RA No. 10142: Financial Rehabilitation and Insolvency Act of 2010 PDF

RA NO. 10142: “FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010” INTRODUCTION POLICIES OF THE LAW (SEC 2) DEFINITION OF TERMS 1. To encourage debtors, both juridical and A. Administrative expenses – reasonable and natural persons, and the...

RA NO. 10142: “FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010” INTRODUCTION POLICIES OF THE LAW (SEC 2) DEFINITION OF TERMS 1. To encourage debtors, both juridical and A. Administrative expenses – reasonable and natural persons, and their creditors to necessary expenses such as, collectively and realistically resolve and adjust incurred or arising from the filing of a competing claims and property rights. petition under the provisions of this Act; 2. In furtherance thereof, the State shall ensure a arising from, or in connection with, the timely, fair, transparent, effective and efficient conduct of the proceedings under this rehabilitation or liquidation of debtors. Act, including those incurred for the rehabilitation or liquidation of the debtor; 3. The rehabilitation or liquidation shall be made incurred in the ordinary course of with a view to ensure or maintain certainty and business of the debtor after the predictability in commercial affairs, preserve commencement date; and maximize the value of the assets of these for the payment of new obligations debtors, recognize creditor rights and respect obtained after the commencement date priority of claims, and ensure equitable to finance the rehabilitation of the debtor; treatment of creditors who are similarly incurred for the fees of the rehabilitation situated. receiver or liquidator and of the 4. When rehabilitation is not feasible, it is in the professionals engaged by them; and interest of the State to facilitate a speedy and that are otherwise authorized or orderly liquidation of these debtor's assets and mandated under this Act or such other the settlement of their obligations. expenses as may be allowed by the Supreme Court in its rules. NATURE OF PROCEEDINGS (SEC 3) B. Affiliate – a corporation that directly or indirectly, through one or more intermediaries, 1. In rem. Meaning it is a proceeding which binds is controlled by, or is under the common control the whole world. of another corporation. 2. Jurisdiction over all persons affected shall be acquired upon publication of the notice of C. Claim – all claims or demands of whatever commencement in a newspaper of general nature or character against the debtor or its circulation in the Philippines. property, whether for money or otherwise, 3. Proceedings shall be summary and non- liquidated or unliquidated, fixed or contingent, adversarial. matured or unmatured, disputed or undisputed, including, but not limited to: 1) ALL CLAIMS OF THE GOVERNMENT, PURPOSE whether national or local, including taxes, tariffs and customs 1. To encourage debtors and creditors to duties; collectively and realistically resolve and 2) CLAIMS AGAINST DIRECTORS AND adjust competing claims and property rights OFFICERS OF THE DEBTOR through rehabilitation. arising from acts done in the 2. If not feasible, to facilitate speedy and orderly discharge of their functions falling liquidation of debtor’s assets and the within the scope of their authority: settlement of their obligations. Provided, That, this inclusion does NOT PROHIBIT the creditors or third parties from filing cases RFBT | RA 10142: FRIA | PAAO 1 against the directors and officers acting in their personal capacities. I. Date of liquidation – date on which the court issues the Liquidation Order. D. Commencement date – date on which the court issues the Commencement Order, J. Days – calendar days unless otherwise which shall be retroactive to the date of specifically stated in this Act. filing of the petition for voluntary or K. Debtor – unless specifically excluded by a involuntary proceedings. provision of this Act, a sole proprietorship duly registered with the Department of Trade and E. Commencement Order – order issued by the Industry (DTI), a partnership duly registered with court under Section 16 of this Act. the Securities and Exchange Commission (SEC), a corporation duly organized and existing F. Control – power of a parent corporation to under Philippine laws, or an individual debtor direct/govern the financial and operating who has become insolvent as defined herein. policies of an enterprise so as to obtain benefits from its activities. L. Encumbered property – real or personal EXISTENCE property of the debtor upon which a lien i. parent owns, directly or indirectly attaches. through subsidiaries or affiliates, more than ½ of the voting power of an M. General Unsecured Creditor – creditor whose enterprise unless, in exceptional claim or a portion thereof its neither secured, circumstances, it can clearly be preferred no subordinated under this Act. demonstrated that such ownership does not constitute control. N. Group of Debtors – refer to and can cover only: ii. parent owns ½ or less of the voting Corporations that are financially related power of an enterprise when there is to one another as parent corporations, power: subsidiaries, or affiliates; 1. over more than ½ of the voting Partnerships owned more than 50% by rights by virtue of an agreement the same person; with investors; Single proprietorships owned by the same 2. to direct or govern the financial person. and operating policies of the When the petition covers a group of debtors, all enterprise under a statute or an reference under these rules to debtor shall agreement; include and apply to the group of debtors. 