ATENEO LAW SCHOOL

COMMERCIAL LAW REVIEW

FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 20101

I. GENERAL PROVISIONS
A. Declarat!" !# P !lc$ % Se c. 2 :
1. To encourage debtors, both juridical and natural persons, and their
creditors to collectively and realistically resolve and adjust competing
claims and property rights.
2. To ensure a timely, fair, transparent, effective and efficient
rehabilitation or liquidation of debtors.
3. To ensure or maintain certainly and predictability in commercial affairs,
preserve and maximie the value of the assets of these debtors,
recognie creditor rights and respect priority of claims, and ensure

equitable treatment of creditors !ho are similarly situated.

". #hen rehabilitation is not feasible, to facilitate a speedy and orderly
liquidation of these debtor$s assets and the settlement of their
obligations.
B. Nat&re !# P r!cee'"() % Sec . *+
1. I" R e,+ The proceedings under this %ct shall be in rem. &urisdiction
over all persons affected by the proceedings shall be considered as
acquired upon publication of the notice of the commencement of the
proceedings in any ne!spaper of general circulation in the 'hilippines
in the manner prescribed by the rules of procedure to be promulgated
by the (upreme )ourt.
2. S&,,ar$-N!"A'/er)aral+ The proceedings shall be conducted in a
summary and non*adversarial manner consistent !ith the declared
policies of this %ct and in accordance !ith the rules of procedure that
the (upreme )ourt may promulgate.
C. C!/era(e+
1. I")!l/e"t % Sec. 3+ 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.
1
This +utline is based on the codal provisions of epublic %ct -o. 11"2, and may be
supplemented !ith /ean )esar 0. illanuevas )ommercial 0a! evie!, 2 and 24
5ditions, insofar as the discussions are still applicable.
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2. De4t!r % Sec. 53+ Debtor shall refer to, unless specifically excluded
by a provision of this %ct, a sole proprietorship duly registered !ith the
/epartment of Trade and 6ndustry 7/T68, a partnership duly registered
!ith the (ecurities and 5xchange )ommission 7(5)8, a corporation
duly organied and existing under 'hilippine la!s, or an individual
debtor !ho has become insolvent as defined herein.
*. E6cl&)!") % Sec. 7+ The term debtor does not include ban9s,
insurance companies, pre*need companies, and national and local
government agencies or units. Provided, That government financial
institutions other than ban9s and government*o!ned or controlled
corporations shall be covered by this %ct, unless their specific charter
provides other!ise.
D. De)("at!" !# C! &rt) a"' Pr! ,&l(at!" !# Pr!c e'&ral R&le) % Sec. 8
E. S&4)ta"t/e a"' Pr!ce'&ral C!")!l'at!" % Sec. 9+ 5ach juridical
entity shall be considered as a separate entity under the proceedings in
this %ct. nder these proceedings, the assets and liabilities of a debtor
may not be commingled or aggregated !ith those of another, unless the
latter is a related enterprise that is o!ned or controlled directly or indirectly
by the same interests: Provided, however, That the commingling or
aggregation of assets and liabilities of the debtor !ith those of a related
enterprise may only be allo!ed !here:
1. there !as commingling in fact of assets and liabilities of the debtor and
the related enterprise prior to the commencement of the proceedings;
2. the debtor and the related enterprise have common creditors and it !ill
be more convenient to treat them together rather than separately;
3. the related enterprise voluntarily accedes to join the debtor as party
petitioner and to commingle its assets and liabilities !ith the debtor$s;
and
". the consolidation of assets and liabilities of the debtor and the related
enterprise is beneficial to all concerned and promotes the objectives of
rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from
joining other entities affiliated !ith the debtor as parties pursuant to the
rules of procedure as may be promulgated by the (upreme )ourt.
F. La4lt$ !# I"'/'&al De4t!r: O;"er !# a S!le Pr!ret!r)<:
Part"er) " a Part"er)<: !r Drect!r) a"' O##cer) % Sec. 10 :
6ndividual debtor, o!ner 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, embeled or disposed of or double the amount of the
transaction involved, !hichever is higher to be recovered for benefit of the
debtor and the creditors, if they, having notice of the commencement of
the proceedings, or having reason to believe that proceedings are about to
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be commenced, or in contemplation of the proceedings, !illfully commit

the follo!ing acts:
1. /ispose or caus e to be disposed of any prop erty of the debtor other
than in the ordinary course of business or authorie or approve any
transaction in fraud of creditors or in a manner grossly
disadvantageous to the debtor and<or creditors; or

2. )onceal or authorie
or embeles or approve the
or misappropriates, anyconcealment, from
property of the the creditors,
debtor.
The court shall determine the extent of the liability of an o!ner, partner,
director or officer under this section. 6n 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.
G. A&t<!r=at!" t! E6c<a" (e De4t #!r E>&t$ % Sec. 11

II. CO?RTS?PERVISED REHABILITATION

A. I"tat!" !# Pr!c ee'"()

1. V!l&"tar$ Pr!cee'"().
a. H!; "tate' % Se c. 12+ 'etition to initiate voluntary proceedings
filed by debtor, approved by:
i. (ole 'roprietorship = by the o!ner
ii. 'artnership = by a majority of the partners
iii. (toc9 )orporation = by a majority vote of the board of directors
and authoried by the vote of the stoc9holders representing at
least t!o*thirds 72<38 of the outstanding capital stoc9 in a
stoc9holder$s meeting duly called for the purpose,
iv. -on*(toc9 )orporation = by a majority vote of the board of
trustees and authoried by the vote of at least t!o*thirds 72<38 of
the members, in a member$s meeting duly called for the
purpose.
N!te+ % group of debtors may jointly file a petition for rehabilitation
under this %ct !hen one or more of its members foresee the
impossibility of meeting debts !hen they respectively fall due, and
the financial distress !ould li9ely 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 grou p is
essential under the terms and conditions of the proposed
ehabilitation 'lan.
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4. Gr!&"')+ 6nsolvency of debtor and viability of rehabilitation

c. C!"te"t) !# Pe tt!" % Sec . 12+ The petition shall be verified to
establish the insolvency of the debtor and the viability of its
rehabilitation, and include, !hether as an attachment or as part of
the body of the petition, as a minimum the follo!ing:
i. 6dentification of the debtor, its principal activities and its

addresses;
ii. (tatement of the fact of and the cause of the debtor$s insolvency
or inability to pay its obligations as they become due;
iii. The specific relief sought pursuant to this %ct;
iv. The grounds upon !hich the petition is based;
v. +ther information that may be required under this %ct
depending on the form of relief requested;
vi. (chedule of the debtor$s debts and liabilities including a list of
creditors !ith their addresses, amounts of claims and
collaterals, or securities, if any;
vii. %n inventory of all its assets inclu ding receivables and claims
against third parties;
viii.% ehabilitation 'lan;
ix. The names of at least three 738 nominees to the pos ition of
rehabilitation receiver; and
x. +ther documents required to be filed !ith the petition pursuant
to this %ct and the rules of procedure as may be promulgated by
the (upreme )ourt.
2. I"/!l&"tar$ Pr!cee'"().
a. H!; " tate' % Sec . 1* : >y petition for rehabilitation filed by %ny
creditor or group of creditors !ith a claim of, or the aggregate of
!hose claims is, at least +ne ?illion 'esos 7'hp1,,.8 or at
least t!enty*five percent 72@A8 of the subscribed capital stoc9 or
partners$ contributions, !hichever is higher,
4. Crc&,)ta"ce) Nece))ar$ t! I"tate I"/!l&"tar$ Pr!cee'"() %
Sec. 1*:
i. there is no gen uine issue of fac t on la! on th e claim<s of th e
petitioner<s, and that the due and demandable payments
thereon have not been made for at least sixty 7B8 days or that
the debtor has failed generally to meet its liabilities as they fall
due; or
ii. a creditor, other than the petitioner<s, has initiated foreclosure
proceedings against the debtor that !ill prevent the debtor from
paying its debts as they become due or !ill render it insolvent.
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c. C!"te"t) !# Pe tt!" % Sec . 1+ The petition shall be verified to

establish the substantial li9elihood that the debtor may be
rehabilitated, and include:
i. identification of the debtor its principal activities and its address;
ii. the circumstances sufficient to support a petition to initiate
involuntary rehabilitation proceedings under (ection 13 of this

%ct;
iii. the specific relief sought under this %ct;
iv. a ehabilitation 'lan;
v. the names of at least three 738 nominees to the position of
rehabilitation receiver;
vi. other information that may be required under this %ct depending
on the form of relief requested; and
vii. other documents required to be filed !ith the petition pursuant
to this %ct and the rules of procedure as may be promulgated by
the (upreme )ourt.

