CHAPTER I limited to; (1) all claims of the government, whether national or local, including taxes,

GENERAL PROVISIONS tariffs and customs duties; and (2) claims against directors and officers of the debtor
arising from acts done in the discharge of their functions falling within the scope of their
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and Insolvency Act
authority:Provided, That, this inclusion does not prohibit the creditors or third parties
(FRIA) of 2010".
from filing cases against the directors and officers acting in their personal capacities.
Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors, both juridical
(d) Commencement date shall refer to the date on which the court issues the
and natural persons, and their creditors to collectively and realistically resolve and adjust
Commencement Order, which shall be retroactive to the date of filing of the petition for
competing claims and property rights. In furtherance thereof, the State shall ensure a timely, fair,
voluntary or involuntary proceedings.
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 (e) Commencement Order shall refer to the order issued by the court under Section 16
commercial affairs, preserve and maximize the value of the assets of these debtors, recognize of this Act.
creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are
(f) Control shall refer to the power of a parent corporation to direct or govern the
similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilities a
financial and operating policies of an enterprise so as to obtain benefits from its
speedy and orderly liquidation of these debtor's assets and the settlement of their obligations.
activities. Control is presumed to exist when the parent owns, directly or indirectly
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction through subsidiaries or affiliates, more than one-half (1/2) of the voting power of an
over all persons affected by the proceedings shall be considered as acquired upon publication of enterprise unless, in exceptional circumstances, it can clearly be demonstrated that
the notice of the commencement of the proceedings in any newspaper of general circulation in such ownership does not constitute control. Control also exists even when the parent
the Philippines in the manner prescribed by the rules of procedure to be promulgated by the owns one-half (1/2) or less of the voting power of an enterprise when there is power:
Supreme Court.
(1) over more than one-half (1/2) of the voting rights by virtue of an
The proceedings shall be conducted in a summary and non-adversarial manner consistent with the agreement with investors;
declared policies of this Act and in accordance with the rules of procedure that the Supreme Court
(2) to direct or govern the financial and operating policies of the enterprise
may promulgate.
under a statute or an agreement;
Section 4. Definition of Terms. - As used in this Act, the term:
(3) to appoint or remove the majority of the members of the board of
(a) Administrative expenses shall refer to those reasonable and necessary expenses: directors or equivalent governing body; or
(1) incurred or arising from the filing of a petition under the provisions of this (4) to cast the majority votes at meetings of the board of directors or
Act; equivalent governing body.
(2) arising from, or in connection with, the conduct of the proceedings under (g) Court shall refer to the court designated by the Supreme Court to hear and
this Act, including those incurred for the rehabilitation or liquidation of the determine, at the first instance, the cases brought under this Act.
debtor;
(h) Creditor shall refer to a natural or juridical person which has a claim against the
(3) incurred in the ordinary course of business of the debtor after the debtor that arose on or before the commencement date.
commencement date;
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation
(4) for the payment of new obligations obtained after the commencement Order.
date to finance the rehabilitation of the debtor;
(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.
(5) incurred for the fees of the rehabilitation receiver or liquidator and of the
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole
professionals engaged by them; and
proprietorship duly registered with the Department of Trade and Industry (DTI), a
(6) that are otherwise authorized or mandated under this Act or such other partnership duly registered with the Securities and Exchange Commission (SEC), a
expenses as may be allowed by the Supreme Court in its rules. corporation duly organized and existing under Philippine laws, or an individual debtor
who has become insolvent as defined herein.
(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the common control of another corporation. (l) Encumbered property shall refer to real or personal property of the debtor upon
which a lien attaches.
(c) Claim shall refer to all claims or demands of whatever nature or character against
the debtor or its property, whether for money or otherwise, liquidated or unliquidated, (m) General unsecured creditor shall refer to a creditor whose claim or a portion thereof
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not its neither secured, preferred nor subordinated under this Act.
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(n) Group of debtors shall refer to and can cover only: (1) corporations that are (z) Ownership interest shall refer to the ownership interest of third parties in property
financially related to one another as parent corporations, subsidiaries or affiliates; (2) held by the debtor, including those covered by trust receipts or assignments of
partnerships that are owned more than fifty percent (50%) by the same person; and (3) receivables.
single proprietorships that are owned by the same person. When the petition covers a
(aa) Parent shall refer to a corporation which has control over another corporation
group of debtors, all reference under these rules to debtor shall include and apply to
either directly or indirectly through one or more intermediaries.
the group of debtors.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured
(o) Individual debtor shall refer to a natural person who is a resident and citizen of the
creditors' committee, a stakeholder, a party with an ownership interest in property held
Philippines that has become insolvent as defined herein.
by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any other
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to juridical or natural person who stands to be benefited or injured by the outcome of the
pay its or his liabilities as they fall due in the ordinary course of business or has liabilities proceedings and whose notice of appearance is accepted by the court.
that are greater than its or his assets.
(cc) Possessory lien shall refer to a lien on property, the possession of which has been
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which transferred to a creditor or a representative or agent thereof.
includes all the property and assets of the debtor as of commencement date, plus the
(dd) Proceedings shall refer to judicial proceedings commenced by the court's
property and assets acquired by the rehabilitation receiver or liquidator after that date,
acceptance of a petition filed under this Act.
as well as all other property and assets in which the debtor has an ownership interest,
whether or not these property and assets are in the debtor's possession as of (ee) Property of others shall refer to property held by the debtor in which other persons
commencement date: Provided, That trust assets and bailment, and other property and have an ownership interest.
assets of a third party that are in the possession of the debtor as of commencement
date, are excluded therefrom. (ff) Publication notice shall refer to notice through publication in a newspaper of general
circulation in the Philippines on a business day for two (2) consecutive weeks.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
(s) Liabilities shall refer to monetary claims against the debtor, including stockholder's successful operation and solvency, if it is shown that its continuance of operation is
advances that have been recorded in the debtor's audited financial statements as economically feasible and its creditors can recover by way of the present value of
advances for future subscriptions. payments projected in the plan, more if the debtor continues as a going concern than if
it is immediately liquidated.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or
personal property that legality entities a creditor to resort to said property for payment (hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical,
of the claim or debt secured by such lien. appointed as such by the court pursuant to this Act and which shall be entrusted with
such powers and duties as set forth herein.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability
(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of
of an insolvent debtor can be restored using various means including, but not limited to,
this Act.
debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en
(w) Liquidator shall refer to the natural person or juridical entity appointed as such by pago, debt-equity conversion and sale of the business (or parts of it) as a going concern,
the court and entrusted with such powers and duties as set forth in this or setting-up of new business entity as prescribed in Section 62 hereof, or other similar
Act: Provided, That, if the liquidator is a juridical entity, it must designated a natural arrangements as may be approved by the court or creditors.
person who possesses all the qualifications and none of the disqualifications as its
(jj) Secured claim shall refer to a claim that is secured by a lien.
representative, it being understood that the juridical entity and the representative are
solidarity liable for all obligations and responsibilities of the liquidator. (kk) Secured creditor shall refer to a creditor with a secured claim.
(x) Officer shall refer to a natural person holding a management position described in or (ll) Secured party shall refer to a secured creditor or the agent or representative of such
contemplated by a juridical entity's articles of incorporation, bylaws or equivalent secured creditor.
documents, except for the corporate secretary, the assistant corporate secretary and
the external auditor. (mm) Securities market participant shall refer to a broker dealer, underwriter, transfer
agent or other juridical persons transacting securities in the capital market.
(y) Ordinary course of business shall refer to transactions in the pursuit of the individual
debtor's or debtor's business operations prior to rehabilitation or insolvency (nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a
proceedings and on ordinary business terms. member of a nonstock corporation or association or a partner in a partnership.

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 (oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting (d) The consolidation of assets and liabilities of the debtor and the related enterprise is
stock of which is owned or controlled directly or indirectly through one or more beneficial to all concerned and promotes the objectives of rehabilitation.
intermediaries by another corporation, which thereby becomes its parent corporation.
Provided, finally, That nothing in this section shall prevent the court from joining other entities
(pp) Unsecured claim shall refer to a claim that is not secured by a lien. affiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by
the Supreme Court.
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.
Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to the relevant
(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
provisions of the Corporation Code in the case of stock or nonstock corporations or the Civil Code
(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the in the case of partnerships that are not inconsistent with this Act.
consent of which is necessary for the approval of a Rehabilitation Plan under this Act.
Section 9. Creditors Representatives. - Creditors may designate representatives to vote or
Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need otherwise act on their behalf by filing notice of such representation with the court and serving a
companies, and national and local government agencies or units. copy on the rehabilitation receiver or liquidator.

For purposes of this section: 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
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually partnership, or directors and officers of a debtor shall be liable for double the value of the
subject to conservatorship, receivership or liquidation proceedings under the New property sold, embezzled or disposed of or double the amount of the transaction involved,
Central Bank Act (Republic Act No. 7653) or successor legislation; whichever is higher to be recovered for benefit of the debtor and the creditors, if they, having
(b) Insurance company shall refer to those companies that are potentially or actually notice of the commencement of the proceedings, or having reason to believe that proceedings are
subject to insolvency proceedings under the Insurance Code (Presidential Decree No. about to be commenced, or in contemplation of the proceedings, willfully commit the following
1460) or successor legislation; and acts:

(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer (a) Dispose or cause to be disposed of any property of the debtor other than in the
to sell pre-need plans. 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
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 (b) Conceal or authorize or approve the concealment, from the creditors, or embezzles
otherwise. or misappropriates, any property of the debtor.

