An Act Providing For The Rehabilitation or Liquidation of Financially Distressed Enterprises and Individuals

RA 10142__ Financial Rehabilitation and Insolvency Act (FRIA)
REPUBLIC ACT No. 10142 (6.) that are otherwise authorized or mandated under this
Act or such other expenses as may be allowed by the
AN ACT PROVIDING FOR THE REHABILITATION OR Supreme Court in its rules.
LIQUIDATION OF FINANCIALLY DISTRESSED
ENTERPRISES AND INDIVIDUALS (b) Affiliate shall refer to a corporation that directly or
indirectly, through one or more intermediaries, is
controlled by, or is under the common control of another
Be it enacted by the Senate and House of Representatives of the
corporation.
Philippines in Congress assembled:
(c) Claim shall refer to all claims or demands of whatever

CHAPTER I
nature or character against the debtor or its property,
GENERAL PROVISIONS
whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or unmatured,
Section 1. Title. - This Act shall be known as the "Financial
disputed or undisputed, including, but not limited to;
Rehabilitation and Insolvency Act (FRIA) of 2010".
Section 2. Declaration of Policy. – (1.) all claims of the government, whether national or local,
including taxes, tariffs and customs duties; and
It is the policy of the State to encourage debtors, both juridical
and natural persons, and their creditors to collectively and
realistically resolve and adjust competing claims and property (2.) claims against directors and officers of the debtor
rights. arising from acts done in the discharge of their
functions falling within the scope of their authority:
In furtherance thereof, the State shall ensure a timely, fair,
transparent, effective and efficient rehabilitation or liquidation of Provided, That, this inclusion does not prohibit the
debtors. creditors or third parties from filing cases against the
directors and officers acting in their personal
The rehabilitation or liquidation shall be made with a view to capacities.
 ensure or maintain certainly and predictability in commercial
affairs, (d) Commencement date shall refer to the date on which
 preserve and maximize the value of the assets of these the court issues the Commencement Order, which shall
debtors, be retroactive to the date of filing of the petition for
 recognize creditor rights and respect priority of claims, and voluntary or involuntary proceedings.
 ensure equitable treatment of creditors who are similarly
situated. (e) Commencement Order shall refer to the order issued by
When rehabilitation is not feasible, it is in the interest of the State the court under Section 16 of this Act.
to facilities a speedy and orderly liquidation of these debtor's
assets and the settlement of their obligations. (f) Control shall refer to the power of a parent corporation to
direct or govern the financial and operating policies of an
Section 3. Nature of Proceedings. - The proceedings under this enterprise so as to obtain benefits from its activities.
Act shall be in rem.
Control is presumed to exist when the parent owns, directly
Jurisdiction over all persons affected by the proceedings shall be or indirectly through subsidiaries or affiliates, more than 1/2
considered as acquired upon publication of the notice of the of the voting power of an enterprise unless, in exceptional
commencement of the proceedings in any newspaper of circumstances, it can clearly be demonstrated that such
general circulation in the Philippines in the manner prescribed by ownership does not constitute control.
the rules of procedure to be promulgated by the Supreme
Court. Control also exists even when the parent owns 1/2 or less of
the voting power of an enterprise when there is power:
The proceedings shall be conducted in a summary and
nonadversarial manner consistent with the declared policies of (1.) over more than 1/2 of the voting rights by virtue of an
this Act and in accordance with the rules of procedure that the agreement with investors;
Supreme Court may promulgate.
(2.) to direct or govern the financial and operating policies
Section 4. Definition of Terms. - As used in this Act, the term: of the enterprise under a statute or an agreement;
(a) Administrative expenses shall refer to those reasonable (3.) to appoint or remove the majority of the members of
and necessary expenses: the board of directors or equivalent governing body; or
(1.) incurred or arising from the filing of a petition under the (4.) to cast the majority votes at meetings of the board of
provisions of this Act; directors or equivalent governing body.
(2.) arising from, or in connection with, the conduct of the (g) Court shall refer to the court designated by the Supreme
proceedings under this Act, including those incurred for Court to hear and determine, at the first instance, the
the rehabilitation or liquidation of the debtor; cases brought under this Act.
(3.) incurred in the ordinary course of business of the debtor (h) Creditor shall refer to a natural or juridical person which
after the commencement date; has a claim against the debtor that arose on or before
the commencement date.
(4.) for the payment of new obligations obtained after the
commencement date to finance the rehabilitation of (i) Date of liquidation shall refer to the date on which the
the debtor; court issues the Liquidation Order.
(5.) incurred for the fees of the rehabilitation receiver or (j) Days shall refer to calendar days unless otherwise
liquidator and of the professionals engaged by them; specifically stated in this Act.
and
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(k) Debtor shall refer to, unless specifically excluded by a (w) Liquidator shall refer to the natural person or juridical
provision of this Act, entity appointed as such by the court and entrusted with
 a sole proprietorship duly registered with the DTI, such powers and duties as set forth in this Act:
 a partnership duly registered with the SEC,
 a corporation duly organized and existing under Provided, That, if the liquidator is a juridical entity, it must
Philippine laws, or designated a natural person who possesses all the
 an individual debtor who has become insolvent as qualifications and none of the disqualifications as its
defined herein. representative, it being understood that the juridical entity
and the representative are solidarity liable for all obligations
and responsibilities of the liquidator.
(l) Encumbered property shall refer to real or personal
property of the debtor upon which a lien attaches.
(x) Officer shall refer to a natural person holding a
management position described in or contemplated by a
(m) General unsecured creditor shall refer to a creditor whose
juridical entity's articles of incorporation, bylaws or
claim or a portion thereof its neither secured, preferred
equivalent documents, except for the corporate
nor subordinated under this Act.
secretary, the assistant corporate secretary and the
external auditor.
(n) Group of debtors shall refer to and can cover only:
(y) Ordinary course of business shall refer to transactions in

(1.) corporations that are financially related to one another
the pursuit of the individual debtor's or debtor's business
as parent corporations, subsidiaries or affiliates;
operations prior to rehabilitation or insolvency
(2.) partnerships that are owned more than 50% by the
proceedings and on ordinary business terms.
same person; and
(3.) single proprietorships that are owned by the same
(z) Ownership interest shall refer to the ownership interest of
person.
third parties in property held by the debtor, including
those covered by trust receipts or assignments of
When the petition covers a group of debtors, all reference
receivables.
under these rules to debtor shall include and apply to the
group of debtors.
(aa) Parent shall refer to a corporation which has control over
another corporation either directly or indirectly through
(o) Individual debtor shall refer to a natural person who is a
one or more intermediaries.
resident and citizen of the Philippines that has become
insolvent as defined herein.
(bb) Party to the proceedings shall refer to
 the debtor,
(p) Insolvent shall refer to the financial condition of a debtor
that is generally unable to pay its or his liabilities as they  a creditor,
fall due in the ordinary course of business or has liabilities  the unsecured creditors' committee,
that are greater than its or his assets.  a stakeholder,
 a party with an ownership interest in property held by
(q) Insolvent debtor's estate shall refer to the estate of the the debtor,
insolvent debtor, which includes all the property and  a secured creditor,
assets of the debtor as of commencement date,  the rehabilitation receiver,
 liquidator or
plus the property and assets acquired by the rehabilitation  any other juridical or natural person who stands to be
receiver or liquidator after that date, as well as all other benefited or injured by the outcome of the
property and assets in which the debtor has an ownership proceedings and whose notice of appearance is
interest, whether or not these property and assets are in the accepted by the court.
debtor's possession as of commencement date:
(cc) Possessory lien shall refer to a lien on property, the
Provided, That trust assets and bailment, and other property
possession of which has been transferred to a creditor or
and assets of a third party that are in the possession of the
a representative or agent thereof.
debtor as of commencement date, are excluded
therefrom.
(dd) Proceedings shall refer to judicial proceedings
commenced by the court's acceptance of a petition
(r) Involuntary proceedings shall refer to proceedings
filed under this Act.
initiated by creditors.
(ee) Property of others shall refer to property held by the

(s) Liabilities shall refer to monetary claims against the
debtor in which other persons have an ownership interest.
debtor, including stockholder's advances that have been
recorded in the debtor's audited financial statements as
(ff) Publication notice shall refer to notice through
advances for future subscriptions.
publication in a newspaper of general circulation in the
Philippines on a business day for 2 consecutive weeks.
(t) Lien shall refer to a statutory or contractual claim or
judicial charge on real or personal property that legality
(gg) Rehabilitation shall refer to the restoration of the debtor to
entities a creditor to resort to said property for payment of
a condition of successful operation and solvency, if it is
the claim or debt secured by such lien.
shown that its continuance of operation is economically
feasible and its creditors can recover by way of the
(u) Liquidation shall refer to the proceedings under Chapter
present value of payments projected in the plan, more if
V of this Act.
the debtor continues as a going concern than if it is
immediately liquidated.
(v) Liquidation Order shall refer to the Order issued by the
court under Section 112 of this Act.
(hh) Rehabilitation receiver shall refer to the person or persons,
natural or juridical, appointed as such by the court
pursuant to this Act and which shall be entrusted with
such powers and duties as set forth herein.
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Provided, That gov’t financial institutions other than banks and

(ii) Rehabilitation Plan shall refer to a plan by which the GOCCs shall be covered by this Act, unless their specific charter
financial well-being and viability of an insolvent debtor provides otherwise.
can be restored using various means including, but not
limited to, Section 6. Designation of Courts and Promulgation of Procedural
debt forgiveness, Rules. - The Supreme Court shall designate the court or courts
debt rescheduling, that will hear and resolve cases brought under this Act and shall
promulgate the rules of pleading, practice and procedure to
reorganization or quasi-reorganization,
govern the proceedings brought under this Act.
dacion en pago,
debt-equity conversion and
Section 7. Substantive and Procedural Consolidation. - Each
sale of the business (or parts of it) as a going concern, or juridical entity shall be considered as a separate entity under the
setting-up of new business entity as prescribed in Section proceedings in this Act.
62 hereof, or
other similar arrangements as may be approved by the Under these proceedings, the assets and liabilities of a debtor
court or creditors. may not be commingled or aggregated with those of another,
unless the latter is a related enterprise that is owned or controlled
(jj) Secured claim shall refer to a claim that is secured by a directly or indirectly by the same interests:
lien.
Provided, however, That the commingling or aggregation of
assets and liabilities of the debtor with those of a related
(kk) Secured creditor shall refer to a creditor with a secured
enterprise may only be allowed where:
claim.
(a) there was commingling in fact of assets and liabilities of

(ll) Secured party shall refer to a secured creditor or the
the debtor and the related enterprise prior to the
agent or representative of such secured creditor.
commencement of the proceedings;
(mm) Securities market participant shall refer to a broker dealer,

(b) the debtor and the related enterprise have common
underwriter, transfer agent or other juridical persons
transacting securities in the capital market. creditors and it will be more convenient to treat them
together rather than separately;
(nn) Stakeholder shall refer, in addition to a holder of shares of

a corporation, to a member of a nonstock corporation or (c) the related enterprise voluntarily accedes to join the
association or a partner in a partnership. debtor as party petitioner and to commingle its assets
and liabilities with the debtor's; and
(oo) Subsidiary shall refer to a corporation more than 50% of
the voting stock of which is owned or controlled directly (d) The consolidation of assets and liabilities of the debtor
or indirectly through one or more intermediaries by and the related enterprise is beneficial to all concerned
another corporation, which thereby becomes its parent and promotes the objectives of rehabilitation.
corporation.
Provided, finally, That nothing in this section shall prevent the
(pp) Unsecured claim shall refer to a claim that is not secured court from joining other entities affiliated with the debtor as
by a lien. parties pursuant to the rules of procedure as may be
promulgated by the Supreme Court.
(qq) Unsecured creditor shall refer to a creditor with an

Section 8. Decisions of Creditors. - Decisions of creditors shall be
unsecured claim.
made according to the relevant provisions of the Corporation
Code in the case of stock or nonstock corporations or the Civil
(rr) Voluntary proceedings shall refer to proceedings initiated
Code in the case of partnerships that are not inconsistent with
by the debtor.
this Act.
(ss) Voting creditor shall refer to a creditor that is a member Section 9. Creditors Representatives. - Creditors may designate
of a class of creditors, the consent of which is necessary representatives to vote or otherwise act on their behalf by filing
for the approval of a Rehabilitation Plan under this Act. notice of such representation with the court and serving a copy
on the rehabilitation receiver or liquidator.
Section 5. Exclusions. - The term debtor does not include
 banks, Section 10. Liability of Individual Debtor, Owner of a Sole
 insurance companies, Proprietorship, Partners in a Partnership, or Directors and Officers.
 pre-need companies, and - Individual debtor, owner of a sole proprietorship, partners in a
 national and local government agencies or units. partnership, or directors and officers of a debtor shall be liable
for
For purposes of this section:  double the value of the property sold, embezzled or
disposed of or
 double the amount of the transaction involved, whichever is
(1.) Bank shall refer to any duly licensed bank or quasi-bank that
higher to be recovered for benefit of the debtor and the
is potentially or actually subject to conservatorship,
creditors,
receivership or liquidation proceedings under the New
Central Bank Act (RA No. 7653) or successor legislation;
if they, having notice of the commencement of the
proceedings, or having reason to believe that proceedings are
(2.) Insurance company shall refer to those companies that are
about to be commenced, or in contemplation of the
potentially or actually subject to insolvency proceedings
proceedings, willfully commit the following acts:
under the Insurance Code (PD No. 1460) or successor
legislation; and
(a) Dispose or cause to be disposed of any property of the
debtor other than in the ordinary course of business or
(3.) Pre-need company shall refer to any corporation
authorize or approve any transaction in fraud of creditors
authorized/licensed to sell or offer to sell pre-need plans.
or in a manner grossly disadvantageous to the debtor
and/or creditors; or
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(e) Other information that may be required under this Act

