and void any transaction heard as aforesaid until it is first proved
described in the immediately preceding that notice of the hearing of the
paragraph. If the liquidator does not application therefor has been duly given
consent to the filing or prosecution of by the clerk, by causing such notice to
such action, any creditor may seek leave be posted in at least three (3) public
of the court to commence said action. places in the province or city at least ten
(10) days prior to the time of such
(b) If leave of court is granted under hearing, which notice shall set forth the
subsection (a) hereof, the liquidator name of the said insolvent debtor, and
shall assign and transfer to the creditor the time and place appointed for the
all rights, title and interest in the chose hearing of such application, and shall
in action or subject matter of the briefly indicate the homestead sought to
proceeding, including any document in be exempted or the property sought to
support thereof. be set aside; and the decree must show
that such proof was made to the
(c) Any benefit derived from a satisfaction of the court, and shall be
proceeding taken pursuant to conclusive evidence of that fact.
subsection (a) hereof, to the extent of his
claim and the costs, belongs exclusively SEC. 131. Sale of Assets in Liquidation. —
to the creditor instituting the The liquidator may sell the
proceeding, and the surplus, if any, unencumbered assets of the debtor and
belongs to the estate. convert the same into money. The sale
shall be made at public auction.
(d) Where, before an order is made However, a private sale may be allowed
under subsection (a) hereof, the with the approval of the court if: (a) the
liquidator signifies to the court his goods to be sold are of a perishable

38
nature, or are liable to quickly (F) Liquidation of a Securities Market
deteriorate in value, or are Participant.
disproportionately expensive to keep or
maintain; or (b) the private sale is for the SEC. 136.  Liquidation of a Securities
best interest of the debtor and his Market Participant. — The foregoing
creditors. provisions of this chapter shall be
without prejudice to the power of a
With the approval of the court, regulatory agency or self-regulatory
unencumbered property of the debtor organization to liquidate trade-related
may also be conveyed to a creditor in claims of clients or customers of a
satisfaction of his claim or part thereof. securities market participant which, for
purposes of investor protection, are
SEC. 132. Manner of Implementing the hereby deemed to have absolute priority
Liquidation Plan. — The liquidator shall over all other claims of whatever nature
implement the Liquidation Plan as or kind insofar as trade-related assets
approved by the court. Payments shall are concerned.
be made to the creditors only in
accordance with the provisions of the For purposes of this section, trade-
Plan. related assets include cash, securities,
trading right and other assets owned
SEC. 133. Concurrence and Preference of and used by the securities market
Credits.  — The Liquidation Plan and its participant in the ordinary course of its
implementation shall ensure that the business.
concurrence and preference of credits as
enumerated in the Civil Code of the CHAPTER VIII
Philippines and other relevant laws
shall be observed, unless a preferred PROCEEDINGS ANCILLARY TO
creditor voluntarily waives his preferred OTHER INSOLVENCY
right. For purposes of this chapter, OR REHABILITATION PROCEEDINGS
credits for services rendered by
employees or laborers to the debtor (A) Banks and Other Financial
shall enjoy first preference under Article Institutions Under Rehabilitation
2244 of the Civil Code, unless the claims Receivership Pursuant to a State-funded
constitute legal liens under Articles 2241 or State-mandated Insurance System.
and 2242 thereof.
SEC. 137. Provision of Assistance. — The
SEC. 134. Order Removing the Debtor from court shall issue orders, adjudicate
the List of Registered Entities at the claims and provide for other relief
Securities and Exchange Commission. — necessary to assist in the liquidation of a
Upon determining that the liquidation financial institution under rehabilitation
has been completed according to this receivership established by a state-
Act and applicable law, the court shall funded or state-mandated insurance
issue an Order approving the report and system.
ordering the SEC to remove the debtor
from the registry of legal entities. SEC. 138. Application of Relevant
Legislation. — The liquidation of banks, 
SEC. 135. Termination of Proceedings. — financial institutions,  insurance
Upon receipt of evidence showing that companies  and pre-need companies 
the debtor has been removed from the shall be determined by relevant
registry of legal entities at the SEC, the legislation. The provisions in this Act
court shall issue an Order terminating shall apply in a suppletory manner.
the proceedings.
(B) Cross-Border Insolvency
Proceedings.