Section 6. Designation of Courts and Promulgation of Procedural Rules. - The Supreme Court shall The court shall determine the extent of the liability of an owner, partner, director or officer under
designate the court or courts that will hear and resolve cases brought under this Act and shall this section. In this connection, in case of partnerships and corporations, the court shall consider
promulgate the rules of pleading, practice and procedure to govern the proceedings brought the amount of the shareholding or partnership or equity interest of such partner, director or
under this Act. 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
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a the debtor.
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 Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable banking
latter is a related enterprise that is owned or controlled directly or indirectly by the same legislation to the contrary, any bank, whether universal or not, may acquire and hold an equity
interests: Provided, however, That the commingling or aggregation of assets and liabilities of the interest or investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction of
debtor with those of a related enterprise may only be allowed where: debts pursuant to a Rehabilitation or Liquidation Plan approved by the court: Provided, That such
ownership shall be subject to the ownership limits applicable to universal banks for equity
(a) there was commingling in fact of assets and liabilities of the debtor and the related investments and: Provided, further, That any equity investment or interest acquired or held
enterprise prior to the commencement of the proceedings; pursuant to this section shall be disposed by the bank within a period of five (5) years or as may be
prescribed by the Monetary Board.
(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately; CHAPTER II
COURT-SUPERVISED REHABILITATION
(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 (A) Initiation Proceedings.
(1) Voluntary Proceedings.

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Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner in (b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against
case of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case of the debtor that will prevent the debtor from paying its debts as they become due or will
a corporation, by a majority vote of the board of directors or trustees and authorized by the vote render it insolvent.
of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for rehabilitation
case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a
shall be verified to establish the substantial likelihood that the debtor may be rehabilitated, and
stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate
include:
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 (a) identification of the debtor its principal activities and its address;
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: (b) the circumstances sufficient to support a petition to initiate involuntary
rehabilitation proceedings under Section 13 of this Act;
(a) Identification of the debtor, its principal activities and its addresses;
(c) the specific relief sought under this Act;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay
its obligations as they become due; (d) a Rehabilitation Plan;

(c) The specific relief sought pursuant to this Act; (e) the names of at least three (3) nominees to the position of rehabilitation receiver;

(d) The grounds upon which the petition is based; (f) other information that may be required under this Act depending on the form of
relief requested; and
(e) Other information that may be required under this Act depending on the form of
relief requested; (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.
(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; (B) Action on the Petition and Commencement of Proceedings.

(g) An inventory of all its assets including receivables and claims against third parties; 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
(h) A Rehabilitation Plan; 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
(i) The names of at least three (3) nominees to the position of rehabilitation receiver;
which to amend or supplement the petition, or to submit such documents as may be necessary or
and
proper to put the petition in proper order. In such case, the five (5) working days provided above
(j) Other documents required to be filed with the petition pursuant to this Act and the for the issuance of the Commencement Order shall be reckoned from the date of the filing of the
rules of procedure as may be promulgated by the Supreme Court. amended or supplemental petition or the submission of such documents.
A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The
its members foresee the impossibility of meeting debts when they respectively fall due, and the rehabilitation proceedings shall commence upon the issuance of the Commencement Order,
financial distress would likely adversely affect the financial condition and/or operations of the which shall:
other members of the group and/or the participation of the other members of the group is
(a) identify the debtor, its principal business or activity/ies and its principal place of
essential under the terms and conditions of the proposed Rehabilitation Plan.
business;
(2) Involuntary Proceedings.
(b) summarize the ground/s for initiating the proceedings;
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of
(c) state the relief sought under this Act and any requirement or procedure particular to
creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos
the relief sought;
(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 (d) state the legal effects of the Commencement Order, including those mentioned in
debtor by filing a petition for rehabilitation with the court if: Section 17 hereof;
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that (e) declare that the debtor is under rehabilitation;
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 (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;

4
(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the
petition on each creditor holding at least ten percent (10%) of the total liabilities of the court's issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension
debtor as determined from the schedule attached to the petition within five (5) days; if Order described in Section 16 hereof:
the petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the
(a) vest the rehabilitation with all the powers and functions provided for this Act, such
petition on the debtor within five (5) days;
as the right to review and obtain records to which the debtor's management and
(h) appoint a rehabilitation receiver who may or not be from among the nominees of directors have access, including bank accounts or whatever nature of the debtor subject
the petitioner/s and who shall exercise such powers and duties defined in this Act as to the approval by the court of the performance bond filed by the rehabilitation
well as the procedural rules that the Supreme Court will promulgate; receiver;
(i) summarize the requirements and deadlines for creditors to establish their claims (b) prohibit or otherwise serve as the legal basis rendering null and void the results of
against the debtor and direct all creditors to their claims with the court at least five (5) any extrajudicial activity or process to seize property, sell encumbered property, or
days before the initial hearing; 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
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment
Section 50 hereof;
on or opposition to the petition or its claim/s against the debtor under such procedures
as the Supreme Court provide; (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;
(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 (d) serve as the legal basis for rendering null and void the perfection of any lien against
payments for the services or goods supplied after the issuance of the Commencement the debtor's property after the commencement date; and
Order;
(e) consolidate the resolution of all legal proceedings by and against the debtor to the
(l) authorize the payment of administrative expenses as they become due; court Provided. However, That the court may allow the continuation of cases on other
courts where the debtor had initiated the suit.
(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 Attempts to seek legal of other resource against the debtor outside these proceedings shall be
likelihood for the debtor to be rehabilitated; sufficient to support a finding of indirect contempt of court.
(n) make available copies of the petition and rehabilitation plan for examination and Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not
copying by any interested party; apply:
(o) indicate the location or locations at which documents regarding the debtor and the (a) to cases already pending appeal in the Supreme Court as of commencement
proceedings under Act may be reviewed and copied; date Provided, That any final and executory judgment arising from such appeal shall be
referred to the court for appropriate action;
(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 (b) subject to the discretion of the court, to cases pending or filed at a specialized court
five (5) days before the initial hearing; 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
(q) include s Stay or Suspension Order which shall:
executory judgment of such court or agency shall be referred to the court and shall be
(1) suspend all actions or proceedings, in court or otherwise, for the treated as a non-disputed claim;
enforcement of claims against the debtor;
(c) to the enforcement of claims against sureties and other persons solidarily liable with
(2) suspend all actions to enforce any judgment, attachment or other the debtor, and third party or accommodation mortgagors as well as issuers of letters of
provisional remedies against the debtor; 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
(3) prohibit the debtor from selling, encumbering, transferring or disposing in recommendation by the rehabilitation receiver;
any manner any of its properties except in the ordinary course of business;
and (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
(4) prohibit the debtor from making any payment of its liabilities outstanding course of the latter's business as well as any action of such securities market participant
as of the commencement date except as may be provided herein. or the appropriate regulatory agency or self-regulatory organization to pay or settle
such claims or liabilities;

5
 (e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor (4) the petition is not s sham filing intended only to delay the enforcement of
pursuant to a securities pledge or margin agreement for the settlement of securities the rights of the creditor's or of any group of creditors; and
transactions in accordance with the provisions of the Securities Regulation Code and its
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
implementing rules and regulations;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any
(f) the clearing and settlement of financial transactions through the facilities of a
materially false or misleading statement;
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 (f) If the petitioner is the debtor, that the debtor has met with its creditor/s
well as any form of actions of such agencies or entities to reimburse themselves for any representing at least three-fourths (3/4) of its total obligations to the extent reasonably
transactions settled for the debtor; and 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
(g) any criminal action against individual debtor or owner, partner, director or officer of
petitioner/s has/have met with the debtor and made a good faith effort to reach a
a debtor shall not be affected by any proceeding commend under this Act.
consensus on the proposed Rehabilitation Plan; and
Section 19. Waiver of taxes and Fees Due to the National Government and to Local Government
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or
Units (LGUs). - Upon issuance of the Commencement Order by the court, and until the approval of
a group of creditors.
the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all taxes
and fees including penalties, interests and charges thereof due to the national government or to Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
LGUs shall be considered waived, in furtherance of the objectives of rehabilitation.
(a) determine the creditors who have made timely and proper filing of their notice of
Section 20. Application of Stay or Suspension Order to Government Financial Institutions. - The claims;
provisions of this Act concerning the effects of the Commencement Order and the Stay or
Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies (b) hear and determine any objection to the qualifications of the appointment of the
shall apply to government financial institutions, notwithstanding provisions in their charters or rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;
other laws to the contrary. (c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the submit the same to the court and to the rehabilitation receiver within a period of not
Commencement Order shall be for the effective for the duration of the rehabilitation proceedings more than twenty (20) days; and
for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In (d) direct the rehabilitation receiver to evaluate the financial condition of the debtor
determining whether there is substantial likelihood for the debtor to be successfully rehabilitated, and to prepare and submit to the court within forty (40) days from initial hearing the
the court shall ensure that the following minimum requirements are met: report provided in Section 24 hereof.
(a) The proposed Rehabilitation Plan submitted complies with the minimum contents Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the
prescribed by this Act; schedule of debts and liabilities and who fails to file a notice of claim in accordance with the
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business Commencement Order but subsequently files a belated claim shall not be entitled to participate in
for the protection of creditors; the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.

