IBT Finals Notes - FRIA PDF

Chapter I: General Provisions Section 1: Title Known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010. Section 2: Declaration of Policy Objective: Encourage debtors and creditors to resolve competing claims and property rights collectively. State's Role:...

Chapter I: General Provisions Section 1: Title Known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010. Section 2: Declaration of Policy Objective: Encourage debtors and creditors to resolve competing claims and property rights collectively. State's Role: ○ Ensure timely, fair, and efficient rehabilitation or liquidation. ○ Maintain certainty in commercial affairs. ○ Preserve debtor assets' value and respect creditor rights. ○ Facilitate speedy liquidation when rehabilitation isn't feasible. Section 3: Nature of Proceedings In Rem: Jurisdiction over all affected persons starts when the notice is published in a newspaper. Conduct: Proceedings are summary, non-adversarial, and follow rules set by the Supreme Court. Section 4: Definition of Terms Administrative Expenses: Include necessary expenses related to: ○ Filing a petition, conducting proceedings, and rehabilitating or liquidating the debtor. ○ Fees for rehabilitation receiver or liquidator and other authorized expenses. Affiliate: Corporation controlled by another corporation directly or through intermediaries. Claim: Any demand against the debtor, including government taxes, customs duties, or claims against directors/officers in their capacity. Commencement Date: Date of court-issued Commencement Order, retroactive to petition filing. Commencement Order: Court's order under Section 16 marking the start of proceedings. Control: Power to direct policies of another enterprise, typically through ownership or agreements.  Court: Court designated by the Supreme Court to hear cases under this Act. Creditor: Person with a claim against the debtor before the commencement date. Date of Liquidation: Date of court-issued Liquidation Order. Debtor: A sole proprietorship, partnership, corporation, or individual who is insolvent. Encumbered Property: Property with a lien attached. General Unsecured Creditor: Creditor whose claim is neither secured, preferred, nor subordinated. Group of Debtors: Corporations, partnerships, or proprietorships with financial ties (e.g., parent, subsidiaries, affiliates). Insolvent: Unable to pay liabilities when due or has liabilities greater than assets. Insolvent Debtor's Estate: All assets of the debtor at the commencement date, including those acquired during proceedings. Involuntary Proceedings: Proceedings initiated by creditors. Liabilities: Monetary claims against the debtor, including stockholder advances. Lien: Claim on property securing a debt. Liquidation: Proceedings under Chapter V for asset distribution. Liquidation Order: Court order under Section 112 for liquidation. Liquidator: Court-appointed person or entity handling liquidation. Officer: Person in a management position within a corporation, excluding corporate secretary and external auditor. Ordinary Course of Business: Transactions in the debtor's regular business operations prior to insolvency. Ownership Interest: Ownership held by third parties in debtor property. Parent: Corporation with control over another corporation. Party to the Proceedings: Includes the debtor, creditors, unsecured creditors' committee, stakeholders, and others affected by the proceedings. Possessory Lien: Lien based on the creditor’s possession of property. Proceedings: Judicial actions initiated by filing a petition under this Act. Property of Others: Property in which third parties have ownership interests. Publication Notice: Notice published for two consecutive weeks in a newspaper. Rehabilitation: Process to restore debtor's solvency, often involving debt restructuring or reorganization. Rehabilitation Receiver: Court-appointed person handling the debtor's rehabilitation. Rehabilitation Plan: A plan to restore the debtor’s financial well-being, including measures like debt forgiveness, reorganization, or business sale. Secured Claim: Claim backed by a lien. Secured Creditor: Creditor with a secured claim. Secured Party: Party holding a secured claim. Securities Market Participant: Broker, dealer, or other entities involved in securities trading. Stakeholder: Entity with an interest in the debtor, including shareholders, members, or partners. Subsidiary: Corporation controlled by a parent corporation owning more than 50% of its voting stock.  Unsecured Claim: Claim not secured by a lien. Unsecured Creditor: Creditor with an unsecured claim. Voluntary Proceedings: Proceedings initiated by the debtor. Voting Creditor: Creditor whose approval is needed for a Rehabilitation Plan. Section 5: Exclusions Debtors Excluded from the Act: ○ Banks: Under conservatorship, receivership, or liquidation under the New Central Bank Act (Republic Act No. 7653). ○ Insurance Companies: Subject to insolvency proceedings under the Insurance Code (Presidential Decree No. 1460). ○ Pre-need Companies: Corporations selling or offering pre-need plans. ○ Government Agencies: National and local government agencies or units are excluded, except government financial institutions not classified as banks and government-owned corporations (unless their charter states otherwise). Section 6: Designation of Courts and Procedural Rules Supreme Court's Role: ○ Designates courts to hear and resolve cases under the Act. ○ Promulgates procedural rules for pleading, practice, and proceedings under this Act. Section 7: Substantive and Procedural Consolidation Separate Entities: Each juridical entity is considered separate under the proceedings. Commingling Assets: Assets and liabilities of the debtor can be aggregated with a related enterprise only if: ○ Commingling occurred before proceedings. ○ Common creditors exist, and it’s more efficient to treat them together. ○ The related enterprise agrees to join and commingle its assets. ○ Consolidation benefits all parties and promotes rehabilitation objectives. Court's Discretion: Courts can join other affiliated entities under the prescribed rules. Section 8: Decisions of Creditors Decision Making: ○ Stock or nonstock corporations: Follow provisions of the Corporation Code.  ○ Partnerships: Follow the Civil Code. ○ Any decisions must not contradict provisions of this Act. Section 9: Creditors' Representatives Representation: Creditors can designate representatives to: ○ Vote or act on their behalf. ○ Notify the court and the rehabilitation receiver or liquidator of such representation. Section 10: Liability of Debtors, Owners, Partners, Directors, and Officers Liabilities: ○ Individuals (debtors, sole proprietors, partners, directors, officers) will be liable for double the value of the disposed property or double the amount of the transaction, whichever is higher. ○ Liable if: They dispose of property outside ordinary business practices. They authorize transactions to defraud creditors or disadvantage the debtor/creditors. They conceal, embezzle, or misappropriate debtor’s property. Court's Role: ○ Determine the extent of liability based on: Shareholding, partnership, or equity interest. Degree of control and involvement in managing the debtor's operations. Section 11: Authorization to Exchange Debt for Equity Banks' Ability to Acquire Equity: ○ Banks can acquire equity interests or investments in a debtor or its subsidiaries to satisfy debts. ○ Conditions: Acquisition must be part of an approved Rehabilitation or Liquidation Plan. Subject to ownership limits for universal banks. Banks must dispose of any equity investment within 5 years or as prescribed by the Monetary Board. CHAPTER II: Court-Supervised Rehabilitation A) Initiation Proceedings (1) Voluntary Proceedings Section 12: Petition to Initiate Voluntary Proceedings by Debtor Approval Process: ○ Sole Proprietorship: Owner approval. ○ Partnership: Majority of partners. ○ Corporation: Majority vote of the board of directors and 2/3 of stockholders. ○ Non-stock Corporation: 2/3 of members. Petition Requirements: ○ Debtor Identification: Name, activities, and addresses. ○ Insolvency Statement: Cause and fact of insolvency. ○ Relief Sought: Specify the desired relief under the Act. ○ Grounds for Petition: State the basis for the petition. ○ Debts and Liabilities: Schedule with creditor details. ○ Assets: Inventory, including receivables and claims. ○ Rehabilitation Plan: Detailed plan for rehabilitation. ○ Nominees: List at least three nominees for the rehabilitation receiver. ○ Additional Documents: Attach documents required by the Act and rules. Group Petitions: Multiple debtors can jointly file if financial distress affects multiple members. (2) Involuntary Proceedings Section 13: Circumstances for Involuntary Proceedings Eligibility: Any creditor or group of creditors with at least: ○ Php 1,000,000 in claims, or ○ 25% of the subscribed capital stock/partners’ contributions. Grounds for Petition: ○ Unpaid Debts: Payments overdue by 60+ days, or failure to meet liabilities. ○ Foreclosure Proceedings: Another creditor’s foreclosure affecting the debtor’s ability to pay or leading to insolvency. Section 14: Petition to Initiate Involuntary Proceedings Petition Requirements: ○ Debtor Identification: Name, activities, and address. ○ Circumstances for Petition: Basis for initiating involuntary proceedings. ○ Relief Sought: Specify the desired relief under the Act. ○ Rehabilitation Plan: Include the plan for rehabilitation.  ○ Nominees: At least three nominees for the rehabilitation receiver. ○ Additional Documents: Attach required documents as per the Act and rules. B) Action on the Petition and Commencement of Proceedings Section 15: Action on the Petition Court Decision: ○ If the petition is sufficient, the court issues a Commencement Order within 5 working days. ○ If deficient, the court may allow time for amendment or submission of additional documents, starting the 5-day period from the submission of amendments. Section 16: Commencement of Proceedings and Issuance of a Commencement Order Commencement Order: ○ Debtor Identification: Name, activities, and place of business. ○ Grounds for Proceedings: Summarize reasons for initiating proceedings. ○ Relief Sought: State the relief under the Act. ○ Legal Effects: Outline the effects of the order (Section 17). ○ Rehabilitation Declaration: Declare that the debtor is under rehabilitation. ○ Publication: Publish the order in a newspaper for two consecutive weeks. ○ Creditor Notification: Serve a copy to creditors holding at least 10% of total liabilities. ○ Rehabilitation Receiver Appointment: Appoint a receiver (can be from nominees). ○ Claim Filing: Set deadlines for creditors to submit claims. ○ BIR Notification: Direct the Bureau of Internal Revenue to file comments or claims. ○ Suppliers’ Obligation: Prohibit suppliers from withholding goods/services if payments are made post-order. ○ Payment of Administrative Expenses: Authorize payment of due administrative expenses. ○ Initial Hearing: Set within 40 days to assess rehabilitation likelihood. ○ Access to Documents: Make the petition and rehabilitation plan available for review. ○ Nominee Submission: Allow nominations for the rehabilitation receiver. ○ Stay or Suspension Order: Suspend actions to enforce claims or judgments. Prevent the sale, transfer, or disposal of assets outside ordinary business. Prohibit payments on outstanding liabilities unless allowed by the order. Section 17: Effects of the Commencement Order The Commencement Order, issued by the court, has the following effects in addition to the Stay or Suspension Order: Rehabilitation Powers: ○ Grants the rehabilitation receiver the authority to review and obtain the debtor's records (including bank accounts) with court approval of a performance bond. Nullifies Extrajudicial Actions: ○ Invalidates any attempts to seize, sell, encumber property, or collect claims against the debtor after the commencement date, unless allowed by the Act. Nullifies Setoff: ○ Any setoff of debts owed to the debtor by creditors after the commencement date is rendered void. Nullifies Perfection of Liens: ○ The perfection of any liens against the debtor's property after the commencement date is invalidated. Consolidation of Legal Proceedings: ○ All legal proceedings by and against the debtor are consolidated in the court handling the rehabilitation. ○ The court may allow cases already initiated in other courts to continue. Indirect Contempt: ○ Attempting legal actions outside the proceedings can result in a finding of indirect contempt of court. Section 18: Exceptions to the Stay or Suspension Order The Stay or Suspension Order does not apply to the following: Pending Cases in the Supreme Court: ○ Cases pending appeal in the Supreme Court before the commencement date are not affected. ○ Any final and executory judgment will be referred to the court for further action. Specialized Courts/Quasi-Judicial Agencies: ○ If a case is pending in a specialized court or agency, the court may allow that case to proceed if it can resolve the claim more efficiently. ○ Final judgments from these courts will be treated as non-disputed claims. Claims Against Sureties or Solidary Liabilities: ○ Claims against sureties, solidarily liable persons, or third-party mortgagors are not suspended unless the mortgaged property is crucial for the debtor's rehabilitation. Securities Market Claims: ○ Claims by customers or clients of securities market participants (e.g., to recover money or securities) are not affected.  ○ Actions by securities market participants or regulators to settle such claims are also not affected. Broker Actions: ○ Licensed brokers or dealers can sell pledged securities of the debtor to settle transactions as per the Securities Regulation Code. Clearing and Settlement of Financial Transactions: ○ Financial transactions cleared through authorized clearing agencies (e.g., BSP, SEC) are not affected. ○ Clearing agencies or entities can reimburse themselves for settled transactions involving the debtor. Criminal Actions: ○ Criminal actions against individual debtors or responsible officers are not affected by the rehabilitation proceedings. Section 19: Waiver of Taxes and Fees Upon the issuance of the Commencement Order, all taxes, fees, penalties, interests, and charges owed to the national government or local government units (LGUs) are waived. This waiver remains until: ○ The rehabilitation plan is approved, or ○ The petition is dismissed. Section 20: Application of Stay or Suspension Order to Government Financial Institutions The Stay or Suspension Order applies to government financial institutions, even if their charters or other laws contradict this. The order suspends the rights of government financial institutions to foreclose or pursue other legal remedies during rehabilitation proceedings. Section 21: Effectivity and Duration of Commencement Order The Commencement Order remains effective throughout the rehabilitation proceedings unless lifted by the court. The court will assess if the debtor has a substantial likelihood of successful rehabilitation, ensuring the following minimum requirements: ○ Compliance of the Rehabilitation Plan: The proposed Rehabilitation Plan must meet the minimum prescribed contents. ○ Monitoring by the Rehabilitation Receiver:  There should be sufficient oversight of the debtor's business to protect creditors. ○ Creditor Engagement: The debtor should have met with creditors to discuss and reach consensus on the Rehabilitation Plan, as reasonably possible. ○ Rehabilitation Receiver's Report: The receiver must submit a report confirming: 1. Sufficient assets for rehabilitation. 2. Adequate cash flow to maintain operations. 3. Good faith and due diligence by the debtor's management. 4. The petition is not a sham to delay creditors’ rights. 5. The debtor has a realistic chance to implement a viable Rehabilitation Plan. ○ Truthful Petitions and Plans: The petition and Rehabilitation Plan must not contain false or misleading statements. ○ Good Faith Effort to Reach Consensus: The debtor must meet with creditors representing at least 75% of its total obligations, making good faith efforts to reach consensus. If the petitioner is a creditor, they must also meet the debtor to reach a consensus. ○ No Fraud or Misrepresentation: The debtor must not have engaged in fraud or misrepresentation with creditors. Section 22: Action at the Initial Hearing At the initial hearing, the court will: Determine Creditors' Claims: ○ Identify creditors who have filed notices of claims timely and properly. Evaluate the Rehabilitation Receiver's Qualifications: ○ Hear objections to the qualifications of the rehabilitation receiver and appoint a new one if necessary. Direct Creditor Comments: ○ Direct creditors to comment on the petition and the Rehabilitation Plan, submitting their comments within 20 days. Rehabilitation Receiver's Evaluation: ○ Direct the receiver to evaluate the debtor’s financial condition and submit a report within 40 days of the initial hearing. Section 23: Effect of Failure to File Notice of Claim  A creditor whose claim is not listed and fails to file a notice of claim as required by the Commencement Order: ○ Cannot participate in the rehabilitation proceedings. ○ Is still entitled to receive distributions from the rehabilitation. Section 24: Report of the Rehabilitation Receiver The rehabilitation receiver must submit a report within 40 days from the initial hearing, regardless of creditor comments. The report should cover: ○ Debtor's Insolvency: Confirm if the debtor is insolvent and the causes, including any unlawful or irregular actions by the debtor's management contributing to insolvency. ○ Realism of Rehabilitation Plan: Evaluate if the assumptions, financial goals, and procedures in the Rehabilitation Plan are realistic, feasible, and reasonable. ○ Likelihood of Successful Rehabilitation: Assess if there is a substantial likelihood that the debtor can be successfully rehabilitated. ○ Recommendation for Dismissal: Recommend whether the petition should be dismissed. ○ Recommendation for Liquidation: Suggest if the debtor should be dissolved or liquidated. Section 25: Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings The court has 10 days from receiving the rehabilitation receiver's report to decide whether to: ○ Give Due Course to the Petition if: Debtor is insolvent. There is a substantial likelihood the debtor can be successfully rehabilitated. ○ Dismiss the Petition if: Debtor is not insolvent. The petition is a sham to delay creditor rights. The petition, Rehabilitation Plan, or attachments contain false or misleading statements. The debtor has committed fraud or misrepresentation against creditors. ○ Convert to Liquidation Proceedings if: Debtor is insolvent.  There is no substantial likelihood of successful rehabilitation (based on Supreme Court rules). Section 26: Petition Given Due Course If the petition is given due course, the court will: ○ Direct the rehabilitation receiver to review and revise the Rehabilitation Plan. ○ The receiver must submit a revised or new plan within 90 days. The court may refer any disputes related to the plan to arbitration or other alternative dispute resolution methods if they will resolve the issue more efficiently, as per Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004). Section 27: Dismissal of Petition If the petition is dismissed (Section 25b), the court may: ○ Order the petitioner to pay damages to any party (creditor or debtor) injured by the petition's filing, as appropriate. Section 28: Who May Serve as a Rehabilitation Receiver Any qualified person (natural or juridical) may serve as the rehabilitation receiver. ○ If a juridical entity serves as the receiver, it must designate a natural person representative. ○ The juridical entity and its representative are jointly liable for the receiver's obligations and responsibilities. Section 29: Qualifications of a Rehabilitation Receiver The rehabilitation receiver must meet the following qualifications: Citizenship or Residency: ○ Must be a Philippine citizen or a resident for the last 6 months. Good Moral Character: ○ Must possess integrity, impartiality, and independence. Relevant Knowledge and Experience: ○ Must have knowledge of insolvency and commercial laws and relevant training or experience for the role.  