1

Republic of the Philippines (2) arising from, or in connection with, the

CONGRESS OF THE PHILIPPINES conduct of the proceedings under this Act,
Metro Manila including those incurred for the
rehabilitation or liquidation of the debtor;
Fourteenth Congress
Third Regular Session (3) incurred in the ordinary course of
business of the debtor after the
commencement date;

Begun and held in Metro Manila, on Monday, the twenty- (4) for the payment of new obligations
seventh day of July, two thousand nine. obtained after the commencement date to
finance the rehabilitation of the debtor;
REPUBLIC ACT No. 10142
(5) incurred for the fees of the
rehabilitation receiver or liquidator and of
AN ACT PROVIDING FOR THE REHABILITATION OR the professionals engaged by them; and
LIQUIDATION OF FINANCIALLY DISTRESSED ENTERPRISES
AND INDIVIDUALS
(6) that are otherwise authorized or
mandated under this Act or such other
Be it enacted by the Senate and House of Representatives expenses as may be allowed by the
of the Philippines in Congress assembled: Supreme Court in its rules.

CHAPTER I (b) Affiliate shall refer to a corporation that

GENERAL PROVISIONS directly or indirectly, through one or more
intermediaries, is controlled by, or is under the
Section 1. Title. - This Act shall be known as the "Financial common control of another corporation.
Rehabilitation and Insolvency Act (FRIA) of 2010".
(c) Claim shall refer to all claims or demands of
Section 2. Declaration of Policy. - It is the policy of the State whatever nature or character against the debtor or
to encourage debtors, both juridical and natural persons, its property, whether for money or otherwise,
and their creditors to collectively and realistically resolve liquidated or unliquidated, fixed or contingent,
and adjust competing claims and property rights. In matured or unmatured, disputed or undisputed,
furtherance thereof, the State shall ensure a timely, fair, including, but not limited to; (1) all claims of the
transparent, effective and efficient rehabilitation or government, whether national or local, including
liquidation of debtors. The rehabilitation or liquidation shall taxes, tariffs and customs duties; and (2) claims
be made with a view to ensure or maintain certainly and against directors and officers of the debtor arising
predictability in commercial affairs, preserve and maximize from acts done in the discharge of their functions
the value of the assets of these debtors, recognize creditor falling within the scope of their authority:
rights and respect priority of claims, and ensure equitable Provided, That, this inclusion does not prohibit the
treatment of creditors who are similarly situated. When creditors or third parties from filing cases against
rehabilitation is not feasible, it is in the interest of the State the directors and officers acting in their personal
to facilities a speedy and orderly liquidation of these capacities.
debtor's assets and the settlement of their obligations.
(d) Commencement date shall refer to the date on
Section 3. Nature of Proceedings. - The proceedings under which the court issues the Commencement Order,
this Act shall be in rem. Jurisdiction over all persons affected which shall be retroactive to the date of filing of
by the proceedings shall be considered as acquired upon the petition for voluntary or involuntary
publication of the notice of the commencement of the proceedings.
proceedings in any newspaper of general circulation in the
Philippines in the manner prescribed by the rules of (e) Commencement Order shall refer to the order
procedure to be promulgated by the Supreme Court. issued by the court under Section 16 of this Act.

The proceedings shall be conducted in a summary and non- (f) Control shall refer to the power of a parent
adversarial manner consistent with the declared policies of corporation to direct or govern the financial and
this Act and in accordance with the rules of procedure that operating policies of an enterprise so as to obtain
the Supreme Court may promulgate. benefits from its activities. Control is presumed to
exist when the parent owns, directly or indirectly
Section 4. Definition of Terms. - As used in this Act, the through subsidiaries or affiliates, more than one-
term: half (1/2) of the voting power of an enterprise
unless, in exceptional circumstances, it can clearly
(a) Administrative expenses shall refer to those be demonstrated that such ownership does not
reasonable and necessary expenses: 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) incurred or arising from the filing of a
petition under the provisions of this Act;
(1) over more than one-half (1/2) of the
voting rights by virtue of an agreement
with investors;
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(2) to direct or govern the financial and acquired by the rehabilitation receiver or liquidator
operating policies of the enterprise under after that date, as well as all other property and
a statute or an agreement; assets in which the debtor has an ownership
interest, whether or not these property and assets
(3) to appoint or remove the majority of are in the debtor's possession as of commencement
the members of the board of directors or date: Provided, That trust assets and bailment, and
equivalent governing body; or other property and assets of a third party that are
in the possession of the debtor as of
commencement date, are excluded therefrom.
(4) to cast the majority votes at meetings
of the board of directors or equivalent
governing body. (r) Involuntary proceedings shall refer to
proceedings initiated by creditors.
(g) Court shall refer to the court designated by the
Supreme Court to hear and determine, at the first (s) Liabilities shall refer to monetary claims against
instance, the cases brought under this Act. the debtor, including stockholder's advances that
have been recorded in the debtor's audited
financial statements as advances for future
(h) Creditor shall refer to a natural or juridical subscriptions.
person which has a claim against the debtor that
arose on or before the commencement date.
(t) Lien shall refer to a statutory or contractual
claim or judicial charge on real or personal property
(i) Date of liquidation shall refer to the date on that legality entities a creditor to resort to said
which the court issues the Liquidation Order. property for payment of the claim or debt secured
by such lien.
(j) Days shall refer to calendar days unless
otherwise specifically stated in this Act. (u) Liquidation shall refer to the proceedings under
Chapter V of this Act.
(k) Debtor shall refer to, unless specifically
excluded by a provision of this Act, a sole (v) Liquidation Order shall refer to the Order issued
proprietorship duly registered with the Department by the court under Section 112 of this Act.
of Trade and Industry (DTI), a partnership duly
registered with the Securities and Exchange
Commission (SEC), a corporation duly organized and (w) Liquidator shall refer to the natural person or
existing under Philippine laws, or an individual juridical entity appointed as such by the court and
debtor who has become insolvent as defined herein. 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
(l) Encumbered property shall refer to real or who possesses all the qualifications and none of the
personal property of the debtor upon which a lien disqualifications as its representative, it being
attaches. understood that the juridical entity and the
representative are solidarity liable for all
(m) General unsecured creditor shall refer to a obligations and responsibilities of the liquidator.
creditor whose claim or a portion thereof its neither
secured, preferred nor subordinated under this Act. (x) Officer shall refer to a natural person holding a
management position described in or contemplated
(n) Group of debtors shall refer to and can cover by a juridical entity's articles of incorporation,
only: (1) corporations that are financially related to bylaws or equivalent documents, except for the
one another as parent corporations, subsidiaries or corporate secretary, the assistant corporate
affiliates; (2) partnerships that are owned more secretary and the external auditor.
than fifty percent (50%) by the same person; and
(3) single proprietorships that are owned by the (y) Ordinary course of business shall refer to
same person. When the petition covers a group of transactions in the pursuit of the individual debtor's
debtors, all reference under these rules to debtor or debtor's business operations prior to
shall include and apply to the group of debtors. rehabilitation or insolvency proceedings and on
ordinary business terms.
(o) Individual debtor shall refer to a natural person
who is a resident and citizen of the Philippines that (z) Ownership interest shall refer to the ownership
has become insolvent as defined herein. interest of third parties in property held by the
debtor, including those covered by trust receipts or
(p) Insolvent shall refer to the financial condition assignments of receivables.
of a debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of (aa) Parent shall refer to a corporation which has
business or has liabilities that are greater than its control over another corporation either directly or
or his assets. indirectly through one or more intermediaries.

(q) Insolvent debtor's estate shall refer to the (bb) Party to the proceedings shall refer to the
estate of the insolvent debtor, which includes all debtor, a creditor, the unsecured creditors'
the property and assets of the debtor as of committee, a stakeholder, a party with an
commencement date, plus the property and assets
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ownership interest in property held by the debtor, (nn) Stakeholder shall refer, in addition to a holder
a secured creditor, the rehabilitation receiver, of shares of a corporation, to a member of a
liquidator or any other juridical or natural person nonstock corporation or association or a partner in
who stands to be benefited or injured by the a partnership.
outcome of the proceedings and whose notice of
appearance is accepted by the court. (oo) Subsidiary shall refer to a corporation more
than fifty percent (50%) of the voting stock of which
(cc) Possessory lien shall refer to a lien on property, is owned or controlled directly or indirectly through
the possession of which has been transferred to a one or more intermediaries by another corporation,
creditor or a representative or agent thereof. which thereby becomes its parent corporation.

(dd) Proceedings shall refer to judicial proceedings (pp) Unsecured claim shall refer to a claim that is
commenced by the court's acceptance of a petition not secured by a lien.
filed under this Act.
(qq) Unsecured creditor shall refer to a creditor
(ee) Property of others shall refer to property held with an unsecured claim.
by the debtor in which other persons have an
ownership interest. (rr) Voluntary proceedings shall refer to
proceedings initiated by the debtor.
(ff) Publication notice shall refer to notice through
publication in a newspaper of general circulation in (ss) Voting creditor shall refer to a creditor that is
the Philippines on a business day for two (2) a member of a class of creditors, the consent of
consecutive weeks. which is necessary for the approval of a
Rehabilitation Plan under this Act.
(gg) Rehabilitation shall refer to the restoration of
the debtor to a condition of successful operation Section 5. Exclusions. - The term debtor does not include
and solvency, if it is shown that its continuance of banks, insurance companies, pre-need companies, and
operation is economically feasible and its creditors national and local government agencies or units.
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 For purposes of this section:
immediately liquidated.
(a) Bank shall refer to any duly licensed bank or
(hh) Rehabilitation receiver shall refer to the quasi-bank that is potentially or actually subject to
person or persons, natural or juridical, appointed conservatorship, receivership or liquidation
as such by the court pursuant to this Act and which proceedings under the New Central Bank Act
shall be entrusted with such powers and duties as (Republic Act No. 7653) or successor legislation;
set forth herein.
(b) Insurance company shall refer to those
(ii) Rehabilitation Plan shall refer to a plan by companies that are potentially or actually subject
which the financial well-being and viability of an to insolvency proceedings under the Insurance Code
insolvent debtor can be restored using various (Presidential Decree No. 1460) or successor
means including, but not limited to, debt legislation; and
forgiveness, debt rescheduling, reorganization or
quasi-reorganization, dacion en pago, debt-equity (c) Pre-need company shall refer to any corporation
conversion and sale of the business (or parts of it) authorized/licensed to sell or offer to sell pre-need
as a going concern, or setting-up of new business plans.
entity as prescribed in Section 62 hereof, or other
similar arrangements as may be approved by the Provided, That government financial institutions other than
court or creditors. banks and government-owned or controlled corporations
shall be covered by this Act, unless their specific charter
(jj) Secured claim shall refer to a claim that is provides otherwise.
secured by a lien.
Section 6. Designation of Courts and Promulgation of
(kk) Secured creditor shall refer to a creditor with Procedural Rules. - The Supreme Court shall designate the
a secured claim. court or courts that will hear and resolve cases brought
under this Act and shall promulgate the rules of pleading,
(ll) Secured party shall refer to a secured creditor practice and procedure to govern the proceedings brought
or the agent or representative of such secured under this Act.
creditor.
Section 7. Substantive and Procedural Consolidation. - Each
(mm) Securities market participant shall refer to a juridical entity shall be considered as a separate entity
broker dealer, underwriter, transfer agent or other under the proceedings in this Act. Under these proceedings,
juridical persons transacting securities in the the assets and liabilities of a debtor may not be commingled
capital market. 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
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the debtor with those of a related enterprise may only be officer over the debtor, and the extent of the involvement
allowed where: of such partner, director or debtor in the actual
management of the operations of the debtor.
(a) there was commingling in fact of assets and
liabilities of the debtor and the related enterprise Section 11. Authorization to Exchange Debt for Equity. -
prior to the commencement of the proceedings; Notwithstanding applicable banking legislation to the
contrary, any bank, whether universal or not, may acquire
(b) the debtor and the related enterprise have and hold an equity interest or investment in a debtor or its
common creditors and it will be more convenient to subsidiaries when conveyed to such bank in satisfaction of
treat them together rather than separately; debts pursuant to a Rehabilitation or Liquidation Plan
approved by the court: Provided, That such ownership shall
be subject to the ownership limits applicable to universal
(c) the related enterprise voluntarily accedes to banks for equity investments and: Provided, further, That
join the debtor as party petitioner and to any equity investment or interest acquired or held pursuant
commingle its assets and liabilities with the to this section shall be disposed by the bank within a period
debtor's; and of five (5) years or as may be prescribed by the Monetary
Board.
(d) The consolidation of assets and liabilities of the
debtor and the related enterprise is beneficial to CHAPTER II
all concerned and promotes the objectives of COURT-SUPERVISED REHABILITATION
rehabilitation.
(A) Initiation Proceedings.
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 (1) Voluntary Proceedings.
be promulgated by the Supreme Court.
Section 12. Petition to Initiate Voluntary Proceedings by
Section 8. Decisions of Creditors. - Decisions of creditors Debtor. - When approved by the owner in case of a sole
shall be made according to the relevant provisions of the proprietorship, or by a majority of the partners in case of a
Corporation Code in the case of stock or nonstock partnership, or in case of a corporation, by a majority vote
corporations or the Civil Code in the case of partnerships of the board of directors or trustees and authorized by the
that are not inconsistent with this Act. 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
Section 9. Creditors Representatives. - Creditors may members, in a stockholder's or member's meeting duly called
designate representatives to vote or otherwise act on their for the purpose, an insolvent debtor may initiate voluntary
behalf by filing notice of such representation with the court proceedings under this Act by filing a petition for
and serving a copy on the rehabilitation receiver or rehabilitation with the court and on the grounds hereinafter
liquidator. specifically provided. The petition shall be verified to
establish the insolvency of the debtor and the viability of its
Section 10. Liability of Individual Debtor, Owner of a Sole rehabilitation, and include, whether as an attachment or as
Proprietorship, Partners in a Partnership, or Directors and part of the body of the petition, as a minimum the following:
Officers. - Individual debtor, owner of a sole proprietorship,
partners in a partnership, or directors and officers of a (a) Identification of the debtor, its principal
debtor shall be liable for double the value of the property activities and its addresses;
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 (b) Statement of the fact of and the cause of the
notice of the commencement of the proceedings, or having debtor's insolvency or inability to pay its obligations
reason to believe that proceedings are about to be as they become due;
commenced, or in contemplation of the proceedings,
willfully commit the following acts: (c) The specific relief sought pursuant to this Act;