B. Act!" !" t<e Pett!" a"' C!,,e"ce,e"t !# Pr!cee'"().

1. Act!" !" t<e Pett!". % Sec. 17 : #ithin @ !or9ing days from filing of
petition, court shall
a. 6f petition for rehabilitation sufficient in form and substance, court
shall issue )ommencement +rder; or
b. 6f petition deficient in form or substance, court may, in its discretion,
give the petitioner<s a reasonable period of time !ithin !hich to
amend or supplement the petition, or to submit such documents as
may be necessary or proper to put the petition in proper order.
2. C!,,e"ce,e"t !# Pr!cee'"() a" ' I))&a"ce !# a
C!,,e"ce,e"t Or'er % Sec. 18 : The rehabilitation proceedings

shall commence
Sec. 18 upon!hich
for contents8 the issuance of theothers,
shall, among )ommencement +rder See
7
appoint rehabilitation
receiver, and include a Sta$ !r S&)e")!" Or'er !hich shall:
a. suspend all actions or proceedings, in court or other!ise, for the
enforcement of claims against the debtor;
b. suspend all actions to enforce any judgment, attachment or other
provisional remedies against the debtor;
c. prohibit the debtor from selling, encumbering, transferring or
disposing in any manner any of its properties except in the ordinary
course of business; and
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d. prohibit the debtor from ma9ing any payment of its liabilities

outstanding as of the commencement date except as may be
provided herein.
*. E##ect) !# t<e C!, ,e"ce,e"t Or 'er % Sec. 19 : nless other!ise
provided for in this %ct, the court$s issuance of a )ommencement
+rder shall, in addition to the effects of a (tay or (uspension +rder
described in (ection 1B hereof:
a. vest the rehabilitation receiver !ith all the po!ers and functions
provided for this %ct, such as the right to revie! and obtain records
to !hich the debtor$s management and directors have access,
including ban9 accounts or !hatever nature of the debtor subject to
the approval by the court of the performance bond filed by the
rehabilitation receiver;
b. prohibit or other!ise serve as the legal basis rendering null and void
the results of any extrajudicial activity or process to seie property,
sell encumbered property, or other!ise attempt to collection or
enforce a claim against the debtor after commencement date
unless other!ise allo!ed in this %ct, subject to the provisions of
(ection @ hereof;
c. serve as the legal basis for rendering null and void any setoff after
the commencement date of any debt o!ed 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 'rovided. Co!ever, That the court may allo!
the continuation of cases on other courts !here the debtor had
initiated the suit.
N!te+ %ttempts to see9 legal of other resource against the debtor
outside these proceedings shall be sufficient to support a finding of
indirect contempt of court.
. E6cet!") t! t< e Sta$ !r S& )e")!" Or'e r % Sec. 1@ : The (tay or
(uspension +rder shall not apply:
a. to cases already pending appeal in the (upreme )ourt 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
specialied court or quasi*judicial agency !hich, upon
determination by the court is capable of resolving the claim more
quic9ly, fairly and efficiently than the court: Provided, That any final
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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 othe r persons
solidarily liable !ith the debtor, and third party or accommodation
mortgagors as !ell 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 mar9et
participant to recover or other!ise claim moneys and securities
entrusted to the latter in the ordinary course of the latter$s business
as !ell as any action of such securities mar9et participant or the
appropriate regulatory agency or self*regulatory organiation to pay
or settle such claims or liabilities;
e. to the actions of a licensed bro9er 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 !ith the provisions of the (ecurities egulation )ode
and its implementing rules and regulations;
f. the clearing and sett lement of financial transactions through the
facilities of a clearing agency or similar entities duly authoried,
registered and<or recognied by the appropriate regulatory agency
li9e the >ang9o (entral ng 'ilipinas 7>('8 and the (5) as !ell as
any form of actions of such agencies or entities to reimburse
themselves for any transactions settled for the debtor; and
g. any criminal action against individual debtor or o!ner, partner,
director or officer of a debtor shall not be affected by any
proceeding commend under this %ct.
7. Wa/er !# ta6e ) a"' Fee) D&e t! t<e Nat !"al G!/er",e"t a"' t!
L!cal G!/er",e"t ?"t) LG?)3 % Sec. 1

8. Alcat!" !# Sta$ !r S&)e")!" Or'er t! G!/er",e"t F"a"cal

I")tt&t!"). % Sec. 20
9. E##ect/t$ a"' D&rat!" !# C!,,e"ce,e"t Or'er % Sec. 21 :
nless lifted by the court, the )ommencement +rder shall be for the
effective for the duration of the rehabilitation proceedings for as long as
there is a substantial li9elihood that the debtor !ill be successfully
rehabilitated. See Sec. 21 for minimum requirements to determining
!hether there is substantial li9elihood for the debtor to be successfully
rehabilitated.
@. Act!" at t< e I"tal Hear"( % Sec. 2 2 : %t the initial hearing, the court
shall:
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a. determine the creditors !ho have made timely and proper filing of
their notice of claims;
b. hear and determine any objection to the qualifications of the
appointment of the rehabilitation receiver and, if necessary appoint
a ne! one in accordance !ith this %ct;
c. direct the creditors to comment on the petition and the

ehabilitation 'lan, and

rehabilitation receiver to submit
!ithin the of
a period same to the than
not more courtt!enty
and to728
the
days; and
d. direct the rehabilitation receiver to evaluate the financial condition
of the debtor and to prepare and submit to the court !ithin forty 7"8
days from initial hearing the report provided in (ection 2" hereof.
. E##ect !# Fa l&re t! F le N!t ce !# Cla, % Sec. 2 * : % creditor !hose
claim is not listed in the schedule of debts and liabilities and !ho fails
to file a notice of claim in accordance !ith the )ommencement +rder
but subsequently files a belated claim shall not be entitled to
participate in the rehabilitation proceedings but shall be entitled to
receive distributions arising therefrom.

10.Re!rt !# t<e Re<a4ltat!" Rece/er % Sec. 2 : #ithin " days

from the initial hearing and !ith or !ithout 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.
11.G/"( D&e C!&r)e t! !r D),))al !# Pett!": !r C!"/er)!" !#
Pr!cee'"() % Sec. 27 : #ithin 1 days from receipt of the report of
the rehabilitation receiver the court may:
a. give due course to the petition upon a finding that:
i. the debtor is insolvent; and
ii. there is a substantial li9elihood for the debtor to be successfully
rehabilitated;
b. dismiss the petition upon a finding that:
i. debtor is not insolvent;
ii. 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;
iii. the petition, the ehabilitation 'lan and the attachments thereto
contain any materially false or misleading statements; or
iv. the debtor has committed acts of misre presentation or in fraud
of its creditor<s or a group of creditors;
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c. convert the proc eedings into one for the liquidation of the debtor
upon a finding that:
i. the debtor is insolvent; and
ii. there is no substantial li9elihood for the debtor to be
successfully rehabilitated as determined in accordance !ith the
rules to be promulgated by the (upreme )ourt.

11.Pett !" G/e " D&e C!&r )e % Sec. 28+ 6f the petition is given due
course, the court shall direct the rehabilitation receiver to revie!, revise
and<or recommend action on the ehabilitation 'lan and submit the
same or a ne! one to the court !ithin a period of not more than 4
days.
N!te+ The court may refer any dispute relating to the ehabilitation
'lan or the rehabilitation proceedings pending before it to arbitration or
other modes of dispute resolution, as provided for under epublic %ct
-o. 42D@, +r the %lternative /ispute esolution %ct of 2", should it
determine that such mode !ill resolve the dispute more quic9ly, fairly
and efficiently than the court.
12. D),))al !# Pett! " % Sec. 29+ 6f the petition is dismissed pursuant
to paragraph 7b8 of (ec. 2@, 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, !ho may have been injured by the filing of the petition, to
the extent of any such injury.

