Financial Rehabilitation and Insolvency Act of 2010

I. GENERAL PROVISIONS
A. Declaration of Policy – Sec. 2:
1. To encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve
and adjust competing claims and property rights.
2. To ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors.
3. To ensure or maintain certainly and predictability in commercial affairs, preserve and maximize the value of the
assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of
creditors who are similarly situated.
4. When rehabilitation is not feasible, to facilitate a speedy and orderly liquidation of these debtor's assets and the
settlement of their obligations.
B. Nature of Proceedings – Sec. 3:
1. In Rem: The proceedings under this Act shall be in rem. Jurisdiction over all persons affected by the proceedings
shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any
newspaper of general circulation in the Philippines in the manner prescribed by the rules of procedure to be
promulgated by the Supreme Court.
2. Summary/Non-Adversarial: The proceedings shall be conducted in a summary and non-adversarial manner
consistent with the declared policies of this Act and in accordance with the rules of procedure that the Supreme
Court may promulgate.
C. Coverage:
1. Insolvent – Sec. 4(p): Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its
or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his
assets.
2. Debtor – Sec. 4(k): Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship
duly registered with the Department of Trade and Industry (DTI), a partnership duly registered with the Securities
and Exchange Commission (SEC), a corporation duly organized and existing under Philippine laws, or an individual
debtor who has become insolvent as defined herein.
3. Exclusions – Sec. 5: The term debtor does not include banks, insurance companies, pre-need companies, and
national and local government agencies or units. Provided, That government financial institutions other than banks
and government-owned or controlled corporations shall be covered by this Act, unless their specific charter
provides otherwise.
D. Designation of Courts and Promulgation of Procedural Rules – Sec. 6
E. Substantive and Procedural Consolidation – Sec. 7: Each juridical entity shall be considered as a separate entity under
the proceedings in this Act. Under these proceedings, the assets and liabilities of a debtor may not be commingled or
aggregated with those of another, unless the latter is a related enterprise that is owned or controlled directly or
indirectly by the same interests: Provided, however, That the commingling or aggregation of assets and liabilities of the
debtor with those of a related enterprise may only be allowed where:
1. there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to the
commencement of the proceedings;
2. the debtor and the related enterprise have common creditors and it will be more convenient to treat them
together rather than separately;
3. the related enterprise voluntarily accedes to join the debtor as party petitioner and to commingle its assets and
liabilities with the debtor's; and
4. the consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all concerned and
promotes the objectives of rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other entities affiliated with the debtor
as parties pursuant to the rules of procedure as may be promulgated by the Supreme Court.
 F. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or Directors and Officers –
Sec. 10: Individual debtor, owner of a sole proprietorship, partners in a partnership, or directors and officers of a debtor
shall be liable for double the value of the property sold, embezzled or disposed of or double the amount of the
transaction involved, whichever is higher to be recovered for benefit of the debtor and the creditors, if they, having
notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be
commenced, or in contemplation of the proceedings, willfully commit the following acts:
1. Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or
authorize or approve any transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor
and/or creditors; or
2. Conceal or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any
property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer under this section. In this
connection, in case of partnerships and corporations, the court shall consider the amount of the shareholding or
partnership or equity interest of such partner, director or officer, the degree of control of such partner, director or
officer over the debtor, and the extent of the involvement of such partner, director or debtor in the actual management
of the operations of the debtor.
G. Authorization to Exchange Debt for Equity – Sec. 11

II. COURT-SUPERVISED REHABILITATION

A. Initiation of Proceedings
1. Voluntary Proceedings.
a. How initiated – Sec. 12: Petition to initiate voluntary proceedings filed by debtor, approved by:
i. Sole Proprietorship – by the owner
ii. Partnership – by a majority of the partners
iii. Stock Corporation – by a majority vote of the board of directors and authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock in a stockholder's
meeting duly called for the purpose,
iv. Non-Stock Corporation – by a majority vote of the board of trustees and authorized by the vote of at
least two-thirds (2/3) of the members, in a member's meeting duly called for the purpose.
Note: A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its
members foresee the impossibility of meeting debts when they respectively fall due, and the financial distress
would likely adversely affect the financial condition and/or operations of the other members of the group
and/or the participation of the other members of the group is essential under the terms and conditions of
the proposed Rehabilitation Plan.
b. Grounds: Insolvency of debtor and viability of rehabilitation
c. Contents of Petition – Sec. 12: The petition shall be verified to establish the insolvency of the debtor and the
viability of its rehabilitation, and include, whether as an attachment or as part of the body of the petition, as
a minimum the following:
i. Identification of the debtor, its principal activities and its addresses;
ii. Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as they
become due;
iii. The specific relief sought pursuant to this Act;
iv. The grounds upon which the petition is based;
v. Other information that may be required under this Act depending on the form of relief requested;
vi. Schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts
of claims and collaterals, or securities, if any;
vii. An inventory of all its assets including receivables and claims against third parties;
 viii. A Rehabilitation Plan;
ix. The names of at least three (3) nominees to the position of rehabilitation receiver; and
x. Other documents required to be filed with the petition pursuant to this Act and the rules of procedure
as may be promulgated by the Supreme Court.
2. Involuntary Proceedings.
a. How initiated – Sec. 13: By petition for rehabilitation filed by Any creditor or group of creditors with a claim
of, or the aggregate of whose claims is, at least One Million Pesos (Php1,000,000.00) or at least twenty-five
percent (25%) of the subscribed capital stock or partners' contributions, whichever is higher,
b. Circumstances Necessary to Initiate Involuntary Proceedings – Sec. 13:
i. there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least sixty (60) days or that the debtor has
failed generally to meet its liabilities as they fall due; or
ii. a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will
prevent the debtor from paying its debts as they become due or will render it insolvent.
c. Contents of Petition – Sec. 14: The petition shall be verified to establish the substantial likelihood that the
debtor may be rehabilitated, and include:
i. identification of the debtor its principal activities and its address;
ii. the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings under
Section 13 of this Act;
iii. the specific relief sought under this Act;
iv. a Rehabilitation Plan;
v. the names of at least three (3) nominees to the position of rehabilitation receiver;
vi. other information that may be required under this Act depending on the form of relief requested; and
vii. other documents required to be filed with the petition pursuant to this Act and the rules of procedure
as may be promulgated by the Supreme Court.