(c) The debtor has met with its creditors to the extent reasonably possible in attempts Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing
to reach consensus on the proposed Rehabilitation Plan; 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:
(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 (a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act
Plan are realistic reasonable and reasonable or if not, there is, in any case, a substantial or acts committed by the owner/s of a sole proprietorship partners of a partnership or
likelihood for the debtor to be successfully rehabilitated because, among others: 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;
(1) there are sufficient assets with/which to rehabilitate the debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish
(2) there is sufficient cash flow to maintain the operations of the debtor; such goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and
reasonable;
(3) the debtor's, partners, stockholders, directors and officers have been
acting in good faith and which due diligence; (c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and

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

(1) the debtor is insolvent; and SEC. 29. Qualifications of a Rehabilitation Receiver. -The rehabilitation receiver shall have the
(2) there is a substantial likelihood for the debtor to be successfully following minimum qualifications:
rehabilitated; (a) A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding lus nomination;
(3) dismiss the petition upon a finding that: (b) Of good moral character and with acknowledged integrity, impartiality and
independence;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take
(c) Has the requisite knowledge of insolvency and other relevant commercial laws, rules
all actions necessary to carry out the Plan;
and procedures, as well as the relevant training and/or experience that may be
(c) Payments shall be made to the creditors in accordance with the provisions of the necessary to enable him to properly discharge the d duties and obligations of a
Rehabilitation Plan; rehabilitation receiver; and
(d) Has no conflict of interest: Provided, That such conflict of interest may be waived,
(d) Contracts and other arrangements between the debtor and its creditors shall be expressly or impliedly, by a party who may be prejudiced thereby.
interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan; Other qualifications and disqualifications of the rehabilitation receiver shall be set forth in
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor procedural rules, taking into consideration the nature of the business of the debtor and the need
shall be binding on creditors regardless of whether or not the Plan is successfully to protect the interest of all stakeholders concerned.
implement; and
SEC. 30. Initial Appointment of the Rehabilitation Receiver. - The court shall initially appoint
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan the rehabilitation receiver, who may or may not be from among the nominees of the petitioner,
are not subject to any Suspension Order. However, at the initial hearing of the petition, the creditors and the debtor who are not
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided, petitioners may nominate 24 other persons to the position. The court may retain the
however, That the court may maintain jurisdiction over the case in order to resolve claims against rehabilitation receiver initially appointed or appoint another who may or may not be from
the debtor that remain contested and allegations that the debtor has breached the Plan. among those nominated. In case the debtor is a securities market participant, the court shall give
priority to the nominee of the appropriate securities or investor protection fund.
SEC. 26. Petition Given Due Course. - If the petition is given due course, the court shall direct If a qualified natural person or entity is nominated by more than fifty percent (50%) of the
the rehabilitation receiver to review, revise andlor recommend action on the Rehabilitation Plan secured creditors and the general unsecured creditors, and satisfactory evidence is submitted,
and submit the same or a new one to the court within a period of not more than ninety (90) the court shall appoint the creditors' nominee as rehabilitation receiver.
days.
SEC. 31. Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The rehabilitation
The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation receiver shall be deemed an officer of the court with the principal duty of preserving and
proceedings pending before it to arbitration or other modes of dispute resolution, as provided for maximizing the value of the assets of the debtor during the rehabilitation proceedings,
under Republic Act No. 9285, Or the Alternative Dispute Resolution Act of 2004, should it determining the viability of the rehabilitation of the debtor, preparing and recommending a
determine that such mode will resolve the dispute more quickly, fairly and efficiently than the Rehabilitation Plan to the court, and implementing the approved Rehabilitation Plan, To this
court. end, and without limiting the generality of the foregoing, the rehabilitation receiver shall have
the following powers, duties and responsibilities:
SEC. 27. Dismissal of Petition. - If the petition is dismissed pursuant to paragraph (b) of Section a) To verify the accuracy of the factual allegations in the petition and its annexes;
25 hereof, then the court may, in its discretion, order the petitioner to pay damages to any b) To verify and correct, if necessary, the inventory of all of the assets of the debtor,
creditor or to the debtor, as the case may be, who may have been injured by the filing of the and their valuation;
petition, to the extent of any such injury. c) To verify and correct, if necessary, the schedule of debts and liabilities of the
debtor;
(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee. d) To evaluate the validity, genuineness and true amount of all the claims against
the debtor;
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 e) To take possession, custody and control, and to preserve the value of all the entitled to reasonable compensation based on quantum meruit. Such costs shall be considered
property of the debtor; administrative expenses.
f) To sue and recover, with the approval of the court, all amounts owed to, and all
properties pertaining to the debtor; SEC. 34. Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his powers, duties
g) To have access to all information necessary, proper or relevant to the operations and responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such amount
and business of the debtor and for Its rehabilitation; to be fixed by the court, conditioned upon the faithful and proper discharge of his powers,
h) To sue and recover, with the approval of the court, all property or money of the duties and responsibilities.
debtor paid, transferred or disbursed in fraud of the debtor or its creditors, or
which constitute undue preference of creditor/s; SEC. 35. Vacancy. – In case the position of rehabilitation receiver is vacated for any reason
i) To monitor the operations and the business of the debtor to ensure that no whatsoever. The court shall direct the debtor and the creditors to submit the name/s of their
payments or transfers of property are made other than in the ordinary course of nominee/s to the position. The court may appoint any of the qualified nominees, or any other
business; person qualified for the position.
j) G) With the court's approval, to engage the services of or to employ persons or
entities to assist him in the discharge of his functions; SEC. 36. Displacement of Existing Management by the Rehabilitation Receiver or Management
k) To determine the manner by which the debtor may be best rehabilitated, to Committee. - Upon motion of any interested party, the court may appoint and direct the
review) revise and/or recommend action on the Rehabilitation Plan and submit the rehabilitation receiver to assume the powers of management of the debtor, or appoint a
same or a new one to the court for approval; management committee that will undertake the management of the debtor, upon clear and
l) To implement the Rehabilitation Plan as approved by the court, if 80 provided convincing evidence of any of the following circumstances:
under the Rehabilitation Plan; a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s
m) To assume and exercise the powers of management of the debtor, if directed by assets or other properties;
the court pursuant to Section 36 hereof; b) Paralyzation of the business operations of the debtor; or
n) To exercise such other powers as may, from time to time, be conferred upon him c) Gross mismanagement of the debtor, or fraud or other wrongful conduct on the part of,
by the court; and or gross or willful violation of this Act by, existing management of the debtor or the
o) To submit a status report on the rehabilitation proceedings every quarter or as owner, partner, director, officer or representative/s in management of the debtor.
may be required by the court motu proprio. or upon motion of any creditor or as In case the court appoints the rehabilitation receiver to assume the powers of
may be provided, in the Rehabilitation Plan management of the debtor, the court may:
1) require the rehabilitation receiver to post an additional bond;
Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall not 2) authorize him to engage the services or to employ persons or entities to
take over the management and control of the debtor but may recommend the appointment of a assist him in the discharge of his managerial functions; and
management committee over the debtor in the cases provided by this Act. 3) authorize a commensurate increase in his compensation.

