Suspension

of Payments Rehabilita4on

Deni4on Judicial insolvency proceeding whereby an individual the restora9on of the debtor to a condi9on of successful opera9on and solvency, if shown that its con9nuance of opera9on is economically feasible and its creditors may
debtor submits, for approval of his creditors, a proposed recover by way of present value of payments projected in the plan, more if the debtor con9nues as a going concern than if it is immediately liquidated. (FRIA, Sec. 4 (gg))
agreements containing proposi9ons delaying or
extending the 9me of payment of his debts Requisites:
1. Economic feasibility
2. Present value recovery

Modes Court-supervised rehabilita4on Pre-nego4ated rehabilita4on Out-of-court rehabilita4on

Voluntary proceedings Involuntary Proceedings

Who les pe44on Illiquid individual debtor Insolvent debtor CREDITOR or GROUP OF CREDITORS Insolvent debtor by itself or jointly with
1. Sole proprietorship - owner with: any of its creditors
2. Partnership - majority of partners 1. a CLAIM or an AGGREGATE AMOUNT
3. Corpora9on - majority vote of the OF CLAIM of at least 1 MILLION PRENEGOTIATED - agreement by the
board of directors or trustees and PESOS par9es extrajudicially; terminates
authorized by the vote of majority of 2. a CLAIM of AT LEAST 25% of the judicially
the stockholders represen9ng 2/3 of SUBSCRIBED CAPITAL STOCK or
the outstanding capital stock; or PARTNERS CONTRIBUTION,
4. Non-stock corpora9ons - vote of at whichever is higher
least 2/3 of the members
If:
GROUP OF DEBTORS may jointly le a 1. there is no genuine issue of fact on
pe99on for rehabilita9on when: law on the claim/s of the pe44oner/
1. one or more of its members FORESEE s, and that the due and demandable
THE IMPOSSIBILITY OF MEETING payments thereon have not been
DEBTS WHEN THEY FALL DUE, and made for at least 60 days or that the
the nancial distress WOULD LIKELY debtor has failed generally to meet its
ADVERSELY AFFECT THE FINANCIAL liabili9es as they fall due
CONDITION AND/OR OPERATIONS 2. a creditor, other than the pe44oner/
OF OTHER MEMBERS OF THE GROUP s, has ini4ated foreclosure
and/or proceedings against the debtor that
2. THE PARTICIPATION OF THE OTHER will prevent the debtor from paying
MEMBERS OF THE GROUP IS its debts as they become due or will
ESSENTIAL UNDER THE TERMS AND render it insolvent.
CONDITION IN THE PROPOSED
REHABILITATION PLAN.
(FRIA, Sec. 12)

Where should the In a court of the city or province in which he has resided
pe44on be led? 6 months prior to the ling of the pe99on

Pe44on VERIFIED PETITION to declare him in a STATE OF VERIFIED PETITION to establish the insolvency of the debtor and the viability of its VERIFIED PETITION endorsed or
SUSPENSION OF PAYMENTS rehabilita9on approved by creditors holding at least 2/3
of the total liabili(es of the debtor,
including:
1. secured creditors holding 50% of total
secure claims
2. unsecured creditors holding 50% of
total unsecured claims

Illustra9on: 50% secured, 50% unsecured

66.66% - total required votes
66.66% should include 25% (secured
claims), 25% (unsecured claims)

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 Suspension of Payments Rehabilita4on

Contents/a\achments 1. Schedule of debts and liabili9es; 1. Iden9ca9on of the debtor, its 1. Iden9ca9on of the debtor, its 1. a schedule of the debtor's debts and
2. Inventory of the assets; and principal ac9vi9es and its addresses principal ac9vi9es and its addresses liabili9es;
3. Proposed agreement with the creditors 2. Statement of the fact of and the 2. Circumstances sucient to support a 2. an inventory of the debtor's assets;
cause of the debtors insolvency or pe99on to ini9ate involuntary 3. the pre-nego9ated Rehabilita9on
inability to pay its obliga9ons as they rehabilita9on proceedings Plan, including the names of at least 3
become due 3. Specic relief sought qualied nominees for rehabilita9on
3. Specic relief sought 4. Rehabilita9on plan receiver; and
4. Grounds upon which the pe99on is 5. Names of at least 3 nominees to the 4. a summary of disputed claims against
based posi9on of rehabilita9on receiver the debtor and a report on the
5. Other informa9on that may be 6. Other informa9on that may be provisioning of funds to account for
required under this act depending on required depending on the form of appropriate payments should any
the form of relief requested relief requested such claims be ruled valid or their
6. Schedule of the debtors debts and 7. Other documents required to be led amounts adjusted.
liabili9es including a list of creditors with the pe99on pursuant to this Act
with their addresses, amounts of and the rules of procedure as may be
claims and collaterals, or securi9es, if promulgated by the Supreme Court
any
7. An inventory of all its assets including
receivables and claims against 3rd
par9es
8. A rehabilita9on plan
9. The names of at least 3 nominees to
the posi9on of rehabilita9on receiver
10. Other documents required to be led
with the pe99on pursuant to this Act
and the rules of procedure as may be
promulgated by the supreme court.

Rules AUTOMATIC STAY (FRIA, Sec. 96, par. 2) Within 5 working days from the ling of pe44on court may: 5 working days a^er ling, and a^er GENERAL CONCEPT:
No creditor shall sue or ins9tute proceedings to collect 1. If sucient in form and substance - issue COMMENCEMENT ORDER determina4on that the pe44on is Deni(on: An out-of-court or informal
his claim from the debtor from the 9me of ling of 2. If decient in form or substance - the court may, in its discre9on, give the sucient in form and substance, court restructuring agreement or Rehabilita9on
pe99on for suspension of payments and for so long as pe99oner/s a reasonable period of 9me within which issues order which shall: (Sec. 77) Plan that meets the minimum
proceedings are pending, except: a. to AMEND OR SUPPLEMENT the pe99on, or 1. iden9fy the debtor, its principal requirements (Sec. 83)
1. creditors having claims for personal labor, b. to SUBMIT DOCUMENTS as may be necessary or proper to put the pe99on business of ac9vity/ies and its
maintenance, expense of last illness and funeral of in proper order. In such case, the 5 working days for the issuance of the principal place of business;
the wife or children of the debtor incurred in the 60 Commencement Order shall be reckoned from the date of the ling of the 2. declare that the debtor is under
days immediately prior to the ling of pe99on amended or supplemental pe99on or the submission of such documents. rehabilita9on;
2. secured creditors 3. summarize the ground/s for the lling
of the pe99on;
SUSPENSION ORDER (FRIA, Sec. 96, par. 1) COMMENCEMENT ORDER (FRIA, Sec. 16) 4. direct the publica9on of the Order in Minimum requirements: (Sec. 84)
Upon mo9on led by the individual debtor, the court The rehabilita9on proceedings shall commence upon the issuance of the a newspaper of general circula9on in 1. The debtor must agree to the out-of-
may issue an order suspending any pending execu9on Commencement Order, which shall: (See: Sec. 16) the Philippines once a week for at court or informal restructuring/
against the individual debtor. The suspension order shall least 2 consecu9ve weeks, with the workout agreement or Rehabilita9on
lapse when 3 months shall have passed without the EFFECT OF COMMENCEMENT ORDER (Sec. 17) rst publica9on to be made within 7 Plan;
proposed agreement being accepted by the creditors or 1. Vest the rehabilita9on with all the powers and func9ons in the FRIA days from the 9me of its issuance; 2. It must be approved by creditors
as soon as the agreement is denied. 2. Prohibit or at least serve as legal basis to render null and void the enforcement of 5. direct the service by personal delivery represen9ng at least 67% of the
E: property held as security by secured creditors shall claim against debtor unless otherwise allowed by FRIA of a copy of the pe99on on each secured obliga9ons of the debtor;
not be subject of such suspension order. 3. Serve as legal basis to render null and void any seto of debt owed by debtor by creditor who is not a pe99oner 3. It must be approved by creditors
any of debtors creditors holding at least 10% of the total represen9ng at least 75% of the
4. Serve as legal basis to render null and void the perfec9on of lien against debtors liabili9es of the debtor, as unsecured obliga9ons of the debtor;
property determined in the schedule aeached 4. It must be approved by creditors
5. Consolidate resolu9on of all legal proceedings by and against the debtor to the pe99on, within 3 days; holding at least 85) of the total
6. state that copies of the pe99on and liabili9es, secured and unsecured, of
the Rehabilita9on Plan are available the debtor.
for examina9on and copying by any