B. Action on the Petition and Commencement of Proceedings.

1. Action on the Petition. – Sec. 15: Within 5 working days from filing of petition, court shall
a. If petition for rehabilitation sufficient in form and substance, court shall issue Commencement Order; or
b. If petition deficient in form or substance, court may, in its discretion, give the petitioner/s a reasonable period
of time within which to amend or supplement the petition, or to submit such documents as may be necessary
or proper to put the petition in proper order.
2. Commencement of Proceedings and Issuance of a Commencement Order – Sec. 16: The rehabilitation
proceedings shall commence upon the issuance of the Commencement Order (See Sec. 16 for contents) which
shall, among others, appoint rehabilitation receiver, and include a Stay or Suspension Order which shall:
a. suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor;
b. suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor;
c. prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties
except in the ordinary course of business; and
d. prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date
except as may be provided herein.
3. Effects of the Commencement Order – Sec. 17: Unless otherwise provided for in this Act, the court's issuance of
a Commencement Order shall, in addition to the effects of a Stay or Suspension Order described in Section 16
hereof:
 a. vest the rehabilitation receiver with all the powers and functions provided for this Act, such as the right to review
and obtain records to which the debtor's management and directors have access, including bank accounts or
whatever nature of the debtor subject to the approval by the court of the performance bond filed by the
rehabilitation receiver;
b. prohibit or otherwise serve as the legal basis rendering null and void the results of any extrajudicial activity or
process to seize property, sell encumbered property, or otherwise attempt to collection or enforce a claim
against the debtor after commencement date unless otherwise allowed in this Act, subject to the provisions
of Section 50 hereof;
c. serve as the legal basis for rendering null and void any setoff after the commencement date of any debt owed
to the debtor by any of the debtor's creditors;
d. serve as the legal basis for rendering null and void the perfection of any lien against the debtor's property
after the commencement date; and
e. consolidate the resolution of all legal proceedings by and against the debtor to the court Provided. However,
That the court may allow the continuation of cases on other courts where the debtor had initiated the suit.
Note: Attempts to seek legal of other resource against the debtor outside these proceedings shall be sufficient to
support a finding of indirect contempt of court.
4. Exceptions to the Stay or Suspension Order – Sec. 18: The Stay or Suspension Order shall not apply:
a. to cases already pending appeal in the Supreme Court as of commencement date Provided, That any final and
executory judgment arising from such appeal shall be referred to the court for appropriate action;
b. subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-judicial agency
which, upon determination by the court is capable of resolving the claim more quickly, fairly and efficiently
than the court: Provided, That any final and executory judgment of such court or agency shall be referred to
the court and shall be treated as a non-disputed claim;
c. to the enforcement of claims against sureties and other persons solidarily liable with the debtor, and third
party or accommodation mortgagors as well as issuers of letters of credit, unless the property subject of the
third party or accommodation mortgage is necessary for the rehabilitation of the debtor as determined by
the court upon recommendation by the rehabilitation receiver;
d. to any form of action of customers or clients of a securities market participant to recover or otherwise claim
moneys and securities entrusted to the latter in the ordinary course of the latter's business as well as any
action of such securities market participant or the appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;
e. to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of securities transactions in accordance with the provisions
of the Securities Regulation Code and its implementing rules and regulations;
f. the clearing and settlement of financial transactions through the facilities of a clearing agency or similar
entities duly authorized, registered and/or recognized by the appropriate regulatory agency like the Bangko
Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or entities to reimburse
themselves for any transactions settled for the debtor; and
g. any criminal action against individual debtor or owner, partner, director or officer of a debtor shall not be
affected by any proceeding commend under this Act.
5. Waiver of taxes and Fees Due to the National Government and to Local Government Units (LGUs) – Sec. 19
6. Application of Stay or Suspension Order to Government Financial Institutions. – Sec. 20
7. Effectivity and Duration of Commencement Order – Sec. 21: Unless lifted by the court, the Commencement Order
shall be for the effective for the duration of the rehabilitation proceedings for as long as there is a substantial
likelihood that the debtor will be successfully rehabilitated. See Sec. 21 for minimum requirements to determining
whether there is substantial likelihood for the debtor to be successfully rehabilitated.
8. Action at the Initial Hearing – Sec. 22: At the initial hearing, the court shall:
a. determine the creditors who have made timely and proper filing of their notice of claims;
 b. hear and determine any objection to the qualifications of the appointment of the rehabilitation receiver and,
if necessary appoint a new one in accordance with this Act;
c. direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the same to the
court and to the rehabilitation receiver within a period of not more than twenty (20) days; and
d. direct the rehabilitation receiver to evaluate the financial condition of the debtor and to prepare and submit
to the court within forty (40) days from initial hearing the report provided in Section 24 hereof.
9. Effect of Failure to File Notice of Claim – Sec. 23: A creditor whose claim is not listed in the schedule of debts and
liabilities and who fails to file a notice of claim in accordance with the Commencement Order but subsequently
files a belated claim shall not be entitled to participate in the rehabilitation proceedings but shall be entitled to
receive distributions arising therefrom.
10. Report of the Rehabilitation Receiver – Sec. 24: Within 40 days from the initial hearing and with or without the
comments of the creditors or any of them, the rehabilitation receiver shall submit a report to the court stating his
preliminary findings and recommendations.
11. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings – Sec. 25: Within 10 days from receipt
of the report of the rehabilitation receiver the court may:
a. give due course to the petition upon a finding that:
i. the debtor is insolvent; and
ii. there is a substantial likelihood for the debtor to be successfully rehabilitated;
b. dismiss the petition upon a finding that:
i. debtor is not insolvent;
ii. the petition is a sham filing intended only to delay the enforcement of the rights of the creditor/s or of
any group of creditors;
iii. the petition, the Rehabilitation Plan and the attachments thereto contain any materially false or
misleading statements; or
iv. the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group of creditors;
c. convert the proceedings into one for the liquidation of the debtor upon a finding that:
i. the debtor is insolvent; and
ii. there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in
accordance with the rules to be promulgated by the Supreme Court.
11. Petition Given Due Course – Sec. 26: If the petition is given due course, the court shall direct the rehabilitation
receiver to review, revise and/or recommend action on the Rehabilitation Plan and submit the same or a new one
to the court within a period of not more than 90 days.
Note: The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation proceedings pending
before it to arbitration or other modes of dispute resolution, as provided for under Republic Act No. 9285, Or the
Alternative Dispute Resolution Act of 2004, should it determine that such mode will resolve the dispute more
quickly, fairly and efficiently than the court.
12. Dismissal of Petition – Sec. 27: If the petition is dismissed pursuant to paragraph (b) of Sec. 25, then the court
may, in its discretion, order the petitioner to pay damages to any creditor or to the debtor, as the case may be,
who may have been injured by the filing of the petition, to the extent of any such injury.

