Salient Provisions of Financial Rehabilitation and Insolvency Act of 2010 (FRIA) R.A.

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This new law repealed “The Insolvency Law” (Act No. 1956). All other laws, orders, rules and regulations
or parts thereof inconsistent with any provision of this Act were likewise repealed or modified accordingly.
Thus:

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

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

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

Meaning of Insolvent:

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

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

x x x. Provided, That government financial institutions other than banks and government-owned or
controlled corporations shall be covered by this Act, unless their specific charter provides otherwise.

Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a
separate entity under the proceedings in this Act. Under these proceedings, the assets and liabilities of a
debtor may not be commingled or aggregated with those of another, unless the latter is a related
enterprise that is owned or controlled directly or indirectly by the same interests: Provided, however, That
the commingling or aggregation of assets and liabilities of the debtor with those of a related enterprise
may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to
the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more convenient to treat
them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to commingle its
assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all
concerned and promotes the objectives of rehabilitation.

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

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

Partnership, or Directors and Officers. - Individual debtor, owner of a sole proprietorship, partners in a
partnership, or directors and officers of a debtor shall be liable for double the value of the property sold,
embezzled or disposed of or double the amount of the transaction involved, whichever is higher to be
recovered for benefit of the debtor and the creditors, if they, having notice of the commencement of the
proceedings, or having reason to believe that proceedings are about to be commenced, or in
contemplation of the proceedings, willfully commit the following acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of
business or authorize or approve any transaction in fraud of creditors or in a manner grossly
disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or
misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer under this
section. In this connection, in case of partnerships and corporations, the court shall consider the amount
of the shareholding or partnership or equity interest of such partner, director or officer, the degree of
control of such partner, director or officer over the debtor, and the extent of the involvement of such
partner, director or debtor in the actual management of the operations of the debtor.

CHAPTER II
COURT-SUPERVISED REHABILITATION

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

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

The petition shall be verified to establish the insolvency of the debtor and the viability of its rehabilitation,
and include, whether as an attachment or as part of the body of the petition, as a minimum the following:

(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as
they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the form of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts
of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and
(j) Other documents required to be filed with the petition pursuant to this Act and the rules of procedure as
may be promulgated by the Supreme Court.

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

Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of
creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners'
contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a
petition for rehabilitation with the court if:

(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least sixty (60) days or that the debtor has
failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will
prevent the debtor from paying its debts as they become due or will render it insolvent.

Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for rehabilitation shall be
verified to establish the substantial likelihood that the debtor may be rehabilitated, and include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings under
Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(f) other information that may be required under this Act depending on the form of relief requested; and
(g) other documents required to be filed with the petition pursuant to this Act and the rules of procedure
as may be promulgated by the Supreme Court.

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

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

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

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

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

(2) suspend all actions to enforce any judgment, attachment or other provisional remedies against the
debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its
properties except in the ordinary course of business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of the commencement
date except as may be provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the court's
issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension Order
described in Section 16 hereof:

(a) vest the rehabilitation with all the powers and functions provided for this Act, such as the right to
review and obtain records to which the debtor's management and directors have access, including bank
accounts or whatever nature of the debtor subject to the approval by the court of the performance bond
filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any extrajudicial
activity or process to seize property, sell encumbered property, or otherwise attempt to collection or
enforce a claim against the debtor after commencement date unless otherwise allowed in this Act, subject
to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement date of any
debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against the debtor's
property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court Provided.
However, That the court may allow the continuation of cases on other courts where the debtor had
initiated the suit.

Attempts to seek legal of other resource against the debtor outside these proceedings shall be sufficient
to support a finding of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not apply:

(a) to cases already pending appeal in the Supreme Court as of commencement date Provided, That any
final and executory judgment arising from such appeal shall be referred to the court for appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-judicial
agency which, upon determination by the court is capable of resolving the claim more quickly, fairly and
efficiently than the court: Provided, That any final and executory judgment of such court or agency shall
be referred to the court and shall be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with the debtor, and
third party or accommodation mortgagors as well as issuers of letters of credit, unless the property
subject of the third party or accommodation mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market participant to recover or otherwise
claim moneys and securities entrusted to the latter in the ordinary course of the latter's business as well
as any action of such securities market participant or the appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the settlement of securities transactions in accordance with the
provisions of the Securities Regulation Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a clearing agency or similar
entities duly authorized, registered and/or recognized by the appropriate regulatory agency like the
Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or
entities to reimburse themselves for any transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not
be affected by any proceeding commend under this Act.

