Republic of the Philippines (1) incurred or arising from the filing

CONGRESS OF THE PHILIPPINES of a petition under the provisions of

Metro Manila this Act;

Fourteenth Congress (2) arising from, or in connection

Third Regular Session with, the conduct of the proceedings
under this Act, including those
incurred for the rehabilitation or
liquidation of the debtor;

Begun and held in Metro Manila, on Monday, the (3) incurred in the ordinary course
twenty-seventh day of July, two thousand nine. of business of the debtor after the
commencement date;
REPUBLIC ACT No. 10142
(4) for the payment of new
AN ACT PROVIDING FOR THE REHABILITATION obligations obtained after the
OR LIQUIDATION OF FINANCIALLY commencement date to finance the
DISTRESSED ENTERPRISES AND INDIVIDUALS rehabilitation of the debtor;

Be it enacted by the Senate and House of (5) incurred for the fees of the
Representatives of the Philippines in Congress rehabilitation receiver or liquidator
assembled: and of the professionals engaged by
them; and
CHAPTER I
GENERAL PROVISIONS (6) that are otherwise authorized or
mandated under this Act or such
other expenses as may be allowed
Section 1. Title. - This Act shall be known as
by the Supreme Court in its rules.
the "Financial Rehabilitation and Insolvency
Act (FRIA) of 2010".
(b) Affiliate shall refer to a corporation that
directly or indirectly, through one or more
Section 2. Declaration of Policy. - It is the policy of
intermediaries, is controlled by, or is under
the State to encourage debtors, both juridical and the common control of another corporation.
natural persons, and their creditors to collectively
and realistically resolve and adjust competing
claims and property rights. In furtherance thereof, (c) Claim shall refer to all claims or
the State shall ensure a timely, fair, transparent, demands of whatever nature or character
effective and efficient rehabilitation or liquidation against the debtor or its property, whether
of debtors. The rehabilitation or liquidation shall for money or otherwise, liquidated or
be made with a view to ensure or maintain unliquidated, fixed or contingent, matured
certainly and predictability in commercial affairs, or unmatured, disputed or undisputed,
preserve and maximize the value of the assets of including, but not limited to; (1) all claims
these debtors, recognize creditor rights and respect of the government, whether national or
priority of claims, and ensure equitable treatment local, including taxes, tariffs and customs
of creditors who are similarly situated. When duties; and (2) claims against directors and
rehabilitation is not feasible, it is in the interest of officers of the debtor arising from acts done
the State to facilities a speedy and orderly in the discharge of their functions falling
liquidation of these debtor's assets and the within the scope of their
settlement of their obligations. authority: Provided, That, this inclusion
does not prohibit the creditors or third
parties from filing cases against the
Section 3. Nature of Proceedings. - The
directors and officers acting in their
proceedings under this Act shall be in rem. personal capacities.
Jurisdiction over all persons affected by the
proceedings shall be considered as acquired upon
publication of the notice of the commencement of (d) Commencement date shall refer to the
the proceedings in any newspaper of general date on which the court issues the
circulation in the Philippines in the manner Commencement Order, which shall be
prescribed by the rules of procedure to be retroactive to the date of filing of the
promulgated by the Supreme Court. petition for voluntary or involuntary
proceedings.
The proceedings shall be conducted in a summary
and non-adversarial manner consistent with the (e) Commencement Order shall refer to the
declared policies of this Act and in accordance with order issued by the court under Section 16
the rules of procedure that the Supreme Court may of this Act.
promulgate.
(f) Control shall refer to the power of a
Section 4. Definition of Terms. - As used in this parent corporation to direct or govern the
Act, the term: financial and operating policies of an
enterprise so as to obtain benefits from its
activities. Control is presumed to exist
(a) Administrative expenses shall refer to
when the parent owns, directly or indirectly
those reasonable and necessary expenses: through subsidiaries or affiliates, more
than one-half (1/2) of the voting power of the same person. When the petition covers
an enterprise unless, in exceptional a group of debtors, all reference under
circumstances, it can clearly be these rules to debtor shall include and
demonstrated that such ownership does apply to the group of debtors.
not constitute control. Control also exists
even when the parent owns one-half (1/2) (o) Individual debtor shall refer to a natural
or less of the voting power of an enterprise person who is a resident and citizen of the
when there is power: Philippines that has become insolvent as
defined herein.
(1) over more than one-half (1/2) of
the voting rights by virtue of an (p) Insolvent shall refer to the financial
agreement with investors; condition of a debtor that is generally
unable to pay its or his liabilities as they
(2) to direct or govern the financial fall due in the ordinary course of business
and operating policies of the or has liabilities that are greater than its or
enterprise under a statute or an his assets.
agreement;
(q) Insolvent debtor's estate shall refer to the
(3) to appoint or remove the majority estate of the insolvent debtor, which
of the members of the board of includes all the property and assets of the
directors or equivalent governing debtor as of commencement date, plus the
body; or property and assets acquired by the
rehabilitation receiver or liquidator after
(4) to cast the majority votes at that date, as well as all other property and
meetings of the board of directors or assets in which the debtor has an
equivalent governing body. ownership interest, whether or not these
property and assets are in the debtor's
(g) Court shall refer to the court designated possession as of commencement
by the Supreme Court to hear and date: Provided, That trust assets and
determine, at the first instance, the cases bailment, and other property and assets of
brought under this Act. a third party that are in the possession of
the debtor as of commencement date, are
excluded therefrom.
(h) Creditor shall refer to a natural or
juridical person which has a claim against
the debtor that arose on or before the (r) Involuntary proceedings shall refer to
commencement date. proceedings initiated by creditors.

(i) Date of liquidation shall refer to the date (s) Liabilities shall refer to monetary claims
on which the court issues the Liquidation against the debtor, including stockholder's
Order. advances that have been recorded in the
debtor's audited financial statements as
advances for future subscriptions.
(j) Days shall refer to calendar days unless
otherwise specifically stated in this Act.
(t) Lien shall refer to a statutory or
contractual claim or judicial charge on real
(k) Debtor shall refer to, unless specifically
or personal property that legality entities a
excluded by a provision of this Act, a sole creditor to resort to said property for
proprietorship duly registered with the payment of the claim or debt secured by
Department of Trade and Industry (DTI), a such lien.
partnership duly registered with the
Securities and Exchange Commission
(SEC), a corporation duly organized and (u) Liquidation shall refer to the proceedings
existing under Philippine laws, or an under Chapter V of this Act.
individual debtor who has become insolvent
as defined herein. (v) Liquidation Order shall refer to the Order
issued by the court under Section 112 of
(l) Encumbered property shall refer to real or this Act.
personal property of the debtor upon which
a lien attaches. (w) Liquidator shall refer to the natural
person or juridical entity appointed as such
(m) General unsecured creditor shall refer to by the court and entrusted with such
a creditor whose claim or a portion thereof powers and duties as set forth in this
its neither secured, preferred nor Act: Provided, That, if the liquidator is a
subordinated under this Act. juridical entity, it must designated a
natural person who possesses all the
qualifications and none of the
(n) Group of debtors shall refer to and can
disqualifications as its representative, it
cover only: (1) corporations that are
being understood that the juridical entity
financially related to one another as parent and the representative are solidarity liable
corporations, subsidiaries or affiliates; (2) for all obligations and responsibilities of the
partnerships that are owned more than fifty liquidator.
percent (50%) by the same person; and (3)
single proprietorships that are owned by
(x) Officer shall refer to a natural person (ii) Rehabilitation Plan shall refer to a plan
holding a management position described by which the financial well-being and
in or contemplated by a juridical entity's viability of an insolvent debtor can be
articles of incorporation, bylaws or restored using various means including,
equivalent documents, except for the but not limited to, debt forgiveness, debt
corporate secretary, the assistant corporate rescheduling, reorganization or quasi-
secretary and the external auditor. reorganization, dacion en pago, debt-equity
conversion and sale of the business (or
(y) Ordinary course of business shall refer to parts of it) as a going concern, or setting-up
transactions in the pursuit of the individual of new business entity as prescribed in
debtor's or debtor's business operations Section 62 hereof, or other similar
prior to rehabilitation or insolvency arrangements as may be approved by the
proceedings and on ordinary business court or creditors.
terms.
(jj) Secured claim shall refer to a claim that
(z) Ownership interest shall refer to the is secured by a lien.
ownership interest of third parties in
property held by the debtor, including those (kk) Secured creditor shall refer to a creditor
covered by trust receipts or assignments of with a secured claim.
receivables.
(ll) Secured party shall refer to a secured
(aa) Parent shall refer to a corporation creditor or the agent or representative of
which has control over another corporation such secured creditor.
either directly or indirectly through one or
more intermediaries. (mm) Securities market participant shall
refer to a broker dealer, underwriter,
(bb) Party to the proceedings shall refer to transfer agent or other juridical persons
the debtor, a creditor, the unsecured transacting securities in the capital market.
creditors' committee, a stakeholder, a party
with an ownership interest in property held (nn) Stakeholder shall refer, in addition to a
by the debtor, a secured creditor, the holder of shares of a corporation, to a
rehabilitation receiver, liquidator or any member of a nonstock corporation or
other juridical or natural person who association or a partner in a partnership.
stands to be benefited or injured by the
outcome of the proceedings and whose (oo) Subsidiary shall refer to a corporation
notice of appearance is accepted by the more than fifty percent (50%) of the voting
court. stock of which is owned or controlled
directly or indirectly through one or more
(cc) Possessory lien shall refer to a lien on intermediaries by another corporation,
property, the possession of which has been which thereby becomes its parent
transferred to a creditor or a representative corporation.
or agent thereof.
(pp) Unsecured claim shall refer to a claim
(dd) Proceedings shall refer to judicial that is not secured by a lien.
proceedings commenced by the court's
acceptance of a petition filed under this Act. (qq) Unsecured creditor shall refer to a
creditor with an unsecured claim.
(ee) Property of others shall refer to property
held by the debtor in which other persons (rr) Voluntary proceedings shall refer to
have an ownership interest. proceedings initiated by the debtor.

(ff) Publication notice shall refer to notice (ss) Voting creditor shall refer to a creditor
through publication in a newspaper of that is a member of a class of creditors, the
general circulation in the Philippines on a consent of which is necessary for the
business day for two (2) consecutive weeks. approval of a Rehabilitation Plan under this
Act.
(gg) Rehabilitation shall refer to the
restoration of the debtor to a condition of Section 5. Exclusions. - The term debtor does not
successful operation and solvency, if it is include banks, insurance companies, pre-need
shown that its continuance of operation is companies, and national and local government
economically feasible and its creditors can agencies or units.
recover by way of the present value of
payments projected in the plan, more if the
debtor continues as a going concern than if For purposes of this section:
it is immediately liquidated.
(a) Bank shall refer to any duly licensed
(hh) Rehabilitation receiver shall refer to the bank or quasi-bank that is potentially or
person or persons, natural or juridical, actually subject to conservatorship,
appointed as such by the court pursuant to receivership or liquidation proceedings
this Act and which shall be entrusted with under the New Central Bank Act (Republic
such powers and duties as set forth herein. Act No. 7653) or successor legislation;
 (b) Insurance company shall refer to those Section 9. Creditors Representatives. - Creditors
companies that are potentially or actually may designate representatives to vote or otherwise
subject to insolvency proceedings under the act on their behalf by filing notice of such
Insurance Code (Presidential Decree No. representation with the court and serving a copy
1460) or successor legislation; and on the rehabilitation receiver or liquidator.