C. The Rehabilitation Receiver, Management

Committee and Creditors' Committee

1. Rehabilitation Receiver
a. Who May Serve – Sec. 28: Any qualified natural or juridical person may serve as a rehabilitation receiver:
Provided, That if the rehabilitation receiver is a juridical entity, it must designate a natural person/s who
possess/es all the qualifications and none of the disqualification’s as its representative, it being understood
 that the juridical entity and the representative/s are solidarily liable for all obligations and responsibilities of
the rehabilitation receiver.
b. Qualifications – Sec. 29:
i. Philippine citizen or resident for 6 months immediately preceding his nomination
ii, Of good moral character and with acknowledged integrity, impartiality and independence;
iii. 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 duties and obligations of a rehabilitation receiver; and
iv. Has no conflict of interest: Provided, That such conflict of interest may be waived, expressly or impliedly,
by a party who may be prejudiced thereby.
v. Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth in procedural
rules, taking into consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.
c. Initial Appointment – Sec. 30
d. Powers, Duties and Responsibilities – Sec. 31: Deemed an officer of the court with the principal duty of
preserving and maximizing the value of the assets of the debtor during the rehabilitation proceedings,
determining the viability of the rehabilitation of the debtor, preparing and recommending a Rehabilitation
Plan to the court, and implementing the approved Rehabilitation Plan. See Sec. 31 for enumeration.
e. Removal – Sec. 32: The rehabilitation receiver may be removed at any time by the court either motu proprio
or upon motion by any creditor/s holding more than fifty percent (50%) of the total obligations of the debtor,
on such grounds as the rules of procedure may provide which shall include, but are not limited to, the
following:
i. Incompetence, gross negligence, failure to perform or failure to exercise the proper degree of care in
the performance of his duties and powers;
ii. Lack of a particular or specialized competency required by the specific case;
iii. Illegal acts or conduct in the performance of his duties and powers;
iv. Lack of qualification or presence of any disqualification;
v. Conflict of interest that arises after his appointment; and
vi. Manifest lack of independence that is detrimental to the general body of the stakeholders.
f. Compensation and Terms of Service – Sec. 33: reasonable fees and expenses from the debtor according to
the terms approved by the court after notice and hearing. Such costs shall be considered administrative
expenses.
g. Oath and Bond of the Rehabilitation Receiver – Sec. 34: required prior to entering upon his powers, duties
and responsibilities
h. Vacancy – Sec. 35: court shall direct the debtor and the creditors to submit the name/s of their nominee/s to
the position, and court shall appoint any qualified nominee or any other qualified person
i. Displacement of Existing Management by the Rehabilitation Receiver or Management Committee – Sec.
36: Upon motion of any interested party, the court may appoint and direct the rehabilitation receiver to
assume the powers of management of the debtor, or appoint a management committee that will undertake
the management of the debtor. upon clear and convincing evidence of any of the following circumstances:
i. Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s assets or other
properties;
ii. Paralyzation of the business operations of the debtor; or
iii. Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part of, or gross or
willful violation of this Act by. existing management of the debtor Or the owner, partner, director, officer
or representative/s in management of the debtor.
 2. Management Committee
a. Role of the Management Committee. – Sec. 37: When appointed pursuant to Sec. 36, the management
committee shall take the place of the management and the governing body of the debtor and assume their
rights and responsibilities. Specifics to be provided by procedural rules.
b. Qualifications of Members of the Management Committee. – Sec. 38: Specifics to be provided by procedural
rules, taking into consideration the nature of the business of the debtor and the need to protect the interest
of all stakeholders concerned.

3. Common Provisions
a. Employment of Professionals – Sec. 39: allowed upon approval of the court, and after notice and hearing.
b. Conflict of Interest – Sec. 40: No person may be appointed as a rehabilitation receiver, member of a
management committee, or be employed by the rehabilitation receiver or the management committee if he
has a conflict of interest. An individual shall be deemed to have a conflict of interest if he is so situated as to
be materially influenced in the exercise of his judgment for or against any party to the proceedings. See Sec.
40 for enumeration. Conflict of interest must be disclosed.
c. Immunity – Sec. 41: for act done or omitted to be done by them in good faith in connection with the exercise
of their powers and functions under FRIA or other actions duly approved by the court.

4. Creditors’ Committee
a. Constitution – Sec. 42: After the creditors' meeting called pursuant to Sec. 63, the creditors belonging to a
class may formally organize a committee among themselves. In addition, the creditors may, as a body, agree
to form a creditors' committee composed of a representative from each class of creditors (secured,
unsecured, trade creditors and suppliers, employees).
b. Role – Sec. 43: To assist the rehabilitation receiver in communicating with the creditors and shall be the
primary liaison between the rehabilitation receiver and the creditors. The creditors' committee cannot
exercise or waive any right or give any consent on behalf of any creditor unless specifically authorized in
writing by such creditor. The creditors' committee may be authorized by the court or by the rehabilitation
receiver to perform such other tasks and functions as may be defined by the procedural rules in order to
facilitate the rehabilitation process.