No Conflict of Interest: ○ The receiver must have no conflict of interest. Conflicts may be waived by the parties affected. Additional qualifications and disqualifications will be specified in procedural rules, based on the debtor's business and the need to protect all stakeholders. Section 30: Initial Appointment of the Rehabilitation Receiver The court initially appoints the rehabilitation receiver; it may or may not be from the petitioner's nominees. At the initial hearing: ○ Creditors and the debtor (if not petitioners) can nominate other candidates for the role. ○ The court may retain or change the appointed receiver based on these nominations. Special consideration for securities market participants: ○ Priority is given to the nominee of the appropriate securities or investor protection fund. Creditor Nomination: ○ If over 50% of secured creditors and general unsecured creditors nominate a person, and evidence is satisfactory, the court must appoint the creditors' nominee as the receiver. Section 31: Powers, Duties, and Responsibilities of the Rehabilitation Receiver The rehabilitation receiver is an officer of the court and primarily responsible for: ○ Preserving and maximizing the debtor's asset value. ○ Determining the viability of rehabilitation. ○ Preparing and recommending the Rehabilitation Plan. ○ Implementing the approved Rehabilitation Plan. Key Powers and Duties: ○ Verify the accuracy of the petition and its annexes. ○ Verify and correct the debtor's asset inventory and debt schedule. ○ Evaluate the validity and amount of all claims against the debtor. ○ Take possession of debtor’s property, preserving its value. ○ Sue and recover assets or amounts owed to the debtor (court approval required). ○ Access all relevant business information for rehabilitation. ○ Sue and recover fraudulent or preferential transfers (court approval required). ○ Monitor debtor's operations to prevent non-business-related payments or transfers.  ○ Engage services of other persons/entities to assist, with court approval. ○ Review, revise, or recommend actions on the Rehabilitation Plan and submit it to the court. ○ Implement the approved Rehabilitation Plan. ○ Assume management powers of the debtor if directed by the court (Section 36). ○ Report on status of rehabilitation every quarter or as required by the court. Limitations: ○ The receiver does not take control of debtor’s management unless directed by the court under Section 36. ○ May recommend a management committee if needed. Section 32: Removal of the Rehabilitation Receiver The court may remove the receiver anytime: ○ Motu proprio (on its own motion) or upon motion by creditors holding over 50% of total obligations. Grounds for Removal: ○ Incompetence, gross negligence, or failure to perform duties. ○ Lack of required specialized competency. ○ Illegal acts or misconduct in the performance of duties. ○ Qualification issues or presence of disqualifications. ○ Conflict of interest arising post-appointment. ○ Lack of independence harming the stakeholders' interests. Section 33: Compensation and Terms of Service The rehabilitation receiver and their direct employees or independent contractors are entitled to reasonable compensation: ○ Paid by the debtor based on court approval after a hearing. ○ Before the hearing, they can receive compensation on a quantum meruit (reasonable value for services). These compensation costs are administrative expenses. Section 34: Oath and Bond of the Rehabilitation Receiver The rehabilitation receiver must: ○ Take an oath to faithfully perform their duties.  ○ File a bond, with an amount set by the court, to ensure proper discharge of responsibilities. Section 35: Vacancy If the rehabilitation receiver's position becomes vacant for any reason: ○ The court directs the debtor and creditors to submit nominees for the role. ○ The court may appoint any of the qualified nominees or other suitable candidates for the position. Section 36: Displacement of Existing Management by the Rehabilitation Receiver or Management Committee Court Appointment: The court may appoint the rehabilitation receiver to take over management or appoint a management committee to manage the debtor. Conditions for Appointment: ○ Clear evidence of: 1. Imminent danger to debtor’s assets. 2. Paralyzed business operations. 3. Gross mismanagement or fraud by existing management. Court’s Authorization: ○ If the rehabilitation receiver assumes management powers, the court may: 1. Require additional bond. 2. Authorize the receiver to hire personnel or entities to help with management duties. 3. Increase the receiver's compensation as appropriate. Section 37: Role of the Management Committee The management committee assumes the responsibilities and rights of the debtor's original management and governing body. Powers and duties of the management committee are outlined in the procedural rules. Management committee members are considered officers of the court. Section 38: Qualifications of Members of the Management Committee The qualifications and disqualifications of the management committee members are defined in procedural rules.  Criteria consider the debtor's business type and the need to protect stakeholder interests. Section 39: Employment of Professionals Court approval is required for the rehabilitation receiver or management committee to hire specialized professionals or experts. Role of professionals: ○ These professionals may be employed as employees or independent contractors. Qualifications and disqualifications for professionals are set in procedural rules, focusing on business nature and stakeholder protection. Section 40: Conflict of Interest Restrictions on Appointments: ○ No one with a conflict of interest can be appointed as a rehabilitation receiver or member of the management committee. Criteria for Conflict of Interest: ○ A conflict exists if the individual is: A creditor, owner, partner, or stockholder of the debtor. Engaged in a competing business. A former officer, director, or employee of the debtor or creditors within a specific time frame. A related party (up to the 4th degree of consanguinity/affinity). Has direct or indirect material interest in the debtor or creditors. Disclosure of Conflict: ○ Conflicted individuals must disclose the conflict to the court or creditors. ○ Waiver: Affected parties may waive objections to the conflict, but if unreasonably withheld, the court may disregard the conflict considering the stakeholders' interests. Section 41: Immunity Immunity for Actions in Good Faith: ○ The rehabilitation receiver, the management committee, and their employees are immune from legal action for acts done in good faith in their roles, including actions approved by the court. Section 42: Creditors' Committee Formation: ○ After the creditors’ meeting, creditors from various classes (secured, unsecured, trade creditors, employees) may form a creditors’ committee. ○ The rehabilitation receiver or representative will assist in the formation and election of the committee. Section 43: Role of the Creditors' Committee The creditors’ committee assists the rehabilitation receiver in communication and acts as the liaison between the receiver and creditors. Limitations: ○ The committee cannot act on behalf of creditors unless specifically authorized. ○ The court or rehabilitation receiver may grant the committee additional duties to facilitate the rehabilitation process. (D) Determination of Claims Section 44: Registry of Claims Timeline: Within 20 days of assuming office, the rehabilitation receiver must establish a preliminary registry of claims. Public Access: ○ The registry must be available for public inspection. ○ A notice must be provided to the debtor, creditors, and stakeholders, detailing where and when they can inspect the registry. Supporting Evidence: All claims listed in the registry must have sufficient supporting evidence. Section 45: Opposition or Challenge of Claims Challenge Period: ○ Interested parties (debtor, creditors, stakeholders) have 30 days after the registry publication to challenge claims. ○ Challenges are submitted to the court with a certified copy sent to the rehabilitation receiver and the creditor holding the challenged claim. Final Submission: After 30 days, the rehabilitation receiver submits the final registry of undisputed claims to the court. Section 46: Appeal  Appeals Process: Any party can appeal the rehabilitation receiver's decision on a claim to the court. (E) Governance Section 47: Management Existing Management: Unless stated otherwise, the current management of the debtor remains in place, subject to applicable laws and agreements. Approval Requirements: ○ Disbursements, payments, property sales, transfers, etc., require approval from the rehabilitation receiver or the court. (F) Use, Preservation, and Disposal of Assets Section 48: Use or Disposition of Assets General Rule: ○ Debtor’s funds or property cannot be used or disposed of outside normal business operations, unless necessary for administrative expenses in the rehabilitation process. Section 49: Sale of Assets Court Approval for Sale: ○ The court may approve the sale of unencumbered property outside the ordinary course of business. ○ Approval is granted if the property is perishable, costly to maintain, or in jeopardy. Section 50: Sale or Disposal of Encumbered Property Court Approval Required: ○ The court can authorize the sale or disposal of encumbered property (or third-party property held by the debtor). ○ Conditions: 1. Necessary for business operation. 2. Substitute lien or security arrangement is made to protect creditors' interests. Trust Receipt/Consignment: ○ Property subject to trust receipt or consignment may be sold if necessary for the debtor's business, with a substitute lien arrangement.  No Criminal Liability: ○ Sales under this section will not incur criminal liability. Section 51: Assets Held by Third Parties Third-Party Possession: 1. If third parties possess or control debtor’s assets, they cannot dispose of them without prior approval from the rehabilitation receiver. Receiver's Actions: 1. Demand property surrender or transfer to the receiver. 2. Allow third parties to retain possession if it benefits the property’s value. 3. Other dispositions beneficial to the debtor’s rehabilitation, with court approval. Section 52: Rescission or Nullity of Sale, Payment, Transfer, or Conveyance of Assets Invalid Transactions: ○ The court may rescind or nullify any sale, payment, or transfer of debtor's property after the commencement date, if not in the ordinary course of business. Conditions for Valid Sale: ○ Sales or encumbrances may be allowed under court order if: 1. Facilitates Rehabilitation Plan. 2. Provides a substitute lien for creditors. 