(b) Conceal or authorize or approve the concealment, from depending on the form of relief requested;
the creditors, or embezzles or misappropriates, any
property of the debtor. (f) Schedule of the debtor's debts and liabilities including a
list of creditors with their addresses, amounts of claims
The court shall determine the extent of the liability of an owner, and collaterals, or securities, if any;
partner, director or officer under this section.
(g) An inventory of all its assets including receivables and
In this connection, in case of partnerships and corporations, the claims against third parties;
court shall consider the amount of the shareholding or
partnership or equity interest of such partner, director or officer, (h) A Rehabilitation Plan;
the degree of control of such partner, director or officer over the
debtor, and the extent of the involvement of such partner,
(i) The names of at least 3 nominees to the position of
director or debtor in the actual management of the operations
rehabilitation receiver; and
of the debtor.
(j) Other documents required to be filed with the petition
Section 11. Authorization to Exchange Debt for Equity. - pursuant to this Act and the rules of procedure as may be
Notwithstanding applicable banking legislation to the contrary, promulgated by the Supreme Court.
any bank, whether universal or not, may acquire and hold an
equity interest or investment in a debtor or its subsidiaries when
A group of debtors may jointly file a petition for rehabilitation
conveyed to such bank in satisfaction of debts pursuant to a
under this Act when one or more of its members foresee the
Rehabilitation or Liquidation Plan approved by the court:
impossibility of meeting debts when they respectively fall due,
and the financial distress would likely adversely affect the
Provided, That such ownership shall be subject to the ownership financial condition and/or operations of the other members of
limits applicable to universal banks for equity investments and: the group and/or the participation of the other members of the
group is essential under the terms and conditions of the
Provided, further, That any equity investment or interest acquired proposed Rehabilitation Plan.
or held pursuant to this section shall be disposed by the bank
within a period of 5 years or as may be prescribed by the
(2) Involuntary Proceedings.
Monetary Board.
Section 13. Circumstances Necessary to Initiate Involuntary

CHAPTER II
Proceedings. - Any creditor or group of creditors with a claim of,
COURT-SUPERVISED REHABILITATION
or the aggregate of whose claims is, at least P1M or at least 25%
of the subscribed capital stock or partners' contributions,
(A) Initiation Proceedings.
whichever is higher, may initiate involuntary proceedings against
the debtor by filing a petition for rehabilitation with the court if:
(1) Voluntary Proceedings.
(a) there is no genuine issue of fact on law on the claim/s of the

Section 12. Petition to Initiate Voluntary Proceedings by Debtor. – petitioner/s, and that the due and demandable payments
 When approved by the owner in case of a sole thereon have not been made for at least 60 days or that
proprietorship, or the debtor has failed generally to meet its liabilities as they
fall due; or
 by a majority of the partners in case of a partnership, or
(b) a creditor, other than the petitioner/s, has initiated
 in case of a corporation, foreclosure proceedings against the debtor that will prevent
- by a majority vote of the board of directors or trustees and the debtor from paying its debts as they become due or will
- authorized by the vote of the stockholders representing at render it insolvent.
least 2/3 of the outstanding capital stock, or
Section 14. Petition to Initiate Involuntary Proceedings. –
 in case of nonstock corporation,
The creditor/s' petition for rehabilitation shall be verified to
˗ by the vote of at least 2/3 of the members, in a
establish the substantial likelihood that the debtor may be
stockholder's or member's meeting duly called for the
rehabilitated, and include:
purpose,
an insolvent debtor may initiate voluntary proceedings under this (a) identification of the debtor its principal activities and its
Act by filing a petition for rehabilitation with the court and on the address;
grounds hereinafter specifically provided.
♦ (b) the circumstances sufficient to support a petition to initiate
The petition shall be verified to establish the insolvency of the involuntary rehabilitation proceedings under Section 13 of
debtor and the viability of its rehabilitation, and include, whether this Act;
as an attachment or as part of the body of the petition, as a
minimum the following: (c) the specific relief sought under this Act;
(a) Identification of the debtor, its principal activities and its (d) a Rehabilitation Plan;
addresses;
(e) the names of at least 3 nominees to the position of
(b) Statement of the fact of and the cause of the debtor's rehabilitation receiver;
insolvency or inability to pay its obligations as they
become due; (f) other information that may be required under this Act
depending on the form of relief requested; and
(c) The specific relief sought pursuant to this Act;
(g) other documents required to be filed with the petition
(d) The grounds upon which the petition is based; pursuant to this Act and the rules of procedure as may be
promulgated by the Supreme Court.
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(B) Action on the Petition and Commencement of Proceedings. (k) prohibit the debtor's suppliers of goods or services from
withholding the supply of goods and services in the ordinary
Section 15. Action on the Petition. – course of business for as long as the debtor makes
payments for the services or goods supplied after the
If the court finds the petition for rehabilitation to be sufficient in issuance of the Commencement Order;
form and substance,
(l) authorize the payment of administrative expenses as they
 it shall, within 5 working days from the filing of the petition, become due;
issue a Commencement Order.
(m) set the case for initial hearing, which shall not be more than
If, within the same period, the court finds the petition deficient in
40 days from the date of filing of the petition for the purpose
form or substance,
of determining whether there is substantial likelihood for the
 the court may, in its discretion, give the petitioner/s a debtor to be rehabilitated;
reasonable period of time within which to amend or
supplement the petition, or (n) make available copies of the petition and rehabilitation
plan for examination and copying by any interested party;
to submit such documents as may be necessary or proper to
put the petition in proper order. (o) indicate the location or locations at which documents
regarding the debtor and the proceedings under Act may
In such case, the 5 working days provided above for the be reviewed and copied;
issuance of the Commencement Order shall be reckoned from
the date of the filing of the amended or supplemental petition or (p) state that any creditor or debtor who is not the petitioner,
the submission of such documents. may submit the name or nominate any other qualified
person to the position of rehabilitation receiver at least 5
Section 16. Commencement of Proceedings and Issuance of a days before the initial hearing;
Commencement Order. –
(q) includes Stay or Suspension Order which shall:
The rehabilitation proceedings shall commence upon the
issuance of the Commencement Order, which shall: (1.) suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims against the
(a) identify the debtor, its principal business or activity/ies and debtor;
its principal place of business;
(2.) suspend all actions to enforce any judgment,
(b) summarize the ground/s for initiating the proceedings; attachment or other provisional remedies against the
debtor;
(c) state the relief sought under this Act and any requirement or
procedure particular to the relief sought; (3.) prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of its
(d) state the legal effects of the Commencement Order, properties except in the ordinary course of business;
including those mentioned in Section 17 hereof; and
(e) declare that the debtor is under rehabilitation; (4.) prohibit the debtor from making any payment of its
liabilities outstanding as of the commencement date
(f) direct the publication of the Commencement Order in a except as may be provided herein.
newspaper of general circulation in the Philippines once a
week for at least 2 consecutive weeks, with the first Section 17. Effects of the Commencement Order. –
publication to be made within 7 days from the time of its
issuance; Unless otherwise provided for in this Act, the court's issuance of a
Commencement Order shall, in addition to the effects of a Stay
or Suspension Order described in Section 16 hereof:
(g) If the petitioner is the debtor direct the service by personal
delivery of a copy of the petition on each creditor holding
at least 10% of the total liabilities of the debtor as (a) vest the rehabilitation with all the powers and functions
determined from the schedule attached to the petition provided for this Act, such as the right to review and
within 5 days; obtain records to which the debtor's management and
directors have access, including bank accounts or
if the petitioner/s is/are creditor/s, direct the service by whatever nature of the debtor subject to the approval by
personal delivery of a copy of the petition on the debtor the court of the performance bond filed by the
within 5 days; rehabilitation receiver;
(h) appoint a rehabilitation receiver who may or not be from (b) prohibit or otherwise serve as the legal basis rendering null
among the nominees of the petitioner/s and who shall and void the results of any extrajudicial activity or process
exercise such powers and duties defined in this Act as well to seize property, sell encumbered property, or otherwise
as the procedural rules that the Supreme Court will attempt to collection or enforce a claim against the
promulgate; debtor after commencement date unless otherwise
allowed in this Act, subject to the provisions of Section 50
hereof;
(i) summarize the requirements and deadlines for creditors to
establish their claims against the debtor and direct all
creditors to their claims with the court at least 5 days before (c) serve as the legal basis for rendering null and void any
the initial hearing; setoff after the commencement date of any debt owed
to the debtor by any of the debtor's creditors;
(j) direct BIR to file and serve on the debtor its comment on or
opposition to the petition or its claim/s against the debtor (d) serve as the legal basis for rendering null and void the
under such procedures as the Supreme Court provide; perfection of any lien against the debtor's property after
the commencement date; and
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(e) consolidate the resolution of all legal proceedings by and Section 20. Application of Stay or Suspension Order to
against the debtor to the court Provided. Government Financial Institutions. - The provisions of this Act
concerning the effects of the Commencement Order and the
However, That the court may allow the continuation of Stay or Suspension Order on the suspension of rights to foreclose
cases on other courts where the debtor had initiated the or otherwise pursue legal remedies
suit. » shall apply to gov’t financial institutions, notwithstanding
provisions in their charters or other laws to the contrary.
Attempts to seek legal of other resource against the debtor
outside these proceedings shall be sufficient to support a finding Section 21. Effectivity and Duration of Commencement Order. -
of indirect contempt of court. Unless lifted by the court, the Commencement Order shall be for
the effective for the duration of the rehabilitation proceedings
Section 18. Exceptions to the Stay or Suspension Order. - The Stay for as long as there is a substantial likelihood that the debtor will
or Suspension Order shall not apply: be successfully rehabilitated.
(a) to cases already pending appeal in the Supreme Court as In determining whether there is substantial likelihood for the
of commencement date debtor to be successfully rehabilitated, the court shall ensure
that the following minimum requirements are met:
Provided, That any final and executory judgment arising
from such appeal shall be referred to the court for (a) The proposed Rehabilitation Plan submitted complies with
appropriate action; the minimum contents prescribed by this Act;
(b) subject to the discretion of the court, to cases pending or (b) There is sufficient monitoring by the rehabilitation receiver of
filed at a specialized court or quasi-judicial agency which, the debtor's business for the protection of creditors;
upon determination by the court is capable of resolving the
claim more quickly, fairly and efficiently than the court: (c) The debtor has met with its creditors to the extent
reasonably possible in attempts to reach consensus on the
Provided, That any final and executory judgment of such proposed Rehabilitation Plan;
court or agency shall be referred to the court and shall be
treated as a non-disputed claim;
(d) The rehabilitation receiver submits a report, based on
preliminary evaluation, stating that the underlying
(c) to the enforcement of claims against sureties and other assumptions and the goals stated in the petitioner's
persons solidarily liable with the debtor, and third party or Rehabilitation Plan are realistic reasonable and reasonable
accommodation mortgagors as well as issuers of letters of or if not, there is, in any case, a substantial likelihood for the
credit, unless the property subject of the third party or debtor to be successfully rehabilitated because, among
accommodation mortgage is necessary for the others:
rehabilitation of the debtor as determined by the court
upon recommendation by the rehabilitation receiver;
(1.) there are sufficient assets with/which to rehabilitate the
debtor;
(d) to any form of action of customers or clients of a securities
market participant to recover or otherwise claim moneys
(2.) there is sufficient cash flow to maintain the operations
and securities entrusted to the latter in the ordinary course
of the debtor;
of the latter's business as well as any action of such securities
market participant or the appropriate regulatory agency or
(3.) the debtor's, partners, stockholders, directors and
self-regulatory organization to pay or settle such claims or
officers have been acting in good faith and which due
liabilities;
diligence;
(e) to the actions of a licensed broker or dealer to sell pledged