D. Determination of Claims
1. Definition of Claim – Sec. 4(c): Claim shall refer to all claims or demands of whatever nature or character against
the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent,
matured or unmatured, disputed or undisputed, including, but not limited to; (1) all claims of the government,
whether national or local, including taxes, tariffs and customs duties; and (2) claims against directors and officers
of the debtor arising from acts done in the discharge of their functions falling within the scope of their authority:
Provided, That, this inclusion does not prohibit the creditors or third parties from filing cases against the directors
and officers acting in their personal capacities.
2. Registry of Claims – Sec. 44: Within twenty (20) days from his assumption into office, the rehabilitation receiver
shall establish a preliminary registry of claims. The rehabilitation receiver shall make the registry available for
public inspection and provide publication notice to the debtor, creditors and stakeholders on where and when
they may inspect it. All claims included in the registry of claims must be duly supported by sufficient evidence.
3. Opposition or Challenge of Claims – Sec. 45: Within thirty (30) days from the expiration of the period stated in the
immediately preceding section, the debtor, creditors, stakeholders and other interested parties may submit a
challenge to claim/s to the court, serving a certified copy on the rehabilitation receiver and the creditor holding
the challenged claim/so Upon the expiration of the thirty (30)-day period, the rehabilitation receiver shall submit
to the court the registry of claims which shall include undisputed claims that have not been subject to challenge.
3. Appeal – Sec. 46: Any decision of the rehabilitation receiver regarding a claim may be appealed to the court.

E. Governance
 1. Management – Sec. 47: Unless otherwise provided herein, the management of the juridical debtor shall remain
with the existing management subject to the applicable law/s and agreement/s, if any, on the election or
appointment of directors, managers Or managing partner. However, all disbursements, payments or sale, disposal,
assignment, transfer or encumbrance of property , or any other act affecting title or interest in property, shall be
subject to the approval of the rehabilitation receiver and/or the court, as provided in the following subchapter.

F. Use, Preservation and Disposal of Assets and Treatment

of Assets and Claims after Commencement Date.
1. Use or Disposition of Assets – Sec. 48: Except as otherwise provided herein, no funds or property of the debtor
shall he used or disposed of except in the ordinary course of business of the debtor, or unless necessary to finance
the administrative expenses of the rehabilitation proceedings.
2. Sale of Assets – Sec. 49: The court, upon application of the rehabilitation receiver, may authorize the sale of
unencumbered property of the debtor outside the ordinary course of business upon a showing that the property,
by its nature or because of other circumstance, is perishable, costly to maintain, susceptible to devaluation or
otherwise in jeopardy.
3. Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held by Debtor – Sec. 50
4. Assets of Debtor Held by Third Parties – Sec. 51
5. Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets – Sec. 52: The court may rescind or
declare as null and void any sale, payment, transfer or conveyance of the debtor's unencumbered property or any
encumbering thereof by the debtor or its agents or representatives after the commencement date which are not
in the ordinary course of the business of the debtor: Provided, however, That the unencumbered property may be
sold, encumbered or otherwise disposed of upon order of the court after notice and hearing:
a. if such are in the interest of administering the debtor and facilitating the preparation and implementation of
a Rehabilitation Plan;
b. in order to provide a substitute lien, mortgage or pledge of property under this Act;
c. for payments made to meet administrative expenses as they arise;
d. for payments to victims of quasi delicts upon a showing that the claim is valid and the debtor has insurance
to reimburse the debtor for the payments made;
e. for payments made to repurchase property of the debtor that is auctioned off in a judicial or extrajudicial sale
under. This Act; or
f. for payments made to reclaim property of the debtor held pursuant to a possessory lien.
6. Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. – Sec. 53
7. Post-commencement Interest – Sec. 54: The rate and term of interest, if any, on secured and unsecured claims
shall be determined and provided for in the approved Rehabilitation Plan.
8. Post-commencement Loans and Obligations – Sec. 55: With the approval of the court upon the recommendation
of the rehabilitation receiver, the debtor, in order to enhance its rehabilitation. 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 parties with regard to the encumbered property;
or
c. incur other obligations as may be essential for its rehabilitation.
Note: The payment of the foregoing obligations shall be considered administrative expenses under this Act.
 Treatment of Employees, Claims – Sec. 56: Compensation of employees required to carry on the business shall be
considered an administrative expense. Claims of separation pay for months worked prior to the commencement
date shall be considered a pre- ommencement claim. Claims for salary and separation pay for work performed
after the commencement date shall be an administrative expense.
  Treatment of Contracts – Sec. 57: Unless cancelled by virtue of a final judgment of a court of competent
jurisdiction issued prior to the issuance of the Commencement Order, or at anytime thereafter by the court before
which the rehabilitation proceedings are pending, all valid and subsisting contracts of the debtor with creditors
and other third parties as at the commencement date shall continue in force: Provided, That within 90 days
following the commencement of proceedings, the debtor, with the consent of the rehabilitation receiver, shall
notify each contractual counter-party of whether it is confirming the particular contract. Contractual obligations
of the debtor arising or performed during this period, and afterwards for confirmed contracts, shall be considered
administrative expenses. Contracts not confirmed within the required deadline shall be considered terminated.
Claims for actual damages, if any, arising as a result of the election to terminate a contract shall be considered a
pre-commencement claim against the debtor. Nothing contained herein shall prevent the cancellation or
termination of any contract of the debtor for any ground provided by law.