3. Pays administrative expenses. 4. Pays victims of quasi delicts if the claim is valid. 5. Repurchases debtor property sold in auction. 6. Reclaims property under possessory lien arrangements. (G) Avoidance Proceedings Section 53: Assets Subject to Rapid Obsolescence, Depreciation, and Diminution of Value Court Order: ○ The court may order the debtor or rehabilitation receiver to take action to prevent depreciation of assets subject to rapid obsolescence or devaluation. If Depreciation Can't Be Prevented: ○ The court can authorize actions to protect secured creditors or property interests, including: 1. Foreclosure: Allowing secured creditors to foreclose on property as per the agreement, with sale proceeds distributed according to credit priority rules. 2. Conveyance of Substitute Property: With the secured creditor's consent, the court may order a conveyance of substitute property, if the debtor has available property.  3. Lien on Residual Funds: The court may convey a lien on remaining funds from the sale of encumbered property. 4. Sale or Disposition of Property: The court may allow the sale if it maximizes the value of the property, benefiting both the debtor and the creditor. Section 54: Post-commencement Interest Interest Determination: The interest rate and term on secured and unsecured claims will be set in the approved Rehabilitation Plan. Section 55: Post-commencement Loans and Obligations Approval of Post-commencement Obligations: 1. The debtor may enter into credit arrangements or incur obligations to enhance rehabilitation with court approval and the rehabilitation receiver's recommendation. Types of Credit Arrangements: 1. Unsecured credit. 2. Secured credit with mortgages on unencumbered or secondary mortgages on encumbered property. 3. Other obligations essential for rehabilitation. Payment Treatment: Payments for these obligations will be treated as administrative expenses. Section 56: Treatment of Employees and Claims Employee Compensation: ○ Salaries and compensation of employees required for continuing business operations will be treated as administrative expenses. Separation Pay: ○ Claims for separation pay for work before the commencement date are considered pre-commencement claims. ○ Claims for work performed after the commencement date will be considered administrative expenses. Section 57: Treatment of Contracts Validity of Contracts: ○ All existing contracts at the commencement date will remain in force unless terminated by a final judgment or court order. Confirmation of Contracts: ○ Within 90 days of the commencement, the debtor, with the receiver's consent, must notify counter-parties whether each contract is confirmed. ○ Unconfirmed contracts will be considered terminated.  ○ Claims arising from contract termination will be treated as pre-commencement claims. Contract Cancellation: ○ The debtor can cancel contracts based on valid legal grounds. (G) Avoidance Proceedings (continued) Section 58: Rescission or Nullity of Certain Pre-commencement Transactions Grounds for Rescission: ○ A transaction can be rescinded if it was intended to defraud creditors or constitutes an undue preference. Presumed Fraudulent Transactions: ○ Inadequate consideration given to the debtor within 90 days before the commencement date. ○ Accelerated payments made to creditors within the same period. ○ New or additional security granted to creditors within 90 days. ○ Transactions where a creditor received more than its fair share of debtor’s assets. ○ Transactions intended to delay or hinder creditor claims, making debtor assets unreachable. Other Grounds: The court can rescind transactions on other legal grounds or under the Civil Code provisions on rescission. Section 59: Actions for Rescission or Nullity Initiating Legal Action: ○ The rehabilitation receiver or any creditor (with the receiver’s consent) may initiate action to rescind or declare a transaction null and void. Court Approval: ○ If the receiver refuses to pursue the action, the creditor can get court approval to initiate it. ○ The receiver will transfer all rights to the creditor for the legal action if approved. Benefit from Rescission: ○ Any benefits from the rescission go to the creditor pursuing the action, but any surplus belongs to the debtor's estate. Receiver's Role: ○ If the receiver expresses readiness to take legal action, the court will set a deadline for the receiver to initiate the proceeding. If done within the deadline, the benefits belong to the debtor’s estate. (H) Treatment of Secured Creditors Section 60: No Diminution of Secured Creditor Rights Impact of Commencement or Stay Orders: ○ Commencement Order and Stay Order do not diminish or impair the security or lien of secured creditors. ○ These orders suspend the right to enforce security or lien during the Stay Order term. Enforcement of Security or Lien: ○ The court can allow a secured creditor to enforce their security or lien, or foreclose on the debtor’s property if the property is not necessary for the debtor’s rehabilitation. Admittance to Rehabilitation Proceedings: ○ Secured creditors (and other lien holders) are admitted to the rehabilitation proceedings only for the balance of their claim, if any. Section 61: Lack of Adequate Protection Court's Role: ○ The court can terminate, modify, or set conditions for the suspension of payment if there’s a lack of adequate protection for a secured creditor’s claim. Conditions for Lack of Protection: ○ A creditor lacks adequate protection if: 1. Failure to Honor Agreement: The debtor does not maintain the insurance as agreed with the creditor. 2. Failure to Maintain Property: The debtor does not take reasonable steps to maintain the property. 3. Depreciation: The property has depreciated to the point where the creditor is undercollateralized (i.e., the lien is not fully secured). Court Orders: ○ If the creditor lacks protection, the court may order: 1. Insurance or Maintenance: The debtor or rehabilitation receiver must arrange insurance or property maintenance. 2. Additional or Replacement Security: The debtor may need to make payments or provide alternative security to ensure the obligation is fully secured. Modification of Stay Order: ○ If adequate protection arrangements are not feasible, the court may modify the Stay Order to allow the creditor to enforce its security claim. ○ However, if the property is necessary for rehabilitation, the court may deny the creditor’s enforcement remedies. (i) Administration of Proceedings Section 62: Contents of a Rehabilitation Plan The Rehabilitation Plan must include, at a minimum, the following: Underlying Assumptions and Financial Goals: ○ Specify the assumptions, financial goals, and proposed procedures to achieve these goals. Comparison of Creditors' Receivables: ○ Compare amounts creditors will receive under the plan vs. what they would receive if liquidation occurs within the next 120 days. Information for Creditors: ○ Provide information for creditors to determine if supporting the plan is financially beneficial, including: Reduction of principal, interest, and penalties. Classes and Subclasses of Voting Creditors: ○ Establish classes of creditors who can vote on the plan. ○ Establish subclasses of creditors if court approval is granted. Debtor’s Rehabilitation Strategy: ○ Indicate the methods of rehabilitation, which may include: Debt forgiveness, debt rescheduling, or reorganization. Debt-equity conversion, sale of business parts, or establishment of a new entity. Treatment of Creditors: ○ Specify how each class/subclass of creditors will be treated under the plan. Equal Treatment of Claims: ○ Ensure equal treatment for all claims within the same class/subclass, unless a creditor agrees to less favorable treatment. Priority of Payments: ○ Payments must follow the priority established by law (e.g., Civil Code on concurrence and preference of credits). Preservation of Security Interests: ○ Maintain the security interest of secured creditors and preserve the liquidation value of the security unless waived or modified. Disclosure of Pre-Commencement Payments: ○ Disclose all payments to creditors for pre-commencement debts during the proceedings with justifications. Disputed Claims and Provisioning: ○ Describe disputed claims and provisions for funding payments if claims are validated or adjusted. Debtor’s Role in Plan Implementation: ○ Identify the debtor's responsibilities in implementing the plan. Rehabilitation Covenants: ○ State any covenants of the debtor, with breaches considered material breaches of the plan. Management of the Debtor:  ○ Identify future managers of the debtor and the persons responsible for implementing the plan, including their affiliations and compensation. Treatment of Post-Confirmation Claims: ○ Address the treatment of claims arising after the confirmation of the plan. Adherence to Contractual Terms: ○ Require the debtor and its counterparties to follow terms of contracts confirmed by the debtor. Payment of Administrative Expenses: ○ Ensure the payment of outstanding administrative expenses as a condition for plan approval, unless waived by creditors. Payment of Taxes: ○ Arrange for the payment of outstanding taxes or a compromise settlement with tax authorities. Tax Clearance Certificate: ○ Include a certified copy of a tax clearance certificate or evidence of a tax compromise settlement. Issuance of Additional Shares: ○ Include a resolution from the debtor's stockholders to issue additional shares if required by the plan. Compensation of Rehabilitation Receiver: ○ State the compensation and status of the rehabilitation receiver after the plan’s approval. Conciliation and Mediation: ○ Include provisions for conciliation/mediation before court intervention in case of disagreements during plan implementation. Consultation, Approval, and Confirmation of the Rehabilitation Plan Section 63: Consultation with Debtor and Creditors Rehabilitation receiver will confer with the debtor and all classes of creditors. The views and proposals from both parties may be considered during the review, revision, or preparation of a new Rehabilitation Plan. Section 64: Creditor Approval of Rehabilitation Plan Notification to Creditors: ○ The rehabilitation receiver must notify creditors when the plan is ready for review. ○ Timeframe: Creditors have 20 days to review the plan. Voting on the Plan: ○ The receiver will convene creditors (as a whole or per class) for voting. ○ Approval requirement: The plan must be approved by all classes of creditors whose rights are affected. A class is deemed approved if more than 50% of its total claims vote in favor of the plan.  