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 Suspension of Payments Rehabilita4on the Rehabilita9on Plan are available
for examina9on and copying by any
INJUNCTION ORDER (FRIA, Sec. 95 (e)(f)) STAY OR SUSPENSION ORDER (Sec. 16q) Benets of OCR
interested party;
If the court nds the pe99on sucient in form and Stay or Suspension Order which shall: 1. STANDSTILL PERIOD: agreed upon by
7. state that creditors and other
substance, it shall within 5 days from the ling of (1) suspend all ac9ons or proceedings for the enforcement of claims against the the par9es pending nego9a9on and
interested par9es opposing the
pe99on, issue an order: debtor; naliza9on of the out-of-court or
pe99on or Rehabilita9on Plan may
(e) Forbid the individual debtor from selling, (2) suspend all ac9ons to enforce any judgment, aeachment or other provisional informal restructuring/workout
le their objec9ons or comments
transferring, encumbering or disposing in any remedies against the debtor; agreement or Rehabilita9on Plan;
thereto within a period of not later
manner of his property; E: those used in the (3) prohibit the debtor from selling, encumbering, transferring or disposing in any Binding not only against the
than 20 days from the second
ordinary opera9ons of commerce or industry in manner any of its proper9es except in the ordinary course of business; and contrac9ng par9es but also against
publica9on of the Order;
which the pe99oning individual debtor is engaged in (4) prohibit the debtor from making any payment of its liabili9es outstanding as of the other creditors. PROVIDED
8. appoint a rehabilita9on receiver, if
so long as the suspension of payments are pending. the commencement date except as may be provided herein. (a) approved by creditors
provided for in the Plan; and
(f) Prohibit the individual debtor from making any represen9ng more than 50% of
9. include a Suspension or Stay Order as
payment outside of the necessary or legi9mate (Sec. 20) Commencement order and stay or suspension order shall apply to the total liabili9es of the debtor;
described in this Act.
expenses of his business or industry government nancial ins9tu9ons, notwithstanding provisions in their charters or (b) no9ce thereof is publishing in a
other laws to the contrary newspaper of general circula9on
in the Philippines once a week
A preferred creditor stands on equal foo9ng with all other creditors aher the for 2 consecu9ve weeks; and
appointment of a management commieee, rehabilita9on receiver, board or body; a (c) the stands9ll period does not
mortgage may be foreclosed aher the ling of pe99on for rehabilita9on but before exceed 120 days from the date
the appointment of a management commieee or receiver. (RCBC vs. IAC; note: this of eec9vity.
case was decided under PD 902-A but s9ll good law under FRIA)

CREDITORS MEETING (FRIA, Sec. 95) Extent of stay or suspension: Within 10 days from the date of the 2. Shall have the same eect as CRAM
(a) Call a mee9ng of all the creditors named in the 1. GR: Upon appointment of management commieee, rehabilita9on receiver, board second publica4on of the Order, the DOWN EFFECT under Sec. 69.
schedule of debt and liabili9es 15-40 days from the or body, ALL ACTIONS FOR CLAIMS against corpora7ons, partnerships, or court shall APPROVE THE (a) binds not only insolvent debtor
date of the Order xxx associa7ons under management or receivership before any court, tribunal, REHABILITATION PLAN unless a creditor but all persons who may be
board or body shall be SUSPENDED accordingly (Sobrejuanite vs. ASB or other interested party submits an aected by it, etc.
Composi4on (FRIA, Sec. 97) Development) objec9on to it in accordance with the 3. AMENDMENT or MODIFICATION:
- The presence of creditors holding claims amoun9ng 2. Excep9on: Proper4es already foreclosed and whose ownership has already been next succeeding sec9on. (Sec. 78) made in accordance with the terms of
to at least 3/5 of the liabili9es of the individual debtor consolidated before rehabilita4on proceedings CANNOT be aected by a stay the agreement and with due no9ce
is necessary to discuss the proposi9ons in the order (Town and Country Enterprises vs. Quisumbing, Jr. et al.) Objec4on to rehabilita4on plan: shall be on all creditors.
proposed agreement and to put them to a vote submieed 8 days aher second publica9on 4. EFFECT: Any court ac9on or other
- Majority Excep9ons to the Stay or Suspension Order: order. Limited to the following grounds: proceedings arising from, or rela9ng
- 2/3 of the creditors vo9ng 1. cases already pending appeal in the Supreme Court as of commencement date (Sec. 79) to, the out-of-court or informal
- Claims represented by the majority vote shall (Sec. 18a) 1. The allega9ons in the pe99on or the restructuring/workout agreement or
amount to at least 3/5 of the total liabili9es of the 2. cases pending or led at a specialized court or quasi-judicial agency which, upon Rehabilita9on Plan or the Rehabilita9on Plan shall not stay its
debtor determina9on by the court is capable of resolving the claim more quickly, fairly aeachments thereto are materially implementa9on, unless the relevant
and eciently than the court, subject to the discre9on of the court (Sec. 18b) false or misleading; party is able to secure a temporary
When proposed agreement is deemed rejected (FRIA, 3. enforcement of claims against sure9es and other persons solidarily liable with the 2. The majority of any class of creditors restraining order or injunc9ve relief
Sec. 99) debtor, and third party mortgagors as well as issuers of leeers of credit, unless the do not in fact support the from the Court of Appeals.
1. When there is no quorum property subject of the third party mortgage is necessary for the rehabilita9on of Rehabilita9on Plan; 5. COURT ASSISTANCE: The insolvent
2. If the 2 majori9es in Sec. 97 are not in favor the debtor as determined by the court upon recommenda9on by the 3. The Rehabilita9on Plan fails to debtor and/or creditor may seek
Eect: The proceeding shall be TERMINATED without rehabilita9on receiver (Sec. 18c) accurately account for a claim against court assistance for the execu9on or
recourse and the par9es concerned shall be at liberty to 4. any form of ac9on of customers or clients of a securi9es market par9cipant to the debtor and the claim in not implementa9on of a Rehabilita9on
enforce rights which may correspond to them recover or otherwise claim moneys and securi9es entrusted to the laeer in the categorically declared as a contested Plan under this Chapter, under such
ordinary course of the laeer's business (Sec. 18d) claim; or rules of procedure as may be
Grounds for objec4ons (FRIA, Sec. 100) 5. ac9ons of a licensed broker or dealer to sell pledged securi9es of a debtor 4. The support of the creditors, or any promulgated by the Supreme Court.
Any creditor who aeended the mee9ng and who pursuant to a securi9es pledge or margin agreement for the seelement of of them was induced by fraud.
dissented from and and protested against the vote of securi9es transac9ons (Sec. 18e)
the majority may le an objec9on within 10 days from 6. clearing and seelement of nancial transac9ons through the facili9es of a clearing
the date of the last creditors mee9ng when there is/are: agency or similar en99es duly authorized, registered and/or recognized by the
1. Defects in the call for the mee4ng, in the holding appropriate regulatory agency (Sec. 18f)
thereof and in the delibera4ons had thereat which 7. any criminal ac9on against individual debtor or owner, partner, director or ocer
prejudice the rights of the creditors of a debtor (Sec. 18g)
2. Fraudulent connivance between one or more 8. debtor's suppliers of goods or services for goods or services supplied in the
creditors and the individual debtor to vote in favor ordinary course of business for as long as the debtor makes payments for the
of the proposed agreement. services or goods supplied aher the issuance of the Commencement Order (16k)
3. Fraudulent conveyance of claims for the purpose of 9. Administra9ve expenses when they fall due (Sec. 16l) (See: FRIA, Sec. 4)
obtaining majority

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 Suspension of Payments Rehabilita4on

COMMISSIONER (FRIA, Sec. 95) Subsequent Ac9ons:

(g) Appoint a commissioner to preside over the 1. Ini(al hearing: (Sec. 22)
creditors mee9ng (a) determine the creditors who have made (mely and proper ling of their
no(ce of claims;
Du9es of Commisioner (FRIA, Sec. 97, (b) (e)) (b) hear and determine any objec(on to the qualica(ons of the appointment of
(b) xxx examine the wrieen evidence of claims xxx the rehabilita(on receiver and, if necessary appoint a new one in accordance
(e) xxx sign the armed proposi9ons with this Act;
(c) direct the creditors to comment on the pe((on and the Rehabilita(on Plan,
PROPOSED AGREEMENT (FRIA, Sec. 101) and to submit the same to the court and to the rehabilita(on receiver within HEARING ON OBJECTIONS (Sec. 80)
Eects of approval of the proposed agreement a period of not more than 20 days; and Aher receipt of an objec9on, the court
1. Court shall order the agreement to be carried out (d) direct the rehabilita(on receiver to evaluate the nancial condi(on of the shall set the same for hearing.
and all par9es bound thereby to comply with its debtor and to prepare and submit to the court within 40 days from ini(al 1. Date of the hearing: no earlier than
terms hearing the report provided in Sec(on 24 hereof. 20 days and no later than 30 days
2. Court may issue all orders which may be necessary 2. Report of the Rehabilita(on Receiver shall contain ndings and recommenda(on from the date of the second
or proper to enforce the agreement on mo9on of whether: (Sec. 24) publica9on of the Order
any aected party. (a) the debtor is insolvent and if so, the causes thereof and any unlawful or 2. If the court nds merit:
irregular act or acts commiKed by the owner/s of a sole proprietorship (1) Defect in the pe99on: direct the
GR: binding upon all creditors whose claims are included partners of a partnership or directors or ocers of a corpora(on in debtor, when feasible to cure
in the schedule of debts and liabili9es submieed by the contempla(on of the insolvency of the debtor or which may have the detect within a reasonable
individual debtor and who were properly summoned. contributed to the insolvency of the debtor; period.
E: (b) the underlying assump(ons, the nancial goals and the procedures to (2) BF in debtor or creditors
1. creditors having claims for personal labor, accomplish such goals as stated in the pe((oner's Rehabilita(on Plan are suppor9ng the Rehabilita9on
maintenance, expense of last illness, and funeral of realis(c, feasible and reasonable; Plan or that the objec9on is non-
the wife or children of the debtor incurred in the 60 (c) there is a substan(al likelihood for the debtor to be successfully curable: convert the proceedings
days immediately prior to the ling of pe99on rehabilitated; into liquida9on.
2. secured creditors who failed to aeend the mee9ng (d) the pe((on should be dismissed; and 3. No substan9al merit in the objec9on,
or refrained from vo9ng therein (e) the debtor should be dissolved and/or liquidated. or that the same has been cured:
3. Give due course; dismissal of the pe((on; or conversion of proceedings: (Sec. 25) deemed an approval of the
Eect of failure of the individual debtor to perform (a) Give due course if: Rehabilita9on Plan.
agreement wholly or par4ally: (FRIA, Sec. 102) (1) the debtor is insolvent; and
All rights which the creditors had against the individual (2) there is a substan(al likelihood for the debtor to be successfully PERIOD FOR APPROVAL: maximum
debtor before the proposed agreement shall be rehabilitated period of 120 days from the date of the
REVESTED in them. (b) Dismiss if: ling of the pe44on to approve the
(1) debtor is not insolvent; Rehabilita9on Plan. If the court fails to act
(2) the pe((on is a sham ling intended only to delay the enforcement of within the said period, the Rehabilita9on
the rights of the creditor/s or of any group of creditors; Plan shall be deemed approved. (Sec. 81)
(3) the pe((on, the Rehabilita(on Plan, and the aKachments thereto
contain any materially false or misleading statements; or EFFECT OF APPROVAL: same legal eect
(4) the debtor has commiKed acts of misrepresenta(on or in fraud of its as conrma9on of a Plan under court
creditor/s or a group of creditors; supervised rehabilita9on (Sec. 82)
(c) Convert the proceedings to liquida(on of the debtor if:
(1) the debtor is insolvent; and
(2) there is no substan(al likelihood for the debtor to be successfully
rehabilitated
4. If given due course: (Sec. 26)
(a) court shall direct the rehabilita(on receiver to review, revise and/or
recommend ac(on on the Rehabilita(on Plan
(b) submit the same or a new one to the court within a period of not more than
90 days.
(c) court may refer any dispute rela(ng to the Rehabilita(on Plan or the
rehabilita(on proceedings pending before it to arbitra(on or other modes of
dispute resolu(on, should it determine that such mode will resolve the
dispute more quickly, fairly and eciently than the court.
5. If dismissed: (Sec. 27)
(a) court may, in its discre(on, order the pe((oner to pay damages to any
creditor or to the debtor

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 Suspension of Payments Rehabilita4on

REHABILITATION RECEIVER
General Concepts:
1. Who? Any qualied natural or juridical person may serve as a rehabilita9on
receiver (Sec. 28)
(a) If juridical en9ty: it must designate a natural person/s who possess/es all the
qualica9ons and none of the disqualica9ons as its representa9ve,
(b) juridical en9ty and the representa9ve/s are solidarily liable for all obliga9ons
and responsibili9es of the rehabilita9on receiver.
2. Qualica9ons: (Sec. 29)
(a) ci(zen of the Philippines or a resident of the Philippines in the 6 months
immediately preceding his nomina(on
(b) Of good moral character and with acknowledged integrity, impar(ality and
independence;
(c) Has the requisite knowledge of insolvency and other relevant commercial
laws, rules and procedures, as well as the relevant training and/or experience
that may be necessary to enable him to properly discharge the du(es and
obliga(ons of a rehabilita(on receiver; and
(d) Has no conict of interest (may be waived, expressly or impliedly, by a party
who may be prejudiced thereby)
(e) Other qualica(ons and disqualica(ons of the rehabilita(on receiver shall
be set forth in procedural rules
3. Ini9al appointment: (Sec. 30)
(a) court shall ini(ally appoint the rehabilita(on receiver, who mayor may not be
from among the nominees of the pe((oner; however, at the ini(al hearing of
the pe((on, the creditors and the debtor who are not pe((oners may
nominate other persons to the posi(on; court may retain the rehabilita(on
receiver ini(ally appointed or appoint another who mayor may not be from
among those nominated
(b) If debtor is a securi(es exchange applicant: court shall give priority to the
nominee of the appropriate securi(es or investor protec(on fund.
(c) If a qualied natural person or en(ty is nominated by more than 50% of the
secured creditors and the general unsecured creditors: shall be appointed
4. Removal: (Sec. 32)
(a) Incompetence, gross negligence, failure to perform or failure to exercise the
proper degree of care in the performance of his du(es and powers;
(b) Lack of a par(cular or specialized competency required by the specic case;
(c) Illegal acts or conduct in the performance of his du(es and powers;
(d) Lack of qualica(on or presence of any disqualica(on;
(e) Conict of interest that arises a_er his appointment; and
(f) Manifest lack of independence that is detrimental to the general body of the
stakeholders.
5. Compensa9on: for reasonable fees and expenses from the debtor according to
the terms approved by the court a_er no(ce and hearing; Before hearing, based
on quantum meruit. (Sec. 33)
6. Oath: Shall take oath and le a bond (determined by court) (Sec. 34)
7. Vacancy: court shall direct the debtor and the creditors to submit the name/s of
their nominee/s to the posi(on; Court appoints any of the nominees or any
qualied person (Sec. 35)

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 Suspension of Payments Rehabilita4on

Powers du9es and responsibili9es:

1. Management remains with the debtor, but the disbursements, payments or sale,
disposal, assignment, transfer or encumbrance of property , or any other act
aec(ng (tle or interest in property, shall be subject to the approval of the
rehabilita(on receiver and/or the court (Sec. 47)
2. Determina(on of facts found in the Report of Rehab Receiver (Sec. 24)
3. (Sec. 33)
(a) verify the accuracy of the factual allega9ons in the pe99on and its annexes;
(b) verify and correct, if necessary:
(1) the inventory of all of the assets of the debtor, and their valua9on;
(2) schedule of debts and liabili9es of the debtor;
(c) evaluate the validity, genuineness and true amount of all the claims against
the debtor;
(d) take possession, custody and control, and to preserve the value of all the
property of the debtor;
(e) To sue and recover, with the approval of the court:
(1) all amounts owed to, and all proper9es pertaining to the debtor;
(2) all property or money of the debtor paid, transferred or disbursed in
fraud of the debtor or its creditors, or which cons9tute undue
preference of creditor/s
(f) have access to all informa9on necessary, proper or relevant to the opera9ons
and business of the debtor and for its rehabilita9on;
(g) To monitor the opera9ons and the business of the debtor to ensure that no
payments or transfers of property are made other than in the ordinary
course of business;
(h) With the court's approval, to engage the services of or to employ persons or
en99es to assist him in the discharge of his func9ons;
(i) To determine the manner by which the debtor may be best rehabilitated, to
review) revise and/or recommend ac9on on the Rehabilita9on Plan and
submit the same or a new one to the court for approval;
(j) To implement the Rehabilita9on Plan as approved by the court
(k) To assume and exercise the powers of management of the debtor, if directed
by the court
(l) To exercise such other powers as may, from 9me to 9me, be conferred upon
him by the court; and
(m) To submit a status report on the rehabilita9on proceedings every quarter or
as may be required by the court motu proprio, or upon mo9on of any
creditor, or as may be provided, in the Rehabilita9on Plan.
4. may employ specialized professionals and other experts to assist each in the
performance of their du9es who shall be considered either employees or
independent contractors of the rehabilita9on receiver or the management
commieee, as the case may be. (Sec. 39)
5. Shall be immune to any ac9on, claim, or demand in connec9on with any act done
or omieed to be done by them in good faith in connec9on with the exercise of
their powers and func9ons under the FRIA or other ac9ons duly approved by the
court. (Sec. 41)

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 Suspension of Payments Rehabilita4on

CREDITORS COMMITTEES
1. The rehabilita9on receiver shall confer with the debtor and all the classes of
creditors, and may consider their views and proposals in the review, revision or
prepara9on of a new Rehabilita9on Plan (Sec. 63)
2. Classes of creditors: Aher conference in Sec. 63, they may form their creditors
commieee. Classes are: (Sec. 42)
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
3. Role of creditors commieee: (Sec. 43)
(a) assist the rehabilita9on receiver in communica9ng with the creditors and
shall be the primary liaison between the rehabilita9on receiver and the
creditors.
(b) cannot exercise or waive any right or give any consent on behalf of any
creditor unless specically authorized in wri9ng by such creditor
(c) May be authorized by court or rehab receiver to perform such other tasks
and func9ons as may be dened by the procedural rules in order to facilitate
the rehabilita9on process

MANAGEMENT COMMITTEE
1. Court may, upon mo9on of any interested party, either direct the rehab receiver
or appoint a management commi\ee that will undertake the management of
the debtor, when there is a clear and convincing showing that: (Sec. 36)
(a) Actual or imminent danger of dissipa9on, loss, wastage or destruc9on of the
debtors assets or other proper9es
(b) Paralyza9on of the business opera9ons of the debtor; or
(c) Gross mismanagement of the debtor.,or fraud or other wrongful conduct on
the part of, or gross or willful viola9on of this Act by exis9ng management of
the debtor or the owner, partner, director, ocer or representa9ve/s in
management of the debtor.
2. Role of management commieee: shall take the place of the management and the
governing body of the debtor and assume their rights and responsibili9es. (37)
3. Qualica9ons: set forth in the procedural rules, taking into considera9on the
nature of the business of the debtor and the need to protect the interest of all
stakeholders concerned. (Sec. 38)

Conversion to During the pendency of court-supervised or pre-nego9ated rehabilita9on proceedings, the court may order the conversion of
Liquida4on rehabilita9on proceedings to liquida9on proceedings when:
1. there is no substan9al likelihood for the debtor to be successfully rehabilitated as determined in accordance with the rules to
be promulgated by the Supreme Court. (Sec. 25 (c)(2))
2. If no Rehabilita9on Plan is conrmed within 1 year from the date of the ling of the pe99on to conrm a Rehabilita9on Plan,
the proceedings may upon mo9on or motu propio, be converted into one for the liquida9on of the debtor (Sec. 72)
3. Voluntary liquida9on, upon mo9on of the debtor, at any 9me during the pendency of court-supervised or pre-nego9ated
rehabilita9on proceedings in the same court where the rehabilita9on proceedings are pending under Sec. 90
4. any other 9me upon the recommenda9on of the rehabilita9on receiver that the rehabilita9on of the debtor is not feasible.

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 Suspension of Payments Rehabilita4on

Treatment of Claims GENERAL CONCEPTS:

1. CLAIMS - all claims or demands of whatever nature or character against the
debtor or its property, whether for money or otherwise, liquidated or
unliquidated, xed or con9ngent, matured or unmatured, disputed or undisputed,
including, but not limited to; (Sec. 4(c))
(a) all claims of the government, whether na9onal or local, including taxes,
taris and customs du9es; and
(b) claims against directors and ocers of the debtor arising from acts done in
the discharge of their func9ons falling within the scope of their authority:
2. DETERMINATION OF CLAIMS:
(a) Rehabilita9on receiver shall: summarize the requirements and deadlines for
creditors to establish their claims against the debtor and direct all creditors
to their claims with the court at least 5 days before the ini9al hearing (16i)
(b) Registry of claims: 20 days aher assump9on of oce, rehabilita9on receiver
shall establish a preliminary registry of claims which shall be open for public
inspec9on; all claims included therein must be supported by sucient
evidence (Sec. 44)
(c) Opposi9on: 30 days from the expira9on of the period, debtor, creditors,
stakeholders and other interested par9es may submit a challenge to claim/s
to the court, serving a cer9ed copy on the rehabilita9on receiver and the
creditor holding the challenged claim/s. The rehabilita9on receiver shall
submit to the court the registry of claims which shall include undisputed
claims that have not been subject to challenge. (Sec. 45)
(d) Any decision of the rehabilita9on receiver regarding a claim may be appealed
to the court. (Sec. 46)
3. SECURE CREDITOR CLAIMS
(a) The claim of the secured creditor is suspended by the Stay Order but in no
way shall it be deemed to diminish or impair the security or lien of a secured
creditor, or the value of his lien or security (Sec. 60)
(b) He may be allowed by the court, upon mo9on or recommenda9on of the
rehabilita9on receive, to enforce his security or lien, or foreclose upon
property of the debtor if the said property is not necessary for the
rehabilita9on of the debtor, but only to the extent of the value of the
property; the balance, if any, shall be admieed to rehabilita9on (Sec. 60)
(c) The court, on mo9on or motu proprio, may terminate, modify or set
condi9ons for the con9nuance of suspension of payment, or relieve a claim
from the coverage thereof, upon showing that: (Sec. 61)
(1) a creditor does not have adequate protec9on over property securing its
claim
(2) value of a claim secured by a lien on property exceeds the fair market
value of the said property
(d) Lack of adequate protec9on: Court may order the debtor or the
rehabilita9on receiver to (1) make arrangements to provide for the
insurance or maintenance of the property; (2) make payments or otherwise
provide addi9onal or replacement security such that the obliga9on is fully
secured; or (3) if not feasible, modify the Stay Order to allow the secured
creditor lacking adequate protec9on to enforce its security claim against the
debtor (Sec. 61)
(1) the debtor fails or refuses to honor a pre-exis9ng agreement with the
creditor to keep the property insured;
(2) the debtor fails or refuses to take commercially reasonable steps to
maintain the property; or
(3) the property has depreciated to an extent that the creditor is under
secured.

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 Suspension of Payments Rehabilita4on

4. EMPLOYEE CLAIMS
(a) Treatment (Sec. 56)
(1) Compensa9on for carrying on of business - administra9ve expense
(2) Separa9on pay for months worked prior to commencement order - pre-
commencement claim
(3) Salary and separa9on pay for months worked aher commencement
order - administra9ve expense
(b) Administra9ve expenses are paid as they become due (Sec. 16 (l)); those pre-
commencement claims are included in the stay or suspension order (16q4)
(c) Art. 2244 was modied by the FRIA insofar as claims of the employees or
laborers are concerned. READ: FIRST PREFERENCE!! (Sec. 133)
5. TAXES
(a) Upon issuance of the Commencement Order by the court, and un4l the
approval of the Rehabilita4on Plan or dismissal of the pe44on, whichever is
earlier, the imposi9on of all taxes and fees including penal9es, interests and
charges thereof due to the na9onal government or to LGUs shall be
considered waived, in furtherance of the objec9ves of rehabilita9on. (Sec.
19)
(b) Rehabilita9on plan shall include arrangement for all outstanding taxes and
assessments, or an adjusted amount pursuant to a compromise seelement
with the BlR Or other applicable tax authori9es and include a cer9ed copy
of a cer9cate of tax clearance or evidence of a compromise seelement with
the BIR (Sec. 62 (s-t))
6. EXCLUDED CLAIMS - A creditor whose claim is not listed in the schedule of debts
and liabili4es and who fails to le a no4ce of claim in accordance with the
Commencement Order but subsequently les a belated claim shall NOT BE
ENTITLED TO PARTICIPATE IN THE REHABILITATION PROCEEDINGS but shall be
en:tled to receive distribu:ons arising therefrom.