SEC. 32. Removal of the Rehabilitation Receiver. - The rehabilitation receiver may be removed at SEC. 37. Role of the Management Committee. - When appointed pursuant to the foregoing
any time by the court, either motu proprio or upon motion by any creditor/s holding more than section, the management committee shall take the place of the management and the governing
fifty percent (50%) of the total obligations of the debtor, on such grounds as the rules of body of the debtor and assume their rights and responsibilities.
procedure may provide which shall include, but are not limited to, the following:
a) Incompetence, gross negligence, failure to perform or failure to exercise the proper The specific powers and duties of the management committee, whose members shall be
degree of care in the performance of his duties and powers; considered as officers of the court, shall be prescribed by the procedural rules.
b) Lack of a particular or specialized competency required by the specific case;
c) Illegal acts or conduct in the performance of his duties and powers; SEC. 38. Qualifications of Members of the Management Committee. - The qualifications and
d) Lack of qualification or presence of any disqualification; disqualifications of the members of the management committee shall be set forth in the
e) Conflict of interest that arises after his appointment; and procedural rules, taking into consideration the nature of the business of the debtor and the
f) Manifest lack of independence that is detrimental to the general body of the need to protect the interest of all stakeholders concerned.
stakeholders.
SEC. 39. Employment of Professionals. - Upon approval of the court, and after notice and
SEC. 33. Compensation and Terms of Service. The rehabilitation receiver and his direct hearing, the rehabilitation receiver or the management committee may employ specialized
employees or independent contractors shall be entitled to compensation for reasonable fees professionals and other experts to assist each in the performance of their duties. Such
and expenses from the debtor according to the terms approved by the court after notice and professionals and other experts shall be considered either employees or independent contractors
hearing. Prior to such hearing, the rehabilitation receiver and his direct employees shall be of the rehabilitation receiver or the management committee, as the case may be. The
qualifications and disqualifications of the professionals and experts may be set forth in procedural
8
rules, taking into consideration the nature of the business of the debtor and the need to protect
the interest of all stakeholders concerned. SEC. 43. Role of Creditors' Committee. - The creditors' committee when constituted pursuant to
Section 42 of this Act shall assist the rehabilitation receiver in communicating with the
SEC. 40. Conflict of Interest. - No person may be appointed as a rehabilitation receiver, creditors and shall be the primary liaison between the rehabilitation receiver and the
member of a management committee, or be employed by the rehabilitation receiver or the creditors. The creditors' committee cannot exercise or waive any right or give any consent on
management committee if he has a conflict of interest. An individual shall be deemed to have a behalf of any creditor unless specifically authorized in writing by such creditor. The creditors'
conflict of interest if he is so situated as to be materially influenced in the exercise of his committee may be authorized by the court or by the rehabilitation receiver to perform such
judgment for or against any party to the proceedings. Without limiting the generality of the other tasks and functions as may be defined by the procedural rules in order to facilitate the
foregoing, an individual shall be deemed to have a conflict of interest if: rehabilitation process.
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the debtor; (D) Determination of Claims.
(c) he is, or was, within five (5) years from the filing of the petition, a director, officer,
owner, partner or employee of the debtor or any of the creditors, or the auditor or SEC. 44. Registry of Claims. - Within twenty (20) days from his assumption into office, the
accountant of the debtor; rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation
(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the receiver shall make the registry available for public inspection and provide publication notice to
outstanding securities of the debtor; the debtor, creditors and stakeholders on where and when they may inspect it. All claims
(e) he is related by consanguinity or affinity within the fourth civil degree to any individual included in the registry of claims must be duly supported by sufficient evidence.
creditor, owner/s of a sale proprietorship-debtor, partners of a partnership-debtor or
to any stockholder, director, officer, employee or underwriter of a corporation- SEC. 45. Opposition or Challenge of Claims. - Within thirty (30) days from the expiration of the
debtor; or period stated in the immediately preceding section, the debtor, creditors, stakeholders and
(f) he has any other direct or indirect material interest in the debtor or any of the other interested parties may submit a challenge to claim/s to the court, serving a certified copy
creditors. on the rehabilitation receiver and the creditor holding the challenged claim/so Upon the
expiration of the thirty (30)-day period, the rehabilitation receiver shall submit to the court the
Any rehabilitation receiver, member of the management committee or persons employed or registry of claims which shall include undisputed claims that have not been subject to challenge.
contracted by them possessing any conflict of interest shall make the appropriate disclosure
either to the court or to the creditors in case of out-of-court rehabilitation proceedings. Any SEC. 46. Appeal. - Any decision of the rehabilitation receiver regarding a claim may be appealed
party to the proceeding adversely affected by the appointment of any person with a conflict of to the court.
interest to any of the positions enumerated above may however waive his right to object to such
appointment and, if the waiver is unreasonably withheld, the court may disregard the conflict of (E) Governance.
interest, taking into account the general interest of the stakeholders.
SEC. 47. Management. - Unless otherwise provided herein, the management of the juridical
SEC.41. Immunity. - The rehabilitation receiver and all persons employed by him, and the debtor shall remain with the existing management subject to the applicable law/s and
members of the management committee and all persons employed by it, shall not be subject to agreement/a, if any, on the election or appointment of directors, managers Or managing
any action, claim or demand in connection with any act done or omitted to be done by them in partner. However, all disbursements, payments or sale, disposal, assignment, transfer or
good faith in connection with the exercise of their powers and functions under this Act or other encumbrance of property , or any other act affecting title or interest in property, shall be subject
actions duly approved by the court. to the approval of the rehabilitation receiver and/or the court, as provided in the following
subchapter.
SEC. 42. Creditors' Committee. - After the creditors' meeting called pursuant to Section 63
hereof, the creditors belonging to a class may formally organize a committee among themselves. (F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after
In addition, the creditors may, as a body, agree to form a creditors' committee composed of a Commencement Date.
representative from each class of creditors, such as the following:
(a) Secured creditors; SEC. 48. Use or Disposition of Assets. - Except as otherwise provided herein, no funds or
(b) Unsecured creditors; property of the debtor shall he used or disposed of except in the ordinary course of business of
(c) Trade creditors and suppliers; and the debtor, or unless necessary to finance the administrative expenses of the rehabilitation
(d) Employees of the debtor. proceedings.

In the election of the creditors' representatives, the rehabilitation receiver or his SEC. 49. Sale of Assets. - The court, upon application of the rehabilitation receiver, may
representative shall attend such meeting and extend the appropriate assistance as may be authorize the sale of unencumbered property of the debtor outside the ordinary course of
defined in the procedural rules.
9
business upon a showing that the property, by its nature or because of other circumstance, is (f) for payments made to reclaim property of the debtor held pursuant to a possessory
perishable, costly to maintain, susceptible to devaluation or otherwise in jeopardy. lien.