(c) Pre-need company shall refer to any Section 10. Liability of Individual Debtor, Owner of
corporation authorized/licensed to sell or a Sole Proprietorship, Partners in a Partnership, or
offer to sell pre-need plans. Directors and Officers. - Individual debtor, owner of
a sole proprietorship, partners in a partnership, or
Provided, That government financial institutions directors and officers of a debtor shall be liable for
other than banks and government-owned or double the value of the property sold, embezzled or
controlled corporations shall be covered by this disposed of or double the amount of the
Act, unless their specific charter provides transaction involved, whichever is higher to be
otherwise. recovered for benefit of the debtor and the
creditors, if they, having notice of the
Section 6. Designation of Courts and Promulgation commencement of the proceedings, or having
of Procedural Rules. - The Supreme Court shall reason to believe that proceedings are about to be
designate the court or courts that will hear and commenced, or in contemplation of the
resolve cases brought under this Act and shall proceedings, willfully commit the following acts:
promulgate the rules of pleading, practice and
procedure to govern the proceedings brought (a) Dispose or cause to be disposed of any
under this Act. property of the debtor other than in the
ordinary course of business or authorize or
Section 7. Substantive and Procedural approve any transaction in fraud of
Consolidation. - Each juridical entity shall be creditors or in a manner grossly
considered as a separate entity under the disadvantageous to the debtor and/or
proceedings in this Act. Under these proceedings, creditors; or
the assets and liabilities of a debtor may not be
commingled or aggregated with those of another, (b) Conceal or authorize or approve the
unless the latter is a related enterprise that is concealment, from the creditors, or
owned or controlled directly or indirectly by the embezzles or misappropriates, any property
same interests: Provided, however, That the of the debtor.
commingling or aggregation of assets and liabilities
of the debtor with those of a related enterprise may The court shall determine the extent of the liability
only be allowed where: of an owner, partner, director or officer under this
section. In this connection, in case of partnerships
(a) there was commingling in fact of assets and corporations, the court shall consider the
and liabilities of the debtor and the related amount of the shareholding or partnership or
enterprise prior to the commencement of equity interest of such partner, director or officer,
the proceedings; the degree of control of such partner, director or
officer over the debtor, and the extent of the
(b) the debtor and the related enterprise involvement of such partner, director or debtor in
have common creditors and it will be more the actual management of the operations of the
convenient to treat them together rather debtor.
than separately;
Section 11. Authorization to Exchange Debt for
(c) the related enterprise voluntarily Equity. - Notwithstanding applicable banking
accedes to join the debtor as party legislation to the contrary, any bank, whether
petitioner and to commingle its assets and universal or not, may acquire and hold an equity
liabilities with the debtor's; and interest or investment in a debtor or its
subsidiaries when conveyed to such bank in
satisfaction of debts pursuant to a Rehabilitation
(d) The consolidation of assets and or Liquidation Plan approved by the
liabilities of the debtor and the related court: Provided, That such ownership shall be
enterprise is beneficial to all concerned and
subject to the ownership limits applicable to
promotes the objectives of rehabilitation.
universal banks for equity investments
and: Provided, further, That any equity investment
Provided, finally, That nothing in this section shall or interest acquired or held pursuant to this
prevent the court from joining other entities section shall be disposed by the bank within a
affiliated with the debtor as parties pursuant to the period of five (5) years or as may be prescribed by
rules of procedure as may be promulgated by the the Monetary Board.
Supreme Court.
CHAPTER II
Section 8. Decisions of Creditors. - Decisions of COURT-SUPERVISED REHABILITATION
creditors shall be made according to the relevant
provisions of the Corporation Code in the case of
(A) Initiation Proceedings.
stock or nonstock corporations or the Civil Code in
the case of partnerships that are not inconsistent
with this Act. (1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Section 13. Circumstances Necessary to Initiate
Proceedings by Debtor. - When approved by the Involuntary Proceedings. - Any creditor or group of
owner in case of a sole proprietorship, or by a creditors with a claim of, or the aggregate of whose
majority of the partners in case of a partnership, or claims is, at least One Million Pesos
in case of a corporation, by a majority vote of the (Php1,000,000.00) or at least twenty-five percent
board of directors or trustees and authorized by (25%) of the subscribed capital stock or partners'
the vote of the stockholders representing at least contributions, whichever is higher, may initiate
two-thirds (2/3) of the outstanding capital stock, involuntary proceedings against the debtor by filing
or in case of nonstock corporation, by the vote of at a petition for rehabilitation with the court if:
least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for (a) there is no genuine issue of fact on law
the purpose, an insolvent debtor may initiate on the claim/s of the petitioner/s, and that
voluntary proceedings under this Act by filing a the due and demandable payments thereon
petition for rehabilitation with the court and on the have not been made for at least sixty (60)
grounds hereinafter specifically provided. The days or that the debtor has failed generally
petition shall be verified to establish the insolvency to meet its liabilities as they fall due; or
of the debtor and the viability of its rehabilitation,
and include, whether as an attachment or as part (b) a creditor, other than the petitioner/s,
of the body of the petition, as a minimum the has initiated foreclosure proceedings
following: against the debtor that will prevent the
debtor from paying its debts as they
(a) Identification of the debtor, its principal become due or will render it insolvent.
activities and its addresses;
Section 14. Petition to Initiate Involuntary
(b) Statement of the fact of and the cause of Proceedings. - The creditor/s' petition for
the debtor's insolvency or inability to pay rehabilitation shall be verified to establish the
its obligations as they become due; substantial likelihood that the debtor may be
rehabilitated, and include:
(c) The specific relief sought pursuant to
this Act; (a) identification of the debtor its principal
activities and its address;
(d) The grounds upon which the petition is
based; (b) the circumstances sufficient to support
a petition to initiate involuntary
(e) Other information that may be required rehabilitation proceedings under Section 13
under this Act depending on the form of of this Act;
relief requested;
(c) the specific relief sought under this Act;
(f) Schedule of the debtor's debts and
liabilities including a list of creditors with (d) a Rehabilitation Plan;
their addresses, amounts of claims and
collaterals, or securities, if any; (e) the names of at least three (3) nominees
to the position of rehabilitation receiver;
(g) An inventory of all its assets including
receivables and claims against third (f) other information that may be required
parties; under this Act depending on the form of
relief requested; and
(h) A Rehabilitation Plan;
(g) other documents required to be filed
(i) The names of at least three (3) nominees with the petition pursuant to this Act and
to the position of rehabilitation receiver; the rules of procedure as may be
and promulgated by the Supreme Court.

(j) Other documents required to be filed (B) Action on the Petition and Commencement
with the petition pursuant to this Act and of Proceedings.
the rules of procedure as may be
promulgated by the Supreme Court. Section 15. Action on the Petition. - If the court
finds the petition for rehabilitation to be sufficient
A group of debtors may jointly file a petition for in form and substance, it shall, within five (5)
rehabilitation under this Act when one or more of working days from the filing of the petition, issue a
its members foresee the impossibility of meeting Commencement Order. If, within the same period,
debts when they respectively fall due, and the the court finds the petition deficient in form or
financial distress would likely adversely affect the substance, the court may, in its discretion, give the
financial condition and/or operations of the other petitioner/s a reasonable period of time within
members of the group and/or the participation of which to amend or supplement the petition, or to
the other members of the group is essential under submit such documents as may be necessary or
the terms and conditions of the proposed proper to put the petition in proper order. In such
Rehabilitation Plan. case, the five (5) working days provided above for
the issuance of the Commencement Order shall be
(2) Involuntary Proceedings. reckoned from the date of the filing of the amended
or supplemental petition or the submission of such (l) authorize the payment of administrative
documents. expenses as they become due;

Section 16. Commencement of Proceedings and (m) set the case for initial hearing, which
Issuance of a Commencement Order. - The shall not be more than forty (40) days from
rehabilitation proceedings shall commence upon the date of filing of the petition for the
the issuance of the Commencement Order, which purpose of determining whether there is
shall: substantial likelihood for the debtor to be
rehabilitated;
(a) identify the debtor, its principal
business or activity/ies and its principal (n) make available copies of the petition and
place of business; rehabilitation plan for examination and
copying by any interested party;
(b) summarize the ground/s for initiating
the proceedings; (o) indicate the location or locations at
which documents regarding the debtor and
(c) state the relief sought under this Act and the proceedings under Act may be reviewed
any requirement or procedure particular to and copied;
the relief sought;
(p) state that any creditor or debtor who is
(d) state the legal effects of the not the petitioner, may submit the name or
Commencement Order, including those nominate any other qualified person to the
mentioned in Section 17 hereof; position of rehabilitation receiver at least
five (5) days before the initial hearing;
(e) declare that the debtor is under
rehabilitation; (q) include s Stay or Suspension Order
which shall:
(f) direct the publication of the
Commencement Order in a newspaper of (1) suspend all actions or
general circulation in the Philippines once a proceedings, in court or otherwise,
week for at least two (2) consecutive weeks, for the enforcement of claims
with the first publication to be made within against the debtor;
seven (7) days from the time of its issuance;
(2) suspend all actions to enforce
(g) If the petitioner is the debtor direct the any judgment, attachment or other
service by personal delivery of a copy of the provisional remedies against the
petition on each creditor holding at least debtor;
ten percent (10%) of the total liabilities of
the debtor as determined from the schedule (3) prohibit the debtor from selling,
attached to the petition within five (5) days; encumbering, transferring or
if the petitioner/s is/are creditor/s, direct disposing in any manner any of its
the service by personal delivery of a copy of properties except in the ordinary
the petition on the debtor within five (5) course of business; and
days;
(4) prohibit the debtor from making
(h) appoint a rehabilitation receiver who any payment of its liabilities
may or not be from among the nominees of outstanding as of the
the petitioner/s and who shall exercise commencement date except as may
such powers and duties defined in this Act be provided herein.
as well as the procedural rules that the
Supreme Court will promulgate; Section 17. Effects of the Commencement Order. -
Unless otherwise provided for in this Act, the
(i) summarize the requirements and court's issuance of a Commencement Order shall,
deadlines for creditors to establish their in addition to the effects of a Stay or Suspension
claims against the debtor and direct all Order described in Section 16 hereof:
creditors to their claims with the court at
least five (5) days before the initial hearing; (a) vest the rehabilitation with all the
powers and functions provided for this Act,
(j) direct Bureau of internal Revenue (BIR) such as the right to review and obtain
to file and serve on the debtor its comment records to which the debtor's management
on or opposition to the petition or its and directors have access, including bank
claim/s against the debtor under such accounts or whatever nature of the debtor
procedures as the Supreme Court provide; subject to the approval by the court of the
performance bond filed by the rehabilitation
(k) prohibit the debtor's suppliers of goods receiver;
or services from withholding the supply of
goods and services in the ordinary course of (b) prohibit or otherwise serve as the legal
business for as long as the debtor makes basis rendering null and void the results of
payments for the services or goods supplied any extrajudicial activity or process to seize
after the issuance of the Commencement property, sell encumbered property, or
Order; otherwise attempt to collection or enforce a
 claim against the debtor after pursuant to a securities pledge or margin
commencement date unless otherwise agreement for the settlement of securities
allowed in this Act, subject to the transactions in accordance with the
provisions of Section 50 hereof; provisions of the Securities Regulation Code
and its implementing rules and regulations;
(c) serve as the legal basis for rendering null
and void any setoff after the (f) the clearing and settlement of financial
commencement date of any debt owed to transactions through the facilities of a
the debtor by any of the debtor's creditors; clearing agency or similar entities duly
authorized, registered and/or recognized by
(d) serve as the legal basis for rendering the appropriate regulatory agency like the
null and void the perfection of any lien Bangko Sentral ng Pilipinas (BSP) and the
against the debtor's property after the SEC as well as any form of actions of such
commencement date; and agencies or entities to reimburse
themselves for any transactions settled for
(e) consolidate the resolution of all legal the debtor; and
proceedings by and against the debtor to
the court Provided. However, That the court (g) any criminal action against individual
may allow the continuation of cases on debtor or owner, partner, director or officer
other courts where the debtor had initiated of a debtor shall not be affected by any
the suit. proceeding commend under this Act.

Attempts to seek legal of other resource against the Section 19. Waiver of taxes and Fees Due to the
debtor outside these proceedings shall be sufficient National Government and to Local Government Units
to support a finding of indirect contempt of court. (LGUs). - Upon issuance of the Commencement
Order by the court, and until the approval of the
Section 18. Exceptions to the Stay or Suspension Rehabilitation Plan or dismissal of the petition,
Order. - The Stay or Suspension Order shall not whichever is earlier, the imposition of all taxes and
apply: fees including penalties, interests and charges
thereof due to the national government or to LGUs
shall be considered waived, in furtherance of the
(a) to cases already pending appeal in the objectives of rehabilitation.
Supreme Court as of commencement
date Provided, That any final and executory
judgment arising from such appeal shall be Section 20. Application of Stay or Suspension
referred to the court for appropriate action; Order to Government Financial Institutions. - The
provisions of this Act concerning the effects of the
Commencement Order and the Stay or Suspension
(b) subject to the discretion of the court, to Order on the suspension of rights to foreclose or
cases pending or filed at a specialized court
otherwise pursue legal remedies shall apply to
or quasi-judicial agency which, upon
government financial institutions, notwithstanding
determination by the court is capable of provisions in their charters or other laws to the
resolving the claim more quickly, fairly and contrary.
efficiently than the court: Provided, That
any final and executory judgment of such
court or agency shall be referred to the Section 21. Effectivity and Duration of
court and shall be treated as a non- Commencement Order. - Unless lifted by the court,
disputed claim; the Commencement Order shall be for the effective
for the duration of the rehabilitation proceedings
for as long as there is a substantial likelihood that
(c) to the enforcement of claims against the debtor will be successfully rehabilitated. In
sureties and other persons solidarily liable
determining whether there is substantial likelihood
with the debtor, and third party or
for the debtor to be successfully rehabilitated, the
accommodation mortgagors as well as court shall ensure that the following minimum
issuers of letters of credit, unless the requirements are met:
property subject of the third party or
accommodation mortgage is necessary for
the rehabilitation of the debtor as (a) The proposed Rehabilitation Plan
determined by the court upon submitted complies with the minimum
recommendation by the rehabilitation contents prescribed by this Act;
receiver;
(b) There is sufficient monitoring by the
(d) to any form of action of customers or rehabilitation receiver of the debtor's
clients of a securities market participant to business for the protection of creditors;
recover or otherwise claim moneys and
securities entrusted to the latter in the (c) The debtor has met with its creditors to
ordinary course of the latter's business as the extent reasonably possible in attempts
well as any action of such securities market to reach consensus on the proposed
participant or the appropriate regulatory Rehabilitation Plan;
agency or self-regulatory organization to
pay or settle such claims or liabilities; (d) The rehabilitation receiver submits a
report, based on preliminary evaluation,
(e) to the actions of a licensed broker or stating that the underlying assumptions
dealer to sell pledged securities of a debtor and the goals stated in the petitioner's
 Rehabilitation Plan are realistic reasonable court within forty (40) days from initial
and reasonable or if not, there is, in any hearing the report provided in Section 24
case, a substantial likelihood for the debtor hereof.
to be successfully rehabilitated because,
among others: Section 23. Effect of Failure to File Notice of
Claim. - A creditor whose claim is not listed in the
(1) there are sufficient assets schedule of debts and liabilities and who fails to
with/which to rehabilitate the file a notice of claim in accordance with the
debtor; Commencement Order but subsequently files a
belated claim shall not be entitled to participate in
(2) there is sufficient cash flow to the rehabilitation proceedings but shall be entitled
maintain the operations of the to receive distributions arising therefrom.
debtor;
Section 24. Report of the Rehabilitation Receiver. -
(3) the debtor's, partners, Within forty (40) days from the initial hearing and
stockholders, directors and officers with or without the comments of the creditors or
have been acting in good faith and any of them, the rehabilitation receiver shall
which due diligence; submit a report to the court stating his preliminary
findings and recommendations on whether:
(4) the petition is not s sham filing
intended only to delay the (a) the debtor is insolvent and if so, the
enforcement of the rights of the causes thereof and any unlawful or
creditor's or of any group of irregular act or acts committed by the
creditors; and owner/s of a sole proprietorship partners of
a partnership or directors or officers of a
(5) the debtor would likely be able to corporation in contemplation of the
pursue a viable Rehabilitation Plan; insolvency of the debtor or which may have
contributed to the insolvency of the debtor;
(e) The petition, the Rehabilitation Plan and
the attachments thereto do not contain any (b) the underlying assumptions, the
materially false or misleading statement; financial goals and the procedures to
accomplish such goals as stated in the
petitioner's Rehabilitation Plan are realistic,
(f) If the petitioner is the debtor, that the
feasible and reasonable;
debtor has met with its creditor/s
representing at least three-fourths (3/4) of
its total obligations to the extent reasonably (c) there is a substantial likelihood for the
possible and made a good faith effort to debtor to be successfully rehabilitated;
reach a consensus on the proposed
Rehabilitation Plan if the petitioner/s is/are (d) the petition should be dismissed; and
a creditor or group of creditors, that/ the
petitioner/s has/have met with the debtor (e) the debtor should be dissolved and/or
and made a good faith effort to reach a liquidated.
consensus on the proposed Rehabilitation
Plan; and Section 25. Giving Due Course to or Dismissal of
Petition, or Conversion of Proceedings. - Within ten
(g) The debtor has not committed acts (10) days from receipt of the report of the
misrepresentation or in fraud of its rehabilitation receiver mentioned in Section 24
creditor/s or a group of creditors. hereof the court may:

Section 22. Action at the Initial Hearing. - At the (a) give due course to the petition upon a
initial hearing, the court shall: finding that:

(a) determine the creditors who have made (1) the debtor is insolvent; and
timely and proper filing of their notice of
claims; (2) there is a substantial likelihood
for the debtor to be successfully
(b) hear and determine any objection to the rehabilitated;
qualifications of the appointment of the
rehabilitation receiver and, if necessary (b) dismiss the petition upon a finding that:
appoint a new one in accordance with this
Act; (1)debtor is not insolvent;

(c) direct the creditors to comment on the (2) the petition i8 a sham filing
petition and the Rehabilitation Plan, and to intended only to delay the
submit the same to the court and to the enforcement of the rights of the
rehabilitation receiver within a period of not creditor/s or of any group of
more than twenty (20) days; and creditors;

(d) direct the rehabilitation receiver to (3)the petition, the Rehabilitation

evaluate the financial condition of the Plan and the attachments thereto
debtor and to prepare and submit to the
 contain any materially false or (c)Has the requisite knowledge of insolvency
misleading statements; or and other relevant commercial laws, rules
and procedures, as well as the relevant
(4)the debtor has committed acts of training and/or experience that may be
misrepresentation or in fraud of its necessary to enable him to properly
creditor/s or a group of creditors; discharge the duties and obligations of a
rehabilitation receiver; and
(c)convert the proceedings into one for the
liquidation of the debtor upon a finding (d)Has no conflict of interest: Provided, That
that: such conflict of interest may be waived,
expressly or impliedly, by a party who may
(1)the debtor is insolvent; and be prejudiced thereby.

(2)there is no substantial likelihood Other qualifications and disqualification’s of the

for the debtor to be successfully rehabilitation receiver shall be set forth in
rehabilitated as determined in procedural rules, taking into consideration the
accordance with the rules to be nature of the business of the debtor and the need
promulgated by the Supreme Court. to protect the interest of all stakeholders
concerned.
Section 26.Petition Given Due Course. - If the
petition is given due course, the court shall direct Section 30.Initial Appointment of the Rehabilitation
the rehabilitation receiver to review, revise and/or Receiver. - The court shall initially appoint the
recommend action on the Rehabilitation Plan and rehabilitation receiver, who mayor may not be from
submit the same or a new one to the court within a among the nominees of the petitioner, However, at
period of not more than ninety (90) days. the initial hearing of the petition, the creditors and
the debtor who are not petitioners may nominate
other persons to the position. The court may retain
The court may refer any dispute relating to the
the rehabilitation receiver initially appointed or
Rehabilitation Plan or the rehabilitation
appoint another who mayor may not be from
proceedings pending before it to arbitration or among those nominated.
other modes of dispute resolution, as provided for
under Republic Act No. 9285, Or the Alternative
Dispute Resolution Act of 2004, should it In case the debtor is a securities market
determine that such mode will resolve the dispute participant, the court shall give priority to the
more quickly, fairly and efficiently than the court. nominee of the appropriate securities or investor
protection fund.
Section 27.Dismissal of Petition. - If the petition is
dismissed pursuant to paragraph (b) of Section 25 If a qualified natural person or entity is nominated
hereof, then the court may, in its discretion, order by more than fifty percent (50%) of the secured
the petitioner to pay damages to any creditor or to creditors and the general unsecured creditors, and
the debtor, as the case may be, who may have been satisfactory evidence is submitted, the court shall
injured by the filing of the petition, to the extent of appoint the creditors' nominee as rehabilitation
any such injury. receiver.

(C) The Rehabilitation Receiver, Management Section 31.Powers, Duties and Responsibilities of
Committee and Creditors' Committee. the Rehabilitation Receiver. - The rehabilitation
receiver shall be deemed an officer of the court
with the principal duty of preserving and
Section 28.Who May Serve as a Rehabilitation
maximizing the value of the assets of the debtor
Receiver. - Any qualified natural or juridical person
during the rehabilitation proceedings, determining
may serve as a rehabilitation
the viability of the rehabilitation of the debtor,
receiver: Provided, That if the rehabilitation
preparing and recommending a Rehabilitation Plan
receiver is a juridical entity, it must designate a to the court, and implementing the approved
natural person/s who possess/es all the Rehabilitation Plan, To this end, and without
qualifications and none of the disqualification’s as limiting the generality of the foregoing, the
its representative, it being understood that the
rehabilitation receiver shall have the following
juridical entity and the representative/s are powers, duties and responsibilities:
solidarily liable for all obligations and
responsibilities of the rehabilitation receiver.
(a)To verify the accuracy of the factual
allegations in the petition and its annexes;
Section 29.Qualifications of a Rehabilitation
Receiver. - The rehabilitation receiver shall have
the following minimum qualifications: (b)To verify and correct, if necessary, the
inventory of all of the assets of the debtor,
and their valuation;
(a)A citizen of the Philippines or a resident
of the Philippines in the six (6) months
immediately preceding his nomination; (c)To verify and correct, if necessary, the
schedule of debts and liabilities of the
debtor;
(b)Of good moral character and with
acknowledged integrity, impartiality and
independence; (d)To evaluate the validity, genuineness and
true amount of all the claims against the
debtor;
 (e)To take possession, custody and control, (a) Incompetence, gross negligence, failure
and to preserve the value of all the property to perform or failure to exercise the proper
of the debtor; degree of care in the performance of his
duties and powers;
(f)To sue and recover, with the approval of
the court, all amounts owed to, and all (b) Lack of a particular or specialized
properties pertaining to the debtor; competency required by the specific case;

(g)To have access to all information (c) Illegal acts or conduct in the
necessary, proper or relevant to the performance of his duties and powers;
operations and business of the debtor and
for its rehabilitation; (d) Lack of qualification or presence of any
disqualification;
(h) To sue and recover, with the. approval of
the court, all property or money of the (e) Conflict of interest that arises after his
debtor paid, transferred or disbursed in appointment; and
fraud of the debtor or its creditors, or which
constitute undue preference of creditor/s; (f) Manifest lack of independence that is
detrimental to the general body of the
(i) To monitor the operations and the stakeholders.
business of the debtor to ensure that no
payments or transfers of property are made Section 33.Compensation and Terms of
other than in the ordinary course of Service. The rehabilitation receiver and his direct
business; employees or independent contractors shall be
entitled to compensation for reasonable fees and
(j) With the court's approval, to engage the expenses from the debtor according to the terms
services of or to employ persons or entities approved by the court after notice and hearing.
to assist him in the discharge of his Prior to such hearing, the rehabilitation receiver
functions; and his direct employees shall be entitled to
reasonable compensation based on quantum
(k) To determine the manner by which the meruit. Such costs shall be considered
debtor may be best rehabilitated, to review) administrative expenses.
revise and/or recommend action on the
Rehabilitation Plan and submit the same or Section 34.Oath and Bond of the Rehabilitation
a new one to the court for approval; Receiver. Prior to entering upon his powers, duties
and responsibilities, the rehabilitation receiver
(1) To implement the Rehabilitation Plan as shall take an oath and file a bond, in such amount
approved by the court, if 80 provided under to be fixed by the court, conditioned upon the
the Rehabilitation Plan; faithful and proper discharge of his powers, duties
and responsibilities.
(m) To assume and exercise the powers of
management of the debtor, if directed by Section 35.Vacancy. - Incase the position of
the court pursuant to Section 36 hereof; rehabilitation receiver is vacated for any reason
whatsoever. the court shall direct the debtor and
(n) To exercise such other powers as may, the creditors to submit the name/s of their
from time to time, be conferred upon him nominee/s to the position. The court may appoint
by the court; and any of the qualified nominees. or any other person
qualified for the position.
To submit a status report on the
rehabilitation proceedings every quarter or Section 36.Displacement of Existing Management
as may be required by the court motu by the Rehabilitation Receiver or Management
proprio. or upon motion of any creditor. or Committee. – Upon motion of any interested party,
as may be provided, in the Rehabilitation the court may appoint and direct the rehabilitation
Plan. receiver to assume the powers of management of
the debtor, or appoint a management committee
Unless appointed by the court, pursuant to that will undertake the management of the debtor.
Section 36 hereof, the rehabilitation upon clear and convincing evidence of any of the
receiver shall not take over the following circumstances:
management and control of the debtor but
may recommend the appointment of a (a) Actual or imminent danger of
management committee over the debtor in dissipation, loss, wastage or destruction of
the cases provided by this Act. the debtor’s assets or other properties;

Section 32.Removal of the Rehabilitation (b) Paralyzation of the business operations

Receiver. – The rehabilitation receiver may be of the debtor; or
removed at any time by the court either motu
proprio or upon motion by any creditor/s holding (c) Gross mismanagement of the debtor. or
more than fifty percent (50%) of the total fraud or other wrongful conduct on the part
obligations of the debtor, on such grounds as the of, or gross or willful violation of this Act by.
rules of procedure may provide which shall existing management of the debtor Or the
include, but are not limited to, the following: owner, partner, director, officer or
 representative/s in management of the (b) he is engaged in a line of business which
debtor. competes with that of the debtor;

In case the court appoints the rehabilitation (c) he is, or was, within five (5) years from
receiver to assume the powers of management of the filing of the petition, a director, officer,
the debtor. the court may: owner, partner or employee of the debtor or
any of the creditors, or the auditor or
(1) require the rehabilitation receiver to post accountant of the debtor;
an additional bond;
(d) he is, or was, within two (2) years from
(2) authorize him to engage the services or the filing of the petition, an underwriter of
to employ persona or entities to assist him the outstanding securities of the debtor;
in the discharge of his managerial
functions; and (e) he is related by consanguinity or affinity
within the fourth civil degree to any
(3) authorize a commensurate increase in individual creditor, owners of a sale
his compensation. proprietorship-debtor, partners of a
partnership- debtor or to any stockholder,
Section 37.Role of the Management Committee. – director, officer, employee or underwriter of
When appointed pursuant to the foregoing section, a corporation-debtor; or
the management committee shall take the place of
the management and the governing body of the (f) he has any other direct or indirect
debtor and assume their rights and material interest in the debtor or any of the
responsibilities. creditors.