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

(a) The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed by this
Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the protection of
creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach consensus
on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the
underlying assumptions and the goals stated in the petitioner's 

Rehabilitation Plan are realistic reasonable and reasonable or if not, there is, in any case, a substantial
likelihood for the debtor to be successfully rehabilitated because, among others:

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

(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in good faith and which
due diligence;
(4) the petition is not s sham filing intended only to delay the enforcement of the rights of the creditor's or
of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any materially false or
misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least three-
fourths (3/4) of its total obligations to the extent reasonably possible and made a good faith effort to reach
a consensus on the proposed Rehabilitation Plan if the petitioner/s is/are a creditor or group of creditors,
that/ the petitioner/s has/have met with the debtor and made a good faith effort to reach a consensus on
the proposed Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a group of
creditors.

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

(a) determine the creditors who have made timely and proper filing of their notice of claims;
(b) hear and determine any objection to the qualifications of the appointment of the rehabilitation receiver
and, if necessary appoint a new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the same to
the court and to the rehabilitation receiver within a period of not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to prepare and
submit to the court within forty (40) days from initial hearing the report provided in Section 24 hereof.

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

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

(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or acts committed
by the owner/s of a sole proprietorship partners of a partnership or directors or officers of a corporation in
contemplation of the insolvency of the debtor or which may have contributed to the insolvency of the
debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish such goals as
stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.

Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. - Within ten (10)
days from receipt of the report of the rehabilitation receiver mentioned in Section 24 hereof the court may:

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

(1) the debtor is insolvent; and 

(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(3) dismiss the petition upon a finding that:

(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions
necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as
continuing to apply to the extent that they do not conflict with the provisions of the Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on
creditors regardless of whether or not the Plan is successfully implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to
any Suspension Order.

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

Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum period of
one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.

If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or motu
propio, be converted into one for the liquidation of the debtor .
Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the Rehabilitation
Plan, the rehabilitation receiver shall provide a final report and accounting to the court. Unless the
Rehabilitation Plan specifically requires and describes the role of the rehabilitation receiver after the
approval of the Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his duties.

(j) Termination of Proceedings

Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall, upon
motion by any stakeholder or the rehabilitation receiver be terminated by order of the court either
declaring a successful implementation of the Rehabilitation Plan or a failure of rehabilitation.

There is failure of rehabilitation in the following cases:

(a) Dismissal of the petition by the court;

(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the debtor
can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation thereof,
the debtor fails to perform its obligations thereunder or there is a failure to realize the objectives, targets
or goals set forth therein, including the timelines and conditions for the settlement of the obligations due to
the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.

Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an affected party
may:

(1) Issue an order directing that the breach be cured within a specified period of time, falling which the
proceedings may be converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan, the
approval of which shall be governed by the same requirements for the approval of a Rehabilitation Plan
under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation, other applicable
law and the best interests of the creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.

Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:

(a) The discharge of the rehabilitation receiver subject to his submission of a final accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action for the
enforcement of a claim against the debtor.

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

CHAPTER III
PRE-NEGOTIATED REHABILITATION

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

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

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

Section 77. Issuance of Order. - Within five (5) working days, and after determination that the petition is
sufficient in form and substance, the court shall issue an Order which shall;

(a) identify the debtor, its principal business of activity/ies and its principal place of business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in the Philippines once a week
for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days from the
time of its issuance;
(e) direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner
holding at least ten percent (10%) of the total liabilities of the debtor, as determined in the schedule
attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for examination and copying
by any interested party;
(g) state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file
their objections or comments thereto within a period of not later than twenty (20) days from the second
publication of the Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.

Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication of the
Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested party submits
an objection to it in accordance with the next succeeding section.

Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or 
other interested party may submit to the court a verified objection to the petition or the Rehabilitation Plan
not later than eight (8) days from the date of the second publication of the Order mentioned in Section 77
hereof. The objections shall be limited to the following:

(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto are materially false
or misleading;
(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim in not
categorically declared as a contested claim; or
(d) The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the
rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports the
Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the Rehabilitation
Plan.

Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the same for
hearing. The date of the hearing shall be no earlier than twenty (20) days and no later than thirty (30)
days from the date of the second publication of the Order mentioned in Section 77 hereof. If the court
finds merit in the objection, it shall direct the debtor, when feasible to cure the detect within a reasonable
period. If the court determines that the debtor or creditors supporting the Rehabilitation Plan acted in bad
faith, or that the objection is non-curable, the court may order the conversion of the proceedings into
liquidation. A finding by the court that the objection has no substantial merit, or that the same has been
cured shall be deemed an approval of the Rehabilitation Plan.

Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period of one
hundred twenty (120) days from the date of the filing of the petition to approve the Rehabilitation Plan. If
the court fails to act within the said period, the Rehabilitation Plan shall be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal effect as
confirmation of a Plan under Chapter II of this Act.

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

Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-of-court
or informal restructuring agreement or Rehabilitation Plan that meets the minimum requirements
prescribed in this chapter is hereby recognized as consistent with the objectives of this Act.

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

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

(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of
the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured
obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities,
secured and unsecured, of the debtor.

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

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

Section 87. Amendment or Modification. - Any amendment of an out-of-court restructuring/workout

agreement or Rehabilitation Plan must be made in accordance with the terms of the agreement and with
due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings arising
from, or relating to, the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan
shall not stay its implementation, unless the relevant party is able to secure a temporary restraining order
or injunctive relief from the Court of Appeals.

Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court 
assistance for the execution or implementation of a Rehabilitation Plan under this Chapter, under such
rules of procedure as may be promulgated by the Supreme Court.

CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS

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

(a) a schedule of the debtor's debts and liabilities including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.

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

If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall issue
a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims is at least
either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the subscribed
capital stock or partner's contributions of the debtor, whichever is higher, may apply for and seek the
liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court. 

The petition shall show that:

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

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

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

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

(1) directing the publication of the petition or motion in a newspaper of general circulation once a week for
two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their comment on the petition or
motion within fifteen (15) days from the date of last publication.

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

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

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

CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS

(A) Suspension of Payments.

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

Section 95. Action on the Petition. - If the court finds the petition sufficient in form and substance, it shall,
within five (5) working days from the filing of the petition, issue an Order:

(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not less
than fifteen (15) days nor more than forty (40) days from the date of such Order and designating the date,
time and place of the meeting;
(b) directing such creditors to prepare and present written evidence of their claims before the scheduled
creditors' meeting;
(c) directing the publication of the said order in a newspaper of general circulation published in the
province or city in which the petition is filed once a week for two (2) consecutive weeks, with the first
publication to be made within seven (7) days from the time of the issuance of the Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage
prepaid, to all creditors named in the schedule of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of
his property, except those used in the ordinary operations of commerce or of industry in which the
petitioning individual debtor is engaged so long as the proceedings relative to the suspension of
payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the necessary or legitimate
expenses of his business or industry, so long as the proceedings relative to the suspension of payments
are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.

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

(a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of
the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the
petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least three-
fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner appointed by the
court shall preside over the meeting and the clerk of court shall act as the secretary thereof, subject to the
following rules:
(a) The clerk shall record the creditors present and amount of their respective claims;
(b) The commissioner shall examine the written evidence of the claims. If the creditors present hold at
least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall declare the meeting
open for business;
(c) The creditors and individual debtor shall discuss the propositions in the proposed agreement and put
them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
(2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total
liabilities of the debtor mentioned in the petition; and

(e) After the result of the voting has been announced, all protests made against the majority vote shall be
drawn up, and the commissioner and the individual debtor together with all creditors taking part in the
voting shall sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be entitled
to vote.

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

Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed rejected if
the number of creditors required for holding a meeting do not attend thereat, or if the two (2) majorities
mentioned in Section 97 hereof are not in favor thereof. In such instances, the proceeding shall be
terminated without recourse and the parties concerned shall be at liberty to enforce the rights which may
correspond to them.

Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof made during
the creditors' meeting, is approved by the majority of creditors in accordance with Section 97 hereof, any
creditor who attended the meeting and who dissented from and protested against the vote of the majority
may file an objection with the court within ten (10) days from the date of the last creditors' meeting. The
causes for which objection may be made to the decision made by the majority during the meeting shall
be: (a) defects in the call for the meeting, in the holding thereof and in the deliberations had thereat which
prejudice the rights of the creditors; (b) fraudulent connivance between one or more creditors and the
individual debtor to vote in favor of the proposed agreement; or (c) fraudulent conveyance of claims for
the purpose of obtaining a majority. The court shall hear and pass upon such objection as soon as
possible and in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's proposal or any
amendment thereof made during the creditors' meeting is annulled by the court, the court shall declare
the proceedings terminated and the creditors shall be at liberty to exercise the rights which may
correspond to them.