Court Confirmation Despite Rejection: ○ Even if the plan is rejected by creditors, the court may confirm the plan if: It meets the requirements set in the Act. The receiver recommends confirmation. Shareholders lose their controlling interest. The objecting creditors would get more compensation than in liquidation. Section 65: Submission of Rehabilitation Plan to the Court Plan Submission: ○ If approved, the rehabilitation receiver submits the plan to the court for confirmation. Court Notification: ○ Within 5 days, the court will notify creditors that the plan has been submitted for confirmation. ○ Creditors may obtain copies of the plan and file objections. Section 66: Filing of Objections to Rehabilitation Plan Objection Period: ○ Creditors may file objections within 20 days from receiving the court’s notice. Grounds for Objections: ○ Fraudulent support from creditors. ○ False or misleading documents in the plan. ○ The plan is not supported by voting creditors. Section 67: Hearing on the Objections Court Hearing: ○ If objections are filed, the court will set a date for hearings. Court Actions: ○ If an objection has merit, the court may order the rehabilitation receiver to fix the issue. ○ If the debtor acted in bad faith or it is impossible to cure the objection, the court may convert the proceedings into liquidation. Section 68: Confirmation of the Rehabilitation Plan Confirmation by Court: ○ The court will confirm the plan if no objections are filed or if objections are dismissed or cured. Confirmation Despite Disputes: ○ The court can confirm the plan even if there are unresolved disputes, as long as the plan provides for paying such claims. Approval Without Shareholder Approval:  ○ The court can approve the plan even if the debtor’s owners, partners, or stockholders do not approve, as long as it’s necessary for the debtor's financial recovery. Effect of Confirmation and Termination of the Rehabilitation Plan Section 69: Effect of Confirmation of the Rehabilitation Plan Binding Nature: ○ The confirmed Rehabilitation Plan is binding on the debtor and all affected persons, including creditors, regardless of their participation in proceedings or opposition. Debtor’s Obligations: ○ The debtor must comply with the provisions and take necessary actions to carry out the Plan. Payments to Creditors: ○ Payments will be made as specified in the Rehabilitation Plan. Continuing Contracts: ○ Existing contracts between the debtor and creditors remain in effect unless they conflict with the Rehabilitation Plan. Compromises Binding on Creditors: ○ Any reductions or rescheduling of debts under the plan are binding on creditors, even if the plan fails to be fully implemented. Post-Plan Claims: ○ Claims arising after the approval of the plan and not addressed by it are not subject to any Suspension Order. Court Jurisdiction: ○ The court can maintain jurisdiction over claims against the debtor or if there is a breach of the Rehabilitation Plan. Section 70: Liability of General Partners of a Partnership Effect on Creditors: ○ The approval of the Rehabilitation Plan does not affect creditors’ rights to pursue actions against general partners of a partnership for unpaid debts. Section 71: Treatment of Amounts of Indebtedness Forgiven or Reduced Tax Treatment: ○ Amounts of indebtedness or obligations that are forgiven or reduced under the Plan are not subject to tax in relation to the Act’s objectives. Section 72: Period for Confirmation of the Rehabilitation Plan Timeframe:  ○ The court has a maximum of 1 year from the petition filing date to confirm a Rehabilitation Plan. Failure to Confirm: ○ If no plan is confirmed within this period, the proceedings may be converted into liquidation. Section 73: Accounting Discharge of Rehabilitation Receiver Final Report: ○ After confirming the Rehabilitation Plan, the receiver must provide a final report and accounting to the court. Discharge of Receiver: ○ If no further role is specified in the plan, the court will discharge the receiver from their duties. Termination of Rehabilitation Proceedings Section 74: Termination of Proceedings Termination on Motion: ○ The court may terminate the rehabilitation proceedings upon the motion of any stakeholder or the rehabilitation receiver. Successful or Failed Rehabilitation: ○ The court can declare the rehabilitation a success or failure. Failure of Rehabilitation can occur under the following circumstances: ○ Dismissal of Petition: The court dismisses the petition. ○ Failure to Submit Plan: The debtor does not submit a plan. ○ Unfeasible Plan: The plan does not show a substantial likelihood of rehabilitation. ○ Failure to Implement the Plan: The debtor fails to meet obligations, timelines, or goals of the plan. ○ Fraud: Fraudulent actions in securing plan approval. ○ Other Defined Circumstances: As per rules of procedure. Court Actions Upon Breach: ○ If the plan fails or is breached, the court may: Order the debtor to cure the breach within a given timeframe, or convert to liquidation. Convert the proceedings to liquidation. Allow amendments to the plan, subject to the same approval process. Issue orders to remedy the breach. Enforce the plan through a writ of execution. Section 75: Effects of Termination  Consequences of Termination: ○ The rehabilitation receiver is discharged, subject to submitting a final accounting. ○ The Stay Order and other orders halting actions for enforcement are lifted. Conversion to Liquidation: ○ If the termination is due to a failed rehabilitation or dismissal for non-technical reasons, the case will immediately be converted into liquidation as per Section 92. Pre-Negotiated Rehabilitation Section 76: Petition by Debtor Who can file the petition: ○ An insolvent debtor, either alone or jointly with creditors, may file for approval of a pre-negotiated Rehabilitation Plan. Creditor Approval: ○ The Plan must be endorsed or approved by: Two-thirds (2/3) of total liabilities. More than 50% of secured creditors (based on total secured claims). More than 50% of unsecured creditors (based on total unsecured claims). Minimum Requirements for Petition: ○ Debt Schedule: List of all debts and liabilities. ○ Asset Inventory: List of all assets. ○ Rehabilitation Plan: Including at least three (3) qualified rehabilitation receiver nominees. ○ Disputed Claims Summary: Details of disputed claims and provisioning for adjustments if necessary. Section 77: Issuance of Order Timeframe: The court must issue the order within 5 working days after determining the petition is sufficient. Contents of the Order: ○ Debtor Information: Identifies the debtor, its business, and principal place of business. ○ Rehabilitation Declaration: Declares that the debtor is under rehabilitation. ○ Grounds for Petition: Summarizes the reasons for filing the petition. ○ Publication: Requires the order to be published in a newspaper of general circulation once a week for at least two consecutive weeks. ○ Service of Notice: Personal delivery of the petition to creditors holding at least 10% of total liabilities.  ○ Examination of Documents: States that creditors can review the petition and Rehabilitation Plan. ○ Objections Period: Creditors can object within 20 days from the second publication. ○ Appoint Rehabilitation Receiver: If provided in the Plan. ○ Stay Order: Includes a Suspension or Stay Order as per the Act. Section 78: Approval of the Plan Court Approval: The court must approve the Rehabilitation Plan within 10 days after the second publication of the order, unless there are objections. Section 79: Objection to the Petition or Plan Who can object: Creditors or other interested parties can submit objections. Timeframe: Objections must be filed within 8 days from the second publication of the Order. Grounds for Objection: ○ False or Misleading Information: Allegations in the petition or Plan are incorrect. ○ Lack of Majority Support: Majority of creditors do not support the Plan. ○ Inaccurate Claims: Claims are not accurately accounted for or contested. ○ Fraudulent Support: Creditors' support was induced by fraud. Objection Service: Objections must be served to the debtor, rehabilitation receiver, largest secured creditor supporting the Plan, and largest unsecured creditor supporting the Plan. Section 80: Hearing on the Objections Court Hearing: The court will set a hearing date within 20 to 30 days after the second publication. Court’s Actions: ○ If the objection is valid, the debtor may be asked to cure the defect. ○ If there’s bad faith or an incurable defect, the court may convert the proceedings to liquidation. ○ If no merit is found or the objection is cured, the Plan is deemed approved. Section 81: Period for Approval of Rehabilitation Plan  Time Limit: The court has a maximum of 120 days from the filing of the petition to approve the Rehabilitation Plan. Failure to Act: If the court does not act within this period, the Plan is automatically deemed approved. Section 82: Effect of Approval Legal Effect: The approval of a pre-negotiated Rehabilitation Plan has the same legal effect as the confirmation of a Rehabilitation Plan under Chapter II. Out-of-Court or Informal Restructuring Agreements or Rehabilitation Plans Section 83: Recognition of Informal Restructuring Recognition: Out-of-court or informal restructuring agreements and rehabilitation plans that meet the chapter’s minimum requirements are recognized as consistent with the objectives of the Act. Section 84: Minimum Requirements for Informal Restructuring Agreements Debtor Agreement: The debtor must agree to the restructuring/workout agreement or rehabilitation plan. Creditor Approvals: ○ 67% approval from creditors holding secured obligations. ○ 75% approval from creditors holding unsecured obligations. ○ 