The specific powers and duties of the management Any rehabilitation receiver, member of the
committee, whose members shall be considered as management committee or persons employed or
officers of the court, shall be prescribed by the contracted by them possessing any conflict of
procedural rules. interest shall make the appropriate disclosure
either to the court or to the creditors in case of
Section 38.Qualifications of Members of the out-of-court rehabilitation proceedings. Any party
Management Committee. - The qualifications and to the proceeding adversely affected by the
disqualification’s of the members of the appointment of any person with a conflict of
management committee shall be set forth in the interest to any of the positions enumerated above
procedural rules, taking into consideration the may however waive his right to object to such
nature of the business of the debtor and the need appointment and, if the waiver is unreasonably
to protect the interest of all stakeholders withheld, the court may disregard the conflict of
concerned. interest, taking into account the general interest of
the stakeholders.
Section 39.Employment of Professionals. - Upon
approval of the court, and after notice and hearing, Section 41.Immunity. - The rehabilitation receiver
the rehabilitation receiver or the management and all persons employed by him, and the
committee may employ specialized professionals members of the management committee and all
and other experts to assist each in the persons employed by it, shall not be subject to any
performance of their duties. Such professionals action. claim or demand in connection with any act
and other experts shall be considered either done or omitted to be done by them in good faith in
employees or independent contractors of the connection with the exercise of their powers and
rehabilitation receiver or the management functions under this Act or other actions duly
committee, as the case may be. The qualifications approved by the court.1awp++il
and disqualification’s of the professionals and
experts may be set forth in procedural rules, taking Section 42.Creditors' Committee. - After the
into consideration the nature of the business of the creditors' meeting called pursuant to Section 63
debtor and the need to protect the interest of all hereof, the creditors belonging to a class may
stakeholders concerned. formally organize a committee among

Section 40.Conflict of Interest. - No person may be themselves. In addition, the creditors may, as a
appointed as a rehabilitation receiver, member of body, agree to form a creditors' committee
a_ management committee, or be employed by the composed of a representative from each class of
rehabilitation receiver or the management creditors, such as the following:
committee if he has a conflict of interest.
(a) Secured creditors;
An individual shall be deemed to have a conflict of
interest if he is so situated as to be materially (b) Unsecured creditors;
influenced in the exercise of his judgment for or
against any party to the proceedings. Without (c) Trade creditors and suppliers; and
limiting the generality of the foregoing, an
individual shall be deemed to have a conflict of (d) Employees of the debtor.
interest if:
In the . election of the creditors' representatives,
(a) he is a creditor, owner, partner or the rehabilitation receiver or his representative
stockholder of the debtor; shall attend such meeting and extend the
appropriate assistance as may be defined in the the ordinary course of business of the debtor, or
procedural rules. unless necessary to finance the administrative
expenses of the rehabilitation proceedings.
Section 43.Role of Creditors' Committee. - The
creditors' committee when constituted pursuant to Section 49.Sale of Assets. - The court, upon
Section 42 of this Act shall assist the rehabilitation application of the rehabilitation receiver, may
receiver in communicating with the creditors and authorize the sale of unencumbered property of the
shall be the primary liaison between the debtor outside the ordinary course of business
rehabilitation receiver and the creditors. The upon a showing that the property, by its nature or
creditors' committee cannot exercise or waive any because of other circumstance, is perishable,
right or give any consent on behalf of any creditor costly to maintain, susceptible to devaluation or
unless specifically authorized in writing by such otherwise injeopardy.
creditor. The creditors' committee may be
authorized by the court or by the rehabilitation Section 50.Sale or Disposal of Encumbered
receiver to perform such other tasks and functions Property of the Debtor and Assets of Third Parties
as may be defined by the procedural rules in order Held by Debtor. The court may authorize the sale,
to facilitate the rehabilitation process. transfer, conveyance or disposal of encumbered
property of the debtor, or property of others held
(D) Determination of Claims. by the debtor where there is a security interest
pertaining to third parties under a financial, credit
Section 44.Registry of Claims. - Within twenty (20) or other similar transactions if, upon application of
days from his assumption into office, the the rehabilitation receiver and with the consent of
rehabilitation receiver shall establish a preliminary the affected owners of the property, or secured
registry of claims. The rehabilitation receiver shall creditor/s in the case of encumbered property of
make the registry available for public inspection the debtor and, after notice and hearing, the court
and provide determines that:

publication notice to the debtor, creditors and (a) such sale, transfer, conveyance or
stakeholders on where and when they may inspect disposal is necessary for the continued
it. All claims included in the registry of claims operation of the debtor's business; and
must be duly supported by sufficient evidence.
(b) the debtor has made arrangements to
Section 45.Opposition or Challenge of Claims. – provide a substitute lien or ownership right
Within thirty (30) days from the expiration of the that provides an equal level of security for
period stated in the immediately preceding section, the counter-party's claim or right.
the debtor, creditors, stakeholders and other
interested parties may submit a challenge to Provided, That properties held by the debtor where
claim/s to the court, serving a certified copy on the the debtor has authority to sell such as trust
rehabilitation receiver and the creditor holding the receipt or consignment arrangements may be sold
challenged claim/so Upon the expiration of the or disposed of by the .debtor, if such sale or
thirty (30)-day period, the rehabilitation receiver disposal is necessary for the operation of the
shall submit to the court the registry of claims debtor's business, and the debtor has made
which shall include undisputed claims that have arrangements to provide a substitute lien or
not been subject to challenge. ownership right that provides an equal level of
security for the counter-party's claim or right.
Section 46.Appeal. - Any decision of the
rehabilitation receiver regarding a claim may be Sale or disposal of property under this section
appealed to the court. shall not give rise to any criminal liability under
applicable laws.
(E) Governance.
Section 51.Assets of Debtor Held by Third
Section 47.Management. - Unless otherwise Parties. – In the case of possessory pledges,
provided herein, the management of the juridical mechanic's liens or similar claims, third parties
debtor shall remain with the existing management who have in their possession or control property of
subject to the applicable law/s and agreement/s, if the debtor shall not transfer, conveyor otherwise
any, on the election or appointment of directors, dispose of the same to persons other than the
managers Or managing partner. However, all debtor, unless upon prior approval of the
disbursements, payments or sale, disposal, rehabilitation receiver. The rehabilitation receiver
assignment, transfer or encumbrance of property , may also:
or any other act affecting title or interest in
property, shall be subject to the approval of the (a) demand the surrender or the transfer of
rehabilitation receiver and/or the court, as the possession or control of such property
provided in the following subchapter. to the rehabilitation receiver or any other
person, subject to payment of the claims
(F) Use, Preservation and Disposal of Assets and secured by any possessory Iien/s thereon;
Treatment of Assets and Claims after
Commencement Date. (b) allow said third parties to retain
possession or control, if such an
Section 48.Use or Disposition of Assets. - Except arrangement would more likely preserve or
as otherwise provided herein, no funds or property increase the value of the property in
of the debtor shall he used or disposed of except in
 question or the total value of the assets of (b) upon motion of, or with the consent of
the debtor; or the affected secured creditor or interest
owner. order the conveyance of a lien
(c) undertake any otI1er disposition of the against or ownership interest in substitute
said property as may be beneficial for the property of the debtor to the secured
rehabilitation of the debtor, after notice and creditor: Provided. That other creditors
hearing, and approval of the court. holding liens on such property, if any, do
not object thereto, or, if such property is
Section 52.Rescission or Nullity of Sale, Payment, not available;
Transfer or Conveyance of Assets. - The court may
rescind or declare as null and void any sale, (c) order the conveyance to the secured
payment, transfer or conveyance of the debtor's creditor or holder . of an ownership interest
unencumbered property or any encumbering of a lien on the residual funds from the sale
thereof by the debtor or its agents or of encumbered property during the
representatives after the commencement date proceedings; or
which are not in the ordinary course of the
business of the debtor: Provided, however, That the (d) allow the sale or disposition of the
unencumbered property may be sold, encumbered property: Provided. That the sale or
or otherwise disposed of upon order of the court disposition will maximize the value of the
after notice and hearing: property for the benefit of the secured
creditor and the debtor, and the proceeds of
(a) if such are in the interest of the sale will be distributed in accordance
administering the debtor and facilitating with the order prescribed under the rules of
the preparation and implementation of a concurrence and preference of credits.
Rehabilitation Plan;
Section 54.Post-commencement Interest. - The rate
(b) in order to provide a substitute lien, and term of interest, if any, on secured and
mortgage or pledge of property under this unsecured claims shall be determined and
Act; provided for in the approved Rehabilitation Plan.

(c) for payments made to meet Section 55.Post-commencement Loans and

administrative expenses as they arise; Obligations. - With the approval of the court upon
the recommendation of the rehabilitation receiver,
(d) for payments to victims of quasi delicts the debtor, in order to enhance its
upon a showing that the claim is valid and
the debtor has insurance to reimburse the rehabilitation. may:
debtor for the payments made;
(a) enter into credit arrangements; or
(e) for payments made to repurchase
property of the debtor that is auctioned off (b) enter into credit arrangements, secured
in a judicial or extrajudicial sale under. by mortgages of its unencumbered property
This Act; or or secondary mortgages of encumbered
property with the approval of senior
(f) for payments made to reclaim property of secured parties with regard to the
the debtor held pursuant to a possessory encumbered property; or
lien.
(c) incur other obligations as may be
Section 53.Assets Subject to Rapid Obsolescence, essential for its rehabilitation.
Depreciation and Diminution of Value. - Upon the
application of a secured creditor holding a lien The payment of the foregoing obligations shall be
against or holder of an ownership interest in considered administrative expenses under this Act.
property held by the debtor that is subject to
potentially rapid obsolescence, depreciation or Section 56.Treatment of Employees,
diminution in value, the court shall, after notice Claims. Compensation of employees required to
and hearing, order the debtor or rehabilitation carry on the business shall be considered an
receiver to take reasonable steps necessary to administrative expense. Claims of separation pay
prevent the depreciation. If depreciation cannot be for months worked prior to the commencement
avoided and such depreciation is jeopardizing the date shall be considered a pre- ommencement
security or property interest of the secured creditor claim. Claims for salary and separation pay for
or owner, the court shall: work performed after the commencement date
shall be an administrative expense.
(a) allow the encumbered property to be
foreclosed upon by the secured creditor Section 57.Treatment of Contracts. - Unless
according to the relevant agreement cancelled by virtue of a final judgment of a court of
between the debtor and the secured competent jurisdiction issued prior to the issuance
creditor, applicable rules of procedure and of the Commencement Order, or at anytime
relevant legislation: Provided. That the thereafter by the court before which the
proceeds of the sale will be distributed in rehabilitation proceedings are pending, all valid
accordance with the order prescribed under and subbsisting contracts of the debtor with
the rules of concurrence and preference of creditors and other third parties as at the
credits; or commencement date shall continue in
force: Provided, That within ninety (90) days receiver does not consent to the filing or
following the commencement of proceedings, the prosecution of such action,
debtor, with the consent of the rehabilitation
receiver, shall notify each contractual counter- (b) If leave of court is granted under subsection (a),
party of whether it is confirming the particular the rehabilitation receiver shall assign and transfer
contract. Contractual obligations of the debtor to the creditor all rights, title and interest in the
arising or performed during this period, and chose in action or subject matter of the proceeding,
afterwards for confirmed contracts, shall be including any document in support thereof.
considered administrative expenses. Contracts not
confirmed within the required deadline shall be (c) Any benefit derived from a proceeding taken
considered terminated. Claims for actual damages, pursuant to subsection (a), to the extent of his
if any, arising as a result of the election to claim and the costs, belongs exclusively to the
terminate a contract shall be considered a pre- creditor instituting the proceeding, and the
commencement claim against the debtor. Nothing surplus, if any, belongs to the estate.
contained herein shall prevent the cancellation or
termination of any contract of the debtor for any
ground provided by law. (d) Where, before an order is made under
subsection (a), the rehabilitation receiver (or
liquidator) signifies to the court his readiness to
(G) Avoidance Proceedings. institute the proceeding for the benefit of the
creditors, the order shall fix the time within which
Section 58.Rescission or Nullity of Certain Pre- he shall do so and, m that case, the benefit derived
commencement Transactions. Any transaction from the proceeding, if instituted within the time
occurring prior to commencement date entered limits so fixed, belongs to the estate.
into by the debtor or involving its funds or assets
may be rescinded or declared null and void on the (H) Treatment of Secured Creditors.
ground that the same was executed with intent to
defraud a creditor or creditors or which constitute
Section 60.No Diminution of Secured Creditor
undue preference of creditors. Without limiting the
Rights. The issuance of the Commencement Order
generality of the foregoing, a disputable
and the Suspension or Stay Order, and any other
presumption of such design shall arise if the
provision of this Act, shall not be
transaction:

(a) provides unreasonably inadequate deemed in any way to diminish or impair the
security or lien of a secured creditor, or the value
consideration to the debtor and is executed
of his lien or security, except that his right to
within ninety (90) days prior to the
commencement date; enforce said security or lien may be suspended
during the term of the Stay Order.
(b) involves an accelerated payment of a
The court, upon motion or recommendation of the
claim to a creditor within ninety (90) days
rehabilitation receiver, may allow a secured
prior to the commencement date;
creditor to enforce his security or lien, or foreclose
upon property of the debtor
(c) provides security or additional security
executed within ninety (90) days prior to
securing his/its claim, if the said property is not
the commencement date;
necessary for the rehabilitation of the debtor. The
secured creditor and/or the other lien holders shall
(d) involves creditors, where a creditor be admitted to the rehabilitation proceedings only
obtained, or received the benefit of, more for the balance of his claim, if any.
than its pro rata share in the assets of the
debtor, executed at a time when the debtor
Section 61.Lack of Adequate Protection. - The
was insolvent; or
court, on motion or motu proprio, may terminate,
modify or set conditions for the continuance of
(e) is intended to defeat, delay or hinder the suspension of payment, or relieve a claim from the
ability of the creditors to collect claims coverage thereof, upon showing that: (a) a creditor
where the effect of the transaction is to put does not have adequate protection over property
assets of the debtor beyond the reach of securing its claim; or
creditors or to otherwise prejudice the
interests of creditors.
(b) the value of a claim secured by a lien on
property which is not necessary for rehabilitation
Provided, however, That nothing in this section of the debtor exceeds the fair market value of the
shall prevent the court from rescinding or said property.
declaring as null and void a transaction on other
grounds provided by relevant legislation and
jurisprudence: Provided, further, That the For purposes of this section, a creditor shall be
deemed to lack adequate protection if it can be
provisions of the Civil Code on rescission shall in
shown that:
any case apply to these transactions.