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

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

Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails, wholly or in
part, to perform the agreement decided upon at the meeting of the creditors, all the rights which the
creditors had against the individual debtor before the agreement shall revest in them. In such case the
individual debtor may be made subject to the insolvency proceedings in the manner established by this
Act.

Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance it shall,
within five (5) working days issue the Liquidation Order mentioned in Section 112 hereof.
(B) Voluntary Liquidation.

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

(C) In voluntary Liquidation.

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

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

(a) That such person is about to depart or has departed from the Republic of the Philippines, with intent to
defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his creditors, he remains
absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying
the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken on legal
process;
(e) That he has suffered his property to remain under attachment or legal process for three (3) days for
the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose
of hindering or delaying the liquidation or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose of hindering
or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to give a
preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud any one
of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or
credits with intent to hinder or delay the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or
transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his current
obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited with him
or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he shall have been
found to be without sufficient property subject to execution to satisfy the judgment.

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

Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors' petition, the
court shall issue an Order requiring the individual debtor to show cause, at a time and place to be fixed by
the said court, why he should not be adjudged an insolvent. Upon good cause shown, the court may issue
an Order forbidding the individual debtor from making payments of any of his debts, and transferring any
property belonging to him. However, nothing contained herein shall affect or impair the rights of a secured
creditor to enforce his lien in accordance with its terms.

Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in favor of
the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of the
Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be found therein; or
conceals himself to avoid service of the Order to show cause, or any other preliminary process or orders
in the matter, then the petitioning creditors, upon submitting the affidavits requisite to procedure an Order
of publication, and presenting a bond in double the amount of the aggregate sum of their claims against
the individual debtor, shall be entitled to an Order of the court directing the sheriff of the province or city in
which the matter is pending to take into his custody a sufficient amount of property of the individual debtor
to satisfy the demands of the petitioning creditors and the costs of the proceedings. Upon receiving such
Order of the court to take into custody of the property of the individual debtor, it shall be the duty of the
sheriff to take possession of the property and effects of the individual debtor, not exempt from execution,
to an extent sufficient to cover the amount provided for and to prepare within three (3) days from the time
of taking such possession, a complete inventory of all the property so taken, and to return it to the court
as soon as completed. 

The time for taking the inventory and making return thereof may be extended for good cause shown to the
court. The sheriff shall also prepare a schedule of the names and residences of the creditors, and the
amount due each, from the books of the debtor, or from such other papers or data of the individual debtor
available as may come to his possession, and shall file such schedule or list of creditors and inventory
with the clerk of court.

Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to Sureties. - In
all cases where property is taken into custody by the sheriff, if it does not embrace all the property and
effects of the debtor not exempt from execution, any other creditor or creditors of the individual debtor,
upon giving bond to be approved by the court in double the amount of their claims, singly or jointly, shall
be entitled to similar orders and to like action, by the sheriff; until all claims be provided for, if there be
sufficient property or effects. All property taken into custody by the sheriff by virtue of the giving of any
such bonds shall be held by him for the benefit of all creditors of the individual debtor whose claims shall
be duly proved as provided in this Act. The bonds provided for in this section and the preceding section to
procure the order for custody of the property and effects of the individual debtor shall be conditioned that
if, upon final hearing of the petition in insolvency, the court shall find in favor of the petitioners, such
bonds and all of them shall be void; if the decision be in favor of the individual debtor, the proceedings
shall be dismissed, and the individual debtor, his heirs, administrators, executors or assigns shall be
entitled to recover such sum of money as shall be sufficient to cover the damages sustained by him, not
to exceed the amount of the respective bonds. Such damages shall be fixed and allowed by the court. If
either the petitioners or the debtor shall appeal from the decision of the court, upon final hearing of the
petition, the appellant shall be required to give bond to the successful party in a sum double the amount
of the value of the property in controversy, and for the costs of the proceedings.

Any person interested in the estate may take exception to the sufficiency of the sureties on such bond or
bonds. When excepted to the petitioner's sureties, upon notice to the person excepting of not less than
two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure to justify, or of
others in their place fail to justify at the time and place appointed the judge shall issue an Order vacating
the order to take the property of the individual debtor into the custody of the sheriff, or denying the appeal,
as the case may be.

Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to the
court or a judge thereof, asking for and obtaining an Order of publication and an Order for the custody of
the property of the individual debtor and thereafter the petitioners shall make it appear satisfactorily to the
court or a judge thereof that the interest of the parties to the proceedings will be subserved by a sale
thereof, the court may order such property to be sold in the same manner as property is sold under
execution, the proceeds to de deposited in the court to abide by the result of the proceedings.

CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND JURIDICAL
DEBTORS

(A) The Liquidation Order.

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

(a) declare the debtor insolvent;

(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except those that may
be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation once a week for
two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to the liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the rules of procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of other nominees to
the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date shall not be less
than thirty (30) days nor more than forty-five (45) days from the date of the last publication.

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

(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be exempt from
execution, shall be deemed vested in the liquidator or, pending his election or appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator, within
ninety (90) days from the date of his assumption of office, declares otherwise and the contracting party
agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed. 

Such actions already pending will be transferred to the Liquidator for him to accept and settle or contest. If
the liquidator contests or disputes the claim, the court shall allow, hear and resolve such contest except
when the case is already on appeal. In such a case, the suit may proceed to judgment, and any final and
executor judgment therein for a claim against the debtor shall be filed and allowed in court; and

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

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

(a) waive his right under the security or lien, prove his claim in the liquidation proceedings and share in
the distribution of the assets of the debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:

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

(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds of
the sale; or
(3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable laws.

(B) The Liquidator.

Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period set by the
court, and whose claims are not barred by the statute of limitations, will be allowed to vote in the election
of the liquidator. A secured creditor will not be allowed to vote, unless: (a) he waives his security or lien;
or 

(b) has the value of the property subject of his security or lien fixed by agreement with the liquidator, and
is admitted for the balance of his claim.

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

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

(a) on the date set for the election of the liquidator, the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court may
instead set another hearing of the election of the liquidator.

Provided further, That nothing in this section shall be construed to prevent a rehabilitation receiver, who
was administering the debtor prior to the commencement of the liquidation, from being appointed as a
liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be deemed an
officer of the court with the principal duly of preserving and maximizing the value and recovering the
assets of the debtor, with the end of liquidating them and discharging to the extent possible all the claims
against the debtor. The powers, duties and responsibilities of the liquidator shall include, but not limited
to:

(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law from execution;
(c) to sell, with the approval of the court, any property of the debtor which has come into his possession or
control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an encumbrance
on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist him in the discharge
of the functions and which shall have powers as the court deems just, reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and reasonable to
assist him in the discharge of his duties.

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

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

(C) Determination of Claims

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

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

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

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

(D) Avoidance Proceedings.

Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to the
issuance of the Liquidation Order or, in case of the conversion of the rehabilitation proceedings prior to
the commencement date, entered into by the debtor or involving its assets, may be rescinded or declared
null and void on the ground that the same was executed with intent to defraud a creditor or creditors or
which constitute undue preference of creditors. The presumptions set forth in Section 58 hereof shall
apply.

Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a creditor may
initiate and prosecute any action to rescind, or declare null and void any transaction described in the
immediately preceding paragraph. If the liquidator does not consent to the filling or prosecution of such
action, any creditor may seek leave of the court to commence said action.
(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign and transfer to the
creditor all rights, title and interest in the chose in action or subject matter of the proceeding, including any
document in support thereof.

(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the extent of his
claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any,
belongs to the estate.
(d) Where, before an orders is made under subsection (a) hereof, the liquidator signifies to the court his
readiness to the institute the proceeding for the benefit of the creditors, the order shall fix the time within
which he shall do so and, in that case the benefit derived from the proceedings, if instituted within the time
limits so fixed, belongs to the estate.

(E) The Liquidation Plan.

Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office, the
Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a minimum
enumerate all the assets of the debtor and a schedule of liquidation of the assets and payment of the
claims.

Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition and after
hearing, to exempt and set apart, for the use and benefit of the said insolvent, such real and personal
property as is by law exempt from execution, and also a homestead; but no such petition shall be heard
as aforesaid until it is first proved that notice of the hearing of the application therefor has been duly given
by the clerk, by causing such notice to be posted it at least three (3) public places in the province or city at
least ten (10) days prior to the time of such hearing, which notice shall set forth the name of the said
insolvent debtor, and the time and place appointed for the hearing of such application, and shall briefly
indicate the homestead sought to be exempted or the property sought to be set aside; and the decree
must show that such proof was made to the satisfaction of the court, and shall be conclusive evidence of
that fact.

Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of the
debtor and convert the same into money. The sale shall be made at public auction. However, a private
sale may be allowed with the approval of the court if; (a) the goods to be sold are of a perishable nature,
or are liable to quickly deteriorate in value, or are disproportionately expensive to keep or maintain; or (b)
the private sale is for the best interest of the debtor and his creditors.

With the approval of the court, unencumbered property of the debtor may also be conveyed to a creditor
in satisfaction of his claim or part thereof.

Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the
Liquidation Plan as approved by the court. Payments shall be made to the creditors only in accordance
with the provisions of the Plan.

Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its Implementation shall
ensure that the concurrence and preference of credits as enumerated in the Civil Code of the Philippines
and other relevant laws shall be observed, unless a preferred creditor voluntarily waives his preferred
right. For purposes of this chapter, credits for services rendered by employees or laborers to the debtor
shall enjoy first preference under Article 2244 of the Civil Code, unless the claims constitute legal liens
under Article 2241 and 2242 thereof.

Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities and
Exchange Commission. - Upon determining that the liquidation has been completed according to this Act
and applicable law, the court shall issue an Order approving the report and ordering the SEC to remove
the debtor from the registry of legal entities.

Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor has been
removed from the registry of legal entities at the SEC. The court shall issue an Order terminating the
proceedings.
(F) Liquidation of a Securities Market Participant.

Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this chapter shall
be without prejudice to the power of a regulatory agency or self- regulatory organization to liquidate trade-
related claims of clients or customers of a securities market participant which, for purposes of investor
protection, are hereby deemed to have absolute priority over other claims of whatever nature or kind
insofar as trade-related assets are concerned.
For purposes of this section, trade -related assets include cash, securities, trading right and other owned
and used by the securities market participant in the ordinary course of this business.
CHAPTER VIII

PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITATION PROCEEDINGS

(B) Cross-Border Insolvency Proceedings.

Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the provision of
Section 136 hereof and the rules of procedure that may be adopted by the Supreme Court, the Model
Law on Cross-Border Insolvency of the United Nations Center for International Trade and Development is
hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an insolvency or
rehabilitation proceeding taking place in a foreign jurisdiction, upon the submission of a petition by the
representative of the foreign entity that is the subject of the foreign proceeding.

Section 141. Provision of Relief. - The court may issue orders:

(a) suspending any action to enforce claims against the entity or otherwise seize or foreclose on property
of the foreign entity located in the Philippines;
(b) requiring the surrender property of the foreign entity to the foreign representative; or 
(c) providing other necessary relief.

Section 142. Factors in Granting Relief. - In determining whether to grant relief 

under this subchapter, the court shall consider;

(a) the protection of creditors in the Philippines and the inconvenience in pursuing their claim in a foreign
proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation proceedings;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and other interested parties in
a manner substantially in accordance with the manner prescribed in this Act; and 
(e) the extent that the foreign proceeding has recognized and shown deference to proceedings under this
Act and previous legislation.

CHAPTER X
MISCELLANEOUS PROVISIONS

Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor who commits
any one of the following acts shall, upon conviction thereof, be punished by a fine of not more than One
million pesos (Php 1, 000,000.00) and imprisonment for not less than three(3) months nor more than five
(5) years for each offense;

(a) if he shall, having notice of the commencement of the proceedings, or having reason to believe that
proceedings are about to be commented, or in contemplation of the proceedings hide or conceal, or
destroy or cause to be destroyed or hidden any property belonging to the debtor or if he shall hide,
destroy, after mutilate or falsify, or cause to be hidden, destroyed, altered, mutilated or falsified, any book,
deed, document or writing relating thereto; if he shall, with intent to defraud the creditors of the debtor,
make any payment sale, assignment, transfer or conveyance of any property belongings to the debtor
(b) if he shall, having knowledge belief of any person having proved a false or fictitious claim against the
debtor, fail to disclose the same to the rehabilitation receiver of liquidator within one (1) month after
coming to said knowledge or belief; or if he shall attempt to account for any of the debtors property by
fictitious losses or expense; or 
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation established by
this Act.