[REPUBLIC ACT NO.

10142]

AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY

DISTRESSED ENTERPRISES AND INDIVIDUALS

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

CHAPTER I

GENERAL PROVISIONS

SECTION 1. Title. — This Act shall be known as the “Financial Rehabilitation and
Insolvency Act (FRIA) of 2010”.

SEC. 2. Declaration of Policy. — It is the policy of the State to encourage debtors, both
juridical and natural persons, and their creditors to collectively and realistically resolve
and adjust competing claims and property rights. In furtherance thereof, the State shall
ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of
debtors. The rehabilitation or liquidation shall be made with a view to ensure or maintain
certainty 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. When rehabilitation is
not feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation
of these debtors’ assets and the settlement of their obligations.

SEC. 3. Nature of Proceedings. — 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.

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.

SEC. 4. Definition of Terms. — As used in this Act, the term:

(a) Administrative expenses shall refer to those reasonable and necessary expenses:

(1) incurred or arising from the filing of a petition under the provisions of this Act;

(2) arising from, or in connection with, the conduct of the proceedings under this Act,
including those incurred for the rehabilitation or liquidation of the debtor;
(3) incurred in the ordinary course of business of the debtor after the commencement
date;

(4) for the payment of new obligations obtained after the commencement date to finance
the rehabilitation of the debtor;

(5) incurred for the fees of the rehabilitation receiver or liquidator and of the professionals
engaged by them; and

(6) that are otherwise authorized or mandated under this Act or such other expenses as
may be allowed by the Supreme Court in its rules.

(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the common control of another corporation.

(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.

(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the petition for
voluntary or involuntary proceedings.

(e) Commencement Order shall refer to the order issued by the court under Section 16 of
this Act.

(f) Control shall refer to the power of a parent corporation to direct or govern the financial
and operating policies of an enterprise so as to obtain benefits from its activities. Control
is presumed to exist when the parent owns, directly or indirectly through subsidiaries or
affiliates, more than one-half (1/2) of the voting power of an enterprise unless, in
exceptional circumstances, it can clearly be demonstrated that such ownership does not
constitute control. Control also exists even when the parent owns one-half (1/2) or less of
the voting power of an enterprise when there is power:

(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with
investors;

(2) to direct or govern the financial and operating policies of the enterprise under a statute
or an agreement;
(3) to appoint or remove the majority of the members of the board of directors or
equivalent governing body; or

(4) to cast the majority votes at meetings of the board of directors or equivalent governing
body.

(g) Court shall refer to the court designated by the Supreme Court to hear and determine,
at the first instance, the cases brought under this Act.

(h) Creditor shall refer to a natural or juridical person which has a claim against the debtor
that arose on or before the commencement date.

(i) Date of liquidation shall refer to the date on which the court issues the Liquidation
Order.

(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.

(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.

(l) Encumbered property shall refer to real or personal property of the debtor upon which
a lien attaches.

(m) General unsecured creditor shall refer to a creditor whose claim or a portion thereof
is neither secured, preferred nor subordinated under this Act.

(n) Group of debtors shall refer to and can cover only: (1) corporations that are financially
related to one another as parent corporations, subsidiaries or affiliates; (2) partnerships
that are owned more than fifty percent (50%) by the same person; and (3) single
proprietorships that are owned by the same person. When the petition covers a group of
debtors, all reference under these rules to debtor shall include and apply to the group of
debtors.

(o) Individual debtor shall refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent as defined herein.

(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.

(q) Insolvent debtor’s estate shall refer to the estate of the insolvent debtor, which includes
all the property and assets of the debtor as of commencement date, plus the property and
assets acquired by the rehabilitation receiver or liquidator after that date, as well as all
other property and assets in which the debtor has an ownership interest, whether or not
these property and assets are in the debtor’s possession as of commencement
date: Provided, That trust assets and bailment, and other property and assets of a third
party that are in the possession of the debtor as of commencement date, are excluded
therefrom.

(r) Involuntary proceedings shall refer to proceedings initiated by creditors.

(s) Liabilities shall refer to monetary claims against the debtor, including stockholder’s
advances that have been recorded in the debtor’s audited financial statements as
advances for future subscriptions.

(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or personal
property that legally entitles a creditor to resort to said property for payment of the claim
or debt secured by such lien.

(u) Liquidation shall refer to the proceedings under Chapter V of this Act.

(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of this
Act.

(w) Liquidator shall refer to the natural person or juridical entity appointed as such by the
court and entrusted with such powers and duties as set forth in this Act: Provided, That,
if the liquidator is a juridical entity, it must designate a natural person who possesses all
the qualifications and none of the disqualifications as its representative, it being
understood that the juridical entity and the representative are solidarily liable for all
obligations and responsibilities of the liquidator.

(x) Officer shall refer to a natural person holding a management position described in or
contemplated by a juridical entity’s articles of incorporation, bylaws or equivalent
documents, except for the corporate secretary, the assistant corporate secretary and the
external auditor.

(y) Ordinary course of business shall refer to transactions in the pursuit of the individual
debtor’s or debtor’s business operations prior to rehabilitation or insolvency proceedings
and on ordinary business terms.

(z) Ownership interest shall refer to the ownership interest of third parties in property held
by the debtor, including those covered by trust receipts or assignments of receivables.

(aa) Parent shall refer to a corporation which has over another corporation either directly
or indirectly through one or more intermediaries.

(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured creditors’
committee, a stakeholder, a party with an ownership interest in property held by the
debtor, a secured creditor, the rehabilitation receiver, liquidator or any other juridical or
natural person who stands to be benefited or injured by the outcome of the proceedings
and whose notice of appearance is accepted by the court.

(cc) Possessory lien shall refer to a lien on property, the possession of which has been
transferred to a creditor or a representative or agent thereof.

(dd) Proceedings shall refer to judicial proceedings commenced by the court’s

acceptance of a petition filed under this Act.

(ee) Property of others shall refer to property held by the debtor in which other persons
have an ownership interest.

(ff) Publication notice shall refer to notice through publication in a newspaper of general
circulation in the Philippines on a business day for two (2) consecutive weeks.

(gg) 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.

(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical,
appointed as such by the court pursuant to this Act and which shall be entrusted with
such powers and duties as set forth herein.

(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability
of an insolvent debtor can be restored using various means including, but not limited to,
debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en
pago, debt-equity conversion and sale of the business (or parts of it) as a going concern,
or setting-up of new business entity as prescribed in Section 62 hereof, or other similar
arrangements as may be approved by the court or creditors.

(jj) Secured claim shall refer to a claim that is secured by a lien.

(kk) Secured creditor shall refer to a creditor with a secured claim.

(ll) Secured party shall refer to a secured creditor or the agent or representative of such
secured creditor.

(mm) Securities market participant shall refer to a broker, dealer, underwriter, transfer
agent or other juridical persons transacting securities in the capital market.

(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a member

of a nonstock corporation or association or a partner in a partnership.
(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting
stock of which is owned or controlled directly or indirectly through one or more
intermediaries by another corporation, which thereby becomes its parent corporation.

(pp) Unsecured claim shall refer to a claim that is not secured by a lien.

(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.

(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.

(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the
consent of which is necessary for the approval of a Rehabilitation Plan under this Act.

SEC. 5. Exclusions. — The term debtor does not include banks, insurance companies,
pre-need companies, and national and local government agencies or units.

For purposes of this section:

(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually
subject to conservatorship, receivership or liquidation proceedings under the New Central
Bank Act (Republic Act No. 7653) or successor legislation;

(b) Insurance company shall refer to those companies that are potentially or actually
subject to insolvency proceedings under the Insurance Code (Presidential Decree No.
1460) or successor legislation; and

(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to
sell pre-need plans.

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.

SEC. 6. Designation of Courts and Promulgation of Procedural Rules. — The Supreme

Court shall designate the court or courts that will hear and resolve cases brought under
this Act and shall promulgate the rules of pleading, practice and procedure to govern the
proceedings brought under this Act.

SEC. 7. Substantive and Procedural Consolidation. — 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:
(a) there was commingling in fact of assets and liabilities of the debtor and the related
enterprise prior to the commencement of the proceedings;

(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;

(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to
commingle its assets and liabilities with the debtor’s; and

(d) 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.

SEC. 8. Decisions of Creditors. — Decisions of creditors shall be made according to the

relevant provisions of the Corporation Code in the case of stock or nonstock corporations
or the Civil Code in the case of partnerships that are not inconsistent with this Act.

SEC. 9. Creditors’ Representatives. — Creditors may designate representatives to vote

or otherwise act on their behalf by filing notice of such representation with the court and
serving a copy on the rehabilitation receiver or liquidator.

