FINANCIAL REHABILITATION & INSOLVENCY ACT

FINANCIAL REHABILITATION AND INSOLVENCY ACT (RA No. 10142)

DECLARATION OF POLICY: It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to
collectively and realistically resolve and adjust competing claims and property rights. In furtherance thereof, the State shall ensure a timely, fair,
transparent, effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made with a view to ensure or
maintain certainly and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor
rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is
in the interest of the State to facilities a speedy and orderly liquidation of these debtor's assets and the settlement of their obligations. (Section 2)

NATURE OF PROCEEDINGS:
1. In rem. Meaning it is a proceeding which binds the whole world.
2. Jurisdiction over all persons affected shall be acquired upon publication of the notice of commencement in a newspaper of general
circulation in the Philippines.
3. Proceedings shall be summary and non-adversarial. (Section 3)

PURPOSE:
1. To encourage debtors and creditors to collectively and realistically resolve and adjust competing claims and property rights through
rehabilitation
2. If not feasible, to facilitate speedy and orderly liquidation of debtor’s assets and the settlement of their obligations.

DEBTORS: as defined under the law are insolvent:

1. Sole proprietorship registered with the DTI;
2. Partnership registered with the SEC
3. Corporations organized and existing under the laws of the Philippines; or
4. Individual debtors which are natural persons who are residents and citizens of the Philippines.

GROUP OF DEBTORS: refer to:

1. Financially related corporations – parent, subsidiary or affiliates
2. Partnerships – more than 50% of which is owned by the same person
3. Single Proprietorships – owned by the same individual

EXCLUDED DEBTORS: Banks, pre-need companies, insurance companies and government agencies or units – governed by their respective
special laws.

INSOLVENT: shall refer to the financial condition of a debtor that is generally

1. Unable to pay its or his liabilities as they fall due; or
2. Has liabilities greater than its or his assets

CREDITORS: include natural or juridical persons which has a claim against the debtor that arose on or before commencement date, which can
either be secured or unsecured.
1. Unsecured creditors are those whose claim or a portion thereof is neither secured, preferred nor subordinated
2. Secured creditors are those whose claims are secured by a lien (either by law, agreement or by judicial judgment) which legally entitles a
creditor to resort the property subject of a lien for payment of his claim. Example: loan secured by a mortgage. Lien of workers and
suppliers on inventory. Attachment issued by the court.

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

PROCEEDINGS COVERED BY THE PRIA:

1. Rehabilitation – voluntary or involuntary
2. Pre-negotiated rehabilitation
3. Liquidation – voluntary or involuntary
4. Suspension of payments

I. SUSPENSION OF PAYMENTS

This involves calling the creditors to a meeting to propose and agree on a schedule of payments and to prevent the debtor from making any
payment outside the necessary or legitimate expenses of the business, and the issuance of a suspension order to prevent pending executions
against the debtor.
COVERAGE: only INDIVIDUAL DEBTORS (no partnerships/corporations)
FEATURES:
1. The debtor has sufficient properties to cover all his debts but he foresees the impossibility of meeting his debts when they respectively
fall due.
2. The purpose is to suspend or delay the payment of debts.
3. The amount of indebtedness is not affected (not reduced or discharged).
4. The number of creditors is immaterial
DISTINCTION WITH REHABILITATION:

SUSPENSION OF PAYMENTS REHABILITATION

Applies only to individual debtors Applies to business organizations also
Debtor has sufficient assets to cover its liabilities Debtor is insolvent
Secured debtors are not affected Secured debtors are affected by stay order
Filed by the debtor Maybe filed by creditors
No minimum requirement for the amount of claims When creditors file, the claims must be:
1. at least 1M or
2. at least 25% of the subscribed capital stock or partners’
contribution, whichever is higher

SUSPENSION ORDER: Upon motion filed by the individual debtor, the court may issue an order suspending any pending execution against
the individual debtor.