C. T<e Re<a4ltat!" Rece/er: Ma"a(e,e"t

C!,,ttee a"' Cre't!r) C!,,ttee

1. Re<a4ltat!" Rece/er
a. W<! Ma$ Ser/e % Sec. 2@+ %ny qualified natural or juridical person
may serve as a rehabilitation receiver: Provided, That if the
rehabilitation receiver is a juridical entity, it must designate a natural
person<s !ho possess<es all the qualifications and none of the
disqualifications as its representative, it being understood that the
juridical entity and the representative<s are solidarily liable for all
obligations and responsibilities of the rehabilitation receiver.
4. &al#cat!") % Sec. 2+
i. 'hilippine citien or resident for B months immediately
preceding his nomination
ii, +f good moral character and !ith ac9no!ledged integrity,
impartiality and independence;
iii. Cas the requisite 9no!ledge of insolvency and other relevant
commercial la!s, rules and procedures, as !ell as the relevant
training and<or experience that may be necessary to enable him
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to properly discharge the duties and obligations of a

rehabilitation receiver; and
iv. Cas no conflict of interest: 'rovided, That such conflict of
interest may be !aived, expressly or impliedly, by a party !ho
may be prejudiced thereby.
v. +ther qualifications and disqualifications of the rehabilitation

receiver shall the

consideration be nature
set forth in business
of the procedural rules,
of the ta9ing
debtor andinto
the
need to protect the interest of all sta9eholders concerned.
c. I"tal A!"t,e"t % Sec. *0
'. P!;er): D&te) a"' Re)!")4lte) % Sec. *1 : /eemed an
officer of the court !ith the principal duty of preserving and
maximiing 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
ehabilitation 'lan to the court, and implementing the approved
ehabilitation 'lan. See Sec. *1 for enumeration.
e. Re,!/al = Sec. *2: The rehabilitation receiver may be removed at
any time by the cou rt either motu proprio or upon motion by any
creditor<s holding more than fifty percent 7@A8 of the total
obligations of the debtor, on such grounds as the rules of procedure
may provide !hich shall include, but are not limited to, the
follo!ing:
i. 6ncompetence, gross negligence, failure to perform or failure to
exercise the proper degree of care in the performance of his
duties and po!ers;
ii. 0ac9 of a particular or specialied competency required by the
specific case;
iii. 6llegal acts or conduct in the performance of his duties and
po!ers;
iv. 0ac9 of qualification or presence of any disqualification;
v. )onflict of interest that arises after his appointment; and
vi. ?anifest lac9 of independence that is detrimental to the general
body of the sta9eholders.
#. C!,e")at!" a"' Te r,) !# Se r/ce % Se c. ** : reasonable fees
and expenses from the debtor according to the terms approved by
the court after notice and hearing. (uch costs shall be considered
administrative expenses.
(. Oat< a"' B!"' !# t<e Re<a4ltat!" Rece/er % Sec. * :
required prior to entering upon his po!ers, duties and
responsibilities
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<. Vaca"c$ % Sec. *7 : court shall direct the debtor and the creditors
to submit the name<s of their nominee<s to the position, and court
shall appoint any qualified nominee or any other qualified person
. D)lace,e"t !# E6)t"( Ma"a(e,e"t 4$ t<e Re<a4ltat!"
Rece/er !r Ma"a(e,e"t C!,,ttee % Sec. *8 : pon motion of
any interested party, the court may appoint and direct the
rehabilitation receiver to assume the po!ers of management of the
debtor, or appoint a management committee that !ill underta9e the
management of the debtor. upon clear and convincing evidence of
any of the follo!ing circumstances:
i. %ctual or imminent danger of dissipation, loss, !astage or
destruction of the debtors assets or other properties;
ii. 'aralyation of the business operations of the debtor; or
iii. Eross mismanagement of the debtor. or fraud or other !r ongful
conduct on the part of, or gross or !illful violation of this %ct by.
existing management of the debtor +r the o!ner, partner,
director, officer or representative<s in management of the
debtor.

2. Ma"a(e,e"t C !,,ttee
a. R!le !# t<e Ma "a(e,e"t C!,,ttee. % Sec. *9 : #hen appointed
pursuant to (ec. 3B, the management committee shall ta9e the
place of the management and the governing body of the debtor and
assume their rights and responsibilities. (pecifics to be provided
by procedural rules.
4. &al#cat!") !# Me,4er) !# t<e Ma"a(e,e"t C!,,ttee. %
Sec. *@+ (pecifics to be provided by procedural rules, ta9ing into
consideration the nature of the business of the debtor and the need
to protect the interest of all sta9eholders concerned.

*. C!,,!" Pr!/)!")
a. E,l!$,e"t !# Pr!# e))!"al) % Sec. * : allo!ed upon approval
of the court, and after notice and hearing.
4. C!"#lct !# I" tere)t % Sec. 0 : -o person may be appointed as a
rehabilitation receiver, member of a management committee, or be
employed by the rehabilitation receiver or the management
committee if he has a conflict of interest. %n individual shall be
deemed to have a conflict of interest if he is so situated as to be
materially influenced in the exercise of his judgment for or against
any party to the proceedings. See Sec. 0 for enumeration.
)onflict of interest must be disclosed.
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c. I,,&"t$ % S ec. 1 : for act done or omitted to be done by them in

good faith in connection !ith the exercise of their po!ers and
functions under F6% or other actions duly approved by the court.

. Cre't!r) C !,,ttee
a. C!")tt&t!" % Sec. 2+ %fter the creditors$ meeting called
pursuant to (ec. B3, the creditors belonging to a class may formally
organie a committee among themselves. 6n addition, the creditors
may, as a body, agree to form a creditors$ committee composed of
a representative from each class of creditors 7secured, unsecured,
trade creditors and suppliers, employees8.
4. R!le % Sec. *+ To assist the rehabilitation receiver in
communicating !ith the creditors and shall be the primary liaison
bet!een the rehabilitation receiver and the creditors. The creditors$
committee cannot exercise or !aive any right or give any consent
on behalf of any creditor unless specifically authoried in !riting by
such creditor. The creditors$ committee may be authoried by the
court or by the rehabilitation receiver to perform such other tas9s
and functions as may be defined by the procedural rules in order to

facilitate the rehabilitation process.

D. Deter,"at!" !# Cla,)
1. De#"t!" !# Cla, % Sec. c 3+ Claim shall refer to all claims or
demands of !hatever nature or character against the debtor or its
property, !hether for money or other!ise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed,
including, but not limited to; 718 all claims of the government, !hether
national or local, including taxes, tariffs and customs duties; and 728
claims against directors and officers of the debtor arising from acts
done in the discharge of their functions falling !ithin 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.
2. Re()tr$ !# Cla,) % Sec.  : #ithin t!enty 728 days from his
assumption into office, the rehabilitation receiver shall establish a
preliminary registry of claims. The rehabilitation receiver shall ma9e the
registry available for public inspection and provide publication notice to
the debtor, creditors and sta9eholders on !here and !hen they may
inspect it. %ll claims included in the registry of claims must be duly
supported by sufficient evidence.
*. O!)t!" !r C< alle"(e !# Cl a,) = Sec. 7: #ithin thirty 738 days
from the expiration of the period stated in the immediately preceding
section, the debtor, creditors, sta9eholders and other interested parties
may submit a challenge to claim<s to the court, serving a certified copy
 13

on the rehabilitation receiver and the creditor holding the challenged

claim<so pon the expiration of the thirty 738*day period, the
rehabilitation receiver shall submit to the court the registry of claims
!hich shall include undisputed claims that have not been subject to
challenge.
*. Aeal % Se c.  8 : %ny decision of the rehabilitation receiver regarding
a claim may be appealed to the court.

E. G!/er"a"ce
1. Ma"a(e,e"t % Sec. 9+ nless other!ise provided herein, the
management of the juridical debtor shall remain !ith the existing
management subject to the applicable la!<s and agreement<s, if any,
on the election or appointment of directors, managers +r managing
partner. Co!ever, all disbursements, payments or sale, disposal,
assignment, transfer or encumbrance of property , or any other act
affecting title or interest in property, shall be subject to the approval of
the rehabilitation receiver and<or the court, as provided in the follo!ing
subchapter.