Treatment of Assets 1. Disbursements, payments or sale, disposal, assignment, transfer or

encumbrance or any other acts aec9ng 9tle or interest of assets shall be
subject to the approval of the rehabilita9on receiver and/or court (Sec. 47)
2. UNENCUMBERED ASSETS: these are proper9es with no lien aeached thereto
(a) GR: no funds or property of the debtor shall he used or disposed of, except:
(1) done in the ordinary course of business of the debtor
(2) necessary to nance the administra9ve expenses of the rehabilita9on
proceedings (Sec. 48)
(b) Court may authorize the sale of unencumbered property of the debtor, upon
applica9on of the rehabilita9on receiver, outside the ordinary course of
business upon a showing that the property, by its nature or because of other
circumstance: (Sec. 49)
(1) perishable
(2) costly to maintain
(3) suscep9ble to devalua9on or
(4) in jeopardy.
(c) The court may rescind or declare as null and void any sale, payment, transfer
or conveyance of the debtor's unencumbered property aher the
commencement date which are not in the ordinary course of the business of
the debtor (Sec. 52)
(d) The unencumbered property may be sold, encumbered or otherwise
disposed of upon order of the court aher no9ce and hearing: (Sec. 52)
(1) if such are in the interest of administering the debtor and facilita9ng the
prepara9on and implementa9on of a Rehabilita9on Plan;
(2) to provide a subs9tute lien, mortgage or pledge of property under FRIA
(3) for payments made to meet administra9ve expenses as they arise;
(4) for payments to vic9ms of quasi delicts upon a showing that the claim is
valid and the debtor has insurance to reimburse the debtor for the
payments made;
(5) for payments made to repurchase property of the debtor that is
auc9oned o in a judicial or extrajudicial sale under FRIA; or
(6) for payments made to reclaim property of the debtor held pursuant to a
possessory lien.

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 Suspension of Payments Rehabilita4on

1. ENCUMBERED ASSETS: real or personal property of the debtor which has a lien
aeached thereto
(a) Aher the issuance of a commencement order, the sale or disposal of an
encumbered property is prohibited unless otherwise provided in FRIA (17)
(b) Sale may be authorized by the court, upon applica9on of the rehabilita9on
receiver and with the consent of the aected owners of the property, or
secured creditor/s, aher no9ce and hearing if: (Sec. 50)
(1) such sale, transfer, conveyance or disposal is necessary for the
con9nued opera9on of the debtor's business; and
(2) the debtor has made arrangements to provide a subs9tute lien or
ownership right that provides an equal level of security for the counter-
party's claim or right.
(c) Property of the debtor held by third par9es, as in possessory pledges, may
not be disposed of or transferred other than to the debtor, unless with prior
approval by the rehabilita9on receiver who may also: (Sec. 51)
(1) demand the surrender or the transfer of the possession or control of
such property to the rehabilita9on receiver or any other person, subject
to payment of the claims secured by any possessory Iien/s thereon;
(2) allow said third par9es to retain possession or control, if such an
arrangement would more likely preserve or increase the value of the
property in ques9on or the total value of the assets of the debtor; or
(3) undertake any other disposi9on of the said property as may be
benecial for the rehabilita9on of the debtor, aher no9ce and hearing,
and approval of the court.
(d) If the property held by the debtor is subject to poten9ally rapid
obsolescence, deprecia9on or diminu9on in value, upon applica9on of a
creditor holding lien over such property, court shall order the debtor or
rehabilita9on receiver to take reasonable steps necessary to prevent the
deprecia9on (Sec. 53)
(e) If deprecia9on cannot be avoided and such deprecia9on is jeopardizing the
security or property interest of the secured creditor or owner, the court shall:
(1) allow the encumbered property to be foreclosed upon by the secured
creditor. Provided: proceeds of the sale will be distributed in accordance
with the order prescribed under the rules of concurrence and
preference of credits; or
(2) upon mo9on of, or with the consent of the aected secured creditor or
interest owner, order the conveyance of a lien against or ownership
interest in subs9tute property of the debtor to the secured creditor:
Provided: That other creditors holding liens on such property, if any, do
not object thereto, or, if such property is not available;
(3) order the conveyance to the secured creditor or holder of an ownership
interest of a lien on the residual funds from the sale of encumbered
property during the proceedings; or
(4) allow the sale or disposi9on of the property: Provided. That the sale or
disposi9on will maximize the value of the property for the benet of the
secured creditor and the debtor, and the proceeds of the sale will be
distributed in accordance with the order prescribed under the rules of
concurrence and preference of credits.

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 Suspension of Payments Rehabilita4on

Treatment of Contracts 1. CONFIRMATION OR TERMINATION OF CONTRACTS (Sec. 57)

(a) All valid and subsis9ng contracts of the debtor with creditors and other third
par9es as at the commencement date shall con9nue in force, unless:
(1) cancelled by virtue of a nal judgment of a court of competent
jurisdic9on issued prior to the issuance of the Commencement Order, or
(2) at any9me thereaher by the court before which the rehabilita9on
proceedings are pending
b. Within 90 days following the commencement of proceedings, the debtor,
with the consent of the rehabilita9on receiver, shall no9fy each contractual
counter-party of whether it is conrming the par9cular contract.
(1) Contractual obliga9ons of the debtor arising or performed during this
period, and aherwards for conrmed contracts, shall be considered
administra9ve expenses.
(2) Contracts which are not conrmed within that period, are deemed
terminated
(3) Claims for actual damages, if any, arising as a result of the elec9on to
terminate a contract shall be considered a pre-commencement claim
against the debtor
2. AVOIDANCE PROCEEDINGS (Sec. 58)
(a) Any transac9on occurring prior to commencement date entered into by the
debtor or involving its funds or assets may be rescinded or declared null and
void on the ground that the same was executed with intent to defraud a
creditor or creditors or which cons9tute undue preference of creditors.
(b) Badges of fraud (disputable):
(1) provides unreasonably inadequate considera9on to the debtor and is
executed within 90 days prior to the commencement date;
(2) involves an accelerated payment of a claim to a creditor within 90 days
prior to the commencement date;
(3) provides security or addi9onal security executed within 90 days prior to
the commencement date;
(4) involves creditors, where a creditor obtained, or received the benet of,
more than its pro rata share in the assets of the debtor, executed at a
9me when the debtor was insolvent; or
(5) is intended to defeat, delay or hinder the ability of the creditors to
collect claims where the eect of the transac9on is to put assets of the
debtor beyond the reach of creditors or to otherwise prejudice the
interests of creditors.

Rehabilita4on/ DEFINITION: a plan by which the nancial well-being and viability of an insolvent
Liquida4on plan debtor can be restored using various means x x x (Sec. 4 ii)

CONTENTS: (See: Sec. 62)

POST-COMMENCEMENT INTEREST: The rate and term of interest, if any, on secured

and unsecured claims shall be determined and provided for in the approved
Rehabilita9on Plan. (Sec. 54)

POST-COMMENCEMENT LOANS AND OBLIGATIONS: the debtor, in order to enhance

its rehabilita9on may:
(a) enter into credit arrangements; or
(b) enter into credit arrangements, secured by mortgages of its unencumbered
property or secondary mortgages of encumbered property with the approval of
senior secured par9es with regard to the encumbered property; or
(c) incur other obliga9ons as may be essen9al for its rehabilita9on.

These shall be considered administra9ve expenses.