SEC. 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a

Partnership, or Directors and Officers. — 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 the 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:

(a) 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

(b) 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.
SEC. 11. Authorization to Exchange Debt for Equity. — Notwithstanding applicable
banking legislation to the contrary, any bank, whether universal or not, may acquire and
hold an equity interest or investment in a debtor or its subsidiaries when conveyed to such
bank in satisfaction of debts pursuant to a Rehabilitation or Liquidation Plan approved by
the court: Provided, That such ownership shall be subject to the ownership limits
applicable to universal banks for equity investments and: Provided, further, That any
equity investment or interest acquired or held pursuant to this section shall be disposed
by the bank within a period of five (5) years or as may be prescribed by the Monetary
Board.

CHAPTER II

COURT-SUPERVISED REHABILITATION

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

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. 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:

(a) Identification of the debtor, its principal activities and its addresses;

(b) Statement of the fact of and the cause of the debtor’s insolvency or inability to pay its
obligations as they become due;

(c) The specific relief sought pursuant to this Act;

(d) The grounds upon which the petition is based;

(e) Other information that may be required under this Act depending on the form of relief
requested;

(f) 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;

(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;

(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and

(j) 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.

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.

(2) Involuntary Proceedings.

SEC. 13. Circumstances Necessary to Initiate Involuntary Proceedings. — 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, may initiate involuntary
proceedings against the debtor by filing a petition for rehabilitation with the court if:

(a) there is no genuine issue of fact or 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

(b) 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.

SEC. 14. Petition to Initiate Involuntary Proceedings. — The creditor/s’ petition for
rehabilitation shall be verified to establish the substantial likelihood that the debtor may
be rehabilitated, and include:

(a) identification of the debtor, its principal activities and its address;

(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation

proceedings under Section 13 of this Act;

(c) the specific relief sought under this Act;

(d) a Rehabilitation Plan;

(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(f) other information that may be required under this Act depending on the form of relief
requested; and

(g) 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.

SEC. 15. Action on the Petition. — If the court finds the petition for rehabilitation to be
sufficient in form and substance, it shall, within five (5) working days from the filing of the
petition, issue a Commencement Order. If, within the same period, the court finds the
petition deficient in form or substance, the 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. In
such case, the five (5) working days provided above for the issuance of the
Commencement Order shall be reckoned from the date of the filing of the amended or
supplemental petition or the submission of such documents.

SEC. 16. Commencement of Proceedings and Issuance of a Commencement Order. —

The rehabilitation proceedings shall commence upon the issuance of the Commencement
Order, which shall:

(a) identify the debtor, its principal business or activity/ies and its principal place of
business;

(b) summarize the ground/s for initiating the proceedings;

(c) state the relief sought under this Act and any requirement or procedure particular to
the relief sought;

(d) state the legal effects of the Commencement Order, including those mentioned in
Section 17 hereof;

(e) declare that the debtor is under rehabilitation;

(f) direct the publication of the Commencement Order in a newspaper of general

circulation in the Philippines once a week for at least two (2) consecutive weeks, with the
first publication to be made within seven (7) days from the time of its issuance;

(g) if the petitioner is the debtor, direct the service by personal delivery of a copy of the
petition on each creditor holding at least ten percent (10%) of the total liabilities of the
debtor as determined from the schedule attached to the petition within five (5) days; if the
petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition
on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or may not be from among the nominees of
the petitioner/s, and who shall exercise such powers and duties defined in this Act as well
as the procedural rules that the Supreme Court will promulgate;

(i) summarize the requirements and deadlines for creditors to establish their claims
against the debtor and direct all creditors to file their claims with the court at least five (5)
days before the initial hearing;

(j) direct the Bureau of Internal Revenue (BIR) to file and serve on the debtor its comment
on or opposition to the petition or its claim/s against the debtor under such procedures as
the Supreme Court may hereafter provide;

(k) prohibit the debtor’s suppliers of goods or services from withholding the supply of
goods and services in the ordinary course of business for as long as the debtor makes
payments for the services or goods supplied after the issuance of the Commencement
Order;

(l) authorize the payment of administrative expenses as they become due;

(m) set the case for initial hearing, which shall not be more than forty (40) days from the
date of filing of the petition for the purpose of determining whether there is substantial
likelihood for the debtor to be rehabilitated;

(n) make available copies of the petition and rehabilitation plan for examination and
copying by any interested party;

(o) indicate the location or locations at which documents regarding the debtor and the
proceedings under this Act may be reviewed and copied;

(p) state that any creditor or debtor, who is not the petitioner, may submit the name or
nominate any other qualified person to the position of rehabilitation receiver at least five
(5) days before the initial hearing;

(q) include a Stay or Suspension Order which shall:

(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.
SEC. 17. Effects of the Commencement Order. — 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 in this
Act, such as the right to review and obtain all records to which the debtor’s management
and directors have access, including bank accounts of 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 for rendering null and void the results of
any extrajudicial activity or process to seize property, sell encumbered property, or
otherwise attempt to collect on or enforce a claim against the debtor after the
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 set-off 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 in other
courts where the debtor had initiated the suit.

Attempts to seek legal or other recourse against the debtor outside these proceedings
shall be sufficient to support a finding of indirect contempt of court.

SEC. 18. Exceptions to the Stay or Suspension Order. — 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 the individual debtor or owner, partner, director or officer
of a debtor shall not be affected by any proceeding commenced under this Act.

SEC. 19. Waiver of Taxes and Fees Due to the National Government and to Local
Government Units (LGUs). — Upon issuance of the Commencement Order by the court,
and until the approval of the Rehabilitation Plan or dismissal of the petition, whichever is
earlier, the imposition of all taxes and fees, including penalties, interests and charges
thereof, due to the national government or to LGUs shall be considered waived, in
furtherance of the objectives of rehabilitation.

SEC. 20. Application of Stay or Suspension Order to Government Financial Institutions.

— The provisions of this Act concerning the effects of the Commencement Order and the
Stay or Suspension Order on the suspension of rights to foreclose or otherwise pursue
legal remedies shall apply to government financial institutions, notwithstanding provisions
in their charters or other laws to the contrary.

SEC. 21. Effectivity and Duration of Commencement Order. — Unless lifted by the court,
the Commencement Order shall be effective for the duration of the rehabilitation
proceedings for as long as there is a substantial likelihood that the debtor will be
successfully rehabilitated. In determining whether there is substantial likelihood for the
debtor to be successfully rehabilitated, the court shall ensure that the following minimum
requirements are met:

(a) The proposed Rehabilitation Plan submitted complies with the minimum contents
prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor’s business for
the protection of creditors;

(c) The debtor has met with its creditors to the extent reasonably possible in attempts to
reach a consensus on the proposed Rehabilitation Plan;

(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating
that the underlying assumptions and the financial goals stated in the petitioner’s
Rehabilitation Plan are realistic, feasible and reasonable; or, if not, there is, in any case,
a substantial likelihood for the debtor to be successfully rehabilitated because, among
others:

(1) there are sufficient assets with which to rehabilitate the debtor;

(2) there is sufficient cash flow to maintain the operations of the debtor;

(3) the debtor’s owner/s, partners, stockholders, directors and officers have been acting
in good faith and with due diligence;

(4) the petition is not a sham filing intended only to delay the enforcement of the rights of
the creditor/s or of any group of creditors; and

(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;

(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any
materially false or misleading statement;

(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at
least three-fourths (3/4) of its total obligations to the extent reasonably possible and made
a good faith effort to reach a consensus on the proposed Rehabilitation Plan; if the
petitioner/s is/are a creditor or group of creditors, that the petitioner/s has/have met with
the debtor and made a good faith effort to reach a consensus on the proposed
Rehabilitation Plan; and

(g) The debtor has not committed acts of misrepresentation or in fraud of its creditor/s or
a group of creditors.

SEC. 22. Action at the Initial Hearing. — 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 or 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 the initial hearing the report
provided in Section 24 hereof.

SEC. 23. Effect of Failure to File Notice of Claim. — 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.

SEC. 24. Report of the Rehabilitation Receiver. — Within forty (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 on whether:

(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act
or acts committed by the owner/s of a sole proprietorship, partners of a partnership, or
directors or officers of a corporation in contemplation of the insolvency of the debtor or
which may have contributed to the insolvency of the debtor;

(b) the underlying assumptions, the financial goals and the procedures to accomplish
such goals as stated in the petitioner’s Rehabilitation Plan are realistic, feasible and
reasonable;

(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(d) the petition should be dismissed; and

(e) the debtor should be dissolved and/or liquidated.

SEC. 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings.

— Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned
in Section 24 hereof, the court may:

(a) give due course to the petition upon a finding that:

(1) the debtor is insolvent; and

(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(b) dismiss the petition upon a finding that:

(1) debtor is not insolvent;

(2) 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;

(3) the petition, the Rehabilitation Plan and the attachments thereto contain any materially
false or misleading statements; or

(4) 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:

(1) the debtor is insolvent; and

(2) 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.

SEC. 26. Petition Given Due Course. — 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 ninety (90) days.

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.

SEC. 27. Dismissal of Petition. — If the petition is dismissed pursuant to paragraph (b) of
Section 25 hereof, 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.

SEC. 28. Who May Serve as a Rehabilitation Receiver. — 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 disqualifications 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.

SEC. 29. Qualifications of a Rehabilitation Receiver. — The rehabilitation receiver shall

have the following minimum qualifications:
(a) A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;

(b) Of good moral character and with acknowledged integrity, impartiality and
independence;

(c) Has the requisite knowledge of insolvency and other relevant commercial laws, rules
and procedures, as well as the relevant training and/or experience that may be necessary
to enable him to properly discharge the duties and obligations of a rehabilitation receiver;
and

(d) 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.

Other qualifications and disqualifications 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.

SEC. 30. Initial Appointment of the Rehabilitation Receiver. — The court shall initially
appoint the rehabilitation receiver, who may or may not be from among the nominees of
the petitioner. However, at the initial hearing of the petition, the creditors and the debtor
who are not petitioners may nominate other persons to the position. The court may retain
the rehabilitation receiver initially appointed or appoint another who may or may not be
from among those nominated.

In case the debtor is a securities market participant, the court shall give priority to the
nominee of the appropriate securities or investor protection fund.

If a qualified natural person or entity is nominated by more than fifty percent (50%) of the
secured creditors and the general unsecured creditors, and satisfactory evidence is
submitted, the court shall appoint the creditors’ nominee as rehabilitation receiver.

SEC. 31. Powers, Duties and Responsibilities of the Rehabilitation Receiver. — The
rehabilitation receiver shall be 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. To this end, and without limiting the generality of the foregoing, the
rehabilitation receiver shall have the following powers, duties and responsibilities:

(a) To verify the accuracy of the factual allegations in the petition and its annexes;

(b) To verify and correct, if necessary, the inventory of all of the assets of the debtor, and
their valuation;

(c) To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
(d) To evaluate the validity, genuineness and true amount of all the claims against the
debtor;

(e) To take possession, custody and control, and to preserve the value of all the property
of the debtor;

(f) To sue and recover, with the approval of the court, all amounts owed to, and all
properties pertaining to the debtor;

(g) To have access to all information necessary, proper or relevant to the operations and
business of the debtor and for its rehabilitation;

(h) To sue and recover, with the approval of the court, all property or money of the debtor
paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute
undue preference of creditor/s;

(i) To monitor the operations and the business of the debtor to ensure that no payments
or transfers of property are made other than in the ordinary course of business;

(j) With the court’s approval, to engage the services of or to employ persons or entities to
assist him in the discharge of his functions;

(k) To determine the manner by which the debtor may be best rehabilitated, to review,
revise and/or recommend action on the Rehabilitation Plan and submit the same or a new
one to the court for approval;

(l) To implement the Rehabilitation Plan as approved by the court, if so provided under
the Rehabilitation Plan;

(m) To assume and exercise the powers of management of the debtor, if directed by the
court pursuant to Section 36 hereof;

(n) To exercise such other powers as may, from time to time, be conferred upon him by
the court; and

(o) To submit a status report on the rehabilitation proceedings every quarter or as may
be required by the court motu proprio, or upon motion of any creditor, or as may
be Provided, in the Rehabilitation Plan.

Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver
shall not take over the management and control of the debtor but may recommend the
appointment of a management committee over the debtor in the cases provided by this
Act.

SEC. 32. Removal of the Rehabilitation Receiver. — 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:

(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper
degree of care in the performance of his duties and powers;

(b) Lack of a particular or specialized competency required by the specific case;

(c) Illegal acts or conduct in the performance of his duties and powers;

(d) Lack of qualification or presence of any disqualification;

(e) Conflict of interest that arises after his appointment; and

(f) Manifest lack of independence that is detrimental to the general body of the
stakeholders.

SEC. 33. Compensation and Terms of Service. — The rehabilitation receiver and his
direct employees or independent contractors shall be entitled to compensation for
reasonable fees and expenses from the debtor according to the terms approved by the
court after notice and hearing. Prior to such hearing, the rehabilitation receiver and his
direct employees shall be entitled to reasonable compensation based on quantum meruit.
Such costs shall be considered administrative expenses.

SEC. 34. Oath and Bond of the Rehabilitation Receiver. — Prior to entering upon his
powers, duties and responsibilities, the rehabilitation receiver shall take an oath and file
a bond, in such amount to be fixed by the court, conditioned upon the faithful and proper
discharge of his powers, duties and responsibilities.

SEC. 35. Vacancy. — In case the position of rehabilitation receiver is vacated for any
reason whatsoever, the court shall direct the debtor and the creditors to submit the
name/s of their nominee/s to the position. The court may appoint any of the qualified
nominees, or any other person qualified for the position.

SEC. 36. Displacement of Existing Management by the Rehabilitation Receiver or

Management Committee. — 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:

(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s
assets or other properties;

(b) Paralyzation of the business operations of the debtor; or

(c) 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.

In case the court appoints the rehabilitation receiver to assume the powers of
management of the debtor, the court may:

(1) require the rehabilitation receiver to post an additional bond;

(2) authorize him to engage the services or to employ persons or entities to assist him in
the discharge of his managerial functions; and

(3) authorize a commensurate increase in his compensation.

SEC. 37. Role of the Management Committee. — When appointed pursuant to the
foregoing section, the management committee shall take the place of the management
and the governing body of the debtor and assume their rights and responsibilities.

The specific powers and duties of the management committee, whose members shall be
considered as officers of the court, shall be prescribed by the procedural rules.

SEC. 38. Qualifications of Members of the Management Committee. — The qualifications

and disqualifications of the members of the management committee shall be set forth in
the procedural rules, taking into consideration the nature of the business of the debtor
and the need to protect the interest of all stakeholders concerned.

SEC. 39. Employment of Professionals. — Upon approval of the court, and after notice
and hearing, the rehabilitation receiver or the management committee may employ
specialized professionals and other experts to assist each in the performance of their
duties. Such professionals and other experts shall be considered either employees or
independent contractors of the rehabilitation receiver or the management committee, as
the case may be. The qualifications and disqualifications of the professionals and experts
may 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.

SEC. 40. Conflict of Interest. — 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. Without limiting the generality of the foregoing, an individual shall be
deemed to have a conflict of interest if:

(a) he is a creditor, owner, partner or stockholder of the debtor;

(b) he is engaged in a line of business which competes with that of the debtor;

(c) he is, or was, within five (5) years from the filing of the petition, a director, officer,
owner, partner or employee of the debtor or any of the creditors, or the auditor or
accountant of the debtor;

(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the
outstanding securities of the debtor;

(e) he is related by consanguinity or affinity within the fourth civil degree to any individual
creditor, owner/s of a sole proprietorship-debtor, partners of a partnership-debtor or to
any stockholder, director, officer, employee or underwriter of a corporation-debtor; or

(f) he has any other direct or indirect material interest in the debtor or any of the creditors.

Any rehabilitation receiver, member of the management committee or persons employed

or contracted by them possessing any conflict of interest shall make the appropriate
disclosure either to the court or to the creditors in case of out-of-court rehabilitation
proceedings. Any party to the proceeding adversely affected by the appointment of any
person with a conflict of interest to any of the positions enumerated above may however
waive his right to object to such appointment and, if the waiver is unreasonably withheld,
the court may disregard the conflict of interest, taking into account the general interest of
the stakeholders.

SEC. 41. Immunity. — The rehabilitation receiver and all persons employed by him, and
the members of the management committee and all persons employed by it, shall not be
subject to any action, claim or demand in connection with any act done or omitted to be
done by them in good faith in connection with the exercise of their powers and functions
under this Act or other actions duly approved by the court.

SEC. 42. Creditors’ Committee. — After the creditors’ meeting called pursuant to Section
63 hereof, 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, such as the following:

(a) Secured creditors;

(b) Unsecured creditors;

(c) Trade creditors and suppliers; and

(d) Employees of the debtor.

In the election of the creditors’ representatives, the rehabilitation receiver or his

representative shall attend such meeting and extend the appropriate assistance as may
be defined in the procedural rules.
SEC. 43. Role of Creditors’ Committee. — The creditors’ committee when constituted
pursuant to Section 42 of this Act shall 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.

