FRIA Flashcards
(367 cards)
1
Q
Declaration of Policy
A
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. The State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. Topreserve and maximize the value of the assets of these debtors and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation of these debtors’ assets and the settlement of their obligations.
2
Q
What is the nature of proceedings under RA 10142?
A
The proceedings are in rem.
3
Q
How is jurisdiction over affected persons acquired?
A
Jurisdiction is acquired upon publication of the notice of commencement in a newspaper of general circulation in the Philippines.
4
Q
How should the proceedings be conducted?
A
The proceedings must be summary and non-adversarial, consistent with the Act’s declared policies.
5
Q
Who prescribes the rules of procedure for these proceedings?
A
The Supreme Court promulgates the rules of procedure.
6
Q
What does “in rem” mean in legal proceedings?
A
“In rem” refers to proceedings directed against a thing or property, rather than a specific person.
7
Q
What is Creditor?
A
shall refer to a natural or juridical person which has a claim against the debtor that arose on or before the commencement date.
8
Q
Who is Debtor?
A
shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership duly registered with the Securities and Exchange Commission (SEC), a corporation duly organized and existing under Philippine laws, or an individual debtor who has become insolvent as defined herein.
9
Q
Group of debtors
A
shall refer to and can cover only: (1) corporations that are financially related to one another as parent corporations, subsidiaries or affiliates; (2) partnerships that are owned more than fifty percent (50%) by the same person; and (3) single proprietorships that are owned by the same person. When the petition covers a group of debtors, all reference under these rules to debtor shall include and apply to the group of debtors.
10
Q
Insolvent debtor’s estate
A
shall refer to the estate of the insolvent debtor, which includes all the property and assets of the debtor as of commencement date, plus the property and assets acquired by the rehabilitation receiver or liquidator after that date, as well as all other property and assets in which the debtor has an ownership interest, whether or not these property and assets are in the debtor’s possession as of commencement date: Provided, That trust assets and bailment, and other property and assets of a third party that are in the possession of the debtor as of commencement date, are excluded therefrom.
11
Q
What is Rehabilitation
A
Refers to the process of restoring a financially distressed debtor to a sustainable state so that it can continue its business operations, settle its obligations, and eventually regain financial stability.
12
Q
What is Liquidation
A
Liquidation is the process of closing down a business and distributing its assets to pay off debts. It happens when a company or an individual can no longer continue operations due to insolvency (inability to pay debts) or by voluntary decision.
13
Q
What is rehabilitation receiver
A
A Rehabilitation Receiver is a court-appointed person or entity responsible for overseeing the rehabilitation process of a financially distressed company. Their main job is to help the debtor restructure its finances and operations to restore its viability while protecting the rights of creditors.
14
Q
What is rehabilitation plan
A
A Rehabilitation Plan is a court-approved strategy designed to help a financially distressed company recover and continue its operations instead of shutting down. It outlines how the debtor will restructure its debts, improve business operations, and pay creditors over time.
15
Q
Subsidiary
A
Shall refer to a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly through one or more intermediaries by another corporation, which thereby becomes its parent corporation.
16
Q
Securities market participant
A
shall refer to a broker, dealer, underwriter, transfer agent or other juridical persons transacting securities in the capital market.
17
Q
Control
A
shall refer to the power of a parent corporation to direct or govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries or affiliates, more than one-half (1/2) of the voting power of an enterprise unless, in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control. Control also exists even when the parent owns one-half (1/2) or less of the voting power of an enterprise when there is power: (1) over more than one-half (1/2) of the voting rights by virtue of an agreement with investors; (2) to direct or govern the financial and operating policies of the enterprise under a statute or an agreement; (3) to appoint or remove the majority of the members of the board of directors or equivalent governing body; (4) or to cast the majority votes at meetings of the board of directors or equivalent governing body.
18
Q
Who are excluded from being considered as debtors under RA 10142?
A
Banks- any duly licensed banks and quasi-banks, insurance companies, pre-need companies, and national/local government agencies or units.
