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 defect 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%) 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.
(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.
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.
(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
Section 111
Use of Term Debtor
For purposes of this chapter, the term debtor shall include both
individual debtor as defined in Section 4(o) and debtor as defined in Section
4(k) of this Act.
(A) The Liquidation Order
Section 112
Liquidation Order
The Liquidation Order shall:
(a) Declare the debtor insolvent;
(b) Order the liquidation of the debtor and, in the case
of a juridical debtor, declare it as dissolved;
(c) Order the sheriff to take possession and control of
all the property of the debtor, except those that may be exempt from execution;
(d) Order the publication of the petition or motion in a
newspaper of general circulation once a week for two (2) consecutive weeks;
(e) Direct payments of any claims and conveyance of any
property due the debtor to the liquidator;
(f) Prohibit payments by the debtor and the transfer of
any property by the debtor;
(g) Direct all creditors to file their claims with the
liquidator within the period set by the rules of procedure;
(h) Authorize the payment of administrative expenses as
they become due;
(i) State that the debtor and creditors who are not
petitioner/s may submit the names of other nominees to the position of
liquidator; and
(j) Set the case for hearing for the election and
appointment of the liquidator, which date shall not be less than thirty (30)
days nor more than forty-five (45) days from the date of the last publication.
Section 113
Effects of the Liquidation
Order
Upon the issuance of the Liquidation Order:
(a) The juridical debtor shall be deemed dissolved and
its corporate or juridical existence terminated;
(b) Legal title to and control of all the assets of the
debtor, except those that may be exempt from execution, shall be deemed vested
in the liquidator or, pending his election or appointment, with the court;
(c) All contracts of the debtor shall be deemed
terminated and/or breached, unless the liquidator, within ninety (90) days from
the date of his assumption of office, declares otherwise and the contracting
party agrees;
(d) No separate action for the collection of an
unsecured claim shall be allowed. Such actions already pending will be
transferred to the Liquidator for him to accept and settle or contest. If the
liquidator contests or disputes the claim, the court shall allow, hear and
resolve such contest except when the case is already on appeal. In such a case,
the suit may proceed to judgment, and any final and executor judgment therein
for a claim against the debtor shall be filed and allowed in court; and
(e) No foreclosure proceeding shall be allowed for a
period of one hundred eighty (180) days.
Section 114
Rights of Secured Creditors
The Liquidation Order shall not affect the right of a secured creditor
to enforce his lien in accordance with the applicable contract or law. A
secured creditor may:
(a) Waive his right under the security or lien, prove
his claim in the liquidation proceedings and share in the distribution of the
assets of the debtor; or
(b) Maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or
lien:
(1) The value of the property may be fixed in a manner
agreed upon by the creditor and the liquidator. When the value of the property
is less than the claim it secures, the liquidator may convey the property to
the secured creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance. If its value exceeds the claim
secured, the liquidator may convey the property to the creditor and waive the
debtor's right of redemption upon receiving the excess from the creditor;
(2) The liquidator may sell the property and satisfy the
secured creditor's entire claim from the proceeds of the sale; or
(3) The secure creditor may enforce the lien or
foreclose on the property pursuant to applicable laws.
(B) The Liquidator
Section 115
Election of Liquidator
Only creditors who have filed their claims within the period set by the
court, and whose claims are not barred by the statute of limitations, will be
allowed to vote in the election of the liquidator. A secured creditor will not
be allowed to vote, unless:
(a) He waives his security or lien; or
(b) Has the value of the property subject of his
security or lien fixed by agreement with the liquidator, and is admitted for
the balance of his claim.
The creditors entitled to vote will elect the liquidator in open court.
The nominee receiving the highest number of votes cast in terms of amount of
claims, ad who is qualified pursuant to Section 118 hereof, shall be appointed
as the liquidator.
Section 116
Court-Appointed Liquidator
The court may appoint the liquidator if:
(a) On the date set for the election of the liquidator,
the creditors do not attend;
(b) The creditors who attend, fail or refuse to elect a
liquidator;
(c) After being elected, the liquidator fails to
qualify; or
(d) A vacancy occurs for any reason whatsoever, In any
of the cases provided herein, the court may instead set another hearing of the
election of the liquidator.
Provided further, That nothing in this section shall be construed to
prevent a rehabilitation receiver, who was administering the debtor prior to
the commencement of the liquidation, from being appointed as a liquidator.