Section 59.Actions for Rescission or Nullity. - (a) (a) the debtor fails or refuses to honor a
The rehabilitation receiver or, with his conformity, pre-existing agreement with the creditor to
keep the property insured;
any creditor may initiate and prosecute any action
to rescind, or declare null and void any transaction
described in Section 58 hereof. If the rehabilitation
 (b) the debtor fails or refuses to take particular creditor voluntarily agrees to less
commercially reasonable steps to maintain favorable treatment;
the property; or
(i) ensure that the payments made under
(c) the property has depreciated to an the plan follow the priority established
extent that the creditor is under secured. under the provisions of the Civil Code on
concurrence and preference of credits and
Upon showing of a lack of protection, the court other applicable laws;
shall order the debtor or the rehabilitation receiver
to make arrangements to provide for the insurance (j) maintain the security interest of secured
or maintenance of the property; or to make creditors and preserve the liquidation value
payments or otherwise provide additional or of the security unless such has been waived
replacement security such that the obligation is or modified voluntarily;
fully secured. If such arrangements are not
feasible, the court may modify the Stay Order to (k) disclose all payments to creditors for
allow the secured creditor lacking adequate pre-commencement debts made during the
protection to enforce its security claim against the proceedings and the justifications thereof;
debtor: Provided, however, That the court may
deny the creditor the remedies in this paragraph if (1) describe the disputed claims and the
the property subject of the enforcement is required provisioning of funds to account for
for the rehabilitation of the debtor. appropriate payments should the claim be
ruled valid or its amount adjusted;
(i) Administration of Proceedings.
(m) identify the debtor's role in the
Section 62.Contents of a Rehabilitation Plan. – The implementation of the Plan;
Rehabilitation Plan shall, as a minimum:
(n) state any rehabilitation covenants of the
(a) specify the underlying assumptions, the debtor, the breach of which shall be
financial goals and the procedures considered a material breach of the Plan;
proposed to accomplish such goals;
(o) identify those responsible for the future
(b) compare the amounts expected to be management of the debtor and the
received by the creditors under the supervision and implementation of the
Rehabilitation Plan with those that they will Plan, their affiliation with the debtor and
receive if liquidation ensues within the next their remuneration;
one hundred twenty (120) days;
(p) address the treatment of claims arising
(c) contain information sufficient to give the after the confirmation of the Rehabilitation
various classes of creditors a reasonable Plan;
basis for determining whether supporting
the Plan is in their financial interest when (q) require the debtor and its counter-
compared to the immediate liquidation of parties to adhere to the terms of all
the debtor, including any reduction of contracts that the debtor has chosen to
principal interest and penalties payable to confirm;
the creditors;
(r) arrange for the payment of all
(d) establish classes of voting creditors; outstanding administrative expenses as a
condition to the Plan's approval unless
(e) establish subclasses of voting creditors if such condition has been waived in writing
prior approval has been granted by the by the creditors concerned;
court;
(s) arrange for the payment" of all
(f) indicate how the insolvent debtor will be outstanding taxes and assessments, or an
rehabilitated including, but not limited to, adjusted amount pursuant to a
debt forgiveness, debt rescheduling, compromise settlement with the BlR Or
reorganization or quasi- other applicable tax authorities;
reorganization. dacion en pago, debt-equity
conversion and sale of the business (or (t) include a certified copy of a certificate of
parts of it) as a going concern, or setting-up tax clearance or evidence of a compromise
of a new business entity or other similar settlement with the BIR;
arrangements as may be necessary to
restore the financial well-being and
visibility of the insolvent debtor; (u) include a valid and binding r(,solution of
a meeting of the debtor's stockholders to
increase the shares by the required amount
(g) specify the treatment of each class or in cases where the Plan contemplates an
subclass described in subsections (d) and additional issuance of shares by the debtor;
(e);
(v) state the compensation and status, if
(h) provide for equal treatment of all claims any, of the rehabilitation receiver after the
within the same class or subclass, unless a approval of the Plan; and
 (w) contain provisions for conciliation Rehabilitation Plan has been submitted for
and/or mediation as a prerequisite to court confirmation. Objections to a Rehabilitation Plan
assistance or intervention in the event of shall be limited to the following:
any disagreement in the interpretation or
implementation of the Rehabilitation Plan. (a) The creditors' support was induced by
fraud;
Section 63.Consultation with Debtor and
Creditors. – if the court gives due course to the (b)The documents or data relied upon in the
petition, the rehabilitation receiver shall confer Rehabilitation Plan are materially false or
with the debtor and all the classes of creditors, and misleading; or
may consider their views and proposals ill the
review, revision or preparation of a new (c)The Rehabilitation Plan is in fact not
Rehabilitation Plan. supported by the voting creditors.

Section 64.Creditor Approval of Rehabilitation Section 67.Hearing on the Objections. - If

Plan. – The rehabilitation receiver shall notify the objections have been submitted during the relevant
creditors and stakeholders that the Plan is ready period, the court shall issue an order setting the
for their examination. Within twenty (2Q) days time and date for the hearing or hearings on the
from the said notification, the rehabilitation objections.
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 If the court finds merit in the objection, it shall
rejected unless approved by all classes of creditors order the rehabilitation receiver or other party to
cure the defect, whenever feasible. If the court
w hose rights are adversely modified or affected by
determines that the debtor acted in bad faith, or
the Plan. For purposes of this section, the Plan is
deemed to have been approved by a class of that it is not feasible to cure the defect, the court
creditors if members of the said class holding more shall convert the proceedings into one for the
than fifty percent (50%) of the total claims of the liquidation of the debtor under Chapter V of this
Act.
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 Section 68.Confirmation of the Rehabilitation
claims submitted by the rehabilitation receiver Plan. – If no objections are filed within the relevant
pursuant to Section 44 hereof. 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
Notwithstanding the rejection of the Rehabilitation
that the debtor has complied with an order to cure
Plan, the court may confirm the Rehabilitation
Plan if all of the following circumstances are the objection, the court shall issue an order
present: confirming the Rehabilitation Plan.

The court may confirm the Rehabilitation Plan

(a)The Rehabilitation Plan complies with the
requirements specified in this Act. notwithstanding unresolved disputes over claims if
the Rehabilitation Plan has made adequate
provisions for paying such claims.
(b) The rehabilitation receiver recommends
the confirmation of the Rehabilitation Plan;
For the avoidance of doubt, the provisions of other
laws to the contrary notwithstanding, the court
(c) The shareholders, owners or partners of shall have the power to approve or implement the
the juridical debtor lose at least their Rehabilitation Plan despite the lack of approval, or
controlling interest as a result of the objection from the owners, partners or
Rehabilitation Plan; and stockholders of the insolvent debtor: Provided, That
the terms thereof are necessary to restore the
(d) The Rehabilitation Plan would likely financial well-being and viability of the insolvent
provide the objecting class of creditors with debtor.
compensation which has a net present
value greater than that which they would Section 69.Effect of Confirmation of the
have received if the debtor were under Rehabilitation Plan, - The confirmation of the
liquidation. Rehabilitation Plan by the court shall result in the
following:
Section 65.Submission of Rehabilitation Plan to the
Court. - 1fthe Rehabilitation Plan is approved, the (a) The Rehabilitation Plan and its
rehabilitation receiver shall submit the same to the provisions shall be binding upon the debtor
court for confirmation. Within five (5) days from and all persons who may be affected by . it,
receipt of the Rehabilitation Plan, the court shall including the creditors, whether or not
notify the creditors that the Rehabilitation Plan has such persons have participated in the
been submitted for confirmation, that any creditor proceedings or opposed the Rehabilitation
may obtain copies of the Rehabilitation Plan and Plan or whether or not their claims have
that any creditor may file an objection thereto. been scheduled;

Section 66.Filing of Objections to Rehabilitation (b) The debtor shall comply with the
Plan. – A creditor may file an objection to the provisions of the Rehabilitation Plan and
Rehabilitation Plan within twenty (20) days from shall take all actions necessary to carry out
receipt of notice from the court that the the Plan;
 (c) Payments shall be made to the creditors implementation of the Rehabilitation Plan or a
in accordance with the provisions of the failure of rehabilitation.
Rehabilitation Plan;
There is failure of rehabilitation in the following
(d) Contracts and other arrangements cases:
between the debtor and its creditors shall
be interpreted as continuing to apply to the (a) Dismissal of the petition by the court;
extent that they do not conflict with the
provisions of the Rehabilitation Plan; (b) The debtor fails to submit a
Rehabilitation Plan;
(e) Any compromises on amounts or
rescheduling of timing of payments by the (c) Under the Rehabilitation Plan submitted
debtor shall be binding on creditors by the debtor, there is no substantial
regardless of whether or not the Plan is likelihood that the debtor can be
successfully implement; and rehabilitated within a reasonable period;

(f) Claims arising after approval of the Plan (d) The Rehabilitation Plan or its
that are otherwise not treated by the Plan amendment is approved by the court but in
are not subject to any Suspension Order. the implementation thereof, the debtor fails
to perform its obligations thereunder or
The Order confirming the Plan shall comply with there is a failure to realize the objectives,
Rules 36 of the Rules of Court: Provided, targets or goals set forth therein, including
however, That the court may maintain jurisdiction the timelines and conditions for the
over the case in order to resolve claims against the settlement of the obligations due to the
debtor that remain contested and allegations that creditors and other claimants;
the debtor has breached the Plan.
(e) The commission of fraud in securing the
Section 70. Liability of General Partners of a approval of the Rehabilitation Plan or its
Partnership for Unpaid Balances Under an amendment; and
Approved Plan. - The approval of the Plan shall not
affect the rights of creditors to pursue actions (f) Other analogous circumstances as may
against the general partners of a partnership to the be defined by the rules of procedure.
extent they are liable under relevant legislation for
the debts thereof.
Upon a breach of, or upon a failure of the
Rehabilitation Plan the court, upon motion by an
Section 71. Treatment of Amounts of Indebtedness affected party may:
or Obligations Forgiven or Reduced. - Amounts of
any indebtedness or obligations reduced or
(1) Issue an order directing that the breach
forgiven in connection with a Plan's approval shall
be cured within a specified period of time,
not be subject to any tax in furtherance of the
purposes of this Act. falling which the proceedings may be
converted to a liquidation;
Section 72. Period for Confirmation of the
Rehabilitation Plan. - The court shall have a (2) Issue an order converting the
proceedings to a liquidation;
maximum period of one (1) year from the date of
the filing of the petition to confirm a Rehabilitation
Plan. (3) Allow the debtor or rehabilitation
receiver to submit amendments to the
Rehabilitation Plan, the approval of which
If no Rehabilitation Plan is confirmed within the
shall be governed by the same requirements
said period, the proceedings may upon motion
or motu propio, be converted into one for the for the approval of a Rehabilitation Plan
under this subchapter;
liquidation of the debtor .

Section 73. Accounting Discharge of Rehabilitation (4) Issue any other order to remedy the
Receiver. - Upon the confirmation of the breach consistent with the present
regulation, other applicable law and the
Rehabilitation Plan, the rehabilitation receiver
best interests of the creditors; or
shall provide a final report and accounting to the
court. Unless the Rehabilitation Plan specifically
requires and describes the role of the rehabilitation (5) Enforce the applicable provisions of the
receiver after the approval of the Rehabilitation Rehabilitation Plan through a writ of
Plan, the court shall discharge the rehabilitation execution.
receiver of his duties.
Section 75. Effects of Termination. - Termination
(j) Termination of Proceedings of the proceedings shall result in the following:

Section 74. Termination of Proceedings. - The (a) The discharge of the rehabilitation
rehabilitation proceedings under Chapter II shall, receiver subject to his submission of a final
upon motion by any stakeholder or the accounting; and
rehabilitation receiver be terminated by order of
the court either declaring a successful (b) The lifting of the Stay Order and any
other court order holding in abeyance any
 action for the enforcement of a claim (f) state that copies of the petition and the
against the debtor. Rehabilitation Plan are available for
examination and copying by any interested
Provided, however, That if the termination of party;
proceedings is due to failure of rehabilitation or
dismissal of the petition for reasons other than (g) state that creditors and other interested
technical grounds, the proceedings shall be parties opposing the petition or
immediately converted to liquidation as provided in Rehabilitation Plan may file their objections
Section 92 of this Act. or comments thereto within a period of not
later than twenty (20) days from the second
CHAPTER III publication of the Order;
PRE-NEGOTIATED REHABILITATION
(h) appoint a rehabilitation receiver, if
Section 76. Petition by Debtor. - An insolvent provided for in the Plan; and
debtor, by itself or jointly with any of its creditors,
may file a verified petition with the court for the (i) include a Suspension or Stay Order as
approval of a pre-negotiated Rehabilitation Plan described in this Act.
which has been endorsed or approved by creditors
holding at least two-thirds (2/3) of the total Section 78. Approval of the Plan. - Within ten (10)
liabilities of the debtor, including secured creditors days from the date of the second publication of the
holding more than fifty percent (50%) of the total Order, the court shall approve the Rehabilitation
secured claims of the debtor and unsecured Plan unless a creditor or other interested party
creditors holding more than fifty percent (50%) of submits an objection to it in accordance with the
the total unsecured claims of the debtor. The next succeeding section.
petition shall include as a minimum:
Section 79. Objection to the Petition or
(a) a schedule of the debtor's debts and Rehabilitation Plan. - Any creditor or other
liabilities; interested party may submit to the court a verified
objection to the petition or the Rehabilitation Plan
(b) an inventory of the debtor's assets; not later than eight (8) days from the date of the
second publication of the Order mentioned in
(c) the pre-negotiated Rehabilitation Plan, Section 77 hereof. The objections shall be limited
including the names of at least three (3) to the following:
qualified nominees for rehabilitation
receiver; and (a) The allegations in the petition or the
Rehabilitation Plan or the attachments
(d) a summary of disputed claims against thereto are materially false or misleading;
the debtor and a report on the provisioning
of funds to account for appropriate (b) The majority of any class of creditors do
payments should any such claims be ruled not in fact support the Rehabilitation Plan;
valid or their amounts adjusted.
(c) The Rehabilitation Plan fails to
Section 77. Issuance of Order. - Within five (5) accurately account for a claim against the
working days, and after determination that the debtor and the claim in not categorically
petition is sufficient in form and substance, the declared as a contested claim; or
court shall issue an Order which shall;
(d) The support of the creditors, or any of
(a) identify the debtor, its principal them was induced by fraud.
business of activity/ies and its principal
place of business; Copies of any objection to the petition of the
Rehabilitation Plan shall be served on the debtor,
(b) declare that the debtor is under the rehabilitation receiver (if applicable), the
rehabilitation; secured creditor with the largest claim and who
supports the Rehabilitation Plan, and the
(c) summarize the ground./s for the filling unsecured creditor with the largest claim and who
of the petition; supports the Rehabilitation Plan.