As a rule, no creditor shall sue or institute to collect his claim from the debtor from the time of the filing of the petition for suspension of
payments and for as long as the proceedings remain pending. Exceptions:
1. Those creditors having claims for:
a. Personal labor
b. Maintenance
c. Expense of last illness and funeral of the wife or children of the debtor If incurred

in the 60 days immediately prior to the filing of the petition

2. Secured creditors

The suspension order shall lapse when 3 months shall have passed without the proposed agreement being accepted by the creditors or as soon
as such agreement is denied.

PROHIBITED ACTS OF THE DEBTOR: after filing and during pendency, the debtor cannot:
1. Sell, transfer, encumber or dispose in any manner his property, except those used in the ordinary operations of commerce or industry in
which the petitioning individual is engaged
2. Making any payment outside of the necessary or legitimate expenses of his business or industry

CREDITORS’ MEETING: the debtor shall attach to his petition a proposed agreement with creditors, which shall be approved
in a creditors’ meeting.
1. Quorum: presence of creditors holding at least 3/5 of the liabilities of the debtor.
2. Approval: double majority is required:
a. 2/3 of the creditors voting; and
b. Claims of the majority vote amount to at least 3/5 of the total liabilities

A creditor whose claim is incurred within 90 days prior to the filing of the petition for suspension is not entitled to vote.

Creditors not affected by the suspension order may refrain from attending the meeting and voting therein and he shall not be bound by any
agreement determined in the meeting. However, if they should join in the voting they shall be bound in the same manner as are other
creditors.

3. Disapproval – the proceedings shall be terminated and the creditors shall be at liberty to enforce their rights.

II. REHABILITATION

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

TYPES OF REHABILITATION:
1. Voluntary – initiated by the debtor, upon showing that:
a. The debtor is insolvent; and
b. The viability of rehabilitation

Who will file?

Sole proprietorship Owner/proprietor

Partnership Majority of partners
Corporation Majority of the directors or trustees; AND
Stockholders representing 2/3 of outstanding capital/members of non-stock corporation

2. Involuntary – initiated by the creditor or group of creditors, if:

a. There is no genuine issue of fact or law on the claim/s of the petitioner/s;
b. No payments on the due and demandable debts have been made for at least 60 days;
c. or that the debtor has failed generally to meet its liabilities as they fall due; or
d. a creditor, other than petitioner/s has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its
debts as they become due or will render it insolvent.

Who will file? Creditors with claims or aggregate of whose claim is at least P1M or 25% of the subscribed capital stock
or partners’ contributions, whichever is higher
COMMENCEMENT/STAY ORDER: the court shall issue a Commencement Order which shall include a Stay Order, which shall:
1. Suspend all actions or proceedings, in court or otherwise for the enforcement of claims against the debtor;
2. Suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor;
3. Prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of
business;
4. Prohibit the debtor from making any payment of its liabilities outstanding as of commencement date except as may be provided for by law.
Commencement Date: the date when the court issues the Commencement Order retroactive to the date of filing of the petition for voluntary or
involuntary proceedings.

The Commencement Order is issued within 5 days from the filing of the petition.

Duration: the entire duration of the rehabilitation proceeding but may be lifted if there is no substantial likelihood for the debtor to be successfully
rehabilitated.

CLAIMS: refer to all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise,
liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, including but not limited to: (1) claims of the
government; and (2) claims against directors and officers of the debtor arising from acts done in the discharge of their functions falling within the
scope of their authority.

Creditors/third parties are not prohibited from filing cases against the directors and officers acting in their personal capacities.

EFFECT OF STAY ORDER ON SECURED CREDITS: the preference of creditors is retained, but the enforcement of such preference is
suspended.