F. ?)e: Pre)er/at!"
!# A))et) a"' a#ter
a"' Cla,) D)!)al !# A))et) a"'
C!,,e"ce,e"t Treat,e"t
Date.
1. ?)e !r D)!)t!" !# A))et) % Sec. @+ 5xcept as other!ise
provided herein, no funds or property of the debtor shall he used or
disposed of except in the ordinary course of business of the debtor, or
unless necessary to finance the administrative expenses of the
rehabilitation proceedings.
2. Sale !# A))et) % Sec. + The court, upon application of the
rehabilitation receiver, may authorie the sale of unencumbered
property of the debtor outside the ordinary course of business upon a
sho!ing that the property, by its nature or because of other
circumstance, is perishable, costly to maintain, susceptible to

devaluation or other!ise in jeopardy.

*. Sale !r D)!)al !# E"c&,4ere' Pr!ert$ !# t<e De4t!r a"'
A))et) !# T<r' Parte) Hel' 4$ De4t!r % Sec. 70
. A))et) !# D e4t!r Hel' 4 $ T< r' Par te) % Sec. 71
7. Re)c))!" !r N&llt$ !# Sale: Pa$,e"t: Tra")#er !r C!"/e $a"ce !#
A))et) % Sec. 72 : The court may rescind or declare as null and void
any sale, payment, transfer or conveyance of the debtor$s
unencumbered property or any encumbering thereof by the debtor or
its agents or representatives after the commencement date !hich are
not in the ordinary course of the business of the debtor: Provided,
however, That the unencumbered property may be sold, encumbered
 14

or other!ise 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 preparation and implementation of a ehabilitation 'lan;
b. in order to provide a substitute lien, mortgage or pledge of property
under this %ct;

c. for payments made to meet administrative expenses as they arise;

d. for payments to vict ims of quas i delicts upon a sho!ing that the
claim is valid and the debtor has insurance to reimburse the debtor
for the payments made;
e. for payments made to repu rchase property of the debt or that is
auctioned off in a judicial or extrajudicial sale under. This %ct; or
f. for payments made to reclaim property of the debtor held pursuant
to a possessory lien.
8. A))et) S&4ect t! Ra' O4)!le)ce"ce: Derecat!" a"'
D,"&t!" !# Val&e. % Sec. 7*
9. P!)tc!,,e"ce,e"t I"tere)t % Sec. 7+ The rate and ter m of
interest, if any, on secured and unsecured claims shall be determined
and provided for in the approved ehabilitation 'lan.
@. P!)tc!,,e"ce,e"t L!a") a"' O4l(at!") % Sec. 77+ #ith the
approval of the court upon the recommendation of the rehabilitation
receiver, the debtor, in order to enhance its rehabilitation. may:
a. enter into credit arrangements; or
b. enter into credit arrangements, secured by mortgages of its
unencumbered property or secondary mortgages of encumbered
property !ith the approval of senior secured parties !ith regard to
the encumbered property; or
c. incur other obligations as may be essential for its rehabilitation.
N!te+ The payment of the foregoing obligations shall be considered
administrative expenses under this %ct.
. Treat,e"t !# E,l!$ee): Cla,) % Sec. 78+ Compensation of
employees required t o carry on the business shall be considered an
administrative expense. )laims of separation pay for months !or9ed
prior to the commencement date shall be considered a pre*
ommencement claim. )laims for salary and separation pay for !or9
performed after the commencement date shall be an administrative
expense.
10.Treat ,e"t !# C!"tr act) % Sec. 79+ nless cancelled by virtue of a
final judgment of a court of competent jurisdiction issued prior to the
issuance of the )ommencement +rder, or at anytime thereafter by the
 15

court before !hich the rehabilitation proceedings are pending, all valid
and subsisting contracts of the debtor !ith creditors and other third
parties as at the commencement date shall continue in force:
Provided, That !ithin 4 days follo!ing the commencement of
proceedings, the debtor, !ith the consent of the rehabilitation receiver,
shall notify each contractual counter*party of !hether it is confirming
the particular contract. )ontractual obligations of the debtor arising or
performed during this period, and after!ards for confirmed contracts,
shall be considered administrative expenses. )ontracts not confirmed
!ithin the required deadline shall be considered terminated. )laims for
actual damages, if any, arising as a result of the election to terminate a
contract shall be considered a pre*commencement claim against the
debtor. -othing contained herein shall prevent the cancellation or
termination of any contract of the debtor for any ground provided by
la!.

G. A/!'a"ce Pr! cee'"()

1. Re)c))!" !r N&llt$ !# Certa" Prec!,,e"ce,e"t Tra")act!")
% Sec. 7@+ %ny transaction occurring prior to commencement date
entered into by the debtor or involving its funds or assets may be
rescinded or declared null and void on the ground that the same !as
executed !ith intent to defraud a creditor or creditors or !hich
constitute undue preference of creditors. (ee (ec. @D for enumeration
of disputable presumption of such design.
N!te+ Provided, however, That nothing in this section shall prevent the
court from rescinding or declaring as null and void a transaction on
other grounds provided by relevant legislation and jurisprudence:
Provided, further, That the provisions of the )ivil )ode on rescission
shall in any case apply to these transactions.
2. Act!") #! r Re)c ))!" !r N&ll t$ % Sec . 7

H. Treat,e"t !# Se c&re' Cre' t!r)

1. N! D,"&t!" !# Sec&re' Cre't!r R(<t) % Sec. 80
2. Lac5 !# A'e>&ate Pr! tect!" % Sec. 81 : The court, on motion or
motu proprio, may terminate, modify or set conditions for the
continuance of suspension of payment, or relieve a claim from the
coverage thereof, upon sho!ing that: 7a8 a creditor does not have
adequate protection over property securing its claim; or7b8 the value of
a claim secured by a lien on property !hich is not necessary for
rehabilitation of the debtor exceeds the fair mar9et value of the said
property. See Sec. 81 for enumeration of factors.

I. A',")trat!" !# P r!cee'"().
1. C!"te"t) !# a Re< a4ltat!" Pl a" % Sec. 8 2
 16

2. C!")&ltat!" ;t< De4t!r a"' Cre't!r) % Sec. 8*

*. Cre't!r Ar!/al !# Re<a4ltat!" Pla" % Sec. 8
. S&4,))!" !# Re<a4ltat!" Pla" t! t<e C!&rt. % Sec. 87
7. Fl"( !# O4ect!") t! Re<a4ltat!" Pla" % Sec. 88
8. Hear"( !" t<e O4ect!") % Sec. 89

9. C!"#r,at!" !# t<e Re<a4ltat!" Pla" % Sec. 8@

@. E##ect !# C!"#r,at!" !# t<e Re<a4ltat!" Pla" % Sec. 8+ The
confirmation of the ehabilitation 'lan by the court shall result in the
follo!ing:
a. The ehabilitation 'lan and its provisions shall be binding upon the
debtor and all persons !ho may be affected by . it, including the
creditors, !hether or not such persons have participated in the
proceedings or opposed the ehabilitation 'lan or !hether or not
their claims have been scheduled;
b. The debtor shall comply !ith the provisions of the ehabilitation
'lan and shall ta9e all actions necessary to carry out the 'lan;

c. 'ayments
provisions shall
of thebe made to the'lan;
ehabilitation cre ditors in accordance !ith the

d. )ontracts and other arrangements bet!een the debtor and its

creditors shall be interpreted as continuing to apply to the extent
that they do not conflict !ith the provisions of the ehabilitation
'lan;
e. %ny compromises on amounts or rescheduling of timing of
payments by the debtor shall be binding on creditors regardless of
!hether or not the 'lan is successfully implement; and
f. )laims arising after approval of the 'lan tha t are other!ise not
treated by the 'lan are not subject to any (uspension +rder.
. La4lt$ !# Ge"eral Part"er) !# a Part"er)< #!r ?"a' Bala"ce)
?"'er a" Ar!/e' Pla" % Sec. 90
10.Treat,e"t !# A,!&"t) !# I"'e4te'"e)) !r O4l(at!") F!r(/e" !r
Re'&ce' % Sec. 91
11.Per!' #!r C!"#r,at!" !# t<e Re<a4ltat!" Pla" % Sec. 92+ The
court shall have a maximum period of one 718 year from the date of the
filing of the petition to confirm a ehabilitation 'lan.
N!te+ 6f no ehabilitation 'lan is confirmed !ithin the said period, the
proceedings may upon motion or motu propio, be converted into one
for the liquidation of the debtor .
12.Acc!&"t"( D)c<ar(e !# Re<a4ltat!" Rece/er % Sec. 9*
 17

. Ter,"at!" !# Pr!cee'"()
1. Ter,"at!" !# Pr!cee'"() % Sec. 9 : The rehabilitation
proceedings under )hapter 66 shall, upon motion by any sta9eholder or
the rehabilitation receiver be terminated by order of the court either
declaring a successful implementation of the ehabilitation 'lan or a
failure of rehabilitation.