(a) Dispose or cause to be disposed of any property (d) The grounds upon which the petition is based;
of the debtor other than in the ordinary course of
business or authorize or approve any transaction in (e) Other information that may be required under
fraud of creditors or in a manner grossly this Act depending on the form of relief requested;
disadvantageous to the debtor and/or creditors; or
(f) Schedule of the debtor's debts and liabilities
(b) Conceal or authorize or approve the including a list of creditors with their addresses,
concealment, from the creditors, or embezzles or amounts of claims and collaterals, or securities, if
misappropriates, any property of the debtor. any;

The court shall determine the extent of the liability of an (g) An inventory of all its assets including
owner, partner, director or officer under this section. In this receivables and claims against third parties;
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 (h) A Rehabilitation Plan;
officer, the degree of control of such partner, director or
 5

(i) The names of at least three (3) nominees to the (g) other documents required to be filed with the
position of rehabilitation receiver; and petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme
(j) Other documents required to be filed with the Court.
petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme (B) Action on the Petition and Commencement of
Court. Proceedings.

A group of debtors may jointly file a petition for Section 15. Action on the Petition. - If the court finds the
rehabilitation under this Act when one or more of its petition for rehabilitation to be sufficient in form and
members foresee the impossibility of meeting debts when substance, it shall, within five (5) working days from the
they respectively fall due, and the financial distress would filing of the petition, issue a Commencement Order. If,
likely adversely affect the financial condition and/or within the same period, the court finds the petition deficient
operations of the other members of the group and/or the in form or substance, the court may, in its discretion, give
participation of the other members of the group is essential the petitioner/s a reasonable period of time within which to
under the terms and conditions of the proposed amend or supplement the petition, or to submit such
Rehabilitation Plan. documents as may be necessary or proper to put the petition
in proper order. In such case, the five (5) working days
(2) Involuntary Proceedings. 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
Section 13. Circumstances Necessary to Initiate Involuntary documents.
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 Section 16. Commencement of Proceedings and Issuance of
(25%) of the subscribed capital stock or partners' a Commencement Order. - The rehabilitation proceedings
contributions, whichever is higher, may initiate involuntary shall commence upon the issuance of the Commencement
proceedings against the debtor by filing a petition for Order, which shall:
rehabilitation with the court if:
(a) identify the debtor, its principal business or
(a) there is no genuine issue of fact on law on the activity/ies and its principal place of business;
claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made (b) summarize the ground/s for initiating the
for at least sixty (60) days or that the debtor has proceedings;
failed generally to meet its liabilities as they fall
due; or (c) state the relief sought under this Act and any
requirement or procedure particular to the relief
(b) a creditor, other than the petitioner/s, has sought;
initiated foreclosure proceedings against the
debtor that will prevent the debtor from paying its (d) state the legal effects of the Commencement
debts as they become due or will render it Order, including those mentioned in Section 17
insolvent. hereof;

Section 14. Petition to Initiate Involuntary Proceedings. - (e) declare that the debtor is under rehabilitation;
The creditor/s' petition for rehabilitation shall be verified to
establish the substantial likelihood that the debtor may be
rehabilitated, and include: (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)
(a) identification of the debtor its principal consecutive weeks, with the first publication to be
activities and its address; made within seven (7) days from the time of its
issuance;
(b) the circumstances sufficient to support a
petition to initiate involuntary rehabilitation (g) If the petitioner is the debtor direct the service
proceedings under Section 13 of this Act; by personal delivery of a copy of the petition on
each creditor holding at least ten percent (10%) of
(c) the specific relief sought under this Act; the total liabilities of the debtor as determined
from the schedule attached to the petition within
(d) a Rehabilitation Plan; 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;
(e) the names of at least three (3) nominees to the
position of rehabilitation receiver;
(h) appoint a rehabilitation receiver who may or not
be from among the nominees of the petitioner/s
(f) other information that may be required under and who shall exercise such powers and duties
this Act depending on the form of relief requested; defined in this Act as well as the procedural rules
and that the Supreme Court will promulgate;
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(i) summarize the requirements and deadlines for (a) vest the rehabilitation with all the powers and
creditors to establish their claims against the functions provided for this Act, such as the right to
debtor and direct all creditors to their claims with review and obtain records to which the debtor's
the court at least five (5) days before the initial management and directors have access, including
hearing; bank accounts or whatever nature of the debtor
subject to the approval by the court of the
(j) direct Bureau of internal Revenue (BIR) to file performance bond filed by the rehabilitation
and serve on the debtor its comment on or receiver;
opposition to the petition or its claim/s against the
debtor under such procedures as the Supreme Court (b) prohibit or otherwise serve as the legal basis
provide; rendering null and void the results of any
extrajudicial activity or process to seize property,
(k) prohibit the debtor's suppliers of goods or sell encumbered property, or otherwise attempt to
services from withholding the supply of goods and collection or enforce a claim against the debtor
services in the ordinary course of business for as after commencement date unless otherwise
long as the debtor makes payments for the services allowed in this Act, subject to the provisions of
or goods supplied after the issuance of the Section 50 hereof;
Commencement Order;
(c) serve as the legal basis for rendering null and
(l) authorize the payment of administrative void any setoff after the commencement date of
expenses as they become due; any debt owed to the debtor by any of the debtor's
creditors;
(m) set the case for initial hearing, which shall not
be more than forty (40) days from the date of filing (d) serve as the legal basis for rendering null and
of the petition for the purpose of determining void the perfection of any lien against the debtor's
whether there is substantial likelihood for the property after the commencement date; and
debtor to be rehabilitated;
(e) consolidate the resolution of all legal
(n) make available copies of the petition and proceedings by and against the debtor to the court
rehabilitation plan for examination and copying by Provided. However, That the court may allow the
any interested party; continuation of cases on other courts where the
debtor had initiated the suit.
(o) indicate the location or locations at which
documents regarding the debtor and the Attempts to seek legal of other resource against the debtor
proceedings under Act may be reviewed and outside these proceedings shall be sufficient to support a
copied; finding of indirect contempt of court.

(p) state that any creditor or debtor who is not the Section 18. Exceptions to the Stay or Suspension Order. -
petitioner, may submit the name or nominate any The Stay or Suspension Order shall not apply:
other qualified person to the position of
rehabilitation receiver at least five (5) days before (a) to cases already pending appeal in the Supreme
the initial hearing; Court as of commencement date Provided, That any
final and executory judgment arising from such
(q) include s Stay or Suspension Order which shall: appeal shall be referred to the court for
appropriate action;
(1) suspend all actions or proceedings, in
court or otherwise, for the enforcement of (b) subject to the discretion of the court, to cases
claims against the debtor; pending or filed at a specialized court or quasi-
judicial agency which, upon determination by the
court is capable of resolving the claim more
(2) suspend all actions to enforce any quickly, fairly and efficiently than the court:
judgment, attachment or other provisional Provided, That any final and executory judgment of
remedies against the debtor; such court or agency shall be referred to the court
and shall be treated as a non-disputed claim;
(3) prohibit the debtor from selling,
encumbering, transferring or disposing in (c) to the enforcement of claims against sureties
any manner any of its properties except in and other persons solidarily liable with the debtor,
the ordinary course of business; and and third party or accommodation mortgagors as
well as issuers of letters of credit, unless the
(4) prohibit the debtor from making any property subject of the third party or
payment of its liabilities outstanding as of accommodation mortgage is necessary for the
the commencement date except as may be rehabilitation of the debtor as determined by the
provided herein. court upon recommendation by the rehabilitation
receiver;
Section 17. Effects of the Commencement Order. - Unless
otherwise provided for in this Act, the court's issuance of a (d) to any form of action of customers or clients of
Commencement Order shall, in addition to the effects of a a securities market participant to recover or
Stay or Suspension Order described in Section 16 hereof: otherwise claim moneys and securities entrusted to
 7

the latter in the ordinary course of the latter's (d) The rehabilitation receiver submits a report,
business as well as any action of such securities based on preliminary evaluation, stating that the
market participant or the appropriate regulatory underlying assumptions and the goals stated in the
agency or self-regulatory organization to pay or petitioner's Rehabilitation Plan are realistic
settle such claims or liabilities; reasonable and reasonable or if not, there is, in any
case, a substantial likelihood for the debtor to be
(e) to the actions of a licensed broker or dealer to successfully rehabilitated because, among others:
sell pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the (1) there are sufficient assets with/which
settlement of securities transactions in accordance to rehabilitate the debtor;
with the provisions of the Securities Regulation
Code and its implementing rules and regulations; (2) there is sufficient cash flow to maintain
the operations of the debtor;
(f) the clearing and settlement of financial
transactions through the facilities of a clearing (3) the debtor's, partners, stockholders,
agency or similar entities duly authorized, directors and officers have been acting in
registered and/or recognized by the appropriate good faith and which due diligence;
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 (4) the petition is not s sham filing
themselves for any transactions settled for the intended only to delay the enforcement of
debtor; and the rights of the creditor's or of any group
of creditors; and
(g) any criminal action against individual debtor or
owner, partner, director or officer of a debtor shall (5) the debtor would likely be able to
not be affected by any proceeding commend under pursue a viable Rehabilitation Plan;
this Act.
(e) The petition, the Rehabilitation Plan and the
Section 19. Waiver of taxes and Fees Due to the National attachments thereto do not contain any materially
Government and to Local Government Units (LGUs). - Upon false or misleading statement;
issuance of the Commencement Order by the court, and until
the approval of the Rehabilitation Plan or dismissal of the (f) If the petitioner is the debtor, that the debtor
petition, whichever is earlier, the imposition of all taxes and has met with its creditor/s representing at least
fees including penalties, interests and charges thereof due three-fourths (3/4) of its total obligations to the
to the national government or to LGUs shall be considered extent reasonably possible and made a good faith
waived, in furtherance of the objectives of rehabilitation. effort to reach a consensus on the proposed
Rehabilitation Plan if the petitioner/s is/are a
Section 20. Application of Stay or Suspension Order to creditor or group of creditors, that/ the
Government Financial Institutions. - The provisions of this petitioner/s has/have met with the debtor and
Act concerning the effects of the Commencement Order and made a good faith effort to reach a consensus on
the Stay or Suspension Order on the suspension of rights to the proposed Rehabilitation Plan; and
foreclose or otherwise pursue legal remedies shall apply to
government financial institutions, notwithstanding (g) The debtor has not committed acts
provisions in their charters or other laws to the contrary. misrepresentation or in fraud of its creditor/s or a
group of creditors.
Section 21. Effectivity and Duration of Commencement
Order. - Unless lifted by the court, the Commencement Section 22. Action at the Initial Hearing. - At the initial
Order shall be for the effective for the duration of the hearing, the court shall:
rehabilitation proceedings for as long as there is a
substantial likelihood that the debtor will be successfully (a) determine the creditors who have made timely
rehabilitated. In determining whether there is substantial and proper filing of their notice of claims;
likelihood for the debtor to be successfully rehabilitated, the
court shall ensure that the following minimum requirements
are met: (b) hear and determine any objection to the
qualifications of the appointment of the
rehabilitation receiver and, if necessary appoint a
(a) The proposed Rehabilitation Plan submitted new one in accordance with this Act;
complies with the minimum contents prescribed by
this Act;
(c) direct the creditors to comment on the petition
and the Rehabilitation Plan, and to submit the same
(b) There is sufficient monitoring by the to the court and to the rehabilitation receiver
rehabilitation receiver of the debtor's business for within a period of not more than twenty (20) days;
the protection of creditors; and

(c) The debtor has met with its creditors to the (d) direct the rehabilitation receiver to evaluate
extent reasonably possible in attempts to reach the financial condition of the debtor and to prepare
consensus on the proposed Rehabilitation Plan; and submit to the court within forty (40) days from
initial hearing the report provided in Section 24
hereof.
 8

Section 23. Effect of Failure to File Notice of Claim. - A (c)convert the proceedings into one for the
creditor whose claim is not listed in the schedule of debts liquidation of the debtor upon a finding that:
and liabilities and who fails to file a notice of claim in
accordance with the Commencement Order but (1)the debtor is insolvent; and
subsequently files a belated claim shall not be entitled to
participate in the rehabilitation proceedings but shall be
entitled to receive distributions arising therefrom. (2)there is no substantial likelihood for the
debtor to be successfully rehabilitated as
determined in accordance with the rules
Section 24. Report of the Rehabilitation Receiver. - Within to be promulgated by the Supreme Court.
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 Section 26.Petition Given Due Course. - If the petition is
stating his preliminary findings and recommendations on given due course, the court shall direct the rehabilitation
whether: receiver to review, revise and/or recommend action on the
Rehabilitation Plan and submit the same or a new one to the
court within a period of not more than ninety (90) days.
(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 The court may refer any dispute relating to the
partners of a partnership or directors or officers of Rehabilitation Plan or the rehabilitation proceedings
a corporation in contemplation of the insolvency of pending before it to arbitration or other modes of dispute
the debtor or which may have contributed to the resolution, as provided for under Republic Act No. 9285, Or
insolvency of the debtor; the Alternative Dispute Resolution Act of 2004, should it
determine that such mode will resolve the dispute more
quickly, fairly and efficiently than the court.
(b) the underlying assumptions, the financial goals
and the procedures to accomplish such goals as
stated in the petitioner's Rehabilitation Plan are Section 27.Dismissal of Petition. - If the petition is
realistic, feasible and reasonable; dismissed pursuant to paragraph (b) of Section 25 hereof,
then the court may, in its discretion, order the petitioner to
pay damages to any creditor or to the debtor, as the case
(c) there is a substantial likelihood for the debtor may be, who may have been injured by the filing of the
to be successfully rehabilitated; petition, to the extent of any such injury.

