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

(Selected Codal Provisions)

Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors, both juridical
and natural persons, and their creditors to collectively and realistically resolve and adjust
competing claims and property rights. In furtherance thereof, the State shall ensure a timely, fair,
transparent, effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or
liquidation shall be made with a view to ensure or maintain certainly and predictability in
commercial affairs, preserve and maximize the value of the assets of these debtors, recognize
creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are
similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilities
a speedy and orderly liquidation of these debtor's assets and the settlement of their obligations.

Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction
over all persons affected by the proceedings shall be considered as acquired upon publication of
the notice of the commencement of the proceedings in any newspaper of general circulation in
the Philippines in the manner prescribed by the rules of procedure to be promulgated by the
Supreme Court.

The proceedings shall be conducted in a summary and non-adversarial manner consistent with
the declared policies of this Act and in accordance with the rules of procedure that the Supreme
Court may promulgate.

Section 4. Definition of Terms. - As used in this Act, the term:

(c) Claim shall refer to all claims or demands of whatever nature or character against the
debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or undisputed, including, but not limited to;
(1) all claims of the government, whether national or local, including taxes, tariffs and
customs duties; and (2) claims against directors and officers of the debtor arising from acts
done in the discharge of their functions falling within the scope of their
authority: Provided, That, this inclusion does not prohibit the creditors or third parties from
filing cases against the directors and officers acting in their personal capacities.

(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the petition for
voluntary or involuntary proceedings.

(e) Commencement Order shall refer to the order issued by the court under Section 16 of
this Act.

(f) Control shall refer to the power of a parent corporation to direct or govern the financial
and operating policies of an enterprise so as to obtain benefits from its activities. Control
is presumed to exist when the parent owns, directly or indirectly through subsidiaries or
affiliates, more than one-half (1/2) of the voting power of an enterprise unless, in
exceptional circumstances, it can clearly be demonstrated that such ownership does not
constitute control. Control also exists even when the parent owns one-half (1/2) or less of
the voting power of an enterprise when there is power:

(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with
investors;

(2) to direct or govern the financial and operating policies of the enterprise under a
statute or an agreement;

(3) to appoint or remove the majority of the members of the board of directors or
equivalent governing body; or

(4) to cast the majority votes at meetings of the board of directors or equivalent
governing body.

(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), a
partnership duly registered with the Securities and Exchange Commission (SEC), a
corporation duly organized and existing under Philippine laws, or an individual debtor who
has become insolvent as defined herein.

(l) Encumbered property shall refer to real or personal property of the debtor upon which
a lien attaches.

(m) General unsecured creditor shall refer to a creditor whose claim or a portion thereof
its neither secured, preferred nor subordinated under this Act.

(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to
pay its or his liabilities as they fall due in the ordinary course of business or has liabilities
that are greater than its or his assets.

(r) Involuntary proceedings shall refer to proceedings initiated by creditors.

(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of this
Act.

(w) Liquidator shall refer to the natural person or juridical entity appointed as such by the
court and entrusted with such powers and duties as set forth in this Act: Provided, That, if
the liquidator is a juridical entity, it must designated a natural person who possesses all the
qualifications and none of the disqualifications as its representative, it being understood
that the juridical entity and the representative are solidarity liable for all obligations and
responsibilities of the liquidator.
 (gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful
operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments projected in
the plan, more if the debtor continues as a going concern than if it is immediately liquidated.

(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical,
appointed as such by the court pursuant to this Act and which shall be entrusted with such
powers and duties as set forth herein.

(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability
of an insolvent debtor can be restored using various means including, but not limited to,
debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en
pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or
setting-up of new business entity as prescribed in Section 62 hereof, or other similar
arrangements as may be approved by the court or creditors.

(jj) Secured claim shall refer to a claim that is secured by a lien.

(kk) Secured creditor shall refer to a creditor with a secured claim.

(pp) Unsecured claim shall refer to a claim that is not secured by a lien.

(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.

(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.

Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need
companies, and national and local government agencies or units.

For purposes of this section:

(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually
subject to conservatorship, receivership or liquidation proceedings under the New Central
Bank Act (Republic Act No. 7653) or successor legislation;

(b) Insurance company shall refer to those companies that are potentially or actually subject
to insolvency proceedings under the Insurance Code (Presidential Decree No. 1460) or
successor legislation; and

(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to
sell pre-need plans.

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

(a) there was commingling in fact of assets and liabilities of the debtor and the related
enterprise prior to the commencement of the proceedings;

(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;

(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to
commingle its assets and liabilities with the debtor's; and

(d) The consolidation of assets and liabilities of the debtor and the related enterprise is
beneficial to all concerned and promotes the objectives of rehabilitation.

Provided, finally, That nothing in this section shall prevent the court from joining other entities
affiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by
the Supreme Court.

Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a

Partnership, or Directors and Officers. - Individual debtor, owner of a sole proprietorship,
partners in a partnership, or directors and officers of a debtor shall be liable for double the value
of the property sold, embezzled or disposed of or double the amount of the transaction involved,
whichever is higher to be recovered for benefit of the debtor and the creditors, if they, having
notice of the commencement of the proceedings, or having reason to believe that proceedings are
about to be commenced, or in contemplation of the proceedings, willfully commit the following
acts:

(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary
course of business or authorize or approve any transaction in fraud of creditors or in a
manner grossly disadvantageous to the debtor and/or creditors; or

(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or
misappropriates, any property of the debtor.