(4.) the petition is not s sham filing intended only to delay
securities of a debtor pursuant to a securities pledge or
the enforcement of the rights of the creditor's or of any
margin agreement for the settlement of securities
group of creditors; and
transactions in accordance with the provisions of the
Securities Regulation Code and its implementing rules and
regulations; (5.) the debtor would likely be able to pursue a viable
Rehabilitation Plan;
(f) the clearing and settlement of financial transactions
through the facilities of a clearing agency or similar entities (e) The petition, the Rehabilitation Plan and the attachments
duly authorized, registered and/or recognized by the thereto do not contain any materially false or misleading
appropriate regulatory agency like the BSP and the SEC as statement;
well as any form of actions of such agencies or entities to
reimburse themselves for any transactions settled for the (f) If the petitioner is the debtor, that the debtor has met with
debtor; and its creditor/s representing at least 3/4 of its total obligations
to the extent reasonably possible and made a good faith
(g) any criminal action against individual debtor or owner, effort to reach a consensus on the proposed Rehabilitation
partner, director or officer of a debtor shall not be affected Plan if the petitioner/s is/are a creditor or group of creditors,
by any proceeding commend under this Act. that/ the petitioner/s has/have met with the debtor and
made a good faith effort to reach a consensus on the
Section 19. Waiver of taxes and Fees Due to the National proposed Rehabilitation Plan; and
Government and to Local Government Units (LGUs). –
(g) The debtor has not committed acts misrepresentation or in
Upon issuance of the Commencement Order by the court, and fraud of its creditor/s or a group of creditors.
until the approval of the Rehabilitation Plan or dismissal of the
petition, whichever is earlier, Section 22. Action at the Initial Hearing. - At the initial hearing,
» the imposition of all taxes and fees including penalties, interests the court shall:
and charges thereof due to the national government or to
LGUs shall be considered waived, in furtherance of the (a) determine the creditors who have made timely and proper
objectives of rehabilitation. filing of their notice of claims;
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(b) hear and determine any objection to the qualifications of (c) convert the proceedings into one for the liquidation of the
the appointment of the rehabilitation receiver and, if debtor upon a finding that:
necessary appoint a new one in accordance with this Act;
(1.) the debtor is insolvent; and
(c) direct the creditors to comment on the petition and the
Rehabilitation Plan, and to submit the same to the court (2.) there is no substantial likelihood for the debtor to be
and to the rehabilitation receiver within a period of not successfully rehabilitated as determined in accordance
more than 20 days; and with the rules to be promulgated by the Supreme
Court.
(d) direct the rehabilitation receiver to evaluate the financial
condition of the debtor and to prepare and submit to the Section 26.Petition Given Due Course. - If the petition is given due
court within 40 days from initial hearing the report provided course, the court shall direct the rehabilitation receiver to review,
in Section 24 hereof. revise and/or recommend action on the Rehabilitation Plan and
submit the same or a new one to the court within a period of not
Section 23. Effect of Failure to File Notice of Claim. - A creditor more than 90 days.
whose claim is not listed in the schedule of debts and liabilities
and who fails to file a notice of claim in accordance with the The court may refer any dispute relating to the Rehabilitation
Commencement Order but subsequently files a belated claim » Plan or the rehabilitation proceedings pending before it to
shall not be entitled to participate in the rehabilitation arbitration or other modes of dispute resolution, as provided for
proceedings but shall be entitled to receive distributions arising under RA No. 9285, or the Alternative Dispute Resolution Act of
therefrom. 2004, should it determine that such mode will resolve the dispute
more quickly, fairly and efficiently than the court.
Section 24. Report of the Rehabilitation Receiver. - Within 40 days
from the initial hearing and with or without the comments of the Section 27.Dismissal of Petition. - If the petition is dismissed
creditors or any of them, the rehabilitation receiver shall submit a pursuant to paragraph (b) of Section 25 hereof, then the court
report to the court stating his preliminary findings and may, in its discretion, order the petitioner to pay damages to any
recommendations on whether: creditor or to the debtor, as the case may be, who may have
been injured by the filing of the petition, to the extent of any
(a) the debtor is insolvent and if so, the causes thereof and any such injury.
unlawful or irregular act or acts committed by the owner/s
of a sole proprietorship partners of a partnership or directors (C) The Rehabilitation Receiver, Management Committee and
or officers of a corporation in contemplation of the Creditors' Committee.
insolvency of the debtor or which may have contributed to
the insolvency of the debtor; Section 28.Who May Serve as a Rehabilitation Receiver. –
(b) the underlying assumptions, the financial goals and the Any qualified natural or juridical person may serve as a
procedures to accomplish such goals as stated in the rehabilitation receiver:
petitioner's Rehabilitation Plan are realistic, feasible and
reasonable; Provided, That if the rehabilitation receiver is a juridical entity, it
must designate a natural person/s who possess/es all the
(c) there is a substantial likelihood for the debtor to be qualifications and none of the disqualification’s as its
successfully rehabilitated; representative, it being understood that the juridical entity and
the representative/s are solidarily liable for all obligations and
responsibilities of the rehabilitation receiver.
(d) the petition should be dismissed; and
Section 29.Qualifications of a Rehabilitation Receiver. - The

(e) the debtor should be dissolved and/or liquidated.
rehabilitation receiver shall have the following minimum
qualifications:
Section 25. Giving Due Course to or Dismissal of Petition, or
Conversion of Proceedings. –
(a) A citizen of the Philippines or a resident of the Philippines in
the 6 months immediately preceding his nomination;
Within 10 days from receipt of the report of the rehabilitation
receiver mentioned in Section 24 hereof the court may:
(b) Of good moral character and with acknowledged integrity,
impartiality and independence;
(a) give due course to the petition upon a finding that:
(c) Has the requisite knowledge of insolvency and other

(1.) the debtor is insolvent; and
relevant commercial laws, rules and procedures, as well as
the relevant training and/or experience that may be
(2.) there is a substantial likelihood for the debtor to be necessary to enable him to properly discharge the duties
successfully rehabilitated; and obligations of a rehabilitation receiver; and
(b) dismiss the petition upon a finding that: (d) Has no conflict of interest:
(1.) debtor is not insolvent; Provided, That such conflict of interest may be waived,
expressly or impliedly, by a party who may be prejudiced
(2.) the petition is a sham filing intended only to delay the thereby.
enforcement of the rights of the creditor/s or of any
group of creditors; Other qualifications and disqualification’s of the rehabilitation
receiver shall be set forth in procedural rules, taking into
(3.) the petition, the Rehabilitation Plan and the consideration the nature of the business of the debtor and the
attachments thereto contain any materially false or need to protect the interest of all stakeholders concerned.
misleading statements; or
Section 30.Initial Appointment of the Rehabilitation Receiver. –
(4.) the debtor has committed acts of misrepresentation or
in fraud of its creditor/s or a group of creditors; The court shall initially appoint the rehabilitation receiver, who
may or may not be from among the nominees of the petitioner,
֍614֍ 7|CorpoLaw’2016
a. To implement the Rehabilitation Plan as approved by

However, at the initial hearing of the petition, the creditors and the court, if 80 provided under the Rehabilitation Plan;
the debtor who are not petitioners may nominate other persons
to the position. (l) To assume and exercise the powers of management of the
debtor, if directed by the court pursuant to Section 36
The court may retain the rehabilitation receiver initially hereof;
appointed or appoint another who may or may not be from
among those nominated. (m) To exercise such other powers as may, from time to time, be
conferred upon him by the court; and
In case the debtor is a securities market participant,
» the court shall give priority to the nominee of the appropriate To submit a status report on the rehabilitation proceedings every
securities or investor protection fund. quarter or as may be required by the court motu proprio. or
upon motion of any creditor or as may be provided, in the
If a qualified natural person or entity is nominated by more than Rehabilitation Plan.
50% of the secured creditors and the general unsecured
creditors, and satisfactory evidence is submitted, Unless appointed by the court, pursuant to Section 36 hereof, the
» the court shall appoint the creditors' nominee as rehabilitation rehabilitation receiver shall not take over the management and
receiver. control of the debtor but may recommend the appointment of
a management committee over the debtor in the cases
Section 31.Powers, Duties and Responsibilities of the provided by this Act.
Rehabilitation Receiver. - The rehabilitation receiver shall be
deemed an officer of the court with the principal duty of Section 32.Removal of the Rehabilitation Receiver. – The
 preserving and maximizing the value of the assets of the rehabilitation receiver may be removed at any time by the court
debtor during the rehabilitation proceedings, either motu proprio or upon motion by any creditor/s holding
 determining the viability of the rehabilitation of the debtor, more than 50% of the total obligations of the debtor, on such
 preparing and recommending a Rehabilitation Plan to the grounds as the rules of procedure may provide which shall
court, and include, but are not limited to, the following:
 implementing the approved Rehabilitation Plan, To this end,
and (a) Incompetence, gross negligence, failure to perform or
failure to exercise the proper degree of care in the
without limiting the generality of the foregoing, the rehabilitation performance of his duties and powers;
receiver shall have the following powers, duties and
responsibilities: (b) Lack of a particular or specialized competency required
by the specific case;
(a) To verify the accuracy of the factual allegations in the
petition and its annexes; (c) Illegal acts or conduct in the performance of his duties
and powers;
(b) To verify and correct, if necessary, the inventory of all of the
assets of the debtor, and their valuation; (d) Lack of qualification or presence of any disqualification;
(c) To verify and correct, if necessary, the schedule of debts (e) Conflict of interest that arises after his appointment; and
and liabilities of the debtor;
(f) Manifest lack of independence that is detrimental to the
(d) To evaluate the validity, genuineness and true amount of all general body of the stakeholders.
the claims against the debtor;
Section 33.Compensation and Terms of Service. The
(e) To take possession, custody and control, and to preserve rehabilitation receiver and his direct employees or independent
the value of all the property of the debtor; contractors shall be entitled to compensation for reasonable
fees and expenses from the debtor according to the terms
(f) To sue and recover, with the approval of the court, all approved by the court after notice and hearing.
amounts owed to, and all properties pertaining to the
debtor; Prior to such hearing, the rehabilitation receiver and his direct
employees shall be entitled to reasonable compensation based
on quantum meruit. Such costs shall be considered
(g) To have access to all information necessary, proper or
administrative expenses.
relevant to the operations and business of the debtor and
for its rehabilitation;
Section 34.Oath and Bond of the Rehabilitation Receiver. Prior to
entering upon his powers, duties and responsibilities, the
(h) To sue and recover, with the approval of the court, all
rehabilitation receiver shall take an oath and file a bond, in such
property or money of the debtor paid, transferred or
amount to be fixed by the court, conditioned upon the faithful
disbursed in fraud of the debtor or its creditors, or which
and proper discharge of his powers, duties and responsibilities.
constitute undue preference of creditor/s;
Section 35.Vacancy. - Incase the position of rehabilitation

(i) To monitor the operations and the business of the debtor to
receiver is vacated for any reason whatsoever. the court shall
ensure that no payments or transfers of property are made
direct the debtor and the creditors to submit the name/s of their
other than in the ordinary course of business;
nominee/s to the position. The court may appoint any of the
qualified nominees. or any other person qualified for the position.
(j) With the court's approval, to engage the services of or to
employ persons or entities to assist him in the discharge of Section 36.Displacement of Existing Management by the
his functions; Rehabilitation Receiver or Management Committee. –
(k) To determine the manner by which the debtor may be best Upon motion of any interested party, the court may appoint and
rehabilitated, to review) revise and/or recommend action direct the rehabilitation receiver to assume the powers of
on the Rehabilitation Plan and submit the same or a new management of the debtor, or appoint a management
one to the court for approval; committee that will undertake the management of the debtor
֍614֍ 8|CorpoLaw’2016
upon clear and convincing evidence of any of the following or any of the creditors, or the auditor or accountant of the
circumstances: debtor;
(a) Actual or imminent danger of dissipation, loss, wastage or (d) he is, or was, within 2 years from the filing of the petition, an
destruction of the debtor’s assets or other properties; underwriter of the outstanding securities of the debtor;
(b) Paralyzation of the business operations of the debtor; or (e) he is related by consanguinity or affinity within the fourth
civil degree to any individual creditor, owners of a sale
(c) Gross mismanagement of the debtor. or fraud or other proprietorship-debtor, partners of a partnership- debtor or to
wrongful conduct on the part of, or gross or willful violation any stockholder, director, officer, employee or underwriter
of this Act by existing management of the debtor or the of a corporation-debtor; or
owner, partner, director, officer or representative/s in
management of the debtor. (f) he has any other direct or indirect material interest in the
debtor or any of the creditors.
In case the court appoints the rehabilitation receiver to assume
the powers of management of the debtor, the court may: Any rehabilitation receiver, member of the management
committee or persons employed or contracted by them
(1.) require the rehabilitation receiver to post an additional possessing any conflict of interest
bond; » shall make the appropriate disclosure either to the court or to
the creditors in case of out-of-court rehabilitation proceedings.
(2.) authorize him to engage the services or to employ persona
or entities to assist him in the discharge of his managerial Any party to the proceeding adversely affected by the
functions; and appointment of any person with a conflict of interest to any of
the positions enumerated above
(3.) authorize a commensurate increase in his compensation. » may however waive his right to object to such appointment
and,
Section 37.Role of the Management Committee. – When if the waiver is unreasonably withheld,
appointed pursuant to the foregoing section, the management » the court may disregard the conflict of interest, taking into
committee shall take the place of the management and the account the general interest of the stakeholders.
governing body of the debtor and assume their rights and
responsibilities. Section 41. Immunity. - The rehabilitation receiver and all persons
employed by him, and the members of the management
The specific powers and duties of the management committee, committee and all persons employed by it,
whose members shall be considered as officers of the court, shall
» shall not be subject to any action claim or demand in
be prescribed by the procedural rules.
connection with any act done or omitted to be done by them
in good faith in connection with the exercise of their powers
Section 38. Qualifications of Members of the Management
and functions under this Act or other actions duly approved by
Committee. - The qualifications and disqualifications of the
the court.
members of the management committee shall be set forth in the
procedural rules, taking into consideration the nature of the
Section 42. Creditors' Committee. - After the creditors' meeting
business of the debtor and the need to protect the interest of all
called pursuant to Section 63 hereof, the creditors belonging to
stakeholders concerned.
a class may formally organize a committee among themselves.
Section 39.Employment of Professionals. - Upon approval of the

In addition, the creditors may, as a body, agree to form a
court, and after notice and hearing, the rehabilitation receiver
creditors' committee composed of a representative from each
or the management committee may employ specialized
class of creditors, such as the following:
professionals and other experts to assist each in the performance
of their duties.
(a) Secured creditors;
Such professionals and other experts shall be considered either

(b) Unsecured creditors;
employees or independent contractors of the rehabilitation
receiver or the management committee, as the case may be.
(c) Trade creditors and suppliers; and
The qualifications and disqualifications of the professionals and