(d) the petition should be dismissed; and (C) The Rehabilitation Receiver, Management Committee
and Creditors' Committee.
(e) the debtor should be dissolved and/or
liquidated. Section 28.Who May Serve as a Rehabilitation Receiver. -
Any qualified natural or juridical person may serve as a
Section 25. Giving Due Course to or Dismissal of Petition, rehabilitation receiver: Provided, That if the rehabilitation
or Conversion of Proceedings. - Within ten (10) days from receiver is a juridical entity, it must designate a natural
receipt of the report of the rehabilitation receiver person/s who possess/es all the qualifications and none of
mentioned in Section 24 hereof the court may: the disqualification’s as its representative, it being
understood that the juridical entity and the representative/s
(a) give due course to the petition upon a finding are solidarily liable for all obligations and responsibilities of
that: the rehabilitation receiver.

(1) the debtor is insolvent; and Section 29.Qualifications of a Rehabilitation Receiver. -

The rehabilitation receiver shall have the following minimum
qualifications:
(2) there is a substantial likelihood for the
debtor to be successfully rehabilitated;
(a)A citizen of the Philippines or a resident of the
Philippines in the six (6) months immediately
(b) dismiss the petition upon a finding that: preceding his nomination;

(1)debtor is not insolvent; (b)Of good moral character and with acknowledged
integrity, impartiality and independence;
(2) the petition i8 a sham filing intended
only to delay the enforcement of the rights (c)Has the requisite knowledge of insolvency and
of the creditor/s or of any group of other relevant commercial laws, rules and
creditors; procedures, as well as the relevant training and/or
experience that may be necessary to enable him to
(3)the petition, the Rehabilitation Plan properly discharge the duties and obligations of a
and the attachments thereto contain any rehabilitation receiver; and
materially false or misleading statements;
or (d)Has no conflict of interest: Provided, That such
conflict of interest may be waived, expressly or
(4)the debtor has committed acts of impliedly, by a party who may be prejudiced
misrepresentation or in fraud of its thereby.
creditor/s or a group of creditors;
 9

Other qualifications and disqualification’s of the (i) To monitor the operations and the business of
rehabilitation receiver shall be set forth in procedural rules, the debtor to ensure that no payments or transfers
taking into consideration the nature of the business of the of property are made other than in the ordinary
debtor and the need to protect the interest of all course of business;
stakeholders concerned.
(j) With the court's approval, to engage the services
Section 30.Initial Appointment of the Rehabilitation of or to employ persons or entities to assist him in
Receiver. - The court shall initially appoint the rehabilitation the discharge of his functions;
receiver, who mayor may not be from among the nominees
of the petitioner, However, at the initial hearing of the (k) To determine the manner by which the debtor
petition, the creditors and the debtor who are not may be best rehabilitated, to review) revise and/or
petitioners may nominate other persons to the position. The recommend action on the Rehabilitation Plan and
court may retain the rehabilitation receiver initially submit the same or a new one to the court for
appointed or appoint another who mayor may not be from approval;
among those nominated.
(1) To implement the Rehabilitation Plan as
In case the debtor is a securities market participant, the approved by the court, if 80 provided under the
court shall give priority to the nominee of the appropriate Rehabilitation Plan;
securities or investor protection fund.
(m) To assume and exercise the powers of
If a qualified natural person or entity is nominated by more management of the debtor, if directed by the court
than fifty percent (50%) of the secured creditors and the pursuant to Section 36 hereof;
general unsecured creditors, and satisfactory evidence is
submitted, the court shall appoint the creditors' nominee as
rehabilitation receiver. (n) To exercise such other powers as may, from
time to time, be conferred upon him by the court;
and
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 To submit a status report on the rehabilitation
preserving and maximizing the value of the assets of the proceedings every quarter or as may be required by
debtor during the rehabilitation proceedings, determining the court motu proprio. or upon motion of any
the viability of the rehabilitation of the debtor, preparing creditor. or as may be provided, in the
and recommending a Rehabilitation Plan to the court, and Rehabilitation Plan.
implementing the approved Rehabilitation Plan, To this end,
and without limiting the generality of the foregoing, the Unless appointed by the court, pursuant to Section
rehabilitation receiver shall have the following powers, 36 hereof, the rehabilitation receiver shall not take
duties and responsibilities: over the management and control of the debtor but
may recommend the appointment of a management
(a)To verify the accuracy of the factual allegations committee over the debtor in the cases provided by
in the petition and its annexes; this Act.

(b)To verify and correct, if necessary, the inventory Section 32.Removal of the Rehabilitation Receiver. – The
of all of the assets of the debtor, and their rehabilitation receiver may be removed at any time by the
valuation; 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
(c)To verify and correct, if necessary, the schedule provide which shall include, but are not limited to, the
of debts and liabilities of the debtor; following:

(d)To evaluate the validity, genuineness and true (a) Incompetence, gross negligence, failure to
amount of all the claims against the debtor; perform or failure to exercise the proper degree of
care in the performance of his duties and powers;
(e)To take possession, custody and control, and to
preserve the value of all the property of the debtor; (b) Lack of a particular or specialized competency
required by the specific case;
(f)To sue and recover, with the approval of the
court, all amounts owed to, and all properties (c) Illegal acts or conduct in the performance of his
pertaining to the debtor; duties and powers;

(g)To have access to all information necessary, (d) Lack of qualification or presence of any
proper or relevant to the operations and business of disqualification;
the debtor and for its rehabilitation;
(e) Conflict of interest that arises after his
(h) To sue and recover, with the. approval of the appointment; and
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;
 10

(f) Manifest lack of independence that is management committee shall take the place of the
detrimental to the general body of the management and the governing body of the debtor and
stakeholders. assume their rights and responsibilities.

Section 33.Compensation and Terms of Service. The The specific powers and duties of the management
rehabilitation receiver and his direct employees or committee, whose members shall be considered as officers
independent contractors shall be entitled to compensation of the court, shall be prescribed by the procedural rules.
for reasonable fees and expenses from the debtor according
to the terms approved by the court after notice and hearing. Section 38.Qualifications of Members of the Management
Prior to such hearing, the rehabilitation receiver and his Committee. - The qualifications and disqualification’s of the
direct employees shall be entitled to reasonable members of the management committee shall be set forth
compensation based on quantum meruit. Such costs shall be in the procedural rules, taking into consideration the nature
considered administrative expenses. of the business of the debtor and the need to protect the
interest of all stakeholders concerned.
Section 34.Oath and Bond of the Rehabilitation Receiver.
Prior to entering upon his powers, duties and Section 39.Employment of Professionals. - Upon approval of
responsibilities, the rehabilitation receiver shall take an the court, and after notice and hearing, the rehabilitation
oath and file a bond, in such amount to be fixed by the court, receiver or the management committee may employ
conditioned upon the faithful and proper discharge of his specialized professionals and other experts to assist each in
powers, duties and responsibilities. the performance of their duties. Such professionals and
other experts shall be considered either employees or
Section 35.Vacancy. - Incase the position of rehabilitation independent contractors of the rehabilitation receiver or the
receiver is vacated for any reason whatsoever. the court management committee, as the case may be. The
shall direct the debtor and the creditors to submit the qualifications and disqualification’s of the professionals and
name/s of their nominee/s to the position. The court may experts may be set forth in procedural rules, taking into
appoint any of the qualified nominees. or any other person consideration the nature of the business of the debtor and
qualified for the position. the need to protect the interest of all stakeholders
concerned.
Section 36.Displacement of Existing Management by the
Rehabilitation Receiver or Management Committee. – Upon Section 40.Conflict of Interest. - No person may be
motion of any interested party, the court may appoint and appointed as a rehabilitation receiver, member of a_
direct the rehabilitation receiver to assume the powers of management committee, or be employed by the
management of the debtor, or appoint a management rehabilitation receiver or the management committee if he
committee that will undertake the management of the has a conflict of interest.
debtor. upon clear and convincing evidence of any of the
following circumstances: An individual shall be deemed to have a conflict of interest
if he is so situated as to be materially influenced in the
(a) Actual or imminent danger of dissipation, loss, exercise of his judgment for or against any party to the
wastage or destruction of the debtor’s assets or proceedings. Without limiting the generality of the
other properties; foregoing, an individual shall be deemed to have a conflict
of interest if:
(b) Paralyzation of the business operations of the
debtor; or (a) he is a creditor, owner, partner or stockholder
of the debtor;
(c) Gross mismanagement of the debtor. or fraud or
other wrongful conduct on the part of, or gross or (b) he is engaged in a line of business which
willful violation of this Act by. existing competes with that of the debtor;
management of the debtor Or the owner, partner,
director, officer or representative/s in (c) he is, or was, within five (5) years from the filing
management of the debtor. of the petition, a director, officer, owner, partner
or employee of the debtor or any of the creditors,
In case the court appoints the rehabilitation receiver to or the auditor or accountant of the debtor;
assume the powers of management of the debtor. the court
may: (d) he is, or was, within two (2) years from the filing
of the petition, an underwriter of the outstanding
(1) require the rehabilitation receiver to post an securities of the debtor;
additional bond;
(e) he is related by consanguinity or affinity within
(2) authorize him to engage the services or to the fourth civil degree to any individual creditor,
employ persona or entities to assist him in the owners of a sale proprietorship-debtor, partners of
discharge of his managerial functions; and a partnership- debtor or to any stockholder,
director, officer, employee or underwriter of a
(3) authorize a commensurate increase in his corporation-debtor; or
compensation.
(f) he has any other direct or indirect material
Section 37.Role of the Management Committee. – When interest in the debtor or any of the creditors.
appointed pursuant to the foregoing section, the
 11

Any rehabilitation receiver, member of the management in the registry of claims must be duly supported by sufficient
committee or persons employed or contracted by them evidence.
possessing any conflict of interest shall make the
appropriate disclosure either to the court or to the creditors Section 45.Opposition or Challenge of Claims. – Within
in case of out-of-court rehabilitation proceedings. Any party thirty (30) days from the expiration of the period stated in
to the proceeding adversely affected by the appointment of the immediately preceding section, the debtor, creditors,
any person with a conflict of interest to any of the positions stakeholders and other interested parties may submit a
enumerated above may however waive his right to object to challenge to claim/s to the court, serving a certified copy on
such appointment and, if the waiver is unreasonably the rehabilitation receiver and the creditor holding the
withheld, the court may disregard the conflict of interest, challenged claim/so Upon the expiration of the thirty (30)-
taking into account the general interest of the stakeholders. day period, the rehabilitation receiver shall submit to the
court the registry of claims which shall include undisputed
Section 41.Immunity. - The rehabilitation receiver and all claims that have not been subject to challenge.
persons employed by him, and the members of the
management committee and all persons employed by it, Section 46.Appeal. - Any decision of the rehabilitation
shall not be subject to any action. claim or demand in receiver regarding a claim may be appealed to the court.
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 (E) Governance.
by the court.1awp++il
Section 47.Management. - Unless otherwise provided
Section 42.Creditors' Committee. - After the creditors' herein, the management of the juridical debtor shall remain
meeting called pursuant to Section 63 hereof, the creditors with the existing management subject to the applicable
belonging to a class may formally organize a committee law/s and agreement/s, if any, on the election or
among appointment of directors, managers Or managing partner.
However, all disbursements, payments or sale, disposal,
assignment, transfer or encumbrance of property , or any
themselves. In addition, the creditors may, as a body, agree other act affecting title or interest in property, shall be
to form a creditors' committee composed of a representative subject to the approval of the rehabilitation receiver and/or
from each class of creditors, such as the following: the court, as provided in the following subchapter.