G. Avoidance Proceedings
1. Rescission or Nullity of Certain Pre-commencement Transactions – Sec. 58: Any transaction 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
constitute undue preference of creditors. See Sec. 58 for enumeration of disputable presumption of such design.
Note: Provided, however, That nothing in this section shall prevent the court from rescinding or declaring as null
and void a transaction on other grounds provided by relevant legislation and jurisprudence: Provided, further, That
the provisions of the Civil Code on rescission shall in any case apply to these transactions.
2. Actions for Rescission or Nullity – Sec. 59

H. Treatment of Secured Creditors

1. No Diminution of Secured Creditor Rights – Sec. 60
2. Lack of Adequate Protection – Sec. 61: The court, on motion or motu proprio, may terminate, modify or set
conditions for the continuance of suspension of payment, or relieve a claim from the coverage thereof, upon
showing that: (a) a creditor does not have adequate protection over property securing its claim; or(b) the value of
a claim secured by a lien on property which is not necessary for rehabilitation of the debtor exceeds the fair market
value of the said property. See Sec. 61 for enumeration of factors.

I. Administration of Proceedings.
1. Contents of a Rehabilitation Plan – Sec. 62
2. Consultation with Debtor and Creditors – Sec. 63
3. Creditor Approval of Rehabilitation Plan – Sec. 64
4. Submission of Rehabilitation Plan to the Court. – Sec. 65
5. Filing of Objections to Rehabilitation Plan – Sec. 66
6. Hearing on the Objections – Sec. 67
7. Confirmation of the Rehabilitation Plan – Sec. 68
8. Effect of Confirmation of the Rehabilitation Plan – Sec. 69: The confirmation of the Rehabilitation Plan by the
court shall result in the following:
a. The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons who may be
affected by . it, including the creditors, whether or not such persons have participated in the proceedings or
opposed the Rehabilitation Plan or whether or not their claims have been scheduled;
b. The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions necessary to
carry out the Plan;
c. Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;
d. Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to
apply to the extent that they do not conflict with the provisions of the Rehabilitation Plan;
 e. Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on
creditors regardless of whether or not the Plan is successfully implement; and
f. Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to any
Suspension Order.
9. Liability of General Partners of a Partnership for Unpaid Balances Under an Approved Plan – Sec. 70
10. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced – Sec. 71
11. Period for Confirmation of the Rehabilitation Plan – Sec. 72: The court shall have a maximum period of one (1)
year from the date of the filing of the petition to confirm a Rehabilitation Plan.
Note: If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or motu
propio, be converted into one for the liquidation of the debtor .
12. Accounting Discharge of Rehabilitation Receiver – Sec. 73

J. Termination of Proceedings
1. Termination of Proceedings – Sec. 74: The rehabilitation proceedings under Chapter II shall, upon motion by any
stakeholder or the rehabilitation receiver be terminated by order of the court either declaring a successful
implementation of the Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the debtor can
be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation thereof, the
debtor fails to perform its obligations thereunder or there is a failure to realize the objectives, targets or goals
set forth therein, including the timelines and conditions for the settlement of the obligations due to the
creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.
2. Action of Court upon Termination – Sec. 74: Upon a breach of, or upon a failure of the Rehabilitation Plan the
court, upon motion by an affected party may:
i. Issue an order directing that the breach be cured within a specified period of time, falling which the
proceedings may be converted to a liquidation;
ii. Issue an order converting the proceedings to a liquidation;
iii. Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan, the approval of
which shall be governed by the same requirements for the approval of a Rehabilitation Plan under this
subchapter;
iv. Issue any other order to remedy the breach consistent with the present regulation, other applicable law and
the best interests of the creditors; or
v. Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.
3. Effects of Termination – Sec. 75: Termination of the proceedings shall result in the following:
(a) The discharge of the rehabilitation receiver subject to his submission of a final accounting; and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action for the enforcement of
a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or dismissal of the
petition for reasons other than technical grounds, the proceedings shall be immediately converted to liquidation
as provided in Section 92 of this Act.
III. PRE-NEGOTIATED REHABILITATION

A. Initiation of Proceedings – Sec. 76

1. Who May Initiate: 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:
a. creditors holding at least 2/3 of the total liabilities of the debtor,
b. including secured creditors holding more than 50% of the total secured claims of the debtor and
c. unsecured creditors holding more than 50% of the total unsecured claims of the debtor.
2. Contents of Petition: The petition shall include as a minimum:
a. a schedule of the debtor's debts and liabilities;
b. an inventory of the debtor's assets;
c. the pre-negotiated Rehabilitation Plan, including the names of at least 3 qualified nominees for rehabilitation
receiver; and
d. a summary of disputed claims against the debtor and a report on the provisioning of funds to account for
appropriate payments should any such claims be ruled valid or their amounts adjusted.
B. Issuance of Order – Sec. 77: Within 5 working days, and after determination that the petition is sufficient in form and
substance, the court shall issue an Order which shall:
1. identify the debtor, its principal business of activity/ies and its principal place of business;
2. declare that the debtor is under rehabilitation;
3. summarize the ground./s for the filling of the petition;
4. direct the publication of the Order in a newspaper of general circulation in the Philippines once a week for at least
2 consecutive weeks, with the first publication to be made within 7 days from the time of its issuance;
5. direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner holding at
least 10% of the total liabilities of the debtor, as determined in the schedule attached to the petition, within 3
days;
6. state that copies of the petition and the Rehabilitation Plan are available for examination and copying by any
interested party;
7. state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file their
objections or comments thereto within a period of not later than 20 days from the second publication of the Order;
8. appoint a rehabilitation receiver, if provided for in the Plan; and
9. include a Suspension or Stay Order as described in this Act.
C. Approval of the Plan – Sec. 78: Within 10 days from the date of the second publication of the Order, the court shall
approve the Rehabilitation Plan unless a creditor or other interested party submits an objection to it in accordance with
the next succeeding section.
D. Objection to the Petition or Rehabilitation Plan – Sec. 79: Any creditor or other interested party may submit to the
court a verified objection to the petition or the Rehabilitation Plan not later than 8 days from the date of the second
publication of the Order mentioned in Section 77. The objections shall be limited to the following:
1. The allegations in the petition or the Rehabilitation Plan or the attachments thereto are materially false or
misleading;
2. The majority of any class of creditors do not in fact support the Rehabilitation Plan;
3. The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim in not categorically
declared as a contested claim; or
4. The support of the creditors, or any of them was induced by fraud.
 Note: Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the rehabilitation
receiver (if applicable), the secured creditor with the largest claim and who supports the Rehabilitation Plan, and the
unsecured creditor with the largest claim and who supports the Rehabilitation Plan.
E. Hearing on the Objections – Sec. 80: After receipt of an objection, the court shall set the same for hearing. The date of
the hearing shall be no earlier than 20 days and no later than 30 days from the date of the second publication of the
Order mentioned in Section 77.
1. If the court finds merit in the objection – it shall direct the debtor, when feasible to cure the detect within a
reasonable period.
2. If the court determines that the debtor or creditors supporting the Rehabilitation Plan acted in bad faith, or that
the objection is non-curable – the court may order the conversion of the proceedings into liquidation. A finding by
the court that the objection has no substantial merit, or that the same has been cured shall be deemed an approval
of the Rehabilitation Plan.
F. Period for Approval of Rehabilitation Plan – Sec. 81: The court shall have a maximum period of 120 days from the date
of the filing of the petition to approve the Rehabilitation Plan. If the court fails to act within the said period, the
Rehabilitation Plan shall be deemed approved.
G. Effect of Approval – Sec. 82: Same legal effect as confirmation of a Plan under Chapter II.