(d) Employees of the debtor.
experts may be set forth in procedural rules, taking into
consideration the nature of the business of the debtor and the
In the election of the creditors' representatives, the rehabilitation
need to protect the interest of all stakeholders concerned.
receiver or his representative shall attend such meeting and
extend the appropriate assistance as may be defined in the
Section 40. Conflict of Interest. - No person may be appointed as
procedural rules.
a rehabilitation receiver, member of a management committee,
or be employed by the rehabilitation receiver or the
Section 43. Role of Creditors' Committee. - The creditors'
management committee if he has a conflict of interest.
committee when constituted pursuant to Section 42 of this Act
shall assist the rehabilitation receiver in communicating with the
An individual shall be deemed to have a conflict of interest if he
creditors and shall be the primary liaison between the
is so situated as to be materially influenced in the exercise of his
rehabilitation receiver and the creditors.
judgment for or against any party to the proceedings. Without
limiting the generality of the foregoing, an individual shall be
The creditors' committee
deemed to have a conflict of interest if:
• cannot exercise or waive any right or give any consent on
behalf of any creditor unless specifically authorized in writing
(a) he is a creditor, owner, partner or stockholder of the debtor;
by such creditor.
• may be authorized by the court or by the rehabilitation
(b) he is engaged in a line of business which competes with
receiver to perform such other tasks and functions as may be
that of the debtor;
defined by the procedural rules in order to facilitate the
rehabilitation process.
(c) he is, or was, within 5 years from the filing of the petition, a
director, officer, owner, partner or employee of the debtor
֍614֍ 9|CorpoLaw’2016
(D) Determination of Claims. (b) the debtor has made arrangements to provide a substitute
lien or ownership right that provides an equal level of
Section 44. Registry of Claims. - Within 20 days from his security for the counter-party's claim or right.
assumption into office, the rehabilitation receiver shall establish a
preliminary registry of claims. Provided, That properties held by the debtor where the debtor
has authority to sell such as trust receipt or consignment
The rehabilitation receiver shall make the registry available for arrangements may be sold or disposed of by the debtor, if such
public inspection and provide publication notice to the debtor, sale or disposal is necessary for the operation of the debtor's
creditors and stakeholders on where and when they may inspect business, and the debtor has made arrangements to provide a
it. substitute lien or ownership right that provides an equal level of
security for the counter-party's claim or right.
All claims included in the registry of claims must be duly
supported by sufficient evidence. Sale or disposal of property under this section shall not give rise to
any criminal liability under applicable laws.
Section 45. Opposition or Challenge of Claims. – Within 30 days
from the expiration of the period stated in the immediately Section 51. Assets of Debtor Held by Third Parties. – In the case of
preceding section, possessory pledges, mechanic's liens or similar claims, third
» the debtor, creditors, stakeholders and other interested parties parties who have in their possession or control property of the
may submit a challenge to claim/s to the court, debtor shall not transfer, conveyor otherwise dispose of the same
» serving a certified copy on the rehabilitation receiver and the to persons other than the debtor, unless upon prior approval of
creditor holding the challenged claim/so upon the expiration the rehabilitation receiver.
of the 30-day period,
The rehabilitation receiver may also:
the rehabilitation receiver shall submit to the court the registry
of claims which shall include undisputed claims that have not (a) demand the surrender or the transfer of the possession or
been subject to challenge. control of such property to the rehabilitation receiver or any
other person, subject to payment of the claims secured by
Section 46. Appeal. - Any decision of the rehabilitation receiver any possessory Iien/s thereon;
regarding a claim may be appealed to the court.
(b) allow said third parties to retain possession or control, if such
(E) Governance. an arrangement would more likely preserve or increase the
value of the property in question or the total value of the
Section 47. Management. - Unless otherwise provided herein, the assets of the debtor; or
management of the juridical debtor shall remain with the existing
management subject to the applicable law/s and agreement/s, (c) undertake any otI1er disposition of the said property as may
if any, on the election or appointment of directors, managers Or be beneficial for the rehabilitation of the debtor, after
managing partner. notice and hearing, and approval of the court.
However, all disbursements, payments or sale, disposal, Section 52. Rescission or Nullity of Sale, Payment, Transfer or
assignment, transfer or encumbrance of property , or any other Conveyance of Assets. - The court may rescind or declare as null
act affecting title or interest in property, shall be subject to the and void any sale, payment, transfer or conveyance of the
approval of the rehabilitation receiver and/or the court, as debtor's unencumbered property or any encumbering thereof
provided in the following subchapter. by the debtor or its agents or representatives after the
commencement date which are not in the ordinary course of
(F) Use, Preservation and Disposal of Assets and Treatment of the business of the debtor:
Assets and Claims after Commencement Date.
Provided, however, That the unencumbered property may be
Section 48. Use or Disposition of Assets. - Except as otherwise sold, encumbered or otherwise disposed of upon order of the
provided herein, no funds or property of the debtor shall he used court after notice and hearing:
or disposed of except in the ordinary course of business of the
debtor, or unless necessary to finance the administrative (a) if such are in the interest of administering the debtor and
expenses of the rehabilitation proceedings. facilitating the preparation and implementation of a
Rehabilitation Plan;
Section 49. Sale of Assets. - The court, upon application of the
rehabilitation receiver, may authorize the sale of unencumbered
(b) in order to provide a substitute lien, mortgage or pledge of
property of the debtor outside the ordinary course of business
property under this Act;
upon a showing that the property, by its nature or because of
other circumstance, is perishable, costly to maintain, susceptible
(c) for payments made to meet administrative expenses as
to devaluation or otherwise in jeopardy.
they arise;
Section 50. Sale or Disposal of Encumbered Property of the

Debtor and Assets of Third Parties Held by Debtor. (d) for payments to victims of quasi delicts upon a showing that
the claim is valid and the debtor has insurance to reimburse
The court may authorize the sale, transfer, conveyance or the debtor for the payments made;
disposal of encumbered property of the debtor, or property of
others held by the debtor where there is a security interest (e) for payments made to repurchase property of the debtor
pertaining to third parties under a financial, credit or other similar that is auctioned off in a judicial or extrajudicial sale under.
transactions if, upon application of the rehabilitation receiver This Act; or
and with the consent of the affected owners of the property, or
secured creditor/s in the case of encumbered property of the (f) for payments made to reclaim property of the debtor held
debtor and, after notice and hearing, the court determines that: pursuant to a possessory lien.
(a) such sale, transfer, conveyance or disposal is necessary for Section 53. Assets Subject to Rapid Obsolescence, Depreciation
the continued operation of the debtor's business; and and Diminution of Value. - Upon the application of a secured
creditor holding a lien against or holder of an ownership interest
in property held by the debtor that is subject to potentially rapid
obsolescence, depreciation or diminution in value, the court
֍614֍ 10 | C o r p o L a w ’ 2 0 1 6
shall, after notice and hearing, order the debtor or rehabilitation anytime thereafter by the court before which the rehabilitation
receiver to take reasonable steps necessary to prevent the proceedings are pending,
depreciation. » all valid and subsisting contracts of the debtor with creditors
and other third parties as at the commencement date shall
If depreciation cannot be avoided and such depreciation is continue in force:
jeopardizing the security or property interest of the secured
creditor or owner, the court shall: Provided, That within 90 days following the commencement of
proceedings, the debtor, with the consent of the rehabilitation
(a) allow the encumbered property to be foreclosed upon by receiver,
the secured creditor according to the relevant agreement » shall notify each contractual counter-party of whether it is
between the debtor and the secured creditor, applicable confirming the particular contract.
rules of procedure and relevant legislation:
Contractual obligations of the debtor arising or performed
Provided. That the proceeds of the sale will be distributed in during this period, and afterwards for confirmed contracts,
accordance with the order prescribed under the rules of » shall be considered administrative expenses.
concurrence and preference of credits; or
Contracts not confirmed within the required deadline
(b) upon motion of, or with the consent of the affected secured » shall be considered terminated.
creditor or interest owner. order the conveyance of a lien
against or ownership interest in substitute property of the
Claims for actual damages, if any, arising as a result of the
debtor to the secured creditor:
election to terminate a contract
» shall be considered a pre-commencement claim against the
Provided. That other creditors holding liens on such property,
debtor.
if any, do not object thereto, or, if such property is not
available;
Nothing contained herein shall prevent the cancellation or
termination of any contract of the debtor for any ground
(c) order the conveyance to the secured creditor or holder . of
provided by law.
an ownership interest of a lien on the residual funds from the
sale of encumbered property during the proceedings; or
(G) Avoidance Proceedings.
(d) allow the sale or disposition of the property: Section 58. Rescission or Nullity of Certain Pre-commencement
Transactions. Any transaction occurring prior to commencement
Provided. That the sale or disposition will maximize the value date entered into by the debtor or involving its funds or assets
of the property for the benefit of the secured creditor and may be rescinded or declared null and void on the ground that
the debtor, and the proceeds of the sale will be distributed the same was executed with intent to defraud a creditor or
in accordance with the order prescribed under the rules of creditors or which constitute undue preference of creditors.
concurrence and preference of credits.
Without limiting the generality of the foregoing, a disputable
Section 54. Post-commencement Interest. - The rate and term of presumption of such design shall arise if the transaction:
interest, if any, on secured and unsecured claims shall be
determined and provided for in the approved Rehabilitation
(a) provides unreasonably inadequate consideration to the
Plan.
debtor and is executed within 90 days prior to the
commencement date;
Section 55. Post-commencement Loans and Obligations. - With
the approval of the court upon the recommendation of the
(b) involves an accelerated payment of a claim to a creditor
rehabilitation receiver, the debtor, in order to enhance its
within 90 days prior to the commencement date;
rehabilitation may:
(c) provides security or additional security executed within 90

(a) enter into credit arrangements; or
days prior to the commencement date;
(b) enter into credit arrangements, secured by mortgages of its

(d) involves creditors, where a creditor obtained, or received
unencumbered property or secondary mortgages of
the benefit of, more than its pro rata share in the assets of
encumbered property with the approval of senior secured
the debtor, executed at a time when the debtor was
parties with regard to the encumbered property; or
insolvent; or
(c) incur other obligations as may be essential for its

(e) is intended to defeat, delay or hinder the ability of the
rehabilitation.
creditors to collect claims where the effect of the
transaction is to put assets of the debtor beyond the reach
The payment of the foregoing obligations shall be considered
of creditors or to otherwise prejudice the interests of
administrative expenses under this Act.
creditors.
Section 56. Treatment of Employees, Claims— Compensation of

Provided, however, That nothing in this section shall prevent the
employees required to carry on the business shall be considered
court from rescinding or declaring as null and void a transaction
an administrative expense.
on other grounds provided by relevant legislation and
jurisprudence:
Claims of separation pay for months worked prior to the
commencement date shall be considered a pre-
Provided, further, That the provisions of the Civil Code on
commencement claim.
rescission shall in any case apply to these transactions.
Claims for salary and separation pay for work performed after
Section 59. Actions for Rescission or Nullity. –
the commencement date shall be an administrative expense.
(a) The rehabilitation receiver or, with his conformity, any creditor
may initiate and prosecute any action to rescind, or declare
Section 57. Treatment of Contracts. - Unless cancelled by virtue
null and void any transaction described in Section 58 hereof.
of a final judgment of a court of competent jurisdiction issued
prior to the issuance of the Commencement Order, or at
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If the rehabilitation receiver does not consent to the filing or If such arrangements are not feasible,
prosecution of such action,
 the court may modify the Stay Order to allow the secured
creditor lacking adequate protection to enforce its security
(a) If leave of court is granted under subsection (a), the
claim against the debtor:
rehabilitation receiver shall assign and transfer to the
Provided, however, That the court may deny the creditor the
creditor all rights, title and interest in the chose in action or
remedies in this paragraph if the property subject of the
subject matter of the proceeding, including any document
enforcement is required for the rehabilitation of the debtor.
in support thereof.
(i) Administration of Proceedings.

(b) Any benefit derived from a proceeding taken pursuant to
subsection (a), to the extent of his claim and the costs,
Section 62. Contents of a Rehabilitation Plan. – The Rehabilitation
belongs exclusively to the creditor instituting the
Plan shall, as a minimum:
proceeding, and the surplus, if any, belongs to the estate.
(a) specify the underlying assumptions, the financial goals and

(c) Where, before an order is made under subsection (a), the
the procedures proposed to accomplish such goals;
rehabilitation receiver (or liquidator) signifies to the court his
readiness to institute the proceeding for the benefit of the
creditors, (b) compare the amounts expected to be received by the
creditors under the Rehabilitation Plan with those that they
» the order shall fix the time within which he shall do so and
will receive if liquidation ensues within the next 120 days;
in that case,
(c) contain information sufficient to give the various classes of
» the benefit derived from the proceeding, if instituted
creditors a reasonable basis for determining whether
within the time limits so fixed, belongs to the estate.
supporting the Plan is in their financial interest when
compared to the immediate liquidation of the debtor,
(H) Treatment of Secured Creditors.
including any reduction of principal interest and penalties
payable to the creditors;
Section 60. No Diminution of Secured Creditor Rights. The
issuance of the Commencement Order and the Suspension or
(d) establish classes of voting creditors;
Stay Order, and any other provision of this Act,
 shall not be deemed in any way to diminish or impair the (e) establish subclasses of voting creditors if prior approval has
security or lien of a secured creditor, or the value of his lien or been granted by the court;
security, except that his right to enforce said security or lien
may be suspended during the term of the Stay Order. (f) indicate how the insolvent debtor will be rehabilitated
including, but not limited to,  debt forgiveness,
The court, upon motion or recommendation of the rehabilitation  debt rescheduling,
receiver, may allow a secured creditor to enforce his security or  reorganization or quasi-reorganization dacion en pago,
lien, or foreclose upon property of the debtor securing his/its
 debt-equity conversion and sale of the business (or parts
claim, if the said property is not necessary for the rehabilitation of
of it) as a going concern, or
the debtor.
 setting-up of a new business entity or other similar
arrangements as may be necessary to restore the
The secured creditor and/or the other lien holders shall be
financial well-being and visibility of the insolvent debtor;
admitted to the rehabilitation proceedings only for the balance
of his claim, if any.
(g) specify the treatment of each class or subclass described in
subsections (d) and (e);
Section 61. Lack of Adequate Protection. - The court, on motion
or motu proprio, may terminate, modify or set conditions for the
continuance of suspension of payment, or relieve a claim from (h) provide for equal treatment of all claims within the same
the coverage thereof, upon showing that: class or subclass, unless a particular creditor voluntarily
agrees to less favorable treatment;
(a) a creditor does not have adequate protection over
property securing its claim; or (i) ensure that the payments made under the plan follow the
priority established under the provisions of the Civil Code on
concurrence and preference of credits and other
(b) the value of a claim secured by a lien on property which is
applicable laws;
not necessary for rehabilitation of the debtor exceeds the
fair market value of the said property.
(j) maintain the security interest of secured creditors and
For purposes of this section, a creditor shall be deemed to lack preserve the liquidation value of the security unless such has
adequate protection if it can be shown that: been waived or modified voluntarily;
(a) the debtor fails or refuses to honor a pre-existing agreement (k) disclose all payments to creditors for pre-commencement
with the creditor to keep the property insured; debts made during the proceedings and the justifications
thereof;
(b) the debtor fails or refuses to take commercially reasonable
steps to maintain the property; or (l) describe the disputed claims and the provisioning of funds
to account for appropriate payments should the claim be
ruled valid or its amount adjusted;
(c) the property has depreciated to an extent that the creditor
is under secured.
(m) identify the debtor's role in the implementation of the
Upon showing of a lack of protection, the court shall order Plan;
the debtor or the rehabilitation receiver  to make