SEC. 44. Registry of Claims. — 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.

SEC. 45. Opposition or Challenge of Claims. — 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/s. 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.

SEC. 46. Appeal. — Any decision of the rehabilitation receiver regarding a claim may be
appealed to the court.

(E) Governance.

SEC. 47. Management. — 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.

SEC. 48. Use or Disposition of Assets. — Except as otherwise provided herein, no funds
or property of the debtor shall be 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.
SEC. 49. Sale of Assets. — 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.

SEC. 50. Sale or Disposal of Encumbered Property of the Debtor and Assets of Third
Parties Held by Debtor. — The court may authorize the sale, transfer, conveyance or
disposal of encumbered property of the debtor, or property of others held by the debtor
where there is a security interest pertaining to third parties under a financial, credit or
other similar transactions if, upon application of the rehabilitation receiver and with the
consent of the affected owners of the property, or secured creditor/s in the case of
encumbered property of the debtor and, after notice and hearing, the court determines
that:

(a) such sale, transfer, conveyance or disposal is necessary for the continued operation
of the debtor’s business; and

(b) the debtor has made arrangements to provide a substitute lien or ownership right that
provides an equal level of security for the counter-party’s claim or right.

Provided, That properties held by the debtor where the debtor has authority to sell such
as trust receipt or consignment arrangements may be sold or disposed of by the debtor,
if such sale or disposal is necessary for the operation of the debtor’s business, and the
debtor has made arrangements to provide a substitute lien or ownership right that
provides an equal level of security for the counter-party’s claim or right.

Sale or disposal of property under this section shall not give rise to any criminal liability
under applicable laws.

SEC. 51. Assets of Debtor Held by Third Parties. — In the case of possessory pledges,
mechanic’s liens or similar claims, third parties who have in their possession or control
property of the debtor shall not transfer, convey or otherwise dispose of the same to
persons other than the debtor, unless upon prior approval of the rehabilitation receiver.
The rehabilitation receiver may also:

(a) demand the surrender or the transfer of the possession or control of such property to
the rehabilitation receiver or any other person, subject to payment of the claims secured
by any possessory lien/s thereon;

(b) allow said third parties to retain possession or control, if such an arrangement would
more likely preserve or increase the value of the property in question or the total value of
the assets of the debtor; or

(c) undertake any other disposition of the said property as may be beneficial for the
rehabilitation of the debtor, after notice and hearing, and approval of the court.
SEC. 52. Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. —
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.

SEC. 53. Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value.
— Upon the application of a secured creditor holding a lien against or holder of an
ownership interest in property held by the debtor that is subject to potentially rapid
obsolescence, depreciation or diminution in value, the court shall, after notice and
hearing, order the debtor or rehabilitation receiver to take reasonable steps necessary to
prevent the depreciation. If depreciation cannot be avoided and such depreciation is
jeopardizing the security or property interest of the secured creditor or owner, the court
shall:

(a) allow the encumbered property to be foreclosed upon by the secured creditor
according to the relevant agreement between the debtor and the secured creditor,
applicable rules of procedure and relevant legislation: Provided, That the proceeds of the
sale will be distributed in accordance with the order prescribed under the rules of
concurrence and preference of credits; or

(b) upon motion of, or with the consent of the affected secured creditor or interest owner,
order the conveyance of a lien against or ownership interest in substitute property of the
debtor to the secured creditor: Provided, That other creditors holding liens on such
property, if any, do not object thereto, or, if such property is not available;
(c) order the conveyance to the secured creditor or holder of an ownership interest of a
lien on the residual funds from the sale of encumbered property during the proceedings;
or

(d) allow the sale or disposition of the property: Provided, That the sale or disposition will
maximize the value of the property for the benefit of the secured creditor and the debtor,
and the proceeds of the sale will be distributed in accordance with the order prescribed
under the rules of concurrence and preference of credits.

SEC. 54. Post-commencement Interest. — The rate and term of interest, if any, on
secured and unsecured claims shall be determined and provided for in the approved
Rehabilitation Plan.

SEC. 55. Post-commencement Loans and Obligations. — 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.

The payment of the foregoing obligations shall be considered administrative expenses

under this Act.

SEC. 56. Treatment of Employees, Claims. — 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-commencement claim. Claims for salary and separation pay for work performed
after the commencement date shall be an administrative expense.

SEC. 57. Treatment of Contracts. — 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 ninety
(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.

SEC. 58. Rescission or Nullity of Certain Pre-commencement Transactions. — 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. Without limiting the generality of the foregoing, a disputable
presumption of such design shall arise if the transaction:

(a) provides unreasonably inadequate consideration to the debtor and is executed within
ninety (90) days prior to the commencement date;

(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior
to the commencement date;

(c) provides security or additional security executed within ninety (90) days prior to the
commencement date;

(d) involves creditors, where a creditor obtained, or received the benefit of, more than its
pro rata share in the assets of the debtor, executed at a time when the debtor was
insolvent; or

(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where
the effect of the transaction is to put assets of the debtor beyond the reach of creditors or
to otherwise prejudice the interests of creditors.

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.

SEC. 59. Actions for Rescission or Nullity. — (a) The rehabilitation receiver or, with his
conformity, any creditor may initiate and prosecute any action to rescind, or declare null
and void any transaction described in Section 58 hereof. If the rehabilitation receiver does
not consent to the filing or prosecution of such action, any creditor may seek leave of the
court to commence said action.

(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign
and transfer to the creditor all rights, title and interest in the chose in action or subject
matter of the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent
of his claim and the costs, belongs exclusively to the creditor instituting the proceeding,
and the surplus, if any, belongs to the estate.

(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or
liquidator) signifies to the court his readiness to institute the proceeding for the benefit of
the creditors, the order shall fix the time within which he shall do so and, in that case, the
benefit derived from the proceeding, if instituted within the time limits so fixed, belongs to
the estate.

(H) Treatment of Secured Creditors.

SEC. 60. No Diminution of Secured Creditor Rights. — The issuance of the

Commencement Order and the Suspension or Stay Order, and any other provision of this
Act, shall not be deemed in any way to diminish or impair the security or lien of a secured
creditor, or the value of his lien or security, except that his right to enforce said security
or lien may be suspended during the term of the Stay Order.

The court, upon motion or recommendation of the rehabilitation receiver, may allow a
secured creditor to enforce his security or lien, or foreclose upon property of the debtor
securing his/its claim, if the said property is not necessary for the rehabilitation of the
debtor. The secured creditor and/or the other lien holders shall be admitted to the
rehabilitation proceedings only for the balance of his claim, if any.

SEC. 61. Lack of Adequate Protection. — 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.

For purposes of this section, a creditor shall be deemed to lack adequate protection if it
can be shown that:

(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep
the property insured;

(b) the debtor fails or refuses to take commercially reasonable steps to maintain the
property; or

(c) the property has depreciated to an extent that the creditor is under secured.

Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation
receiver to make arrangements to provide for the insurance or maintenance of the
property; or to make payments or otherwise provide additional or replacement security
such that the obligation is fully secured. If such arrangements are not feasible, the court
may modify the Stay Order to allow the secured creditor lacking adequate protection to
enforce its security claim against the debtor: Provided, however, That the court may deny
the creditor the remedies in this paragraph if the property subject of the enforcement is
required for the rehabilitation of the debtor.

(I) Administration of Proceedings.

SEC. 62. Contents of a Rehabilitation Plan. — The Rehabilitation Plan shall, as a

minimum:

(a) specify the underlying assumptions, the financial goals and the procedures proposed
to accomplish such goals;

(b) compare the amounts expected to be received by the creditors under the
Rehabilitation Plan with those that they will receive if liquidation ensues within the next
one hundred twenty (120) days;

(c) contain information sufficient to give the various classes of creditors a reasonable
basis for determining whether supporting the Plan is in their financial interest when
compared to the immediate liquidation of the debtor, including any reduction of principal
interest and penalties payable to the creditors;

(d) establish classes of voting creditors;

(e) establish subclasses of voting creditors if prior approval has been granted by the court;

(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago,
debt-equity conversion and sale of the business (or parts of it) as a going concern, or
setting-up of a new business entity or other similar arrangements as may be necessary
to restore the financial well-being and viability of the insolvent debtor;

(g) specify the treatment of each class or subclass described in subsections (d) and (e);

(h) provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment;

(i) ensure that the payments made under the plan follow the priority established under the
provisions of the Civil Code on concurrence and preference of credits and other
applicable laws;

(j) maintain the security interest of secured creditors and preserve the liquidation value of
the security unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during the
proceedings and the justifications thereof;

(l) describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;

(m) identify the debtor’s role in the implementation of the Plan;

(n) state any rehabilitation covenants of the debtor, the breach of which shall be
considered a material breach of the Plan;

(o) identify those responsible for the future management of the debtor and the supervision
and implementation of the Plan, their affiliation with the debtor and their remuneration;

(p) address the treatment of claims arising after the confirmation of the Rehabilitation
Plan;

(q) require the debtor and its counter-parties to adhere to the terms of all contracts that
the debtor has chosen to confirm;

(r) arrange for the payment of all outstanding administrative expenses as a condition to
the Plan’s approval unless such condition has been waived in writing by the creditors
concerned;

(s) arrange for the payment of all outstanding taxes and assessments, or an adjusted
amount pursuant to a compromise settlement with the BIR or other applicable tax
authorities;

(t) include a certified copy of a certificate of tax clearance or evidence of a compromise

settlement with the BIR;

(u) include a valid and binding resolution of a meeting of the debtor’s stockholders to
increase the shares by the required amount in cases where the Plan contemplates an
additional issuance of shares by the debtor;

(v) state the compensation and status, if any, of the rehabilitation receiver after the
approval of the Plan; and

(w) contain provisions for conciliation and/or mediation as a prerequisite to court

assistance or intervention in the event of any disagreement in the interpretation or
implementation of the Rehabilitation Plan.