There is failure of rehabilitation in the follo!ing cases:

7a8 /ismissal of the petition by the court;
7b8 The debtor fails to submit a ehabilitation 'lan;
7c8 nder the ehabilitation 'lan submitted by the debtor, there is no
substantial li9elihood that the debtor can be rehabilitated !ithin a
reasonable period;
7d8 The ehabilitation 'lan or its amendment is approved by the court
but in the implementation thereof, the debtor fails to perform its
obligations thereunder or there is a failure to realie the objectives,
targets or goals set forth therein, including the timelines and
conditions for the settlement of the obligations due to the creditors
and other claimants;
7e8 The commission of fraud in securing the approval of the
ehabilitation 'lan or its amendment; and
7f8 +ther analogous circumstances as may be defined by the rules of
procedure.
2. Act!" !# C! &rt & !" Ter ,"at!" % Sec . 9 : pon a breach of, or
upon a failure of the ehabilitation 'lan the court, upon motion by an
affected party may:
i. 6ssue an order directing that the breach be cured !ithin a specified
period of time, falling !hich the proceedings may be converted to a
liquidation;

ii. 6ssue an order converting the proceedings to a liquidation;

iii. %llo! the debtor or rehabilitation receiver to submit amendments to
the ehabilitation 'lan, the approval of !hich shall be governed by
the same requirements for the approval of a ehabilitation 'lan
under this subchapter;
iv. 6ssue any other order to remedy the breach consistent !ith the
present regulation, other applicable la! and the best interests of
the creditors; or
v. 5nforce the applicable provisions of the ehabilitation 'lan through
a !rit of execution.
*. E##ect) !# Te r,"at!" % Sec. 97 : Termination of the proceedings
shall result in the follo!ing:
 18

7a8 The discharge of the rehabilitation receiver subject to his

submission of a final accounting; and
7b8 The lifting of the (tay +rder and any other court order holding in
abeyance any action for the enforcement of a claim against the
debtor.
Provided, however, That if the termination of proceedings is due to

failure of rehabilitation
than technical or dismissal
grounds, of the petition
the proceedings shallforbe
reasons other
immediately
converted to liquidation as provided in (ection 42 of this %ct.

III. PRENEGOTIATED REHAB ILITATION

A. I"tat!" !# Pr!cee'"() % Sec. 98

1. W<! Ma $ I" tate+ %n insolvent debtor, by itself or jointly !ith any of its
creditors, may file a verified petition !ith the court for the approval of a
pre*negotiated ehabilitation 'lan !hich has been endorsed or
approved by:
a. creditors holding at least 2<3 of the total liabilities of the debtor,

b. including secured creditors holding more than @A of the total

secured claims of the debtor and
c. unsecured creditors holding more than @A of the total unsecured
claims of the debtor.
2. C!"te"t) !# Pett!"+ 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 ehabilitation 'lan, including the names of at
least 3 qualified nominees for rehabilitation receiver; and
d. a summary of disp uted claims against the debt or and a report on

the provisioning
should of funds
any such claims to account
be ruled valid orfor appropriate
their payments
amounts adjusted.
B. I))&a"ce !# Or'er % Sec. 99 : #ithin @ !or9ing days, and after
determination that the petition is sufficient in form and substance, the court
shall issue an +rder !hich shall:
1. identify the debtor, its principal business of activity<ies and its principal
place of business;
2. declare that the debtor is under rehabilitation;
3. summarie the ground.<s for the filling of the petition;
". direct the publication of the +rder in a ne!spaper of general circulation
in the 'hilippines once a !ee9 for at least 2 consecutive !ee9s, !ith
 19

the first publication to be made !ithin  days from the time of its
issuance;
@. direct the service by personal delivery of a copy of the petition on each
creditor !ho is not a petitioner holding at least 1A of the total
liabilities of the debtor, as determined in the schedule attached to the
petition, !ithin 3 days;

B. state thatforcopies
available of the and
examination petition andbythe
copying anyehabilitation 'lan are
interested party;
. state that creditors and other interested parties opposing the petition or
ehabilitation 'lan may file their objections or comments thereto !ithin
a period of not later than 2 days from the second publication of the
+rder;
D. appoint a rehabilitation receiver, if provided for in the 'lan; and
4. include a (uspension or (tay +rder as described in this %ct.
C. Ar!/al !# t< e Pla " % Sec. 9@ + #ithin 1 days from the date of the
second publication of the +rder, the court shall approve the ehabilitation
'lan unless a creditor or other interested party submits an objection to it in
accordance !ith the next succeeding section.
D. O4ect!" t! t<e Pe tt!" !r Re<a4 ltat!" Pla" % Sec. 9 + %ny creditor
or other interested party may submit to the court a verified objection to the
petition or the ehabilitation 'lan not later than D days from the date of the
second publication of the +rder mentioned in (ection . The objections
shall be limited to the follo!ing:
1. The allegations in the petition or the ehabilitation 'lan or the
attachments thereto are materially false or misleading;
2. The majority of any class of creditors do not in fact support the
ehabilitation 'lan;
3. The ehabilitation 'lan fails to accurately account for a claim agai nst
the debtor and the claim in not categorically declared as a contested
claim; or
". The support of the creditors, or any of them !as induced by fraud.
N!te+ )opies of any objection to the petition of the ehabilitation 'lan
shall be served on the debtor, the rehabilitation receiver 7if applicable8, the
secured creditor !ith the largest claim and !ho supports the ehabilitation
'lan, and the unsecured creditor !ith the largest claim and !ho supports
the ehabilitation 'lan.
E. Hear"( !" t<e O4 ect!") % Sec. @ 0+ %fter receipt of an objection, the
court shall set the same for hearing. The date of the hearing shall be no
earlier than 2 days and no later than 3 days from the date of the second
publication of the +rder mentioned in (ection .
 20

1. 6f the court finds merit in the objection = it shall direct the debtor, !hen
feasible to cure the detect !ithin a reasonable period.
2. 6f the court determines that the debtor or creditors supporting the
ehabilitation 'lan acted in bad faith, or that the objection is non*
curable = the court may order the conversion of the proceedings into
liquidation. % finding by the court that the objection has no substantial
merit, or that the same has been cured shall be deemed an approval of
the ehabilitation 'lan.
F. Per!' #!r A r!/al !# Re< a4ltat!" Pla" % Sec. @1+ The court shall
have a maximum period of 12 days from the date of the filing of the
petition to approve the ehabilitation 'lan. 6f the court fails to act !ithin
the said period, the ehabilitation 'lan shall be deemed approved.
G. E##ect !# A r!/al % Se c. @2+ (ame legal effect as confirmation of a 'lan
under )hapter 66.

