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NEGOTIABLE INSTRUMENTS

1. SECTION 1

Sec. 1. Form of negotiable instruments. – An instrument to be negotiable must conform


to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in


money.

(c) Must be payable on demand, or at a fixed or determinable future time.

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or


otherwise indicated therein with reasonable certainty.

2. ELECTRONIC MESSAGES ARE NON-NEGOTIABLE

The electronic messages of HSBC’s investor-clients containing instructions to debit their


respective local or foreign currency accounts in the Philippines and pay a certain named
recipient also residing in the Philippines x x x are not negotiable instruments as they do not
comply with the requisites of negotiability.

The electronic messages are not signed by the investor-clients as supposed drawers of
a bill of exchange; they do not contain an unconditional order to pay a sum certain in money as
the payment is supposed to come from a specific fund or account of the investor-clients; and,
they are not payable to order or bearer but to a specifically designated third party. (Hongkong
and Shanghai Banking Corporation Limited-Philippine Branches v. CIR, G.R. No. 166018, June
4, 2014).

3. FICTITIOUS PAYEE RULE

Sec. 9. When payable to bearer. – The instrument is payable to bearer:

xxx

(c) When it is payable to the order of a fictitious or non-existing person, and such
fact was known to the person making it so payable; or

xxx
The fictitious payee rule does not only cover a fictitious payee or a non-existing person.
It also includes an existing person, as long as it is not intended to be a payee of the instrument.
The maker or the drawer did not intend him to be the payee of the instrument.

The fictitious-payee rule is subject to an exception; that is, COMMERCIAL BAD FAITH.
There is commercial bad faith if the transferee (or the drawee bank) acts dishonestly where it
has actual knowledge of facts and circumstances that amount to bad faith, thus itself becoming
a participant in a fraudulent scheme. A showing of commercial bad faith on the part of the
drawee bank, or any transferee of the check for that matter, will work to strip it of this defense.
The exception will cause it to bear the loss. (PNB v. Rodriguez, G.R. No. 170325, September
26, 2008).

4. SECTION 14

Sec. 14. Blanks; when may be filled. – Where the instrument is wanting in any material
particular, the person in possession thereof has a prima facie authority to complete it by
filling up the blanks therein. And a signature on a blank paper delivered by the person
making the signature in order that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as such for any amount. In
order, however, that any such instrument when completed may be enforced against any
person who became a party thereto prior to its completion, it must be filled up strictly in
accordance with the authority given and within a reasonable time. But if any such
instrument, after completion, is negotiated to a holder in due course, it is valid and
effectual for all purposes in his hands, and he may enforce it as if it had been filled up
strictly in accordance with the authority given and within a reasonable time.

5. FORGERY:

Sec. 23. Forged signature; effect of. – When a signature is forged or made without the
authority of the person whose signature it purports to be, it is wholly inoperative, and no
right to retain the instrument, or to give a discharge therefor, or to enforce payment
thereof against any party thereto, can be acquired through or under such signature,
unless the party against whom it is sought to enforce such right is precluded from setting
up the forgery or want of authority.

6. 24 HOUR CLEARING RULE IN RELATION TO MATERIALLY ALTERED


INSTRUMENT

Sec. 124. Alteration of instrument; effect of. – Where a negotiable instrument is


materially altered without the assent of all parties liable thereon, it is avoided, except as
against a party who has himself made, authorized, or assented to the alteration and
subsequent indorsers.

But when an instrument has been materially altered and is in the hands of a holder in
due course not a party to the alteration, he may enforce payment thereof according to its
original tenor.
As the rule now stands, the 24-hour rule is still in force, that is, any check which should
be refused by the drawee bank in accordance with long standing and accepted banking
practices shall be returned through the PCHC/local clearing office, as the case may be, not later
than the next regular clearing (24-hour). The modification, however, is that items which have
been the subject of material alteration or bearing forged endorsement may be returned even
beyond 24 hours so long that the same is returned within the prescriptive period fixed by law.
The consensus among lawyers is that the prescriptive period is ten (10) years because a check
or the endorsement thereon is a written contract. Moreover, the item need not be returned
through the clearing house but by direct presentation to the presenting bank.

In short, the 24-hour clearing rule does not apply to altered checks. (Areza v. Express
Savings Bank, Inc., G.R. No. 176697, September 10, 2014).