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 Suspension of Payments Rehabilita4on

CRAM DOWN EFFECT:

1. Creditors approve rehabilita9on plan in a mee9ng called for the purpose by the
rehabilita9on receiver. (Sec. 64)
(a) Deemed rejected if not approved by all classes of creditors whose rights are
adversely modied or aected by the plan
(b) Deemed approved if members of a class holding at least 50% of the total
claims of the said class vote in favor of the plan (illustra9on: secured
creditors hold 50% of total claims, employees 50%; required is 25% of total
claims for secured, 25% for employees)
2. (CRAM DOWN EFFECT) Court may s9ll conrm rehabilita9on plan despite
rejec9on by creditors if: (Sec. 64)
(a) The Rehabilita9on Plan complies with the requirements specied in FRIA
(b) The rehabilita9on receiver recommends the conrma9on of the Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least
their controlling interest as a result of the Rehabilita9on Plan; and
(d) The Rehabilita9on Plan would likely provide the objec9ng class of creditors
with compensa9on which has a net present value greater than that which
they would have received if the debtor were under liquida9on.
3. The eect of conrma9on of the court: (See: Sec. 69)
4. OBJECTION: grounds found in Sec. 66 (Fraud, materially False or misleading, not
supported by Vote of majority)
(a) Objec(on has merits: cure defect, if feasible
(b) No merits or incurable: covert to liquida(on
5. Court may conrm: (Sec. 68)
(a) No objec(ons, or with objec(on but lacking merit, or objec(ons have been
cured, debtor complied with the order to cure
(b) Despite lack of approval, or despite objec(ons PROVIDED: the terms thereof
are necessary to restore the nancial well-being and viability of the insolvent
debtor

Cons(tu(onal mandate on non-impairment of contracts has no applica(on in

Rehabilita(on plans (e.g. mortgage converted to dacion en pago by rehab plan)
because its approval and the subsequent appointment of a receiver only suspends the
ac(ons for claims of the creditor. NOTE: Non-impairment of contracts limits exercise
of legisla(ve power, not judicial or extrajudicial powers. Moreover, there is no
compulsion to agree to the rehabilita(on plan as provisions therein are merely
proposals which the creditor may reject and seKle its claim through foreclosure of
mortgage. (BPI vs. SEC)

Cram-down principle consists of approval despite objec(on, and the binding eect of
this approval (see: Sec. 64 and Sec. 69) Court may approve despite opposi(on of
creditors holding majority of the total claims if: (1) rehab is feasible; and, (2)
opposi(on of the creditors is manifestly unreasonable. (Pryce Corp. vs. Chinabank)

CRAM DOWN EFFECT dilutes contract. The burden of loss is shi_ed to the creditors to
permit the corpora(on to rehabilitate itself from insolvency.
TRAGEDY OF COMMONS: Coercive government regula(on is necessary to prevent the
degrada(on of common-pool resources since individual resource appropriators
receive the full benet of their use and bear only a share of their cost
GAME THEORY:
GENERAL THEORY OF SECOND BEST:

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 Suspension of Payments Rehabilita4on

Termina4on of 1. Upon mo9on by any stakeholder or the rehabilita9on receiver by order of the
proceedings court either declaring a successful implementa9on of the Rehabilita9on Plan or a
failure of rehabilita9on.
2. FAILURE IF:
(a) Dismissal of the pe99on by the court;
(b) The debtor fails to submit a Rehabilita9on Plan;
(c) Under the Rehabilita9on Plan, there is no substan9al likelihood that the
debtor can be rehabilitated within a reasonable period;
(d) The Rehabilita9on Plan or its amendment is approved by the court but in the
implementa9on thereof, the debtor fails to perform its obliga9ons
thereunder or there is a failure to realize the objec9ves, targets or goals set
forth therein, including the 9melines and condi9ons for the seelement of the
obliga9ons due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilita9on Plan
or its amendment; and
(f) Other analogous circumstances as may be dened by the rules of procedure.
3. The court, upon mo9on by an aected party, if there was BREACH or FAILURE
may:
(a) Issue an order direc9ng that the breach be cured within a specied period of
9me, failing which the proceedings may be converted to a liquida9on;
(b) Issue an order conver9ng the proceedings to a liquida9on;
(c) Allow the debtor or rehabilita9on receiver to submit amendments to the
Rehabilita9on Plan, the approval of which shall be governed by the same
requirements for the approval of a Rehabilita9on Plan under this subchapter;
(d) Issue any other order to remedy the breach consistent with the present
regula9on, other applicable law and the best interests of the creditors; or
(e) Enforce the applicable provisions of the Rehabilita9on Plan through a writ of
execu9on.
4. EFFECTS OF TERMINATION: HOWEVER, if the termina9on of proceedings is due to
failure of rehabilita9on or dismissal of the pe99on for reasons other than
technical grounds, the proceedings shall be immediately converted to liquida9on
(a) The discharge of the rehabilita9on receiver subject to his submission of a
nal accoun9ng; and
(b) The lihing of the Stay Order and any other court order holding in abeyance
any ac9on for the enforcement of a claim against the debtor.

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 Liquida'on

Deni'on Generally connotes winding up; it is the se5ling of debtors with their creditors so that the debtors assets may be distributed to those en:tled to receive them.

Covers undivided share in a co-owned property of an insolvent debtor (Art. 2239)

Exclusions:
1. ACP/CPG, except if it redounded to the benet of the family. (2238)
(a) If husband is insolvent - admin of ACP/CPG may be transferred to wife
2. Property held by insolvent debtor as trustee of an express or implied trust (Art. 2240)

Modes Liquida'on of Insolvent Individual Debtor Liquida'on of Insolvent Juridical Debtor

Voluntary Involuntary Voluntary Involuntary

Who les pe''on INDIVIDUAL DEBTOR whose proper:es ANY CREDITOR OR GROUP OF CREDITORS with a claim of, or with claims INSOLVENT DEBTOR THREE (3) OR MORE CREDITORS the aggregate of
are not sucient to cover his liabili:es, aggrega:ng at least Php500, 000.00 1. ini%ate the proceedings at rst instance whose claims is at least either One million pesos
and owing debts exceeding 2. ini%ate liquida%on proceedings by ling a (Php1,000,000,00) or at least twenty-ve percent
Php500,000.00 The pe::oning creditor/s shall post a bond in such as the court shall mo%on in the same court where the (25%) of the subscribed capital stock or partner's
direct, condi:oned that if the pe::on for liquida:on is dismissed by the rehabilita%on proceedings are pending to contribu:ons of the debtor, whichever is higher
court, or withdrawn by the pe::oner, or if the debtor shall not be convert the rehabilita%on proceedings into
declared an insolvent the pe::oners will pay to the debtor all costs, liquida%on proceedings 1. ini:ate liquida:on proceedings at rst instance
expenses, damages occasioned by the proceedings and a5orney's fees. 2. le a mo:on to convert rehabilita:on
proceedings to liquida:on proceedings

Where should the pe''on be led? court of the province or city in which debtor has resided for six (6) months prior to the ling of such pe::on

Pe''on VERIFIED PETITION

Contents/aBachments
a. schedule of debts and liabili:es and Allege at least one of the : (Sec. 105) (a) a schedule of the debtor's debts and liabili:es Should show that:
b. an inventory of assets
(a) Debtor is about to depart or has departed from the RP, with intent to including a list of creditors with their addresses, (a) there is no genuine issue of fact or law on the
defraud his creditors; amounts of claims and collaterals, or securi:es, claims/s of the pe::oner/s, and that the due
(b) Debtor is absent from the RP, with intent to defraud his creditors, he if any; and demandable payments thereon have not
remains absent; (b) an inventory of all its assets including been made for at least one hundred eighty
(c) Debtor conceals himself to avoid the service of legal process receivables and claims against third par:es; and (180) days or that the debtor has failed
(d) He conceals, or is removing, any of his property to avoid its being (c) the names of at least three (3) nominees to the generally to meet its liabili:es as they fall due;
a5ached or taken on legal process; posi:on of liquidator and
(e) That he has suered his property to remain under a5achment or (b) there is no substan:al likelihood that the
legal process for 3 days debtor may be rehabilitated.
(f) That he has confessed or oered to allow judgment in favor of any
creditor or claimant
(g) That he has willfully suered judgment to be taken against him by
default
(h) That he has suered or procured his property to be taken on legal
process with intent to give a preference to one or more of his
creditors
(i) That he has made any assignment, gi`, sale, conveyance or transfer
of his estate, property, rights or credits
(j) He has, in contempla:on of insolvency, made any payment, gi`,
grant, sale, conveyance or transfer of his estate, property, rights or
credits;
(k) That being a merchant or tradesman, he has generally defaulted in
the payment of his current obliga:ons for a period of thirty (30) days;
(l) That for a period of 30 days, he has failed, a`er demand, to pay any
moneys deposited with him or received by him in a duciary; and
(m) That an execu:on having been issued against him on nal judgment
for money, he shall have been found to be without sucient
property subject to execu:on to sa:sfy the judgment.