(d) direct the publication of the Order in a Section 80. Hearing on the Objections. - After
newspaper of general circulation in the receipt of an objection, the court shall set the same
Philippines once a week for at least two (2) for hearing. The date of the hearing shall be no
consecutive weeks, with the first earlier than twenty (20) days and no later than
publication to be made within seven (7) thirty (30) days from the date of the second
days from the time of its issuance; publication of the Order mentioned in Section 77
hereof. If the court finds merit in the objection, it
(e) direct the service by personal delivery of shall direct the debtor, when feasible to cure the
a copy of the petition on each creditor who detect within a reasonable period. If the court
is not a petitioner holding at least ten determines that the debtor or creditors supporting
percent (10%) of the total liabilities of the the Rehabilitation Plan acted in bad faith, or that
debtor, as determined in the schedule the objection is non-curable, the court may order
attached to the petition, within three (3) the conversion of the proceedings into liquidation.
days; A finding by the court that the objection has no
substantial merit, or that the same has been cured agreement and notify them that said agreement
shall be deemed an approval of the Rehabilitation will be binding on all creditors if the required
Plan. majority votes prescribed in Section 84 of this Act
are met.
Section 81. Period for Approval of Rehabilitation
Plan. - The court shall have a maximum period of Section 86. Cram Down Effect. - A
one hundred twenty (120) days from the date of the restructuring/workout agreement or Rehabilitation
filing of the petition to approve the Rehabilitation Plan that is approved pursuant to an informal
Plan. If the court fails to act within the said period, workout framework referred to in this chapter shall
the Rehabilitation Plan shall be deemed approved. have the same legal effect as confirmation of a Plan
under Section 69 hereof. The notice of the
Section 82. Effect of Approval. - Approval of a Plan Rehabilitation Plan or restructuring agreement or
under this chapter shall have the same legal effect Plan shall be published once a week for at least
as confirmation of a Plan under Chapter II of this three (3) consecutive weeks in a newspaper of
Act. general circulation in the Philippines. The
Rehabilitation Plan or restructuring agreement
CHAPTER IV shall take effect upon the lapse of fifteen (15) days
OUT-OF-COURT OR INFORMAL from the date of the last publication of the notice
RESTRUCTURING AGREEMENTS OR thereof.
REHABILITATION PLANS
Section 87. Amendment or Modification. - Any
Section 83. Out-of-Court or Informal Restructuring amendment of an out-of-court
Agreements and Rehabilitation Plans. - An out-of- restructuring/workout agreement or Rehabilitation
curt or informal restructuring agreement or Plan must be made in accordance with the terms of
Rehabilitation Plan that meets the minimum the agreement and with due notice on all creditors.
requirements prescribed in this chapter is hereby
recognized as consistent with the objectives of this Section 88. Effect of Court Action or Other
Act. Proceedings. - Any court action or other
proceedings arising from, or relating to, the out-of-
Section 84. Minimum Requirements of Out-of-Court court or informal restructuring/workout agreement
or Informal Restructuring Agreements and or Rehabilitation Plan shall not stay its
Rehabilitation Plans.- For an out-of-court or implementation, unless the relevant party is able
informal restructuring/workout agreement or to secure a temporary restraining order or
Rehabilitation Plan to qualify under this chapter, it injunctive relief from the Court of Appeals.
must meet the following minimum requirements:
Section 89. Court Assistance. - The insolvent
(a) The debtor must agree to the out-of- debtor and/or creditor may seek court assistance
court or informal restructuring/workout for the execution or implementation of a
agreement or Rehabilitation Plan; Rehabilitation Plan under this Chapter, under
such rules of procedure as may be promulgated by
the Supreme Court.
(b) It must be approved by creditors
representing at least sixty-seven (67%) of
the secured obligations of the debtor; CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL
DEBTORS
(c) It must be approved by creditors
representing at least seventy-five percent
(75%) of the unsecured obligations of the Section 90. Voluntary Liquidation. - An insolvent
debtor; and 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
(d) It must be approved by creditors holding
and shall contain, whether as an attachment or as
at least eighty-five percent (85%) of the total part of the body of the petition;
liabilities, secured and unsecured, of the
debtor.
(a) a schedule of the debtor's debts and
liabilities including a list of creditors with
Section 85. Standstill Period. - A standstill period
their addresses, amounts of claims and
that may be agreed upon by the parties pending collaterals, or securities, if any;
negotiation and finalization of the out-of-court or
informal restructuring/workout agreement or
Rehabilitation Plan contemplated herein shall be (b) an inventory of all its assets including
effective and enforceable not only against the receivables and claims against third
contracting parties but also against the other parties; and
creditors: Provided, That (a) such agreement is
approved by creditors representing more than fifty (c) the names of at least three (3) nominees
percent (50%) of the total liabilities of the debtor; to the position of liquidator.
(b) notice thereof is publishing in a newspaper of
general circulation in the Philippines once a week At any time during the pendency of court-
for two (2) consecutive weeks; and (c) the standstill supervised or pre-negotiated rehabilitation
period does not exceed one hundred twenty (120) proceedings, the debtor may also initiate
days from the date of effectivity. The notice must liquidation proceedings by filing a motion in the
invite creditors to participate in the negotiation for same court where the rehabilitation proceedings
out-of-court rehabilitation or restructuring are pending to convert the rehabilitation
proceedings into liquidation proceedings. The court-supervised or pre-negotiated rehabilitation
motion shall be verified, shall contain or set forth proceedings, the court may order the conversion of
the same matters required in the preceding rehabilitation proceedings to liquidation
paragraph, and state that the debtor is seeking proceedings pursuant to (a) Section 25(c) of this
immediate dissolution and termination of its Act; or (b) Section 72 of this Act; or (c) Section 75
corporate existence. of this Act; or (d) Section 90 of this Act; or at any
other time upon the recommendation of the
If the petition or the motion, as the case may be, is rehabilitation receiver that the rehabilitation of the
sufficient in form and substance, the court shall debtor is not feasible. Thereupon, the court shall
issue a Liquidation Order mentioned in Section issue the Liquidation Order mentioned in Section
112 hereof. 112 hereof.

Section 91. Involuntary Liquidation. - Three (3) or Section 93. Powers of the Securities and Exchange
more creditors the aggregate of whose claims is at Commission (SEC). - The provisions of this chapter
least either One million pesos (Php1,000,000,00) or shall not affect the regulatory powers of the SEC
at least twenty-five percent (25%0 of the under Section 6 of Presidential Decree No. 902-A,
subscribed capital stock or partner's contributions as amended, with respect to any dissolution and
of the debtor, whichever is higher, may apply for liquidation proceeding initiated and heard before it.
and seek the liquidation of an insolvent debtor by
filing a petition for liquidation of the debtor with CHAPTER VI
the court. The petition shall show that: INSOLVENCY OF INDIVIDUAL DEBTORS

(a) there is no genuine issue of fact or law (A) Suspension of Payments.

on the claims/s of the petitioner/s, and
that the due and demandable payments Section 94. Petition. - An individual debtor who,
thereon have not been made for at least one possessing sufficient property to cover all his debts
hundred eighty (180) days or that the but foreseeing the impossibility of meeting them
debtor has failed generally to meet its when they respectively fall due, may file a verified
liabilities as they fall due; and petition that he be declared in the state of
suspension of payments by the court of the
(b) there is no substantial likelihood that province or city in which he has resides for six (6)
the debtor may be rehabilitated. months prior to the filing of his petition. He shall
attach to his petition, as a minimum: (a) a
At any time during the pendency of or after a schedule of debts and liabilities; (b) an inventory of
rehabilitation court-supervised or pre-negotiated assess; and (c) a proposed agreement with his
rehabilitation proceedings, three (3) or more creditors.
creditors whose claims is at least either One
million pesos (Php1,000,000.00) or at least twenty- Section 95. Action on the Petition. - If the court
five percent (25%) of the subscribed capital or finds the petition sufficient in form and substance,
partner's contributions of the debtor, whichever is it shall, within five (5) working days from the filing
higher, may also initiate liquidation proceedings by of the petition, issue an Order:
filing a motion in the same court where the
rehabilitation proceedings are pending to convert (a) calling a meeting of all the creditors
the rehabilitation proceedings into liquidation named in the schedule of debts and
proceedings. The motion shall be verified, shall liabilities at such time not less than fifteen
contain or set forth the same matters required in (15) days nor more than forty (40) days
the preceding paragraph, and state that the from the date of such Order and
movants are seeking the immediate liquidation of designating the date, time and place of the
the debtor. meeting;

If the petition or motion is sufficient in form and (b) directing such creditors to prepare and
substance, the court shall issue an Order: present written evidence of their claims
before the scheduled creditors' meeting;
(1) directing the publication of the petition
or motion in a newspaper of general (c) directing the publication of the said
circulation once a week for two (2) order in a newspaper of general circulation
consecutive weeks; and published in the province or city in which
the petition is filed once a week for two (2)
(2) directing the debtor and all creditors consecutive weeks, with the first
who are not the petitioners to file their publication to be made within seven (7)
comment on the petition or motion within days from the time of the issuance of the
fifteen (15) days from the date of last Order;
publication.
(d) directing the clerk of court to cause the
If, after considering the comments filed, the court sending of a copy of the Order by registered
determines that the petition or motion is mail, postage prepaid, to all creditors
meritorious, it shall issue the Liquidation Order named in the schedule of debts and
mentioned in Section 112 hereof. liabilities;

Section 92. Conversion by the Court into (e) forbidding the individual debtor from
Liquidation Proceedings. - During the pendency of selling, transferring, encumbering or
 disposing in any manner of his property, (2) that the claims represented by
except those used in the ordinary said majority vote amount to at least
operations of commerce or of industry in three-fifths (3/5) of the total
which the petitioning individual debtor is liabilities of the debtor mentioned in
engaged so long as the proceedings relative the petition; and
to the suspension of payments are pending;
(e) After the result of the voting has been
(f) prohibiting the individual debtor from announced, all protests made against the
making any payment outside of the majority vote shall be drawn up, and the
necessary or legitimate expenses of his commissioner and the individual debtor
business or industry, so long as the together with all creditors taking part in the
proceedings relative to the suspension of voting shall sign the affirmed propositions.
payments are pending; and
No creditor who incurred his credit within ninety
(g) appointing a commissioner to preside (90) days prior to the filing of the petition shall be
over the creditors' meeting. entitled to vote.

Section 96. Actions Suspended. - Upon motion Section 98. Persons Who May Refrain From
filed by the individual debtor, the court may issue Voting. - Creditors who are unaffected by the
an order suspending any pending execution Suspension Order may refrain from attending the
against the individual debtor. Provide, That meeting and from voting therein. Such persons
properties held as security by secured creditors shall not be bound by any agreement determined
shall not be the subject of such suspension order. upon at such meeting, but if they should join in
The suspension order shall lapse when three (3) the voting they shall be bound in the same manner
months shall have passed without the proposed as are the other creditors.
agreement being accepted by the creditors or as
soon as such agreement is denied. Section 99. Rejection of the Proposed Agreement. -
The proposed agreement shall be deemed rejected
No creditor shall sue or institute proceedings to if the number of creditors required for holding a
collect his claim from the debtor from the time of meeting do not attend thereat, or if the two (2)
the filing of the petition for suspension of majorities mentioned in Section 97 hereof are not
payments and for as long as proceedings remain in favor thereof. In such instances, the proceeding
pending except: shall be terminated without recourse and the
parties concerned shall be at liberty to enforce the
(a) those creditors having claims for rights which may correspond to them.
personal labor, maintenance, expense of
last illness and funeral of the wife or Section 100. Objections. - If the proposal of the
children of the debtor incurred in the sixty individual debtor, or any amendment thereof made
(60) days immediately prior to the filing of during the creditors' meeting, is approved by the
the petition; and majority of creditors in accordance with Section 97
hereof, any creditor who attended the meeting and
(b) secured creditors. who dissented from and protested against the vote
of the majority may file an objection with the court
Section 97. Creditors' Meeting. - The presence of within ten (10) days from the date of the last
creditors holding claims amounting to at least creditors' meeting. The causes for which objection
three-fifths (3/5) of the liabilities shall be may be made to the decision made by the majority
necessary for holding a meeting. The commissioner during the meeting shall be: (a) defects in the call
appointed by the court shall preside over the for the meeting, in the holding thereof and in the
meeting and the clerk of court shall act as the deliberations had thereat which prejudice the
secretary thereof, subject to the following rules: rights of the creditors; (b) fraudulent connivance
between one or more creditors and the individual
debtor to vote in favor of the proposed agreement;
(a) The clerk shall record the creditors or (c) fraudulent conveyance of claims for the
present and amount of their respective purpose of obtaining a majority. The court shall
claims;
hear and pass upon such objection as soon as
possible and in a summary manner.
(b) The commissioner shall examine the
written evidence of the claims. If the In case the decision of the majority of creditors to
creditors present hold at least three-fifths
approve the individual debtor's proposal or any
(3/5) of the liabilities of the individual
amendment thereof made during the creditors'
debtor, the commissioner shall declare the
meeting is annulled by the court, the court shall
meeting open for business; declare the proceedings terminated and the
creditors shall be at liberty to exercise the rights
(c) The creditors and individual debtor shall which may correspond to them.
discuss the propositions in the proposed
agreement and put them to a vote; Section 101. Effects of Approval of Proposed
Agreement. - If the decision of the majority of the
(d) To form a majority, it is necessary: creditors to approve the proposed agreement or
any amendment thereof made during the creditors'
(1) that two-thirds (2/3) of the meeting is uphold by the court, or when no
creditors voting unite upon the opposition or objection to said decision has been
same proposition; and presented, the court shall order that the agreement
be carried out and all parties bound thereby to (b) That being absent from the Republic of
comply with its terms. the Philippines, with intent to defraud his
creditors, he remains absent;
The court may also issue all orders which may be
necessary or proper to enforce the agreement on (c) That he conceals himself to avoid the
motion of any affected party. The Order confirming service of legal process for the purpose of
the approval of the proposed agreement or any hindering or delaying the liquidation or of
amendment thereof made during the creditors' defrauding his creditors;
meeting shall be binding upon all creditors whose
claims are included in the schedule of debts and (d) That he conceals, or is removing, any of
liabilities submitted by the individual debtor and his property to avoid its being attached or
who were properly summoned, but not upon: (a) taken on legal process;
those creditors having claims for personal labor,
maintenance, expenses of last illness and funeral (e) That he has suffered his property to
of the wife or children of the debtor incurred in the remain under attachment or legal process
sixty (60) days immediately prior to the filing of the for three (3) days for the purpose of
petition; and (b) secured creditors who failed to hindering or delaying the liquidation or of
attend the meeting or refrained from voting defrauding his creditors;
therein.
(f) That he has confessed or offered to allow
Section 102. Failure of Individual Debtor to judgment in favor of any creditor or
Perform Agreement. - If the individual debtor fails, claimant for the purpose of hindering or
wholly or in part, to perform the agreement decided delaying the liquidation or of defrauding
upon at the meeting of the creditors, all the rights any creditors or claimant;
which the creditors had against the individual
debtor before the agreement shall revest in them.
In such case the individual debtor may be made (g) That he has willfully suffered judgment
subject to the insolvency proceedings in the to be taken against him by default for the
purpose of hindering or delaying the
manner established by this Act.
liquidation or of defrauding his creditors;
(B) Voluntary Liquidation.
(h) That he has suffered or procured his
property to be taken on legal process with
Section 103. Application. - An individual debtor intent to give a preference to one or more of
whose properties are not sufficient to cover his his creditors and thereby hinder or delay
liabilities, and owing debts exceeding Five hundred the liquidation or defraud any one of his
thousand pesos (Php500,000.00), may apply to be creditors;
discharged from his debts and liabilities by filing a
verified petition with the court of the province or
(i) That he has made any assignment, gift,
city in which he has resided for six (6) months
sale, conveyance or transfer of his estate,
prior to the filing of such petition. He shall attach
to his petition a schedule of debts and liabilities property, rights or credits with intent to
and an inventory of assets. The filing of such hinder or delay the liquidation or defraud
petition shall be an act of insolvency. his creditors;