7. SECTION 52

Sec. 52. What constitutes a holder in due course. – A holder in due course is a holder
who has taken the instrument under the following condition:

(a) That it is complete and regular upon its face;

(b) That he became the holder of it before it was overdue, and without notice that
it has been previously dishonored, if such was the fact;

(c) That he took it in good faith and for value;

(d) That at the time it was negotiated to him, he had no notice of any infirmity in
the instrument or defect in the title of the person negotiating it.
CORPORATION CODE

1. NARRA NICKEL CASE

The method employed in the Grandfather Rule of attributing the shareholdings of a given
corporate shareholder to the second or even the subsequent tier of ownership hews with the
rule that the "beneficial ownership" of corporations engaged in nationalized activities must
reside in the hands of Filipino citizens.

The "control test" is still the prevailing mode of determining whether or not a corporation
is a Filipino corporation. But even if the 60-40 Filipino to foreign equity ratio is apparently met by
the subject or investee corporation, a resort to the Grandfather Rule is necessary if doubt exists
as to the locus of the "beneficial ownership" and "control."

With that, the use of the Grandfather Rule as a "supplement" to the Control Test is not
proscribed by the Constitution or the Philippine Mining Act of 1995. (Narra Nickel Mining and
Development Corp. v. Redmont Consolidated Mines Corp., G.R. No. 195580, January 28,
2015).

2. LIABILITY OF DIRECTORS/ OFFICERS/ TRUSTEES

Sec. 31. Liability of directors, trustees or officers.—Directors or trustees who wilfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty
of gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall
be liable jointly and severally for all damages resulting therefrom suffered by the
corporation, its stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in violation of his duty,
any interest adverse to the corporation in respect of any matter which has been reposed
in him in confidence, as to which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.

3. APPARENT AUTHORITY; BUSINESS JUDGMENT RULE; CORPORATE


OPPORTUNITY

APPARENT AUTHORITY

If a corporation knowingly permits one of its officers, or any other agent, to act within the
scope of an apparent authority, it holds him out to the public possessing the power to do those
acts; and thus, the corporation will, as against anyone who has in good faith dealt with it through
such agent, be estopped from denying the agent’s authority. (GN)

Exercise of apparent authority may be ascertained thru (1) the general manner in which
the corporation holds out an officer or agent as having the apparent authority to act in general;
or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge
thereof, within or beyond the scope of his ordinary powers. (Associated Bank v. Sps.
Pronstroller, G.R. No. 148444, July 14, 2008).
BUSINESS JUDGMENT RULE

(C)ontracts intra vires entered into by the board of directors are binding upon the
corporation and courts will not interfere unless: (1) such contracts are so unconscionable and
oppressive as to amount to wanton destruction to the rights of the minority, or (2) there is bad
faith or gross negligence by the directors (Ong v. Tiu, G.R. No. 144476, April 8, 2003; Republic
Telecommunications, Inc. v. CA, G.R. No. 135074, January 29, 1999).

Directors and officers acting within such business judgment cannot be held personally
liable for such acts. (GN)

If the cause of the losses is merely error in business judgment, not amounting to bad
faith or negligence, directors and/ or officers are not liable (Filipinas Port Services v. Go, G.R.
No. 161886, March 16, 2007).

DOCTRINE OF CORPORATE OPPORTUNITY

The doctrine of "corporate opportunity" is precisely a recognition by the courts that the
fiduciary standards could not be upheld where the fiduciary was acting for two entities with
competing interests. This doctrine rests fundamentally on the unfairness, in particular
circumstances, of an officer or director taking advantage of an opportunity for his own personal
profit when the interest of the corporation justly calls for protection. (Gokongwei, Jr. v. SEC,
G.R. No. L-45911, April 11, 1979).

4. ULTRA VIRES: REQUIRMENETS FOR RATIFICATION

Sec. 45. Ultra vires acts of corporations.— No corporation under this Code shall possess
or exercise any corporate powers except those conferred by this Code or by its articles
of incorporation and except such as are necessary or incidental to the exercise of the
powers so conferred.

Mere ultra vires acts, on the other hand, or those which are not illegal and void ab initio,
but are not merely within the scope of the articles of incorporation, are merely voidable and may
become binding and enforceable when ratified (Pirovano v. De la Rama Steamship Co., 96 Phil
335 [1954]).