19
Q
How is each juridical entity treated under RA 10142 proceedings?
A
Each juridical entity is considered a separate entity.
20
Q
Can a debtor’s assets and liabilities be commingled with another entity?
A
No, unless the other entity is a related enterprise owned or controlled by the same interests.
21
Q
When is commingling or aggregation of assets and liabilities allowed?
A
It is allowed if:
(a) There was commingling in fact before the proceedings began.
(b) The debtor and related enterprise have common creditors and it is more convenient to treat them together.
(c) The related enterprise voluntarily joins as a petitioner.
(d) Consolidation benefits all parties and supports rehabilitation.
22
Q
Can the court join other entities affiliated with the debtor in the proceedings?
A
Yes, under the rules of procedure promulgated by the Supreme Court.
23
Q
Which law applies to creditor decisions for corporations?
A
The Corporation Code.
24
Q
Which law applies to creditor decisions for partnerships?
A
The Civil Code.
25
Can creditors designate representatives to act on their behalf?
Yes, creditors may designate representatives to vote or act for them.
26
What must a creditor do to designate a representative?
They must file a notice of representation with the court and serve a copy to the rehabilitation receiver or liquidator.
27
Who can be held liable under Section 10 of RA 10142?
Individual debtors, owners of sole proprietorships, partners in a partnership, and directors or officers of a debtor.
28
What is the penalty for committing fraudulent acts under this section?
They 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.
29
What acts can make them liable under this section?
If they, knowing about the proceedings or anticipating them, willfully:
(a) Dispose of any property outside the ordinary course of business or approve transactions that defraud creditors.
(b) Conceal, embezzle, or misappropriate the debtor’s property.
30
Who determines the extent of liability under this section?
The court.
31
What factors does the court consider when determining liability in partnerships and corporations?
The court considers:
The shareholding, partnership, or equity interest of the person.
The degree of control over the debtor.
The extent of involvement in the management of the debtor’s operations.
32
Can banks acquire an equity interest in a debtor under RA 10142?
Yes, banks may acquire and hold an equity interest in a debtor or its subsidiaries when conveyed in satisfaction of debts under a court-approved Rehabilitation or Liquidation Plan.
33
Are there any ownership limits on banks acquiring equity in a debtor?
Yes, ownership is subject to the limits applicable to universal banks for equity investments.
34
How long can a bank hold an equity investment acquired under this section?
For a maximum period of five (5) years or as prescribed by the Monetary Board.
35
Who may initiate voluntary rehabilitation proceedings under RA 10142?
An insolvent debtor that meets the required approval process.
36
What approvals are needed to initiate voluntary rehabilitation proceedings?
Sole Proprietorship: Approval of the owner.
Partnership: Majority vote of the partners.
Corporation: Majority vote of the board of directors and at least 2/3 of stockholders.
Nonstock Corporation: 2/3 vote of members in a duly called meeting.
37
What must the petition establish?
The insolvency of the debtor and the viability of its rehabilitation.
38
What are the minimum contents of a petition for voluntary rehabilitation?
(a) Identification of the debtor, activities, and address.
(b) Statement of insolvency or inability to pay obligations.
(c) Specific relief sought.
(d) Grounds for the petition.
(e) Other required information based on relief requested.
(f) Schedule of debts and list of creditors.
(g) Inventory of assets, including receivables.
(h) Rehabilitation Plan.
(i) Three (3) nominees for the rehabilitation receiver.
(j) Other documents required under RA 10142 or Supreme Court rules.
39
Can a group of debtors file a joint petition for rehabilitation?
Yes, if at least one member foresees financial distress that could negatively impact the group or if the participation of other members is essential to the Rehabilitation Plan.
40
Who can initiate involuntary rehabilitation proceedings under RA 10142?
A creditor or group of creditors with a claim of at least ₱1,000,000 or 25% of the subscribed capital stock or partners' contributions, whichever is higher.
41
What are the two circumstances that allow a creditor to file an involuntary petition?