IV. O?TOFCO?RT OR INFORMAL RESTR? CT?RING

AGREEMENTS OR REHABILITATION PLANS

A. O&t!#C!&rt !r I"#!r,al Re)tr&ct&r"( A(ree,e"t) a"'

Re<a4ltat!" Pla") M",&, Re>&re,e"t) % Sec. @* a"' @ :
consistent !ith F6% if it meets the follo!ing minimum requirements:
1. The debtor must agree to the out*of*court or informal
restructuring<!or9out agreement or ehabilitation 'lan;
2. 6t must be approved by creditors representing at least BA of the
secured obligations of the debtor;
3. 6t must be approved by creditors representing at least @A of the
unsecured obligations of the debtor; and
". 6t must be approved by creditors holding at least D@A of the total
liabilities, secured and unsecured, of the debtor.
B. Sta"')tll Per !' % Se c. @7+ % standstill period that may be agreed upon
by the parties pending negotiation and finaliation of the out*of*court or
informal restructuring<!or9out agreement or ehabilitation 'lan
contemplated herein shall be effective and enforceable not only against
the contracting parties but also against the other creditors:Provided, That:
1. such agreement is approved by creditors representing more than @A
of the total liabilities of the debtor;
2. notice thereof is publishing in a ne!spaper of general circulation in the
'hilippines once a !ee9 for 2 consecutive !ee9s; and
3. the standstill period doe s not exceed 12 days fro m the date of
effectivity.
 21

N!te+ The notice must invite creditors to participate in the negotiation for
out*of*court rehabilitation or restructuring agreement and notify them that
said agreement !ill be binding on all creditors if the required majority
votes prescribed in (ection D" are met.
C. Cra, D! ;" E# #ect % Sec. @8 + % restructuring<!or9out agreement or
ehabilitation 'lan that is approved pursuant to an informal !or9out
frame!or9 referred to in this chapter shall have the same legal effect as
confirmation of a 'lan under (ection B4. The notice of the ehabilitation
'lan or restructuring agreement or 'lan shall be published once a !ee9
for at least 3 consecutive !ee9s in a ne!spaper of general circulation in
the 'hilippines. The ehabilitation 'lan or restructuring agreement shall
ta9e effect upon the lapse of 1@ days from the date of the last publication
of the notice thereof.
D. A,e"',e"t !r M! '#cat!" % Sec . @9 : %ny amendment of an out*of*
court restructuring<!or9out agreement or ehabilitation 'lan must be
made in accordance !ith the terms of the agreement and !ith due notice
on all creditors.
E. E##ect !# C!& rt Act !" !r Ot<er Pr!cee'"() % Sec. @@+ %ny court
action or other proceedings arising from, or relating to, the out*of*court or
informal restructuring<!or9out agreement or ehabilitation 'lan shall not
stay its implementation, unless the relevant party is able to secure a
temporary restraining order or injunctive relief from the )ourt of %ppeals.
F. C!&rt A)) )ta"ce % Sec . @+ The insolvent debtor and<or creditor may
see9 court assistance for the execution or implementation of a
ehabilitation 'lan under this )hapter, under such rules of procedure as
may be promulgated by the (upreme )ourt.

V. LI?IDATION OF INSOLVENT ?RIDICAL DEBTORS

A. V!l&"tar$ L >&'at!" % Sec. 0

1. Pett!" #!r L>&'at!"+ %n insolvent debtor may apply for liquidation
by filing a petition for liquidation !ith the court. The petition shall be
verified, shall establish the insolvency of the debtor and shall contain:
a. a schedule of the debtor$s debts and liab ilities including a list of
creditors !ith 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 738 nominees to the position of
liquidator.
2. M!t!" #! r L> &'at!"+ %t 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
 22

court !here the rehabilitation proceedings are pending to convert the

rehabilitation proceedings into liquidation proceedings. The motion:
a. shall be verified;
b. shall contain or set forth the same matters required in the preceding
paragraph; and
c. shall state tha t the debtor is see9ing immediate dissolution and
termination of its corporate existence.
*. Act!" !" Pett!" !r M!t!"+ 6f the petition or the motion is sufficient
in form and substance, the court shall issue a 0iquidation +rder
mentioned in (ection 112.

B. I"/!l&"tar$ L>&'at!" % Sec. 1

1. Pett!" #!r L> &'at!"+ Three 738 or more creditors the aggregate of
!hose claims is at least either +ne million pesos or at least 2@A of the
subscribed capital stoc9 or partner$s contributions of the debtor,
!hichever is higher, may apply for and see9 the liquidation of an
insolvent debtor by filing a petition for liquidation of the debtor !ith the
court. The petition shall sho! that:
a. there is no gen uine issue of fac t or la! on the claims<s of the
petitioner<s, and that the due and demandable payments thereon
have not been made for at least 1D days or that the debtor has
failed generally to meet its liabilities as they fall due; and
b. there is no substantial li9elihood that the debtor may be
rehabilitated.
2. M!t!" #! r L> &'at!"+ %t any time during the pendency of or after a
rehabilitation court*supervised or pre*negotiated rehabilitation
proceedings, three 738 or more creditors !hose claims is at least either
+ne million pesos or at least 2@A of the subscribed capital or partner$s
contributions of the debtor, !hichever is higher, may also initiate
liquidation proceedings by filing a motion in the same court !here the
rehabilitation proceedings are pending to convert the rehabilitation
proceedings into liquidation proceedings. The motion:
a. shall be verified;
b. shall contain or set forth the same matters required in the preceding
paragraph; and
c. state that the movants are see9ing the immediate liquidation of the
debtor.
*. Act!" !" Pett!" a"' M!t!"+ 6f the petition or motion is sufficient in
form and substance, the court shall issue an +rder:
a. directing the publication of the petition or motion in a ne!spaper of
general circulation once a !ee9 for t!o 728 consecutive !ee9s; and
 23

b. directing the debtor and all creditors !ho are not the petitioners to
file their comment on the petition or motion !ithin fifteen 71@8 days
from the date of last publication.
6f, after considering the comments filed, the court determines that the
petition or motion is meritorious, it shall issue the 0iquidation +rder
mentioned in (ection 112.

B. I"/!l&"tar$ L>&'at!" % Sec. 1

1. Pett!" #!r L> &'at!"+ Three 738 or more creditors the aggregate of
!hose claims is at least either +ne million pesos or at least 2@A of the
subscribed capital stoc9 or partner$s contributions of the debtor,
!hichever is higher, may apply for and see9 the liquidation of an
insolvent debtor by filing a petition for liquidation of the debtor !ith the
court. The petition shall sho! that:
a. there is no gen uine issue of fac t or la! on the claims<s of the
petitioner<s, and that the due and demandable payments thereon
have not been made for at least 1D days or that the debtor has
failed generally to meet its liabilities as they fall due; and

b. there is no substantial li9elihood that the debtor may be

rehabilitated.

C. C!"/er)!" 4$ t<e C! &rt "t! L >&'at!" Pr!ce e'"() % Sec. 2+

1. /uring the pendency of court*supervised or pre*negotiated
rehabilitation proceedings, the court may order the conversion of
rehabilitation proceedings to liquidation proceedings pursuant to
a. (ection 2@7c8;
b. (ection 2;
c. (ection @; or
d (ection 4; or
2. at any other time upon the recommendation of the rehabilitation
receiver that the rehabilitation of the debtor is not feasible.
Thereupon, the court shall issue the 0iquidation +rder mentioned in
(ection 112.

D. P!;er) !# t< e SEC % Se c. * + The provisions of this chapter shall not

affect the regulatory po!ers of the (5) under (ection B of '/ -o. 42*%,
as amended, !ith respect to any dissolution and liquidation proceeding
initiated and heard before it.
 24

VI. INSOLVENCY OF INDIVI D?AL DEBTO RS

A. S&)e")!" !# P a$,e"t).
1. Pett!" % Se c.  + %n individual debtor !ho, possessing sufficient
property to cover all his debts but foreseeing the impossibility of
meeting them !hen they respectively fall due, may file a verified
petition that he be declared in the state of suspension of payments by
the court of the province or city in !hich he has resides for B months
prior to the filing of his petition. Ce shall attach to his petition, as a
minimum:
a. a schedule of debts and liabilities;
b. an inventory of assets; and
c. a proposed agreement !ith his creditors.
2. Act!" !" t<e Pett!" % Sec. 7 + 6f the court finds the petition
sufficient in form and substance, it shall, !ithin five @ !or9ing days
from the filing of the petition, issue an +rder:
a. calling a meeting of all the creditors named in the schedule of debts
and liabilities at such time not less than 1@ days nor more than "
days from the date of such +rder and designating the date, time
and place of the meeting;
b. directing such creditors to prepare and present !ritten evidence of
their claims before the scheduled creditors$ meeting;
c. directing the publication of the said order in a ne!spaper of general
circulation published in the province or city in !hich the petition is
filed once a !ee9 for 2 consecutive !ee9s, !ith the first publication
to be made !ithin  days from the time of the issuance of the
+rder;
d. directing the cler 9 of court to cau se the sen ding of a copy of the
+rder by registered mail, postage prepaid, to all creditors named in
the schedule of debts and liabilities;
e. forbidding the individual debtor from selling, transferring,
encumbering or disposing in any manner of his property, except
those used in the ordinary operations of commerce or of industry in
!hich the petitioning individual debtor is engaged so long as the
proceedings relative to the suspension of payments are pending;
f. prohibiting the individual debtor from ma9ing any payment outside
of the necessary or legitimate expenses of his business or industry,
so long as the proceedings relative to the suspension of payments
are pending; and
g. appointing a commissioner to preside over the creditors$ meeting.
 25