5. TRUST FUND DOCTRINE

The subscribed capital stock of the corporation is a trust fund for the payment of debts of
the corporation which the creditors have the right to look up to satisfy their credits, and which
the corporation may not dissipate. The creditors may sue the stockholders directly for the latter’s
unpaid subscription. (GN)

Subscriptions to the capital stock of a corporation constitute a fund to which the creditors
have a right to look for the satisfaction of their claims.

This doctrine is the underlying principle in the procedure for the distribution of corporate
capital only in three instances: (1) amendment of articles of incorporation to reduce the
authorized capital stock; (2) purchase of redeemable shares by the corporation regardless of
the existence of unrestricted retained earnings; and (3) dissolution and eventual liquidation of
the corporation. (Ong v. Tiu, 401 SCRA 1 [2003])

6. MERGER

Even if it is true that the Monetary Board of the Central Bank of the Philippines
recognized the merger of two banks, the merger is still incomplete without the certificate of
merger duly issued by the SEC. The issuance of the certificate of merger is crucial because not
only does it bear out SEC’s approval but it also marks the moment when the consequences of a
merger take place. By operation of law, upon the effectivity of the merger, the absorbed
corporation ceases to exist but its rights and properties, as well as liabilities, shall be taken and
deemed transferred to and vested in the surviving corporation. (Mindanao Savings and Loan
Association v. Willkom, G.R. No. 178618, October 11, 2010).

It is contrary to public policy to declare the former employees of the absorbed


corporation as forming part of its assets or liabilities that were transferred to and absorbed by
the surviving corporation in the Articles of Merger. Assets and liabilities, in this instance, should
be deemed to refer only to property rights and obligations and do not include the employment
contracts of its personnel. A corporation cannot unilaterally transfer its

7. MORAL DAMAGES FOR A CORPORATION

GR: A juridical person is generally not entitled to moral damages because unlike natural
persons it cannot experience physical suffering or such sentiments as wounded feeling, serious
anxiety, mental anguish and mental shock.

XPN:
(a) In cases of libel, slander or any form of defamation against the corporation.
 Article 2219 does not qualify whether the plaintiff is a natural or juridical person.
(Filipinas Broadcasting Network vs. Ago Medical and Educational Center, 448
SCRA 413 [2005])
(b) When a corporation has a reputation that is debased, resulting in its humiliation in
the business realm.
(Meralco v. TEAM Electronics Corp., 540 SCRA 62 [2007]).

8. CORPORATE FICTION; PIERCING THE VEIL

DOCTRINE OF PIERCING THE CORPORATE VEIL, when applicable:

(a) Fraud Test: to perpetrate fraud;


(b) Control Test: complete control of one corporate entity to another which
perpetuated the wrong is the proximate cause of the injury;
(c) Alter ego Test: (Instrumentality Test), If a certain corporation is only an adjunct or
an extension of the personality of the corporation;
(d) Objective Test: If the fiction is pierced to make the stockholders liable for the
obligation of the corporation (GN).

9. VOTING REQUIREMENTS
10. PRE-EMPTIVE RIGHT INSTANCES

Instances when pre-emptive right is NOT available (GN):

(a) Shares to be issued to comply with laws requiring stock offering or minimum stock
ownership by the public;
(b) Shares issued in good faith with the approval of the stockholders representing 2/3 of
the outstanding capital stock in exchange for property needed for corporate
purposes;
(c) Shares issued in payment of previously contracted debts;
(d) In case the right is denied in the Articles of Incorporation (Sec. 39);
(e) Waiver of the right by the stockholder.

11. DERIVATIVE SUIT

Requisites for the existence of a derivative suit (C-SENA):

(a) Corporate cause of action: the cause of action must devolve upon the corporation
itself; the wrongdoing or harm having been caused to the corporation and not to the
particular stockholder bringing the suit;
(b) Stockholder: The party bringing the suit must be a stockholder
i. At the time the acts or transactions subject of the action occurred, and
ii. At the time the action was filed.
* But if the cause of action is continuing in nature, the only requisite is that
the party is a stockholder at the time the action was filed.
(c) Exhaustion of all intra-corporate remedies available under the AOI, By-Laws, laws or
rules governing the corporation or partnership to obtain the relief he desires;
(d) Not a Nuisance or harassment suit; and
(e) Appraisal right is not available.