(a) There is no genuine issue of fact or law on the creditor’s claim, the debt is due and demandable, and the debtor has failed to pay for at least 60 days or has generally failed to meet liabilities.
(b) Another creditor has initiated foreclosure proceedings, preventing the debtor from paying debts as they become due or rendering it insolvent.
42
What must a creditor's petition for involuntary rehabilitation establish?
The substantial likelihood that the debtor may be rehabilitated.
43
What are the required contents of a petition for involuntary rehabilitation?
(a) Identification of the debtor, principal activities, and address.
(b) Circumstances supporting the petition under Section 13.
(c) Specific relief sought under the Act.
(d) Rehabilitation Plan.
(e) Three (3) nominees for rehabilitation receiver.
(f) Other relevant information based on relief requested.
(g) Other documents required under RA 10142 or Supreme Court rules.
44
What will the court issue if a petition for rehabilitation is sufficient in form and substance
A Commencement Order.
44
Within how many working days must the court issue the Commencement Order after filing the petition?
Five (5) working days.
45
What happens if the court finds the petition deficient in form or substance?
The court may allow the petitioner to amend or supplement the petition within a reasonable period.
46
When does the five (5) working-day period start if the petition is amended or supplemented?
From the date of filing the amended or supplemental petition or submission of necessary documents.
47
When do rehabilitation proceedings commence?
Upon the issuance of the Commencement Order.
48
"What are the key contents and effects of a Commencement Order under Section 16 of RA 10142?"
(a) identify the debtor, its principal business or activity/ies and place of business
(b) summarize the ground/s for initiating the proceedings
(c) state the relief sought
(d) state the legal effects of the Commencement Order
(e) declare that the debtor is under rehabilitation;
(f) The Commencement Order must be published in a newspaper of general circulation once a week for two consecutive weeks, with the first publication within seven days of issuance.
(g) If the petitioner is the debtor, serve a copy to creditors holding at least 10% of total liabilities within 5 days; if the petitioner is a creditor, serve a copy to the debtor within 5 days.
(h) Appointment of Rehabilitation Receiver – May be from the petitioner’s nominees or another qualified person.
(i) Creditors must file claims with the court at least 5 days before the initial hearing.
(j) The Bureau of Internal Revenue (BIR) must file comments or claims against the debtor.
(k) Suppliers cannot withhold goods/services if the debtor continues payments after the Commencement Order.
(l) Administrative Expenses – Authorized for payment as they become due.
(m) Initial Hearing – Must be set within 40 days from petition filing to determine rehabilitation likelihood.
(n) Petition and Plan Access – Copies must be available for examination and copying by interested parties.
(o) Document Review Locations – The order must specify where case documents can be reviewed and copied.
(p) Non-petitioning creditors or the debtor may nominate a qualified person at least 5 days before the initial hearing.
(q) include a stay or suspension order
49
What are the effects of the Stay or Suspension Order issued in rehabilitation proceedings?
(1) suspend all actions or proceedingsfor the enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment or other provisional
remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing
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..
50
What are the effects of the Commencement Order in rehabilitation proceedings?
1. Vests powers to the rehabilitation receiver, granting access to the debtor's records, including bank accounts, subject to court-approved performance bond.
2. Prohibits extrajudicial collection activities and nullifies actions to seize, sell, or encumber the debtor’s property after the commencement date unless allowed by law.
3. Nullifies set-offs, meaning any debt owed to the debtor by creditors cannot be set off after the commencement date.
4. Nullifies liens, rendering the perfection of any lien against the debtor’s property after the commencement date void.
5. Consolidates legal proceedings, bringing all cases by or against the debtor under the rehabilitation court, except when the court allows continuation in other courts.
51
What legal consequence can a party face for seeking recourse against the debtor outside the rehabilitation proceedings?
guilty of indirect contempt of court
52
What are the general circumstances under which a Stay or Suspension Order will NOT apply?
1. Cases already pending appeal in the Supreme Court as of the commencement date, but any final and executory judgment must be referred to the court.
2. Cases pending or filed in a specialized court or quasi-judicial agency, if the court determines that the claim can be resolved more quickly, fairly, and efficiently there.