The court shall determine the extent of the liability of an owner, partner, director or officer under
this section. In this connection, in case of partnerships and corporations, the court shall consider
the amount of the shareholding or partnership or equity interest of such partner, director or officer,
the degree of control of such partner, director or officer over the debtor, and the extent of the
involvement of such partner, director or debtor in the actual management of the operations of the
debtor.
CHAPTER II
COURT-SUPERVISED REHABILITATION

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner
in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case
of a corporation, by a majority vote of the board of directors or trustees and authorized by the
vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or
in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate
voluntary proceedings under this Act by filing a petition for rehabilitation with the court and on
the grounds hereinafter specifically provided. The petition shall be verified to establish the
insolvency of the debtor and the viability of its rehabilitation, and include, whether as an
attachment or as part of the body of the petition, as a minimum the following:

(a) Identification of the debtor, its principal activities and its addresses;

(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its
obligations as they become due;

(c) The specific relief sought pursuant to this Act;

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

(e) Other information that may be required under this Act depending on the form of relief
requested;

(f) Schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;

(g) An inventory of all its assets including receivables and claims against third parties;

(h) A Rehabilitation Plan;

(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and

(j) Other documents required to be filed with the petition pursuant to this Act and the rules
of procedure as may be promulgated by the Supreme Court.

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

(2) Involuntary Proceedings.

Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or

group of creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or
partners' contributions, whichever is higher, may initiate involuntary proceedings against the
debtor by filing a petition for rehabilitation with the court if:

(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the
due and demandable payments thereon have not been made for at least sixty (60) days or
that the debtor has failed generally to meet its liabilities as they fall due; or

(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the
debtor that will prevent the debtor from paying its debts as they become due or will render
it insolvent.

Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for
rehabilitation shall be verified to establish the substantial likelihood that the debtor may be
rehabilitated, and include:

(a) identification of the debtor its principal activities and its address;

(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation

proceedings under Section 13 of this Act;

(c) the specific relief sought under this Act;

(d) a Rehabilitation Plan;

(e) the names of at least three (3) nominees to the position of rehabilitation receiver;

(f) other information that may be required under this Act depending on the form of relief
requested; and

(g) other documents required to be filed with the petition pursuant to this Act and the rules
of procedure as may be promulgated by the Supreme Court.

(B) Action on the Petition and Commencement of Proceedings.

Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be sufficient
in form and substance, it shall, within five (5) working days from the filing of the petition, issue
a Commencement Order. If, within the same period, the court finds the petition deficient in form
or substance, the court may, in its discretion, give the petitioner/s a reasonable period of time
within which to amend or supplement the petition, or to submit such documents as may be
necessary or proper to put the petition in proper order. In such case, the five (5) working days
provided above for the issuance of the Commencement Order shall be reckoned from the date of
the filing of the amended or supplemental petition or the submission of such documents.

Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The

rehabilitation proceedings shall commence upon the issuance of the Commencement Order,
which shall:

(a) identify the debtor, its principal business or activity/ies and its principal place of
business;

(b) summarize the ground/s for initiating the proceedings;

(c) state the relief sought under this Act and any requirement or procedure particular to the
relief sought;

(d) state the legal effects of the Commencement Order, including those mentioned in
Section 17 hereof;

(e) declare that the debtor is under rehabilitation;

(f) direct the publication of the Commencement Order in a newspaper of general circulation
in the Philippines once a week for at least two (2) consecutive weeks, with the first
publication to be made within seven (7) days from the time of its issuance;

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

(h) appoint a rehabilitation receiver who may or not be from among the nominees of the
petitioner/s and who shall exercise such powers and duties defined in this Act as well as
the procedural rules that the Supreme Court will promulgate;

(i) summarize the requirements and deadlines for creditors to establish their claims against
the debtor and direct all creditors to their claims with the court at least five (5) days before
the initial hearing;

(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment on
or opposition to the petition or its claim/s against the debtor under such procedures as the
Supreme Court provide;

(k) prohibit the debtor's suppliers of goods or services from withholding the supply of
goods and services in the ordinary course of business for as long as the debtor makes
 payments for the services or goods supplied after the issuance of the Commencement
Order;

(l) authorize the payment of administrative expenses as they become due;

(m) set the case for initial hearing, which shall not be more than forty (40) days from the
date of filing of the petition for the purpose of determining whether there is substantial
likelihood for the debtor to be rehabilitated;

(n) make available copies of the petition and rehabilitation plan for examination and
copying by any interested party;

(o) indicate the location or locations at which documents regarding the debtor and the
proceedings under Act may be reviewed and copied;

(p) state that any creditor or debtor who is not the petitioner, may submit the name or
nominate any other qualified person to the position of rehabilitation receiver at least five
(5) days before the initial hearing;

(q) include s Stay or Suspension Order which shall:

(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor;

(2) suspend all actions to enforce any judgment, attachment or other provisional
remedies against the debtor;

(3) prohibit the debtor from selling, encumbering, transferring or disposing in any
manner any of its properties except in the ordinary course of business; and

(4) prohibit the debtor from making any payment of its liabilities outstanding as of
the commencement date except as may be provided herein.

Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the
court's issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension
Order described in Section 16 hereof:

(a) vest the rehabilitation with all the powers and functions provided for this Act, such as
the right to review and obtain records to which the debtor's management and directors have
access, including bank accounts or whatever nature of the debtor subject to the approval
by the court of the performance bond filed by the rehabilitation receiver;

(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise
attempt to collection or enforce a claim against the debtor after commencement date unless
otherwise allowed in this Act, subject to the provisions of Section 50 hereof;
 (c) serve as the legal basis for rendering null and void any setoff after the commencement
date of any debt owed to the debtor by any of the debtor's creditors;

(d) serve as the legal basis for rendering null and void the perfection of any lien against the
debtor's property after the commencement date; and

(e) consolidate the resolution of all legal proceedings by and against the debtor to the court
Provided. However, That the court may allow the continuation of cases on other courts
where the debtor had initiated the suit.

Attempts to seek legal of other resource against the debtor outside these proceedings shall be
sufficient to support a finding of indirect contempt of court.

Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not
apply:

(a) to cases already pending appeal in the Supreme Court as of commencement

date Provided, That any final and executory judgment arising from such appeal shall be
referred to the court for appropriate action;

(b) subject to the discretion of the court, to cases pending or filed at a specialized court or
quasi-judicial agency which, upon determination by the court is capable of resolving the
claim more quickly, fairly and efficiently than the court: Provided, That any final and
executory judgment of such court or agency shall be referred to the court and shall be
treated as a non-disputed claim;

(c) to the enforcement of claims against sureties and other persons solidarily liable with the
debtor, and third party or accommodation mortgagors as well as issuers of letters of credit,
unless the property subject of the third party or accommodation mortgage is necessary for
the rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver;

(d) to any form of action of customers or clients of a securities market participant to recover
or otherwise claim moneys and securities entrusted to the latter in the ordinary course of
the latter's business as well as any action of such securities market participant or the
appropriate regulatory agency or self-regulatory organization to pay or settle such claims
or liabilities;

(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant
to a securities pledge or margin agreement for the settlement of securities transactions in
accordance with the provisions of the Securities Regulation Code and its implementing
rules and regulations;

(f) the clearing and settlement of financial transactions through the facilities of a clearing
agency or similar entities duly authorized, registered and/or recognized by the appropriate
regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any
 form of actions of such agencies or entities to reimburse themselves for any transactions
settled for the debtor; and

(g) any criminal action against individual debtor or owner, partner, director or officer of a
debtor shall not be affected by any proceeding commend under this Act.

Section 19. Waiver of taxes and Fees Due to the National Government and to Local Government
Units (LGUs). - Upon issuance of the Commencement Order by the court, and until the approval
of the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all
taxes and fees including penalties, interests and charges thereof due to the national government
or to LGUs shall be considered waived, in furtherance of the objectives of rehabilitation.

Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the
Commencement Order shall be for the effective for the duration of the rehabilitation proceedings
for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In
determining whether there is substantial likelihood for the debtor to be successfully rehabilitated,
the court shall ensure that the following minimum requirements are met:

(a) The proposed Rehabilitation Plan submitted complies with the minimum contents
prescribed by this Act;

(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for
the protection of creditors;

(c) The debtor has met with its creditors to the extent reasonably possible in attempts to
reach consensus on the proposed Rehabilitation Plan;

(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating
that the underlying assumptions and the goals stated in the petitioner's Rehabilitation Plan
are realistic reasonable and reasonable or if not, there is, in any case, a substantial
likelihood for the debtor to be successfully rehabilitated because, among others:

(1) there are sufficient assets with/which to rehabilitate the debtor;

(2) there is sufficient cash flow to maintain the operations of the debtor;

(3) the debtor's, partners, stockholders, directors and officers have been acting in
good faith and which due diligence;

(4) the petition is not s sham filing intended only to delay the enforcement of the
rights of the creditor's or of any group of creditors; and

(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;

(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any
materially false or misleading statement;
 (f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at
least three-fourths (3/4) of its total obligations to the extent reasonably possible and made
a good faith effort to reach a consensus on the proposed Rehabilitation Plan if the
petitioner/s is/are a creditor or group of creditors, that/ the petitioner/s has/have met with
the debtor and made a good faith effort to reach a consensus on the proposed Rehabilitation
Plan; and

(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a
group of creditors.

Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:

(a) determine the creditors who have made timely and proper filing of their notice of
claims;

(b) hear and determine any objection to the qualifications of the appointment of the
rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;

(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit
the same to the court and to the rehabilitation receiver within a period of not more than
twenty (20) days; and

(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to
prepare and submit to the court within forty (40) days from initial hearing the report
provided in Section 24 hereof.

Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the
schedule of debts and liabilities and who fails to file a notice of claim in accordance with the
Commencement Order but subsequently files a belated claim shall not be entitled to participate
in the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.

Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing
and with or without the comments of the creditors or any of them, the rehabilitation receiver shall
submit a report to the court stating his preliminary findings and recommendations on whether:

(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or
acts committed by the owner/s of a sole proprietorship partners of a partnership or directors
or officers of a corporation in contemplation of the insolvency of the debtor or which may
have contributed to the insolvency of the debtor;

(b) the underlying assumptions, the financial goals and the procedures to accomplish such
goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;

(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(d) the petition should be dismissed; and

 (e) the debtor should be dissolved and/or liquidated.

Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. -

Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section
24 hereof the court may:

(a) give due course to the petition upon a finding that:

(1) the debtor is insolvent; and

(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(b) dismiss the petition upon a finding that:

(1)debtor is not insolvent;

(2) the petition i8 a sham filing intended only to delay the enforcement of the rights
of the creditor/s or of any group of creditors;

(3)the petition, the Rehabilitation Plan and the attachments thereto contain any
materially false or misleading statements; or

(4)the debtor has committed acts of misrepresentation or in fraud of its creditor/s or

a group of creditors;

(c)convert the proceedings into one for the liquidation of the debtor upon a finding that:

(1)the debtor is insolvent; and

(2)there is no substantial likelihood for the debtor to be successfully rehabilitated as

determined in accordance with the rules to be promulgated by the Supreme Court.

(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.

Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified natural or juridical
person may serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a
juridical entity, it must designate a natural person/s who possess/es all the qualifications and none
of the disqualification’s as its representative, it being understood that the juridical entity and the
representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation
receiver.

Section 29. Qualifications of a Rehabilitation Receiver. - The rehabilitation receiver shall have
the following minimum qualifications:

(a)A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;
 (b)Of good moral character and with acknowledged integrity, impartiality and
independence;

(c)Has the requisite knowledge of insolvency and other relevant commercial laws, rules
and procedures, as well as the relevant training and/or experience that may be necessary to
enable him to properly discharge the duties and obligations of a rehabilitation receiver; and

(d)Has no conflict of interest: Provided, That such conflict of interest may be waived,
expressly or impliedly, by a party who may be prejudiced thereby.

Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the need
to protect the interest of all stakeholders concerned.

Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The

rehabilitation receiver shall be deemed an officer of the court with the principal duty of preserving
and maximizing the value of the assets of the debtor during the rehabilitation proceedings,
determining the viability of the rehabilitation of the debtor, preparing and recommending a
Rehabilitation Plan to the court, and implementing the approved Rehabilitation Plan, To this end,
and without limiting the generality of the foregoing, the rehabilitation receiver shall have the
following powers, duties and responsibilities:

(a)To verify the accuracy of the factual allegations in the petition and its annexes;

(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor, and
their valuation;

(c)To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;

(d)To evaluate the validity, genuineness and true amount of all the claims against the
debtor;

(e)To take possession, custody and control, and to preserve the value of all the property of
the debtor;

(f)To sue and recover, with the approval of the court, all amounts owed to, and all
properties pertaining to the debtor;

(g)To have access to all information necessary, proper or relevant to the operations and
business of the debtor and for its rehabilitation;

(h) To sue and recover, with the. approval of the court, all property or money of the debtor
paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute
undue preference of creditor/s;
 (i) To monitor the operations and the business of the debtor to ensure that no payments or
transfers of property are made other than in the ordinary course of business;

(j) With the court's approval, to engage the services of or to employ persons or entities to
assist him in the discharge of his functions;

(k) To determine the manner by which the debtor may be best rehabilitated, to review)
revise and/or recommend action on the Rehabilitation Plan and submit the same or a new
one to the court for approval;

(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided under
the Rehabilitation Plan;

(m) To assume and exercise the powers of management of the debtor, if directed by the
court pursuant to Section 36 hereof;

(n) To exercise such other powers as may, from time to time, be conferred upon him by the
court; and

To submit a status report on the rehabilitation proceedings every quarter or as may be

required by the court motu proprio. or upon motion of any creditor. or as may be provided,
in the Rehabilitation Plan.

Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver
shall not take over the management and control of the debtor but may recommend the
appointment of a management committee over the debtor in the cases provided by this Act.

Section 32.Removal of the Rehabilitation Receiver. – The rehabilitation receiver may be removed
at any time by the court either motu proprio or upon motion by any creditor/s holding more than
fifty percent (50%) of the total obligations of the debtor, on such grounds as the rules of procedure
may provide which shall include, but are not limited to, the following:

(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper
degree of care in the performance of his duties and powers;

(b) Lack of a particular or specialized competency required by the specific case;

(c) Illegal acts or conduct in the performance of his duties and powers;

(d) Lack of qualification or presence of any disqualification;

(e) Conflict of interest that arises after his appointment; and

(f) Manifest lack of independence that is detrimental to the general body of the
stakeholders.
Section 33.Compensation and Terms of Service. The rehabilitation receiver and his direct
employees or independent contractors shall be entitled to compensation for reasonable fees and
expenses from the debtor according to the terms approved by the court after notice and hearing.
Prior to such hearing, the rehabilitation receiver and his direct employees shall be entitled to
reasonable compensation based on quantum meruit. Such costs shall be considered administrative
expenses.

Section 34.Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his powers,
duties and responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such
amount to be fixed by the court, conditioned upon the faithful and proper discharge of his powers,
duties and responsibilities.

Section 37.Role of the Management Committee. – When appointed pursuant to the foregoing
section, the management committee shall take the place of the management and the governing
body of the debtor and assume their rights and responsibilities.