12. CLOSE CORPORATION/ GOING PRIVATE CORPORATION

CLOSE CORPORATION

A corporation does not become a close corporation just because a man and his wife own
98.86% of its subscribed capital stock; So too, a narrow distribution of ownership does not, by
itself, make a close corporation.

The features of a close corporation under the Corporation Code must be embodied in
the articles of incorporation (San Jan Steel Fabricators v. CA, 296 SCRA 63)

Stockholders who are actively involved in the management or operation of the business
and affairs of a close corporation shall be personally liable for corporate torts (such as failure to
pay separation benefits of employees terminated for authorized causes) unless the corporation
has obtained adequate liability insurance coverage (Naguiat v. NLRC, 269 SCRA 564 [1997]).

13. MODES OF CORPORATE DISSOLUTION— VOLUNTARY/ INVOLUNTARY


VOLUNTARY: (GN)

(a) By the vote of the BOD/ BOT and the stockholders/members where no creditors are
affected (Sec. 118)
(b) B the judgment of the SEC after hearing of petition for voluntary dissolution, where
creditors are affected (Sec. 119)
(c) By amending the AOI to shorten the corporate term (Sec. 120)
(d) In case of a corporation sole, by submitting to the SEC a verified declaration of the
dissolution for approval (Sec. 115)
(e) Merger or consolidation

INVOLUNTARY: (GN)

(a) By expiration of corporate term provided for in the AOI (Sec. 11)
(b) By legislative enactment
(c) By failure to formally organize and commence the transaction of its business within 2
years from the date of incorporation (Sec. 22)
(d) By order of the EC on grounds under existing laws (Sec. 121)
(e) Judicial decree on Quo Warranto Proceeding (Sec. 20)

14. “DOING BUSINESS”

Sec. 133. Doing business without a license.— No foreign corporation transacting


business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid cause
of action recognized under Philippine laws.

The phrase "doing business" shall include soliciting orders, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the country
for a period or periods totalling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase "doing business: shall not be
deemed to include mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such
investor; nor having a nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in the Philippines
which transacts business in its own name and for its own account. (Sec. 3 (d), Foreign
Investments Act, RA 7042).

A foreign company that merely imports goods from a Philippine exporter, without
opening an office or appointing an agent in the Philippines, is not doing business in the
Philippines (Cargill, Inc. V. Intra Strata Assurance Corp., G.R. No. 168266, March 15, 2010).
A foreign corporation doing business int eh Philippines without license may sue in
Philippine courts a Filipino citizen or a Philippine entity that had contracted with and benefitted
from it. A party is estopped from challenging the personality of a corporation after having
acknowledged the same by entering into a contract with it. The principle is applied to prevent a
person contracting with a foreign corporation from later taking advantage of its noncompliance
with the statutes, chiefly in cases where such person has received the benefits of the contract
(Global Business Holdings, Inc., v. Surecomp Software B.V., G.R. No. 173463, October 13,
2010).

The appointment of a distributor in the Philippines is not sufficient to constitute doing


business unless it is under the full control of the foreign corporation. If the distributor is an
independent entity which buys and distributes products, other than those of the foreign
corporation, for its own name and its own account, the latter cannot be considered doing
business. (Steel Case v. Design International Selections, G.R. No. 171995, April 18, 2012).

15. SECTION 6

Sec. 6. Classification of shares. – The shares of stock of stock corporations may be


divided into classes or series of shares, or both, any of which classes or series of shares
may have such rights, privileges or restrictions as may be stated in the articles of
incorporation: Provided, That no share may be deprived of voting rights except those
classified and issued as “preferred” or “redeemable” shares, unless otherwise provided
in this Code: Provided, further, That there shall always be a class or series of shares
which have complete voting rights. Any or all of the shares or series of shares may have
a par value or have no par value as may be provided for in the articles of incorporation:
Provided, however, That banks, trust companies, insurance companies, public utilities,
and building and loan associations shall not be permitted to issue no-par value shares of
stock.

Preferred shares of stock issued by any corporation may be given preference in the
distribution of the assets of the corporation in case of liquidation and in the distribution of
dividends, or such other preferences as may be stated in the articles of incorporation
which are not violative of the provisions of this Code: Provided, That preferred shares of
stock may be issued only with a state par value. The board of directors, where
authorized in the articles of incorporation, may fix the terms and conditions of preferred
shares of stock or any series thereof: Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with the Securities and Exchange
Commission.