SEC. 63. Consultation with Debtor and Creditors. — If the court gives due course to the
petition, the rehabilitation receiver shall confer with the debtor and all the classes of
creditors, and may consider their views and proposals in the review, revision or
preparation of a new Rehabilitation Plan.
SEC. 64. Creditor Approval of Rehabilitation Plan. — The rehabilitation receiver shall
notify the creditors and stakeholders that the Plan is ready for their examination. Within
twenty (20) days from the said notification, the rehabilitation receiver shall convene the
creditors, either as a whole or per class, for purposes of voting on the approval of the
Plan. The Plan shall be deemed rejected unless approved by all classes of creditors
whose right are adversely modified or affected by the Plan. For purposes of this section,
the Plan is deemed to have been approved by a class of creditors if members of the said
class holding more than fifty percent (50%) of the total claims of the said class vote in
favor of the Plan. The votes of the creditors shall be based solely on the amount of their
respective claims based on the registry of claims submitted by the rehabilitation receiver
pursuant to Section 44 hereof.

Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:

(a) The Rehabilitation Plan complies with the requirements specified in this Act;

(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;

(c) The shareholders, owners or partners of the juridical debtor lose at least their
controlling interest as a result of the Rehabilitation Plan; and

(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have
received if the debtor were under liquidation.

SEC. 65. Submission of Rehabilitation Plan to the Court. — If the Rehabilitation Plan is
approved, the rehabilitation receiver shall submit the same to the court for confirmation.
Within five (5) days from receipt of the Rehabilitation Plan, the court shall notify the
creditors that the Rehabilitation Plan has been submitted for confirmation, that any
creditor may obtain copies of the Rehabilitation Plan and that any creditor may file an
objection thereto.

SEC. 66. Filing of Objections to Rehabilitation Plan. — A creditor may file an objection to
the Rehabilitation Plan within twenty (20) days from receipt of notice from the court that
the Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation
Plan shall be limited to the following:

(a) The creditors’ support was induced by fraud;

(b) The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or

(c) The Rehabilitation Plan is in fact not supported by the voting creditors.
SEC. 67. Hearing on the Objections. — If objections have been submitted during the
relevant period, the court shall issue an order setting the time and date for the hearing or
hearings on the objections.

If the court finds merit in the objection, it shall order the rehabilitation receiver or other
party to cure the defect, whenever feasible. If the court determines that the debtor acted
in bad faith, or that it is not feasible to cure the defect, the court shall convert the
proceedings into one for the liquidation of the debtor under Chapter V of this Act.

SEC. 68. Confirmation of the Rehabilitation Plan. — If no objections are filed within the
relevant period or, if objections are filed, the court finds them lacking in merit, or
determines that the basis for the objection has been cured, or determines that the debtor
has complied with an order to cure the objection, the court shall issue an order confirming
the Rehabilitation Plan.

The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over
claims if the Rehabilitation Plan has made adequate provisions for paying such claims.

For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding,
the court shall have the power to approve or implement the Rehabilitation Plan despite
the lack of approval, or objection from the owners, partners or stockholders of the
insolvent debtor: Provided, That the terms thereof are necessary to restore the financial
well-being and viability of the insolvent debtor.

SEC. 69. Effect of Confirmation of the Rehabilitation Plan. — 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
implemented; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are
not subject to any Suspension Order.

The Order confirming the Plan shall comply with Rule 36 of the Rules of Court: Provided,
however, That the court may maintain jurisdiction over the case in order to resolve claims
against the debtor that remain contested and allegations that the debtor has breached
the Plan.

SEC. 70. Liability of General Partners of a Partnership for Unpaid Balances Under an
Approved Plan. — The approval of the Plan shall not affect the rights of creditors to pursue
actions against the general partners of a partnership to the extent they are liable under
relevant legislation for the debts thereof.

SEC. 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. —

Amounts of any indebtedness or obligations reduced or forgiven in connection with a
Plan’s approval shall not be subject to any tax, in furtherance of the purposes of this Act.

SEC. 72. Period for Confirmation of the Rehabilitation Plan. — 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.

If no Rehabilitation Plan is confirmed within the said period, the proceedings may, upon
motion or motu proprio, be converted into one for the liquidation of the debtor.

SEC. 73. Accounting Discharge of Rehabilitation Receiver. — Upon the confirmation of

the Rehabilitation Plan, the rehabilitation receiver shall provide a final report and
accounting to the court. Unless the Rehabilitation Plan specifically requires and describes
the role of the rehabilitation receiver after the approval of the Rehabilitation Plan, the court
shall discharge the rehabilitation receiver of his duties.

(J) Termination of Proceedings.

SEC. 74. Termination of Proceedings. — 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.

Upon a breach of, or upon a failure of the Rehabilitation Plan, the court, upon motion by
an affected party, may:

(1) issue an order directing that the breach be cured within a specified period of time,
failing which the proceedings may be converted to a liquidation;

(2) issue an order converting the proceedings to a liquidation;

(3) 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;

(4) issue any other order to remedy the breach consistent with the present regulation,
other applicable law and the best interests of the creditors; or

(5) enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.

SEC. 75. Effects of Termination. — 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.

CHAPTER III

PRE-NEGOTIATED REHABILITATION
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.
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 three (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.

SEC. 77. Issuance of Order. — Within five (5) working days, and after determination that
the petition is sufficient in form and substance, the court shall issue an Order which shall:

(a) identify the debtor, its principal business or activity/ies and its principal place of
business;

(b) declare that the debtor is under rehabilitation;

(c) summarize the ground/s for the filing of the petition;

(d) direct the publication of the Order in a newspaper of general circulation in the
Philippines once a week for at least two (2) consecutive weeks, with the first publication
to be made within seven (7) days from the time of its issuance;

(e) direct the service by personal delivery of a copy of the petition on each creditor who
is not a petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as
determined in the schedule attached to the petition, within three (3) days;

(f) state that copies of the petition and the Rehabilitation Plan are available for
examination and copying by any interested party;

(g) 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 twenty
(20) days from the second publication of the Order;

(h) appoint a rehabilitation receiver, if provided for in the Plan; and

(i) include a Suspension or Stay Order as described in this Act.

SEC. 78. Approval of the Plan. — Within ten (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.

SEC. 79. Objection to the Petition or Rehabilitation Plan. — Any creditor or other
interested party may submit to the court a verified objection to the petition or the
Rehabilitation Plan not later than eight (8) days from the date of the second publication
of the Order mentioned in Section 77 hereof. The objections shall be limited to the
following:

(a) The allegations in the petition or the Rehabilitation Plan, or the attachments thereto,
are materially false or misleading;

(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;

(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and
the claim is not categorically declared as a contested claim; or

(d) The support of the creditors, or any of them, was induced by fraud.

Copies of any objection to the petition or 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.

SEC. 80. Hearing on the Objections. — After receipt of an objection, the court shall set
the same for hearing. The date of the hearing shall be no earlier than twenty (20) days
and no later than thirty (30) days from the date of the second publication of the Order
mentioned in Section 77 hereof. If the court finds merit in the objection, it shall direct the
debtor, when feasible, to cure the defect within a reasonable period. 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.

SEC. 81. Period for Approval of Rehabilitation Plan. — The court shall have a maximum
period of one hundred twenty (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.