(a) Secured creditors; (F) Use, Preservation and Disposal of Assets and
Treatment of Assets and Claims after Commencement
(b) Unsecured creditors; Date.

(c) Trade creditors and suppliers; and Section 48.Use or Disposition of Assets. - Except as
otherwise provided herein, no funds or property of the
(d) Employees of the debtor. debtor shall he used or disposed of except in the ordinary
course of business of the debtor, or unless necessary to
finance the administrative expenses of the rehabilitation
In the . election of the creditors' representatives, the proceedings.
rehabilitation receiver or his representative shall attend
such meeting and extend the appropriate assistance as may
be defined in the procedural rules. Section 49.Sale of Assets. - The court, upon application of
the rehabilitation receiver, may authorize the sale of
unencumbered property of the debtor outside the ordinary
Section 43.Role of Creditors' Committee. - The creditors' course of business upon a showing that the property, by its
committee when constituted pursuant to Section 42 of this nature or because of other circumstance, is perishable,
Act shall assist the rehabilitation receiver in communicating costly to maintain, susceptible to devaluation or otherwise
with the creditors and shall be the primary liaison between injeopardy.
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 Section 50.Sale or Disposal of Encumbered Property of the
authorized in writing by such creditor. The creditors' Debtor and Assets of Third Parties Held by Debtor. The court
committee may be authorized by the court or by the may authorize the sale, transfer, conveyance or disposal of
rehabilitation receiver to perform such other tasks and encumbered property of the debtor, or property of others
functions as may be defined by the procedural rules in order held by the debtor where there is a security interest
to facilitate the rehabilitation process. pertaining to third parties under a financial, credit or other
similar transactions if, upon application of the rehabilitation
receiver and with the consent of the affected owners of the
(D) Determination of Claims. property, or secured creditor/s in the case of encumbered
property of the debtor and, after notice and hearing, the
Section 44.Registry of Claims. - Within twenty (20) days court determines that:
from his assumption into office, the rehabilitation receiver
shall establish a preliminary registry of claims. The (a) such sale, transfer, conveyance or disposal is
rehabilitation receiver shall make the registry available for necessary for the continued operation of the
public inspection and provide debtor's business; and

publication notice to the debtor, creditors and stakeholders (b) the debtor has made arrangements to provide a
on where and when they may inspect it. All claims included substitute lien or ownership right that provides an
 12

equal level of security for the counter-party's claim (e) for payments made to repurchase property of
or right. the debtor that is auctioned off in a judicial or
extrajudicial sale under. This Act; or
Provided, That properties held by the debtor where the
debtor has authority to sell such as trust receipt or (f) for payments made to reclaim property of the
consignment arrangements may be sold or disposed of by the debtor held pursuant to a possessory lien.
.debtor, if such sale or disposal is necessary for the
operation of the debtor's business, and the debtor has made Section 53.Assets Subject to Rapid Obsolescence,
arrangements to provide a substitute lien or ownership right Depreciation and Diminution of Value. - Upon the
that provides an equal level of security for the counter- application of a secured creditor holding a lien against or
party's claim or right. holder of an ownership interest in property held by the
debtor that is subject to potentially rapid obsolescence,
Sale or disposal of property under this section shall not give depreciation or diminution in value, the court shall, after
rise to any criminal liability under applicable laws. notice and hearing, order the debtor or rehabilitation
receiver to take reasonable steps necessary to prevent the
Section 51.Assets of Debtor Held by Third Parties. – In the depreciation. If depreciation cannot be avoided and such
case of possessory pledges, mechanic's liens or similar depreciation is jeopardizing the security or property interest
claims, third parties who have in their possession or control of the secured creditor or owner, the court shall:
property of the debtor shall not transfer, conveyor otherwise
dispose of the same to persons other than the debtor, unless (a) allow the encumbered property to be foreclosed
upon prior approval of the rehabilitation receiver. The upon by the secured creditor according to the
rehabilitation receiver may also: relevant agreement between the debtor and the
secured creditor, applicable rules of procedure and
(a) demand the surrender or the transfer of the relevant legislation: Provided. That the proceeds of
possession or control of such property to the the sale will be distributed in accordance with the
rehabilitation receiver or any other person, subject order prescribed under the rules of concurrence
to payment of the claims secured by any possessory and preference of credits; or
Iien/s thereon;
(b) upon motion of, or with the consent of the
(b) allow said third parties to retain possession or affected secured creditor or interest owner. order
control, if such an arrangement would more likely the conveyance of a lien against or ownership
preserve or increase the value of the property in interest in substitute property of the debtor to the
question or the total value of the assets of the secured creditor: Provided. That other creditors
debtor; or holding liens on such property, if any, do not object
thereto, or, if such property is not available;
(c) undertake any otI1er disposition of the said
property as may be beneficial for the rehabilitation (c) order the conveyance to the secured creditor or
of the debtor, after notice and hearing, and holder . of an ownership interest of a lien on the
approval of the court. residual funds from the sale of encumbered
property during the proceedings; or
Section 52.Rescission or Nullity of Sale, Payment, Transfer
or Conveyance of Assets. - The court may rescind or declare (d) allow the sale or disposition of the property:
as null and void any sale, payment, transfer or conveyance Provided. That the sale or disposition will maximize
of the debtor's unencumbered property or any encumbering the value of the property for the benefit of the
thereof by the debtor or its agents or representatives after secured creditor and the debtor, and the proceeds
the commencement date which are not in the ordinary of the sale will be distributed in accordance with
course of the business of the debtor: Provided, however, the order prescribed under the rules of concurrence
That the unencumbered property may be sold, encumbered and preference of credits.
or otherwise disposed of upon order of the court after notice
and hearing: Section 54.Post-commencement Interest. - The rate and
term of interest, if any, on secured and unsecured claims
(a) if such are in the interest of administering the shall be determined and provided for in the approved
debtor and facilitating the preparation and Rehabilitation Plan.
implementation of a Rehabilitation Plan;
Section 55.Post-commencement Loans and Obligations. -
(b) in order to provide a substitute lien, mortgage With the approval of the court upon the recommendation of
or pledge of property under this Act; the rehabilitation receiver, the debtor, in order to enhance
its
(c) for payments made to meet administrative
expenses as they arise; rehabilitation. may:

(d) for payments to victims of quasi delicts upon a (a) enter into credit arrangements; or
showing that the claim is valid and the debtor has
insurance to reimburse the debtor for the payments (b) enter into credit arrangements, secured by
made; mortgages of its unencumbered property or
secondary mortgages of encumbered property with
 13

the approval of senior secured parties with regard (e) is intended to defeat, delay or hinder the ability
to the encumbered property; or of the creditors to collect claims where the effect
of the transaction is to put assets of the debtor
(c) incur other obligations as may be essential for beyond the reach of creditors or to otherwise
its rehabilitation. prejudice the interests of creditors.

The payment of the foregoing obligations shall be considered Provided, however, That nothing in this section shall prevent
administrative expenses under this Act. the court from rescinding or declaring as null and void a
transaction on other grounds provided by relevant legislation
and jurisprudence: Provided, further, That the provisions of
Section 56.Treatment of Employees, Claims. Compensation the Civil Code on rescission shall in any case apply to these
of employees required to carry on the business shall be transactions.
considered an administrative expense. Claims of separation
pay for months worked prior to the commencement date
shall be considered a pre- ommencement claim. Claims for Section 59.Actions for Rescission or Nullity. - (a) The
salary and separation pay for work performed after the rehabilitation receiver or, with his conformity, any creditor
commencement date shall be an administrative expense. may initiate and prosecute any action to rescind, or declare
null and void any transaction described in Section 58 hereof.
If the rehabilitation receiver does not consent to the filing
Section 57.Treatment of Contracts. - Unless cancelled by or prosecution of such action,
virtue of a final judgment of a court of competent
jurisdiction issued prior to the issuance of the
Commencement Order, or at anytime thereafter by the court (b) If leave of court is granted under subsection (a), the
before which the rehabilitation proceedings are pending, all rehabilitation receiver shall assign and transfer to the
valid and subbsisting contracts of the debtor with creditors creditor all rights, title and interest in the chose in action or
and other third parties as at the commencement date shall subject matter of the proceeding, including any document
continue in force: Provided, That within ninety (90) days in support thereof.
following the commencement of proceedings, the debtor,
with the consent of the rehabilitation receiver, shall notify (c) Any benefit derived from a proceeding taken pursuant to
each contractual counter-party of whether it is confirming subsection (a), to the extent of his claim and the costs,
the particular contract. Contractual obligations of the belongs exclusively to the creditor instituting the
debtor arising or performed during this period, and proceeding, and the surplus, if any, belongs to the estate.
afterwards for confirmed contracts, shall be considered
administrative expenses. Contracts not confirmed within the (d) Where, before an order is made under subsection (a), the
required deadline shall be considered terminated. Claims for rehabilitation receiver (or liquidator) signifies to the court
actual damages, if any, arising as a result of the election to his readiness to institute the proceeding for the benefit of
terminate a contract shall be considered a pre- the creditors, the order shall fix the time within which he
commencement claim against the debtor. Nothing contained shall do so and, m that case, the benefit derived from the
herein shall prevent the cancellation or termination of any proceeding, if instituted within the time limits so fixed,
contract of the debtor for any ground provided by law. belongs to the estate.

(G) Avoidance Proceedings. (H) Treatment of Secured Creditors.

Section 58.Rescission or Nullity of Certain Pre- Section 60.No Diminution of Secured Creditor Rights. The
commencement Transactions. Any transaction occurring issuance of the Commencement Order and the Suspension or
prior to commencement date entered into by the debtor or Stay Order, and any other provision of this Act, shall not be
involving its funds or assets may be rescinded or declared
null and void on the ground that the same was executed with
intent to defraud a creditor or creditors or which constitute deemed in any way to diminish or impair the security or lien
undue preference of creditors. Without limiting the of a secured creditor, or the value of his lien or security,
generality of the foregoing, a disputable presumption of such except that his right to enforce said security or lien may be
design shall arise if the transaction: suspended during the term of the Stay Order.

(a) provides unreasonably inadequate consideration The court, upon motion or recommendation of the
to the debtor and is executed within ninety (90) rehabilitation receiver, may allow a secured creditor to
days prior to the commencement date; enforce his security or lien, or foreclose upon property of
the debtor
(b) involves an accelerated payment of a claim to a
creditor within ninety (90) days prior to the securing his/its claim, if the said property is not necessary
commencement date; for the rehabilitation of the debtor. The secured creditor
and/or the other lien holders shall be admitted to the
rehabilitation proceedings only for the balance of his claim,
(c) provides security or additional security if any.
executed within ninety (90) days prior to the
commencement date;
Section 61.Lack of Adequate Protection. - The court, on
motion or motu proprio, may terminate, modify or set
(d) involves creditors, where a creditor obtained, conditions for the continuance of suspension of payment, or
or received the benefit of, more than its pro rata relieve a claim from the coverage thereof, upon showing
share in the assets of the debtor, executed at a that: (a) a creditor does not have adequate protection over
time when the debtor was insolvent; or property securing its claim; or
 14

(b) the value of a claim secured by a lien on property which (g) specify the treatment of each class or subclass
is not necessary for rehabilitation of the debtor exceeds the described in subsections (d) and (e);
fair market value of the said property.
(h) provide for equal treatment of all claims within
For purposes of this section, a creditor shall be deemed to the same class or subclass, unless a particular
lack adequate protection if it can be shown that: creditor voluntarily agrees to less favorable
treatment;
(a) the debtor fails or refuses to honor a pre-
existing agreement with the creditor to keep the (i) ensure that the payments made under the plan
property insured; follow the priority established under the provisions
of the Civil Code on concurrence and preference of
(b) the debtor fails or refuses to take commercially credits and other applicable laws;
reasonable steps to maintain the property; or
(j) maintain the security interest of secured
(c) the property has depreciated to an extent that creditors and preserve the liquidation value of the
the creditor is under secured. security unless such has been waived or modified
voluntarily;
Upon showing of a lack of protection, the court shall order
the debtor or the rehabilitation receiver to make (k) disclose all payments to creditors for pre-
arrangements to provide for the insurance or maintenance commencement debts made during the proceedings
of the property; or to make payments or otherwise provide and the justifications thereof;
additional or replacement security such that the obligation
is fully secured. If such arrangements are not feasible, the (1) describe the disputed claims and the
court may modify the Stay Order to allow the secured provisioning of funds to account for appropriate
creditor lacking adequate protection to enforce its security payments should the claim be ruled valid or its
claim against the debtor: Provided, however, That the court amount adjusted;
may deny the creditor the remedies in this paragraph if the
property subject of the enforcement is required for the (m) identify the debtor's role in the implementation
rehabilitation of the debtor. of the Plan;

(i) Administration of Proceedings. (n) state any rehabilitation covenants of the

debtor, the breach of which shall be considered a
Section 62.Contents of a Rehabilitation Plan. – The material breach of the Plan;
Rehabilitation Plan shall, as a minimum:
(o) identify those responsible for the future
(a) specify the underlying assumptions, the management of the debtor and the supervision and
financial goals and the procedures proposed to implementation of the Plan, their affiliation with
accomplish such goals; the debtor and their remuneration;