Shares of capital stock issued without par value shall be deemed fully paid and non-
assessable and the holder of such shares shall not be liable to the corporation or to its
creditors in respect thereto: Provided, That shares without par value may not be issued
for a consideration less than the value of five (P5.00) pesos per share: Provided, further,
That the entire consideration received by the corporation for its no-par value shares shall
be treated as capital and shall not be available for distribution as dividends.

A corporation may, furthermore, classify its shares for the purpose of insuring
compliance with constitutional or legal requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate
of stock, each share shall be equal in all respects to every other share.

Where the articles of incorporation provide for non-voting shares in the cases allowed by
this Code, the holders of such shares shall nevertheless be entitled to vote on the
following matters:

1. Amendment of the articles of incorporation;

2. Adoption and amendment of the by-laws;

3. Sale, lease, exchange, mortgage, pledge or other disposition of all or


substantially all of the corporate property;

4. Incurring, creating or increasing bonded indebtedness;

5. Increase or decrease of capital stock;

6. Merger or consolidation of the corporation with another corporation or other


corporations;

7. Investment of corporate funds in another corporation or business in


accordance with this Code; and

8. Dissolution of the corporation.

Except as provided in the immediately preceding paragraph, the vote necessary to


approve a particular corporate act as provided in this Code shall be deemed to refer only
to stocks with voting rights.

16. WATERED STOCKS

Sec. 65. Liability of directors for watered stocks. – Any director or officer of a corporation
consenting to the issuance of stocks for a consideration less than its par or issued value
or for a consideration in any form other than cash, valued in excess of its fair value, or
who, having knowledge thereof, does not forthwith express his objection in writing and
file the same with the corporate secretary, shall be solidarily, liable with the stockholder
concerned to the corporation and its creditors for the difference between the fair value
received at the time of issuance of the stock and the par or issued value of the same.

17. APPRAISAL RIGHT

Appraisal right refers to the right of the stockholder to demand payment of the fair value
of his shares, after dissenting from a proposed corporate action involving fundamental change
in the corporation in the cases provided for by law (GN, citing De Leon, 2010).
Appraisal right is likewise available to a dissenting stockholder in case the corporation
decides to invest its funds in another corporation or business for any purpose other than its
primary purpose (Sec. 42)

Any stockholder of a close corporation may, for any reason, compel said corporation to
purchase his shares at their fair value, which shall not be less than their par or issued value,
when the corporation has sufficient assets in its books to over its debts and liabilities exclusive
of capital stock (Sec. 105).
FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA)

1. DEFINE REHABILITATION

Rehabilitation shall refer to the restoration of the debtor to a condition of successful


operation and solvency, if it is shown that its continuance of operation is economically feasible
and its creditors can recover by way of the present value of payments projected in the plan,
more if the debtor continues as a going concern than if it is immediately liquidated. (Sec. 4 (gg),
RA 10142)

2. EXPLAIN NATURE OF REHABILITATION/ LIQUIDATION/ SUSPENSION (OF


PAYMENTS)

3. TWO-FOLD PURPOSE OF CORPORATE REHABILITATION

[R]ehabilitation proceedings have a two-pronged purpose, namely: (a) to efficiently and


equitably distribute the assets of the insolvent debtor to its creditors; and (b) to provide the
debtor with a fresh start, viz: Rehabilitation proceedings in our jurisdiction have equitable
and rehabilitative purposes. On the one hand, they attempt to provide for the efficient and
equitable distribution of an insolvent debtor's remaining assets to its creditors; and on the other,
to provide debtors with a "fresh start" by relieving them of the weight of their outstanding debts
and permitting them to reorganize their affairs. The purpose of rehabilitation proceedings is to
enable the company to gain a new lease on life and thereby allow creditors to be paid their
claims from its earnings. (Philippine Bank of Communications v. Basic Polyprinters and
Packaging Corporation, G.R. No. 187581, October 20, 2014; Bersamin, J.; emphasis added)

4. DOCTRINE: EQUALITY IS EQUITY – ALL CREDITORS STAND ON EQUAL


FOOTING; NO PREFERENCE

As between creditors, the key phrase is equality is equity. When a corporation


threatened by bankruptcy is taken over by a receiver, all the creditors should stand on equal
footing. Not anyone of them should be given any preference by paying one or some of them
ahead of the others. This is precisely the reason for the suspension of all pending claims
against the corporation under receivership. Instead of creditors vexing the courts with suits
against the distressed firm, they are directed to file their claims with the receiver who is a duly
appointed officer of the SEC. (Alemars Sibal & Sons, Inc. v. Elbinias, G.R. No. 75414, June 4,
1990).