SEC. 82. Effect of Approval. — Approval of a Plan under this chapter shall have the same
legal effect as confirmation of a Plan under Chapter II of this Act.
 CHAPTER IV

OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS

OR REHABILITATION PLANS

SEC. 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. —

An out-of-court or informal restructuring agreement or Rehabilitation Plan that meets the
minimum requirements prescribed in this chapter is hereby recognized as consistent with
the objectives of this Act.

SEC. 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 percent (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.

SEC. 85. Standstill Period. — 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 (a) such agreement is approved by creditors representing more
than fifty percent (50%) of the total liabilities of the debtor; (b) notice thereof is published
in a newspaper of general circulation in the Philippines once a week for two (2)
consecutive weeks; and (c) the standstill period does not exceed one hundred twenty
(120) days from the date of effectivity. 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 of this Act are met.

SEC. 86. Cram Down Effect. — 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 hereof. The
notice of the Rehabilitation Plan or restructuring agreement or Plan shall be published
once a week for at least three (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 fifteen (15) days from the date of the last publication of the notice
thereof.

SEC. 87. Amendment or Modification. — 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.

SEC. 88. Effect of Court Action or Other Proceedings. — 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.

SEC. 89. Court Assistance. — 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.

CHAPTER V

LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS

SEC. 90. Voluntary 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, whether as an attachment or as part of the
body of the petition:

(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.

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 shall be verified, shall contain or set
forth the same matters required in the preceding paragraph, and state that the debtor is
seeking immediate dissolution and termination of its corporate existence.

If the petition or the motion, as the case may be, is sufficient in form and substance, the
court shall issue a Liquidation Order mentioned in Section 112 hereof.

SEC. 91. Involuntary Liquidation. — Three (3) or more creditors the aggregate of whose
claims is at least either One million pesos (Php1,000,000.00) or at least twenty-five
percent (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 claim/s of the petitioner/s, and that the
due and demandable payments thereon have not been made for at least one hundred
eighty (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.

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 (Php1,000,000.00) or at least twenty-five percent (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 shall be verified, shall contain or set forth the same matters
required in the preceding paragraph, and state that the movants are seeking the
immediate liquidation of the debtor.

If the petition or motion is sufficient in form and substance, the court shall issue an Order:

(1) directing the publication of the petition or motion in a newspaper of general circulation
once a week for two (2) consecutive weeks; and

(2) 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 hereof.

SEC. 92. Conversion by the Court into Liquidation Proceedings. — 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) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d)
Section 90 of this Act; or 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 hereof.

SEC. 93. Powers of the Securities and Exchange Commission (SEC). — The provisions
of this chapter shall not affect the regulatory powers of the SEC under Section 6 of
Presidential Decree No. 902-A, as amended, with respect to any dissolution and
liquidation proceeding initiated and heard before it.

CHAPTER VI
 INSOLVENCY OF INDIVIDUAL DEBTORS

(A) Suspension of Payments.

SEC. 94. Petition. — 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 resided for six (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.

SEC. 95. Action on the Petition. — 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 fifteen (15) days nor more than forty (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 two (2)
consecutive weeks, with the first publication to be made within seven (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.

SEC. 96. Actions Suspended. — 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 three (3)
months shall have passed without the proposed agreement being accepted by the
creditors or as soon as such agreement is denied.

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 sixty (60) days immediately
prior to the filing of the petition; and

(b) secured creditors.

SEC. 97. Creditors’ Meeting. — The presence of creditors holding claims amounting to at
least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The
commissioner appointed by the court shall preside over the meeting and the clerk of court
shall act as the secretary thereof, subject to the following rules:

(a) The clerk shall record the creditors present and amount of their respective claims;

(b) The commissioner shall examine the written evidence of the claims. If the creditors
present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the
commissioner shall declare the meeting open for business;

(c) The creditors and individual debtor shall discuss the propositions in the proposed
agreement and put them to a vote;

(d) To form a majority, it is necessary:

(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and

(2) that the claims represented by said majority vote amount to at least three-fifths (3/5)
of the total liabilities of the debtor mentioned in the petition; and

(e) 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.

No creditor who incurred his credit within ninety (90) days prior to the filing of the petition
shall be entitled to vote.

SEC. 98. Persons Who May Refrain from Voting. — 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.
SEC. 99. Rejection of the Proposed Agreement. — 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 hereof 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.

SEC. 100. Objections. — 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 hereof, 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 ten (10) days from the date of the last creditors’ meeting. The causes for
which objection may be made to the decision made by the majority during the meeting
shall be: (a) defects in the call for the meeting, in the holding thereof, and in the
deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent
connivance between one or more creditors and the individual debtor to vote in favor of
the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of
obtaining a majority. The court shall hear and pass upon such objection as soon as
possible and in a summary manner.

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.

SEC. 101. Effects of Approval of Proposed Agreement. — 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.

The court may also issue all orders which may be necessary or proper to enforce the
agreement on motion of any affected party. The Order confirming the approval of the
proposed agreement on 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: (a) 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 sixty (60) days
immediately prior to the filing of the petition, and (b) secured creditors who failed to attend
the meeting on refrained from voting therein.

SEC. 102. Failure of Individual Debtor to Perform Agreement. — 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.

SEC. 103. Application. — An individual debtor whose properties are not sufficient to cover
his liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00),
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 six (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.

SEC. 104. Liquidation Order. — If the court finds the petition sufficient in form and
substance, it shall, within five (5) working days, issue the Liquidation Order mentioned in
Section 112 hereof.

(C) Involuntary Liquidation.

SEC. 105. Petition; Acts of Insolvency. — Any creditor or group of creditors with a claim
of, or with claims aggregating, at least Five hundred thousand pesos (Php500,000.00)
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:

(a) That such person is about to depart or has departed from the Republic of the
Philippines, with intent to defraud his creditors;

(b) That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;

(c) That he conceals himself to avoid the service of legal process for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;

(d) That he conceals, or is removing, any of his property to avoid its being attached or
taken on legal process;

(e) That he has suffered his property to remain under attachment or legal process for
three (3) days for the purpose of hindering or delaying the liquidation or of defrauding his
creditors;

(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant
for the purpose of hindering or delaying the liquidation or of defrauding any creditor or
claimant;

(g) That he has willfully suffered judgment to be taken against him by default for the
purpose of hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent
to give a preference to one or more of his creditors and thereby hinder or delay the
liquidation or defraud any one of his creditors;

(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate,
property, rights or credits with intent to hinder or delay the liquidation or defraud his
creditors;

(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;

(k) That being a merchant or tradesman, he has generally defaulted in the payment of his
current obligations for a period of thirty (30) days;

(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys
deposited with him or received by him in a fiduciary capacity; and

(m) That an execution having been issued against him on final judgment for money, he
shall have been found to be without sufficient property subject to execution to satisfy the
judgment.

The petitioning creditor/s shall post a bond in such sum 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.

SEC. 106. Order to Individual Debtor to Show Cause. — 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.

SEC. 107. Default. — 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 hereof.

SEC. 108. Absent Individual Debtor. — In all cases where the individual debtor resides
out of the Republic of the Philippines; or has departed therefrom; or cannot, after due
diligence, be found therein; or conceals himself to avoid service of the Order to show
cause, or any other preliminary process or orders in the matter, then the petitioning
creditors, upon submitting the affidavits requisite to procure an Order of publication, and
presenting a bond in double the amount of the aggregate sum of their claims against the
individual debtor, shall be entitled to an Order of the court directing the sheriff of the
province or city in which the matter is pending to take into his custody a sufficient amount
of property of the individual debtor to satisfy the demands of the petitioning creditors and
the costs of the proceedings. Upon receiving such Order of the court to take into custody
property of the individual debtor, it shall be the duty of the sheriff to take possession of
the property and effects of the individual debtor, not exempt from execution, to an extent
sufficient to cover the amount provided for, and to prepare, within three (3) days from the
time of taking such possession, a complete inventory of all the property so taken, and to
return it to the court as soon as completed. The time for taking the inventory and making
return thereof may be extended for good cause shown to the court. The sheriff shall also
prepare a schedule of the names and residences of the creditors, and the amount due
each, from the books of the debtor, or from such other papers or data of the individual
debtor available as may come to his possession, and shall file such schedule or list of
creditors and inventory with the clerk of court.