EXCEPTIONS TO THE STAY ORDER:

1. Cases already pending appeal in the SC as of commencement date.
2. Cases pending or filed at a specialized court or quasi-judicial agency.
3. Enforcement of claims against sureties and other persons solidarily liable with the debtor, and third party or accommodation mortgagors as
well as issuers of letters of credit, unless the property subject of the third party or accommodation mortgage is necessary for the rehabilitation
of the debtors.
4. Any form of action of customers or clients of a securities market participant to recover or otherwise claim moneys and securities entrusted
to the latter in the ordinary course of the latter’s business as well as any action of such securities market participant or the appropriate
regulatory agency or self-regulatory organization to pay or settle such claims or liabilities.
5. Actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin agreement for the
settlement of securities transactions
6. The clearing and settlement of financial transactions through facilities of a clearing agency or similar entities, as well as any form of actions
of such agencies or entities to reimburse themselves for any transactions settled for the debtor.
7. Any criminal action against individual debtor or owner, partner, director, or officer of a debtor shall not be affected by any proceeding
commenced under the FRIA.

COURT ACTION: Upon filing of the petition for rehabilitation, the court may:
1. Give due course to the petition if:
a. The debtor is insolvent; and
b. There is substantial likelihood for the debtor to be successfully rehabilitated
2. Deny the petition, if any of the following are present:
a. When the debtor is not insolvent;
b. The petition is a sham filing intended only to delay the enforcement of the rights of the creditors
c. The petition/rehabilitation plan/and the attachments are materially false or misleading statements; or
d. The debtor has committed acts of misrepresentation in fraud of creditors
3. Covert the proceedings to liquidation – there is no substantial likelihood for the debtor to be successfully rehabilitated

WHO WILL MANAGE THE BUSINESS OF THE DEBTOR: during the rehabilitation proceeding, the management shall be done by the:
1. Existing Board and/or management; or
2. Upon motion, the court may appoint:
a. Rehabilitation Receiver; or
b. Management Committee

GROUNDS FOR APPOINTMENT OF A REHABLITATION RECEIVER/MANAGEMENT COMMITTEE:

1. Actual or eminent danger of dissipation, loss, wastage or destruction of the debtor’s assets or properties;
2. Paralyzation of the business operations of the debtor; or
3. (a) Gross mismanagement of the debtor, or (b) fraud or (c) other wrongful conduct on the part of, or gross or willful violation of the FRIA by
existing management of the debtor, owner, partner, director, officer of representative/s in the management of the debtor.

REHABILITATION RECEIVER: appointed by the court with the principal duty of:
1. Preserving the value of the assets of the debtor during the rehabilitation proceedings,
2. Determining the viability of the rehabilitation of the debtor,
3. Preparing and recommending a Rehabilitation Plan to the court, and
4. Implementing the approved Rehabilitation Plan.

Qualifications:
1. Citizen of the Philippines
2. Resident of the Philippines in the 6 months immediately preceding the nomination
3. Has the requisite knowledge of insolvency and commercial laws
4. No conflict of interest
MANAGEMENT COMMITTEE: when appointed by the court, shall take the place of the management and the governing body of the debtor and
assume their rights and responsibilities.

CREDITORS’ COMMITTEE: creditors belonging to a class may formally organize a committee, or as a body create a committee composed of each
class of creditors, such as:
1. Secured creditors;
2. Unsecured creditors
3. Trade creditors and suppliers; and
4. Employees of the debtor.

The ROLE of the creditors’ committee is to assist the rehabilitation receiver in communicating with the creditors and shall be the primary liaison
between the rehabilitation receiver and the creditors

They cannot exercise or waive any right or give any consent on behalf of any creditor unless specifically authorized in writing by such creditor.
ACTS OF DEBTORS/OWNERS/PARTNERS/DIRECTORS OR OFFICERS which may subject him/them to liability:
1. Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve any
transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
2. Conceal or authorize or approve concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.