3. to appoint or remove the majority of the members of the O. Individual Debtor – natural person who is a board of directors or equivalent resident and citizen of the Philippines that has governing body; or become insolvent as defined herein. 4. to cast the majority votes at meetings of the board of P. Insolvent – financial condition of a debtor that is directors or equivalent governing generally unable to pay its or his liabilities as body. they fall due in the ordinary course of business or has liabilities that are greater than its or his G. Court – court designated by the Supreme Court assets. to hear and determine, at the first instance, the cases brought under this Act. Q. Insolvent Debtors Estate – estate of the insolvent debtor. H. Creditor – natural or juridical person which has INCLUSIONS: all property & assets of the a claim against the debtor that arose on or debtor as of commencement date, plus before the commencement date. the property & assets acquired by the RFBT | RA 10142: FRIA | PAAO 2  rehabilitation receiver or liquidator after laws or equivalent documents, except for the that date, as well as all other property and corporate secretary, the assistant corporate assets in which the debtor has an secretary and the external auditor. ownership interest, whether or not these property and assets are in the debtor’s Y. Ordinary Course of Business – transactions in possession as of the commencement the pursuit of the individual debtor’s or debtor’s date. business operations prior to rehabilitation or PROVIDED: trust assets and bailment, insolvency proceedings and on ordinary and other property and assets of third business terms. party that are in the possession of debtor as of commencement date, are excluded Z. Ownership Interest – ownership interest of 3rd therefrom. parties in property held by debtor, including those covered by trust receipts or assignments R. Involuntary Proceedings – proceedings initiated of receivables. by creditors. AA. Parent – corporation which has control over S. Liabilities – monetary claims against the debtor, another corporation either directly or indirectly including stockholder’s advances that have through one or more intermediaries. been recorded in the debtor’s audited financial statements as advances for future BB. Party to the proceedings – the debtor, a subscriptions. creditor, the unsecured creditors' committee, a stakeholder, a party with an ownership interest T. Lien – statutory or contractual claim or judicial in property held by the debtor, a secured charge on real or personal property that legally creditor, the rehabilitation receiver, liquidator or entities a creditor to resort to said property for any other juridical or natural person who stands payment of the claim or debt secured by such to be benefited or injured by the outcome of the lien. proceedings and whose notice of appearance is accepted by the court. U. Liquidation – proceedings under Chapter V of this Act. CC. Possessory lien – lien on property, the possession of which has been transferred to a V. Liquidation Order – order issued by the court creditor or a representative or agent thereof. under Sec. 112 of this Act. DD. Proceedings – judicial proceedings commenced by the court's acceptance of a W. Liquidator – natural person or juridical entity petition filed under this Act. appointed as such by the court and entrusted with such powers and duties as set forth in this EE. Property of others – property held by the Act. debtor in which other persons have an PROVIDED: If liquidator is a juridical entity – ownership interest. must designated a natural person who possesses all the qualifications and none of FF. Publication notice – notice through publication the disqualifications as its representative, it in a newspaper of general circulation in the being understood that the juridical entity Philippines on a business day for 2 consecutive and the representative are solidarity liable weeks. for all obligations and responsibilities of the liquidator. GG. Rehabilitation – restoration of the debtor to a condition of successful operation and solvency, X. Officer – natural person holding a management if it is shown that its continuance of operation is position described in or contemplated by a economically feasible and its creditors can juridical entity’s articles of incorporation, by recover by way of the present value of payments RFBT | RA 10142: FRIA | PAAO 3  projected in the plan, more if the debtor continues as a going concern than if it is RR. Voluntary Proceedings – proceedings initiated immediately liquidated. by the debtor. HH. Rehabilitation Receiver – person or persons, SS. Voting creditor – creditor that is a member of a natural or juridical, appointed as such by the class of creditors, the consent of which is court pursuant to this Act and which shall be necessary for the approval of a Rehabilitation entrusted with such powers and duties as set Plan under this Act. forth