*. Act!") S& )e"'e' % Sec.  8+ pon motion filed by the individual

debtor, the court may issue an order suspending any pending
execution against the individual debtor. 'rovided, That properties held
as security by secured creditors shall not be the subject of such
suspension order. The suspension order shall lapse !hen 3 months
shall have passed !ithout the proposed agreement being accepted by
the creditors or as soon as such agreement is denied.
N!te+ -o creditor shall sue or institute proceedings to collect his claim
from the debtor from the time of the filing of the petition for suspension
of payments and for as long as proceedings remain pending except:
a. those creditors having claims for personal labor, maintenance,
expense of last illness and funeral of the !ife or children of the
debtor incurred in the B days immediately prior to the filing of the
petition; and
b. secured creditors.
. Cre't!r) Meet"( % Sec. 9+
a. &!r&, = The presence of creditors holding claims amounting to
at least 3<@ of the liabilities shall be necessary for holding a
meeting.
4. W<! Pr e)'e) = The commissioner appointed by the court shall
preside over the meeting and the cler9 of court shall act as the
secretary thereof
c. V!t"(+ The creditors and individual debtor shall discuss the
propositions in the proposed agreement and put them to a vote. To
form a majority, it is necessary:
i. that 2<3 of the creditors voting unite upon the same proposition;
and
ii. that the clai ms represented by said maj ority vote amount to at
least 3<@ of the total liabilities of the debtor mentioned in the
petition
N!te+ -o creditor !ho incurred his credit !ithin ninety 748 days
prior to the filing of the petition shall be entitled to vote.
'. Pr!te)t)+ %fter the result of the voting has been announced, all
protests made against the majority vote shall be dra!n up, and the
commissioner and the individual debtor together !ith all creditors
ta9ing part in the voting shall sign the affirmed propositions.
7. Per)!") W<! Ma $ Re#r a" Fr!, V! t"( % Sec. @+ )reditors !ho
are unaffected by the (uspension +rder may refrain from attending the
meeting and from voting therein. (uch persons shall not be bound by
any agreement determined upon at such meeting, but if they should
 26

join in the voting they shall be bound in the same manner as are the
other creditors.
8. Reect!" !# t<e Pr! !)e' A(ree,e"t % Sec. + The proposed
agreement shall be deemed rejected if the number of creditors
required for holding a meeting do not attend thereat, or if the t!o 728
majorities mentioned in (ection 4 are not in favor thereof. 6n such
instances, the proceeding shall be terminated !ithout recourse and the
parties concerned shall be at liberty to enforce the rights !hich may
correspond to them.
9. O4ect!") % S ec. 100+ 6f the proposal of the individual debtor, or any
amendment thereof made during the creditors$ meeting, is approved by
the majority of creditors in accordance !ith (ection 4, any creditor
!ho attended the meeting and !ho dissented from and protested
against the vote of the majority may file an objection !ith the court
!ithin 1 days from the date of the last creditors$ meeting. 7(ee Sec.
100 for causes for objections.8
N!te+ 6n case the decision of the majority of creditors to approve the
individual debtor$s proposal or any amendment thereof made during
the creditors$ meeting is annulled by the court, the court shall declare
the proceedings terminated and the creditors shall be at liberty to
exercise the rights !hich may correspond to them.
@. E##ect) !# Ar!/al !# Pr!!)e' A(ree,e"t % Sec. 101+
a. 6f the decision of the majority of the creditors to approve the
proposed agreement or any amendment thereof made during the
creditors$ meeting is upheld by the court, or !hen no opposition or
objection to said decision has been presented, the court shall order
that the agreement be carried out and all parties bound thereby to
comply !ith its terms.
b. The court may also iss ue all ord ers !hich may be nece ssary or
proper to enforce the agreement on motion of any affected party.

c. The +rder confirming the appr oval of the proposed agreement or

any amendment thereof made during the creditors$ meeting shall be
binding upon all creditors !hose claims are included in the
schedule of debts and liabilities submitted by the individual debtor
and !ho !ere properly summoned, but not upon:
i. those creditors having claims for per sonal labor, maintenance,
expenses of last illness and funeral of the !ife or children of the
debtor incurred in the B days immediately prior to the filing of
the petition; and
ii. secured creditors !ho failed to attend the meeting or refrained
from voting therein.
 27

. Fal&re !# I"'/'&al De4t! r t! Per#!r , A(ree ,e"t % Sec. 102 + 6f

the individual debtor fails, !holly or in part, to perform the agreement
decided upon at the meeting of the creditors, all the rights !hich the
creditors had against the individual debtor before the agreement shall
revest in them. 6n such case the individual debtor may be made subject
to the insolvency proceedings in the manner established by this %ct.

B. V!l&"tar$ L>&'at!".
1. Pett!" % Sec. 10 *+ %n individual debtor !hose properties are not
sufficient to cover his liabilities, and o!ing debts exceeding Five
hundred thousand pesos, may apply to be discharged from his debts
and liabilities by filing a verified petition !ith the court of the province or
city in !hich he has resided for B months prior to the filing of such
petition. Ce 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.
2. L>&'at!" Or' er % Sec. 1 0+ 6f the court finds the petition sufficient
in form and substance it shall, !ithin @ !or9ing days issue the
0iquidation +rder mentioned in (ection 112.

C. I"/!l&"tar$ L>&'at!".
1. Pett!" % Se c. 1 07+ %ny creditor or group of creditors !ith a claim of,
or !ith claims aggregating at least Five hundred thousand pesos may
file a verified petition for liquidation !ith the court of the province or city
in !hich the individual debtor resides. The follo!ing shall be
considered acts of insolvency, and the petition for liquidation shall set
forth or allege at least one of such acts: 7 I,!rta"t+ See Sec. 107 #!r
e"&,erat!" !# act) !# ")!l/e"c$8
N!te+ The petitioning creditor<s shall post a bond in such as the court
shall direct, conditioned that if the petition for liquidation is dismissed
by the court, or !ithdra!n by the petitioner, or if the debtor shall not be

declared
expenses,andamages
insolvent occasioned
the petitioners
by !ill
the pay to the debtor
proceedings and all costs,
attorney$s
fees.
2. Or'er t! I"'/'&al De4t!r t! S<!; Ca& )e % Sec. 108 + pon the
filing of such creditors$ petition, the court shall issue an +rder requiring
the individual debtor to sho! cause, at a time and place to be fixed by
the said court, !hy he should not be adjudged an insolvent. pon good
cause sho!n, the court may issue an +rder forbidding the individual
debtor from ma9ing payments of any of his debts, and transferring any
property belonging to him. Co!ever, nothing contained herein shall
affect or impair the rights of a secured creditor to enforce his lien in
accordance !ith its terms.
 28

*. De#a&lt % Se c. 1 09+ 6f the individual debtor shall default or if, after trial,
the issues are found in favor of the petitioning creditors the court shall
issue the 0iquidation +rder mentioned in (ection 112.
. A4)e"t I"'/'&al De4t!r % Se c. 10@
7. All Pr!ert$ Ta5e" t! 4e Hel' #!r All Cre' t!r) Ae al B!" ')
E6e,t!") t! S&rete) % Sec. 10:

8. Sale ?"'er E6ec&t!" % Sec. 110

VII. PROVISIONS COMMON TO LI?IDATION IN INSOLVENCY

A. T<e L>&'at!" Or'er.

1. C!"te"t) !# L >&'at!" Or' er % Sec . 112
2. E##ect) !# t<e L>& 'at!" Or' er % Sec. 11* + pon the issuance of
the 0iquidation +rder:
a. the juridical debtor shall be deemed dissolved and its corporate or
juridical existence terminated;
b. legal title to and control of all the assets of the debtor, except those
that may be exempt from execution, shall be deemed vested in the
liquidator or, pending his election or appointment, !ith the court;
c. all contracts of the debtor shall be deemed terminated and<or
breached, unless the liquidator, !ithin ninety 748 days from the
date of his assumption of office, declares other!ise and the
contracting party agrees;
d. no separate action for the collection of an unsecured claim shall be
allo!ed. (uch actions already pending !ill be transferred to the
0iquidator for him to accept and settle or contest. 6f the liquidator
contests or disputes the claim, the court shall allo!, hear and
resolve such contest except !hen the case is already on appeal. 6n
such a case, the suit may proceed to judgment, and any final and
executor judgment
filed and allo!ed in therein for a claim against the debtor shall be
court; and
e. no foreclosure proceeding shall be allo!ed for a period of 1D days.
*. R(<t) !# Sec&re' Cre't!r) % Sec . 11+ The 0iquidation +rder shall
not affect the right of a secured creditor to enforce his lien in
accordance !ith the applicable contract or la!. 7(ee Sec. 11 for
rights of secured creditor8

B. T<e L >&'at!r.
1. Elect!" !# L>&'at!r % Sec . 117
2. C!&rtA!"te' L> &'at!r % Se c. 118
 29

*. Oat< a"' B !"' !# t<e L >&'at!r % Se c. 119

. &al#cat!") !# t<e L >&'at!r % Sec. 11@
7. P!;er): D& te) a"' Re)!")4lte) !# t<e L>& 'at!r % Sec. 11+
The liquidator shall be deemed an officer of the court !ith the principal
duly of preserving and maximiing the value and recovering the assets
of the debtor, !ith the end of liquidating them and discharging to the

extent possible
enumeration all the claims against the debtor. 7(ee Sec. 11 for
of po!ers.8
6n addition to the rights and duties of a rehabilitation receiver, the
liquidator, shall have the right and duty to ta9e all reasonable steps to
manage and dispose of the debtor$s assets !ith a vie! to!ards
maximiing the proceeds therefrom, to pay creditors and stoc9holders,
and to terminate the debtor$s legal existence. +ther duties of the
liquidator in accordance !ith this section may be established by
procedural rules.
% liquidator shall be subject to removal pursuant to procedures for
removing a rehabilitation receiver.
8. C!,e")at!" !# t< e L>&'at!r % Sec. 120
9. Re!rt"( Re>&re,e"t) % Se c. 121
@. D)c<ar(e !# L>&'at!r % Sec . 122

C. Deter,"at!" !# Cla,)
1. Re()tr$ !# Cla,) % Sec. 12*
2. R(<t !# S et!## % Se c. 12
*. O!)t!" !r C<al le"(e t! Cla ,) % Sec. 127
. S&4,))!" !# D)&te' Cla, t! t<e C!&rt % Sec. 128

D. A/!'a"ce Pr!cee'"()

1. Re)c))!" !r N&llt$ !# Cert a" Tra")act!") % Sec. 129+ %ny

transaction occurring prior to the issuance of the 0iquidation +rder or,
in case of the conversion of the rehabilitation proceedings prior to the
commencement date, entered into by the debtor or involving its assets,
may be rescinded or declared null and void on the ground that the
same !as executed !ith intent to defraud a creditor or creditors or
!hich constitute undue preference of creditors. The presumptions set
forth in (ection @D hereof shall apply.
2. Act!") #! r Re)c ))!" !r N& llt$ % Sec. 12@

E. T<e L> &'at!" Pl a"

 30

1. T<e L> &'at!" Pl a" % Sec . 12 + #ithin three 738 months from his
assumption into office, the 0iquidator shall submit a 0iquidation 'lan to
the court. The 0iquidation 'lan shall, as a minimum enumerate all the
assets of the debtor and a schedule of liquidation of the assets and
payment of the claims.
2. E6e,t P r!ert$ t ! 4e S et Aart % Se c. 1*0

*. Sal e !# A) )et) assets

unencumbered  " L>&'
of at
the!" % Secand
debtor . 1*1 + The liquidator
convert the same may sell the
into money.
The sale shall be made at public auction. Co!ever, a private sale may
be allo!ed !ith the approval of the court if;
a. the goods to be sold are of a perishable nature, or are lia ble to
quic9ly deteriorate in value, or are disproportionately expensive to
9eep or maintain; or
b. the private sale is for the best interest of the debtor and his
creditors.
N!te+ #ith the approval of the court, unencumbered property of the
debtor may also be conveyed to a creditor in satisfaction of his claim or
part thereof.
. Ma""er !# I,le,e"t"( t<e L>&'at!" Pla" % Sec. 1*2+ The
0iquidator shall implement the 0iquidation 'lan as approved by the
court. 'ayments shall be made to the creditors only in accordance !ith
the provisions of the 'lan.
7. C!"c&rre"ce a"' Pre #ere"ce !# Cre' t) % Sec. 1* *+ The 0iquidation
'lan and its 6mplementation shall ensure that the concurrence and
preference of credits as enumerated in the )ivil )ode of the
'hilippines and other relevant la!s shall be observed, unless a
preferred creditor voluntarily !aives his preferred right. For purposes of
this chapter, credits for services rendered by employees or laborers to
the debtor shall enjoy first preference under %rticle 22"" of the )ivil
)ode, unless the claims constitute legal liens under %rticle 22"1 and
22"2 thereof.
8. Or'er Re,!/"( t<e De4t!r #r!, t<e L)t !# Re()tere' E"ttle) at
t<e Sec&rte) a"' E6c<a"(e C!,,))!" % Sec. 1*
9. Ter,"at!" !# Pr !cee'"() % Se c. 1*7

G. L>&'at!" !# a Sec&rt e) Mar5et Pa rtca"t % Sec. 1*8

VIII. PROCEEDINGS ANCILLARY TO OTHER INS OLVENCY

OR REHABILITAION PROCEEDINGS

A. Ba"5) a"' Ot<er F"a"cal I")tt&t!") ?"'er Re<a4ltat!"

Rece/er)< P&r)&a"t t! a State#&"'e' !r State,a"'ate'
I")&ra"ce S$)te,
 31

1. Pr!/)!" !# A)))ta"ce % Sec. 1*9

2. Alcat!" !# Rele/a"t Le()lat!" % Sec. 1*@

B. Cr!))B!r'er I")!l/e"c$ Pr!cee'"()

1. A'!t!" !# ?"ctral M!'el La; !" Cr!))B!r'er I")!l/e"c$ %
Sec. 1*

2. I"tat!" !# Pr !cee'"() % Sec . 10

*. Pr!/)!" !# Rele# % Sec. 11
. Fact!r) " Gra"t"( Rele# % S ec. 12

I. F?NDS FOR REHABILITATION OF GOVERNMENTOWNED

AND CONTROLLED CORPORATIONS % Sec. 1*

. MISCELLANEO?S PROV ISIONS

A. Alca4lt$ !# Pr!/)!") % Sec. 1

B. Pe"alte) % Sec. 17

C. Alcat!" t! Pe"'"( I")!l/e"c$: S&)e")!" !# Pa$,e"t) a"'

Re<a4ltat!" Ca)e) % Sec. 18+ This %ct shall govern all petitions filed
after it has ta9en effect. %ll further proceedings in insolvency, suspension
of payments and rehabilitation cases then pending, except to the extent
that in opinion of the court their application !ould not be feasible or !ould
!or9 injustice, in !hich event the procedures set forth in prior la!s and
regulations shall apply.
D. Alcat!" t! Pe"'"( C!"tract) % S ec. 19+ This %ct shall apply to all
contracts of the debtor regardless of the date of perfection.
E. Reeat"( Cl a&)e % Sec. 1@ + The 6nsolvency 0a! 7%ct -o. 14@B8. %s
amended is hereby repealed. %ll other la!s, orders, rules and regulations
or parts thereof inconsistent !ith any provision of this %ct are hereby
repealed or modified accordingly.
F. Seara4lt$ Cla&)e % S ec. 1
G. E##ect/t$ Cla& )e % Sec. 17 0