IV. OUT-OF-COURT OR INFORMAL RESTRUCTURING

AGREEMENTS OR REHABILITATION PLANS

A. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans; Minimum Requirements – Sec. 83 and
84: consistent with FRIA if it meets the following minimum requirements:
1. The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan;
2. It must be approved by creditors representing at least 67% of the secured obligations of the debtor;
3. It must be approved by creditors representing at least 75% of the unsecured obligations of the debtor; and
4. It must be approved by creditors holding at least 85% of the total liabilities, secured and unsecured, of the debtor.
B. Standstill Period – Sec. 85: A standstill period that may be agreed upon by the parties pending negotiation and
finalization of the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan contemplated
herein shall be effective and enforceable not only against the contracting parties but also against the other creditors:
Provided, That:
1. such agreement is approved by creditors representing more than 50% of the total liabilities of the debtor;
2. notice thereof is publishing in a newspaper of general circulation in the Philippines once a week for 2 consecutive
weeks; and
3. the standstill period does not exceed 120 days from the date of effectivity.
Note: The notice must invite creditors to participate in the negotiation for out-of-court rehabilitation or restructuring
agreement and notify them that said agreement will be binding on all creditors if the required majority votes prescribed
in Section 84 are met.
 Cram Down Effect – Sec. 86: A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant to
an informal workout framework referred to in this chapter shall have the same legal effect as confirmation of a Plan
under Section 69. The notice of the Rehabilitation Plan or restructuring agreement or Plan shall be published once a
week for at least 3 consecutive weeks in a newspaper of general circulation in the Philippines. The Rehabilitation Plan
or restructuring agreement shall take effect upon the lapse of 15 days from the date of the last publication of the notice
thereof.
 Amendment or Modification – Sec. 87: Any amendment of an out-of-court restructuring/workout agreement or
Rehabilitation Plan must be made in accordance with the terms of the agreement and with due notice on all creditors.
 Effect of Court Action or Other Proceedings – Sec. 88: Any court action or other proceedings arising from, or relating
to, the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan shall not stay its
implementation, unless the relevant party is able to secure a temporary restraining order or injunctive relief from the
Court of Appeals.
  Court Assistance – Sec. 89: The insolvent debtor and/or creditor may seek court assistance for the execution or
implementation of a Rehabilitation Plan under this Chapter, under such rules of procedure as may be promulgated by
the Supreme Court.

V. LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS

A. Voluntary Liquidation – Sec. 90

1. Petition for Liquidation: An insolvent debtor may apply for liquidation by filing a petition for liquidation with the
court. The petition shall be verified, shall establish the insolvency of the debtor and shall contain:
a. a schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of
claims and collaterals, or securities, if any;
b. an inventory of all its assets including receivables and claims against third parties; and
c. the names of at least three (3) nominees to the position of liquidator.
2. Motion for Liquidation: At any time during the pendency of court-supervised or pre-negotiated rehabilitation
proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the same court where the
rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The
motion:
a. shall be verified;
b. shall contain or set forth the same matters required in the preceding paragraph; and
c. shall state that the debtor is seeking immediate dissolution and termination of its corporate existence.
3. Action on Petition or Motion: If the petition or the motion is sufficient in form and substance, the court shall issue
a Liquidation Order mentioned in Section 112.

B. Involuntary Liquidation – Sec. 91

1. Petition for Liquidation: Three (3) or more creditors the aggregate of whose claims is at least either One million
pesos or at least 25% of the subscribed capital stock or partner's contributions of the debtor, whichever is higher,
may apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with
the court. The petition shall show that:
a. there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the due and demandable
payments thereon have not been made for at least 180 days or that the debtor has failed generally to meet
its liabilities as they fall due; and
b. there is no substantial likelihood that the debtor may be rehabilitated.
2. Motion for Liquidation: At any time during the pendency of or after a rehabilitation court-supervised or pre-
negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million pesos
or at least 25% of the subscribed capital or partner's contributions of the debtor, whichever is higher, may also
initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are
pending to convert the rehabilitation proceedings into liquidation proceedings. The motion:
a. shall be verified;
b. shall contain or set forth the same matters required in the preceding paragraph; and
c. state that the movants are seeking the immediate liquidation of the debtor.
3. Action on Petition and Motion: If the petition or motion is sufficient in form and substance, the court shall issue
an Order:
a. directing the publication of the petition or motion in a newspaper of general circulation once a week for two
(2) consecutive weeks; and
b. directing the debtor and all creditors who are not the petitioners to file their comment on the petition or
motion within fifteen (15) days from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is meritorious, it shall
issue the Liquidation Order mentioned in Section 112.
 B. Involuntary Liquidation – Sec. 91
1. Petition for Liquidation: Three (3) or more creditors the aggregate of whose claims is at least either One million
pesos or at least 25% of the subscribed capital stock or partner's contributions of the debtor, whichever is higher,
may apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with
the court. The petition shall show that:
a. there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the due and demandable
payments thereon have not been made for at least 180 days or that the debtor has failed generally to meet
its liabilities as they fall due; and
b. there is no substantial likelihood that the debtor may be rehabilitated.