85% approval from creditors holding total liabilities (both secured and unsecured). Section 85: Standstill Period Standstill Agreement: A period of suspension can be agreed upon pending negotiations for the restructuring agreement or rehabilitation plan. Requirements: ○ Agreement approved by creditors representing more than 50% of the debtor’s total liabilities. ○ Publication: The agreement must be published once a week for two consecutive weeks in a newspaper of general circulation in the Philippines. ○ Maximum Duration: The standstill period cannot exceed 120 days from the date it takes effect. Notice:  ○ The notice must invite creditors to participate in negotiations. ○ It must also inform them that the agreement will be binding if the required majority votes (as per Section 84) are met. Section 86: Cram Down Effect Legal Effect: An out-of-court restructuring or rehabilitation plan approved under this framework has the same legal effect as a court-confirmed plan under Section 69. Publication: The notice of the agreement must be published once a week for at least three consecutive weeks in a newspaper of general circulation. Effective Date: The restructuring or rehabilitation plan takes effect 15 days after the last publication. Section 87: Amendment or Modification Amendments: Any changes to the out-of-court restructuring/workout agreement or rehabilitation plan must follow the terms of the original agreement. Notice: Creditors must be duly notified of any amendments. Section 88: Effect of Court Action or Other Proceedings Implementation: Court action or other legal proceedings related to the agreement will not stop its implementation unless a temporary restraining order or injunctive relief is obtained from the Court of Appeals. Section 89: Court Assistance Seeking Court Help: Both the debtor and creditors can seek court assistance for the execution or implementation of the rehabilitation plan. Rules: This process follows the rules set by the Supreme Court. Liquidation of Insolvent Juridical Debtors Section 90: Voluntary Liquidation Application for Liquidation: ○ The insolvent debtor may voluntarily apply for liquidation by filing a petition.  ○ The petition must establish insolvency and include: Debts and Liabilities: A schedule of debts, creditor details (addresses, claims, collaterals). Assets: An inventory of assets, including receivables and claims against third parties. Nominees for Liquidator: At least three qualified nominees for the liquidator position. Motion for Liquidation During Rehabilitation: ○ The debtor may file a motion to convert ongoing rehabilitation proceedings into liquidation proceedings. ○ The motion must include the same information as the voluntary petition and state the intention for immediate dissolution and termination of corporate existence. Court Action: ○ If the petition or motion is sufficient, the court will issue a Liquidation Order as outlined in Section 112. Section 91: Involuntary Liquidation Creditors' Right to Apply: ○ Three or more creditors (with claims totaling at least ₱1,000,000 or 25% of the debtor’s subscribed capital) may apply for liquidation. ○ Conditions for Involuntary Liquidation: No genuine issue regarding the claims. Claims have not been settled for at least 180 days, or the debtor has failed to meet liabilities. No substantial likelihood of debtor rehabilitation. Motion During Rehabilitation: ○ Creditors may file a motion during or after rehabilitation proceedings to convert them into liquidation proceedings. ○ The motion must include the same conditions as the involuntary liquidation petition. Court Procedure: ○ The court will issue an order: Publication: The petition/motion must be published once a week for two consecutive weeks. Comment Period: Debtor and creditors (who are not petitioners) must file comments within 15 days from the last publication. Court Decision: ○ After reviewing comments, the court may issue the Liquidation Order if the petition or motion is meritorious. Section 92: Conversion into Liquidation Proceedings Conversion During Rehabilitation: ○ The court can convert rehabilitation proceedings to liquidation under the following conditions: Section 25(c): If rehabilitation is deemed infeasible. Section 72: If the rehabilitation plan is not confirmed within the set time. Section 75: If the debtor fails to comply with the rehabilitation plan. Section 90: If the debtor applies for liquidation during rehabilitation. ○ Court Action: Upon conversion, the court issues the Liquidation Order as per Section 112. Section 93: Powers of the Securities and Exchange Commission (SEC) SEC's Regulatory Power: ○ The chapter does not affect the SEC’s regulatory powers regarding dissolution and liquidation proceedings, as outlined in Presidential Decree No. 902-A. Insolvency of Individual Debtors (Suspension of Payments) Section 94: Petition for Suspension of Payments Eligibility: An individual debtor who has sufficient property to cover all debts but foresees the inability to meet them when due can file for suspension of payments. Filing Requirements: ○ The petition must be verified and filed in the court of the province or city where the debtor has resided for the last 6 months. ○ Attachments to the petition must include: Schedule of Debts and Liabilities: List of debts, creditors, amounts, and collaterals. Inventory of Assets: A detailed list of the debtor’s assets. Proposed Agreement: A proposed repayment or settlement agreement with creditors. Section 95: Action on the Petition Court’s Role: ○ Within 5 working days of filing, the court may issue an order:  Creditors’ Meeting: A meeting of creditors to be held between 15 and 40 days from the order’s date. Evidence Submission: Creditors must submit written evidence of their claims before the meeting. Publication: The order must be published once a week for 2 consecutive weeks in a newspaper of general circulation. Mailing Notices: Copies of the order must be sent by registered mail to all creditors. Restrictions on the Debtor: The debtor is prohibited from: Selling, transferring, or encumbering assets, except those used in business. Making payments outside necessary business expenses. Appointment of Commissioner: A commissioner will preside over the creditors' meeting. Section 96: Actions Suspended Suspension of Proceedings: ○ The debtor may request the court to suspend any pending execution against them. ○ Exceptions: Properties held as security by secured creditors are not covered by the suspension. Suspension Duration: The order lapses after 3 months without creditor agreement or if the agreement is denied. Restrictions on Creditors: ○ No Suits: Creditors cannot sue or initiate proceedings during the suspension, except: Claims for personal labor, maintenance, last illness or funeral expenses incurred in the 60 days prior to the petition. Secured creditors may still take action. Section 97: Creditors' Meeting Majority Requirements: ○ The meeting requires at least 3/5 of the total liabilities represented by creditors present. Meeting Procedures: ○ Clerk’s Role: Record the creditors present and their claims. ○ Commissioner’s Role: Examine the evidence of claims and declare the meeting open if the majority is present.  ○ Voting: A majority requires: 1. 2/3 of voting creditors in favor of a single proposal. 2. Claims represented by this majority must equal 3/5 of total liabilities. ○ Protests: After the vote, any protests against the majority vote will be documented, and all participants will sign the affirmed propositions. Voting Restrictions: Creditors who incurred debts within 90 days before the petition cannot vote. Section 98: Creditors Who May Refrain from Voting Exemption from Voting: ○ Creditors unaffected by the Suspension Order may choose not to attend or vote. ○ If they join the vote, they will be bound by the results. Section 99: Rejection of the Proposed Agreement Rejection Criteria: The agreement is deemed rejected if: ○ The required creditors do not attend the meeting. ○ The two majority requirements are not met. Outcome: The proceeding is terminated, and creditors may exercise their rights independently. Section 100: Objections Filing Objections: A creditor can file objections within 10 days from the last creditors’ meeting if they disagree with the majority decision. Grounds for Objections: ○ Procedural defects affecting creditors' rights. ○ Fraudulent actions by creditors and the debtor to secure approval. ○ Fraudulent conveyance of claims to manipulate voting. Court’s Role: The court will hear and resolve objections promptly. Consequences of Rejected Agreement: If the court annuls the majority vote, the proceedings are terminated, and creditors can enforce their original rights. Section 101: Effects of Approval of Proposed Agreement  Court Confirmation: ○ If the majority decision is upheld or unchallenged, the court orders the agreement’s enforcement. ○ All parties, including creditors, must comply with the terms. Exemptions: ○ Labor, Maintenance, Illness, and Funeral Claims within 60 days prior to filing. ○ Secured creditors who missed the meeting or chose not to vote. Section 102: Failure to Perform Agreement Consequences of Non-Compliance: If the debtor fails to perform the agreement: ○ Reversion of Rights: Creditors regain all rights against the debtor as if no agreement was made. ○ Insolvency Proceedings: The debtor may be subjected to insolvency proceedings under this Act. Voluntary Liquidation (Section 103 - 107) Section 103: Application for Voluntary Liquidation Eligibility: ○ Individual debtor with debts exceeding Php500,000. ○ Debtor’s assets are insufficient to cover liabilities. Filing: ○ Debtor files a verified petition with the court in the province or city where they have resided for 6 months before the petition. ○ Attachments required: Schedule of Debts and Liabilities: List of all debts and creditors. Inventory of Assets: A list of the debtor’s assets. Effect of Filing: The filing of the petition is considered an act of insolvency. Section 104: Liquidation Order Court’s Role: ○ If the petition meets the required form and substance, the court will issue the Liquidation Order within 5 working days. ○ The Liquidation Order is detailed in Section 112. Section 105: Petition by Creditors (Acts of Insolvency) Eligibility: ○ Creditors or a group