REPUBLIC ACT No.

10142

AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY DISTRESSED

ENTERPRISES AND INDIVIDUALS

1. 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 certainly and predictability in commercial affairs, preserve and maximize
the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and
ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it
is in the interest of the State to facilities a speedy and orderly liquidation of these debtor's assets and
the settlement of their obligations.

2. 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.

3. Coverage- 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.

4. 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.

5. 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
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.

Related topics:

1. Rehabilitation Proceedings
a. Court Supervised

b. Pre-Negotiated

c. Informal (out-of-court)

2. Commencement Order

3. Rehabilitation Receiver

a. "Equality in Equity"

4. Management Committee

5. Rehabilitation Plan

6. Cram Down Effect

7. Stay or Suspension Order

8. Liquidation of Juridical Debtors

a. Voluntary

b. Involuntary

9. Liquidation of Individual Debtors

a. Suspension of Payments

b. Voluntary

c. Involuntary

10. Procedure of Liquidation

11. Applicability of Concurrence and Preference of Credits under the Civil Code

Relative Provisions under Republic Act 10142 or The Financial Rehabilitation and Insolvency Act:

1. Sec. 12-18
CHAPTER II
COURT-SUPERVISED REHABILITATION

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

Section 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.

Section 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 on law on the claim/s of the petitioner/s, and that the
due and demandable payments thereon have not been made for at least sixty (60) days or
that the debtor has failed generally to meet its liabilities as they fall due; or
(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.
Section 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.

Section 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.

Section 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 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 their claims with the court at least five (5) days before
the initial hearing;
(j) direct 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 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 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) includes 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.

Section 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 with all the powers and functions provided for this Act, such as the
right to review and obtain records to which the debtor's management and directors have
access, including bank accounts or whatever nature of the debtor subject to the approval by
the court of the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise
attempt to collection or enforce a claim against the debtor after commencement date
unless otherwise allowed in this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement
date of any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against the
debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court
Provided. However, That the court may allow the continuation of cases on other courts
where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings shall
be sufficient to support a finding of indirect contempt of court.

Section 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 individual debtor or owner, partner, director or officer of a
debtor shall not be affected by any proceeding commend under this Act.
2. Sec. 21-27
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court,
the Commencement Order shall be for the effective for the duration of the rehabilitation
proceedings for as long as there is a substantial likelihood that the debtor will be
successfully rehabilitated. 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 consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating
that the underlying assumptions and the goals stated in the petitioner's Rehabilitation Plan
are realistic reasonable 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, partners, stockholders, directors and officers have been acting in good faith
and which due diligence;
(4) the petition is not s 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 misrepresentation or in fraud of its creditor/s or a
group of creditors.

Section 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 of the appointment of the
rehabilitation receiver and, if necessary appoint a new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to
submit the same to the court and to the rehabilitation receiver within a period of not more
than twenty (20) days; and

(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to
prepare and submit to the court within forty (40) days from initial hearing the report
provided in Section 24 hereof.

Section 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.

Section 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.

Section 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 i8 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.

Section 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.

Section 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.

3. Sec. 28-29
(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.

Section 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 disqualification’s as its representative, it being understood that the juridical
entity and the representative/s are solidarily liable for all obligations and responsibilities of
the rehabilitation receiver.

Section 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 disqualification’s of the rehabilitation receiver shall be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the
need to protect the interest of all stakeholders concerned.
4. Sec. 31-49
Section 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;
(1) To implement the Rehabilitation Plan as approved by the court, if 80 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
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.

Section 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.

Section 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.

Section 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.

Section 35. Vacancy. - Incase 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.

Section 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 persona or entities to assist him in the
discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.

Section 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.

Section 38. Qualifications of Members of the Management Committee. - The qualifications

and disqualification’s 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.

Section 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 disqualification’s 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.

Section 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, owners of a sale 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.

Section 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.1awp++il

Section 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.
Section 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.

Section 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.

Section 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/so Upon the expiration of the thirty (30)-day period, the rehabilitation
receiver shall submit to the court the registry of claims which shall include undisputed
claims that have not been subject to challenge.

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

(E) Governance.

Section 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.
 Section 48. Use or Disposition of Assets. - Except as otherwise provided herein, no funds or
property of the debtor shall he used or disposed of except in the ordinary course of business
of the debtor, or unless necessary to finance the administrative expenses of the
rehabilitation proceedings.

Section 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 injeopardy.
5. Sec. 52
Section 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.

6. Sec. 58-70
Section 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.

Section 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,
(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, m 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.

Section 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.
Section 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.

Section 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 visibility 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;
(1) 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 BlR 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 r(,solution 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.

Section 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 ill the review, revision or preparation
of a new Rehabilitation Plan.

Section 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 (2Q) 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 w hose rights
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.

Section 65. Submission of Rehabilitation Plan to the Court. - 1fthe 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.

Section 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.

Section 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.
Section 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.

Section 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 implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are
not subject to any Suspension Order.

The Order confirming the Plan shall comply with Rules 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.

Section 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.
7. Sec. 72-107
Section 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 propio, be converted into one for the liquidation of the debtor .

Section 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.

Section 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, falling
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.
Section 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

Section 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.

Section 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 of activity/ies and its principal place of
business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling 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.

Section 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.

Section 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 in 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 of the Rehabilitation Plan shall be served on the
debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest claim
and who supports the Rehabilitation Plan, and the unsecured creditor with the largest claim
and who supports the Rehabilitation Plan.

Section 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 detect 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.

Section 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.

Section 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

Section 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.

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

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

(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement
or Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured
obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the
unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total
liabilities, secured and unsecured, of the debtor.

Section 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 publishing 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.

Section 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.

Section 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.

Section 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.

Section 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

Section 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.

Section 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%0 of the subscribed capital stock or partner's contributions of the debtor, whichever is
higher, may apply for and seek the liquidation of an insolvent debtor by filing a petition for
liquidation of the debtor with the court. The petition shall show that:

(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the
due and demandable payments thereon have not been made for at least 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.

Section 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.
Section 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.

Section 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 resides 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 assess; and (c) a proposed agreement with his creditors.

Section 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.

Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may
issue an order suspending any pending execution against the individual debtor. Provide,
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.

Section 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.

Section 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.

Section 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.

Section 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.

Section 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 uphold 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 or any amendment thereof made during the creditors' meeting shall
be binding upon all creditors whose claims are included in the schedule of debts and
liabilities submitted by the individual debtor and who were properly summoned, but not
upon: (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 or refrained from voting therein.

Section 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.

Section 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.

Section 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) In voluntary Liquidation.

Section 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 creditors 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; 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 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.

Section 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.

Section 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.

8. Sec. 115-116
Section 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, ad who is qualified pursuant
to Section 118 hereof, shall be appointed as the liquidator.

Section 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 of 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.

9. Sec. 119
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be
deemed an officer of the court with the principal duly of preserving and maximizing the
value and recovering the assets of the debtor, with the end of liquidating them and
discharging to the extent possible all the claims against the debtor. The powers, duties and
responsibilities of the liquidator shall include, but not 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 so satisfy any judgement 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 the functions and which shall have powers as the court deems just,
reasonable and necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and
reasonable to assist him in the discharge of his 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.

10. Sec. 129

Section 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 and a schedule of liquidation of the
assets and payment of the claims.
 11. Sec. 131-133
Section 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.

Section 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.

Section 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 Article 2241 and 2242 thereof.

8. Relative Provisions under Republic Act 386 or The Civil Code of the Philippines:

1. Art. 2236-2251- KAKAPOY BA