C. Conversion by the Court into Liquidation Proceedings – Sec. 92:

1. During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may order the
conversion of rehabilitation proceedings to liquidation proceedings pursuant to
a. Section 25(c);
b. Section 72;
c. Section 75; or
d Section 90; or
2. at any other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is
not feasible.
Thereupon, the court shall issue the Liquidation Order mentioned in Section 112.

D. Powers of the SEC – Sec. 93: The provisions of this chapter shall not affect the regulatory powers of the SEC under
Section 6 of PD No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and heard
before it.

VI. INSOLVENCY OF INDIVIDUAL DEBTORS

A. Suspension of Payments.
1. Petition – Sec. 94: An individual debtor who, possessing sufficient property to cover all his debts but foreseeing
the impossibility of meeting them when they respectively fall due, may file a verified petition that he be declared
in the state of suspension of payments by the court of the province or city in which he has resides for 6 months
prior to the filing of his petition. He shall attach to his petition, as a minimum:
a. a schedule of debts and liabilities;
b. an inventory of assets; and
c. a proposed agreement with his creditors.
2. Action on the Petition – Sec. 95: If the court finds the petition sufficient in form and substance, it shall, within five
5 working days from the filing of the petition, issue an Order:
a. calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not less than
15 days nor more than 40 days from the date of such Order and designating the date, time and place of the
meeting;
b. directing such creditors to prepare and present written evidence of their claims before the scheduled
creditors' meeting;
c. directing the publication of the said order in a newspaper of general circulation published in the province or
city in which the petition is filed once a week for 2 consecutive weeks, with the first publication to be made
within 7 days from the time of the issuance of the Order;
d. directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage prepaid,
to all creditors named in the schedule of debts and liabilities;
 e. forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his
property, except those used in the ordinary operations of commerce or of industry in which the petitioning
individual debtor is engaged so long as the proceedings relative to the suspension of payments are pending;
f. prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses
of his business or industry, so long as the proceedings relative to the suspension of payments are pending;
and
g. appointing a commissioner to preside over the creditors' meeting.
3. Actions Suspended – Sec. 96: Upon motion filed by the individual debtor, the court may issue an order suspending
any pending execution against the individual debtor. Provided, That properties held as security by secured
creditors shall not be the subject of such suspension order. The suspension order shall lapse when 3 months shall
have passed without the proposed agreement being accepted by the creditors or as soon as such agreement is
denied.
Note: No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing
of the petition for suspension of payments and for as long as proceedings remain pending except:
a. those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife
or children of the debtor incurred in the 60 days immediately prior to the filing of the petition; and
b. secured creditors.
4. Creditors’ Meeting – Sec. 97:
a. Quorum – The presence of creditors holding claims amounting to at least 3/5 of the liabilities shall be
necessary for holding a meeting.
b. Who Presides – The commissioner appointed by the court shall preside over the meeting and the clerk of
court shall act as the secretary thereof
c. Voting: The creditors and individual debtor shall discuss the propositions in the proposed agreement and put
them to a vote. To form a majority, it is necessary:
i. that 2/3 of the creditors voting unite upon the same proposition; and
ii. that the claims represented by said majority vote amount to at least 3/5 of the total liabilities of the
debtor mentioned in the petition
Note: No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be
entitled to vote.
 Protests: After the result of the voting has been announced, all protests made against the majority vote shall
be drawn up, and the commissioner and the individual debtor together with all creditors taking part in the
voting shall sign the affirmed propositions.
5. Persons Who May Refrain From Voting – Sec. 98: Creditors who are unaffected by the Suspension Order may
refrain from attending the meeting and from voting therein. Such persons shall not be bound by any agreement
determined upon at such meeting, but if they should join in the voting they shall be bound in the same manner as
are the other creditors.
6. Rejection of the Proposed Agreement – Sec. 99: The proposed agreement shall be deemed rejected if the number
of creditors required for holding a meeting do not attend thereat, or if the two (2) majorities mentioned in Section
97 are not in favor thereof. In such instances, the proceeding shall be terminated without recourse and the parties
concerned shall be at liberty to enforce the rights which may correspond to them.
7. Objections – Sec. 100: If the proposal of the individual debtor, or any amendment thereof made during the
creditors' meeting, is approved by the majority of creditors in accordance with Section 97, any creditor who
attended the meeting and who dissented from and protested against the vote of the majority may file an objection
with the court within 10 days from the date of the last creditors' meeting. (See Sec. 100 for causes for objections.)
Note: In case the decision of the majority of creditors to approve the individual debtor's proposal or any
amendment thereof made during the creditors' meeting is annulled by the court, the court shall declare the
proceedings terminated and the creditors shall be at liberty to exercise the rights which may correspond to them.
 Effects of Approval of Proposed Agreement – Sec. 101:
 a. If the decision of the majority of the creditors to approve the proposed agreement or any amendment thereof
made during the creditors' meeting is upheld by the court, or when no opposition or objection to said decision
has been presented, the court shall order that the agreement be carried out and all parties bound thereby to
comply with its terms.
b. The court may also issue all orders which may be necessary or proper to enforce the agreement on motion
of any affected party.
c. The Order confirming the approval of the proposed agreement or any amendment thereof made during the
creditors' meeting shall be binding upon all creditors whose claims are included in the schedule of debts and
liabilities submitted by the individual debtor and who were properly summoned, but not upon:
i. those creditors having claims for personal labor, maintenance, expenses of last illness and funeral of the
wife or children of the debtor incurred in the 60 days immediately prior to the filing of the petition; and
ii. secured creditors who failed to attend the meeting or refrained from voting therein.
9. Failure of Individual Debtor to Perform Agreement – Sec. 102: If the individual debtor fails, wholly or in part, to
perform the agreement decided upon at the meeting of the creditors, all the rights which the creditors had against
the individual debtor before the agreement shall revest in them. In such case the individual debtor may be made
subject to the insolvency proceedings in the manner established by this Act.