The specific powers and duties of the management committee, whose members shall be
considered as officers of the court, shall be prescribed by the procedural rules.

Section 40.Conflict of Interest. - No person may be appointed as a rehabilitation receiver, member

of a_ management committee, or be employed by the rehabilitation receiver or the management
committee if he has a conflict of interest.

An individual shall be deemed to have a conflict of interest if he is so situated as to be materially

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

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

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

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

(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the
outstanding securities of the debtor;

(e) he is related by consanguinity or affinity within the fourth civil degree to any individual
creditor, owners of a sale proprietorship-debtor, partners of a partnership- debtor or to any
stockholder, director, officer, employee or underwriter of a corporation-debtor; or

(f) he has any other direct or indirect material interest in the debtor or any of the creditors.
Any rehabilitation receiver, member of the management committee or persons employed or
contracted by them possessing any conflict of interest shall make the appropriate disclosure either
to the court or to the creditors in case of out-of-court rehabilitation proceedings. Any party to the
proceeding adversely affected by the appointment of any person with a conflict of interest to any
of the positions enumerated above may however waive his right to object to such appointment
and, if the waiver is unreasonably withheld, the court may disregard the conflict of interest, taking
into account the general interest of the stakeholders.

Section 41.Immunity. - The rehabilitation receiver and all persons employed by him, and the
members of the management committee and all persons employed by it, shall not be subject to
any action. claim or demand in connection with any act done or omitted to be done by them in
good faith in connection with the exercise of their powers and functions under this Act or other
actions duly approved by the court.1awp++il

Section 42.Creditors' Committee. - After the creditors' meeting called pursuant to Section 63
hereof, the creditors belonging to a class may formally organize a committee among

themselves. In addition, the creditors may, as a body, agree to form a creditors' committee
composed of a representative from each class of creditors, such as the following:

(a) Secured creditors;

(b) Unsecured creditors;

(c) Trade creditors and suppliers; and

(d) Employees of the debtor.

In the . election of the creditors' representatives, the rehabilitation receiver or his representative
shall attend such meeting and extend the appropriate assistance as may be defined in the
procedural rules.

Section 43.Role of Creditors' Committee. - The creditors' committee when constituted pursuant
to Section 42 of this Act shall assist the rehabilitation receiver in communicating with the
creditors and shall be the primary liaison between the rehabilitation receiver and the creditors.
The creditors' committee cannot exercise or waive any right or give any consent on behalf of any
creditor unless specifically authorized in writing by such creditor. The creditors' committee may
be authorized by the court or by the rehabilitation receiver to perform such other tasks and
functions as may be defined by the procedural rules in order to facilitate the rehabilitation process.

(D) Determination of Claims.

Section 44.Registry of Claims. - Within twenty (20) days from his assumption into office, the
rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation receiver
shall make the registry available for public inspection and provide
publication notice to the debtor, creditors and stakeholders on where and when they may inspect
it. All claims included in the registry of claims must be duly supported by sufficient evidence.

Section 45.Opposition or Challenge of Claims. – Within thirty (30) days from the expiration of
the period stated in the immediately preceding section, the debtor, creditors, stakeholders and
other interested parties may submit a challenge to claim/s to the court, serving a certified copy on
the rehabilitation receiver and the creditor holding the challenged claim/so Upon the expiration
of the thirty (30)-day period, the rehabilitation receiver shall submit to the court the registry of
claims which shall include undisputed claims that have not been subject to challenge.

Section 46.Appeal. - Any decision of the rehabilitation receiver regarding a claim may be
appealed to the court.

Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan shall, as a minimum:

(a) specify the underlying assumptions, the financial goals and the procedures proposed
to accomplish such goals;

(b) compare the amounts expected to be received by the creditors under the
Rehabilitation Plan with those that they will receive if liquidation ensues within the next
one hundred twenty (120) days;

(c) contain information sufficient to give the various classes of creditors a reasonable
basis for determining whether supporting the Plan is in their financial interest when
compared to the immediate liquidation of the debtor, including any reduction of principal
interest and penalties payable to the creditors;

(d) establish classes of voting creditors;

(e) establish subclasses of voting creditors if prior approval has been granted by the court;

(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to,
debt forgiveness, debt rescheduling, reorganization or quasi-reorganization. dacion en
pago, debt-equity conversion and sale of the business (or parts of it) as a going concern,
or setting-up of a new business entity or other similar arrangements as may be necessary
to restore the financial well-being and visibility of the insolvent debtor;

(g) specify the treatment of each class or subclass described in subsections (d) and (e);

(h) provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment;

(i) ensure that the payments made under the plan follow the priority established under the
provisions of the Civil Code on concurrence and preference of credits and other
applicable laws;
(j) maintain the security interest of secured creditors and preserve the liquidation value of
the security unless such has been waived or modified voluntarily;

(k) disclose all payments to creditors for pre-commencement debts made during the
proceedings and the justifications thereof;

(1) describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;

(m) identify the debtor's role in the implementation of the Plan;

(n) state any rehabilitation covenants of the debtor, the breach of which shall be
considered a material breach of the Plan;

(o) identify those responsible for the future management of the debtor and the supervision
and implementation of the Plan, their affiliation with the debtor and their remuneration;

