oSECTION 1.

 Title. — This Act shall be known as the “Financial Rehabilitation and

Insolvency Act (FRIA) of 2010”.

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

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

The proceedings shall be conducted in a summary and non-adversarial manner

consistent with the declared policies of this Act and in accordance with the rules of
procedure that the Supreme Court may promulgate.

SEC. 4. Definition of Terms. — As used in this Act, the term:

(a) Administrative expenses shall refer to those reasonable and necessary expenses:

(1) incurred or arising from the filing of a petition under the provisions of this Act;

(2) arising from, or in connection with, the conduct of the proceedings under this Act,
including those incurred for the rehabilitation or liquidation of the debtor;

(3) incurred in the ordinary course of business of the debtor after the commencement
date;

(4) for the payment of new obligations obtained after the commencement date to
finance the rehabilitation of the debtor;

(5) incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and

(6) that are otherwise authorized or mandated under this Act or such other expenses as
may be allowed by the Supreme Court in its rules.
(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.

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

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

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

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

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

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

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

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

(g) Court shall refer to the court designated by the Supreme Court to hear and
determine, at the first instance, the cases brought under this Act.

(h) Creditor shall refer to a natural or juridical person which has a claim against the
debtor that arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation
Order.

(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.

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

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

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

(n) Group of debtors shall refer to and can cover only: (1) corporations that are
financially related to one another as parent corporations, subsidiaries or affiliates; (2)
partnerships that are owned more than fifty percent (50%) by the same person; and (3)
single proprietorships that are owned by the same person. When the petition covers a
group of debtors, all reference under these rules to debtor shall include and apply to the
group of debtors.

(o) Individual debtor shall refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent as defined herein.

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

(q) Insolvent debtor’s estate shall refer to the estate of the insolvent debtor, which
includes all the property and assets of the debtor as of commencement date, plus the
property and assets acquired by the rehabilitation receiver or liquidator after that date,
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
commencement date: Provided, That trust assets and bailment, and other property and
assets of a third party that are in the possession of the debtor as of commencement
date, are excluded therefrom.

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

(s) Liabilities shall refer to monetary claims against the debtor, including stockholder’s
advances that have been recorded in the debtor’s audited financial statements as
advances for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or
personal property that legally entitles a creditor to resort to said property for payment of
the claim or debt secured by such lien.

(u) Liquidation shall refer to the proceedings under Chapter V of this Act.

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

(w) Liquidator shall refer to the natural person or juridical entity appointed as such by
the court and entrusted with such powers and duties as set forth in this
Act: Provided, That, if the liquidator is a juridical entity, it must designate a natural
person who possesses all the qualifications and none of the disqualifications as its
representative, it being understood that the juridical entity and the representative are
solidarily liable for all obligations and responsibilities of the liquidator.

(x) Officer shall refer to a natural person holding a management position described in or
contemplated by a juridical entity’s articles of incorporation, bylaws or equivalent
documents, except for the corporate secretary, the assistant corporate secretary and
the external auditor.

(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 proceedings
and on ordinary business terms.

(z) Ownership interest shall refer to the ownership interest of third parties in property
held by the debtor, including those covered by trust receipts or assignments of
receivables.

(aa) Parent shall refer to a corporation which has over another corporation either
directly or indirectly through one or more intermediaries.

(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured
creditors’ committee, a stakeholder, a party with an ownership interest in property held
by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any other
juridical or natural person who stands to be benefited or injured by the outcome of the
proceedings and whose notice of appearance is accepted by the court.

(cc) Possessory lien shall refer to a lien on property, the possession of which has been
transferred to a creditor or a representative or agent thereof.

(dd) Proceedings shall refer to judicial proceedings commenced by the court’s

acceptance of a petition filed under this Act.

(ee) Property of others shall refer to property held by the debtor in which other persons
have an ownership interest.
(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.

(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful
operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments projected
in the plan, more if the debtor continues as a going concern than if it is immediately
liquidated.

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

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

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

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

(ll) Secured party shall refer to a secured creditor or the agent or representative of such
secured creditor.

(mm) Securities market participant shall refer to a broker, dealer, underwriter, transfer
agent or other juridical persons transacting securities in the capital market.

(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a

member of a nonstock corporation or association or a partner in a partnership.

(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting
stock of which is owned or controlled directly or indirectly through one or more
intermediaries by another corporation, which thereby becomes its parent corporation.

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

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

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

(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the
consent of which is necessary for the approval of a Rehabilitation Plan under this Act.
SEC. 8. Decisions of Creditors. — Decisions of creditors shall be made according to the
relevant provisions of the Corporation Code in the case of stock or nonstock
corporations or the Civil Code in the case of partnerships that are not inconsistent with
this Act.

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

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

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

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

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

SEC. 12. Petition to Initiate Voluntary Proceedings by Debtor. — When approved by the

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

(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor’s insolvency or inability to pay
its obligations as they become due;

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

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

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

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

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

(h) A Rehabilitation Plan;

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

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

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

(2) Involuntary Proceedings.