(b) compare the amounts expected to be received (p) address the treatment of claims arising after the
by the creditors under the Rehabilitation Plan with confirmation of the Rehabilitation Plan;
those that they will receive if liquidation ensues
within the next one hundred twenty (120) days; (q) require the debtor and its counter-parties to
adhere to the terms of all contracts that the debtor
(c) contain information sufficient to give the has chosen to confirm;
various classes of creditors a reasonable basis for
determining whether supporting the Plan is in their (r) arrange for the payment of all outstanding
financial interest when compared to the immediate administrative expenses as a condition to the Plan's
liquidation of the debtor, including any reduction approval unless such condition has been waived in
of principal interest and penalties payable to the writing by the creditors concerned;
creditors;
(s) arrange for the payment" of all outstanding
(d) establish classes of voting creditors; taxes and assessments, or an adjusted amount
pursuant to a compromise settlement with the BlR
(e) establish subclasses of voting creditors if prior Or other applicable tax authorities;
approval has been granted by the court;
(t) include a certified copy of a certificate of tax
(f) indicate how the insolvent debtor will be clearance or evidence of a compromise settlement
rehabilitated including, but not limited to, debt with the BIR;
forgiveness, debt rescheduling, reorganization or
quasi-reorganization. dacion en pago, debt-equity (u) include a valid and binding r(,solution of a
conversion and sale of the business (or parts of it) meeting of the debtor's stockholders to increase the
as a going concern, or setting-up of a new business shares by the required amount in cases where the
entity or other similar arrangements as may be Plan contemplates an additional issuance of shares
necessary to restore the financial well-being and by the debtor;
visibility of the insolvent debtor;
 15

(v) state the compensation and status, if any, of the (a) The creditors' support was induced by fraud;
rehabilitation receiver after the approval of the
Plan; and (b)The documents or data relied upon in the
Rehabilitation Plan are materially false or
(w) contain provisions for conciliation and/or misleading; or
mediation as a prerequisite to court assistance or
intervention in the event of any disagreement in (c)The Rehabilitation Plan is in fact not supported
the interpretation or implementation of the by the voting creditors.
Rehabilitation Plan.
Section 67.Hearing on the Objections. - If objections have
Section 63.Consultation with Debtor and Creditors. – if the been submitted during the relevant period, the court shall
court gives due course to the petition, the rehabilitation issue an order setting the time and date for the hearing or
receiver shall confer with the debtor and all the classes of hearings on the objections.
creditors, and may consider their views and proposals ill the
review, revision or preparation of a new Rehabilitation Plan.
If the court finds merit in the objection, it shall order the
rehabilitation receiver or other party to cure the defect,
Section 64.Creditor Approval of Rehabilitation Plan. – The whenever feasible. If the court determines that the debtor
rehabilitation receiver shall notify the creditors and acted in bad faith, or that it is not feasible to cure the
stakeholders that the Plan is ready for their examination. defect, the court shall convert the proceedings into one for
Within twenty (2Q) days from the said notification, the the liquidation of the debtor under Chapter V of this Act.
rehabilitation receiver shall convene the creditors, either as
a whole or per class, for purposes of voting on the approval
of the Plan. The Plan shall be deemed rejected unless Section 68.Confirmation of the Rehabilitation Plan. – If no
approved by all classes of creditors w hose rights are objections are filed within the relevant period or, if
adversely modified or affected by the Plan. For purposes of objections are filed, the court finds them lacking in merit,
this section, the Plan is deemed to have been approved by a or determines that the basis for the objection has been
class of creditors if members of the said class holding more cured, or determines that the debtor has complied with an
than fifty percent (50%) of the total claims of the said class order to cure the objection, the court shall issue an order
vote in favor of the Plan. The votes of the creditors shall be confirming the Rehabilitation Plan.
based solely on the amount of their respective claims based
on the registry of claims submitted by the rehabilitation The court may confirm the Rehabilitation Plan
receiver pursuant to Section 44 hereof. notwithstanding unresolved disputes over claims if the
Rehabilitation Plan has made adequate provisions for paying
Notwithstanding the rejection of the Rehabilitation Plan, the such claims.
court may confirm the Rehabilitation Plan if all of the
following circumstances are present: For the avoidance of doubt, the provisions of other laws to
the contrary notwithstanding, the court shall have the power
(a)The Rehabilitation Plan complies with the to approve or implement the Rehabilitation Plan despite the
requirements specified in this Act. lack of approval, or objection from the owners, partners or
stockholders of the insolvent debtor: Provided, That the
terms thereof are necessary to restore the financial well-
(b) The rehabilitation receiver recommends the being and viability of the insolvent debtor.
confirmation of the Rehabilitation Plan;
Section 69.Effect of Confirmation of the Rehabilitation
(c) The shareholders, owners or partners of the Plan, - The confirmation of the Rehabilitation Plan by the
juridical debtor lose at least their controlling court shall result in the following:
interest as a result of the Rehabilitation Plan; and
(a) The Rehabilitation Plan and its provisions shall
(d) The Rehabilitation Plan would likely provide the be binding upon the debtor and all persons who may
objecting class of creditors with compensation be affected by . it, including the creditors, whether
which has a net present value greater than that or not such persons have participated in the
which they would have received if the debtor were proceedings or opposed the Rehabilitation Plan or
under liquidation. whether or not their claims have been scheduled;

Section 65.Submission of Rehabilitation Plan to the Court. (b) The debtor shall comply with the provisions of
- 1fthe Rehabilitation Plan is approved, the rehabilitation the Rehabilitation Plan and shall take all actions
receiver shall submit the same to the court for confirmation. necessary to carry out the Plan;
Within five (5) days from receipt of the Rehabilitation Plan,
the court shall notify the creditors that the Rehabilitation
Plan has been submitted for confirmation, that any creditor (c) Payments shall be made to the creditors in
may obtain copies of the Rehabilitation Plan and that any accordance with the provisions of the
creditor may file an objection thereto. Rehabilitation Plan;

Section 66.Filing of Objections to Rehabilitation Plan. – A (d) Contracts and other arrangements between the
creditor may file an objection to the Rehabilitation Plan debtor and its creditors shall be interpreted as
within twenty (20) days from receipt of notice from the court continuing to apply to the extent that they do not
that the Rehabilitation Plan has been submitted for conflict with the provisions of the Rehabilitation
confirmation. Objections to a Rehabilitation Plan shall be Plan;
limited to the following:
 16

(e) Any compromises on amounts or rescheduling of (d) The Rehabilitation Plan or its amendment is
timing of payments by the debtor shall be binding approved by the court but in the implementation
on creditors regardless of whether or not the Plan thereof, the debtor fails to perform its obligations
is successfully implement; and thereunder or there is a failure to realize the
objectives, targets or goals set forth therein,
(f) Claims arising after approval of the Plan that are including the timelines and conditions for the
otherwise not treated by the Plan are not subject settlement of the obligations due to the creditors
to any Suspension Order. and other claimants;

The Order confirming the Plan shall comply with Rules 36 of (e) The commission of fraud in securing the
the Rules of Court: Provided, however, That the court may approval of the Rehabilitation Plan or its
maintain jurisdiction over the case in order to resolve claims amendment; and
against the debtor that remain contested and allegations
that the debtor has breached the Plan. (f) Other analogous circumstances as may be
defined by the rules of procedure.
Section 70. Liability of General Partners of a Partnership
for Unpaid Balances Under an Approved Plan. - The approval Upon a breach of, or upon a failure of the Rehabilitation Plan
of the Plan shall not affect the rights of creditors to pursue the court, upon motion by an affected party may:
actions against the general partners of a partnership to the
extent they are liable under relevant legislation for the (1) Issue an order directing that the breach be
debts thereof. cured within a specified period of time, falling
which the proceedings may be converted to a
Section 71. Treatment of Amounts of Indebtedness or liquidation;
Obligations Forgiven or Reduced. - Amounts of any
indebtedness or obligations reduced or forgiven in (2) Issue an order converting the proceedings to a
connection with a Plan's approval shall not be subject to any liquidation;
tax in furtherance of the purposes of this Act.
(3) Allow the debtor or rehabilitation receiver to
Section 72. Period for Confirmation of the Rehabilitation submit amendments to the Rehabilitation Plan, the
Plan. - The court shall have a maximum period of one (1) approval of which shall be governed by the same
year from the date of the filing of the petition to confirm a requirements for the approval of a Rehabilitation
Rehabilitation Plan. Plan under this subchapter;

If no Rehabilitation Plan is confirmed within the said period, (4) Issue any other order to remedy the breach
the proceedings may upon motion or motu propio, be consistent with the present regulation, other
converted into one for the liquidation of the debtor . applicable law and the best interests of the
creditors; or
Section 73. Accounting Discharge of Rehabilitation
Receiver. - Upon the confirmation of the Rehabilitation Plan, (5) Enforce the applicable provisions of the
the rehabilitation receiver shall provide a final report and Rehabilitation Plan through a writ of execution.
accounting to the court. Unless the Rehabilitation Plan
specifically requires and describes the role of the
rehabilitation receiver after the approval of the Section 75. Effects of Termination. - Termination of the
Rehabilitation Plan, the court shall discharge the proceedings shall result in the following:
rehabilitation receiver of his duties.
(a) The discharge of the rehabilitation receiver
(j) Termination of Proceedings subject to his submission of a final accounting; and

Section 74. Termination of Proceedings. - The rehabilitation (b) The lifting of the Stay Order and any other court
proceedings under Chapter II shall, upon motion by any order holding in abeyance any action for the
stakeholder or the rehabilitation receiver be terminated by enforcement of a claim against the debtor.
order of the court either declaring a successful
implementation of the Rehabilitation Plan or a failure of Provided, however, That if the termination of proceedings is
rehabilitation. due to failure of rehabilitation or dismissal of the petition
for reasons other than technical grounds, the proceedings
There is failure of rehabilitation in the following cases: shall be immediately converted to liquidation as provided in
Section 92 of this Act.
(a) Dismissal of the petition by the court;
CHAPTER III
PRE-NEGOTIATED REHABILITATION
(b) The debtor fails to submit a Rehabilitation Plan;
Section 76. Petition by Debtor. - An insolvent debtor, by
(c) Under the Rehabilitation Plan submitted by the itself or jointly with any of its creditors, may file a verified
debtor, there is no substantial likelihood that the petition with the court for the approval of a pre-negotiated
debtor can be rehabilitated within a reasonable Rehabilitation Plan which has been endorsed or approved by
period; creditors holding at least two-thirds (2/3) of the total
liabilities of the debtor, including secured creditors holding
 17

more than fifty percent (50%) of the total secured claims of Section 79. Objection to the Petition or Rehabilitation Plan.
the debtor and unsecured creditors holding more than fifty - Any creditor or other interested party may submit to the
percent (50%) of the total unsecured claims of the debtor. court a verified objection to the petition or the
The petition shall include as a minimum: Rehabilitation Plan not later than eight (8) days from the
date of the second publication of the Order mentioned in
(a) a schedule of the debtor's debts and liabilities; Section 77 hereof. The objections shall be limited to the
following:
(b) an inventory of the debtor's assets;
(a) The allegations in the petition or the
Rehabilitation Plan or the attachments thereto are
(c) the pre-negotiated Rehabilitation Plan, materially false or misleading;
including the names of at least three (3) qualified
nominees for rehabilitation receiver; and
(b) The majority of any class of creditors do not in
fact support the Rehabilitation Plan;
(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 (c) The Rehabilitation Plan fails to accurately
ruled valid or their amounts adjusted. account for a claim against the debtor and the
claim in not categorically declared as a contested
claim; or
Section 77. Issuance of Order. - Within five (5) working days,
and after determination that the petition is sufficient in
form and substance, the court shall issue an Order which (d) The support of the creditors, or any of them was
shall; induced by fraud.

(a) identify the debtor, its principal business of Copies of any objection to the petition of the Rehabilitation
activity/ies and its principal place of business; Plan shall be served on the debtor, the rehabilitation
receiver (if applicable), the secured creditor with the largest
claim and who supports the Rehabilitation Plan, and the
(b) declare that the debtor is under rehabilitation; unsecured creditor with the largest claim and who supports
the Rehabilitation Plan.
(c) summarize the ground./s for the filling of the
petition; Section 80. Hearing on the Objections. - After receipt of an
objection, the court shall set the same for hearing. The date
(d) direct the publication of the Order in a of the hearing shall be no earlier than twenty (20) days and
newspaper of general circulation in the Philippines no later than thirty (30) days from the date of the second
once a week for at least two (2) consecutive weeks, publication of the Order mentioned in Section 77 hereof. If
with the first publication to be made within seven the court finds merit in the objection, it shall direct the
(7) days from the time of its issuance; debtor, when feasible to cure the detect within a reasonable
period. If the court determines that the debtor or creditors
(e) direct the service by personal delivery of a copy supporting the Rehabilitation Plan acted in bad faith, or that
of the petition on each creditor who is not a the objection is non-curable, the court may order the
petitioner holding at least ten percent (10%) of the conversion of the proceedings into liquidation. A finding by
total liabilities of the debtor, as determined in the the court that the objection has no substantial merit, or that
schedule attached to the petition, within three (3) the same has been cured shall be deemed an approval of the
days; Rehabilitation Plan.