herein. II. Rehabilitation Plan – plan by which the financial DEBTORS well-being and viability of an insolvent debtor can be restored using various means including, Debtors as defined under the law are insolvent: but not limited to, debt forgiveness, debt 1. Sole proprietorship registered with the DTI; rescheduling, reorganization or quasi- 2. Partnership registered with the SEC 3. reorganization, dacion en pago, debt-equity 3. Corporations organized and existing under the conversion and sale of the business (or parts of laws of the Philippines; or it) as a going concern, or setting-up of new 4. Individual debtors which are natural persons business entity as prescribed in Section 62 who are residents and citizens of the hereof, or other similar arrangements as may be Philippines. approved by the court or creditors. GROUP OF DEBTORS: refer to: JJ. Secured Claim – claim that is secured by a lien. 1. Financially related corporations KK. Secured Creditor – creditor with a secured parent, subsidiary or affiliates claim. 2. Partnerships more than 50% of which is owned by LL. Secured party – secured creditor or the agent the same person or representative of such secured creditor. 3. Single Proprietorships owned by the same individual MM. Securities Market Participant – broker dealer, EXCLUDED DEBTORS underwriter, transfer agent or other juridical persons transacting securities in the capital 1. Banks market. 2. Pre-need companies NN. Stakeholder - in addition to a holder of shares 3. Insurance companies of a corporation, to a member of a nonstock 4. Government agencies or units - governed by corporation or association or a partner in a their respective special laws partnership. INSOLVENT: shall refer to the financial condition of a debtor that is generally OO. Subsidiary – corporation more than 50% of the voting stock of which is owned or controlled 1. Unable to pay its or his liabilities as they fall directly or indirectly through one or more due; or intermediaries by another corporation, which 2. 2. Has liabilities greater than its or his thereby becomes its parent corporation. assets PP. Unsecured Claim – claim that is not secured by a lien. QQ. Unsecured Creditor – creditor with an unsecured claim. RFBT | RA 10142: FRIA | PAAO 4 CREDITORS SUSPENSION OF PAYMENTS Creditors include natural or juridical persons which This involves calling the creditors to a meeting to has a claim against debtor that arose on or before propose and agree on a schedule of payment and to commencement date, which can either be secured prevent the debtor from making any payment or unsecured. outside the necessary or legitimate expenses of the business, and the issuance of a suspension order to 1) Unsecured creditors prevent pending executions against the debtor. those whose claim or a portion thereof is neither secured, preferred nor subordinated COVERAGE: only INDIVIDUAL DEBTORS 2) Secured creditors (no partnerships/corporation) those whose claims are secured by a lien (either by law, agreement or by judicial judgment) which legally entitles a creditor to resort the FEATURES property subject of a lien for payment 1. The debtor has sufficient properties to of his claim cover all his debts but he foresees the EXAMPLE: loan secured by a mortgage. impossibility of meeting his debts when Lien of workers and supplies on they respectively fall due. inventory Attachment issued by the 2. The purpose is to suspend or delay the court. payment of debts. Claim – all claims or demands of whatever nature or 3. The amount of indebtedness is not affected character against the debtor or its property, whether (not reduced or discharged). for money or otherwise, liquidated or unliquidated, 4. The number of creditors is immaterial. fixed or contingent, matured or unmatured, disputed or undisputed, including, but not limited to: SUSPENSION ORDER 1) ALL CLAIMS OF THE GOVERNMENT, whether national or local, Upon motion filed by the individual debtor, the court including taxes, tariffs and customs may issue an order suspending any pending duties; execution against the individual debtor. 2) CLAIMS AGAINST DIRECTORS AND As a rule, no creditor shall sue or institute to collect OFFICERS OF THE DEBTOR his claim from the debtor from the time of the filing arising from acts done in the of the petition for suspension of payments and for as discharge of their functions falling long as the proceedings remain pending. within the scope of their authority: EXCEPTIONS: Provided, That, this inclusion does NOT PROHIBIT the creditors or third parties from filing cases against 1. Those creditors having claims for: the directors and officers acting in their personal a. Personal labor capacities. b. Maintenance c. Expense of last illness and funeral of the wife or children of the debtor PROCEEDINGS COVERED BY THE FRIA: If incurred in the 60 days immediately 1. Rehabilitation – voluntary or involuntary prior to the filing of the petition. 