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 Liquida'on

Rules SHOW CAUSE ORDER: Upon the ling of such creditors' pe::on, court If the pe::on or mo:on is sucient in form and
shall issue show cause order showing why debtor should not be substance, the court shall issue an Order:
adjudged an insolvent. (Sec. 106) (1) direc:ng the publica:on of the pe::on or
mo:on in a newspaper of general circula:on
once a week for two (2) consecu:ve weeks; and
(2) direc:ng the debtor and all creditors who are
not the pe::oners to le their comment on the
pe::on or mo:on within `een (15) days from
the date of last publica:on.

INJUNCTION ORDER -
1. Upon good cause shown, the court may issue an Order forbidding
the individual debtor from making payments of any of his debts, and
transferring any property belonging to him. However, nothing
contained herein shall aect or impair the rights of a secured creditor
to enforce his lien in accordance with its terms. (Sec. 106)
2. If the individual debtor shall default or if, a`er trial, the issues are
found in favor of the pe::oning creditors the court shall issue the
Liquida:on Order (Sec. 107)

CUSTODY OF PROPERTY; SALE OF PROPERTY

1. Pe::oning creditors shall be en:tled to an Order of the court
direc:ng the sheri to take into his custody a sucient amount of
property of the individual debtor to sa:sfy the demands of the
pe::oning creditors and the costs of the proceedings in cases where:
(a) individual debtor resides out of the Republic of the Philippines;
or has departed therefrom; or
(b) cannot, a`er due diligence, be found therein; or
(c) conceals himself to avoid service of the Order to show cause, or
any other preliminary process or orders in the ma5er
2. In all cases where property is taken into custody by the sheri, if not
exempt from execu:on, any other creditor or creditors of the
individual debtor, upon giving bond to be approved by the court in
double the amount of their claims, shall be en:tled to similar orders
and to like ac:on, by the sheri; un:l all claims be provided for, if
there be sucient property or eects. x x x Proper:es held by the
sheri shall be for the benet of all creditors of the individual debtor
whose claims shall be duly proved. (Sec. 109)
(a) If decision for debtor - the proceedings shall be dismissed, and
the individual debtor, his heirs, administrators, executors or
assigns shall be en:tled to recover such sum of money as shall
be sucient to cover the damages sustained by him, not to
exceed the amount of the respec:ve bonds.
(b) For pe::oning creditors - such bonds led by them shall be void
3. SALE UNDER EXECUTION - The court may order such property to be
sold in the same manner as property is sold under execu:on, the
proceeds to de deposited in the court to abide by the result of the
proceedings if:
(c) proper adavits and bonds are presented to the court or a
judge thereof, asking for and obtaining an Order of publica:on
and an Order for the custody of the property of the individual
debtor and therea`er
(d) the pe::oners shall make it appear sa:sfactorily to the court or
a judge thereof that the interest of the par:es to the
proceedings will be subserved by a sale thereof

LIQUIDATION ORDER: shall: (Sec 112)

1. declare the debtor insolvent;
2. order the liquida%on of the debtor and, in the case of a juridical debtor, declare it as dissolved;
3. order the sheri to take possession and control of all the property of the debtor, except those that may be exempt from execu%on;
4. order the publica%on of the pe%%on or mo%on in a newspaper of general circula%on once a week for two (2) consecu%ve weeks;
5. direct payments of any claims and conveyance of any property due the debtor to the liquidator;
6. prohibit payments by the debtor and the transfer of any property by the debtor;

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 Liquida'on

7. direct all creditors to le their claims with the liquidator within the period set by the rules of procedure;
8. authorize the payment of administra%ve expenses as they become due;
9. state that the debtor and creditors who are not pe%%oner/s may submit the names of other nominees to the posi%on of liquidator; and
10. set the case for hearing for the elec%on and appointment of the liquidator, which date shall not be less than thirty (30) days nor more than forty-ve (45) days from the date of the last publica%on.

Eects of liquida:on order: (Sec. 113)

(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;
(b) legal %tle to and control of all the assets of the debtor, except those that may be exempt from execu%on, shall be deemed vested in the liquidator or, pending his elec%on or appointment, with the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator, within ninety (90) days from the date of his assump%on of oce, declares otherwise and the contrac%ng party agrees;
(d) no separate ac%on for the collec%on of an unsecured claim shall be allowed. Such ac%ons already pending will be transferred to the Liquidator for him to accept and seQle or contest. If the liquidator contests or disputes the
claim, the court shall allow, hear and resolve such contest except when the case is already on appeal. In such a case, the suit may proceed to judgment, and any nal and executor judgment therein for a claim against the
debtor shall be led and allowed in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.

LIQUIDATOR
1. Shall be elected by qualied creditors. (i.e. creditors who have led their claims within the period set by the court, and whose claims are not barred by the statute of limita:ons)
(a) E: secured creditors
(1) E to E: waives his security or lien; or
(2) has the value of the property subject of his security or lien xed by agreement with the liquidator, and is admi5ed for the balance of his claim.
2. May be appointed by court if: (Sec. 116)
(a) on the date set for the elec:on of the liquidator, the creditors do not a5end;
(b) the creditors who a5end, fail or refuse to elect a liquidator;
(c) a`er being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court may instead set another hearing of the elec:on of the liquidator.
3. Liquidator shall take an oath and le a bond, In such amount to be xed by the court, condi:oned upon the proper and faithful discharge of his powers, du:es and responsibili:es, prior to assump:on of his powers, du:es
and responsibili:es (Sec. 117)
4. Qualica:ons shall be the same as rehabilita:on receiver (Sec. 118)
5. Shall be en:tled to such reasonable compensa:on as may determined by the liquida:on court, which shall not exceed the maximum amount as may be prescribed by the Supreme Court. (Sec. 120)

Powers, Du:es and Responsibili:es of the Liquidator (Sec. 119)

(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law from execu:on;
(c) to sell, with the approval of the court, any property of the debtor which has come into his possession or control;
(d) to redeem all mortgages and pledges, and so sa:sfy any judgement which may be an encumbrance on any property sold by him;
(e) to se5le all accounts between the debtor and his creditors, subject to the approval of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the crea:on of a creditors' commi5ee which will assist him in the discharge of the func:ons and which shall have powers as the court deems just, reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and reasonable to assist him in the discharge of his du:es.
1. Liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors which shall be available for public inspec:on within twenty (20) days from his assump:on into oce (Sec. 123)
2. The liquidator shall resolve disputed claims and submit his ndings thereon to the court for nal approval. The liquidator may disallow claims. (Sec. 126)
3. Within three (3) months from his assump:on into oce, the Liquidator shall submit a Liquida:on Plan to the court. The Liquida:on Plan shall, as a minimum enumerate all the assets of the debtor and a schedule of
liquida:on of the assets and payment of the claims. (Sec. 129)
4. The liquidator may sell the unencumbered assets of the debtor and convert the same into money. (Sec. 131)

CLAIMS:
1. CLAIMS - all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, xed or con:ngent, matured or unmatured, disputed or
undisputed, including, but not limited to; (Sec. 4(c))
(a) all claims of the government, whether na:onal or local, including taxes, taris and customs du:es; and
(b) claims against directors and ocers of the debtor arising from acts done in the discharge of their func:ons falling within the scope of their authority:
2. DETERMINATION OF CLAIMS:
(a) Registry of claims; Secured creditors who have waived their security or lien, or have xed the value of the property subject of their security or lien by agreement with the liquidator and is admi5ed as a creditor for the
balance, shall be considered as unsecured creditors. All claims must be duly proven before being paid. (Sec. 123)
(b) If the debtor and creditor are mutually debtor and creditor of each other one debt shall be set o against the other, and only the balance, if any shall be allowed in the liquida:on proceedings. (Sec. 124)
(c) Opposi:on or challenge to claims (Sec. 125)
(1) Within thirty (30 ) days from the expira:on of the period for ling of applica:ons for recogni:on of claims, interested par:es may submit a challenge to claim or claims to the court, serving a cer:ed copy on the
liquidator and the creditor holding the challenged claim.
(2) Upon the expira:on of the (30) day period, the rehabilita:on receiver shall submit to the court the registry of claims containing the undisputed claims that have not been subject to challenge. Such claims shall
become nal upon the lling of the register and may be subsequently set aside only on grounds or fraud, accident, mistake or inexcusable neglect.