3. Enforcement of claims against sureties, solidarily liable persons, third-party or accommodation mortgagors, and issuers of letters of credit, unless the mortgaged property is necessary for rehabilitation.
4. Actions by customers or clients of a securities market participant to recover money or securities entrusted in the ordinary course of business, as well as actions by the securities market participant or regulatory agencies to settle such claims.
5. Actions by licensed brokers or dealers to sell pledged securities under a securities pledge or margin agreement for the settlement of securities transactions in accordance with the Securities Regulation Code.
6. The clearing and settlement of financial transactions through authorized clearing agencies, such as those recognized by the BSP or SEC, as well as actions by such agencies to reimburse themselves for transactions settled for the debtor.
7. Any criminal action against an individual debtor, owner, partner, director, or officer, which proceeds independently of the rehabilitation process.
53
What happens to taxes and fees due to the national government and LGUs upon the issuance of the Commencement Order?
They are considered waived until the approval of the Rehabilitation Plan or dismissal of the petition, whichever comes first.
54
Why are taxes and fees waived under Section 19?
To support the objectives of rehabilitation by reducing the financial burden on the debtor.
55
Does the Stay or Suspension Order apply to Government Financial Institutions (GFIs)?
Yes, it does.
56
Can GFIs continue to foreclose or pursue legal remedies against a debtor after a Commencement Order is issued?
No, the Stay or Suspension Order applies to GFIs, suspending their rights to foreclose or pursue legal remedies.
57
Do GFI charters or other laws override the provisions of the Rehabilitation Act regarding Stay Orders?
No, the Rehabilitation Act provisions apply to GFIs, "notwithstanding provisions in their charters or other laws to the contrary."
58
How long does a Commencement Order remain effective?
For the duration of the rehabilitation proceedings, as long as there's a substantial likelihood of successful rehabilitation, unless lifted by the court.
59
Who has the power to lift the Commencement Order?
The court.
60
What are the minimum requirements for determining the likelihood of successful rehabilitation?
1. The proposed Rehabilitation Plan complies with the minimum content requirements.
2. The rehabilitation receiver sufficiently monitors the debtor's business.
3. The debtor has attempted to reach a consensus with creditors.
4. The rehabilitation receiver's report shows the financial goals are realistic, feasible, and reasonable.
5. The petition and attachments do not contain materially false or misleading statements.
6. The debtor must meet with creditors representing at least three-fourths (3/4) of its total obligations to reach a consensus.
If the petitioner is a creditor or a group of creditors, they must have met with the debtor and made a good faith effort to reach an agreement.
7. The debtor has not committed misrepresentation or fraud against creditors.
61
What are the financial conditions that indicate a likelihood of successful rehabilitation?
1. The debtor has sufficient assets for rehabilitation.
2. The debtor has enough cash flow to continue operations.
3. The owners, partners, stockholders, directors, and officers act in good faith and with due diligence.
4. The petition is not a sham to delay creditor rights.
5. The debtor is likely able to implement a viable Rehabilitation Plan.
62
What are the four main actions the court must take at the initial hearing of a rehabilitation case?
1. Determines which creditors have made timely and proper filings of their notice of claims
2. Hear and determine the objections and, if necessary, appoint a new rehabilitation receiver.
3. The court directs creditors to comment on the petition and plan and submit them to the court and the receiver.
4. The court directs the receiver to evaluate the financial condition and prepare a report.
63
What is the deadline for creditors to submit their comments?
Within a period of not more than twenty (20) days.
64
What is the deadline for the rehabilitation receiver to submit their report?
Within forty (40) days from the initial hearing.
65
What happens if a creditor's claim is not listed in the schedule of debts and liabilities?
The creditor must file a notice of claim in accordance with the Commencement Order.
66
What is the consequence of failing to file a notice of claim on time?
The creditor cannot participate in the rehabilitation proceedings.
67
Can a creditor with a belatedly filed claim still receive distributions from the rehabilitation?