2. Pre-negotiated Rehabilitation 2. Secure Creditors 3. Liquidation – voluntary or involuntary 4. Suspension of Payments RFBT | RA 10142: FRIA | PAAO 5 The suspension order shall lapse when 3 months REHABILITATION shall have passed without the proposed agreement being accepted by the creditors or as soon as such Rehabilitation – restoration of the debtor to a agreements is denied. condition of successful operation and solvency. If it is shown that its continuance of operation is economically feasible and its creditors can recover PROHIBITS ACTS OF THE DEBTOR by way of the present value of payments projected in the plan, more if the debtor continues as a going After filing and during pendency, the debtor cannot: concern than if it is immediately liquidated. 1. Sell, transfer, encumber or dispose in any manner his property, excepts those used in the ordinary operations of commerce or TYPES OF REHABILITATION industry in which the petition individual is 1. VOLUNTARY – initiated by the debtor, upon engaged showing that: 2. Making any payment outside of the a. The debtor is insolvent; and necessary or legitimate expenses of his b. The viability of rehabilitation business or industry WHO WILL FILE? Sole Proprietor Owner/Proprietor Partnership Majority of partners CREDITORS MEETING Corporation Majority of directors/trusteed + The debtor shall attach to his petition a proposed Stockholders agreement with creditors, which shall be approved representing 2/3 of in a creditors meeting. OC/Member of N-SC 1. Quorum: presence of creditors holding at 2. INVOLUNTARY – initiated by the creditor or least 3/5 of the liabilities of the debtor. group of creditors, if: a. There is no genuine issue of fact or 2. Approval: double majority is required: law on the claim/s of the a. 2/3 of the creditors voting; and petitioner/s; b. Claims of the majority vote amount b. No payments on the due and to at least 3/5 of the total liabilities demandable debts have been made A creditor whose claim is incurred for at least 60 days; withing 90 days prior to the filing of the c. Or that the debtor has failed petition for suspension is not entitled to generally to meet its liabilities as vote. they fall due; or d. A creditor, other than petitioner/s Creditors not affected by the has initiated foreclosure suspension order may refrain from proceedings against the debtor that attending the meeting and voting will prevents the debtor from paying therein and he shall not be bound by its debts as they become due or will any agreement determined in the render it insolvent. meeting, However, if the should join in the voting they shall be bound in the WHO WILL FILE? same manner as are other creditors. Creditors with claims or aggregate of 3. Disapproval - the proceedings shall be whose claims is at least 1M or 25% of terminated and the creditors shall be at the subscribed capital stock or liberty to enforce their rights. partners contributions, whichever is higher. RFBT | RA 10142: FRIA | PAAO 6  COMMENCEMENT/STAY ORDER EFFECT OF STAY ORDER ON SECURED CREDITS The court shall issue a Commencement Order The preference of creditors is retained, but the which shall include a Stay Order, which shall: enforcement of such preference is suspended. 1. Suspend all actions or proceedings, in court or otherwise for the enforcement of claims EXCEPTIONS TO THE STAY ORDER: against the debtor; 2. Suspend all actions to enforce any 1) Cases already pending appeal in the SC as of judgment, attachment or other provisional commencement date. remedies against the debtor; 2) Cases pending or filed at a specialized court or 3. Prohibit the debtor from selling, quasi-judicial agency. encumbering, transferring, or disposing in 3) Enforcement of claims against sureties and any manner any of its properties except in other persons solidarily liable with the debtor, the ordinary course of business; and 3rd party or accommodation mortgagors as 4. Prohibit the debtor from making any well as issuers of letters of credit, unless the payment of its liabilities outstanding as of property subject of the 3rd party or commencement date except as may be accommodation mortgage is necessary for the provided for by law rehabilitation of the debtors. 4) Any form of action of customers or clients of a COMMENCEMENT DATE: the date when the court securities market participant to recover or issues the Commencement Order retroactive to the otherwise claim moneys and securities date of filing of the petition for voluntary or entrusted to the latter in the ordinary course of involuntary proceedings. the latter’s business as well as any action of The Commencement Order is issued within 5 days such securities market participant or the from the filing of the petition. appropriate regulatory agency or self-regulatory organization to pay or settle such claims or DURATION: the entire duration of the rehabilitation liabilities. proceeding but may be lifted if there is no 5) Actions of licensed broker/dealer to sell substantial likelihood for the debtor to successfully pledged securities of a debtor pursuant to a rehabilitated. securities pledge or margin agreement for the settlement of securities transactions. 6) Any criminal action against individual CLAIMS debtor/owner, partner, director, or officer of a debtor shall not be affected by any proceeding Claim – all claims or demands of whatever nature or commenced under the FRIA. 