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 Liquida'on

Treatment of Claims 1. SECURED CREDITOR CLAIMS

(a) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days upon issuance of liquida:on order (Sec. 113 e)
(b) The Liquida:on Order shall not aect the right of a secured creditor to enforce his lien in accordance with the applicable contract or law. A secured creditor may: (Sec. 114)
(1) waive his right under the security or lien, prove his claim in the liquida:on proceedings and share in the distribu:on of the assets of the debtor; or
(2) maintain his rights under the security or lien: in which case,
A. the value of the property may be xed in a manner agreed upon by the creditor and the liquidator.
1. If value of the property is less than the claim it secures, the liquidator may convey the property to the secured creditor and the la5er will be admi5ed in the liquida:on proceedings as a creditor for the
balance.
2. If value of property exceeds claim, the liquidator may convey the property to the creditor and waive the debtor's right of redemp:on upon receiving the excess from the creditor;
B. the liquidator may sell the property and sa:sfy the secured creditor's en:re claim from the proceeds of the sale
C. The secured creditor may enforce the lien or foreclose on the property pursuant to applicable laws.

Consuelo Metal vs. Philippine Development Bank

1. Jurisdic:on over liquida:on of corpora:ons are with the RTCs. SECs jurisdic:on does not extend to liquida:on, only un:l dissolu:on.
2. Right to foreclose is suspended only in rehabilita:on proceedings; suspension is li`ed upon termina:on of the rehabilita:on proceedings or upon li`ing of stay order.
3. Secured creditors may foreclose OR choose to abandon preference and prove claim as an ordinary creditor.

Yngson vs. PNB: A mortgagee retains the right to foreclose the mortgage property whether or not the debtor is under insolvency or liquida:on proceedings. Preference of credit is dierent from a lien. While a lien a5aches to a
specic property, preference of credit does not. The property subject to the lien may be properly foreclosed by the holder of the lien for the lien excludes all other claims as to the specic property. Preference of credit is a
method of determining the order of payment from the proceeds of proper:es not subject to any lien.

2. UNSECURED CLAIMS
(a) Stand on equal foo:ng with secured creditors who waived their security or lien (Sec. 123)
(b) no separate ac:on for the collec:on of an unsecured claim shall be allowed. Such ac:ons already pending will be transferred to the Liquidator for him to accept and se5le or contest. If the liquidator contests or disputes
the claim, the court shall allow, hear and resolve such contest except when the case is already on appeal. In such a case, the suit may proceed to judgment, and any nal and executor judgment therein for a claim
against the debtor shall be led and allowed in court (Sec. 113 d)

Treatment of Contracts TERMINATION or BREACH OF CONTRACTS

All contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator, within ninety (90) days from the date of his assump:on of oce, declares otherwise and the contrac:ng party agrees (Sec. 113c)

AVOIDANCE PROCEEDINGS:
1. Any transac:on occurring prior to the issuance of the Liquida:on Order or, in case of the conversion of the rehabilita:on proceedings prior to the commencement date, entered into by the debtor or involving its assets, may
be rescinded or declared null and void on the ground that the same was executed with intent to defraud a creditor or creditors or which cons:tute undue preference of creditors. Disputable presump:ons: (Sec. 127)
(a) provides unreasonably inadequate considera:on to the debtor and is executed within 90 days prior to the commencement date;
(b) involves an accelerated payment of a claim to a creditor within 90 days prior to the commencement date;
(c) provides security or addi:onal security executed within 90 days prior to the commencement date;
(d) involves creditors, where a creditor obtained, or received the benet of, more than its pro rata share in the assets of the debtor, executed at a :me when the debtor was insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where the eect of the transac:on is to put assets of the debtor beyond the reach of creditors or to otherwise prejudice the interests of
creditors.
2. Ac:ons for rescission or nullity: (Sec. 128)
(a) The liquidator or, with his conformity, a creditor may ini:ate and prosecute any ac:on to rescind, or declare null and void any transac:on described above. If the liquidator does not consent to the lling or prosecu:on
of such ac:on, any creditor may seek leave of the court to commence said ac:on.
(b) if leave of court is granted under subsec:on (a) hereof, the liquidator shall assign and transfer to the creditor all rights, :tle and interest in the chose in ac:on or subject ma5er of the proceeding, including any
document in support thereof.
(c) Any benet derived from a proceeding taken pursuant to subsec:on (a) hereof, to the extent of his claim and the costs, belongs exclusively to the creditor ins:tu:ng the proceeding, and the surplus, if any, belongs to
the estate.
(d) Where, before an orders is made under subsec:on (a) hereof, the liquidator signies to the court his readiness to the ins:tute the proceeding for the benet of the creditors, the order shall x the :me within which he
shall do so and, in that case the benet derived from the proceedings, if ins:tuted within the :me limits so xed, belongs to the estate.

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Rehabilita'on/Liquida'on plan
Termina'on of proceedings
ANCILLARY PROCEEDINGS:
Mac | D2019
Liquida'on
1. Liquidator shall submit a Liquida:on Plan to the court with 3 months from his assump:on in the oce. (Sec. 129)
(a) Liquida:on plan shall, as a minimum enumerate all the assets of the debtor and a schedule of liquida:on of the assets and payment of the claims.
2. Upon pe::on and a`er hearing, the court shall exempt and set apart, for the use and benet of the said insolvent, such real and personal property as is by law exempt from execu:on, and also a homestead. (Sec. 130)
(a) Requisite: clerk should have given no:ce of the hearing of the applica:on by causing such no:ce to be posted
A. at least three (3) public places in the province or city at least ten (10) days prior to the :me of such hearing
B. shall set forth the name of the said insolvent debtor, and the :me and place appointed for the hearing of such applica:on
C. briey indicate the homestead sought to be exempted or the property sought to be set aside
D. the decree must show that such proof was made to the sa:sfac:on of the court, and shall be conclusive evidence of that fact
3. The liquidator may sell the unencumbered assets of the debtor and convert the same into money. (Sec. 131)
(a) GR: The sale shall be made at public auc:on.
(b) E: a private sale may be allowed with the approval of the court if;
(1) the goods to be sold are of a perishable nature, or are liable to quickly deteriorate in value, or are dispropor:onately expensive to keep or maintain; or
(2) (b) the private sale is for the best interest of the debtor and his creditors.
(c) Unencumbered property of the debtor may also be conveyed to a creditor in sa:sfac:on of his claim or part thereof, with approval of court
4. The Liquidator shall implement the Liquida:on Plan as approved by the court. Payments shall be made to the creditors only in accordance with the provisions of the Plan. (Sec. 132)
5. The Liquida:on Plan and its Implementa:on shall ensure that the concurrence and preference of credits as enumerated in the Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred
creditor voluntarily waives his preferred right (Sec. 133)
RULE: Follow liquida:on plan; look at unencumbered assets and then look at unsecured creditors
1. The liquidator shall also submit such reports as may be required by the court from :me to :me as well as a nal report at the end of the liquida:on proceedings. (Sec. 121)
2. Upon determining that the liquida:on has been completed, the court shall issue an Order approving the report and ordering the SEC to remove the debtor from the registry of legal en::es. (Sec. 134)
3. Upon receipt of evidence showing that the debtor has been removed from the registry of legal en::es at the SEC. The court shall issue an Order termina:ng the proceedings. (Sec. 135)
1. SECURITIES MARKET PARTICIPANT (Sec. 136)
(a) For purposes of investor protec:on, clients or customers of a securi:es market par:cipant are deemed to have absolute priority over other claims of whatever nature or kind insofar as trade-related assets are
concerned.
(b) Trade-related assets include cash, securi:es, trading right and other owned and used by the securi:es market par:cipant in the ordinary course of this business.
2. BANKS AND OTHER FINANCIAL INSTITUTIONS
(a) The court shall issue orders, adjudicate claims and provide other relief necessary to assist in the liquida:on of a nancial ins:tu:ons under rehabilita:on receivership established by a state-funded or state-mandated
insurance system. (Sec. 137)
(b) The liquida:on of bank, nancial ins:tu:ons, insurance companies and pre-need companies shall be determined by relevant legisla:on. The provisions in this Act shall apply in a suppletory manner. (Sec. 138)
18 CREDIT SUMMARY | Liquidation