Section 117
Oath and Bond of the
Liquidator
Prior to entering upon his powers, duties and responsibilities, the
liquidator shall take an oath and file a bond, In such amount to be fixed by
the court, conditioned upon the proper and faithful discharge of his powers,
duties and responsibilities.
Section 118
Qualifications of the
Liquidator
The liquidator shall have the qualifications enumerated in Section 29
hereof. He may be removed at any time by the court for cause, either motu
propio or upon motion of any creditor entitled to vote for the election of the
liquidator.
Section 119
Powers, Duties and
Responsibilities of the Liquidator
The liquidator shall be deemed an officer of the court with the
principal duly of preserving and maximizing the value and recovering the assets
of the debtor, with the end of liquidating them and discharging to the extent
possible all the claims against the debtor. The powers, duties and
responsibilities of the liquidator shall include, but not limited to:
(a) To sue and recover all the assets, debts and claims,
belonging or due to the debtor;
(b) To take possession of all the property of the debtor
except property exempt by law from execution;
(c) To sell, with the approval of the court, any
property of the debtor which has come into his possession or control;
(d) To redeem all mortgages and pledges, and so satisfy
any judgement which may be an encumbrance on any property sold by him;
(e) To settle all accounts between the debtor and his
creditors, subject to the approval of the court;
(f) To recover any property or its value, fraudulently
conveyed by the debtor;
(g) To recommend to the court the creation of a
creditors' committee which will assist him in the discharge of the functions
and which shall have powers as the court deems just, reasonable and necessary;
and
(h) Upon approval of the court, to engage such
professional as may be necessary and reasonable to assist him in the discharge
of his duties.
In addition to the rights and duties of a rehabilitation receiver, the
liquidator, shall have the right and duty to take all reasonable steps to
manage and dispose of the debtor's assets with a view towards maximizing the
proceedings therefrom, to pay creditors and stockholders, and to terminate the
debtor's legal existence. Other duties of the liquidator in accordance with
this section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for
removing a rehabilitation receiver.
Section 120
Compensation of the
Liquidator
The liquidator and the persons and entities engaged or employed by him
to assist in the discharge of his powers and duties shall be entitled to such
reasonable compensation as may determined by the liquidation court, which shall
not exceed the maximum amount as may be prescribed by the Supreme Court.
Section 121
Reporting Requirements
The liquidator shall make and keep a record of all moneys received and
all disbursements mad by him or under his authority as liquidator. He shall
render a quarterly report thereof to the court , which report shall be made
available to all interested parties. The liquidator shall also submit such
reports as may be required by the court from time to time as well as a final
report at the end of the liquidation proceedings.
Section 122
Discharge of Liquidator
In preparation for the final settlement of all the claims against the debtor
, the liquidator will notify all the creditors, either by publication in a
newspaper of general circulation or such other mode as the court may direct or
allow, that will apply with the court for the settlement of his account and his
discharge from liability as liquidator. The liquidator will file a final
accounting with the court, with proof of notice to all creditors. The
accounting will be set for hearing. If the court finds the same in order, the
court will discharge the liquidator.
(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
REHABILITAION PROCEEDINGS
(A) Banks and Other Financial Institutions Under
Rehabilitation Receivership Pursuant to a State-funded or State-mandated
Insurance System
Section 137
Provision of Assistance
The court shall issue orders, adjudicate claims and provide other
relief necessary to assist in the liquidation of a financial under
rehabilitation receivership established by a state-funded or state-mandated
insurance system.
Section 138
Application of Relevant
Legislation
The liquidation of bank, financial institutions, insurance companies
and pre-need companies shall be determined by relevant legislation. The
provisions in this Act shall apply in a suppletory manner.
(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 IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND
CONTROLLED CORPORATIONS
Section 143
Funds for Rehabilitation of
Government-owned and Controlled Corporations
Public funds for the rehabilitation of government-owned and controlled
corporations shall be released only pursuant to an appropriation by Congress
and shall be supported by funds actually available as certified by the National
Treasurer.
The Department of Finance, in collaboration with the Department of
Budget and Management, shall promulgate the rules for the use and release of
said funds.
CHAPTER X
MISCELLANEOUS PROVISIONS
Section 144
Applicability of Provisions
The provisions in Chapter II, insofar as they are applicable, shall
likewise apply to proceedings in Chapters II and IV.
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.
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 with
any provision of this Act are hereby repealed or modified accordingly.
Section 149
Separability Clause
If any provision of this Act shall be held invalid, the remainder of
this Act not otherwise affected shall remain in full force effect
Section 150
Effectivity Clause
This Act shall take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two (2) national newspaper
of general circulation.
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