Section 104. Liquidation Order. - If the court finds (j) That he has, in contemplation of
the petition sufficient in form and substance it insolvency, made any payment, gift, grant,
shall, within five (5) working days issue the sale, conveyance or transfer of his estate,
property, rights or credits;
Liquidation Order mentioned in Section 112
hereof.
(k) That being a merchant or tradesman, he
(C) In voluntary Liquidation. has generally defaulted in the payment of
his current obligations for a period of thirty
(30) days;
Section 105. Petition; Acts of Insolvency. - Any
creditor or group of creditors with a claim of, or
(l) That for a period of thirty (30) days, he
with claims aggregating at least Five hundred
thousand pesos (Php500, 000.00) may file a has failed, after demand, to pay any
verified petition for liquidation with the court of the moneys deposited with him or received by
him in a fiduciary; and
province or city in which the individual debtor
resides.
(m) That an execution having been issued
The following shall be considered acts of against him on final judgment for money,
he shall have been found to be without
insolvency, and the petition for liquidation shall set
sufficient property subject to execution to
forth or allege at least one of such acts:
satisfy the judgment.
(a) That such person is about to depart or
has departed from the Republic of the The petitioning creditor/s shall post a bond in
such as the court shall direct, conditioned that if
Philippines, with intent to defraud his
the petition for liquidation is dismissed by the
creditors;
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 sheriff by virtue of the giving of any such bonds
and attorney's fees. shall be held by him for the benefit of all creditors
of the individual debtor whose claims shall be duly
Section 106. Order to Individual Debtor to Show proved as provided in this Act. The bonds provided
Cause. - Upon the filing of such creditors' petition, for in this section and the preceding section to
the court shall issue an Order requiring the procure the order for custody of the property and
individual debtor to show cause, at a time and effects of the individual debtor shall be conditioned
place to be fixed by the said court, why he should that if, upon final hearing of the petition in
not be adjudged an insolvent. Upon good cause insolvency, the court shall find in favor of the
shown, the court may issue an Order forbidding petitioners, such bonds and all of them shall be
the individual debtor from making payments of any void; if the decision be in favor of the individual
of his debts, and transferring any property debtor, the proceedings shall be dismissed, and the
belonging to him. However, nothing contained individual debtor, his heirs, administrators,
herein shall affect or impair the rights of a secured executors or assigns shall be entitled to recover
creditor to enforce his lien in accordance with its such sum of money as shall be sufficient to cover
terms. the damages sustained by him, not to exceed the
amount of the respective bonds. Such damages
Section 107. Default. - If the individual debtor shall be fixed and allowed by the court. If either the
shall default or if, after trial, the issues are found petitioners or the debtor shall appeal from the
in favor of the petitioning creditors the court shall decision of the court, upon final hearing of the
issue the Liquidation Order mentioned in Section petition, the appellant shall be required to give
112 hereof. bond to the successful party in a sum double the
amount of the value of the property in controversy,
and for the costs of the proceedings.
Section 108. Absent Individual Debtor. - In all
cases where the individual debtor resides out of
the Republic of the Philippines; or has departed Any person interested in the estate may take
therefrom; or cannot, after due diligence, be found exception to the sufficiency of the sureties on such
therein; or conceals himself to avoid service of the bond or bonds. When excepted to the petitioner's
Order to show cause, or any other preliminary sureties, upon notice to the person excepting of not
process or orders in the matter, then the less than two (2) nor more than five (5) days, must
petitioning creditors, upon submitting the justify as to their sufficiency; and upon failure to
affidavits requisite to procedure an Order of justify, or of others in their place fail to justify at
publication, and presenting a bond in double the the time and place appointed the judge shall issue
amount of the aggregate sum of their claims an Order vacating the order to take the property of
against the individual debtor, shall be entitled to the individual debtor into the custody of the
an Order of the court directing the sheriff of the sheriff, or denying the appeal, as the case may be.
province or city in which the matter is pending to
take into his custody a sufficient amount of Section 110. Sale Under Execution. - If, in any
property of the individual debtor to satisfy the case, proper affidavits and bonds are presented to
demands of the petitioning creditors and the costs the court or a judge thereof, asking for and
of the proceedings. Upon receiving such Order of obtaining an Order of publication and an Order for
the court to take into custody of the property of the the custody of the property of the individual debtor
individual debtor, it shall be the duty of the sheriff and thereafter the petitioners shall make it appear
to take possession of the property and effects of the satisfactorily to the court or a judge thereof that
individual debtor, not exempt from execution, to an the interest of the parties to the proceedings will be
extent sufficient to cover the amount provided for subserved by a sale thereof, the court may order
and to prepare within three (3) days from the time such property to be sold in the same manner as
of taking such possession, a complete inventory of property is sold under execution, the proceeds to
all the property so taken, and to return it to the de deposited in the court to abide by the result of
court as soon as completed. The time for taking the the proceedings.
inventory and making return thereof may be
extended for good cause shown to the court. The CHAPTER VII
sheriff shall also prepare a schedule of the names PROVISIONS COMMON TO LIQUIDATION IN
and residences of the creditors, and the amount INSOLVENCY OF INDIVIDUAL AND JURIDICAL
due each, from the books of the debtor, or from DEBTORS
such other papers or data of the individual debtor
available as may come to his possession, and shall Section 111. Use of Term Debtor. - For purposes of
file such schedule or list of creditors and inventory this chapter, the term debtor shall include both
with the clerk of court. individual debtor as defined in Section 4(o) and
debtor as defined in Section 4(k) of this Act.
Section 109. All Property Taken to be Held for All
Creditors; Appeal Bonds; Exemptions to Sureties. - (A) The Liquidation Order.
In all cases where property is taken into custody
by the sheriff, if it does not embrace all the Section 112. Liquidation Order. - The Liquidation
property and effects of the debtor not exempt from Order shall:
execution, any other creditor or creditors of the
individual debtor, upon giving bond to be approved
(a) declare the debtor insolvent;
by the court in double the amount of their claims,
singly or jointly, shall be entitled to similar orders
and to like action, by the sheriff; until all claims be (b) order the liquidation of the debtor and,
provided for, if there be sufficient property or in the case of a juridical debtor, declare it
effects. All property taken into custody by the as dissolved;
 (c) order the sheriff to take possession and Section 114. Rights of Secured Creditors. - The
control of all the property of the debtor, Liquidation Order shall not affect the right of a
except those that may be exempt from secured creditor to enforce his lien in accordance
execution; with the applicable contract or law. A secured
creditor may:
(d) order the publication of the petition or
motion in a newspaper of general (a) waive his right under the security or
circulation once a week for two (2) lien, prove his claim in the liquidation
consecutive weeks; proceedings and share in the distribution of
the assets of the debtor; or
(e) direct payments of any claims and
conveyance of any property due the debtor (b) maintain his rights under the security or
to the liquidator; lien:

(f) prohibit payments by the debtor and the If the secured creditor maintains his rights under
transfer of any property by the debtor; the security or lien:

(g) direct all creditors to file their claims (1) the value of the property may be fixed in
with the liquidator within the period set by a manner agreed upon by the creditor and
the rules of procedure; the liquidator. When the value of the
property is less than the claim it secures,
(h) authorize the payment of administrative the liquidator may convey the property to
expenses as they become due; the secured creditor and the latter will be
admitted in the liquidation proceedings as a
(i) state that the debtor and creditors who creditor for the balance. If its value exceeds
are not petitioner/s may submit the names the claim secured, the liquidator may
of other nominees to the position of convey the property to the creditor and
liquidator; and waive the debtor's right of redemption upon
receiving the excess from the creditor;
(j) set the case for hearing for the election
and appointment of the liquidator, which (2) the liquidator may sell the property and
date shall not be less than thirty (30) days satisfy the secured creditor's entire claim
nor more than forty-five (45) days from the from the proceeds of the sale; or
date of the last publication.
(3) the secure creditor may enforce the lien
Section 113. Effects of the Liquidation Order. - or foreclose on the property pursuant to
Upon the issuance of the Liquidation Order: applicable laws.

(a) the juridical debtor shall be deemed (B) The Liquidator.