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: COURT ACTION 1) ALL CLAIMS OF THE GOVERNMENT, Upon filling of the petition for rehabilitation, the whether national or local, court may: including taxes, tariffs and customs 1. Give due course to the petition if: duties; a. Debtor is insolvent 2) CLAIMS AGAINST DIRECTORS AND b. There is substantial likelihood for OFFICERS OF THE DEBTOR the debtor to be successfully arising from acts done in the rehabilitated. discharge of their functions falling 2. Deny the petition, if any of the following are within the scope of their authority: present: a. When the debtor is not insolvent RFBT | RA 10142: FRIA | PAAO 7  b. The petition is a sham filing 2. Determining the viability of the intended only to delay enforcement rehabilitation of the debtor, of the rights of the creditors 3. Preparing and recommending a c. The petition/rehabilitation plan/and Rehabilitation Plan to the court; and the attachments are materially false 4. Implementing the approved Rehabilitation or misleading statements; or Plan d. Debtor has committed acts of QUALIFICATIONS: misrepresentation in fraud of creditors 1. Citizen of PH 3. Covert the proceedings to liquidation – 2. Resident of the PH in the 6 months there is no substantial likelihood for the immediately preceding the nomination debtor to be successfully rehabilitated. 3. Has the requisites knowledge of insolvency and commercial laws 4. No conflict of interest WHO WILL MANAGE THE BUSINESS OF THE MANAGEMENT COMMITTEE: when appointed by DEBTOR the court, shall take the place of the management During the rehabilitation proceeding, the and the governing body of the debtor and assume management shall be done by the: their rights and responsibilities. 1. Existing Board and/or management; or CREDITORS' COMMITTEE: creditors belonging to a 2. Upon motion, the court may appoint: class may formally organize a committee, or as a a. Rehabilitation Receiver; or body create a committee composed of each class of b. Management Committee creditors, such as 1. Secured creditors; 2. Unsecured creditors REHABILITATION RECEIVER and 3. Trade creditors and suppliers; and MANAGEMENT COMMITEE 4. Employees of the debtor. GROUNDS FOR APPOINTMENT OF A ROLE OF CREDITORS COMMITTEE: to assist REHABILITATION RECEIVER/MANAGEMENT the rehabilitation receiver in communicating COMMITTEE with the creditors and shall be the primary liaison between the rehabilitation receiver and 1. Actual or eminent danger of dissipation, the creditors loss, wastage or destruction of the debtor's assets or properties; They cannot exercise or waive any right or give 2. Paralyzation of the business operations of any consent on behalf of any creditor unless the debtor; or specifically authorized in writing by such 3. (a) Gross mismanagement of the debtor, or creditor. (b) fraud or (c) other wrongful conduct on the part of, or gross or willful violation of the FRIA by REHABILITATION PLAN existing management of the debtor, owner, partner, director, officer of representative/s Rehabilitation Plan - a plan by which the financial in the management of the debtor. well-being and viability of an insolvent debtor can be restored using various means including, but not DUTIES: limited to: A rehabilitation receiver is appointed by the court 1. Debt forgiveness; with the principal duty of: 2. Debt rescheduling; 1. Preserving the value of the assets of the 3. Reorganization or quasi-reorganization; debtor during the rehabilitation proceedings 4. Dacion en pago; RFBT | RA 10142: FRIA | PAAO 8  5. Debt-equity conversion; and 1. The creditors' support was induced by 6. Sale of the business (or parts of it) as a fraud; going concern; or 2. Documents or data relied upon in the plan 7. Setting up of new business entity; or are materially false or misleading; or 8. Other similar arrangements 3. The plan is in fact not supported by the voting creditors. As may be approved by the court or creditors. Confirmation of the Rehabilitation Plan: the court Approval required: shall issue an order confirming the Rehabilitation 1. Creditors representing 50% of total claims Plan if: and the confirmation of the court; or 1. No objections are filed within the relevant 2. The court even without approval of the period or, creditors or even over the objections of the 2. If objections are filed, the court finds them creditors, in the following cases: lacking in merit, or a. The Rehabilitation Plan complies 3. The court determines that the basis for the with the requirements of the FRIA objection has been cured, or b. The rehabilitation receiver 4. The court determines that the debtor has recommends the confirmation of complied with an order to cure the the Rehabilitation Plan; objection. c. The shareholders, owners or partners of the juridical debtor lose The court may confirm the Rehabilitation Plan at least their controlling interest as a notwithstanding unresolved disputes over claims if result of the Rehabilitation Plan: and the Rehabilitation Plan has made adequate d. The Rehabilitation Plan would likely provisions for paying such claims. provide the objecting class of creditors with compensation which has a net present value greater than For the avoidance of doubt, the provisions of other that which they would have received laws to the contrary notwithstanding, the court shall if the debtor were under liquidation. have the power to approve or implement the Rehabilitation Plan despite the lack of approval, or objection from the owners, partners or stockholders Submission of the Rehabilitation Plan: of the insolvent debtor: If the Rehabilitation Plan is approved: Provided, That the terms thereof are necessary to restore the financial well-being and viability of the - Rehabilitation receiver shall submit the insolvent debtor. same to the court for confirmation. Within 5 days from receipt of the Rehabilitation Plan, the court shall notify the creditors that the Period of Confirmation: must be within 1 year from Rehabilitation Plan has been submitted for the date of filing the petition. confirmation that any creditor may obtain copies of the Rehabilitation Plan and that If no plan is confirmed within the said period, the any creditor may file an objection thereto. proceedings may upon motion, or motu propio, be converted into one for the liquidation of the debtor. 