The law is clear: upon the creation of a management committee or the appointment of
rehabilitation receiver, all claims for actions "shall be suspended accordingly." No
exception in favor of labor claims is mentioned in the law. Since the law makes no distinction or
exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos.
Allowing labor cases to proceed clearly defeats the purpose of the automatic stay and severely
encumbers the management committee's time and resources. The said committee would need
to defend against these suits, to the detriment of its primary and urgent duty to work towards
rehabilitating the corporation and making it viable again. To rule otherwise would open the
floodgates to other similarly situated claimants and forestall if not defeat the rescue efforts.
(Rubberworld v. NLRC, G.R. No. 126773, April 14, 1999)

A claim is said to be a right to payment, whether or not it is reduced to judgment,


liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed,
legal or equitable, and secured or unsecured (Philippine Airlines v. Sps. Kurangking, G.R. No.
146698, September 24, 2002)

5. DISTINGUISH LIQUID V. REHAB. CAN YOU FILE REHAB AFTER LIQUID? VICE
VERSA?

DISTINGUISH:

Corporate liquidation connotes a winding up or setting with creditors and debtors. It is


the winding up of a corporation so that assets are distributed to those entitled to receive them. It
is the process of reducing assets to cash, discharging liabilities and dividing surplus or loss.

On the opposite end of the spectrum is rehabilitation which connotes a reopening or


reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful operation and
solvency. (Philippine Veterans Bank Employees Union v. Vega, 360 SCRA 33, [2001[).

FILING REHABILITATION AFTER LIQUIDATION:

6. EXECUTION TO STAY ORDER

Effect of Stay or Suspension Order:

(1) suspend all actions or proceedings, in court or otherwise, for the enforcement
of claims against the debtor;

(2) suspend all actions to enforce any judgment, attachment or other provisional
remedies against the debtor;

(3) prohibit the debtor from selling, encumbering, transferring or disposing in any
manner any of its properties except in the ordinary course of business; and

(4) prohibit the debtor from making any payment of its liabilities outstanding as of
the commencement date except as may be provided herein.

7. HOW TO CONVERT REHABILITATION PROCEEDINGS TO LIQUIDATION

8. COURT SUPERVISED REHABILITATION VOTING REQUIREMENT

Sec. 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the
owner in case of a sole proprietorship, or by a majority of the partners in case of a
partnership, or in case of a corporation, by a majority vote of the board of
directors or trustees and authorized by the vote of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock
corporation, by the vote of at least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the purpose, an insolvent debtor
may initiate voluntary proceedings under this Act by filing a petition for rehabilitation with
the court and on the grounds hereinafter specifically provided. x x x

9. PRE-NEGOTIATED REHABILITATION VOTING REQUIREMENT

Sec. 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for the approval of a pre-negotiated
Rehabilitation Plan which has been endorsed or approved by creditors holding at
least two-thirds (2/3) of the total liabilities of the debtor, including secured
creditors holding more than fifty percent (50%) of the total secured claims of the
debtor and unsecured creditors holding more than fifty percent (50%) of the total
unsecured claims of the debtor. x x x

10. OUT OF COURT REHAB VOTING REQUIREMENT

Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring


Agreements and Rehabilitation Plans. - For an out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan to qualify under this chapter, it
must meet the following minimum requirements:

(a) The debtor must agree to the out-of-court or informal restructuring/workout


agreement or Rehabilitation Plan;

(b) It must be approved by creditors representing at least sixty-seven (67%) of the


secured obligations of the debtor;

(c) It must be approved by creditors representing at least seventy-five percent (75%) of


the unsecured obligations of the debtor; and

(d) It must be approved by creditors holding at least eighty-five percent (85%) of the
total liabilities, secured and unsecured, of the debtor.

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