SEC. 50. Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held SEC. 53. Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. - Upon
by Debtor. The court may authorize the sale, transfer, conveyance or disposal of encumbered the application of a secured creditor holding a lien against or holder of an ownership interest in
property of the debtor, or property of others held by the debtor where there is a security property held by the debtor that is subject to potentially rapid obsolescence, depreciation or
interest pertaining to third parties under a financial, credit or other similar transactions if, upon diminution in value, the court shall, after notice and hearing, order the debtor or rehabilitation
application of the rehabilitation receiver and with the consent of the affected owners of the receiver to take reasonable steps necessary to
property, or secured creditor/s in the case of encumbered property of the debtor and, after prevent the depreciation. If depreciation cannot be avoided and such depreciation is
notice and hearing, the court determines that: jeopardizing the security or property interest of the secured creditor or owner, the court
(a) such sale, transfer, conveyance or disposal is necessary for the continued operation of shall:
the debtor's business; and (a) allow the encumbered property to be foreclosed upon by the secured creditor
(b) the debtor has made arrangements to provide a substitute lien or ownership right according to the relevant agreement between the debtor and the secured creditor,
that provides an equal level of security for the counter-party's claim or right. applicable rules of procedure and relevant legislation: Provided, that the proceeds of
Provided, That properties held by the debtor where the debtor has authority to sell such as trust the sale will be distributed in accordance with the order prescribed under the rules of
receipt or consignment arrangements may be sold or disposed of by the .debtor, if such sale or concurrence and preference of credits; or
disposal is necessary for the operation of the debtor's business, and the debtor has made (b) upon motion of, or with the consent of the affected secured creditor or interest
arrangements to provide a substitute lien or ownership right that provides an equal level of owner, order the conveyance of a lien against or ownership interest in substitute
security for the counterparty's claim or right. Sale or disposal of property under this section shall property of the debtor to the secured creditor: Provided, That other creditors holding
not give rise to any criminal liability under applicable laws. liens on such property, if any, do not object thereto, or, if such property is not
available;
SEC. 51. Assets of Debtor Held by Third Parties. - In the case of possessory pledges, mechanic's (c) order the conveyance to the secured creditor or holder of an ownership interest of a
liens or similar claims, third parties who have in their possession or control property of the lien on the residual funds from the sale of encumbered property during the
debtor shall not transfer, conveyor otherwise dispose of the same to persons other than the proceedings; or
debtor, unless upon prior approval of the rehabilitation receiver. The rehabilitation receiver may (d) allow the sale or disposition of the property: Provided, That the sale or disposition will
also: maximize the value of the property for the benefit of the secured creditor and the
(a) demand the surrender or the transfer of the possession or control of such property to debtor, and the proceeds of the sale will be distributed in accordance with the order
the rehabilitation receiver or any other person, subject to payment of the claims prescribed under the rules of concurrence and preference of credits.
secured by any possessory Iien/s thereon;
(b) allow said third parties to retain possession or control, if such an arrangement would SEC. 54. Post-commencement Interest. - The rate and term of interest, if any, on secured and
more likely preserve or increase the value of the property in question or the total value unsecured claims shall be determined and provided for in the approved Rehabilitation Plan.
of the assets ofthe debtor; or
(c) undertake any other disposition of the said property as may be beneficial for the SEC. 55. Post-commencement Loans and Obligations. - With the approval of the court upon
rehabilitation of the debtor, after notice and hearing, and approval of the court. the recommendation of the rehabilitation receiver, the debtor, in order to enhance its
rehabilitation, may:
SEC. 52. Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. - The court (a) enter into credit arrangements; or
may rescind or declare as null and void any sale, payment, transfer or conveyance of the debtor's (b) enter into credit arrangements, secured by mortgages of its unencumbered property
unencumbered property or any encumbering thereof by the debtor or its agents or or secondary mortgages of encumbered property with the approval of senior secured
representatives after the commencement date which are not in the ordinary course of the parties with regard to the encumbered property; or
business of the debtor: Provided, however, That the unencumbered property may be sold, (c) incur other obligations as may be essential for its rehabilitation.
encumbered or otherwise disposed of upon order of the court after notice and hearing:
(a) if such are in the interest of administering the debtor and facilitating the The payment of the foregoing obligations shall be considered administrative expenses under this
preparation and implementation of a Rehabilitation Plan; Act.
(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;
(c) for payments made to meet administrative expenses as they arise; SEC. 56. Treatment of Employees, Claims. - Compensation of employees required to carry on
(d) for payments to victims of quasi delicts upon a showing that the claim is valid and the the business shall be considered an administrative expense. Claims of separation pay for months
debtor has insurance to reimburse the debtor for the payments made; worked prior to the commencement date shall be considered a pre-commencement claim. Claims
(e) for payments made to repurchase property of the debtor that is auctioned off in a for salary and separation pay for work performed after the commencement date shall be an
judicial or extrajudicial sale under this Act; or administrative expense.
10
 (b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign
SEC. 57. Treatment of Contracts. - Unless cancelled by virtue of a final judgment of a court of and transfer to the creditor all rights, title and interest in the chose in action or
competent jurisdiction issued prior to the issuance of the Commencement Order, or at anytime subject matter of the proceeding, including any document in support thereof.
thereafter by the court before which the rehabilitation proceedings are pending, all valid and (c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent
subsisting contracts of the debtor with creditors and other third parties as at the of his claim and the costs, belongs exclusively to the creditor instituting the
commencement date shall continue in force: Provided, That within ninety (90) days following proceeding, and the surplus, if any, belongs to the estate.
the commencement of proceedings, the debtor, with the consent of the rehabilitation receiver, (d) Where, before an order is made under subsection (a), the rehabilitation receiver (or
shall notify each contractual counter-party of whether it is confirming the particular contract. liquidator) signifies to the court his readiness to institute the proceeding for the
Contractual obligations of the debtor arising or performed during this period, and afterwards benefit of the creditors, the order shall fix the time within which he shall do so and, in
for confirmed contracts, shall be considered administrative expenses. Contracts not confirmed that case, the benefit derived from the proceeding, if instituted within the time limits
within the required deadline shall be considered terminated. Claims for actual damages, if any, so fixed, belongs to the estate.
arising as a result of the election to terminate a contract shall be considered a pre-
commencement claim against the debtor. Nothing contained herein shall prevent (H) Treatment of Secured Creditors.
the cancellation or termination of any contract of the debtor for any ground provided by law.
SEC. 60. No Diminution of Secured Creditor Rights. - The issuance of the Commencement Order
(G) Avoidance Proceedings. and the Suspension or Stay Order, and any other provision of this Act, shall not be deemed in any
way to diminish or impair the security or lien of a secured creditor, or the value of his lien or
SEC. 58. Rescission or Nullity of Certain Pre-comrnencement Transactions. Any transaction security, except that his right to enforce said security or lien may be suspended during the term
occurring prior to commencement date entered into by the debtor or involving its funds or of the Stay Order.
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 The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured
creditors. Without limiting the generality of the foregoing, a disputable presumption of such creditor to enforce his security or lien, or foreclose upon property of the debtor securing his/its
design shall arise if the transaction: claim, if the said property is not necessary for the rehabilitation of the debtor. The secured
creditor and/or the other lien holders shall be admitted to the rehabilitation proceedings only
(a) provides unreasonably inadequate consideration to the debtor and is executed for the balance of his claim, if any.
within ninety (90) days prior to the commencement date;
(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior SEC.61. Lack of Adequate Protection. - The court, on motion or motu proprio, may terminate,
to the commencement date; modify or set conditions for the continuance of suspension of payment, or relieve a claim from
(c) provides security or additional security executed within ninety (90) days prior to the the coverage thereof, upon showing that:
commencement date; (a) a creditor does not have adequate protection over property securing its claim; or
(d) involves creditors, where a creditor obtained, or received the benefit of, more than its (b) the value of a claim secured by a lien on property which is not necessary for
pro rata share in the assets of the debtor, executed at a time when the debtor was rehabilitation of the debtor exceeds the fair market value of the said property.
insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be
where the effect of the transaction is to put assets of the debtor beyond the reach shown that:
of creditors or to otherwise prejudice the interests of creditors. (a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to
keep the property insured;
Provided, however, That nothing in this section shall prevent the court from rescinding or (b) the debtor fails or refuses to take commercially reasonable steps to maintain the
declaring as null and void a transaction on other grounds provided by relevant legislation and property; or
jurisprudence: Provided, further, That the provisions of the Civil Code on rescission shall in any (c) the property has depreciated to an extent that the creditor is under secured.
case apply to these transactions.
Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation
SEC. 59. Actions for Rescission or Nullity. – receiver to make arrangements to provide for the insurance or maintenance of the property; or
(a) The rehabilitation receiver or, with his conformity, any creditor may initiate and to make payments or otherwise provide additional or replacement security such that the
prosecute any action to rescind, or declare null and void any transaction described in obligation is fully secured. If such arrangements are not feasible, the court may modify the Stay
Section 58 hereof. If the rehabilitation receiver does not consent to the filing or Order to allow the secured creditor lacking adequate protection to enforce its security claim
prosecution of such action, against the debtor: Provided, however, That the court may deny the creditor the remedies in
this paragraph if the property subject of the enforcement is required for the rehabilitation of
the debtor.
11
 (t) include a certified copy of a certificate of tax clearance or evidence of a compromise
(l) Administration of Proceedings. settlement with the BIR;
(u) include a valid and binding resolution of a meeting of the debtor's stockholders to
SEC. 62. Contents of a Rehabilitation Plan. - The Rehabilitation Plan shall, as a minimum: increase the shares by the required amount in cases where the Plan contemplates
(a) specify the underlying assumptions, the financial goals and the procedures proposed an additional issuance of shares by the debtor;
to accomplish such goals; (v) state the compensation and status, if any, of the rehabilitation receiver after the
(b) compare the amounts expected to be received by the creditors under the approval of the Plan; and
Rehabilitation Plan with those that they will receive if liquidation ensues within the (w) contain provisions for conciliation and/or mediation as a prerequisite to court
next one hundred twenty (120) days; assistance or intervention in the event of any disagreement in the interpretation or
(c) contain information sufficient to give the various classes of creditors a reasonable implementation of the Rehabilitation Plan.
basis for determining whether supporting the Plan is in their financial interest when
compared to the immediate liquidation of the debtor, including any reduction of SEC. 63. Consultation with Debtor and Creditors. – if the court gives due course to the
principal interest and penalties payable to the creditors; petition, the rehabilitation receiver shall confer with the debtor and all the classes of creditors,
(d) establish classes of voting creditors; and may consider their views and proposals in the review, revision or preparation of a new
(e) establish subclasses of voting creditors if prior approval has been granted by the Rehabilitation Plan.
court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, SEC. 64. Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify the
debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion creditors and stakeholders that the Plan is ready for their examination. Within twenty (20)days
en pago, debt-equity conversion and sale of the business (or parts of it) as a going from the said notification, the rehabilitation receiver shall convene the creditors, either as a whole
concern, or setting-up of a new business entity or other similar arrangements as may or per class, for purposes of voting on the approval of the Plan. The Plan shall be deemed
be necessary to restore the financial well-being and viability of the insolvent debtor; rejected unless approved by all classes of creditors whose rights are adversely modified or
(g) specify the treatment of each class or subclass described in subsections (d) and (e); affected by the Plan. For purposes of this section, the Plan is deemed to have been approved by a
(h) provide for equal treatment of all claims within the same class or subclass, unless a class of creditors if members of the said class holding more than fiftypercent (50%) of the total
particular creditor voluntarily agrees to less favorable treatment; claims of the said class vote in favor of
(i) ensure that the payments made under the plan follow the priority established under the Plan. The votes of the creditors shall be based solely on the amount of their respective
the provisions of the Civil Code on concurrence and preference of credits and other claims based on the registry of claims submitted by the rehabilitation receiver pursuant to Section
applicable laws; 44 hereof.
(j) G) maintain the security interest of secured creditors and preserve the liquidation
value of the security unless such has been waived or modified voluntarily; Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
(k) disclose all payments to creditors for pre-commencement debts made during the Rehabilitation Plan if all of the following circumstances are present:
proceedings and the justifications thereof; (a) The Rehabilitation Plan complies with the requirements specified in this Act;
(l) describe the disputed claims and the provisioning of funds to account for appropriate (b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
payments should the claim be ruled valid or its amount adjusted; (c) The shareholders, owners or partners of the juridical debtor lose at least their
(m) identify the debtor's role in the implementation of the Plan; controlling interest as a result of the Rehabilitation Plan; and
(n) state any rehabilitation covenants of the debtor, the breach of which shall be (d) The Rehabilitation Plan would likely provide the objecting class of creditors with
considered a material breach of the Plan; compensation which has a net present value greater than that which they would have
(o) identify those responsible for the future management of the debtor and the received if the debtor were under liquidation.
supervision and implementation of the Plan, their affiliation with the debtor and their
remuneration; SEC. 65. Submission of Rehabilitation Plan to the Court. – If the Rehabilitation Plan is approved,
(p) address the treatment of claims arising after the confirmation of the Rehabilitation the rehabilitation receiver shall submit the same to the court for confirmation. Within five (5)
Plan; days from receipt of the Rehabilitation Plan, the court shall notify the creditors that the
(q) require the debtor and its counter-parties to adhere to the terms of all contracts that Rehabilitation Plan has been submitted for confirmation, that any creditor may obtain copies
the debtor has chosen to confirm; of the Rehabilitation Plan and that any creditor may file an objection thereto.
(r) arrange for the payment of all outstanding administrative expenses as a condition
to the Plan's approval unless such condition has been waived in writing by the SEC. 66. Filing of Objections to Rehabilitation Plan. - A creditor may file an objection to the
creditors concerned; Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the
(s) arrange for the payment of all outstanding taxes and assessments, or an adjusted Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan
amount pursuant to a compromise settlement with the BlR Or other applicable tax shall be limited to the following:
authorities; (a) The creditors' support was induced by fraud;
12
(b) The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or SEC. 70. Liability of General Partners of a Partnership for Unpaid Balances Under an Approved
(c) The Rehabilitation Plan is in fact not supported by the voting creditors. Plan. - The approval of the Plan shall not affect the rights of creditors to pursue actions against
the general partners of a partnership to the extent they are liable under relevant legislation
SEC. 67. Hearing on the Objections. - If objections have been submitted during the relevant for the debts thereof.
period, the court shall issue an order setting the time and date for the hearing or hearings on the
objections. SEC. 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. - Amounts
of any indebtedness or obligations reduced or forgiven in connection with a Plan's approval shall
If the court finds merit in the objection, it shall order the rehabilitation receiver or other party not be subject to any tax, in furtherance of the purposes of this Act.
to cure the defect, whenever feasible. If the court determines that the debtor acted in bad faith,
or that it is not feasible to cure the defect, the court shall convert the proceedings into one for SEC. 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum
the liquidation of the debtor under Chapter V of this Act. period of one(1) year from the date of the filing of the petition to confirm a Rehabilitation
Plan.
SEC. 68. Confirmation of the Rehabilitation Plan. - If no objections are filed within the relevant
period or, if objections are filed, the court finds them lacking in merit, or determines that the If no Rehabilitation Plan is confirmed within the said period, the proceedings may, upon
basis for the objection has been cured, or determines that the debtor has complied with an order motion or motu proprio, be converted into one for the liquidation of the debtor.
to cure the objection, the court shall issue an order confirming the Rehabilitation Plan.
SEC. 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to
claims if the Rehabilitation Plan has made adequate provisions for paying such claims. 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
For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the rehabilitation receiver of his duties.
court shall have the power to approve or implement the Rehabilitation Plan despite the lack of
approval, or objection from the owners, partners or stockholder of the insolvent debtor: (J) Termination of Proceedings.
Provided, That the terms thereof are necessary to restore the financial well-being and viability of
the insolvent debtor. SEC. 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
SEC. 69. Effect of Confirmation of the Rehabilitation Plan - The confirmation of the court either declaring a successful implementation of the Rehabilitation Plan or a failure of
Rehabilitation Plan by the court shall result in the following: rehabilitation .
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all There is failure of rehabilitation in the following cases:
persons who may be affected by it, including the creditors, whether or not such (a) Dismissal of the petition by the court;
persons have participated in the proceedings or opposed the Rehabilitation Plan or (b) The debtor fails to submit a Rehabilitation Plan;
whether or not their claims have been scheduled; (c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take likelihood that the debtor can be rehabilitated within a reasonable period;
all actions necessary to carry out the Plan; (d) The Rehabilitation Plan or its amendment is approved by the court but in the
(c) Payments shall be made to the creditors in accordance with the provisions of the implementation thereof, the debtor fails to perform its obligations thereunder, or there
Rehabilitation Plan; is a failure to realize the objectives, targets or goals set forth therein, including the
(d) Contracts and other arrangements between the debtor and its creditors shall be timelines and conditions for the settlement of the obligations due to the creditors and
interpreted as continuing to apply to the extent that they do not conflict with the other claimants;
provisions of the Rehabilitation Plan; (e) The commission of fraud in securing the approval of the Rehabilitation Plan or its
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor amendment; and
shall be binding on creditors regardless of whether or not the Plan is successfully (f) Other analogous circumstances as may be defined by the rules of procedure.
implemented; and·
(f) Claims arising after approval of the Plan that are otherwise not treated by the PIan are Upon a breach of, or upon a failure of the Rehabilitation Plan, the court, upon motion by an
not subject to any Suspension Order. affected party, may:
(1) issue an order directing that the breach be cured within a specified period of time,
The Order confirming the Plan shall comply with Rule 36 of the Rules of Court: Provided, failing which the proceedings may be converted to a liquidation;
however, That the court may maintain jurisdiction over the case in order to resolve claims against (2) issue an order converting the proceedings to a liquidation;
the debtor that remain contested and allegations that the debtor has breached the Plan.
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 (3) allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation (e) direct the service by personal delivery of a copy of the petition on each creditor who
Plan, the approval of which shall he governed by the same requirements for the is not a petitioner holding at least ten percent (10%) of the total liabilities of the debtor,
approval of a Rehabilitation Plan under this subchapter; as determined in the schedule attached to the petition, within three (3) days;
(4) issue any other order to remedy the breach consistent with the present regulation,
(f) state that copies of the petition and the Rehabilitation Plan are available for
other applicable law and the best interests of the creditors; or
examination and copying by any interested party;
(5) enforce the applicable provisions of the Rehabilitation Plan through a writ of
execution. (g) state that creditors and other interested parties opposing the petition or
Section 75. Effects of Termination. - Termination of the proceedings shall result in the following: 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;
(a) The discharge of the rehabilitation receiver subject to his submission of a final
accounting; and (h) appoint a rehabilitation receiver, if provided for in the Plan; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any (i) include a Suspension or Stay Order as described in this Act.
action for the enforcement of a claim against the debtor.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication of
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested
dismissal of the petition for reasons other than technical grounds, the proceedings shall be party submits an objection to it in accordance with the next succeeding section.
immediately converted to liquidation as provided in Section 92 of this Act.
Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or other interested party
CHAPTER III may submit to the court a verified objection to the petition or the Rehabilitation Plan not later
PRE-NEGOTIATED REHABILITATION 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:
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 (a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto
which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total are materially false or misleading;
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%) (b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;
of the total unsecured claims of the debtor. The petition shall include as a minimum: (c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and
(a) a schedule of the debtor's debts and liabilities; the claim in not categorically declared as a contested claim; or