of creditors with claims aggregating at least Php500,000 may file a verified petition for liquidation. ○ Filed in the court where the debtor resides. Acts of Insolvency: The petition must allege at least one of the following acts of insolvency: ○ Leaving the Country: Debtor departs or intends to leave the Philippines to defraud creditors. ○ Concealing or Hiding: The debtor hides from legal process or removes property to avoid liquidation. ○ Property under Attachment: Debtor leaves property under attachment for 3 days to delay liquidation. ○ Confession of Judgment: Debtor offers to let a judgment be made in favor of a creditor to delay liquidation. ○ Defaulting Judgment: Debtor allows a default judgment to be taken against them to hinder liquidation. ○ Preferential Treatment: Debtor causes their property to be taken or transferred to favor certain creditors. ○ Fraudulent Transfers: Debtor makes gifts, sales, or transfers with the intent to defraud creditors or delay liquidation. ○ Merchant Defaults: Merchant defaults on current obligations for 30 days. ○ Fiduciary Obligations: Debtor fails to pay moneys held in a fiduciary capacity after 30 days. ○ Execution Issues: Execution of a judgment finds the debtor lacks sufficient property to satisfy the debt. Bond Requirement: ○ Petitioning creditors must post a bond to cover potential costs if the petition is dismissed, withdrawn, or if the debtor is not declared insolvent. Section 106: Order to Show Cause Court’s Action: Upon filing the creditor’s petition, the court will: ○ Issue an Order requiring the debtor to show cause why they should not be declared insolvent. ○ If the debtor provides valid reasons, the court may forbid them from: Making payments on debts. Transferring any property. ○ Secured creditors retain the right to enforce their lien as per the terms. Section 107: Default Default or Court Decision: ○ If the debtor defaults or the court rules in favor of the creditors: The court will issue the Liquidation Order as described in Section 112. Section 108: Absent Individual Debtor When debtor is absent: ○ If the debtor resides outside the Philippines. ○ If the debtor has departed the country. ○ If the debtor cannot be found after due diligence. ○ If the debtor conceals themselves to avoid legal processes. Petitioning Creditors' Actions: ○ Submit affidavits for an Order of Publication. ○ Post a bond equal to double the amount of their claims. ○ Court Issues Order: Directs the sheriff to seize sufficient property from the debtor to cover creditor demands and legal costs. Sheriff's Responsibilities: ○ Seize Property: The sheriff takes custody of the debtor’s property (not exempt from execution) sufficient to cover claims. ○ Inventory: Within 3 days, the sheriff prepares a complete inventory of the seized property. ○ Schedule of Creditors: Sheriff creates a list of creditors and amounts owed, files it with the court. Section 109: Property Held for All Creditors; Appeal Bonds; Exemptions to Sureties When Property is Seized: ○ If the seized property does not cover all creditor claims, other creditors may give a bond. ○ Bond Requirements: Bond must be double the claim amount. ○ Sheriff's Duty: Continue seizing property until all creditor claims are covered. Holding Property for Creditors: ○ All property taken by the sheriff is held for the benefit of all creditors whose claims are proven. Conditions on Bonds: ○ If the court rules in favor of the petitioners (creditors), the bond is void. ○ If the decision favors the debtor, the debtor can recover damages from the bond, up to the bond amount.  ○ Appeals: If either party appeals the decision, the appellant must post a bond for double the property value in dispute and the costs of the proceedings. Exceptions to Bond Sufficiency: ○ Any interested party can object to the sufficiency of the sureties (those who guaranteed the bond). ○ Justification of Sureties: Petitioners must justify the sufficiency of their sureties within 2 to 5 days. ○ If they fail to do so, the judge may: Vacate the order to seize property. Deny the appeal. Section 110: Sale Under Execution Conditions for Sale: ○ If proper affidavits and bonds are presented, the court can order a Sale of Property. ○ The sale is conducted in the same way as property sold under execution (court-ordered sale). ○ The proceeds from the sale are deposited with the court to be used according to the outcome of the insolvency proceedings. Section 111: Use of Term "Debtor" Definition of Debtor: The term "debtor" includes: ○ Individual debtor (as defined in Section 4(o)). ○ Juridical debtor (as defined in Section 4(k)). (A) The Liquidation Order Section 112: Liquidation Order Key Aspects of the Liquidation Order: ○ Declare Insolvency: The debtor is officially declared insolvent. ○ Order Liquidation: The debtor's assets will be liquidated. For juridical debtors, this includes dissolution. ○ Take Possession of Property: The sheriff is ordered to seize all the debtor’s property, except exempt property. ○ Publication of Petition: Petition or motion must be published in a newspaper of general circulation, once a week for two consecutive weeks. ○ Payment and Conveyance: The liquidator will handle payments of claims and the transfer of property due to the debtor.  ○ Prohibit Payments and Transfers: The debtor is prohibited from making payments or transferring property. ○ Creditor Claims: Creditors must file their claims with the liquidator within a specified period. ○ Administrative Expenses: Authorizes the payment of administrative expenses as they come due. ○ Nominees for Liquidator: The debtor and creditors (who are not petitioners) can propose nominees for the liquidator position. ○ Hearing for Liquidator Appointment: A hearing will be set for the election and appointment of the liquidator, within 30 to 45 days after the last publication. Section 113: Effects of the Liquidation Order Juridical Debtor: ○ The juridical debtor (corporation) is dissolved and its corporate existence is terminated. Asset Control: ○ The liquidator or the court takes legal title to and control of all the debtor’s assets (except exempt property). Contracts: ○ Contracts of the debtor are terminated or breached unless the liquidator affirms them within 90 days and the contracting parties agree. Unsecured Claims: ○ No separate action for collecting unsecured claims is allowed. ○ Any pending actions will be transferred to the liquidator for settlement or contest. ○ If the liquidator contests a claim, the court will resolve it (unless already on appeal, in which case the suit continues). Foreclosure: ○ No foreclosure proceedings are allowed for 180 days after the Liquidation Order. Section 114: Rights of Secured Creditors Impact on Secured Creditors: ○ The Liquidation Order does not affect a secured creditor’s right to enforce their lien according to contract or law. Secured Creditor’s Options: ○ Waive Rights: The secured creditor can waive their rights under the security/lien and prove their claim in the liquidation. ○ Maintain Rights: The secured creditor can choose to maintain their rights under the security/lien. If the Secured Creditor Maintains Rights:  ○ Valuation of Property: The value of the property may be agreed upon by the creditor and the liquidator. If the property value is less than the secured claim, the liquidator may transfer the property to the creditor, and the creditor can participate in liquidation for the balance. If the property’s value exceeds the claim, the creditor may receive the property and waive the debtor's right to redeem it after paying the excess. ○ Sale of Property: The liquidator may sell the property, using the proceeds to fully satisfy the secured creditor’s claim. ○ Foreclosure: The secured creditor can foreclose on the property according to applicable laws. Section 115: Election of Liquidator Eligibility to Vote: ○ Only creditors who have filed claims on time and whose claims are not barred by the statute of limitations can vote. ○ Secured creditors can vote only if: They waive their security or lien, OR They have agreed with the liquidator on the value of their secured property and are admitted for the balance of their claim. Election Process: ○ Creditors vote in open court. ○ The nominee with the highest number of votes (based on claim amounts) and who meets the qualifications (Section 118) will be appointed as the liquidator. Section 116: Court-Appointed Liquidator The court can appoint a liquidator if: ○ Creditors fail to attend the election. ○ Attending creditors fail to elect a liquidator. ○ Elected liquidator fails to qualify. ○ A vacancy occurs in the liquidator’s position. If needed, the court can set another hearing for the liquidator’s election. A rehabilitation receiver (if already appointed before liquidation) may also be appointed as the liquidator. Section 117: Oath and Bond of the Liquidator Before assuming duties, the liquidator must: ○ Take an oath. ○ File a bond in an amount set by the court.  ○ The bond ensures the faithful discharge of their duties. Section 118: Qualifications of the Liquidator The liquidator must meet the qualifications set in Section 29. The liquidator can be removed by the court at any time for cause, either motu propio (on the court’s own motion) or upon the motion of any creditor eligible to vote. Section 119: Powers, Duties, and Responsibilities of the Liquidator The liquidator acts as an officer of the court with the primary duty of: ○ Preserving, maximizing, and recovering the debtor’s assets. ○ Liquidating the assets and discharging claims as much as possible. Specific Powers and Duties: ○ Sue and recover assets, debts, and claims of the debtor. ○ Take possession of all debtor's property (except exempt property). ○ Sell debtor’s property with court approval. ○ Redeem mortgages/pledges to satisfy judgments on property sold. ○ Settle accounts between debtor and creditors (court approval required). ○ Recover fraudulently conveyed property. ○ Recommend a creditors' committee for assistance in managing liquidation. ○ Engage professionals (with court approval) to help with duties. Additional Liquidator Rights/Duties: ○ The liquidator must manage and dispose of assets to maximize proceeds, pay creditors, and terminate the debtor’s legal existence. Removal: Liquidators can be removed following procedures for removing a rehabilitation receiver. Section 120: Compensation of the Liquidator The liquidator and anyone assisting them will be entitled to reasonable compensation, determined by the liquidation court. The compensation will not exceed the maximum amount set by the Supreme Court. Section 121: Reporting Requirements The liquidator must: ○ Keep a record of all receipts and disbursements.  ○ Submit a quarterly report to the court, which must be accessible to all interested parties. ○ Provide additional reports as required by the court. ○ Submit a final report at the end of the liquidation proceedings. Section 122: Discharge of Liquidator Final Settlement: ○ Before finalizing claims against the debtor, the liquidator must notify all creditors (via publication or other court-approved methods) that they will apply for discharge from liability. Final Accounting: ○ The liquidator files a final accounting with the court, showing proof of notification to creditors. ○ If the court approves the accounting, the liquidator will be discharged from liability. Section 123: Registry of Claims Timeframe: The liquidator must prepare a preliminary registry of claims within 20 days of assuming office. Secured Creditors: ○ If a secured creditor waives their security or lien, or fixes the value of the property through agreement with the liquidator, they are treated as unsecured creditors. Public Availability: ○ The liquidator must make the registry available for public inspection. ○ Publication notice must be given to creditors, individual debtors, sole proprietorship owners, partnership partners, and corporate shareholders/members. Claims Validation: All claims must be duly proven before payment. Section 124: Right of Set-off Mutual Debtors and Creditors: ○ If the debtor and creditor owe each other, one debt shall be set off against the other. ○ Only the balance (if any) will be allowed in the liquidation proceedings. Section 125: Opposition or Challenge to Claims  Challenge Period: Interested parties (creditors, debtors, partners, shareholders) can challenge claims within 30 days after the filing period for recognition of claims. Submission: ○ After 30 days, the liquidator will submit a registry of undisputed claims to the court. ○ Undisputed claims become final unless challenged based on fraud, accident, mistake, or inexcusable neglect. Section 126: Submission of Disputed Claims to the Court The liquidator must resolve disputed claims and submit findings to the court for final approval. The liquidator has the authority to disallow claims. Avoidance Proceedings (D) Section 127: Rescission or Nullity of Certain Transactions Transactions Before Liquidation: ○ Any transaction entered into by the debtor prior to the Liquidation Order or the commencement of proceedings (in case of conversion from rehabilitation) can be rescinded or declared void if: It was done with intent to defraud creditors. It constitutes undue preference of creditors. Presumptions: ○ The presumptions set forth in Section 58 will apply for determining fraudulent transactions. Section 128: Actions for Rescission or Nullity Initiating Actions: ○ The liquidator, or a creditor with the liquidator's approval, can initiate actions to rescind or nullify fraudulent or preferential transactions. If Liquidator Refuses: ○ If the liquidator refuses to file an action, a creditor can seek leave of the court to proceed. Assignment of Rights:  ○ If the court grants leave for the creditor, the liquidator will assign all rights and documents related to the action to the creditor. Distribution of Benefits: ○ Any benefit from a proceeding belongs to the creditor up to the value of their claim and costs, with any surplus going to the debtor’s estate. Liquidator Initiating Action: ○ If the liquidator plans to take action for the benefit of creditors, the court will set a deadline. ○ If the liquidator acts within the set timeframe, the benefits belong to the estate. Section 129: The Liquidation Plan Timeframe: The liquidator must submit a Liquidation Plan to the court within 3 months of assuming office. Plan Requirements: ○ Enumerate all the assets of the debtor. ○ Include a schedule for the liquidation of assets and payment of claims. Section 130: Exempt Property to be Set Apart Exemption Procedure: ○ The court, upon petition and after hearing, will exempt and set apart certain real and personal property for the debtor's use, including homesteads, which are exempt from execution. Notice Requirements: ○ Notice of the hearing must be posted at 3 public places in the province or city at least 10 days prior to the hearing. ○ The notice should specify: The debtor’s name. The time and place of the hearing. A brief description of the property or homestead sought for exemption. Decree of Exemption: ○ The court must be satisfied that notice was properly given, and the decree is conclusive evidence of this. Section 131: Sale of Assets in Liquidation Sale of Unencumbered Assets: ○ The liquidator may sell unencumbered assets of the debtor to convert them into money. ○ The sale must be conducted at public auction. Private Sale:  ○ A private sale may be allowed with court approval if: The goods are perishable or deteriorate quickly in value. The cost to maintain or keep the goods is disproportionately high. The private sale is in the best interest of the debtor and creditors. Conveyance to Creditors: ○ With court approval, unencumbered property may be conveyed to a creditor to satisfy all or part of their claim. Section 132: Manner of Implementing the Liquidation Plan The liquidator must implement the Liquidation Plan as approved by the court. Payments to creditors must be made only in accordance with the terms of the approved Liquidation Plan. Section 133: Concurrence and Preference of Credits The Liquidation Plan must observe the concurrence and preference of credits as outlined in the Civil Code of the Philippines and other relevant laws. Priority Claims: ○ Credits for services rendered by employees (such as wages) will enjoy first preference under Article 2244 of the Civil Code. ○ Legal liens under Articles 2241 and 2242 will have a higher priority, unless a preferred creditor voluntarily waives their right. Section 134: Order Removing the Debtor from the SEC Registry Completion of Liquidation: ○ Once the liquidation is completed according to the law, the court will issue an Order to approve the report. ○ The Securities and Exchange Commission (SEC) will be instructed to remove the debtor from the registry of legal entities. Section 135: Termination of Proceedings Termination Process: ○ After the debtor is removed from the SEC registry, the court will issue an Order to terminate the liquidation proceedings. (F) Liquidation of a Securities Market Participant Priority of Trade-Related Claims: ○ Regulatory agencies or self-regulatory organizations have the power to liquidate trade-related claims of clients or customers of a securities market participant. ○ Investor protection: These trade-related claims have absolute priority over all other claims concerning trade-related assets. Trade-Related Assets: ○ These assets include: Cash Securities Trading rights Other assets used by the securities market participant in the ordinary course of business. Chapter VIII: Proceedings Ancillary to Other Insolvency or Rehabilitation Proceedings (A) Banks and Other Financial Institutions Under Rehabilitation Receivership Section 137: Provision of Assistance: ○ The court will issue orders to assist in the liquidation of financial institutions under rehabilitation receivership, established by a state-funded or state-mandated insurance system. ○ The court will adjudicate claims and provide necessary relief to assist in this process. Section 138: Application of Relevant Legislation: ○ Rehabilitation or liquidation of banks, financial institutions, insurance companies, and pre-need companies will follow relevant legislation. ○ The provisions of this Act will apply supplementally. (B) Cross-Border Insolvency Proceedings Section 139: Adoption of Uncitral Model Law on Cross-Border Insolvency: ○ This Act adopts the Uncitral Model Law on Cross-Border Insolvency (by the United Nations Center for International Trade and Development) as part of its provisions. ○ The application is subject to the rules of procedure adopted by the Supreme Court. Section 140: Initiation of Proceedings:  ○ The court will set a hearing for insolvency or rehabilitation proceedings occurring in foreign jurisdictions. ○ A petition from the foreign entity’s representative is required to initiate this. Section 141: Provision of Relief: ○ The court can issue orders for the following: Suspending actions to enforce claims against the foreign entity or seize/foreclose on its property in the Philippines. Requiring the surrender of property of the foreign entity to its foreign representative. Providing other necessary relief. Section 142: Factors in Granting Relief: ○ When deciding to grant relief, the court will consider: Protection of creditors in the Philippines and the inconvenience of pursuing claims in the foreign jurisdiction. Ensuring just treatment of all creditors by using a unified insolvency or rehabilitation process. Whether other jurisdictions have recognized the foreign proceeding. The extent to which the foreign proceeding recognizes creditors’ rights in line with this Act. The extent to which the foreign proceeding shows deference to this Act and previous legislation. CHAPTER IX: Funds for Rehabilitation of Government-Owned and Controlled Corporations Section 143: Funds for Rehabilitation: ○ Public funds for the rehabilitation of government-owned and controlled corporations (GOCCs) will only be released if: There is an appropriation by Congress. The National Treasurer certifies that the funds are available. ○ The Department of Finance and Department of Budget and Management will create the rules for the use and release of these funds. CHAPTER X: Miscellaneous Provisions Section 144: Applicability of Provisions: Chapter II provisions will apply to proceedings in Chapters II and IV if applicable. Section 145: Penalties:  Owners, partners, directors, officers, or employees of the debtor can be punished with: ○ Fine: Up to ₱1,000,000. ○ Imprisonment: 3 months to 5 years. The following actions are punishable: ○ Conceali