(f) state that copies of the petition and the Section 81. Period for Approval of Rehabilitation Plan. -
Rehabilitation Plan are available for examination The court shall have a maximum period of one hundred
and copying by any interested party; twenty (120) days from the date of the filing of the petition
to approve the Rehabilitation Plan. If the court fails to act
within the said period, the Rehabilitation Plan shall be
(g) state that creditors and other interested parties deemed approved.
opposing the petition or Rehabilitation Plan may
file their objections or comments thereto within a
period of not later than twenty (20) days from the Section 82. Effect of Approval. - Approval of a Plan under
second publication of the Order; this chapter shall have the same legal effect as confirmation
of a Plan under Chapter II of this Act.
(h) appoint a rehabilitation receiver, if provided for
in the Plan; and CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING
AGREEMENTS OR REHABILITATION PLANS
(i) include a Suspension or Stay Order as described
in this Act.
Section 83. Out-of-Court or Informal Restructuring
Agreements and Rehabilitation Plans. - An out-of-curt or
Section 78. Approval of the Plan. - Within ten (10) days from informal restructuring agreement or Rehabilitation Plan that
the date of the second publication of the Order, the court meets the minimum requirements prescribed in this chapter
shall approve the Rehabilitation Plan unless a creditor or is hereby recognized as consistent with the objectives of this
other interested party submits an objection to it in Act.
accordance with the next succeeding section.
 18

Section 84. Minimum Requirements of Out-of-Court or Section 89. Court Assistance. - The insolvent debtor and/or
Informal Restructuring Agreements and Rehabilitation creditor may seek court assistance for the execution or
Plans. - For an out-of-court or informal implementation of a Rehabilitation Plan under this Chapter,
restructuring/workout agreement or Rehabilitation Plan to under such rules of procedure as may be promulgated by the
qualify under this chapter, it must meet the following Supreme Court.
minimum requirements:
CHAPTER V
(a) The debtor must agree to the out-of-court or LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
informal restructuring/workout agreement or
Rehabilitation Plan; Section 90. Voluntary Liquidation. - An insolvent debtor
may apply for liquidation by filing a petition for liquidation
(b) It must be approved by creditors representing at with the court. The petition shall be verified, shall establish
least sixty-seven (67%) of the secured obligations of the insolvency of the debtor and shall contain, whether as
the debtor; an attachment or as part of the body of the petition;

(c) It must be approved by creditors representing at (a) a schedule of the debtor's debts and liabilities
least seventy-five percent (75%) of the unsecured including a list of creditors with their addresses,
obligations of the debtor; and amounts of claims and collaterals, or securities, if
any;
(d) It must be approved by creditors holding at least
eighty-five percent (85%) of the total liabilities, (b) an inventory of all its assets including
secured and unsecured, of the debtor. receivables and claims against third parties; and

Section 85. Standstill Period. - A standstill period that may (c) the names of at least three (3) nominees to the
be agreed upon by the parties pending negotiation and position of liquidator.
finalization of the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan At any time during the pendency of court-supervised or pre-
contemplated herein shall be effective and enforceable not negotiated rehabilitation proceedings, the debtor may also
only against the contracting parties but also against the initiate liquidation proceedings by filing a motion in the
other creditors: Provided, That (a) such agreement is same court where the rehabilitation proceedings are pending
approved by creditors representing more than fifty percent to convert the rehabilitation proceedings into liquidation
(50%) of the total liabilities of the debtor; (b) notice thereof proceedings. The motion shall be verified, shall contain or
is publishing in a newspaper of general circulation in the set forth the same matters required in the preceding
Philippines once a week for two (2) consecutive weeks; and paragraph, and state that the debtor is seeking immediate
(c) the standstill period does not exceed one hundred twenty dissolution and termination of its corporate existence.
(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 If the petition or the motion, as the case may be, is sufficient
them that said agreement will be binding on all creditors if in form and substance, the court shall issue a Liquidation
the required majority votes prescribed in Section 84 of this Order mentioned in Section 112 hereof.
Act are met.
Section 91. Involuntary Liquidation. - Three (3) or more
Section 86. Cram Down Effect. - A restructuring/workout creditors the aggregate of whose claims is at least either One
agreement or Rehabilitation Plan that is approved pursuant million pesos (Php1,000,000,00) or at least twenty-five
to an informal workout framework referred to in this chapter percent (25%0 of the subscribed capital stock or partner's
shall have the same legal effect as confirmation of a Plan contributions of the debtor, whichever is higher, may apply
under Section 69 hereof. The notice of the Rehabilitation for and seek the liquidation of an insolvent debtor by filing
Plan or restructuring agreement or Plan shall be published a petition for liquidation of the debtor with the court. The
once a week for at least three (3) consecutive weeks in a petition shall show that:
newspaper of general circulation in the Philippines. The
Rehabilitation Plan or restructuring agreement shall take (a) there is no genuine issue of fact or law on the
effect upon the lapse of fifteen (15) days from the date of claims/s of the petitioner/s, and that the due and
the last publication of the notice thereof. demandable payments thereon have not been made
for at least one hundred eighty (180) days or that
Section 87. Amendment or Modification. - Any amendment the debtor has failed generally to meet its liabilities
of an out-of-court restructuring/workout agreement or as they fall due; and
Rehabilitation Plan must be made in accordance with the
terms of the agreement and with due notice on all creditors. (b) there is no substantial likelihood that the debtor
may be rehabilitated.
Section 88. Effect of Court Action or Other Proceedings. -
Any court action or other proceedings arising from, or At any time during the pendency of or after a rehabilitation
relating to, the out-of-court or informal court-supervised or pre-negotiated rehabilitation
restructuring/workout agreement or Rehabilitation Plan proceedings, three (3) or more creditors whose claims is at
shall not stay its implementation, unless the relevant party least either One million pesos (Php1,000,000.00) or at least
is able to secure a temporary restraining order or injunctive twenty-five percent (25%) of the subscribed capital or
relief from the Court of Appeals. 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
 19

pending to convert the rehabilitation proceedings into designating the date, time and place of the
liquidation proceedings. The motion shall be verified, shall meeting;
contain or set forth the same matters required in the
preceding paragraph, and state that the movants are seeking (b) directing such creditors to prepare and present
the immediate liquidation of the debtor. written evidence of their claims before the
scheduled creditors' meeting;
If the petition or motion is sufficient in form and substance,
the court shall issue an Order: (c) directing the publication of the said order in a
newspaper of general circulation published in the
(1) directing the publication of the petition or province or city in which the petition is filed once
motion in a newspaper of general circulation once a week for two (2) consecutive weeks, with the first
a week for two (2) consecutive weeks; and publication to be made within seven (7) days from
the time of the issuance of the Order;
(2) directing the debtor and all creditors who are
not the petitioners to file their comment on the (d) directing the clerk of court to cause the sending
petition or motion within fifteen (15) days from the of a copy of the Order by registered mail, postage
date of last publication. prepaid, to all creditors named in the schedule of
debts and liabilities;
If, after considering the comments filed, the court
determines that the petition or motion is meritorious, it shall (e) forbidding the individual debtor from selling,
issue the Liquidation Order mentioned in Section 112 hereof. transferring, encumbering or disposing in any
manner of his property, except those used in the
Section 92. Conversion by the Court into Liquidation ordinary operations of commerce or of industry in
Proceedings. - During the pendency of court-supervised or which the petitioning individual debtor is engaged
pre-negotiated rehabilitation proceedings, the court may so long as the proceedings relative to the
order the conversion of rehabilitation proceedings to suspension of payments are pending;
liquidation proceedings pursuant to (a) Section 25(c) of this
Act; or (b) Section 72 of this Act; or (c) Section 75 of this (f) prohibiting the individual debtor from making
Act; or (d) Section 90 of this Act; or at any other time upon any payment outside of the necessary or legitimate
the recommendation of the rehabilitation receiver that the expenses of his business or industry, so long as the
rehabilitation of the debtor is not feasible. Thereupon, the proceedings relative to the suspension of payments
court shall issue the Liquidation Order mentioned in Section are pending; and
112 hereof.
(g) appointing a commissioner to preside over the
Section 93. Powers of the Securities and Exchange creditors' meeting.
Commission (SEC). - The provisions of this chapter shall not
affect the regulatory powers of the SEC under Section 6 of Section 96. Actions Suspended. - Upon motion filed by the
Presidential Decree No. 902-A, as amended, with respect to individual debtor, the court may issue an order suspending
any dissolution and liquidation proceeding initiated and any pending execution against the individual debtor.
heard before it. Provide, That properties held as security by secured
creditors shall not be the subject of such suspension order.
CHAPTER VI The suspension order shall lapse when three (3) months shall
INSOLVENCY OF INDIVIDUAL DEBTORS have passed without the proposed agreement being
accepted by the creditors or as soon as such agreement is
(A) Suspension of Payments. denied.

Section 94. Petition. - An individual debtor who, possessing No creditor shall sue or institute proceedings to collect his
sufficient property to cover all his debts but foreseeing the claim from the debtor from the time of the filing of the
impossibility of meeting them when they respectively fall petition for suspension of payments and for as long as
due, may file a verified petition that he be declared in the proceedings remain pending except:
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 (a) those creditors having claims for personal labor,
filing of his petition. He shall attach to his petition, as a maintenance, expense of last illness and funeral of
minimum: (a) a schedule of debts and liabilities; (b) an the wife or children of the debtor incurred in the
inventory of assess; and (c) a proposed agreement with his sixty (60) days immediately prior to the filing of the
creditors. petition; and

Section 95. Action on the Petition. - If the court finds the (b) secured creditors.
petition sufficient in form and substance, it shall, within five
(5) working days from the filing of the petition, issue an Section 97. Creditors' Meeting. - The presence of creditors
Order: holding claims amounting to at least three-fifths (3/5) of the
liabilities shall be necessary for holding a meeting. The
(a) calling a meeting of all the creditors named in commissioner appointed by the court shall preside over the
the schedule of debts and liabilities at such time meeting and the clerk of court shall act as the secretary
not less than fifteen (15) days nor more than forty thereof, subject to the following rules:
(40) days from the date of such Order and
 20

(a) The clerk shall record the creditors present and pass upon such objection as soon as possible and in a
amount of their respective claims; summary manner.

(b) The commissioner shall examine the written In case the decision of the majority of creditors to approve
evidence of the claims. If the creditors present hold the individual debtor's proposal or any amendment thereof
at least three-fifths (3/5) of the liabilities of the made during the creditors' meeting is annulled by the court,
individual debtor, the commissioner shall declare the court shall declare the proceedings terminated and the
the meeting open for business; creditors shall be at liberty to exercise the rights which may
correspond to them.
(c) The creditors and individual debtor shall discuss
the propositions in the proposed agreement and put Section 101. Effects of Approval of Proposed Agreement. -
them to a vote; If the decision of the majority of the creditors to approve
the proposed agreement or any amendment thereof made
(d) To form a majority, it is necessary: 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
(1) that two-thirds (2/3) of the creditors carried out and all parties bound thereby to comply with its
voting unite upon the same proposition; terms.
and
The court may also issue all orders which may be necessary
(2) that the claims represented by said or proper to enforce the agreement on motion of any
majority vote amount to at least three- affected party. The Order confirming the approval of the
fifths (3/5) of the total liabilities of the proposed agreement or any amendment thereof made during
debtor mentioned in the petition; and the creditors' meeting shall be binding upon all creditors
whose claims are included in the schedule of debts and
(e) After the result of the voting has been liabilities submitted by the individual debtor and who were
announced, all protests made against the majority properly summoned, but not upon: (a) those creditors having
vote shall be drawn up, and the commissioner and claims for personal labor, maintenance, expenses of last
the individual debtor together with all creditors illness and funeral of the wife or children of the debtor
taking part in the voting shall sign the affirmed incurred in the sixty (60) days immediately prior to the filing
propositions. of the petition; and (b) secured creditors who failed to
attend the meeting or refrained from voting therein.
No creditor who incurred his credit within ninety (90) days
prior to the filing of the petition shall be entitled to vote. Section 102. Failure of Individual Debtor to Perform
Agreement. - If the individual debtor fails, wholly or in part,
Section 98. Persons Who May Refrain From Voting. - to perform the agreement decided upon at the meeting of
Creditors who are unaffected by the Suspension Order may the creditors, all the rights which the creditors had against
refrain from attending the meeting and from voting therein. the individual debtor before the agreement shall revest in
Such persons shall not be bound by any agreement them. In such case the individual debtor may be made
determined upon at such meeting, but if they should join in subject to the insolvency proceedings in the manner
the voting they shall be bound in the same manner as are established by this Act.
the other creditors.
(B) Voluntary Liquidation.
Section 99. Rejection of the Proposed Agreement. - The
proposed agreement shall be deemed rejected if the number Section 103. Application. - An individual debtor whose
of creditors required for holding a meeting do not attend properties are not sufficient to cover his liabilities, and
thereat, or if the two (2) majorities mentioned in Section 97 owing debts exceeding Five hundred thousand pesos
hereof are not in favor thereof. In such instances, the (Php500,000.00), may apply to be discharged from his debts
proceeding shall be terminated without recourse and the and liabilities by filing a verified petition with the court of
parties concerned shall be at liberty to enforce the rights the province or city in which he has resided for six (6) months
which may correspond to them. prior to the filing of such petition. He shall attach to his
petition a schedule of debts and liabilities and an inventory
Section 100. Objections. - If the proposal of the individual of assets. The filing of such petition shall be an act of
debtor, or any amendment thereof made during the insolvency.
creditors' meeting, is approved by the majority of creditors
in accordance with Section 97 hereof, any creditor who Section 104. Liquidation Order. - If the court finds the
attended the meeting and who dissented from and protested petition sufficient in form and substance it shall, within five
against the vote of the majority may file an objection with (5) working days issue the Liquidation Order mentioned in
the court within ten (10) days from the date of the last Section 112 hereof.
creditors' meeting. The causes for which objection may be
made to the decision made by the majority during the (C) In voluntary Liquidation.
meeting shall be: (a) defects in the call for the meeting, in
the holding thereof and in the deliberations had thereat
which prejudice the rights of the creditors; (b) fraudulent Section 105. Petition; Acts of Insolvency. - Any creditor or
connivance between one or more creditors and the group of creditors with a claim of, or with claims aggregating
individual debtor to vote in favor of the proposed at least Five hundred thousand pesos (Php500, 000.00) may
agreement; or (c) fraudulent conveyance of claims for the file a verified petition for liquidation with the court of the
purpose of obtaining a majority. The court shall hear and province or city in which the individual debtor resides.
 21