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: RFBT | RA 10142: FRIA | PAAO 9 Cram Down Effect: the rehabilitation plan STANDSTILL PERIOD approved by the court shall be binding upon the: A standstill period that may be agreed upon by the 1. Debtor parties pending negotiation and finalization of the 2. All persons who may be affected by it, out-of-court or informal restructuring/workout including creditors, whether or not such agreement or Rehabilitation Plan and it shall be persons: effective and enforceable not only against the a. have participated in the proceedings contracting parties but ale against the other b. opposed the plan creditors, if: c. whether or not the claims have been 1. Such agreement is approved by creditors scheduled representing more than 50% of the total liabilities of the debtor; 2. Notice thereof is publishing in a newspaper SP vs. R of general circulation in the Philippines SUSPENSION OF once a week for 2 consecutive weeks; and REHABILITATION 3. The standstill period does not exceed 120 PAYMENTS Applies only to Applies to business days from the date of effectivity. individual organizations also The notice must invite creditors to participate in the Debtor has sufficient Debtor is insolvent negotiation for out-of-court rehabilitation or assets to cover restructuring agreement and notify them that said liabilities agreement will be binding on all creditors if the Secured debtors are Secured debtors are not affected affected by stay order required majority votes are met. Filed by the debtor Maybe filed by creditors No minimum When creditors file, the CRAM DOWN EFFECT requirement for the claims must be: amount of claims 3. at least 1M A restructuring/workout agreement or Rehabilitation 4. at least 25% of Plan that is approved pursuant to an informal the subscribed workout framework shall have the same legal effect capital stock or as confirmation of a Plan as earlier discussed. partners Publication requirement: The notice of the contribution, whichever is Rehabilitation Plan or restructuring agreement or higher Plan shall be published once a week for at least 3 consecutive weeks in a newspaper of general circulation in the Philippines. PRE-NEGOTIATED (OUT-OF-COURT) Effectivity: The Rehabilitation Plan or restructuring REHABILITATION agreement shall take effect upon the lapse of 15 days from the date of the last publication of the REQUIREMENTS: notice thereof. 1. The debtor must agree to the out-of-court or informal restructuring/workout agreement or rehabilitation plan; LIQUIDATION 2. Approved by creditors: a. Representing at least 67% of the Liquidation is the proceeding where: secured obligations; 1. Claims are filed; and b. Representing at least 75% of the 2. The assets of the insolvent debtor are unsecured obligations; and disposed; and c. Holding at least 85% of the total 3. Proceeds are divided among the creditors. liabilities, secured and unsecured RFBT | RA 10142: FRIA | PAAO 10  SP vs L ACTS OF INSOLVENCY SUSPENSION OF LIQUIDATION a) That such person is about to depart or PAYMENTS has departed from the Republic of the Debtor has sufficient Debtor is already Philippines, with intent to defraud his assets to cover insolvent creditors; liabilities b) That being absent from the Republic of Payment of obligations Obligations are the Philippines, with intent to defraud his is stayed discharged creditors, he remains absent; Applies only to Also applies to c) That he conceals himself to avoid the individual debtors business organizations service of legal process for the purpose Filed by the debtor May be initiated by the of hindering or delaying the liquidation or creditors of defrauding his creditors; No minimum amount Debt of the individual of liabilities must be at least 500K d) That he conceals, or is removing, any of Rules on concurrence Applicable his property to avoid its being attached and preference of or taken on legal process; credits DO NOT APPLY e) That he has suffered his property to remain under attachment or legal process for 3 days for the purpose of VOLUNTARY vs INVOLUNTARY LIQUIDATION hindering or delaying the liquidation or of defrauding his creditors; SIMILARITIES f) That he has confessed or offered to allow 1. Debtor is insolvent judgment in favor of any creditor or 2. Debts must be at least 500K claimant for the purpose of hindering or delaying the liquidation or of defrauding DIFFERENCES any creditors or claimant; VOLUNTARY INVOLUNTARY g) That he has willfully suffered judgment to Acts of insolvency Creditors