Extent of Liability: whichever is higher between:

1. Double the value of the property sold, embezzled or disposed; or
2. Double the value of the transaction involved

REHABILITATION PLAN – a plan by which the financial well-being and viability of an insolvent debtor can be restored using various means
including, but not limited to:
1. Debt forgiveness;
2. Debt rescheduling;
3. Reorganization or quasi-reorganization;
4. Dacion en pago;
5. Debt-equity conversion; and
6. Sale of the business (or parts of it) as a going concern; or
7. Setting up of new business entity; or
8. Other similar arrangements,

As may be approved by the court or creditors.

Approval required:
1. Creditors representing more than 50% of total claims and the confirmation of the court; or
2. The court even without approval of the creditors or even over the objections of the creditors, in the following cases:
a. The Rehabilitation Plan complies with the requirements of the FRIA;
b. The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
c. The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as a result of the Rehabilitation Plan;
and
d. The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which has a net present value greater
than that which they would have received if the debtor were under liquidation.

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

Objection of creditors: may be filed within 20 days from receipt of notice from the court that the Rehabilitation Plan has been submitted for
confirmation, on the following grounds:
1. The creditors’ support was induced by fraud;
2. Documents or data relied upon in the plan are materially false or misleading; or
3. The plan is in fact not supported by the voting creditors.

Confirmation of the Rehabilitation Plan: the court shall issue an order confirming the Rehabilitation Plan if:
1. No objections are filed within the relevant period or,
2. If objections are filed, the court finds them lacking in merit, or
3. The court determines that the basis for the objection has been cured, or d
4. The court determines that the debtor has complied with an order to cure the objection.

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

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

Period of Confirmation: must be within 1 year from the date of filing the petition.

If no plan is confirmed within the said period, the proceedings may upon motion, or motu propio, be converted into one for the liquidation of the
debtor.
Cram Down Effect: the rehabilitation plan approved by the court shall be binding upon the:
1. Debtor and
2. All persons who may be affected by it, including creditors, whether or not such persons:
a. have participated in the proceedings,
b. opposed the plan, or
c. whether or not the claims have been scheduled.

III. PRE-NEGOTIATED (OUT-OF-COURT) REHABILITATION

REQUIREMENTS:
1. The debtor must agree to the out-of-court or informal restructuring/workout agreement or rehabilitation plan;
2. Approved by creditors:
a. Representing at least 67% of the secured obligations;
b. Representing at least 75% of the unsecured obligations; and
c. Holding at least 85% of the total liabilities, secured and unsecured

STANDSTILL PERIOD: A standstill period that may be agreed upon by the parties pending negotiation and finalization of the out-of-court or
informal restructuring/workout agreement or Rehabilitation Plan and it shall be effective and enforceable not only against the contracting parties
but also against the other creditors, if:
1. Such agreement is approved by creditors representing more than fifty percent (50%) of the total liabilities of the debtor;
2. Notice thereof is publishing in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; and
3. The standstill period does not exceed one hundred twenty (120) days from the date of effectivity.

The notice must invite creditors to participate in the negotiation for out-of-court rehabilitation or restructuring agreement and notify them that said
agreement will be binding on all creditors if the required majority votes are met.

CRAM DOWN EFFECT: A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant to an informal workout framework
shall have the same legal effect as confirmation of a Plan as earlier discussed.

Publication requirement: The notice of the Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at least three
(3) consecutive weeks in a newspaper of general circulation in the Philippines.

Effectivity: The Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days from the date of the last
publication of the notice thereof

IV. LIQUIDATION

Liquidation is the proceeding where:

1. Claims are filed; and
2. The assets of the insolvent debtor are disposed; and the
3. Proceeds are divided among the creditors.

LIQUDATOR: is one appointed by the court who will facilitate the liquidation proceedings. He may likewise be appointed by the creditors who have
filed their claims within the period set by court.