The following shall be considered acts of insolvency, and the liquidation is dismissed by the court, or withdrawn by the
petition for liquidation shall set forth or allege at least one petitioner, or if the debtor shall not be declared an insolvent
of such acts: the petitioners will pay to the debtor all costs, expenses,
damages occasioned by the proceedings and attorney's fees.
(a) That such person is about to depart or has
departed from the Republic of the Philippines, with Section 106. Order to Individual Debtor to Show Cause. -
intent to defraud his creditors; Upon the filing of such creditors' petition, the court shall
issue an Order requiring the individual debtor to show cause,
(b) That being absent from the Republic of the at a time and place to be fixed by the said court, why he
Philippines, with intent to defraud his creditors, he should not be adjudged an insolvent. Upon good cause
remains absent; shown, the court may issue an Order forbidding the
individual debtor from making payments of any of his debts,
and transferring any property belonging to him. However,
(c) That he conceals himself to avoid the service of nothing contained herein shall affect or impair the rights of
legal process for the purpose of hindering or a secured creditor to enforce his lien in accordance with its
delaying the liquidation or of defrauding his terms.
creditors;
Section 107. Default. - If the individual debtor shall default
(d) That he conceals, or is removing, any of his or if, after trial, the issues are found in favor of the
property to avoid its being attached or taken on petitioning creditors the court shall issue the Liquidation
legal process; Order mentioned in Section 112 hereof.

(e) That he has suffered his property to remain Section 108. Absent Individual Debtor. - In all cases where
under attachment or legal process for three (3) days the individual debtor resides out of the Republic of the
for the purpose of hindering or delaying the Philippines; or has departed therefrom; or cannot, after due
liquidation or of defrauding his creditors; diligence, be found therein; or conceals himself to avoid
service of the Order to show cause, or any other preliminary
(f) That he has confessed or offered to allow process or orders in the matter, then the petitioning
judgment in favor of any creditor or claimant for creditors, upon submitting the affidavits requisite to
the purpose of hindering or delaying the liquidation procedure an Order of publication, and presenting a bond in
or of defrauding any creditors or claimant; double the amount of the aggregate sum of their claims
against the individual debtor, shall be entitled to an Order
(g) That he has willfully suffered judgment to be of the court directing the sheriff of the province or city in
taken against him by default for the purpose of which the matter is pending to take into his custody a
hindering or delaying the liquidation or of sufficient amount of property of the individual debtor to
defrauding his creditors; satisfy the demands of the petitioning creditors and the costs
of the proceedings. Upon receiving such Order of the court
to take into custody of the property of the individual debtor,
(h) That he has suffered or procured his property to it shall be the duty of the sheriff to take possession of the
be taken on legal process with intent to give a property and effects of the individual debtor, not exempt
preference to one or more of his creditors and from execution, to an extent sufficient to cover the amount
thereby hinder or delay the liquidation or defraud provided for and to prepare within three (3) days from the
any one of his creditors; time of taking such possession, a complete inventory of all
the property so taken, and to return it to the court as soon
(i) That he has made any assignment, gift, sale, as completed. The time for taking the inventory and making
conveyance or transfer of his estate, property, return thereof may be extended for good cause shown to the
rights or credits with intent to hinder or delay the court. The sheriff shall also prepare a schedule of the names
liquidation or defraud his creditors; and residences of the creditors, and the amount due each,
from the books of the debtor, or from such other papers or
(j) That he has, in contemplation of insolvency, data of the individual debtor available as may come to his
made any payment, gift, grant, sale, conveyance or possession, and shall file such schedule or list of creditors
transfer of his estate, property, rights or credits; and inventory with the clerk of court.

(k) That being a merchant or tradesman, he has Section 109. All Property Taken to be Held for All Creditors;
generally defaulted in the payment of his current Appeal Bonds; Exemptions to Sureties. - In all cases where
obligations for a period of thirty (30) days; property is taken into custody by the sheriff, if it does not
embrace all the property and effects of the debtor not
exempt from execution, any other creditor or creditors of
(l) That for a period of thirty (30) days, he has the individual debtor, upon giving bond to be approved by
failed, after demand, to pay any moneys deposited the court in double the amount of their claims, singly or
with him or received by him in a fiduciary; and jointly, shall be entitled to similar orders and to like action,
by the sheriff; until all claims be provided for, if there be
(m) That an execution having been issued against sufficient property or effects. All property taken into
him on final judgment for money, he shall have custody by the sheriff by virtue of the giving of any such
been found to be without sufficient property bonds shall be held by him for the benefit of all creditors of
subject to execution to satisfy the judgment. the individual debtor whose claims shall be duly proved as
provided in this Act. The bonds provided for in this section
The petitioning creditor/s shall post a bond in such as the and the preceding section to procure the order for custody
court shall direct, conditioned that if the petition for of the property and effects of the individual debtor shall be
conditioned that if, upon final hearing of the petition in
 22

insolvency, the court shall find in favor of the petitioners, (f) prohibit payments by the debtor and the transfer
such bonds and all of them shall be void; if the decision be of any property by the debtor;
in favor of the individual debtor, the proceedings shall be
dismissed, and the individual debtor, his heirs, (g) direct all creditors to file their claims with the
administrators, executors or assigns shall be entitled to liquidator within the period set by the rules of
recover such sum of money as shall be sufficient to cover the procedure;
damages sustained by him, not to exceed the amount of the
respective bonds. Such damages shall be fixed and allowed
by the court. If either the petitioners or the debtor shall (h) authorize the payment of administrative
appeal from the decision of the court, upon final hearing of expenses as they become due;
the petition, the appellant shall be required to give bond to
the successful party in a sum double the amount of the value (i) state that the debtor and creditors who are not
of the property in controversy, and for the costs of the petitioner/s may submit the names of other
proceedings. nominees to the position of liquidator; and

Any person interested in the estate may take exception to (j) set the case for hearing for the election and
the sufficiency of the sureties on such bond or bonds. When appointment of the liquidator, which date shall not
excepted to the petitioner's sureties, upon notice to the be less than thirty (30) days nor more than forty-
person excepting of not less than two (2) nor more than five five (45) days from the date of the last publication.
(5) days, must justify as to their sufficiency; and upon failure
to justify, or of others in their place fail to justify at the Section 113. Effects of the Liquidation Order. - Upon the
time and place appointed the judge shall issue an Order issuance of the Liquidation Order:
vacating the order to take the property of the individual
debtor into the custody of the sheriff, or denying the appeal,
as the case may be. (a) the juridical debtor shall be deemed dissolved
and its corporate or juridical existence terminated;
Section 110. Sale Under Execution. - If, in any case, proper
affidavits and bonds are presented to the court or a judge (b) legal title to and control of all the assets of the
thereof, asking for and obtaining an Order of publication and debtor, except those that may be exempt from
an Order for the custody of the property of the individual execution, shall be deemed vested in the liquidator
debtor and thereafter the petitioners shall make it appear or, pending his election or appointment, with the
satisfactorily to the court or a judge thereof that the court;
interest of the parties to the proceedings will be subserved
by a sale thereof, the court may order such property to be (c) all contracts of the debtor shall be deemed
sold in the same manner as property is sold under execution, terminated and/or breached, unless the liquidator,
the proceeds to de deposited in the court to abide by the within ninety (90) days from the date of his
result of the proceedings. assumption of office, declares otherwise and the
contracting party agrees;
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF (d) no separate action for the collection of an
INDIVIDUAL AND JURIDICAL DEBTORS unsecured claim shall be allowed. Such actions
already pending will be transferred to the
Section 111. Use of Term Debtor. - For purposes of this Liquidator for him to accept and settle or contest.
chapter, the term debtor shall include both individual debtor If the liquidator contests or disputes the claim, the
as defined in Section 4(o) and debtor as defined in Section court shall allow, hear and resolve such contest
4(k) of this Act. 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
(A) The Liquidation Order. against the debtor shall be filed and allowed in
court; and
Section 112. Liquidation Order. - The Liquidation Order
shall: (e) no foreclosure proceeding shall be allowed for a
period of one hundred eighty (180) days.
(a) declare the debtor insolvent;
Section 114. Rights of Secured Creditors. - The Liquidation
(b) order the liquidation of the debtor and, in the Order shall not affect the right of a secured creditor to
case of a juridical debtor, declare it as dissolved; enforce his lien in accordance with the applicable contract
or law. A secured creditor may:
(c) order the sheriff to take possession and control
of all the property of the debtor, except those that (a) waive his right under the security or lien, prove
may be exempt from execution; his claim in the liquidation proceedings and share
in the distribution of the assets of the debtor; or
(d) order the publication of the petition or motion
in a newspaper of general circulation once a week (b) maintain his rights under the security or lien:
for two (2) consecutive weeks;
If the secured creditor maintains his rights under the security
(e) direct payments of any claims and conveyance or lien:
of any property due the debtor to the liquidator;
 23

(1) the value of the property may be fixed in a Section 118. Qualifications of the Liquidator. - The
manner agreed upon by the creditor and the liquidator shall have the qualifications enumerated in
liquidator. When the value of the property is less Section 29 hereof. He may be removed at any time by the
than the claim it secures, the liquidator may convey court for cause, either motu propio or upon motion of any
the property to the secured creditor and the latter creditor entitled to vote for the election of the liquidator.
will be admitted in the liquidation proceedings as a
creditor for the balance. If its value exceeds the Section 119. Powers, Duties and Responsibilities of the
claim secured, the liquidator may convey the Liquidator. - The liquidator shall be deemed an officer of
property to the creditor and waive the debtor's the court with the principal duly of preserving and
right of redemption upon receiving the excess from maximizing the value and recovering the assets of the
the creditor; debtor, with the end of liquidating them and discharging to
the extent possible all the claims against the debtor. The
(2) the liquidator may sell the property and satisfy powers, duties and responsibilities of the liquidator shall
the secured creditor's entire claim from the include, but not limited to:
proceeds of the sale; or
(a) to sue and recover all the assets, debts and
(3) the secure creditor may enforce the lien or claims, belonging or due to the debtor;
foreclose on the property pursuant to applicable
laws. (b) to take possession of all the property of the
debtor except property exempt by law from
(B) The Liquidator. execution;

Section 115. Election of Liquidator. - Only creditors who (c) to sell, with the approval of the court, any
have filed their claims within the period set by the court, property of the debtor which has come into his
and whose claims are not barred by the statute of possession or control;
limitations, will be allowed to vote in the election of the
liquidator. A secured creditor will not be allowed to vote, (d) to redeem all mortgages and pledges, and so
unless: (a) he waives his security or lien; or (b) has the value satisfy any judgement which may be an
of the property subject of his security or lien fixed by encumbrance on any property sold by him;
agreement with the liquidator, and is admitted for the
balance of his claim.
(e) to settle all accounts between the debtor and
his creditors, subject to the approval of the court;
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 (f) to recover any property or its value, fraudulently
pursuant to Section 118 hereof, shall be appointed as the conveyed by the debtor;
liquidator.
(g) to recommend to the court the creation of a
Section 116. Court-Appointed Liquidator. - The court may creditors' committee which will assist him in the
appoint the liquidator if: discharge of the functions and which shall have
powers as the court deems just, reasonable and
necessary; and
(a) on the date set for the election of the
liquidator, the creditors do not attend;
(h) upon approval of the court, to engage such
professional as may be necessary and reasonable to
(b) the creditors who attend, fail or refuse to elect assist him in the discharge of his duties.
a liquidator;
In addition to the rights and duties of a rehabilitation
(c) after being elected, the liquidator fails to receiver, the liquidator, shall have the right and duty to take
qualify; or all reasonable steps to manage and dispose of the debtor's
assets with a view towards maximizing the proceedings
(d) a vacancy occurs for any reason whatsoever, In therefrom, to pay creditors and stockholders, and to
any of the cases provided herein, the court may terminate the debtor's legal existence. Other duties of the
instead set another hearing of the election of the liquidator in accordance with this section may be established
liquidator. by procedural rules.