must prove be taken against him by default for the need not be alleged acts of insolvency purpose of hindering or delaying the and proved liquidation or of defrauding his creditors; The individual debtor A creditor or group of h) That he has suffered or procured his files the petition creditors files the property to be taken on legal process petition with intent to give a preference to one or The debtor is not Applies even in the more of his creditors and thereby hinder absent as he is the one case of an absent or delay the liquidation or defraud any who files the petition debtor (one who one of his creditors; resides or has i) That he has made any assignment, gift, departed from the PH, cannot be found or sale, conveyance or transfer of his conceals himself) estate, property, rights or credits with Posting of bond by Posting of bond by intent to hinder or delay the liquidation creditors not required creditors is required or defraud his creditors; Liquidation order Liquidation order j) That he has, in contemplation of issues without trial issues only after trial insolvency, made any payment, gift, Number of creditors Must be 3 or more grant, sale, conveyance or transfer of his immaterial creditors whose claim estate, property, rights or credits; is at least 1M or at k) That being a merchant or tradesman, he least 25% of the has generally defaulted in the payment subscribed capital of his current obligations for a period of stock or partners 30 days; contributions, whichever is higher. RFBT | RA 10142: FRIA | PAAO 11  l) That for a period of 30 days, he has failed, d) Order the publication of the petition or after demand, to pay any moneys motion in a newspaper of general deposited with him or received by him in circulation once a week for 2 consecutive a fiduciary; and weeks; m) That an execution having been issued e) Direct payments of any claims and against him on final judgment for money, conveyance of any property due the debtor he shall have been found to be without to the liquidator; sufficient property subject to execution f) Prohibit payments by the debtor and the to satisfy the judgment. transfer of any property by the debtor; g) Direct all creditors to file their claims with the liquidator within the period set by the CONVERSION BY THE COURT INTO LIQUIDATION rules of procedure; PROCEEDINGS h) Authorize the payment of administrative expenses as they become due; During the pendency of court-supervised or pre- i) State that the debtor and creditors who are negotiated rehabilitation proceedings, the court not petitioner/s may submit the names of may order the conversion of rehabilitation other nominees to the position of liquidator; proceedings to liquidation proceedings, in the and following cases: j) Set the case for hearing for the election and appointment of the liquidator which date 1) When a petition for rehabilitation is filed and it shall not be less than 30 days nor more than is established that the debtor is indeed 45days from the date of the last publication. insolvent but there is no substantial likelihood for the debtor to be successfully rehabilitated. 2) If no rehabilitation plan is confirmed within a RIGHTS OF SECURED CREDITORS period of 1 year from the filing of the petition The liquidation order will not affect the right of a for rehabilitation. secured creditor to enforce his lien in accordance 3) Failure of rehabilitation or dismissal of the with the applicable contract or law. He may: petition for rehabilitation on technical grounds; or 1. Waive his right under the security or lien, prove 4) Upon filing of the verified motion of the debtor his claim in the liquidation proceedings and during the pendency of the court-supervised share in the distribution of assets of the debtor; or pre-negotiated rehabilitation proceedings. or 2. Maintain his rights under the security or lien. In Thereupon, the court shall issue the Liquidation which case: Order. a. The value of the property may be fixed in a manner agreed upon by the creditor and the liquidator. LIQUIDATION ORDER i. Value is LESS than the claim - the liquidator may convey the property Liquidation order includes, among others: to the creditor and the latter will be a) Declare the debtor insolvent; admitted in the liquidation b) Order the liquidation of the debtor and, in proceedings as a creditor for the the case of a juridical debtor, declare it as balance. dissolved; ii. Value EXCEEDS the claim - the c) Order the sheriff to take possession and liquidator may convey the property control of all the property of the debtor, to the creditor and waive the except those that may be exempt from debtor's right of redemption upon execution; receiving the excess from the creditor. RFBT | RA 10142: FRIA | PAAO 12  b. The liquidator may sell the property and Qualifications of the Liquidator satisfy the secured creditor's entire claim The liquidator shall have the qualification from the proceeds of the sale; or enumerated above for rehabilitation receivers. c. The secured creditor may enforce the lien and foreclose on the property pursuant to applicable laws. Removal He may be removed at any time by the court for LIQUIDATOR cause, either moto propio or upon motion of any creditor entitled to vote for the election of the Election of Liquidator liquidator. Only