Yes, but they cannot take part in the proceedings.
68
Does Section 23 completely bar late creditors from recovering anything?
No, they can still receive distributions from the rehabilitation.
69
What is the importance of filing a notice of claim within the prescribed period?
It allows the creditor to actively participate in the rehabilitation proceedings.
70
Within how many days from the initial hearing must the rehabilitation receiver submit a report to the court?
Within 40 days.
71
What are the possible recommendations of the rehabilitation receiver in the report?
(a) The debtor is insolvent, the causes of insolvency, and any unlawful or irregular acts contributing to it.
(b) The Rehabilitation Plan assumptions, financial goals, and procedures are realistic, feasible, and reasonable.
(c) There is a substantial likelihood of successful rehabilitation.
(d) The petition should be dismissed.
(e) The debtor should be dissolved or liquidated.
72
Within how many days must the court act upon the rehabilitation receiver’s report?
Within 10 days from receipt of the report.
73
What are the three possible actions the court may take after receiving the rehabilitation receiver’s report?
(a) Give due course to the petition.
(b) Dismiss the petition.
(c) Convert the proceedings into liquidation.
74
What are the two conditions for the court to give due course to the petition?
(1) The debtor is insolvent.
(2) There is a substantial likelihood of successful rehabilitation.
75
What are the four grounds for the court to dismiss the petition?
(1) The debtor is not insolvent.
(2) The petition is a sham filing meant to delay creditor rights.
(3) The petition, Rehabilitation Plan, or attachments contain false or misleading statements.
(4) The debtor has committed misrepresentation or fraud against creditors.
76
Under what conditions may the court convert rehabilitation proceedings into liquidation?
(1) The debtor is insolvent.
(2) There is no substantial likelihood of successful rehabilitation.
77
What must the court do if it gives due course to the petition?
It must direct the rehabilitation receiver to review, revise, or recommend action on the Rehabilitation Plan.
78
Within how many days must the rehabilitation receiver submit the revised or new Rehabilitation Plan?
Within 90 days.
79
What happens if the petition is dismissed under paragraph (b) of Section 25?
The court may order the petitioner to pay damages to any creditor or debtor who was injured by the filing of the petition.
80
Who may be awarded damages if the petition is dismissed?
Any creditor or the debtor who suffered injury due to the filing of the petitio
81
To what extent may damages be awarded?
Only to the extent of the injury suffered by the affected party
82
Who may serve as a rehabilitation receiver?
Any qualified natural or juridical person.
83
What is required if the rehabilitation receiver is a juridical entity?
It must designate a natural person/s who meets all qualifications and has no disqualifications.
84
Who is liable for the obligations and responsibilities of the rehabilitation receiver?
The juridical entity and its designated representative/s are solidarily liable.
85
What are the four minimum qualifications for a Rehabilitation Receiver?
(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
(d) Has no conflict of interest
86
What factors are considered when setting additional qualifications and disqualifications?
The nature of the debtor's business and the need to protect the interests of all stakeholders.
87
Who makes the initial appointment of the Rehabilitation Receiver?
The court.
88
When can creditors and the debtor nominate other persons to be the Rehabilitation Receiver?
At the initial hearing of the petition.
89
After the initial hearing, does the court have to keep the initial receiver?
No, the court may retain the initially appointed receiver or appoint another nominee.
90
If the debtor is a securities market participant, who gets priority in nominating the Rehabilitation Receiver?
The nominee of the appropriate securities or investor protection fund.
91
Under what circumstance must the court appoint the creditors' nominee as Rehabilitation Receiver?
If a qualified person or entity is nominated by more than 50% of the secured and general unsecured creditors, and satisfactory evidence is submitted.
92
What is the principal duty of the rehabilitation receiver?
To preserve and maximize the value of the debtor’s assets, determine rehabilitation viability, prepare and recommend a Rehabilitation Plan, and implement the approved plan.
93
What are the powers and duties of a rehabilitiona receiver?