Provided further, That nothing in this section shall be A liquidator shall be subject to removal pursuant to
construed to prevent a rehabilitation receiver, who was procedures for removing a rehabilitation receiver.
administering the debtor prior to the commencement of the
liquidation, from being appointed as a liquidator. Section 120. Compensation of the Liquidator. - The
liquidator and the persons and entities engaged or employed
Section 117. Oath and Bond of the Liquidator. -Prior to by him to assist in the discharge of his powers and duties
entering upon his powers, duties and responsibilities, the shall be entitled to such reasonable compensation as may
liquidator shall take an oath and file a bond, In such amount determined by the liquidation court, which shall not exceed
to be fixed by the court, conditioned upon the proper and the maximum amount as may be prescribed by the Supreme
faithful discharge of his powers, duties and responsibilities. Court.
 24

Section 121. Reporting Requiremen5ts. - The liquidator Liquidation Order or, in case of the conversion of the
shall make and keep a record of all moneys received and all rehabilitation proceedings prior to the commencement date,
disbursements mad by him or under his authority as entered into by the debtor or involving its assets, may be
liquidator. He shall render a quarterly report thereof to the rescinded or declared null and void on the ground that the
court , which report shall be made available to all interested same was executed with intent to defraud a creditor or
parties. The liquidator shall also submit such reports as may creditors or which constitute undue preference of creditors.
be required by the court from time to time as well as a final The presumptions set forth in Section 58 hereof shall apply.
report at the end of the liquidation proceedings.
Section 128. Actions for Rescission or Nullity. - (a) The
Section 122. Discharge of Liquidator. - In preparation for liquidator or, with his conformity, a creditor may initiate
the final settlement of all the claims against the debtor , the and prosecute any action to rescind, or declare null and void
liquidator will notify all the creditors, either by publication any transaction described in the immediately preceding
in a newspaper of general circulation or such other mode as paragraph. If the liquidator does not consent to the filling or
the court may direct or allow, that will apply with the court prosecution of such action, any creditor may seek leave of
for the settlement of his account and his discharge from the court to commence said action.
liability as liquidator. The liquidator will file a final
accounting with the court, with proof of notice to all (b) if leave of court is granted under subsection (a)
creditors. The accounting will be set for hearing. If the court hereof, the liquidator shall assign and transfer to
finds the same in order, the court will discharge the the creditor all rights, title and interest in the
liquidator. chose in action or subject matter of the proceeding,
including any document in support thereof.
(C) Determination of Claims
(c) Any benefit derived from a proceeding taken
Section 123. Registry of Claims. - Within twenty (20) days pursuant to subsection (a) hereof, to the extent of
from his assumption into office the liquidator shall prepare his claim and the costs, belongs exclusively to the
a preliminary registry of claims of secured and unsecured creditor instituting the proceeding, and the surplus,
creditors. Secured creditors who have waived their security if any, belongs to the estate.
or lien, or have fixed the value of the property subject of
their security or lien by agreement with the liquidator and (d) Where, before an orders is made under
is admitted as a creditor for the balance , shall be considered subsection (a) hereof, the liquidator signifies to the
as unsecured creditors. The liquidator shall make the court his readiness to the institute the proceeding
registry available for public inspection and provide for the benefit of the creditors, the order shall fix
publication notice to creditors, individual debtors owner/s the time within which he shall do so and, in that
of the sole proprietorship-debtor, the partners of the case the benefit derived from the proceedings, if
partnership-debtor and shareholders or members of the instituted within the time limits so fixed, belongs
corporation-debtor, on where and when they may inspect it. to the estate.
All claims must be duly proven before being paid.
(E) The Liquidation Plan.
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 Section 129. The Liquidation Plan. - Within three (3) months
any shall be allowed in the liquidation proceedings. from his assumption into office, the Liquidator shall submit
a Liquidation Plan to the court. The Liquidation Plan shall,
as a minimum enumerate all the assets of the debtor and a
Section 125. - Opposition or Challenge to Claims. - Within schedule of liquidation of the assets and payment of the
thirty (30 ) days from the expiration of the period for filing claims.
of applications for recognition of claims, creditors,
individual debtors, owner/s of the sole proprietorship-
debtor, partners of the partnership-debtor and shareholders Section 130. Exempt Property to be Set Apart. - It shall be
or members of the corporation -debtor and other interested the duty of the court, upon petition and after hearing, to
parties may submit a challenge to claim or claims to the exempt and set apart, for the use and benefit of the said
court, serving a certified copy on the liquidator and the insolvent, such real and personal property as is by law
creditor holding the challenged claim. Upon the expiration exempt from execution, and also a homestead; but no such
of the (30) day period, the rehabilitation receiver shall petition shall be heard as aforesaid until it is first proved
submit to the court the registry of claims containing the that notice of the hearing of the application therefor has
undisputed claims that have not been subject to challenge. been duly given by the clerk, by causing such notice to be
Such claims shall become final upon the filling of the register posted it at least three (3) public places in the province or
and may be subsequently set aside only on grounds or fraud, city at least ten (10) days prior to the time of such hearing,
accident, mistake or inexcusable neglect. which notice shall set forth the name of the said insolvent
debtor, and the time and place appointed for the hearing of
such application, and shall briefly indicate the homestead
Section 126. Submission of Disputed to the Court. - The sought to be exempted or the property sought to be set
liquidator shall resolve disputed claims and submit his aside; and the decree must show that such proof was made
findings thereon to the court for final approval. The to the satisfaction of the court, and shall be conclusive
liquidator may disallow claims. evidence of that fact.

(D) Avoidance Proceedings. Section 131. Sale of Assets in Liquidation. - The liquidator
may sell the unencumbered assets of the debtor and convert
Section 127. Rescission or Nullity of Certain Transactions. - the same into money. The sale shall be made at public
Any transaction occurring prior to the issuance of the auction. However, a private sale may be allowed with the
 25

approval of the court if; (a) the goods to be sold are of a receivership established by a state-funded or state-
perishable nature, or are liable to quickly deteriorate in mandated insurance system.
value, or are disproportionately expensive to keep or
maintain; or (b) the private sale is for the best interest of Section 138. Application of Relevant Legislation. - The
the debtor and his creditors. liquidation of bank, financial institutions, insurance
companies and pre-need companies shall be determined by
With the approval of the court, unencumbered property of relevant legislation. The provisions in this Act shall apply in
the debtor may also be conveyed to a creditor in satisfaction a suppletory manner.
of his claim or part thereof.
(B) Cross-Border Insolvency Proceedings.
Section 132. manner of Implementing the Liquidation Plan.
- The Liquidator shall implement the Liquidation Plan as Section 139. Adoption of Uncitral Model Law on Cross-
approved by the court. Payments shall be made to the Border Insolvency. - Subject to the provision of Section 136
creditors only in accordance with the provisions of the Plan. hereof and the rules of procedure that may be adopted by
the Supreme Court, the Model Law on Cross-Border
Section 133. Concurrence and Preference of Credits. - The Insolvency of the United Nations Center for International
Liquidation Plan and its Implementation shall ensure that the Trade and Development is hereby adopted as part of this
concurrence and preference of credits as enumerated in the Act.
Civil Code of the Philippines and other relevant laws shall be
observed, unless a preferred creditor voluntarily waives his Section 140. Initiation of Proceedings. - The court shall set
preferred right. For purposes of this chapter, credits for a hearing in connection with an insolvency or rehabilitation
services rendered by employees or laborers to the debtor proceeding taking place in a foreign jurisdiction, upon the
shall enjoy first preference under Article 2244 of the Civil submission of a petition by the representative of the foreign
Code, unless the claims constitute legal liens under Article entity that is the subject of the foreign proceeding.
2241 and 2242 thereof.
Section 141. Provision of Relief. - The court may issue
Section 134. Order Removing the Debtor from the List of orders:
Registered Entitles at the Securities and Exchange
Commission. - Upon determining that the liquidation has
been completed according to this Act and applicable law, (a) suspending any action to enforce claims against
the court shall issue an Order approving the report and the entity or otherwise seize or foreclose on
ordering the SEC to remove the debtor from the registry of property of the foreign entity located in the
legal entities. Philippines;

Section 135. Termination of Proceedings. - Upon receipt of (b) requiring the surrender property of the foreign
evidence showing that the debtor has been removed from entity to the foreign representative; or
the registry of legal entities at the SEC. The court shall issue
an Order terminating the proceedings. (c) providing other necessary relief.

(F) Liquidation of a Securities Market Participant. Section 142. Factors in Granting Relief. - In determining
whether to grant relief under this subchapter, the court shall
Section 136. Liquidation of a Securities Market Participant. consider;
- The foregoing provisions of this chapter shall be without
prejudice to the power of a regulatory agency or self- (a) the protection of creditors in the Philippines and
regulatory organization to liquidate trade-related claims of the inconvenience in pursuing their claim in a
clients or customers of a securities market participant foreign proceeding;
which, for purposes of investor protection, are hereby
deemed to have absolute priority over other claims of (b) the just treatment of all creditors through
whatever nature or kind insofar as trade-related assets are resort to a unified insolvency or rehabilitation
concerned. proceedings;

For purposes of this section, trade -related assets include (c) whether other jurisdictions have given
cash, securities, trading right and other owned and used by recognition to the foreign proceeding;
the securities market participant in the ordinary course of
this business.
(d) the extent that the foreign proceeding
recognizes the rights of creditors and other
CHAPTER VIII interested parties in a manner substantially in
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR accordance with the manner prescribed in this Act;
REHABILITAION PROCEEDINGS and

(A) Banks and Other Financial Institutions Under (e) the extent that the foreign proceeding has
Rehabilitation Receivership Pursuant to a State-funded or recognized and shown deference to proceedings
State-mandated Insurance System. under this Act and previous legislation.

Section 137. Provision of Assistance. - The court shall issue CHAPTER IX

orders, adjudicate claims and provide other relief necessary FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED
to assist in the liquidation of a financial under rehabilitation AND CONTROLLED CORPORATIONS
 26

Section 143. Funds for Rehabilitation of Government - with any provision of this Act are hereby repealed or
owned and Controlled Corporations. - Public funds for the modified accordingly.
rehabilitation of government-owned and controlled
corporations shall be released only pursuant to an Section 149. Separability Clause. - If any provision of this
appropriation by Congress and shall be supported by funds Act shall be held invalid, the remainder of this Act not
actually available as certified by the National Treasurer. otherwise affected shall remain in full force effect

The Department of Finance, in collaboration with the Section 150. Effectivity Clause. - This Act shall take effect
Department of Budget and Management, shall promulgate fifteen (15) days after its complete publication in the
the rules for the use and release of said funds. Official Gazette or in at least two (2) national newspaper of
general circulation.
CHAPTER X
MISCELLANEOUS PROVISIOS Approved,

Section 144. Applicability of Provisions. - The provisions in

Chapter II, insofar as they are applicable, shall likewise
(Sgd.) JUAN PONCE (Sgd.) PROSPERO C.
apply to proceedings in Chapters II and IV.
ENRILE NOGRALES
President of the Senate Speaker of the House of
Section 145. Penalties. - An owner, partner, director, Representatives
officer or other employee of the debtor who commits any
one of the following acts shall, upon conviction thereof, be
punished by a fine of not more than One million pesos (Php This Act which is a consolidation of House Bill No. 7090 and
1, 000,000.00) and imprisonment for not less than three(3) Senate Bill No. 61 was finally passed by the House of
months nor more than five (5) years for each offense; Representatives and the Senate on February 1. 2010 and
February 2, 2010, respectively.
(a) if he shall, having notice of the commencement
of the proceedings, or having reason to believe that
proceedings are about to be commented, or in (Sgd.) EMMA LIRIO-REYES (Sgd.) MARILYN B.
contemplation of the proceedings hide or conceal, Secretary of Senate BARUA-YAP
or destroy or cause to be destroyed or hidden any Secretary General
property belonging to the debtor or if he shall hide, House of Representatives
destroy, after mutilate or falsify, or cause to be
hidden, destroyed, altered, mutilated or falsified,
any book, deed, document or writing relating
(Sgd.) GLORIA MACAPAGAL-ARROYO
thereto; if he shall, with intent to defraud the
President of the Philippines
creditors of the debtor, make any payment sale,
assignment, transfer or conveyance of any property
belongings to the debtor

(b) if he shall, having knowledge belief of any

person having proved a false or fictitious claim
against the debtor, fail to disclose the same to the
rehabilitation receiver of liquidator within one (1)
month after coming to said knowledge or belief; or
if he shall attempt to account for any of the debtors
property by fictitious losses or expense; or

(c) if he shall knowingly violate a prohibition or

knowingly fail to undertake an obligation
established by this Act.

Section 146. Application to Pending Insolvency, Suspension

of Payments and Rehabilitation Cases. - This Act shall govern
all petitions filed after it has taken effect. All further
proceedings in insolvency, suspension of payments and
rehabilitation cases then pending, except to the extent that
in opinion of the court their application would not be
feasible or would work injustice, in which event the
procedures set forth in prior laws and regulations shall
apply.

Section 147. Application to Pending Contracts. - This Act

shall apply to all contracts of the debtor regardless of the
date of perfection.

Section 148. Repeating Clause. - The Insolvency Law (Act

No. 1956). As amended is hereby repealed. All other laws,
orders, rules and regulations or parts thereof inconsistent