SEC. 13. Circumstances Necessary to Initiate Involuntary Proceedings. — Any creditor

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

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

(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against
the debtor that will prevent the debtor from paying its debts as they become due or will
render it insolvent.
SEC. 16. Commencement of Proceedings and Issuance of a Commencement Order. —
The rehabilitation proceedings shall commence upon the issuance of the
Commencement Order, which shall:

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

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

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

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

(e) declare that the debtor is under rehabilitation;

(f) direct the publication of the Commencement Order in a newspaper of general

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(c) serve as the legal basis for rendering null and void any set-off after the
commencement date of any debt owed to the debtor by any of the debtor’s creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against
the debtor’s property after the commencement date; and

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

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

SEC. 18. Exceptions to the Stay or Suspension Order. — The Stay or Suspension

Order shall not apply:

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

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

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

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

(d) to any form of action of customers or clients of a securities market participant to

recover or otherwise claim moneys and securities entrusted to the latter in the ordinary
course of the latter’s business as well as any action of such securities market participant
or the appropriate regulatory agency or self-regulatory organization to pay or settle such
claims or liabilities;

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

(f) the clearing and settlement of financial transactions through the facilities of a clearing
agency or similar entities duly authorized, registered and/or recognized by the
appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC
as well as any form of actions of such agencies or entities to reimburse themselves for
any transactions settled for the debtor; and
(g) any criminal action against the individual debtor or owner, partner, director or officer
of a debtor shall not be affected by any proceeding commenced under this Act.

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

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

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

(1) the debtor is insolvent; and

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

(b) dismiss the petition upon a finding that:

(1) debtor is not insolvent;

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

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

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

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

(1) the debtor is insolvent; and

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

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

SEC. 27. Dismissal of Petition. — If the petition is dismissed pursuant to paragraph (b)

of Section 25 hereof, then the court may, in its discretion, order the petitioner to pay
damages to any creditor or to the debtor, as the case may be, who may have been
injured by the filing of the petition, to the extent of any such injury.

SEC. 31. Powers, Duties and Responsibilities of the Rehabilitation Receiver. — The

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

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

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

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

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

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

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

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

(h) To sue and recover, with the approval of the court, all property or money of the
debtor paid, transferred or disbursed in fraud of the debtor or its creditors, or which
constitute undue preference of creditor/s;

(i) To monitor the operations and the business of the debtor to ensure that no payments
or transfers of property are made other than in the ordinary course of business;

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

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

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

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

(n) To exercise such other powers as may, from time to time, be conferred upon him by
the court; and
(o) To submit a status report on the rehabilitation proceedings every quarter or as may
be required by the court motu proprio, or upon motion of any creditor, or as may
be Provided, in the Rehabilitation Plan.

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

SEC. 32. Removal of the Rehabilitation Receiver. — The rehabilitation receiver may be

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

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

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

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

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

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

(f) Manifest lack of independence that is detrimental to the general body of the
stakeholders.

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

(a) Secured creditors;

(b) Unsecured creditors;

(c) Trade creditors and suppliers; and

(d) Employees of the debtor.

In the election of the creditors’ representatives, the rehabilitation receiver or his

representative shall attend such meeting and extend the appropriate assistance as may
be defined in the procedural rules.
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 creditors and shall be the primary liaison between the
rehabilitation receiver and the creditors. The creditors’ committee cannot exercise or
waive any right or give any consent on behalf of any creditor unless specifically
authorized in writing by such creditor. The creditors’ committee may be authorized by
the court or by the rehabilitation receiver to perform such other tasks and functions as
may be defined by the procedural rules in order to facilitate the rehabilitation process.

SEC. 62. Contents of a Rehabilitation Plan. — The Rehabilitation Plan shall, as a

minimum:

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

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

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

(d) establish classes of voting creditors;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

settlement with the BIR;

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

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

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

assistance or intervention in the event of any disagreement in the interpretation or
implementation of the Rehabilitation Plan.
SEC. 64. Creditor Approval of Rehabilitation Plan. — The rehabilitation receiver shall
notify the creditors and stakeholders that the Plan is ready for their examination. Within
twenty (20) days from the said notification, the rehabilitation receiver shall convene the
creditors, either as a whole or per class, for purposes of voting on the approval of the
Plan. The Plan shall be deemed rejected unless approved by all classes of creditors
whose right are adversely modified or affected by the Plan. For purposes of this section,
the Plan is deemed to have been approved by a class of creditors if members of the
said class holding more than fifty percent (50%) of the total claims of the said class vote
in favor of the Plan. The votes of the creditors shall be based solely on the amount of
their respective claims based on the registry of claims submitted by the rehabilitation
receiver pursuant to Section 44 hereof.

Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:

(a) The Rehabilitation Plan complies with the requirements specified in this Act;

(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;

(c) The shareholders, owners or partners of the juridical debtor lose at least their
controlling interest as a result of the Rehabilitation Plan; and

(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have
received if the debtor were under liquidation.

SEC. 65. Submission of Rehabilitation Plan to the Court. — If the Rehabilitation Plan is

approved, the rehabilitation receiver shall submit the same to the court for confirmation.
Within five (5) days from receipt of the Rehabilitation Plan, the court shall notify the
creditors that the Rehabilitation Plan has been submitted for confirmation, that any
creditor may obtain copies of the Rehabilitation Plan and that any creditor may file an
objection thereto.

SEC. 66. Filing of Objections to Rehabilitation Plan. — A creditor may file an objection

to the Rehabilitation Plan within twenty (20) days from receipt of notice from the court
that the Rehabilitation Plan has been submitted for confirmation. Objections to a
Rehabilitation Plan shall be limited to the following:

(*** causes or grounds where the creditors can object)

(a) The creditors’ support was induced by fraud;

(b) The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or

(c) The Rehabilitation Plan is in fact not supported by the voting creditors.
SEC. 67. Hearing on the Objections. — If objections have been submitted during the
relevant period, the court shall issue an order setting the time and date for the hearing
or hearings on the objections.

If the court finds merit in the objection, it shall order the rehabilitation receiver or other
party 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 the liquidation of the debtor under Chapter V of this Act.

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 basis for the objection has been cured, or determines that the
debtor has complied with an order to cure the objection, the court shall issue an order
confirming the Rehabilitation Plan.

The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over
claims if the Rehabilitation Plan has made adequate provisions for paying such claims.

For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding,
the court shall have the power to approve or implement the Rehabilitation Plan despite
the lack of approval, or objection from the owners, partners or stockholders of the
insolvent debtor: Provided, That the terms thereof are necessary to restore the financial
well-being and viability of the insolvent debtor.

SEC. 69. Effect of Confirmation of the Rehabilitation Plan. — The confirmation of the

Rehabilitation Plan by the court shall result in the following:

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

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

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

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

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

shall be binding on creditors regardless of whether or not the Plan is successfully
implemented; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan
are not subject to any Suspension Order.

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

PRE-NEGOTIATED REHABILITATION

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

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

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

(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3)
qualified nominees for rehabilitation receiver; and

(d) a summary of disputed claims against the debtor and a report on the provisioning of
funds to account for appropriate payments should any such claims be ruled valid or their
amounts adjusted.

OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS

OR REHABILITATION PLANS

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

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

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

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

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

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

(c) It must be approved by creditors representing at least seventy-five percent (75%) of

the unsecured obligations of the debtor; and

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

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

SEC. 86. Cram Down Effect. — A restructuring/workout agreement or Rehabilitation

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

CHAPTER V

LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS

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

(a) a schedule of the debtor’s debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties;
and

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

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

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

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

SEC. 91. Involuntary Liquidation. — Three (3) or more creditors the aggregate of whose

claims is at least either One million pesos (Php1,000,000.00) or at least twenty-five
percent (25%) of the subscribed capital stock or partner’s contributions of the debtor,
whichever is higher, may apply for and seek the liquidation of an insolvent debtor by
filing a petition for liquidawtion of the debtor with the court. The petition shall show that:

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

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

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

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

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

(1) directing the publication of the petition or motion in a newspaper of general

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

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

CHAPTER VI

INSOLVENCY OF INDIVIDUAL DEBTORS

(A) Suspension of Payments.

SEC. 94. Petition. — An individual debtor who, possessing sufficient property to cover

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

EC. 97. Creditors’ Meeting. — The presence of creditors holding claims amounting to at

least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The
commissioner appointed by the court shall preside over the meeting and the clerk of
court shall act as the secretary thereof, subject to the following rules:

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

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

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

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

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

(2) that the claims represented by said majority vote amount to at least three-fifths (3/5)
of the total liabilities of the debtor mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the
majority vote shall be drawn up, and the commissioner and the individual debtor
together with all creditors taking part in the voting shall sign the affirmed propositions.

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

SEC. 103. Application. — An individual debtor whose properties are not sufficient to

cover his liabilities, and owing debts exceeding Five hundred thousand pesos
(Php500,000.00), may apply to be discharged from his debts and liabilities by filing a
verified petition with the court of the province or city in which he has resided for six (6)
months prior to the filing of such petition. He shall attach to his petition a schedule of
debts and liabilities and an inventory of assets. The filing of such petition shall be an act
of insolvency.

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

(C) Involuntary Liquidation.

SEC. 105. Petition; Acts of Insolvency. — Any creditor or group of creditors with a claim

of, or with claims aggregating, at least Five hundred thousand pesos (Php500,000.00)
may file a verified petition for liquidation with the court of the province or city in which
the individual debtor resides.

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

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

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

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

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

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

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

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

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

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

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

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

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

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