(p) address the treatment of claims arising after the confirmation of the Rehabilitation
Plan;

(q) require the debtor and its counter-parties to adhere to the terms of all contracts that the
debtor has chosen to confirm;

(r) arrange for the payment of all outstanding administrative expenses as a condition to
the Plan's approval unless such condition has been waived in writing by the creditors
concerned;

(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted
amount pursuant to a compromise settlement with the BlR Or other applicable tax
authorities;

(t) include a certified copy of a certificate of tax clearance or evidence of a compromise

settlement with the BIR;

(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders to
increase the shares by the required amount in cases where the Plan contemplates an
additional issuance of shares by the debtor;

(v) state the compensation and status, if any, of the rehabilitation receiver after the
approval of the Plan; and

(w) contain provisions for conciliation and/or mediation as a prerequisite to court

assistance or intervention in the event of any disagreement in the interpretation or
implementation of the Rehabilitation Plan.
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the
Rehabilitation Plan by the court shall result in the following:

(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all
persons who may be affected by . it, including the creditors, whether or not such persons
have participated in the proceedings or opposed the Rehabilitation Plan or whether or not
their claims have been scheduled;

(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take
all actions necessary to carry out the Plan;

(c) Payments shall be made to the creditors in accordance with the provisions of the
Rehabilitation Plan;

(d) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan;

(e) Any compromises on amounts or rescheduling of timing of payments by the debtor

shall be binding on creditors regardless of whether or not the Plan is successfully
implement; and

(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are
not subject to any Suspension Order.

The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided,
however, That the court may maintain jurisdiction over the case in order to resolve claims
against the debtor that remain contested and allegations that the debtor has breached the Plan.

CHAPTER III
PRE-NEGOTIATED REHABILITATION

Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors,
may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan
which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total
liabilities of the debtor, including secured creditors holding more than fifty percent (50%) of the
total secured claims of the debtor and unsecured creditors holding more than fifty percent (50%)
of the total unsecured claims of the debtor. The petition shall include as a minimum:

(a) a schedule of the debtor's debts and liabilities;

(b) an inventory of the debtor's assets;

(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified
nominees for rehabilitation receiver; and
 (d) a summary of disputed claims against the debtor and a report on the provisioning of
funds to account for appropriate payments should any such claims be ruled valid or their
amounts adjusted.

CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS

Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An

out-of-curt or informal restructuring agreement or Rehabilitation Plan that meets the minimum
requirements prescribed in this chapter is hereby recognized as consistent with the objectives of
this Act.

Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and

Rehabilitation Plans. - For an out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan to qualify under this chapter, it must meet the following minimum
requirements:

(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement
or Rehabilitation Plan;

(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured
obligations of the debtor;

(c) It must be approved by creditors representing at least seventy-five percent (75%) of the
unsecured obligations of the debtor; and

(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total
liabilities, secured and unsecured, of the debtor.

Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending
negotiation and finalization of the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan contemplated herein shall be effective and enforceable not only against the
contracting parties but also against the other creditors: Provided, That (a) such agreement is
approved by creditors representing more than fifty percent (50%) of the total liabilities of the
debtor; (b) notice thereof is publishing in a newspaper of general circulation in the Philippines
once a week for two (2) consecutive weeks; and (c) the standstill period does not exceed one
hundred twenty (120) days from the date of effectivity. The notice must invite creditors to
participate in the negotiation for out-of-court rehabilitation or restructuring agreement and notify
them that said agreement will be binding on all creditors if the required majority votes prescribed
in Section 84 of this Act are met.

Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that
is approved pursuant to an informal workout framework referred to in this chapter shall have the
same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the
Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at least
three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The
Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days
from the date of the last publication of the notice thereof.

CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS

Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a
petition for liquidation with the court. The petition shall be verified, shall establish the insolvency
of the debtor and shall contain, whether as an attachment or as part of the body of the petition;

(a) a schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;

(b) an inventory of all its assets including receivables and claims against third parties; and

(c) the names of at least three (3) nominees to the position of liquidator.

At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings,

the debtor may also initiate liquidation proceedings by filing a motion in the same court where
the rehabilitation proceedings are pending to convert the rehabilitation proceedings into
liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters
required in the preceding paragraph, and state that the debtor is seeking immediate dissolution
and termination of its corporate existence.

If the petition or the motion, as the case may be, is sufficient in form and substance, the court
shall issue a Liquidation Order mentioned in Section 112 hereof.

Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims
is at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of
the subscribed capital stock or partner's contributions of the debtor, whichever is higher, may
apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the
debtor with the court. The petition shall show that:

(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the
due and demandable payments thereon have not been made for at least one hundred eighty
(180) days or that the debtor has failed generally to meet its liabilities as they fall due; and

(b) there is no substantial likelihood that the debtor may be rehabilitated.

At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated

rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million
pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or
partner's contributions of the debtor, whichever is higher, may also initiate liquidation
proceedings by filing a motion in the same court where the rehabilitation proceedings are pending
to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be
verified, shall contain or set forth the same matters required in the preceding paragraph, and state
that the movants are seeking the immediate liquidation of the debtor.

If the petition or motion is sufficient in form and substance, the court shall issue an Order:

(1) directing the publication of the petition or motion in a newspaper of general circulation
once a week for two (2) consecutive weeks; and

(2) directing the debtor and all creditors who are not the petitioners to file their comment
on the petition or motion within fifteen (15) days from the date of last publication.