(n) state any rehabilitation covenants of the debtor, the
arrangements to provide for the insurance or maintenance
breach of which shall be considered a material breach of
of the property; or
the Plan;
 to make payments or otherwise provide additional or
replacement security such that the obligation is fully secured.
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(o) identify those responsible for the future management of the

debtor and the supervision and implementation of the Plan, (d) The Rehabilitation Plan would likely provide the objecting
their affiliation with the debtor and their remuneration; class of creditors with compensation which has a net
present value greater than that which they would have
(p) address the treatment of claims arising after the received if the debtor were under liquidation.
confirmation of the Rehabilitation Plan;
Section 65. Submission of Rehabilitation Plan to the Court. –
(q) require the debtor and its counter-parties to adhere to the
terms of all contracts that the debtor has chosen to confirm; If the Rehabilitation Plan is approved, the rehabilitation receiver
shall submit the same to the court for confirmation.
(r) arrange for the payment of all outstanding administrative
expenses as a condition to the Plan's approval unless such Within 5 days from receipt of the Rehabilitation Plan, the court
condition has been waived in writing by the creditors shall notify the creditors that the Rehabilitation Plan has been
concerned; submitted for confirmation, that any creditor may obtain copies
of the Rehabilitation Plan and that any creditor may file an
objection thereto.
(s) arrange for the payment" of all outstanding taxes and
assessments, or an adjusted amount pursuant to a
compromise settlement with the BlR or other applicable tax Section 66. Filing of Objections to Rehabilitation Plan. – A creditor
authorities; may file an objection to the Rehabilitation Plan within 20 days
from receipt of notice from the court that the Rehabilitation Plan
(t) include a certified copy of a certificate of tax clearance or has been submitted for confirmation.
evidence of a compromise settlement with the BIR; Objections to a Rehabilitation Plan shall be limited to the
following:
(u) include a valid and binding resolution of a meeting of the
debtor's stockholders to increase the shares by the required (a) The creditors' support was induced by fraud;
amount in cases where the Plan contemplates an
additional issuance of shares by the debtor; (a) The documents or data relied upon in the Rehabilitation
Plan are materially false or misleading; or
(v) state the compensation and status, if any, of the
rehabilitation receiver after the approval of the Plan; and (b) The Rehabilitation Plan is in fact not supported by the voting
creditors.
(w) contain provisions for conciliation and/or mediation as a
prerequisite to court assistance or intervention in the event Section 67. Hearing on the Objections. - If objections have been
of any disagreement in the interpretation or implementation submitted during the relevant period, the court shall issue an
of the Rehabilitation Plan. order setting the time and date for the hearing or hearings on
the objections.
Section 63. Consultation with Debtor and Creditors. – if the court
gives due course to the petition, the rehabilitation receiver shall If the court finds merit in the objection,  it shall order the
confer with the debtor and all the classes of creditors, and may rehabilitation receiver or other party to cure the defect,
consider their views and proposals ill the review, revision or whenever feasible.
preparation of a new Rehabilitation Plan.
If the court determines that the debtor acted in bad faith, or that
Section 64. Creditor Approval of Rehabilitation Plan. – The it is not feasible to cure the defect,
rehabilitation receiver shall notify the creditors and stakeholders
that the Plan is ready for their examination.  the court shall convert the proceedings into one for the
liquidation of the debtor under Chapter V of this Act.
Within 20 days from the said notification, the rehabilitation
receiver shall convene the creditors, either as a whole or per Section 68. Confirmation of the Rehabilitation Plan. – If
class, for purposes of voting on the approval of the Plan. no objections are filed within the relevant period or, if
objections are filed,
The Plan shall be deemed rejected unless approved by all - the court finds them lacking in merit, or
classes of creditors whose rights are adversely modified or - determines that the basis for the objection has been cured,
affected by the Plan. or
- determines that the debtor has complied with an order to
For purposes of this section, the Plan is deemed to have been cure the objection,
approved by a class of creditors
 the court shall issue an order confirming the Rehabilitation Plan.
 if members of the said class holding more than 50% of the
total claims of the said class vote in favor of the Plan. The votes The court may confirm the Rehabilitation Plan notwithstanding
of the creditors shall be based solely on the amount of their unresolved disputes over claims if the Rehabilitation Plan has
respective claims based on the registry of claims submitted by made adequate provisions for paying such claims.
the rehabilitation receiver pursuant to Section 44 hereof.
For the avoidance of doubt, the provisions of other laws to the
Notwithstanding the rejection of the Rehabilitation Plan, the contrary notwithstanding, the court shall have the power to
court may confirm the Rehabilitation Plan if all of the following approve or implement the Rehabilitation Plan despite the lack of
circumstances are present: approval, or objection from the owners, partners or stockholders
of the insolvent debtor:
(a) The Rehabilitation Plan complies with the requirements
specified in this Act. Provided, That the terms thereof are necessary to restore the
financial well-being and viability of the insolvent debtor.
(b) The rehabilitation receiver recommends the confirmation
Section 69. Effect of Confirmation of the Rehabilitation Plan, - The
of the Rehabilitation Plan;
confirmation of the Rehabilitation Plan by the court shall result in
the following:
(c) The shareholders, owners or partners of the juridical
debtor lose at least their controlling interest as a result of
the Rehabilitation Plan; and
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(a) The Rehabilitation Plan and its provisions shall be binding

upon the debtor and all persons who may be affected by (c) Under the Rehabilitation Plan submitted by the debtor,
it, including the creditors, whether or not such persons have there is no substantial likelihood that the debtor can be
participated in the proceedings or opposed the rehabilitated within a reasonable period;
Rehabilitation Plan or whether or not their claims have been
scheduled; (d) The Rehabilitation Plan or its amendment is approved by the
court but in the implementation thereof, the debtor fails to
(b) The debtor shall comply with the provisions of the perform its obligations thereunder or there is a failure to
Rehabilitation Plan and shall take all actions necessary to realize the objectives, targets or goals set forth therein,
carry out the Plan; including the timelines and conditions for the settlement of
the obligations due to the creditors and other claimants;
(c) Payments shall be made to the creditors in accordance
with the provisions of the Rehabilitation Plan; (e) The commission of fraud in securing the approval of the
Rehabilitation Plan or its amendment; and
(d) Contracts and other arrangements between the debtor
and its creditors shall be interpreted as continuing to apply (f) Other analogous circumstances as may be defined by the
to the extent that they do not conflict with the provisions of rules of procedure.
the Rehabilitation Plan;
Upon a breach of or upon a failure of the Rehabilitation Plan the
(e) Any compromises on amounts or rescheduling of timing of court, upon motion by an affected party may:
payments by the debtor shall be binding on creditors
regardless of whether or not the Plan is successfully (1.) Issue an order directing that the breach be cured within a
implement; and specified period of time, falling which the proceedings may
(f) Claims arising after approval of the Plan that are otherwise be converted to a liquidation;
not treated by the Plan are not subject to any Suspension
Order. (2.) Issue an order converting the proceedings to a liquidation;
The Order confirming the Plan shall comply with Rules 36 of the (3.) Allow the debtor or rehabilitation receiver to submit
Rules of Court: Provided, however, That the court may maintain amendments to the Rehabilitation Plan, the approval of
jurisdiction over the case in order to resolve claims against the which shall be governed by the same requirements for the
debtor that remain contested and allegations that the debtor approval of a Rehabilitation Plan under this subchapter;
has breached the Plan.
(4.) Issue any other order to remedy the breach consistent with
Section 70. Liability of General Partners of a Partnership for
the present regulation, other applicable law and the best
Unpaid Balances Under an Approved Plan. - The approval of the interests of the creditors; or
Plan shall not affect the rights of creditors to pursue actions
against the general partners of a partnership to the extent they
(5.) Enforce the applicable provisions of the Rehabilitation Plan
are liable under relevant legislation for the debts thereof.
through a writ of execution.
Section 71. Treatment of Amounts of Indebtedness or Obligations

Section 75. Effects of Termination. - Termination of the
Forgiven or Reduced. - Amounts of any indebtedness or
proceedings shall result in the following:
obligations reduced or forgiven in connection with a Plan's
approval shall not be subject to any tax in furtherance of the
purposes of this Act. (a) The discharge of the rehabilitation receiver subject to his
submission of a final accounting; and
Section 72. Period for Confirmation of the Rehabilitation Plan. -
The court shall have a maximum period of 1 year from the date (b) The lifting of the Stay Order and any other court order
of the filing of the petition to confirm a Rehabilitation Plan. holding in abeyance any action for the enforcement of a
claim against the debtor.
If no Rehabilitation Plan is confirmed within the said period, the
proceedings may upon motion or motu propio, be converted Provided, however, That if the termination of proceedings is due
into one for the liquidation of the debtor . to failure of rehabilitation or dismissal of the petition for reasons
other than technical grounds,
Section 73. Accounting Discharge of Rehabilitation Receiver. -
 the proceedings shall be immediately converted to
Upon the confirmation of the Rehabilitation Plan, the
liquidation as provided in Section 92 of this Act.
rehabilitation receiver shall provide a final report and
accounting to the court.
CHAPTER III
PRE-NEGOTIATED REHABILITATION
Unless the Rehabilitation Plan specifically requires and describes
the role of the rehabilitation receiver after the approval of the
Section 76. Petition by Debtor. - An insolvent debtor, by itself or
Rehabilitation Plan, the court shall discharge the rehabilitation
jointly with any of its creditors, may file a verified petition with the
receiver of his duties.
court for the approval of a pre-negotiated Rehabilitation Plan
which has been endorsed or approved by
(k) Termination of Proceedings
 creditors holding at least 2/3 of the total liabilities of the
debtor,
Section 74. Termination of Proceedings. - The rehabilitation
proceedings under Chapter II shall, upon motion by any  including secured creditors holding more than 50% of the
stakeholder or the rehabilitation receiver be terminated by order total secured claims of the debtor and
of the court either declaring a successful implementation of the  unsecured creditors holding more 50% of the total unsecured
Rehabilitation Plan or a failure of rehabilitation. claims of the debtor.
There is failure of rehabilitation in the following cases: The petition shall include as a minimum:
(a) Dismissal of the petition by the court; (a) a schedule of the debtor's debts and liabilities;
(b) The debtor fails to submit a Rehabilitation Plan; (b) an inventory of the debtor's assets;
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 the rehabilitation receiver (if applicable),