dissolved and its corporate or juridical
existence terminated; Section 115. Election of Liquidator. - Only
creditors who have filed their claims within the
(b) legal title to and control of all the assets period set by the court, and whose claims are not
of the debtor, except those that may be barred by the statute of limitations, will be allowed
exempt from execution, shall be deemed to vote in the election of the liquidator. A secured
vested in the liquidator or, pending his creditor will not be allowed to vote, unless: (a) he
election or appointment, with the court; waives his security or lien; or (b) has the value of
the property subject of his security or lien fixed by
agreement with the liquidator, and is admitted for
(c) all contracts of the debtor shall be the balance of his claim.
deemed terminated and/or breached,
unless the liquidator, within ninety (90)
days from the date of his assumption of The creditors entitled to vote will elect the
office, declares otherwise and the liquidator in open court. The nominee receiving the
contracting party agrees; highest number of votes cast in terms of amount of
claims, ad who is qualified pursuant to Section
118 hereof, shall be appointed as the liquidator.
(d) no separate action for the collection of
an unsecured claim shall be allowed. Such
actions already pending will be transferred Section 116. Court-Appointed Liquidator. - The
to the Liquidator for him to accept and court may appoint the liquidator if:
settle or contest. If the liquidator contests
or disputes the claim, the court shall allow, (a) on the date set for the election of the
hear and resolve such contest except when liquidator, the creditors do not attend;
the case is already on appeal. In such a
case, the suit may proceed to judgment, (b) the creditors who attend, fail or refuse to
and any final and executor judgment elect a liquidator;
therein for a claim against the debtor shall
be filed and allowed in court; and (c) after being elected, the liquidator fails to
qualify; or
(e) no foreclosure proceeding shall be
allowed for a period of one hundred eighty
(180) days.
 (d) a vacancy occurs for any reason In addition to the rights and duties of a
whatsoever, In any of the cases provided rehabilitation receiver, the liquidator, shall have
herein, the court may instead set another the right and duty to take all reasonable steps to
hearing of the election of the liquidator. manage and dispose of the debtor's assets with a
view towards maximizing the proceedings
Provided further, That nothing in this section shall therefrom, to pay creditors and stockholders, and
be construed to prevent a rehabilitation receiver, to terminate the debtor's legal existence. Other
who was administering the debtor prior to the duties of the liquidator in accordance with this
commencement of the liquidation, from being section may be established by procedural rules.
appointed as a liquidator.
A liquidator shall be subject to removal pursuant
Section 117. Oath and Bond of the Liquidator. - to procedures for removing a rehabilitation
Prior to entering upon his powers, duties and receiver.
responsibilities, the liquidator shall take an oath
and file a bond, In such amount to be fixed by the Section 120. Compensation of the Liquidator. - The
court, conditioned upon the proper and faithful liquidator and the persons and entities engaged or
discharge of his powers, duties and employed by him to assist in the discharge of his
responsibilities. powers and duties shall be entitled to such
reasonable compensation as may determined by
Section 118. Qualifications of the Liquidator. - The the liquidation court, which shall not exceed the
liquidator shall have the qualifications enumerated maximum amount as may be prescribed by the
in Section 29 hereof. He may be removed at any Supreme Court.
time by the court for cause, either motu propio or
upon motion of any creditor entitled to vote for the Section 121. Reporting Requiremen5ts. - The
election of the liquidator. liquidator shall make and keep a record of all
moneys received and all disbursements mad by
Section 119. Powers, Duties and Responsibilities him or under his authority as liquidator. He shall
of the Liquidator. - The liquidator shall be deemed render a quarterly report thereof to the court ,
an officer of the court with the principal duly of which report shall be made available to all
preserving and maximizing the value and interested parties. The liquidator shall also submit
recovering the assets of the debtor, with the end of such reports as may be required by the court from
liquidating them and discharging to the extent time to time as well as a final report at the end of
possible all the claims against the debtor. The the liquidation proceedings.
powers, duties and responsibilities of the liquidator
shall include, but not limited to: Section 122. Discharge of Liquidator. - In
preparation for the final settlement of all the claims
(a) to sue and recover all the assets, debts against the debtor , the liquidator will notify all the
and claims, belonging or due to the debtor; creditors, either by publication in a newspaper of
general circulation or such other mode as the court
(b) to take possession of all the property of may direct or allow, that will apply with the court
the debtor except property exempt by law for the settlement of his account and his discharge
from execution; from liability as liquidator. The liquidator will file a
final accounting with the court, with proof of notice
to all creditors. The accounting will be set for
(c) to sell, with the approval of the court, hearing. If the court finds the same in order, the
any property of the debtor which has come court will discharge the liquidator.
into his possession or control;
(C) Determination of Claims
(d) to redeem all mortgages and pledges,
and so satisfy any judgement which may be
an encumbrance on any property sold by Section 123. Registry of Claims. - Within twenty
him; (20) days from his assumption into office the
liquidator shall prepare a preliminary registry of
claims of secured and unsecured creditors.
(e) to settle all accounts between the debtor Secured creditors who have waived their security
and his creditors, subject to the approval of or lien, or have fixed the value of the property
the court; subject of their security or lien by agreement with
the liquidator and is admitted as a creditor for the
(f) to recover any property or its value, balance , shall be considered as unsecured
fraudulently conveyed by the debtor; creditors. The liquidator shall make the registry
available for public inspection and provide
(g) to recommend to the court the creation publication notice to creditors, individual debtors
of a creditors' committee which will assist owner/s of the sole proprietorship-debtor, the
him in the discharge of the functions and partners of the partnership-debtor and
which shall have powers as the court deems shareholders or members of the corporation-
just, reasonable and necessary; and debtor, on where and when they may inspect it. All
claims must be duly proven before being paid.
(h) upon approval of the court, to engage
such professional as may be necessary and Section 124. Right of Set-off. - If the debtor and
reasonable to assist him in the discharge of creditor are mutually debtor and creditor of each
his duties. other one debt shall be set off against the other,
and only the balance, if any shall be allowed in the
liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Section 129. The Liquidation Plan. - Within three
Within thirty (30 ) days from the expiration of the (3) months from his assumption into office, the
period for filing of applications for recognition of Liquidator shall submit a Liquidation Plan to the
claims, creditors, individual debtors, owner/s of court. The Liquidation Plan shall, as a minimum
the sole proprietorship-debtor, partners of the enumerate all the assets of the debtor and a
partnership-debtor and shareholders or members schedule of liquidation of the assets and payment
of the corporation -debtor and other interested of the claims.
parties may submit a challenge to claim or claims
to the court, serving a certified copy on the Section 130. Exempt Property to be Set Apart. - It
liquidator and the creditor holding the challenged shall be the duty of the court, upon petition and
claim. Upon the expiration of the (30) day period, after hearing, to exempt and set apart, for the use
the rehabilitation receiver shall submit to the court and benefit of the said insolvent, such real and
the registry of claims containing the undisputed personal property as is by law exempt from
claims that have not been subject to challenge. execution, and also a homestead; but no such
Such claims shall become final upon the filling of petition shall be heard as aforesaid until it is first
the register and may be subsequently set aside proved that notice of the hearing of the application
only on grounds or fraud, accident, mistake or therefor has been duly given by the clerk, by
inexcusable neglect. causing such notice to be posted it at least three
(3) public places in the province or city at least ten
Section 126. Submission of Disputed to the Court. - (10) days prior to the time of such hearing, which
The liquidator shall resolve disputed claims and notice shall set forth the name of the said insolvent
submit his findings thereon to the court for final debtor, and the time and place appointed for the
approval. The liquidator may disallow claims. hearing of such application, and shall briefly
indicate the homestead sought to be exempted or
(D) Avoidance Proceedings. the property sought to be set aside; and the decree
must show that such proof was made to the
Section 127. Rescission or Nullity of Certain satisfaction of the court, and shall be conclusive
Transactions. - Any transaction occurring prior to evidence of that fact.
the issuance of the Liquidation Order or, in case of
the conversion of the rehabilitation proceedings Section 131. Sale of Assets in Liquidation. - The
prior to the commencement date, entered into by liquidator may sell the unencumbered assets of the
the debtor or involving its assets, may be rescinded debtor and convert the same into money. The sale
or declared null and void on the ground that the shall be made at public auction. However, a private
same was executed with intent to defraud a sale may be allowed with the approval of the court
creditor or creditors or which constitute undue if; (a) the goods to be sold are of a perishable
preference of creditors. The presumptions set forth nature, or are liable to quickly deteriorate in value,
in Section 58 hereof shall apply. or are disproportionately expensive to keep or
maintain; or (b) the private sale is for the best
Section 128. Actions for Rescission or Nullity. - (a) interest of the debtor and his creditors.
The liquidator or, with his conformity, a creditor
may initiate and prosecute any action to rescind, With the approval of the court, unencumbered
or declare null and void any transaction described property of the debtor may also be conveyed to a
in the immediately preceding paragraph. If the creditor in satisfaction of his claim or part thereof.
liquidator does not consent to the filling or
prosecution of such action, any creditor may seek Section 132. manner of Implementing the
leave of the court to commence said action. Liquidation Plan. - The Liquidator shall implement
the Liquidation Plan as approved by the court.
(b) if leave of court is granted under Payments shall be made to the creditors only in
subsection (a) hereof, the liquidator shall accordance with the provisions of the Plan.
assign and transfer to the creditor all
rights, title and interest in the chose in Section 133. Concurrence and Preference of
action or subject matter of the proceeding, Credits. - The Liquidation Plan and its
including any document in support thereof. Implementation shall ensure that the concurrence
and preference of credits as enumerated in the
(c) Any benefit derived from a proceeding Civil Code of the Philippines and other relevant
taken pursuant to subsection (a) hereof, to laws shall be observed, unless a preferred creditor
the extent of his claim and the costs, voluntarily waives his preferred right. For purposes
belongs exclusively to the creditor of this chapter, credits for services rendered by
instituting the proceeding, and the surplus, employees or laborers to the debtor shall enjoy first
if any, belongs to the estate. preference under Article 2244 of the Civil Code,
unless the claims constitute legal liens under
(d) Where, before an orders is made under Article 2241 and 2242 thereof.
subsection (a) hereof, the liquidator
signifies to the court his readiness to the Section 134. Order Removing the Debtor from the
institute the proceeding for the benefit of List of Registered Entitles at the Securities and
the creditors, the order shall fix the time Exchange Commission. - Upon determining that the
within which he shall do so and, in that liquidation has been completed according to this
case the benefit derived from the Act and applicable law, the court shall issue an
proceedings, if instituted within the time Order approving the report and ordering the SEC
limits so fixed, belongs to the estate. to remove the debtor from the registry of legal
entities.
(E) The Liquidation Plan.
Section 135. Termination of Proceedings. - Upon foreclose on property of the foreign entity
receipt of evidence showing that the debtor has located in the Philippines;
been removed from the registry of legal entities at
the SEC. The court shall issue an Order (b) requiring the surrender property of the
terminating the proceedings. foreign entity to the foreign representative;
or
(F) Liquidation of a Securities Market
Participant. (c) providing other necessary relief.

Section 136. Liquidation of a Securities Market Section 142. Factors in Granting Relief. - In
Participant. - The foregoing provisions of this determining whether to grant relief under this
chapter shall be without prejudice to the power of subchapter, the court shall consider;
a regulatory agency or self- regulatory organization
to liquidate trade-related claims of clients or (a) the protection of creditors in the
customers of a securities market participant Philippines and the inconvenience in
which, for purposes of investor protection, are pursuing their claim in a foreign
hereby deemed to have absolute priority over other proceeding;
claims of whatever nature or kind insofar as trade-
related assets are concerned.
(b) the just treatment of all creditors
through resort to a unified insolvency or
For purposes of this section, trade -related assets rehabilitation proceedings;
include cash, securities, trading right and other
owned and used by the securities market
(c) whether other jurisdictions have given
participant in the ordinary course of this business.
recognition to the foreign proceeding;
CHAPTER VIII
(d) the extent that the foreign proceeding
PROCEEDINGS ANCILLARY TO OTHER
recognizes the rights of creditors and other
INSOLVENCY OR REHABILITAION
interested parties in a manner substantially
PROCEEDINGS
in accordance with the manner prescribed
in this Act; and
(A) Banks and Other Financial Institutions
Under Rehabilitation Receivership Pursuant to
(e) the extent that the foreign proceeding
a State-funded or State-mandated Insurance
has recognized and shown deference to
System.
proceedings under this Act and previous
legislation.
Section 137. Provision of Assistance. - The court
shall issue orders, adjudicate claims and provide
CHAPTER IX
other relief necessary to assist in the liquidation of
FUNDS FOR REHABILITATION OF
a financial under rehabilitation receivership
established by a state-funded or state-mandated GOVERNMENT-OWNED AND CONTROLLED
insurance system. CORPORATIONS

Section 143. Funds for Rehabilitation of

Section 138. Application of Relevant Legislation. -
Government -owned and Controlled Corporations. -
The liquidation of bank, financial institutions,
insurance companies and pre-need companies Public funds for the rehabilitation of government-
shall be determined by relevant legislation. The owned and controlled corporations shall be
provisions in this Act shall apply in a suppletory released only pursuant to an appropriation by
Congress and shall be supported by funds actually
manner.
available as certified by the National Treasurer.
(B) Cross-Border Insolvency Proceedings.
The Department of Finance, in collaboration with
the Department of Budget and Management, shall
Section 139. Adoption of Uncitral Model Law on promulgate the rules for the use and release of
Cross-Border Insolvency. - Subject to the provision said funds.
of Section 136 hereof and the rules of procedure
that may be adopted by the Supreme Court, the
Model Law on Cross-Border Insolvency of the CHAPTER X
MISCELLANEOUS PROVISIOS
United Nations Center for International Trade and
Development is hereby adopted as part of this Act.
Section 144. Applicability of Provisions. - The
Section 140. Initiation of Proceedings. - The court provisions in Chapter II, insofar as they are
shall set a hearing in connection with an applicable, shall likewise apply to proceedings in
Chapters II and IV.
insolvency or rehabilitation proceeding taking place
in a foreign jurisdiction, upon the submission of a
petition by the representative of the foreign entity Section 145. Penalties. - An owner, partner,
that is the subject of the foreign proceeding. director, officer or other employee of the debtor
who commits any one of the following acts shall,
Section 141. Provision of Relief. - The court may upon conviction thereof, be punished by a fine of
not more than One million pesos (Php 1,
issue orders:
000,000.00) and imprisonment for not less than
three(3) months nor more than five (5) years for
(a) suspending any action to enforce claims each offense;
against the entity or otherwise seize or
 (a) if he shall, having notice of the This Act which is a consolidation of House Bill No.
commencement of the proceedings, or 7090 and Senate Bill No. 61 was finally passed by
having reason to believe that proceedings the House of Representatives and the Senate on
are about to be commented, or in February 1. 2010 and February 2, 2010,
contemplation of the proceedings hide or respectively.
conceal, or destroy or cause to be destroyed
or hidden any property belonging to the
debtor or if he shall hide, destroy, after (Sgd.) EMMA LIRIO- (Sgd.) MARILYN B.
mutilate or falsify, or cause to be hidden, REYES BARUA-YAP
destroyed, altered, mutilated or falsified, Secretary of Senate Secretary General
any book, deed, document or writing House of
relating thereto; if he shall, with intent to Representatives
defraud the creditors of the debtor, make
any payment sale, assignment, transfer or
conveyance of any property belongings to
the debtor
(Sgd.) GLORIA MACAPAGAL-ARROYO
President of the Philippines
(b) if he shall, having knowledge belief of
any person having proved a false or
fictitious claim against the debtor, fail to
disclose the same to the rehabilitation
receiver of liquidator within one (1) month
after coming to said knowledge or belief; or
if he shall attempt to account for any of the
debtors property by fictitious losses or
expense; or

(c) if he shall knowingly violate a

prohibition or knowingly fail to undertake
an obligation established by this Act.

Section 146. Application to Pending Insolvency,

Suspension of Payments and Rehabilitation Cases. -
This Act shall govern all petitions filed after it has
taken effect. All further proceedings in insolvency,
suspension of payments and rehabilitation cases
then pending, except to the extent that in opinion
of the court their application would not be feasible
or would work injustice, in which event the
procedures set forth in prior laws and regulations
shall apply.

Section 147. Application to Pending Contracts. -

This Act shall apply to all contracts of the debtor
regardless of the date of perfection.

Section 148. Repeating Clause. - The Insolvency

Law (Act No. 1956). As amended is hereby
repealed. All other laws, orders, rules and
regulations or parts thereof inconsistent with any
provision of this Act are hereby repealed or
modified accordingly.

Section 149. Separability Clause. - If any

provision of this Act shall be held invalid, the
remainder of this Act not otherwise affected shall
remain in full force effect

Section 150. Effectivity Clause. - This Act shall

take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two
(2) national newspaper of general circulation.

Approved,

(Sgd.) JUAN PONCE (Sgd.) PROSPERO C.

ENRILE NOGRALES
President of the Speaker of the House
Senate of Representatives