creditors who have filed their claims within the DETERMINATION OF CLAIMS period set by the court, and whose claims are not barred by the statute of limitations, will be allowed Registry of Claims to vote in the election of the liquidator. Within 20 days from his assumption into office the liquidator shall prepare a preliminary registry of A secured creditor will not be allowed to vote, claims of secured and unsecured creditors. unless: Secured creditors who have waived their security or a) he waives his security or lien; or lien, or have fixed the value of the property subject b) has the value of the property subject of his of their security or lien by agreement with the security or lien fixed by agreement with the liquidator and is admitted as a creditor for the liquidator, and is admitted for the balance of his balance, shall be considered as unsecured claim. creditors. The creditors entitled to vote will elect the liquidator The liquidator shall make the registry available for in open court. public inspection and provide publication notice to creditors, individual debtors owner/s of the sole The nominee receiving the highest number of votes proprietorship-debtor, the partners of the cast in terms of amount of claims, and who is partnership-debtor and shareholders or members of qualified shall be appointed as the liquidator. the corporation-debtor, on where and when they may inspect it. All claims must be duly proven before being paid. Curt-Appointed Liquidator The court may appoint the liquidator if: Right of Set-off a. On the date set for the election of the liquidator, the creditors do not attend; If the debtor and creditor are mutually debtor and b. Creditors who attend, fail or refuse to elect a creditor of each other one debt shall be set off liquidator; against the other, and only the balance if any shall c. After being elected, the liquidator fails to be allowed in the liquidation proceedings. qualify; or d. A vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court Opposition or Challenge to Claims may instead set another hearing of the election of the liquidator. Within 30 days from the expiration of the period for filing of applications for recognition of claims A rehabilitation receiver, who was administering the creditors, individual debtors, owner/s of the sole debtor prior to the commencement of the proprietorship-debtor, partners of the partnership- liquidation, may also be appointed as a liquidator. debtor, and shareholders or members of the corporation-debtor and other interested parties may RFBT | RA 10142: FRIA | PAAO 13 submit a challenge to claim or claims to the court, made to the satisfaction of the court, and shall be serving a certified copy on the liquidator and the conclusive evidence of that fact. creditor holding the challenged claim. Upon the expiration of the 30 day period, the Sale of Assets in Liquidation rehabilitation receiver shall submit to the court the registry of claims containing the undisputed claims The liquidator may sell the unencumbered assets of that have not been subject to challenge. Such the debtor and convert the same into money. 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 General Rule neglect. The sale shall be made at public auction. Submission of Disputed Claims to the Court Exceptions The liquidator shall resolve disputed claims and submit his findings thereon to the court for final A private sale may be allowed with the approval of approval. The liquidator may disallow claims. the court if: a) The goods to be sold are of a perishable nature, or are liable to quickly deteriorate in LIQUIDATION PLAN value, or are disproportionately expensive to keep or maintain; or Within 3 months from his assumption into office, b) The private sale is for the best interest of the the Liquidator shall submit a Liquidation Plan to the debtor and his creditors. court. The Liquidation Plan shall, as a minimum enumerate: With the approval of the court, unencumbered property of the debtor may also be conveyed to a 1. All the assets of the debtor creditor in satisfaction of his claim or part thereof. 2. A schedule of liquidation of the assets and 3. Payment of the claims. Order Removing the Debtor from the List of Registered Entitles at the Securities and Exempt Property to be Set Apart Exchange Commission It shall be the duty of the court, upon petition and Upon determining that the liquidation has been after hearing, to exempt and set apart, for the use completed, the court shall issue an Order approving and benefit of the said insolvent, such real and the report and ordering the SEC to remove the debtor personal property as is by law exempt from from the registry of legal entities. 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 Termination of Proceedings therefor has been duly given by the clerk, by causing such notice to be posted it at least 3 public places in Upon receipt of evidence showing that the debtor the province or city at least 10 days prior to the time has been removed from the registry of legal entities of such hearing, which notice shall set forth the at the SEC. The court shall issue an Order name of the said insolvent debtor, and the time and terminating the proceedings. 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 RFBT | RA 10142: FRIA | PAAO 14