If, after considering the comments filed, the court determines that the petition or motion is
meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.

Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of
court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion
of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act;
or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any
other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the
debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section
112 hereof.

Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this
chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree
No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and
heard before it.

CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS

(A) Suspension of Payments.

Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his
debts but foreseeing the impossibility of meeting them when they respectively fall due, may file
a verified petition that he be declared in the state of suspension of payments by the court of the
province or city in which he has resides for six (6) months prior to the filing of his petition. He
shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory
of assess; and (c) a proposed agreement with his creditors.

Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue
an order suspending any pending execution against the individual debtor. Provide, That properties
held as security by secured creditors shall not be the subject of such suspension order. The
suspension order shall lapse when three (3) months shall have passed without the proposed
agreement being accepted by the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time
of the filing of the petition for suspension of payments and for as long as proceedings remain
pending except:

(a) those creditors having claims for personal labor, maintenance, expense of last illness
and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately
prior to the filing of the petition; and

(b) secured creditors.

Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least
three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner
appointed by the court shall preside over the meeting and the clerk of court shall act as the
secretary thereof, subject to the following rules:

(a) The clerk shall record the creditors present and amount of their respective claims;

(b) The commissioner shall examine the written evidence of the claims. If the creditors
present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the
commissioner shall declare the meeting open for business;

(c) The creditors and individual debtor shall discuss the propositions in the proposed
agreement and put them to a vote;

(d) To form a majority, it is necessary:

(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and

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

(e) After the result of the voting has been announced, all protests made against the majority
vote shall be drawn up, and the commissioner and the individual debtor together with all
creditors taking part in the voting shall sign the affirmed propositions.

No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall
be entitled to vote.

Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the
Suspension Order may refrain from attending the meeting and from voting therein. Such persons
shall not be bound by any agreement determined upon at such meeting, but if they should join in
the voting they shall be bound in the same manner as are the other creditors.

Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the
creditors to approve the proposed agreement or any amendment thereof made during the creditors'
meeting is uphold by the court, or when no opposition or objection to said decision has been
presented, the court shall order that the agreement be carried out and all parties bound thereby to
comply with its terms.

The court may also issue all orders which may be necessary or proper to enforce the agreement
on motion of any affected party. The Order confirming the approval of the proposed agreement
or any amendment thereof made during the creditors' meeting shall be binding upon all creditors
whose claims are included in the schedule of debts and liabilities submitted by the individual
debtor and who were properly summoned, but not upon: (a) those creditors having claims for
personal labor, maintenance, expenses of last illness and funeral of the wife or children of the
debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and (b)
secured creditors who failed to attend the meeting or refrained from voting therein.

(B) Voluntary Liquidation.

Section 103. Application. - An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply
to be discharged from his debts and liabilities by filing a verified petition with the court of the
province or city in which he has resided for six (6) months prior to the filing of such petition. He
shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing
of such petition shall be an act of insolvency.

(C) In voluntary Liquidation.

Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or
with claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified
petition for liquidation with the court of the province or city in which the individual debtor
resides.

The following shall be considered acts of insolvency, and the petition for liquidation shall set
forth or allege at least one of such acts:

(a) That such person is about to depart or has departed from the Republic of the Philippines,
with intent to defraud his creditors;

(b) That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;

(c) That he conceals himself to avoid the service of legal process for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;

(d) That he conceals, or is removing, any of his property to avoid its being attached or taken
on legal process;

(e) That he has suffered his property to remain under attachment or legal process for three
(3) days for the purpose of hindering or delaying the liquidation or of defrauding his
creditors;
 (f) That he has confessed or offered to allow judgment in favor of any creditor or claimant
for the purpose of hindering or delaying the liquidation or of defrauding any creditors or
claimant;

(g) That he has willfully suffered judgment to be taken against him by default for the
purpose of hindering or delaying the liquidation or of defrauding his creditors;

(h) That he has suffered or procured his property to be taken on legal process with intent
to give a preference to one or more of his creditors and thereby hinder or delay the
liquidation or defraud any one of his creditors;

(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate,
property, rights or credits with intent to hinder or delay the liquidation or defraud his
creditors;

(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;

(k) That being a merchant or tradesman, he has generally defaulted in the payment of his
current obligations for a period of thirty (30) days;

(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys
deposited with him or received by him in a fiduciary; and

(m) That an execution having been issued against him on final judgment for money, he
shall have been found to be without sufficient property subject to execution to satisfy the
judgment.

The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if
the petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the
debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs, expenses,
damages occasioned by the proceedings and attorney's fees.

CHAPTER-VII

PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND

JURIDICAL DEBTORS

Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall include
both individual debtor as defined in Section 4(o) and debtor as defined in Section 4(k) of this Act.

(A) The Liquidation Order.