B. Voluntary Liquidation.
1. Petition – Sec. 103: An individual debtor whose properties are not sufficient to cover his liabilities, and owing
debts exceeding Five hundred thousand pesos, may apply to be discharged from his debts and liabilities by filing a
verified petition with the court of the province or city in which he has resided for 6 months prior to the filing of
such petition. He shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing
of such petition shall be an act of insolvency.
2. Liquidation Order – Sec. 104: If the court finds the petition sufficient in form and substance it shall, within 5
working days issue the Liquidation Order mentioned in Section 112.

C. Involuntary Liquidation.
1. Petition – Sec. 105: Any creditor or group of creditors with a claim of, or with claims aggregating at least Five
hundred thousand pesos may file a verified petition for liquidation with the court of the province or city in which
the individual debtor resides. The following shall be considered acts of insolvency, and the petition for liquidation
shall set forth or allege at least one of such acts: (Important: See Sec. 105 for enumeration of acts of insolvency)
Note: The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the petition
for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall not be declared an
insolvent the petitioners will pay to the debtor all costs, expenses, damages occasioned by the proceedings and
attorney's fees.
 Order to Individual Debtor to Show Cause – Sec. 106: Upon the filing of such creditors' petition, the court shall
issue an Order requiring the individual debtor to show cause, at a time and place to be fixed by the said court, why
he should not be adjudged an insolvent. 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 affect or impair the rights of a secured creditor to enforce his lien in
accordance with its terms.
 Default – Sec. 107: If the individual debtor shall default or if, after trial, the issues are found in favor of the
petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112.
 Absent Individual Debtor – Sec. 108
 All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to Sureties – Sec. 109:
 Sale Under Execution – Sec. 110

VII. PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY

A. The Liquidation Order.

 1. Contents of Liquidation Order – Sec. 112
2. Effects of the Liquidation Order – Sec. 113: Upon the issuance of the Liquidation Order:
a. the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;
b. legal title to and control of all the assets of the debtor, except those that may be exempt from execution,
shall be deemed vested in the liquidator or, pending his election 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 assumption of office, declares otherwise and the contracting party agrees;
d. no separate action for the collection of an unsecured claim shall be allowed. Such actions already pending
will be transferred to the Liquidator for him to accept and settle 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 final and executor judgment therein for a
claim against the debtor shall be filed and allowed in court; and
e. no foreclosure proceeding shall be allowed for a period of 180 days.
3. Rights of Secured Creditors – Sec. 114: The Liquidation Order shall not affect the right of a secured creditor to
enforce his lien in accordance with the applicable contract or law. (See Sec. 114 for rights of secured creditor)

B. The Liquidator.
1. Election of Liquidator – Sec. 115
2. Court-Appointed Liquidator – Sec. 116
3. Oath and Bond of the Liquidator – Sec. 117
4. Qualifications of the Liquidator – Sec. 118
5. Powers, Duties and Responsibilities of the Liquidator – Sec. 119: The liquidator shall be deemed an officer of the
court with the principal duly of preserving and maximizing the value and recovering the assets of the debtor, with
the end of liquidating them and discharging to the extent possible all the claims against the debtor. (See Sec. 119
for enumeration of powers.)
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right and duty to take
all reasonable steps to manage and dispose of the debtor's assets with a view towards maximizing the proceeds
therefrom, to pay creditors and stockholders, and to terminate the debtor's legal existence. Other duties of the
liquidator in accordance with this section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.
6. Compensation of the Liquidator – Sec. 120
7. Reporting Requirements – Sec. 121
8. Discharge of Liquidator – Sec. 122

C. Determination of Claims
1. Registry of Claims – Sec. 123
2. Right of Set-off – Sec. 124
3. Opposition or Challenge to Claims – Sec. 125
4. Submission of Disputed Claim to the Court – Sec. 126

D. Avoidance Proceedings
1. Rescission or Nullity of Certain Transactions – Sec. 127: Any transaction occurring prior to the issuance of the
Liquidation Order or, in case of the conversion of the rehabilitation 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 constitute undue preference of
creditors. The presumptions set forth in Section 58 hereof shall apply.
 2. Actions for Rescission or Nullity – Sec. 128

E. The Liquidation Plan

1. The Liquidation Plan – Sec. 129: Within three (3) months from his assumption into office, the Liquidator shall
submit a Liquidation Plan to the court. The Liquidation Plan shall, as a minimum enumerate all the assets of the
debtor and a schedule of liquidation of the assets and payment of the claims.
2. Exempt Property to be Set Apart – Sec. 130
3. Sale of Assets in Liquidation – Sec. 131: The liquidator may sell the unencumbered assets of the debtor and
convert the same into money. The sale shall be made at public auction. However, a private sale may be allowed
with the approval of the court if;
a. the goods to be sold are of a perishable nature, or are liable to quickly deteriorate in value, or are
disproportionately expensive to keep or maintain; or
b. the private sale is for the best interest of the debtor and his creditors.
Note: With the approval of the court, unencumbered property of the debtor may also be conveyed to a creditor
in satisfaction of his claim or part thereof.
 Manner of Implementing the Liquidation Plan – Sec. 132: The Liquidator shall implement the Liquidation Plan as
approved by the court. Payments shall be made to the creditors only in accordance with the provisions of the Plan.
 Concurrence and Preference of Credits – Sec. 133: The Liquidation Plan and its Implementation 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. For purposes of this
chapter, credits for services rendered by employees or laborers to the debtor shall enjoy first preference under
Article 2244 of the Civil Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.
 Order Removing the Debtor from the List of Registered Entitles at the Securities and Exchange Commission –
Sec. 134
 Termination of Proceedings – Sec. 135

 Liquidation of a Securities Market Participant – Sec. 136

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