SEC. 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exceptions to
Sureties. — In all cases where property is taken into custody by the sheriff, if it does not
embrace all the property and effects of the debtor not exempt from execution, any other
creditor or creditors of the individual debtor, upon giving bond to be approved by the court
in double the amount of their claims, singly or jointly, shall be entitled to similar orders
and to like action, by the sheriff, until all claims be provided for, if there be sufficient
property or effects. All property taken into custody by the sheriff by virtue of the giving of
any such bonds shall be held by him for the benefit of all creditors of the individual debtor
whose claims shall be duly proved as provided in this Act. The bonds provided for in this
section and the preceding section to procure the order for custody of the property and
effects of the individual debtor shall be conditioned that if, upon final hearing of the petition
in insolvency, the court shall find in favor of the petitioners, such bonds and all of them
shall be void; if the decision be in favor of the individual debtor, the proceedings shall be
dismissed, and the individual debtor, his heirs, administrators, executors or assigns shall
be entitled to recover such sum of money as shall be sufficient to cover the damages
sustained by him, not to exceed the amount of the respective bonds. Such damages shall
be fixed and allowed by the court. If either the petitioners or the debtor shall appeal from
the decision of the court, upon final hearing of the petition, the appellant shall be required
to give bond to the successful party in a sum double the amount of the value of the
property in controversy, and for the costs of the proceedings.

Any person interested in the estate may take exception to the sufficiency of the sureties
on such bond or bonds. When excepted to, the petitioner’s sureties, upon notice to the
person excepting of not less than two (2) nor more than five (5) days, must justify as to
their sufficiency; and upon failure to justify, or if others in their place fail to justify at the
time and place appointed, the judge shall issue an Order vacating the order to take the
property of the individual debtor into the custody of the sheriff, or denying the appeal, as
the case may be.

SEC. 110. Sale Under Execution. — If, in any case, proper affidavits and bonds are
presented to the court or a judge thereof, asking for and obtaining an Order of publication
and an Order for the custody of the property of the individual debtor and thereafter the
petitioners shall make it appear satisfactorily to the court or a judge thereof that the
interest of the parties to the proceedings will be subserved by a sale thereof, the court
may order such property to be sold in the same manner as property is sold under
execution, the proceeds to be deposited in the court to abide by the result of the
proceedings.

CHAPTER VII

PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF

INDIVIDUAL AND JURIDICAL DEBTORS

SEC. 111. Use of Term Debtor. — For purposes of this chapter, the term debtor shall
include both individual debtor as defined in Section 4 (o) and debtor as defined in Section
4 (k) of this Act.

(A) The Liquidation Order.

SEC. 112. Liquidation Order. — The Liquidation Order shall:

(a) declare the debtor insolvent;

(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as
dissolved;

(c) order the sheriff to take possession and control of all the property of the debtor, except
those that may be exempt from execution;

(d) order the publication of the petition or motion in a newspaper of general circulation
once a week for two (2) consecutive weeks;

(e) direct payments of any claims and conveyance of any property due the debtor to the
liquidator;

(f) prohibit payments by the debtor and the transfer of any property by the debtor;

(g) direct all creditors to file their claims with the liquidator within the period set by the
rules of procedure;

(h) authorize the payment of administrative expenses as they become due;

(i) state that the debtor and creditors who are not petitioner/s may submit the names of
other nominees to the position of liquidator; and

(j) set the case for hearing for the election and appointment of the liquidator, which date
shall not be less than thirty (30) days nor more than forty-five (45) days from the date of
the last publication.
SEC. 113. Effects of the Liquidation Order. — 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 executory 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 one hundred eighty (180)
days.

SEC. 114. Rights of Secured Creditors. — The Liquidation Order shall not affect the right
of a secured creditor to enforce his lien in accordance with the applicable contract or law.
A secured creditor may:

(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings
and share in the distribution of the assets of the debtor; or

(b) maintain his rights under his security or lien.

If the secured creditor maintains his rights under the security or lien:

(1) the value of the property may be fixed in a manner agreed upon by the creditor and
the liquidator. When the value of the property is less than the claim it secures, the
liquidator may convey the property to the secured creditor and the latter will be admitted
in the liquidation proceedings as a creditor for the balance; if its value exceeds the claim
secured, the liquidator may convey the property to the creditor and waive the debtor’s
right of redemption upon receiving the excess from the creditor;

(2) the liquidator may sell the property and satisfy the secured creditor’s entire claim from
the proceeds of the sale; or

(3) the secured creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.
(B) The Liquidator.

SEC. 115. Election of Liquidator. — Only creditors who have filed their claims within the
period set by the court, and whose claims are not barred by the statute of limitations, will
be allowed to vote in the election of the liquidator. A secured creditor will not be allowed
to vote, unless: (a) he waives his security or lien; or (b) has the value of the property
subject of his security or lien fixed by agreement with the liquidator, and is admitted for
the balance of his claim.

The creditors entitled to vote will elect the liquidator in open court. The nominee receiving
the highest number of votes cast in terms of amount of claims, and who is qualified
pursuant to Section 118 hereof, shall be appointed as the liquidator.

SEC. 116. Court-Appointed Liquidator. — The court may appoint the liquidator if:

(a) on the date set for the election of the liquidator, the creditors do not attend;

(b) the creditors who attend, fail or refuse to elect a liquidator;

(c) after being elected, the liquidator fails to qualify; or

(d) a vacancy occurs for any reason whatsoever. In any of the cases provided herein, the
court may instead set another hearing for the election of the liquidator.

Provided, further, That nothing in this section shall be construed to prevent a rehabilitation
receiver, who was administering the debtor prior to the commencement of the liquidation,
from being appointed as a liquidator.

SEC. 117. Oath and Bond of the Liquidator. — Prior to entering upon his powers, duties
and responsibilities, the liquidator shall take an oath and file a bond, in such amount to
be fixed by the court, conditioned upon the proper and faithful discharge of his powers,
duties and responsibilities.

SEC. 118. Qualifications of the Liquidator. — The liquidator shall have the qualifications
enumerated in Section 29 hereof. He may be removed at any time by the court for cause,
either motu proprio or upon motion of any creditor entitled to vote for the election of the
liquidator.

SEC. 119. Powers, Duties and Responsibilities of the Liquidator. — The liquidator shall
be deemed an officer of the court with the principal duty 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. The powers, duties
and responsibilities of the liquidator shall include, but not be limited to:

(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law
from execution;

(c) to sell, with the approval of the court, any property of the debtor which has come into
his possession or control;

(d) to redeem all mortgages and pledges, and to satisfy any judgment which may be an
encumbrance on any property sold by him;

(e) to settle all accounts between the debtor and his creditors, subject to the approval of
the court;

(f) to recover any property or its value, fraudulently conveyed by the debtor;

(g) to recommend to the court the creation of a creditors’ committee which will assist him
in the discharge of his functions and which shall have powers as the court deems just,
reasonable and necessary; and

(h) upon approval of the court, to engage such professionals as may be necessary and
reasonable to assist him in the discharge of his duties.

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 proceedings 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.

SEC. 120. Compensation of the Liquidator. — The liquidator and the persons and entities
engaged or employed by him to assist in the discharge of his powers and duties shall be
entitled to such reasonable compensation as may be determined by the liquidation court,
which shall not exceed the maximum amount as may be prescribed by the Supreme
Court.

SEC. 121. Reporting Requirements. — The liquidator shall make and keep a record of all
moneys received and all disbursements made by him or under his authority as liquidator.
He shall render a quarterly report thereof to the court, which report shall be made
available to all interested parties. The liquidator shall also submit such reports as may be
required by the court from time to time as well as a final report at the end of the liquidation
proceedings.

SEC. 122. Discharge of Liquidator. — In preparation for the final settlement of all the
claims against the debtor, the liquidator will notify all the creditors, either by publication in
a newspaper of general circulation or such other mode as the court may direct or allow,
that he will apply with the court for the settlement of his account and his discharge from
liability as liquidator. The liquidator will file a final accounting with the court, with proof of
notice to all creditors. The accounting will be set for hearing. If the court finds the same
in order, the court will discharge the liquidator.

(C) Determination of Claims.

SEC. 123. Registry of Claims. — Within twenty (20) days from his assumption into office,
the liquidator shall prepare a preliminary registry of claims of secured and unsecured
creditors. Secured creditors who have waived their security or lien, or have fixed the value
of the property subject of their security or lien by agreement with the liquidator and is
admitted as a creditor for the balance, shall be considered as unsecured creditors. The
liquidator shall make the registry available for public inspection and provide publication
notice to creditors, individual debtors, owner/s of the sole proprietorship-debtor, the
partners of the partnership-debtor and shareholders or members of the corporation-
debtor, on where and when they may inspect it. All claims must be duly proven before
being paid.

SEC. 124. Right of Set-off. — If the debtor and a creditor are mutually debtor and creditor
of each other, one debt shall be set off against the other, and only the balance, if any,
shall be allowed in the liquidation proceedings.