(b) an inventory of the debtor's assets; (d) The support of the creditors, or any of them was induced by fraud.

(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the
qualified nominees for rehabilitation receiver; and 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
(d) a summary of disputed claims against the debtor and a report on the provisioning of Rehabilitation Plan.
funds to account for appropriate payments should any such claims be ruled valid or
their amounts adjusted. 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
Section 77. Issuance of Order. - Within five (5) working days, and after determination that the thirty (30) days from the date of the second publication of the Order mentioned in Section 77
petition is sufficient in form and substance, the court shall issue an Order which shall; 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
(a) identify the debtor, its principal business of activity/ies and its principal place of
the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the court may order
business;
the conversion of the proceedings into liquidation. A finding by the court that the objection has no
(b) declare that the debtor is under rehabilitation; substantial merit, or that the same has been cured shall be deemed an approval of the
Rehabilitation Plan.
(c) summarize the ground./s for the filling of the petition;
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period of
(d) direct the publication of the Order in a newspaper of general circulation in the
one hundred twenty (120) days from the date of the filing of the petition to approve the
Philippines once a week for at least two (2) consecutive weeks, with the first publication
Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan shall be
to be made within seven (7) days from the time of its issuance;
deemed approved.

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Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings
effect as confirmation of a Plan under Chapter II of this Act. 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
CHAPTER IV
temporary restraining order or injunctive relief from the Court of Appeals.
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION PLANS
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court assistance for
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-
the execution or implementation of a Rehabilitation Plan under this Chapter, under such rules of
of-curt or informal restructuring agreement or Rehabilitation Plan that meets the minimum
procedure as may be promulgated by the Supreme Court.
requirements prescribed in this chapter is hereby recognized as consistent with the objectives of
this Act. CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
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 Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a
Rehabilitation Plan to qualify under this chapter, it must meet the following minimum petition for liquidation with the court. The petition shall be verified, shall establish the insolvency
requirements: of the debtor and shall contain, whether as an attachment or as part of the body of the petition;
(a) The debtor must agree to the out-of-court or informal restructuring/workout (a) a schedule of the debtor's debts and liabilities including a list of creditors with their
agreement or Rehabilitation Plan; addresses, amounts of claims and collaterals, or securities, if any;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the (b) an inventory of all its assets including receivables and claims against third parties;
secured obligations of the debtor; and
(c) It must be approved by creditors representing at least seventy-five percent (75%) of (c) the names of at least three (3) nominees to the position of liquidator.
the unsecured obligations of the debtor; and
At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings,
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the the debtor may also initiate liquidation proceedings by filing a motion in the same court where the
total liabilities, secured and unsecured, of the debtor. 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
Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending
the preceding paragraph, and state that the debtor is seeking immediate dissolution and
negotiation and finalization of the out-of-court or informal restructuring/workout agreement or
termination of its corporate existence.
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 If the petition or the motion, as the case may be, is sufficient in form and substance, the court
approved by creditors representing more than fifty percent (50%) of the total liabilities of the shall issue a Liquidation Order mentioned in Section 112 hereof.
debtor; (b) notice thereof is publishing in a newspaper of general circulation in the Philippines
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims is
once a week for two (2) consecutive weeks; and (c) the standstill period does not exceed one
at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the
hundred twenty (120) days from the date of effectivity. The notice must invite creditors to
subscribed capital stock or partner's contributions of the debtor, whichever is higher, may apply
participate in the negotiation for out-of-court rehabilitation or restructuring agreement and notify
for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor
them that said agreement will be binding on all creditors if the required majority votes prescribed
with the court. The petition shall show that:
in Section 84 of this Act are met.
(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that
Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that is
the due and demandable payments thereon have not been made for at least one
approved pursuant to an informal workout framework referred to in this chapter shall have the
hundred eighty (180) days or that the debtor has failed generally to meet its liabilities as
same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the
they fall due; and
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 (b) there is no substantial likelihood that the debtor may be rehabilitated.
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. 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
Section 87. Amendment or Modification. - Any amendment of an out-of-court pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or
restructuring/workout agreement or Rehabilitation Plan must be made in accordance with the partner's contributions of the debtor, whichever is higher, may also initiate liquidation
terms of the agreement and with due notice on all creditors. 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