(c) the pre-negotiated Rehabilitation Plan, including the names  the secured creditor with the largest claim and who supports
of at least 3 qualified nominees for rehabilitation receiver; the Rehabilitation Plan, and
and  the unsecured creditor with the largest claim and who
supports the Rehabilitation Plan.
(d) a summary of disputed claims against the debtor and a
report on the provisioning of funds to account for Section 80. Hearing on the Objections. - After receipt of an
appropriate payments should any such claims be ruled objection, the court shall set the same for hearing.
valid or their amounts adjusted.
The date of the hearing shall be no earlier than 20 days and no
Section 77. Issuance of Order. - Within 5 working days, and after later than 30 days from the date of the second publication of
determination that the petition is sufficient in form and the Order mentioned in Section 77 hereof.
substance, the court shall issue an Order which shall;
If the court finds merit in the objection,
(a) identify the debtor, its principal business of activity/ies and
 it shall direct the debtor, when feasible to cure the detect
its principal place of business; within a reasonable period.
(b) declare that the debtor is under rehabilitation; If the court determines that the debtor or creditors supporting
the Rehabilitation Plan acted in bad faith, or that the objection is
(c) summarize the ground./s for the filling of the petition; non-curable,
 the court may order the conversion of the proceedings into
(d) direct the publication of the Order in a newspaper of liquidation.
general circulation in the Philippines once a week for at
least 2) consecutive weeks, with the first publication to be A finding by the court that the objection has no substantial merit,
made within 7 days from the time of its issuance; or that the same has been cured shall be deemed an approval
of the Rehabilitation Plan.
(e) direct the service by personal delivery of a copy of the
petition on each creditor who is not a petitioner holding at Section 81. Period for Approval of Rehabilitation Plan. - The court
least 10% of the total liabilities of the debtor, as determined shall have a maximum period of 120 days from the date of the
in the schedule attached to the petition, within 3 days; filing of the petition to approve the Rehabilitation Plan.
(f) state that copies of the petition and the Rehabilitation Plan If the court fails to act within the said period, the Rehabilitation
are available for examination and copying by any Plan shall be deemed approved.
interested party;
Section 82. Effect of Approval. - Approval of a Plan under this
chapter shall have the same legal effect as confirmation of a
(g) state that creditors and other interested parties opposing
Plan under Chapter II of this Act.
the petition or Rehabilitation Plan may file their objections or
comments thereto within a period of not later than 20 days
from the second publication of the Order; CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS
(h) appoint a rehabilitation receiver, if provided for in the Plan;
and
(i) include a Suspension or Stay Order as described in this Act. Section 83. Out-of-Court or Informal Restructuring Agreements
and Rehabilitation Plans. - An out-of-curt or informal restructuring
Section 78. Approval of the Plan. - Within 10 days from the date agreement or Rehabilitation Plan that meets the minimum
of the second publication of the Order, the court shall approve requirements prescribed in this chapter is hereby recognized as
the Rehabilitation Plan unless a creditor or other interested party consistent with the objectives of this Act.
submits an objection to it in accordance with the next
succeeding section. Section 84. Minimum Requirements of Out-of-Court or Informal
Restructuring Agreements and Rehabilitation Plans. - For an
Section 79. Objection to the Petition or Rehabilitation Plan. - Any outof-court or informal restructuring/workout agreement or
creditor or other interested party may submit to the court a Rehabilitation Plan to qualify under this chapter, it must meet the
verified objection to the petition or the Rehabilitation Plan not following minimum requirements:
later than 8 days from the date of the second publication of the
Order mentioned in Section 77 hereof. (a) The debtor must agree to the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan;
The objections shall be limited to the following:
(b) It must be approved by creditors representing at least 67%
(a) The allegations in the petition or the Rehabilitation Plan or of the secured obligations of the debtor;
the attachments thereto are materially false or misleading;
(c) It must be approved by creditors representing at least 75%
(b) The majority of any class of creditors do not in fact support of the unsecured obligations of the debtor; and
the Rehabilitation Plan;
(d) It must be approved by creditors holding at least 85% of the
(c) The Rehabilitation Plan fails to accurately account for a total liabilities, secured and unsecured, of the debtor.
claim against the debtor and the claim in not categorically
declared as a contested claim; or Section 85. Standstill Period. - A standstill period that may be
agreed upon by the parties pending negotiation and finalization
(d) The support of the creditors, or any of them was induced by of the out-of-court or informal restructuring/workout agreement
fraud. or Rehabilitation Plan contemplated herein shall be effective
and enforceable not only against the contracting parties but
Copies of any objection to the petition of the Rehabilitation Plan also against the other creditors:
shall be served on
 the debtor, Provided, That
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(a) such agreement is approved by creditors representing more the debtor is seeking immediate dissolution and termination of
than 50% of the total liabilities of the debtor; its corporate existence.
(b) notice thereof is publishing in a newspaper of general
circulation in the Philippines once a week for 2 consecutive If the petition or the motion, as the case may be, is sufficient in
weeks; and form and substance, the court shall issue a Liquidation Order
(c) the standstill period does not exceed one 120 days from the mentioned in Section 112 hereof.
date of effectivity.
Section 91. Involuntary Liquidation. - 3 or more creditors the
The notice must invite creditors to participate in the negotiation aggregate of whose claims is at least either P1M or at least 25%
for out-of-court rehabilitation or restructuring agreement and of the subscribed capital stock or partner's contributions of the
notify them that said agreement will be binding on all creditors if debtor, whichever is higher, may apply for and seek the
the required majority votes prescribed in Section 84 of this Act liquidation of an insolvent debtor by filing a petition for
are met. liquidation of the debtor with the court.
Section 86. Cram Down Effect. - A restructuring/workout The petition shall show that:
agreement or Rehabilitation Plan that is approved pursuant to
an informal workout framework referred to in this chapter shall (a) there is no genuine issue of fact or law on the claims/s of the
have the same legal effect as confirmation of a Plan under petitioner/s, and that the due and demandable payments
Section 69 hereof. thereon have not been made for at least 180 days or that
the debtor has failed generally to meet its liabilities as they
The notice of the Rehabilitation Plan or restructuring agreement fall due; and
or Plan shall be published once a week for at least 3 consecutive
weeks in a newspaper of general circulation in the Philippines. (b) there is no substantial likelihood that the debtor may be
rehabilitated.
The Rehabilitation Plan or restructuring agreement shall take At anytime during the pendency of or after a rehabilitation
effect upon the lapse of 15 days from the date of the last court-supervised or pre-negotiated rehabilitation proceedings, 3
publication of the notice thereof. or more creditors whose claims is at least either P1Mor at least
25% of the subscribed capital or partner's contributions of the
Section 87. Amendment or Modification. - Any amendment of an debtor, whichever is higher, may also initiate liquidation
out-of-court restructuring/workout agreement or Rehabilitation proceedings by filing a motion in the same court where the
Plan must be made in accordance with the terms of the rehabilitation proceedings are pending to convert the
agreement and with due notice on all creditors. rehabilitation proceedings into liquidation proceedings.
Section 88. Effect of Court Action or Other Proceedings. - Any The motion shall be verified, shall contain or set forth the same
court action or other proceedings arising from, or relating to, the matters required in the preceding paragraph, and state that
out-of-court or informal restructuring/workout agreement or the movants are seeking the immediate liquidation of the
Rehabilitation Plan shall not stay its implementation, unless the debtor.
relevant party is able to secure a temporary restraining order or
injunctive relief from the Court of Appeals. If the petition or motion is sufficient in form and substance, the
court shall issue an Order:
Section 89. Court Assistance. - The insolvent debtor and/or
creditor may seek court assistance for the execution or
(1.) directing the publication of the petition or motion in a
implementation of a Rehabilitation Plan under this Chapter,
newspaper of general circulation once a week for two (2)
under such rules of procedure as may be promulgated by the
consecutive weeks; and
Supreme Court.
(2.) directing the debtor and all creditors who are not the
CHAPTER V
petitioners to file their comment on the petition or motion
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
within 15 days from the date of last publication.
Section 90. Voluntary Liquidation. - An insolvent debtor may

If, after considering the comments filed, the court determines
apply for liquidation by filing a petition for liquidation with the
that the petition or motion is meritorious, it shall issue the
court.
Liquidation Order mentioned in Section 112 hereof.
The petition shall be verified, shall establish the insolvency of the

Section 92. Conversion by the Court into Liquidation
debtor and shall contain, whether as an attachment or as part
Proceedings. - During the pendency of court-supervised or
of the body of the petition;
prenegotiated rehabilitation proceedings, the court may order
the conversion of rehabilitation proceedings to liquidation
(a) a schedule of the debtor's debts and liabilities including a
proceedings pursuant to (a) Section 25(c) of this Act; or
list of creditors with their addresses, amounts of claims and
(b) Section 72 of this Act; or
collaterals, or securities, if any;
(c) Section 75 of this Act; or (d) Section 90 of this Act; or at
any other time upon the recommendation of the
(b) an inventory of all its assets including receivables and claims
rehabilitation receiver that the rehabilitation of the debtor is
against third parties; and
not feasible.
(c) the names of at least 3 nominees to the position of Thereupon, the court shall issue the Liquidation Order mentioned
liquidator. in Section 112 hereof.
At any time during the pendency of court-supervised or Section 93. Powers of the Securities and Exchange Commission
prenegotiated rehabilitation proceedings, (SEC). - The provisions of this chapter shall not affect the
» the debtor may also initiate liquidation proceedings by filing a regulatory powers of the SEC under Section 6 of PD No. 902-A, as
motion in the same court where the rehabilitation proceedings amended, with respect to any dissolution and liquidation
are pending to convert the rehabilitation proceedings into proceeding initiated and heard before it.
liquidation proceedings.
CHAPTER VI
» The motion shall be verified, shall contain or set forth the same INSOLVENCY OF INDIVIDUAL DEBTORS
matters required in the preceding paragraph, and state that
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(A) Suspension of Payments.

Section 97. Creditors' Meeting. - The presence of creditors
Section 94. Petition. - An individual debtor who, possessing holding claims amounting to at least 3/5 of the liabilities shall be
sufficient property to cover all his debts but foreseeing the necessary for holding a meeting.
impossibility of meeting them when they respectively fall due,
The commissioner appointed by the court shall preside over the
may file a verified petition that he be declared in the state of meeting and the clerk of court shall act as the secretary thereof,
suspension of payments by the court of the province or city in subject to the following rules:
which he has resides for 6 months prior to the filing of his petition.
(a) The clerk shall record the creditors present and amount of
He shall attach to his petition, as a minimum: their respective claims;
(a) a schedule of debts and liabilities;
(b) an inventory of assess; and (b) The commissioner shall examine the written evidence of the
claims. If the creditors present hold at least three-fifths (3/5)
(c) a proposed agreement with his creditors.
of the liabilities of the individual debtor, the commissioner
shall declare the meeting open for business;
Section 95. Action on the Petition. - If the court finds the petition
sufficient in form and substance, it shall, within 5 working days
from the filing of the petition, issue an Order: (c) The creditors and individual debtor shall discuss the
propositions in the proposed agreement and put them to a
vote;
(a) calling a meeting of all the creditors named in the schedule
of debts and liabilities at such time not less than 15 days nor
more than 40 days from the date of such Order and
(d) To form a majority, it is necessary:
designating the date, time and place of the meeting;
(1.) that 2/3 of the creditors voting unite upon the same
proposition; and
(b) directing such creditors to prepare and present written
evidence of their claims before the scheduled creditors'
meeting; (2.) that the claims represented by said majority vote
amount to at least 3/5 of the total liabilities of the
debtor mentioned in the petition; and
(c) directing the publication of the said order in a newspaper of
general circulation published in the province or city in which
the petition is filed once a week for 2consecutive weeks, (e) After the result of the voting has been announced, all
with the first publication to be made within 7 days from the protests made against the majority vote shall be drawn up,
time of the issuance of the Order; and the commissioner and the individual debtor together
with all creditors taking part in the voting shall sign the
affirmed propositions.
(d) directing the clerk of court to cause the sending of a copy
of the Order by registered mail, postage prepaid, to all
No creditor who incurred his credit within 90 days prior to the
creditors named in the schedule of debts and liabilities;
filing of the petition shall be entitled to vote.
(e) forbidding the individual debtor from selling, transferring,