SEC. 125. Opposition or Challenge to Claims. — Within thirty (30) days from the
expiration of the period for filing of applications for recognition of claims, creditors,
individual debtors, owner/s of the sole proprietorship-debtor, partners of the partnership-
debtor and shareholders or members of the corporation-debtor and other interested
parties may submit a challenge to a claim or claims to the court, serving a certified copy
on the liquidator and the creditor holding the challenged claim. Upon the expiration of the
thirty (30)-day period, the rehabilitation receiver shall submit to the court the registry of
claims containing the undisputed claims that have not been subject to challenge. Such
claims shall become final upon the filing of the register and may be subsequently set
aside only on grounds of fraud, accident, mistake or inexcusable neglect.

SEC. 126. Submission of Disputed Claims to Court. — The liquidator shall resolve
disputed claims and submit his findings thereon to the court for final approval. The
liquidator may disallow claims.

(D) Avoidance Proceedings.

SEC. 127. Rescission or Nullity of Certain Transactions. — Any transaction occurring

prior to the issuance of the Liquidation Order or, in case of the conversion of the
rehabilitation proceedings to liquidation 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.
SEC. 128. Actions for Rescission or Nullity. — (a) The liquidator or, with his conformity, a
creditor may initiate and prosecute any action to rescind, or declare null and void any
transaction described in the immediately preceding paragraph. If the liquidator does not
consent to the filing or prosecution of such action, any creditor may seek leave of the
court to commence said action.

(b) If leave of court is granted under subsection (a) hereof, the liquidator shall assign and
transfer to the creditor all rights, title and interest in the chose in action or subject matter
of the proceeding, including any document in support thereof.

(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the
extent of his claim and the costs, belongs exclusively to the creditor instituting the
proceeding, and the surplus, if any, belongs to the estate.

(d) Where, before an order is made under subsection (a) hereof, the liquidator signifies
to the court his readiness to institute the proceeding for the benefit of the creditors, the
order shall fix the time within which he shall do so and, in that case, the benefit derived
from the proceedings, if instituted within the time limits so fixed, belongs to the estate.

(E) The Liquidation Plan.

SEC. 129. The Liquidation Plan. — 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, all the claims against the
debtor and a schedule of liquidation of the assets and payment of the claims.

SEC. 130. Exempt Property to be Set Apart. — It shall be the duty of the court, upon
petition and after hearing, to exempt and set apart, for the use and benefit of the said
insolvent, such real and personal property as is by law exempt from execution, and also
a homestead; but no such petition shall be heard as aforesaid until it is first proved that
notice of the hearing of the application therefor has been duly given by the clerk, by
causing such notice to be posted in at least three (3) public places in the province or city
at least ten (10) days prior to the time of such hearing, which notice shall set forth the
name of the said insolvent debtor, and the time and place appointed for the hearing of
such application, and shall briefly indicate the homestead sought to be exempted or the
property sought to be set aside; and the decree must show that such proof was made to
the satisfaction of the court, and shall be conclusive evidence of that fact.

SEC. 131. Sale of Assets in Liquidation. — 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.
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.

SEC. 132. Manner of Implementing the Liquidation Plan. — 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.

SEC. 133. Concurrence and Preference of Credits. — 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 Articles 2241 and 2242 thereof.

SEC. 134. Order Removing the Debtor from the List of Registered Entities at the
Securities and Exchange Commission. — Upon determining that the liquidation has been
completed according to this Act and applicable law, the court shall issue an Order
approving the report and ordering the SEC to remove the debtor from the registry of legal
entities.

SEC. 135. Termination of Proceedings. — Upon receipt of evidence showing that the
debtor has been removed from the registry of legal entities at the SEC, the court shall
issue an Order terminating the proceedings.

(F) Liquidation of a Securities Market Participant.

SEC. 136. Liquidation of a Securities Market Participant. — The foregoing provisions of

this chapter shall be without prejudice to the power of a regulatory agency or self-
regulatory organization to liquidate trade-related claims of clients or customers of a
securities market participant which, for purposes of investor protection, are hereby
deemed to have absolute priority over all other claims of whatever nature or kind insofar
as trade-related assets are concerned.

For purposes of this section, trade-related assets include cash, securities, trading right
and other assets owned and used by the securities market participant in the ordinary
course of its business.

CHAPTER VIII

PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY

OR REHABILITATION PROCEEDINGS

(A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant to
a State-funded or State-mandated Insurance System.
SEC. 137. Provision of Assistance. — The court shall issue orders, adjudicate claims and
provide for other relief necessary to assist in the liquidation of a financial institution under
rehabilitation receivership established by a state-funded or state-mandated insurance
system.

SEC. 138. Application of Relevant Legislation. — The liquidation of banks, financial

institutions, insurance companies and pre-need companies shall be determined by
relevant legislation. The provisions in this Act shall apply in a suppletory manner.

(B) Cross-Border Insolvency Proceedings.

SEC. 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. — Subject to the
provision of Section 136 hereof and the rules of procedure that may be adopted by the
Supreme Court, the Model Law on Cross-Border Insolvency of the United Nations Center
for International Trade and Development is hereby adopted as part of this Act.

SEC. 140. Initiation of Proceedings. — The court shall set a hearing in connection with
an insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the
submission of a petition by the representative of the foreign entity that is the subject of
the foreign proceeding.

SEC. 141. Provision of Relief. — The court may issue orders:

(a) suspending any action to enforce claims against the entity or otherwise seize or
foreclose on property of the foreign entity located in the Philippines;

(b) requiring the surrender of property of the foreign entity to the foreign representative;
or

(c) providing other necessary relief.

SEC. 142. Factors in Granting Relief. — In determining whether to grant relief under this
subchapter, the court shall consider:

(a) the protection of creditors in the Philippines and the inconvenience in pursuing their
claims in a foreign proceeding;

(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation
proceeding;

(c) whether other jurisdictions have given recognition to the foreign proceeding;

(d) the extent that the foreign proceeding recognizes the rights of creditors and other
interested parties in a manner substantially in accordance with the manner prescribed in
this Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to
proceedings under this Act and previous legislation.

CHAPTER IX

FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED

AND -CONTROLLED CORPORATIONS

SEC. 143. Funds for Rehabilitation of Government-owned and -Controlled Corporations.

— Public funds for the rehabilitation of government-owned and -controlled corporations
shall be released only pursuant to an appropriation by Congress and shall be supported
by funds actually available as certified by the National Treasurer.

The Department of Finance, in collaboration with the Department of Budget and

Management, shall promulgate the rules for the use and release of said funds.

CHAPTER X

MISCELLANEOUS PROVISIONS

SEC. 144. Applicability of Provisions. — The provisions in Chapter II, insofar as they are
applicable, shall likewise apply to proceedings in Chapters III and IV.

SEC. 145. Penalties. — An owner, partner, director, officer or other employee of the
debtor who commits any one of the following acts shall, upon conviction thereof, be
punished by a fine of not more than One million pesos (Php1,000,000.00) and
imprisonment for not less than three (3) months nor more than five (5) years for each
offense:

(a) if he shall, 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, hide or conceal, or destroy or cause to be destroyed or hidden any property
belonging to the debtor; or if he shall hide, destroy, alter, mutilate or falsify, or cause to
be hidden, destroyed, altered, mutilated or falsified, any book, deed, document or writing
relating thereto; or if he shall, with intent to defraud the creditors of the debtor, make any
payment, sale, assignment, transfer or conveyance of any property belonging to the
debtor;

(b) if he shall, having knowledge or belief of any person having proved a false or fictitious
claim against the debtor, fail to disclose the same to the rehabilitation receiver or liquidator
within one (1) month after coming to said knowledge or belief; or if he shall attempt to
account for any of the debtor’s property by fictitious losses or expenses; or

(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation

established by this Act.
SEC. 146. Application to Pending Insolvency, Suspension of Payments and
Rehabilitation Cases. — This Act shall govern all petitions filed after it has taken effect.
All further proceedings in insolvency, suspension of payments and rehabilitation cases
then pending, except to the extent that in the opinion of the court their application would
not be feasible or would work injustice, in which event the procedures set forth in prior
laws and regulations shall apply.

SEC. 147. Application to Pending Contracts. — This Act shall apply to all contracts of the
debtor regardless of the date of perfection.

SEC. 148. Repealing Clause. — The Insolvency Law (Act No. 1956), as amended, is
hereby repealed. All other laws, orders, rules and regulations or parts thereof inconsistent
with any provision of this Act are hereby repealed or modified accordingly.

SEC. 149. Separability Clause. — If any provision of this Act shall be held invalid, the
remainder of this Act not otherwise affected shall remain in full force and effect.

SEC. 150. Effectivity Clause. — This Act shall take effect fifteen (15) days after its
complete publication in the Official Gazette or in at least two (2) national newspapers of
general circulation.