15
verified, shall contain or set forth the same matters required in the preceding paragraph, and state (d) directing the clerk of court to cause the sending of a copy of the Order by registered
that the movants are seeking the immediate liquidation of the debtor. mail, postage prepaid, to all creditors named in the schedule of debts and liabilities;
If the petition or motion is sufficient in form and substance, the court shall issue an Order: (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
(1) directing the publication of the petition or motion in a newspaper of general
commerce or of industry in which the petitioning individual debtor is engaged so long as
circulation once a week for two (2) consecutive weeks; and
the proceedings relative to the suspension of payments are pending;
(2) directing the debtor and all creditors who are not the petitioners to file their
(f) prohibiting the individual debtor from making any payment outside of the necessary
comment on the petition or motion within fifteen (15) days from the date of last
or legitimate expenses of his business or industry, so long as the proceedings relative to
publication.
the suspension of payments are pending; and
If, after considering the comments filed, the court determines that the petition or motion is
(g) appointing a commissioner to preside over the creditors' meeting.
meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue
Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of court-
an order suspending any pending execution against the individual debtor. Provide, That properties
supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of
held as security by secured creditors shall not be the subject of such suspension order. The
rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or
suspension order shall lapse when three (3) months shall have passed without the proposed
(b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other
agreement being accepted by the creditors or as soon as such agreement is denied.
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 No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of
hereof. the filing of the petition for suspension of payments and for as long as proceedings remain
pending except:
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 (a) those creditors having claims for personal labor, maintenance, expense of last illness
No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and and funeral of the wife or children of the debtor incurred in the sixty (60) days
heard before it. immediately prior to the filing of the petition; and
CHAPTER VI (b) secured creditors.
INSOLVENCY OF INDIVIDUAL DEBTORS
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least
(A) Suspension of Payments. 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
Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his
secretary thereof, subject to the following rules:
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 (a) The clerk shall record the creditors present and amount of their respective claims;
province or city in which he has resides for six (6) months prior to the filing of his petition. He shall
(b) The commissioner shall examine the written evidence of the claims. If the creditors
attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory of
present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the
assess; and (c) a proposed agreement with his creditors.
commissioner shall declare the meeting open for business;
Section 95. Action on the Petition. - If the court finds the petition sufficient in form and substance,
(c) The creditors and individual debtor shall discuss the propositions in the proposed
it shall, within five (5) working days from the filing of the petition, issue an Order:
agreement and put them to a vote;
(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at
(d) To form a majority, it is necessary:
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; (1) that two-thirds (2/3) of the creditors voting unite upon the same
proposition; and
(b) directing such creditors to prepare and present written evidence of their claims
before the scheduled creditors' meeting; (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
(c) directing the publication of the said order in a newspaper of general circulation
petition; and
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;

16
 (e) After the result of the voting has been announced, all protests made against the rights which the creditors had against the individual debtor before the agreement shall revest in
majority vote shall be drawn up, and the commissioner and the individual debtor them. In such case the individual debtor may be made subject to the insolvency proceedings in the
together with all creditors taking part in the voting shall sign the affirmed propositions. manner established by this Act.
No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall (B) Voluntary Liquidation.
be entitled to vote.
Section 103. Application. - An individual debtor whose properties are not sufficient to cover his
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to
Suspension Order may refrain from attending the meeting and from voting therein. Such persons be discharged from his debts and liabilities by filing a verified petition with the court of the
shall not be bound by any agreement determined upon at such meeting, but if they should join in province or city in which he has resided for six (6) months prior to the filing of such petition. He
the voting they shall be bound in the same manner as are the other creditors. 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 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 Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance it
two (2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances, the shall, within five (5) working days issue the Liquidation Order mentioned in Section 112 hereof.
proceeding shall be terminated without recourse and the parties concerned shall be at liberty to
(C) In voluntary Liquidation.
enforce the rights which may correspond to them.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or
Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof
with claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified
made during the creditors' meeting, is approved by the majority of creditors in accordance with
petition for liquidation with the court of the province or city in which the individual debtor resides.
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 The following shall be considered acts of insolvency, and the petition for liquidation shall set forth
date of the last creditors' meeting. The causes for which objection may be made to the decision or allege at least one of such acts:
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) (a) That such person is about to depart or has departed from the Republic of the
fraudulent connivance between one or more creditors and the individual debtor to vote in favor of Philippines, with intent to defraud his creditors;
the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of obtaining a (b) That being absent from the Republic of the Philippines, with intent to defraud his
majority. The court shall hear and pass upon such objection as soon as possible and in a summary creditors, he remains absent;
manner.
(c) That he conceals himself to avoid the service of legal process for the purpose of
In case the decision of the majority of creditors to approve the individual debtor's proposal or any hindering or delaying the liquidation or of defrauding his creditors;
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 (d) That he conceals, or is removing, any of his property to avoid its being attached or
which may correspond to them. taken on legal process;

Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the (e) That he has suffered his property to remain under attachment or legal process for
creditors to approve the proposed agreement or any amendment thereof made during the three (3) days for the purpose of hindering or delaying the liquidation or of defrauding
creditors' meeting is uphold by the court, or when no opposition or objection to said decision has his creditors;
been presented, the court shall order that the agreement be carried out and all parties bound
(f) That he has confessed or offered to allow judgment in favor of any creditor or
thereby to comply with its terms.
claimant for the purpose of hindering or delaying the liquidation or of defrauding any
The court may also issue all orders which may be necessary or proper to enforce the agreement creditors or claimant;
on motion of any affected party. The Order confirming the approval of the proposed agreement or
(g) That he has willfully suffered judgment to be taken against him by default for the
any amendment thereof made during the creditors' meeting shall be binding upon all creditors
purpose of hindering or delaying the liquidation or of defrauding his 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 (h) That he has suffered or procured his property to be taken on legal process with
personal labor, maintenance, expenses of last illness and funeral of the wife or children of the intent to give a preference to one or more of his creditors and thereby hinder or delay
debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and (b) the liquidation or defraud any one of his creditors;
secured creditors who failed to attend the meeting or refrained from voting therein.
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate,
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails, property, rights or credits with intent to hinder or delay the liquidation or defraud his
wholly or in part, to perform the agreement decided upon at the meeting of the creditors, all the creditors;

17
 (j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, claims, singly or jointly, shall be entitled to similar orders and to like action, by the sheriff; until all
conveyance or transfer of his estate, property, rights or credits; 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
(k) That being a merchant or tradesman, he has generally defaulted in the payment of
creditors of the individual debtor whose claims shall be duly proved as provided in this Act. The
his current obligations for a period of thirty (30) days;
bonds provided for in this section and the preceding section to procure the order for custody of
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys the property and effects of the individual debtor shall be conditioned that if, upon final hearing of
deposited with him or received by him in a fiduciary; and 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
(m) That an execution having been issued against him on final judgment for money, he dismissed, and the individual debtor, his heirs, administrators, executors or assigns shall be
shall have been found to be without sufficient property subject to execution to satisfy entitled to recover such sum of money as shall be sufficient to cover the damages sustained by
the judgment. him, not to exceed the amount of the respective bonds. Such damages shall be fixed and allowed
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the by the court. If either the petitioners or the debtor shall appeal from the decision of the court,
petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor upon final hearing of the petition, the appellant shall be required to give bond to the successful
shall not be declared an insolvent the petitioners will pay to the debtor all costs, expenses, party in a sum double the amount of the value of the property in controversy, and for the costs of
damages occasioned by the proceedings and attorney's fees. the proceedings.

Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors' petition, Any person interested in the estate may take exception to the sufficiency of the sureties on such
the court shall issue an Order requiring the individual debtor to show cause, at a time and place to bond or bonds. When excepted to the petitioner's sureties, upon notice to the person excepting of
be fixed by the said court, why he should not be adjudged an insolvent. Upon good cause shown, not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon
the court may issue an Order forbidding the individual debtor from making payments of any of his failure to justify, or of others in their place fail to justify at the time and place appointed the judge
debts, and transferring any property belonging to him. However, nothing contained herein shall shall issue an Order vacating the order to take the property of the individual debtor into the
affect or impair the rights of a secured creditor to enforce his lien in accordance with its terms. custody of the sheriff, or denying the appeal, as the case may be.

Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to
favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section the court or a judge thereof, asking for and obtaining an Order of publication and an Order for the
112 hereof. 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
Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of the proceedings will be subserved by a sale thereof, the court may order such property to be sold in
Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be found the same manner as property is sold under execution, the proceeds to de deposited in the court to
therein; or conceals himself to avoid service of the Order to show cause, or any other preliminary abide by the result of the proceedings.
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 CHAPTER VII
aggregate sum of their claims against the individual debtor, shall be entitled to an Order of the PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND JURIDICAL
court directing the sheriff of the province or city in which the matter is pending to take into his DEBTORS
custody a sufficient amount of property of the individual debtor to satisfy the demands of the Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall include both
petitioning creditors and the costs of the proceedings. Upon receiving such Order of the court to individual debtor as defined in Section 4(o) and debtor as defined in Section 4(k) of this Act.
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 (A) The Liquidation Order.
extent sufficient to cover the amount provided for and to prepare within three (3) days from the
Section 112. Liquidation Order. - The Liquidation Order shall:
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 (a) declare the debtor insolvent;
may be extended for good cause shown to the court. The sheriff shall also prepare a schedule of
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as
the names and residences of the creditors, and the amount due each, from the books of the
dissolved;
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. (c) order the sheriff to take possession and control of all the property of the debtor,
except those that may be exempt from execution;
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 (d) order the publication of the petition or motion in a newspaper of general circulation
property and effects of the debtor not exempt from execution, any other creditor or creditors of once a week for two (2) consecutive weeks;
the individual debtor, upon giving bond to be approved by the court in double the amount of their

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 (e) direct payments of any claims and conveyance of any property due the debtor to the the claim secured, the liquidator may convey the property to the creditor and waive the
liquidator; debtor's right of redemption upon receiving the excess from the creditor;
(f) prohibit payments by the debtor and the transfer of any property by the debtor; (2) the liquidator may sell the property and satisfy the secured creditor's entire claim
from the proceeds of the sale; or
(g) direct all creditors to file their claims with the liquidator within the period set by the
rules of procedure; (3) the secure creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.
(h) authorize the payment of administrative expenses as they become due;
(B) The Liquidator.
(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 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
(j) set the case for hearing for the election and appointment of the liquidator, which
vote in the election of the liquidator. A secured creditor will not be allowed to vote, unless: (a) he
date shall not be less than thirty (30) days nor more than forty-five (45) days from the
waives his security or lien; or (b) has the value of the property subject of his security or lien fixed
date of the last publication.
by agreement with the liquidator, and is admitted for the balance of his claim.
Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:
The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the
(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence highest number of votes cast in terms of amount of claims, ad who is qualified pursuant to Section
terminated; 118 hereof, shall be appointed as the liquidator.