LIQUIDATION VS. SUSPENSION OF PAYMENTS

SUSPENSION OF PAYMENTS LIQUIDATION

Debtor has sufficient assets to cover liabilities Debtor is already insolvent
Payment of obligations is stayed Obligations are discharged
Applies only to individual debtors Also applies to business organizations
Filed by the debtor May be initiated by the creditors
No minimum amount of liabilities Debt of the individual must be at least P500,000 in
voluntary liquidation and more than P500,000 in
involuntary liquidation
Rules on concurrence and preference of credits DO NOT apply Applicable

SIMILARITIES BETWEEN VOLUNTARY AND INVOLUNTARY LIQUIDATION:

1. Debtor is insolvent
2. P500,000 – is the qualifying amount:
a. More than P500,000 – for voluntary liquidation
b. At least P500,000 – for involuntary liquidation

DIFFERENCE BETWEEN VOLUNTARY AND INVOLUNTARY LIQUIDATION

VOLUNTARY INVOLUNTARY
Acts of insolvency need not be alleged and proved Creditors must prove acts of insolvency*
The individual debtor files the petition A creditor or group of creditors files the petition
The debtor is not absent as he is the one who files the Apples even in the case of an absent debtor (one who resides or has departed
petition from the Philippines, cannot be found or conceals himself)
Posting of bond by creditors not required Posting of bond by creditors is required
Liquidation order issued without trial Liquidation order issued only after trial
Number of creditors immaterial Must be 3 or more creditors whose claim is at least P1M or at least 25% of the
subscribed capital stock or partners’ contributions, whichever is higher. (same
with rehabilitation)
*ACTS OF INSOLVENCY:
(a) That such person is about to depart or has departed from the Republic of the Philippines, with intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his creditors, he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying the liquidation or of defrauding his
creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken on legal process;
(e) That he has suffered his property to remain under attachment or legal process for three (3) days for the purpose of hindering or
delaying the liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or delaying the
liquidation or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose of hindering or delaying the liquidation or of
defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to give a preference to one or more of his creditors
and thereby hinder or delay the liquidation or defraud any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or credits with intent to hinder or delay
the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or transfer of his estate, property, rights or
credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his current obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited with him or received by him in a fiduciary;
and
(m) That an execution having been issued against him on final judgment for money, he shall have been found to be without sufficient property
subject to execution to satisfy the judgment

CONVERSION BY THE COURT INTO LIQUIDATION PROCEEDINGS: During the pendency of court-supervised or pre- negotiated
rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings, in the following cases:
1. When a petition for rehabilitation is filed and it is established that the debtor is indeed insolvent but there is no substantial likelihood for the
debtor to be successfully rehabilitated.
2. If no rehabilitation plan is confirmed within a period of 1 year from the filing of the petition for rehabilitation.
3. Failure of rehabilitation or dismissal of the petition for rehabilitation on technical grounds; or
4. Upon filing of the verified motion of the debtor during the pendency of the court-supervised or pre-negotiated rehabilitation proceedings.

Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.

LIQUIDATION ORDER: includes, among others:

(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except those that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to the liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the rules of procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of other nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date shall not be less than thirty (30) days nor more than
forty-five (45) days from the date of the last publication

RIGHTS OF SECURED CREDITORS: the liquidation order will not affect the right of a secured creditor to enforce his lien in accordance with the
applicable contract or law. He may:
1. waive his right under the security or lien, prove his claim in the liquidation proceedings and share in the distribution of assets of the debtor;
or
2. Maintain his rights under the security or lien. In which case:
a. The value of the property may be fixed in a manner agreed upon by the creditor and the liquidator.
i. Value is less than the claim – the liquidator may convey the property to the creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance
ii. Value exceeds the claim – the liquidator may convey the property to the creditor and waive the debtor’s right of
redemption upon receiving the excess from the creditor.
b. The liquidator may sell the property and satisfy the secured creditor’s entire claim from the proceeds of the sale; or
c. The secured creditor may enforce the lien and foreclose on the property pursuant to applicable laws.

LIQUIDATOR:

Election of Liquidator: Only creditors who have filed their claims within the period set by the court, and whose claims are not barred by the statute
of limitations, will be allowed to vote in the election of the liquidator.