Section 98. Persons Who May Refrain From Voting. - Creditors
encumbering or disposing in any manner of his property,
who are unaffected by the Suspension Order may refrain from
except those used in the ordinary operations of commerce
attending the meeting and from voting therein.
or of industry in which the petitioning individual debtor is
engaged so long as the proceedings relative to the
Such persons shall not be bound by any agreement determined
suspension of payments are pending;
upon at such meeting, but if they should join in the voting they
shall be bound in the same manner as are the other creditors.
(f) prohibiting the individual debtor from making any payment
outside of the necessary or legitimate expenses of his
Section 99. Rejection of the Proposed Agreement. - The
business or industry, so long as the proceedings relative to
proposed agreement shall be deemed rejected if
the suspension of payments are pending; and
 the number of creditors required for holding a meeting do not
attend thereat, or
(g) appointing a commissioner to preside over the creditors'  the 2 majorities mentioned in Section 97 hereof are not in favor
meeting. thereof.
Section 96. Actions Suspended. - Upon motion filed by the In such instances, the proceeding shall be terminated without
individual debtor, the court may issue an order suspending any recourse and the parties concerned shall be at liberty to enforce
pending execution against the individual debtor. the rights which may correspond to them.
Provided, That properties held as security by secured creditors Section 100. Objections. - If the proposal of the individual debtor,
shall not be the subject of such suspension order. or any amendment thereof made during the creditors' meeting,
is approved by the majority of creditors in accordance with
The suspension order shall lapse when 3 months shall have Section 97 hereof,
passed without the proposed agreement being accepted by
 any creditor who attended the meeting and who dissented
the creditors or as soon as such agreement is denied.
from and protested against the vote of the majority may file
an objection with the court within 10 days from the date of the
No creditor shall sue or institute proceedings to collect his claim
last creditors' meeting.
from the debtor from the time of the filing of the petition for
suspension of payments and for as long as proceedings remain
The causes for which objection may be made to the decision
pending except:
made by the majority during the meeting shall be:
(a) defects in the call for the meeting, in the holding thereof
(a) those creditors having claims for personal labor, and in the deliberations had thereat which prejudice the
maintenance, expense of last illness and funeral of the wife rights of the creditors;
or children of the debtor incurred in the 60 days
(b) fraudulent connivance between one or more creditors and
immediately prior to the filing of the petition; and
the individual debtor to vote in favor of the proposed
agreement; or
(b) secured creditors.
֍614֍ 17 | C o r p o L a w ’ 2 0 1 6
(c) fraudulent conveyance of claims for the purpose of (a) That such person is about to depart or has departed from
obtaining a majority. the Republic of the Philippines, with intent to defraud his
creditors;
The court shall hear and pass upon such objection as soon as
possible and in a summary manner. (b) That being absent from the Republic of the Philippines, with
intent to defraud his creditors, he remains absent;
In case the decision of the majority of creditors to approve the
individual debtor's proposal or any amendment thereof made (c) That he conceals himself to avoid the service of legal
during the creditors' meeting is annulled by the court, the court process for the purpose of hindering or delaying the
shall declare the proceedings terminated and the creditors shall liquidation or of defrauding his creditors;
be at liberty to exercise the rights which may correspond to
them.
(d) That he conceals, or is removing, any of his property to
avoid its being attached or taken on legal process;
Section 101. Effects of Approval of Proposed Agreement. - If the
decision of the majority of the creditors to approve the proposed
(e) That he has suffered his property to remain under
agreement or any amendment thereof made during the
attachment or legal process for three (3) days for the
creditors' meeting is uphold by the court, or when no opposition
purpose of hindering or delaying the liquidation or of
or objection to said decision has been presented, the court shall
defrauding his creditors;
order that the agreement be carried out and all parties bound
thereby to comply with its terms.
(f) That he has confessed or offered to allow judgment in favor
The court may also issue all orders which may be necessary or of any creditor or claimant for the purpose of hindering or
proper to enforce the agreement on motion of any affected delaying the liquidation or of defrauding any creditors or
party. claimant;
The Order confirming the approval of the proposed agreement (g) That he has willfully suffered judgment to be taken against
or any amendment thereof made during the creditors' meeting him by default for the purpose of hindering or delaying the
shall be binding upon all creditors whose claims are included in liquidation or of defrauding his creditors;
the schedule of debts and liabilities submitted by the individual
debtor and who were properly summoned, but not upon: (h) That he has suffered or procured his property to be taken on
(a) those creditors having claims for personal labor, legal process with intent to give a preference to one or
maintenance, expenses of last illness and funeral of the wife more of his creditors and thereby hinder or delay the
or children of the debtor incurred in the 60 days liquidation or defraud any one of his creditors;
immediately prior to the filing of the petition; and
(b) secured creditors who failed to attend the meeting or (i) That he has made any assignment, gift, sale, conveyance or
refrained from voting therein. transfer of his estate, property, rights or credits with intent to
hinder or delay the liquidation or defraud his creditors;
Section 102. Failure of Individual Debtor to Perform Agreement. -
If the individual debtor fails, wholly or in part, to perform the (j) That he has, in contemplation of insolvency, made any
agreement decided upon at the meeting of the creditors, payment, gift, grant, sale, conveyance or transfer of his
 all the rights which the creditors had against the individual estate, property, rights or credits;
debtor before the agreement shall revest in them.
(k) That being a merchant or tradesman, he has generally
In such case the individual debtor may be made subject to the defaulted in the payment of his current obligations for a
insolvency proceedings in the manner established by this Act. period of 30 days;
(B) Voluntary Liquidation. (l) That for a period of 30 days, he has failed, after demand, to
pay any moneys deposited with him or received by him in a
Section 103. Application. - An individual debtor whose properties fiduciary; and
are not sufficient to cover his liabilities, and owing debts
exceeding P500k may apply to be discharged from his debts (m) That an execution having been issued against him on final
and liabilities by filing a verified petition with the court of the judgment for money, he shall have been found to be
province or city in which he has resided for 6 months prior to the without sufficient property subject to execution to satisfy the
filing of such petition. judgment.
He shall attach to his petition a schedule of debts and liabilities The petitioning creditor/s shall post a bond in such as the court
and an inventory of assets. shall direct, conditioned that if the petition for liquidation is
dismissed by the court, or withdrawn by the petitioner, or if the
The filing of such petition shall be an act of insolvency. debtor shall not be declared an insolvent the petitioners will pay
to the debtor all costs, expenses, damages occasioned by the
Section 104. Liquidation Order. - If the court finds the petition proceedings and attorney's fees.
sufficient in form and substance it shall, within 5 working days
issue the Liquidation Order mentioned in Section 112 hereof. Section 106. Order to Individual Debtor to Show Cause. - Upon
the filing of such creditors' petition, the court shall issue an Order
(C) In voluntary Liquidation. requiring the individual debtor to show cause, at a time and
place to be fixed by the said court, why he should not be
Section 105. Petition; Acts of Insolvency. - Any creditor or group adjudged an insolvent.
of creditors with a claim of, or with claims aggregating at least
P500k may file a verified petition for liquidation with the court of Upon good cause shown, the court may issue an Order
the province or city in which the individual debtor resides. forbidding the individual debtor from making payments of any of
his debts, and transferring any property belonging to him.
The following shall be considered acts of insolvency, and the
petition for liquidation shall set forth or allege at least one of such However, nothing contained herein shall affect or impair the
acts: rights of a secured creditor to enforce his lien in accordance
with its terms.
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Section 107. Default. - If the individual debtor shall default or if, be sufficient to cover the damages sustained by him, not to
after trial, the issues are found in favor of the petitioning creditors exceed the amount of the respective bonds.
the court shall issue the Liquidation Order mentioned in Section
112 hereof. Such damages shall be fixed and allowed by the court.
Section 108. Absent Individual Debtor. - In all cases where the If either the petitioners or the debtor shall appeal from the
individual debtor decision of the court, upon final hearing of the petition,
 resides out of the Republic of the Philippines; or has » the appellant shall be required to give bond to the successful
departed therefrom; or party in a sum double the amount of the value of the property
 cannot, after due diligence, be found therein; or in controversy, and for the costs of the proceedings.
 conceals himself to avoid service of the Order to show
cause, or any other preliminary process or orders in the Any person interested in the estate may take exception to the
matter, sufficiency of the sureties on such bond or bonds. When
excepted to the petitioner's sureties, upon notice to the person
then the petitioning creditors, upon submitting the affidavits excepting of not less than 2 nor more than 5 days, must justify as
requisite to procedure an Order of publication, and presenting a to their sufficiency; and
bond in double the amount of the aggregate sum of their claims
against the individual debtor, upon failure to justify, or of others in their place fail to justify at the
time and place appointed
 shall be entitled to an Order of the court directing the sheriff
of the province or city in which the matter is pending to » the judge shall issue an Order vacating the order to take the
take into his custody a sufficient amount of property of the property of the individual debtor into the custody of the sheriff,
individual debtor to satisfy the demands of the petitioning or denying the appeal, as the case may be.
creditors and the costs of the proceedings.
Upon receiving such Order of the court to take into custody of Section 110. Sale Under Execution. - If, in any case, proper
the property of the individual debtor, affidavits and bonds are presented to the court or a judge
thereof, asking for and obtaining an Order of publication and an
 it shall be the duty of the sheriff to take possession of the Order for the custody of the property of the individual debtor
property and effects of the individual debtor, not exempt and thereafter the petitioners shall make it appear satisfactorily
from execution, to the court or a judge thereof that the interest of the parties to
the proceedings will be subserved by a sale thereof,
 to an extent sufficient to cover the amount provided for
» the court may order such property to be sold in the same
and
manner as property is sold under execution, the proceeds to
 to prepare within 3 days from the time of taking such de deposited in the court to abide by the result of the
possession, a complete inventory of all the property so proceedings.
taken, and to return it to the court as soon as
CHAPTER VII
completed.
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF
INDIVIDUAL AND JURIDICAL DEBTORS
The time for taking the inventory and making return thereof may
be extended for good cause shown to the court.
The sheriff shall also prepare a schedule of the names and Section 111. Use of Term Debtor. - For purposes of this chapter,
residences of the creditors, and the amount due each, from the the term debtor shall include both individual debtor as defined in
books of the debtor, or from such other papers or data of the Section 4(o) and debtor as defined in Section 4(k) of this Act.
individual debtor available as may come to his possession, and
shall file such schedule or list of creditors and inventory with the (A) The Liquidation Order.
clerk of court.
Section 112. Liquidation Order. - The Liquidation Order shall:
Section 109. All Property Taken to be Held for All Creditors;
Appeal Bonds; Exemptions to Sureties. - In all cases where
(a) declare the debtor insolvent;
property is taken into custody by the sheriff, if it does not
embrace all the property and effects of the debtor not exempt
(b) order the liquidation of the debtor and, in the case of a
from execution,
juridical debtor, declare it as dissolved;
any other creditor or creditors of the individual debtor, upon
giving bond to be approved by the court in double the amount (c) order the sheriff to take possession and control of all the
of their claims, singly or jointly, property of the debtor, except those that may be exempt
from execution;
» shall be entitled to similar orders and to like action, by the
sheriff; until all claims be provided for, if there be sufficient
property or effects. (d) order the publication of the petition or motion in a
newspaper of general circulation once a week for two (2)
All property taken into custody by the sheriff by virtue of the consecutive weeks;
giving of any such bonds shall be held by him for the benefit of
all creditors of the individual debtor whose claims shall be duly (e) direct payments of any claims and conveyance of any
proved as provided in this Act. property due the debtor to the liquidator;
The bonds provided for in this section and the preceding section (f) prohibit payments by the debtor and the transfer of any
to procure the order for custody of the property and effects of property by the debtor;
the individual debtor shall be conditioned that if, upon final
hearing of the petition in insolvency, the court shall find in favor (g) direct all creditors to file their claims with the liquidator
of the petitioners, such bonds and all of them shall be void; within the period set by the rules of procedure;
if the decision be in favor of the individual debtor, (h) authorize the payment of administrative expenses as they
» the proceedings shall be dismissed, and become due;
» the individual debtor, his heirs, administrators, executors or
assigns shall be entitled to recover such sum of money as shall
֍614֍ 19 | C o r p o L a w ’ 2 0 1 6
(i) state that the debtor and creditors who are not petitioner/s are not barred by the statute of limitations, will be allowed to
may submit the names of other nominees to the position of vote in the election of the liquidator.
liquidator; and
A secured creditor will not be allowed to vote, unless:
(j) set the case for hearing for the election and appointment (a) he waives his security or lien; or
of the liquidator, which date shall not be less than 30 days (b) has the value of the property subject of his security or lien
nor more than 45 days from the date of the last publication. fixed by agreement with the liquidator, and is admitted for
the balance of his claim.
Section 113. Effects of the Liquidation Order. - Upon the issuance
of the Liquidation Order: The creditors entitled to vote will elect the liquidator in open
court.
(a) the juridical debtor shall be deemed dissolved and its
corporate or juridical existence terminated; The nominee  receiving the highest number of votes cast in
terms of amount of claims, and
(b) legal title to and control of all the assets of the debtor,
except those that may be exempt from execution, shall be  who is qualified pursuant to Section 118 hereof, shall
deemed vested in the liquidator or, pending his election or be appointed as the liquidator.
appointment, with the court;
Section 116. Court-Appointed Liquidator. –
(c) all contracts of the debtor shall be deemed terminated The court may appoint the liquidator if:
and/or breached, unless the liquidator, within 90 days from
the date of his assumption of office, declares otherwise and (a) on the date set for the election of the liquidator, the
the contracting party agrees; creditors do not attend;
(d) no separate action for the collection of an unsecured claim (b) the creditors who attend, fail or refuse to elect a liquidator;
shall be allowed.
(c) after being elected, the liquidator fails to qualify; or
Such actions already pending will be transferred to the
Liquidator for him to accept and settle or contest. (d) a vacancy occurs for any reason whatsoever, In any of the
If the liquidator contests or disputes the claim, the court shall cases provided herein, the court may instead set another
allow, hear and resolve such contest except when the case hearing of the election of the liquidator.
is already on appeal. In such a case, the suit may proceed
to judgment, and any final and executor judgment therein Provided further, That nothing in this section shall be construed to
for a claim against the debtor shall be filed and allowed in prevent a rehabilitation receiver, who was administering the
court; and debtor prior to the commencement of the liquidation, from
being appointed as a liquidator.
(e) no foreclosure proceeding shall be allowed for a period
of180 days. Section 117. Oath and Bond of the Liquidator. -Prior to entering
upon his powers, duties and responsibilities, the liquidator shall
Section 114. Rights of Secured Creditors. - The Liquidation Order take an oath and file a bond in such amount to be fixed by the
shall not affect the right of a secured creditor to enforce his lien court, conditioned upon the proper and faithful discharge of his
in accordance with the applicable contract or law. powers, duties and responsibilities.
A secured creditor may: Section 118. Qualifications of the Liquidator. - The liquidator shall
have the qualifications enumerated in Section 29 hereof.
(a) waive his right under the security or lien, prove his claim in
the liquidation proceedings and share in the distribution of He may be removed at any time by the court for cause, either
the assets of the debtor; or motu propio or upon motion of any creditor entitled to vote for
the election of the liquidator.
(b) maintain his rights under the security or lien:
Section 119. Powers, Duties and Responsibilities of the Liquidator.
- The liquidator shall be deemed an officer of the court with the
If the secured creditor maintains his rights under the security or
principal duly of preserving and maximizing the value and
lien:
recovering the assets of the debtor, with the end of liquidating
them and discharging to the extent possible all the claims
(1.) the value of the property may be fixed in a manner agreed
against the debtor.
upon by the creditor and the liquidator. When the value of
the property is less than the claim it secures, the liquidator
The powers, duties and responsibilities of the liquidator shall
may convey the property to the secured creditor and the
include, but not limited to:
latter will be admitted in the liquidation proceedings as a
creditor for the balance.
(a) to sue and recover all the assets, debts and claims,
If its value exceeds the claim secured, the liquidator may
belonging or due to the debtor;
convey the property to the creditor and waive the debtor's
right of redemption upon receiving the excess from the
creditor; (b) to take possession of all the property of the debtor except
property exempt by law from execution;
(2.) the liquidator may sell the property and satisfy the secured
creditor's entire claim from the proceeds of the sale; or (c) to sell, with the approval of the court, any property of the
debtor which has come into his possession or control;
(3.) the secure creditor may enforce the lien or foreclose on the
property pursuant to applicable laws. (d) to redeem all mortgages and pledges, and so satisfy any
judgement which may be an encumbrance on any
property sold by him;
(B) The Liquidator.
(e) to settle all accounts between the debtor and his creditors,
Section 115. Election of Liquidator. - Only creditors who have filed
subject to the approval of the court;
their claims within the period set by the court, and whose claims
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Section 125. - Opposition or Challenge to Claims. - Within 30 days