Section 112. Liquidation Order. - The Liquidation Order shall:

 (a) declare the debtor insolvent;

(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as
dissolved;

(c) order the sheriff to take possession and control of all the property of the debtor, except
those that may be exempt from execution;

(d) order the publication of the petition or motion in a newspaper of general circulation
once a week for two (2) consecutive weeks;

(e) direct payments of any claims and conveyance of any property due the debtor to the
liquidator;

(f) prohibit payments by the debtor and the transfer of any property by the debtor;

(g) direct all creditors to file their claims with the liquidator within the period set by the
rules of procedure;

(h) authorize the payment of administrative expenses as they become due;

(i) state that the debtor and creditors who are not petitioner/s may submit the names of
other nominees to the position of liquidator; and

(j) set the case for hearing for the election and appointment of the liquidator, which date
shall not be less than thirty (30) days nor more than forty-five (45) days from the date of
the last publication.

Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:

(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence
terminated;

(b) legal title to and control of all the assets of the debtor, except those that may be exempt
from execution, shall be deemed vested in the liquidator or, pending his election or
appointment, with the court;

(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the
liquidator, within ninety (90) days from the date of his assumption of office, declares
otherwise and the contracting party agrees;

(d) no separate action for the collection of an unsecured claim shall be allowed. Such
actions already pending will be transferred to the Liquidator for him to accept and settle or
contest. If the liquidator contests or disputes the claim, the court shall allow, hear and
resolve such contest except when the case is already on appeal. In such a case, the suit may
 proceed to judgment, and any final and executor judgment therein for a claim against the
debtor shall be filed and allowed in court; and

(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180)
days.

Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a
secured creditor to enforce his lien in accordance with the applicable contract or law. A secured
creditor may:

(a) waive his right under the security or lien, prove his claim in the liquidation proceedings
and share in the distribution of the assets of the debtor; or

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

If the secured creditor maintains his rights under the security or lien:

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

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

(3) the secure creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.

(B) The Liquidator.

Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period
set by the court, and whose claims are not barred by the statute of limitations, will be allowed to
vote in the election of the liquidator. A secured creditor will not be allowed to vote, unless: (a)
he waives his security or lien; or (b) has the value of the property subject of his security or lien
fixed by agreement with the liquidator, and is admitted for the balance of his claim.

The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the
highest number of votes cast in terms of amount of claims, ad who is qualified pursuant to Section
118 hereof, shall be appointed as the liquidator.

Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:

(a) on the date set for the election of the liquidator, the creditors do not attend;
 (b) the creditors who attend, fail or refuse to elect a liquidator;

(c) after being elected, the liquidator fails to qualify; or

(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the
court may instead set another hearing of the election of the liquidator.

Provided further, That nothing in this section shall be construed to prevent a rehabilitation
receiver, who was administering the debtor prior to the commencement of the liquidation, from
being appointed as a liquidator.

Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers, duties and
responsibilities, the liquidator shall take an oath and file a bond, In such amount to be fixed by
the court, conditioned upon the proper and faithful discharge of his powers, duties and
responsibilities.

Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications
enumerated in Section 29 hereof. He may be removed at any time by the court for cause,
either motu propio or upon motion of any creditor entitled to vote for the election of the liquidator.

Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be
deemed an officer of the court with the principal duly of preserving and maximizing the value
and recovering the assets of the debtor, with the end of liquidating them and discharging to the
extent possible all the claims against the debtor. The powers, duties and responsibilities of the
liquidator shall include, but not limited to:

(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;

(b) to take possession of all the property of the debtor except property exempt by law from
execution;

(c) to sell, with the approval of the court, any property of the debtor which has come into
his possession or control;

(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an
encumbrance on any property sold by him;

(e) to settle all accounts between the debtor and his creditors, subject to the approval of the
court;

(f) to recover any property or its value, fraudulently conveyed by the debtor;

(g) to recommend to the court the creation of a creditors' committee which will assist him
in the discharge of the functions and which shall have powers as the court deems just,
reasonable and necessary; and
 (h) upon approval of the court, to engage such professional as may be necessary and
reasonable to assist him in the discharge of his duties.

In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right
and duty to take all reasonable steps to manage and dispose of the debtor's assets with a view
towards maximizing the proceedings therefrom, to pay creditors and stockholders, and to
terminate the debtor's legal existence. Other duties of the liquidator in accordance with this
section may be established by procedural rules.

A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation

receiver.

(C) Determination of Claims

Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the
liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors.
Secured creditors who have waived their security or lien, or have fixed the value of the property
subject of their security or lien by agreement with the liquidator and is admitted as a creditor for
the balance , shall be considered as unsecured creditors. The liquidator shall make the registry
available for public inspection and provide publication notice to creditors, individual debtors
owner/s of the sole proprietorship-debtor, the partners of the partnership-debtor and shareholders
or members of the corporation-debtor, on where and when they may inspect it. All claims must
be duly proven before being paid.

Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each
other one debt shall be set off against the other, and only the balance, if any shall be allowed in
the liquidation proceedings.

Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration
of the period for filing of applications for recognition of claims, creditors, individual debtors,
owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and shareholders or
members of the corporation -debtor and other interested parties may submit a challenge to claim
or claims to the court, serving a certified copy on the liquidator and the creditor holding the
challenged claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall
submit to the court the registry of claims containing the undisputed claims that have not been
subject to challenge. Such claims shall become final upon the filling of the register and may be
subsequently set aside only on grounds or fraud, accident, mistake or inexcusable neglect.

Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims
and submit his findings thereon to the court for final approval. The liquidator may disallow
claims.