A secured creditor will not be allowed to vote, unless:

a) he waives his security or lien; or
b) has the value of the property subject of his security or lien fixed by agreement with the liquidator, and is admitted for the balance of his
claim.

The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the highest number of votes cast in terms of amount of
claims, and who is qualified shall be appointed as the liquidator.
Court-Appointed Liquidator: The court may appoint the liquidator if:
a. on the date set for the election of the liquidator, the creditors do not attend;
b. the creditors who attend, fail or refuse to elect a liquidator;
c. after being elected, the liquidator fails to qualify; or
d. a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court may instead set another hearing of the election of
the liquidator.

A rehabilitation receiver, who was administering the debtor prior to the commencement of the liquidation, may also be appointed as a liquidator.

Qualifications of the Liquidator: The liquidator shall have the qualifications enumerated above for rehabilitation receivers.

Removal: He may be removed at any time by the court for cause, either motu propio or upon motion of any creditor entitled to vote for the
election of the liquidator.

DETERMINATION OF CLAIMS

Registry of Claims: Within twenty (20) days from his assumption into office the liquidator shall prepare a preliminary registry of claims of
secured and unsecured creditors.

Secured creditors who have waived their security or lien, or have fixed the value of the property subject of their security or lien by agreement with
the liquidator and is admitted as a creditor for the balance, shall be considered as unsecured creditors.

The liquidator shall make the registry available for public inspection and provide publication notice to creditors, individual debtors owner/s of the
sole proprietorship-debtor, the partners of the partnership-debtor and shareholders or members of the corporation-debtor, on where and when
they may inspect it. All claims must be duly proven before being paid.

Right of Set-off: If the debtor and creditor are mutually debtor and creditor of each other one debt shall be set off against the other, and only the
balance, if any shall be allowed in the liquidation proceedings.

Opposition or Challenge to Claims: Within thirty (30 ) days from the expiration of the period for filing of applications for recognition of claims,
creditors, individual debtors, owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and shareholders or members of the
corporation -debtor and other interested parties may submit a challenge to claim or claims to the court, serving a certified copy on the liquidator
and the creditor holding the challenged claim. Upon the expiration of the
(30) day period, the rehabilitation receiver shall submit to the court the registry of claims containing the undisputed claims that have not been
subject to challenge. Such claims shall become final upon the filling of the register and may be subsequently set aside only on grounds or fraud,
accident, mistake or inexcusable neglect.

Submission of Disputed Claims to the Court: The liquidator shall resolve disputed claims and submit his findings thereon to the court for final
approval. The liquidator may disallow claims.

THE LIQUIDATION PLAN: Within three (3) months from his assumption into office, the Liquidator shall submit a Liquidation Plan to the
court. The Liquidation Plan shall, as a minimum enumerate:
1. All the assets of the debtor
2. A schedule of liquidation of the assets and
3. Payment of the claims.

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 three (3) public places in the province or city at least ten (10) days prior to the time of such hearing,
which notice shall set forth the name of the said insolvent debtor, and the time and place appointed for 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.

Sale of Assets in Liquidation: The liquidator may sell the unencumbered assets of the debtor and convert the same into money.

General Rule: The sale shall be made at public auction.

Exceptions: A private sale may be allowed with the approval of the court if;
a) the goods to be sold are of a perishable nature, or are liable to quickly deteriorate in value, or are disproportionately expensive to
keep or maintain; or
b) the private sale is for the best interest of the debtor and his creditors.

With the approval of the court, unencumbered property of the debtor may also be conveyed to a creditor in satisfaction of his claim or part thereof.

Order Removing the Debtor from the List of Registered Entitles at the Securities and Exchange Commission: Upon determining that the
liquidation has been completed, the court shall issue an Order approving the report and ordering the SEC to remove the debtor from the registry
of legal entities.

Termination of Proceedings: Upon receipt of evidence showing that the debtor has been removed from the registry of legal entities at the SEC.
The court shall issue an Order terminating the proceedings.