(b) legal title to and control of all the assets of the debtor, except those that may be Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
exempt from execution, shall be deemed vested in the liquidator or, pending his
(a) on the date set for the election of the liquidator, the creditors do not attend;
election or appointment, with the court;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(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 (c) after being elected, the liquidator fails to qualify; or
otherwise and the contracting party agrees;
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the
(d) no separate action for the collection of an unsecured claim shall be allowed. Such court may instead set another hearing of the election of the liquidator.
actions already pending will be transferred to the Liquidator for him to accept and settle
Provided further, That nothing in this section shall be construed to prevent a rehabilitation
or contest. If the liquidator contests or disputes the claim, the court shall allow, hear
receiver, who was administering the debtor prior to the commencement of the liquidation, from
and resolve such contest except when the case is already on appeal. In such a case, the
being appointed as a liquidator.
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 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
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180)
court, conditioned upon the proper and faithful discharge of his powers, duties and
days.
responsibilities.
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a
Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications
secured creditor to enforce his lien in accordance with the applicable contract or law. A secured
enumerated in Section 29 hereof. He may be removed at any time by the court for cause,
creditor may:
either motu propio or upon motion of any creditor entitled to vote for the election of the
(a) waive his right under the security or lien, prove his claim in the liquidation liquidator.
proceedings and share in the distribution of the assets of the debtor; or
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be deemed
(b) maintain his rights under the security or lien: 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
If the secured creditor maintains his rights under the security or lien:
possible all the claims against the debtor. The powers, duties and responsibilities of the liquidator
(1) the value of the property may be fixed in a manner agreed upon by the creditor and shall include, but not limited to:
the liquidator. When the value of the property is less than the claim it secures, the
(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
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

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 (b) to take possession of all the property of the debtor except property exempt by law the balance , shall be considered as unsecured creditors. The liquidator shall make the registry
from execution; 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
(c) to sell, with the approval of the court, any property of the debtor which has come
shareholders or members of the corporation-debtor, on where and when they may inspect it. All
into his possession or control;
claims must be duly proven before being paid.
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each
encumbrance on any property sold by him;
other one debt shall be set off against the other, and only the balance, if any shall be allowed in
(e) to settle all accounts between the debtor and his creditors, subject to the approval the liquidation proceedings.
of the court;
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration of
(f) to recover any property or its value, fraudulently conveyed by the debtor; 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
(g) to recommend to the court the creation of a creditors' committee which will assist members of the corporation -debtor and other interested parties may submit a challenge to claim
him in the discharge of the functions and which shall have powers as the court deems or claims to the court, serving a certified copy on the liquidator and the creditor holding the
just, reasonable and necessary; and challenged claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall
(h) upon approval of the court, to engage such professional as may be necessary and submit to the court the registry of claims containing the undisputed claims that have not been
reasonable to assist him in the discharge of his duties. 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.
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 Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims and
towards maximizing the proceedings therefrom, to pay creditors and stockholders, and to submit his findings thereon to the court for final approval. The liquidator may disallow claims.
terminate the debtor's legal existence. Other duties of the liquidator in accordance with this (D) Avoidance Proceedings.
section may be established by procedural rules.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to the
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation issuance of the Liquidation Order or, in case of the conversion of the rehabilitation proceedings
receiver. prior to the commencement date, entered into by the debtor or involving its assets, may be
Section 120. Compensation of the Liquidator. - The liquidator and the persons and entities rescinded or declared null and void on the ground that the same was executed with intent to
engaged or employed by him to assist in the discharge of his powers and duties shall be entitled to defraud a creditor or creditors or which constitute undue preference of creditors. The
such reasonable compensation as may determined by the liquidation court, which shall not exceed presumptions set forth in Section 58 hereof shall apply.
the maximum amount as may be prescribed by the Supreme Court. Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a creditor
Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a record of all moneys may initiate and prosecute any action to rescind, or declare null and void any transaction
received and all disbursements mad by him or under his authority as liquidator. He shall render a described in the immediately preceding paragraph. If the liquidator does not consent to the filling
quarterly report thereof to the court , which report shall be made available to all interested or prosecution of such action, any creditor may seek leave of the court to commence said action.
parties. The liquidator shall also submit such reports as may be required by the court from time to (b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign
time as well as a final report at the end of the liquidation proceedings. and transfer to the creditor all rights, title and interest in the chose in action or subject
Section 122. Discharge of Liquidator. - In preparation for the final settlement of all the claims matter of the proceeding, including any document in support thereof.
against the debtor , the liquidator will notify all the creditors, either by publication in a newspaper (c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to
of general circulation or such other mode as the court may direct or allow, that will apply with the the extent of his claim and the costs, belongs exclusively to the creditor instituting the
court for the settlement of his account and his discharge from liability as liquidator. The liquidator proceeding, and the surplus, if any, belongs to the estate.
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. (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,
(C) Determination of Claims the order shall fix the time within which he shall do so and, in that case the benefit
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the derived from the proceedings, if instituted within the time limits so fixed, belongs to the
liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors. estate.
Secured creditors who have waived their security or lien, or have fixed the value of the property (E) The Liquidation Plan.
subject of their security or lien by agreement with the liquidator and is admitted as a creditor for

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Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office, the priority over other claims of whatever nature or kind insofar as trade-related assets are
Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a minimum concerned.
enumerate all the assets of the debtor and a schedule of liquidation of the assets and payment of
For purposes of this section, trade -related assets include cash, securities, trading right and other
the claims.
owned and used by the securities market participant in the ordinary course of this business.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition and
CHAPTER VIII
after hearing, to exempt and set apart, for the use and benefit of the said insolvent, such real and
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION PROCEEDINGS
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 (A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant to a
therefor has been duly given by the clerk, by causing such notice to be posted it at least three (3) State-funded or State-mandated Insurance System.
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 Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims and provide
the hearing of such application, and shall briefly indicate the homestead sought to be exempted or other relief necessary to assist in the liquidation of a financial under rehabilitation receivership
the property sought to be set aside; and the decree must show that such proof was made to the established by a state-funded or state-mandated insurance system.
satisfaction of the court, and shall be conclusive evidence of that fact. Section 138. Application of Relevant Legislation. - The liquidation of bank, financial institutions,
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of insurance companies and pre-need companies shall be determined by relevant legislation. The
the debtor and convert the same into money. The sale shall be made at public auction. However, a provisions in this Act shall apply in a suppletory manner.
private sale may be allowed with the approval of the court if; (a) the goods to be sold are of a (B) Cross-Border Insolvency Proceedings.
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. 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
With the approval of the court, unencumbered property of the debtor may also be conveyed to a Model Law on Cross-Border Insolvency of the United Nations Center for International Trade and
creditor in satisfaction of his claim or part thereof. Development is hereby adopted as part of this Act.
Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an
Liquidation Plan as approved by the court. Payments shall be made to the creditors only in insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the submission
accordance with the provisions of the Plan. of a petition by the representative of the foreign entity that is the subject of the foreign
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its Implementation proceeding.
shall ensure that the concurrence and preference of credits as enumerated in the Civil Code of the Section 141. Provision of Relief. - The court may issue orders:
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 (a) suspending any action to enforce claims against the entity or otherwise seize or
employees or laborers to the debtor shall enjoy first preference under Article 2244 of the Civil foreclose on property of the foreign entity located in the Philippines;
Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.
(b) requiring the surrender property of the foreign entity to the foreign representative;
Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities and or
Exchange Commission. - Upon determining that the liquidation has been completed according to
(c) providing other necessary relief.
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 142. Factors in Granting Relief. - In determining whether to grant relief under this
subchapter, the court shall consider;
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 (a) the protection of creditors in the Philippines and the inconvenience in pursuing their
terminating the proceedings. claim in a foreign proceeding;
(F) Liquidation of a Securities Market Participant. (b) the just treatment of all creditors through resort to a unified insolvency or
rehabilitation proceedings;
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 (c) whether other jurisdictions have given recognition to the foreign proceeding;
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 (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

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 (e) the extent that the foreign proceeding has recognized and shown deference to Section 149. Separability Clause. - If any provision of this Act shall be held invalid, the remainder
proceedings under this Act and previous legislation. of this Act not otherwise affected shall remain in full force effect
CHAPTER IX Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its complete
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS publication in the Official Gazette or in at least two (2) national newspaper of general circulation.
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 PROVISIOS
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.
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