(f) to recover any property or its value, fraudulently conveyed from the expiration of the period for filing of applications for
by the debtor; recognition of claims, creditors, individual debtors, owner/s of
the sole proprietorship-debtor, partners of the partnership-debtor
(g) to recommend to the court the creation of a creditors' and shareholders or members of the corporation -debtor and
committee which will assist him in the discharge of the other interested parties
functions and which shall have powers as the court deems » may submit a challenge to claim or claims to the court, serving
just, reasonable and necessary; and a certified copy on the liquidator and the creditor holding the
challenged claim.
(h) upon approval of the court, to engage such professional as
may be necessary and reasonable to assist him in the Upon the expiration of the 30-day period, the rehabilitation
discharge of his duties. receiver shall submit to the court the registry of claims containing
the undisputed claims that have not been subject to challenge.
In addition to the rights and duties of a rehabilitation receiver,
the liquidator, shall have the right and duty to take all Such claims shall become final upon the filling of the register and
reasonable steps to manage and dispose of the debtor's assets may be subsequently set aside only on grounds or fraud,
with a view towards maximizing the proceedings therefrom, to accident, mistake or inexcusable neglect.
pay creditors and stockholders, and to terminate the debtor's
legal existence. Other duties of the liquidator in accordance Section 126. Submission of Disputed to the Court. - The liquidator
with this section may be established by procedural rules. shall resolve disputed claims and submit his findings thereon to
the court for final approval. The liquidator may disallow claims.
A liquidator shall be subject to removal pursuant to procedures
for removing a rehabilitation receiver.
Section 120. Compensation of the Liquidator. - The liquidator and (D) Avoidance Proceedings.
the persons and entities engaged or employed by him to assist in
the discharge of his powers and duties shall be entitled to such Section 127. Rescission or Nullity of Certain Transactions. - Any
reasonable compensation as may determined by the liquidation transaction occurring prior to the issuance of the Liquidation
court, which shall not exceed the maximum amount as may be Order or, in case of the conversion of the rehabilitation
prescribed by the Supreme Court. proceedings prior to the commencement date, entered into by
the debtor or involving its assets, may be rescinded or declared
Section 121. Reporting Requirements. - The liquidator shall make null and void
and keep a record of all moneys received and all disbursements
made by him or under his authority as liquidator. on the ground that the same was executed with intent to
defraud a creditor or creditors or which constitute undue
He shall render a quarterly report thereof to the court, which preference of creditors.
report shall be made available to all interested parties. The
liquidator shall also submit such reports as may be required by The presumptions set forth in Section 58 hereof shall apply.
the court from time to time as well as a final report at the end of
the liquidation proceedings. Section 128. Actions for Rescission or Nullity. –
Section 122. Discharge of Liquidator. - In preparation for the final (a) The liquidator or, with his conformity, a creditor may initiate
settlement of all the claims against the debtor , the liquidator will and prosecute any action to rescind, or declare null and
notify all the creditors, either by publication in a newspaper of void any transaction described in the immediately
general circulation or such other mode as the court may direct preceding paragraph.
or allow, that will apply with the court for the settlement of his
account and his discharge from liability as liquidator. If the liquidator does not consent to the filling or prosecution
of such action,
The liquidator will file a final accounting with the court, with proof
» any creditor may seek leave of the court to commence
of notice to all creditors. The accounting will be set for hearing. If
said action.
the court finds the same in order, the court will discharge the
liquidator.
(b) if leave of court is granted under subsection (a) hereof, the
liquidator shall assign and transfer to the creditor all rights,
(C) Determination of Claims
title and interest in the chose in action or subject matter of
the proceeding, including any document in support thereof.
Section 123. Registry of Claims. - Within 20 days from his
assumption into office the liquidator shall prepare a preliminary
(c) Any benefit derived from a proceeding taken pursuant to
registry of claims of secured and unsecured creditors. Secured
subsection (a) hereof, to the extent of his claim and the
creditors who have waived their security or lien, or have fixed the
costs, belongs exclusively to the creditor instituting the
value of the property subject of their security or lien by
proceeding, and the surplus, if any, belongs to the estate.
agreement with the liquidator and is admitted as a creditor for
the balance, shall be considered as unsecured creditors.
(d) Where, before an order is made under subsection (a)
hereof, the liquidator signifies to the court his readiness to
The liquidator shall make the registry available for public
the institute the proceeding for the benefit of the creditors,
inspection and provide publication notice to creditors, individual
debtors owner/s of the sole proprietorship-debtor, the partners of » the order shall fix the time within which he shall do so and,
the partnership-debtor and shareholders or members of the in that case the benefit derived from the proceedings, if
corporation-debtor, on where and when they may inspect it. instituted within the time limits so fixed, belongs to the
estate.
All claims must be duly proven before being paid.
(E) The Liquidation Plan.
Section 124. Right of Set-off. - If the debtor and creditor are
mutually debtor and creditor of each other one debt shall be set Section 129. The Liquidation Plan. - Within 3 months from his
off against the other, and only the balance, if any shall be assumption into office, the Liquidator shall submit a Liquidation
allowed in the liquidation proceedings. Plan to the court.
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The Liquidation Plan shall, as a minimum enumerate all the assets

of the debtor and a schedule of liquidation of the assets and
payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be the

duty of the court, upon petition and after hearing, to exempt
and set apart, for the use and benefit of the said insolvent, such
real and personal property as is by law exempt from execution,
and also a homestead;
but no such petition shall be heard as aforesaid until it is first

proved that notice of the hearing of the application therefor has
been duly given by the clerk,
 by causing such notice to be posted it at least 3 public

places in the province or city at least 10 days prior to the
time of such hearing,
 which notice shall set forth the name of the said insolvent
debtor, and the time and place appointed for the hearing
of such application,
 and shall briefly indicate the homestead sought to be
exempted or the property sought to be set aside;
and the decree must show that such proof was made to the
satisfaction of the court, and shall be conclusive evidence of
that fact.
֍614֍ 22 | C o r p o L a w ’ 2 0 1 6
Section 131. Sale of Assets in Liquidation. - The liquidator may sell (A) Banks and Other Financial Institutions Under Rehabilitation
the unencumbered assets of the debtor and convert the same Receivership Pursuant to a State-funded or State-mandated
into money. Insurance System.
The sale shall be made at public auction. Section 137. Provision of Assistance. - The court shall issue orders,
adjudicate claims and provide other relief necessary to assist in
However, a private sale may be allowed with the approval of the liquidation of a financial under rehabilitation receivership
the court if; established by a state-funded or state-mandated insurance
(a) the goods to be sold are system.
 of a perishable nature, or
Section 138. Application of Relevant Legislation. - The liquidation
 are liable to quickly deteriorate in value, or
of bank, financial institutions, insurance companies and preneed
 are disproportionately expensive to keep or maintain;
companies shall be determined by relevant legislation. The
or
provisions in this Act shall apply in a suppletory manner.
(b) the private sale is for the best interest of the debtor and
his creditors.
(B) Cross-Border Insolvency Proceedings.
With the approval of the court, unencumbered property of the

debtor may also be conveyed to a creditor in satisfaction of his Section 139. Adoption of Uncitral Model Law on Cross-Border
claim or part thereof. Insolvency. - Subject to the provision of Section 136 hereof and
the rules of procedure that may be adopted by the Supreme
Section 132. manner of Implementing the Liquidation Plan. – Court, the Model Law on Cross-Border Insolvency of the United
Nations Center for International Trade and Development is
The Liquidator shall implement the Liquidation Plan as approved hereby adopted as part of this Act.
by the court.
Section 140. Initiation of Proceedings. - The court shall set a
Payments shall be made to the creditors only in accordance hearing in connection with an insolvency or rehabilitation
with the provisions of the Plan. proceeding taking place in a foreign jurisdiction, upon the
submission of a petition by the representative of the foreign
entity that is the subject of the foreign proceeding.
Section 133. Concurrence and Preference of Credits. - The
Liquidation Plan and its Implementation shall ensure that the
concurrence and preference of credits as enumerated in the Section 141. Provision of Relief. - The court may issue orders:
Civil Code of the Philippines and other relevant laws shall be
observed, unless a preferred creditor voluntarily waives his (a) suspending any action to enforce claims against the entity
preferred right. or otherwise seize or foreclose on property of the foreign
entity located in the Philippines;
For purposes of this chapter, credits for services rendered by
employees or laborers to the debtor shall enjoy first preference (b) requiring the surrender property of the foreign entity to the
under Article 2244 of the Civil Code, unless the claims constitute foreign representative; or
legal liens under Article 2241 and 2242 thereof.
(c) providing other necessary relief.
Section 134. Order Removing the Debtor from the List of
Registered Entitles at the Securities and Exchange Commission. – Section 142. Factors in Granting Relief. - In determining whether
to grant relief under this subchapter, the court shall consider;
Upon determining that the liquidation has been completed
according to this Act and applicable law, the court shall issue an (a) the protection of creditors in the Philippines and the
Order approving the report and ordering the SEC to remove the inconvenience in pursuing their claim in a foreign
debtor from the registry of legal entities. proceeding;
Section 135. Termination of Proceedings. - Upon receipt of (b) the just treatment of all creditors through resort to a unified
evidence showing that the debtor has been removed from the insolvency or rehabilitation proceedings;
registry of legal entities at the SEC, the court shall issue an Order
terminating the proceedings.
(c) whether other jurisdictions have given recognition to the
foreign proceeding;
(F) Liquidation of a Securities Market Participant.
(d) the extent that the foreign proceeding recognizes the rights
Section 136. Liquidation of a Securities Market Participant. - The of creditors and other interested parties in a manner
foregoing provisions of this chapter shall be without prejudice to substantially in accordance with the manner prescribed in
the power of a regulatory agency or self- regulatory organization this Act; and
to liquidate trade-related claims of clients or customers of a
securities market participant which, for purposes of investor (e) the extent that the foreign proceeding has recognized and
protection, shown deference to proceedings under this Act and
» are hereby deemed to have absolute priority over other previous legislation.
claims of whatever nature or kind insofar as trade-related
assets are concerned. CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND
For purposes of this section, trade -related assets include
 cash,
 securities,
 trading right and
 other owned and used by the securities market participant in
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR
REHABILITAION PROCEEDINGS
֍614֍ 23 | C o r p o L a w ’ 2 0 1 6
CONTROLLED CORPORATIONS Section 149. Separability Clause. - If any provision of this Act shall
the ordinary course of this business.
Section 143. Funds for Rehabilitation of Government -owned and
Controlled Corporations. - Public funds for the rehabilitation of
GOCCs shall be released only pursuant to
 an appropriation by Congress and
 shall be supported by funds actually available as certified by be held invalid, the remainder of this Act not otherwise affected
the National Treasurer. shall remain in full force effect
The Department of Finance, in collaboration with the Section 150. Effectivity Clause. - This Act shall take 15 days after
Department of Budget and Management, shall promulgate the its complete publication in the Official Gazette or in at least 2
rules for the use and release of said funds. national newspaper of general circulation.
CHAPTER X Philippine Star - August 16, 2010

MISCELLANEOUS PROVISIONS
Section 144. Applicability of Provisions. - The provisions in Chapter

II, insofar as they are applicable, shall likewise apply to
proceedings in Chapters II and IV.
Section 145. Penalties. - An owner, partner, director, officer or

other employee of the debtor who commits any one of the
following acts shall, upon conviction thereof, be punished by a
 fine of not more than P1M and
 imprisonment for not less than 3 months nor more than 5
years for each offense;
(a) if he shall,
 having notice of the commencement of the
proceedings, or
 having reason to believe that proceedings are about to
be commented, or
 in contemplation of the proceedings hide or conceal, or
destroy or cause to be destroyed or hidden any property
belonging to the debtor or
 if he shall hide, destroy, after mutilate or falsify, or cause
to be hidden, destroyed, altered, mutilated or falsified,
any book, deed, document or writing relating thereto;
if he shall, with intent to defraud the creditors of the debtor,

make any payment sale, assignment, transfer or
conveyance of any property belongings to the debtor
(b) if he shall, having knowledge belief of any person having

proved a false or fictitious claim against the debtor, fail to
disclose the same to the rehabilitation receiver of liquidator
within 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.
֍614֍ 24 | C o r p o L a w ’ 2 0 1 6

An Act Providing For The Rehabilitation or Liquidation of Financially Distressed Enterprises and Individuals

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An Act Providing For The Rehabilitation or Liquidation of Financially Distressed Enterprises and Individuals

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RA 10142__ Financial Rehabilitation and Insolvency Act (FRIA)

(c) Claim shall refer to all claims or demands of whatever

(y) Ordinary course of business shall refer to transactions in

(ee) Property of others shall refer to property held by the

Provided, That gov’t financial institutions other than banks and

(a) there was commingling in fact of assets and liabilities of

(mm) Securities market participant shall refer to a broker dealer,

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

(qq) Unsecured creditor shall refer to a creditor with an

(e) Other information that may be required under this Act

Section 13. Circumstances Necessary to Initiate Involuntary

(a) there is no genuine issue of fact on law on the claim/s of the

(e) to the actions of a licensed broker or dealer to sell pledged

Section 29.Qualifications of a Rehabilitation Receiver. - The

(c) Has the requisite knowledge of insolvency and other

a. To implement the Rehabilitation Plan as approved by

Section 35.Vacancy. - Incase the position of rehabilitation

Section 39.Employment of Professionals. - Upon approval of the

Such professionals and other experts shall be considered either

The qualifications and disqualifications of the professionals and

Section 50. Sale or Disposal of Encumbered Property of the

(c) provides security or additional security executed within 90

(b) enter into credit arrangements, secured by mortgages of its

(c) incur other obligations as may be essential for its

Section 56. Treatment of Employees, Claims— Compensation of

(i) Administration of Proceedings.

(a) specify the underlying assumptions, the financial goals and

the debtor or the rehabilitation receiver  to make

(o) identify those responsible for the future management of the

(a) The Rehabilitation Plan and its provisions shall be binding

Section 71. Treatment of Amounts of Indebtedness or Obligations

 the rehabilitation receiver (if applicable),

Section 90. Voluntary Liquidation. - An insolvent debtor may

The petition shall be verified, shall establish the insolvency of the

(A) Suspension of Payments.

(e) forbidding the individual debtor from selling, transferring,

Section 125. - Opposition or Challenge to Claims. - Within 30 days

The Liquidation Plan shall, as a minimum enumerate all the assets

Section 130. Exempt Property to be Set Apart. - It shall be the

but no such petition shall be heard as aforesaid until it is first

 by causing such notice to be posted it at least 3 public

With the approval of the court, unencumbered property of the

CHAPTER X Philippine Star - August 16, 2010

Section 144. Applicability of Provisions. - The provisions in Chapter

Section 145. Penalties. - An owner, partner, director, officer or

if he shall, with intent to defraud the creditors of the debtor,

(b) if he shall, having knowledge belief of any person having

if he shall attempt to account for any of the debtors

(c) if he shall knowingly violate a prohibition or knowingly fail to

Section 146. Application to Pending Insolvency, Suspension of

All further proceedings in insolvency, suspension of payments

Section 147. Application to Pending Contracts. - This Act shall

Section 148. Repeating Clause. - The Insolvency Law (Act No.

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