39
SEC. 139.  Adoption of Uncitral Model Law with the manner prescribed in this Act;
on Cross-Border Insolvency. — Subject to and
the provision of Section 136 hereof and
the rules of procedure that may be (e) the extent that the foreign
adopted by the Supreme Court, the proceeding has recognized and shown
Model Law on Cross-Border Insolvency deference to proceedings under this Act
of the United Nations Center for and previous legislation.
International Trade and Development is
hereby adopted as part of this Act. CHAPTER IX

SEC. 140.  Initiation of Proceedings. — The FUNDS FOR REHABILITATION OF

court shall set a hearing in connection GOVERNMENT-OWNED
with an insolvency or rehabilitation AND -CONTROLLED
proceeding taking place in a foreign CORPORATIONS
jurisdiction, upon the submission of a
petition by the representative of the SEC. 143. Funds for Rehabilitation of
foreign entity that is the subject of the Government-owned and -Controlled
foreign proceeding. Corporations. — Public funds for the
rehabilitation of government-owned
SEC. 141. Provision of Relief. — The court and -controlled corporations shall be
may issue orders: released only pursuant to an
appropriation by Congress and shall be
(a) suspending any action to enforce supported by funds actually available as
claims against the entity or otherwise certified by the National Treasurer.
seize or foreclose on property of the
foreign entity located in the Philippines; The Department of Finance, in
collaboration with the Department of
(b) requiring the surrender of property Budget and Management, shall
of the foreign entity to the foreign promulgate the rules for the use and
representative; or release of said funds.

(c) providing other necessary relief. CHAPTER X

SEC. 142. Factors in Granting Relief. — In MISCELLANEOUS PROVISIONS

determining whether to grant relief
under this subchapter, the court shall SEC. 144. Applicability of Provisions. —
consider: The provisions in Chapter II, insofar as
they are applicable, shall likewise apply
(a) the protection of creditors in the to proceedings in Chapters III and IV.
Philippines and the inconvenience in
pursuing their claims in a foreign SEC. 145. Penalties. — An owner,
proceeding; partner, director, officer or other
employee of the debtor who commits
(b) the just treatment of all creditors any one of the following acts shall, upon
through resort to a unified insolvency or conviction thereof, be punished by a
rehabilitation proceeding; fine of not more than One million pesos
(Php1,000,000.00) and imprisonment for
(c) whether other jurisdictions have not less than three (3) months nor more
given recognition to the foreign than five (5) years for each offense:
proceeding;
(a) if he shall, having notice of the
(d) the extent that the foreign commencement of the proceedings, or
proceeding recognizes the rights of having reason to believe that
creditors and other interested parties in proceedings are about to be
a manner substantially in accordance commenced, or in contemplation of the

40
proceedings, hide or conceal, or destroy SEC. 149. Separability Clause. — If any
or cause to be destroyed or hidden any provision of this Act shall be held
property belonging to the debtor; or if invalid, the remainder of this Act not
he shall hide, destroy, alter, mutilate or otherwise affected shall remain in full
falsify, or cause to be hidden, destroyed, force and effect.
altered, mutilated or falsified, any book,
deed, document or writing relating SEC. 150. Effectivity Clause. — This Act
thereto; or if he shall, with intent to shall take effect fifteen (15) days after its
defraud the creditors of the debtor, complete publication in the Official
make any payment, sale, assignment, Gazette or in at least two (2) national
transfer or conveyance of any property newspapers of general circulation.
belonging to the debtor;
Approved,
(b) if he shall, having knowledge or
belief of any person
(Sgd.)having proved ENRILE
JUAN PONCE a (Sgd.) PROSPERO C
false or fictitious claim against the
President of the Senate Speaker of the
debtor, fail to disclose the same to the of Representa
rehabilitation receiver or liquidator This Act which originated in the House
within one (1) month after coming to of Representatives was finally passed by
said knowledge or belief; or if he shall the House of Representatives was
attempt to account for any of the finally passed by the House of
debtor’s property by fictitious losses or Representatives and the Senate on
expenses; or February 1, 2010 and February 2, 2010,
respectively.
(c) if he shall knowingly violate a
prohibition or (Sgd.)
knowingly
EMMA fail to
LIRIO-REYES (Sgd.) MARILYN B.
undertake an obligation established by
Secretary of the Senate Secretary Ge
this Act. House of Represe
Approved:
SEC. 146. Application to Pending
Insolvency, Suspension of Payments and GLORIA MACAPAGAL-ARROYO
Rehabilitation Cases. — This Act shall President of the Philippines
govern all petitions filed after it has
taken effect. All further proceedings in
insolvency, suspension of payments and
rehabilitation cases then pending, except
to the extent that in the 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.

SEC. 147. Application to Pending

Contracts. — This Act shall apply to all
contracts of the debtor regardless of the
date of perfection.

SEC. 148. Repealing 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.

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