(a) To verify the accuracy of the petition;
(b) To verify the inventory of all of the assets of the debtor
(c) To verify the schedule of debts and liabilities of the debtor;
(d) To evaluate the validity of all the claims against the debtor;
(e) To take possession and to preserve the value of all the property of the
debtor;
(f) To sue and recover, all amounts owed to, and all properties
pertaining to the debtor;
(g) To have access to all information necessary to the operations and
business of the debtor and for its rehabilitation;
(h) Can sue and recover debts, fraudulent transfers, or undue preferences.
(i) Has full access to business and operational details necessary for rehabilitation.
(j) Can engage services to assist in the rehabilitation process with court approval.
him in the discharge of his functions;
(k) Reviews, revises, and submits a new or modified plan for court approval.
(l) Carries out the approved Rehabilitation Plan, if required.
(m) May assume debtor’s management only if ordered by the court under Section 36.
(o) Submits a quarterly status report or as required by the court or creditors.
93
Who has the authority to remove the rehabilitation receiver?
The court, either motu proprio or upon motion by creditors holding more than 50% of the debtor's total obligations.
93
What percentage of creditors' total obligations must be represented in a motion to remove the rehabilitation receiver?
More than 50% of the total obligations of the debtor.
93
What are the grounds for removing a rehabilitation receiver?
a. Incompetence, gross negligence, or failure to perform duties properly.
b. Lack of specialized competency required for the case.
c. Illegal acts or misconduct while performing duties.
d. Lack of qualification or presence of disqualification.
e. Conflict of interest arising after appointment.
f. Manifest lack of independence detrimental to stakeholders.
93
Can a rehabilitation receiver be removed even without a creditor’s motion?
Yes, the court can remove the receiver motu proprio.
93
How are the rehabilitation receiver and their staff compensated?
They are entitled to reasonable fees and expenses from the debtor, as approved by the court after notice and hearing.
94
95
What type of compensation are they entitled to before the court approves the final terms?
Reasonable compensation based on quantum meruit.
95
How are the costs of the rehabilitation receiver's compensation classified?
As administrative expenses.
95
What two requirements must a rehabilitation receiver fulfill before assuming their duties?
Take an oath and file a bond.
95
Who determines the amount of the bond?
The court.
95
What is the purpose of the bond filed by the rehabilitation receiver?
To ensure the faithful and proper discharge of duties.
95
What happens if the position of the rehabilitation receiver becomes vacant?
The court directs the debtor and creditors to submit nominees.
95
Who has the power to appoint a new rehabilitation receiver?
The court.
95
Does the court have to choose from the submitted nominees?
No, the court may appoint any qualified person.
95
When can the court appoint a rehabilitation receiver to take over the management of the debtor?
Upon motion of any interested party and clear and convincing evidence of certain circumstances.
95
Aside from appointing a rehabilitation receiver, what other option does the court have for managing the debtor?
The court may appoint a management committee to manage the debtor.
95
What are the three circumstances that justify the court’s displacement of the existing management?
(a) Actual or imminent danger of dissipation, loss, wastage, or destruction of assets.
(b) Paralyzation of business operations.
(c) Gross mismanagement, fraud, wrongful conduct, or willful violation of the FRIA.
95
What three actions may the court take if it appoints the rehabilitation receiver as the manager?
(1) Require the rehabilitation receiver to post an additional bond.
(2) Authorize the receiver to hire persons or entities to assist in managerial functions.
(3) Approve a commensurate increase in compensation.
95
What happens when a management committee is appointed?
It takes the place of the debtor’s management and governing body and assumes their rights and responsibilities.
95
What factors are considered in setting the qualifications and disqualifications of the management committee members?
The nature of the business of the debtor and the need to protect the stakeholders' interests.
96
Who may employ specialized professionals and experts?
The rehabilitation receiver or the management committee, with court approval
97
What is required before employing professionals and experts?
Notice and hearing, followed by court approval.
98
What is the status of the professionals and experts employed?
They may be considered either employees or independent contractors of the rehabilitation receiver or management committee.
99
Who cannot be appointed as a rehabilitation receiver, management committee member, or employee?
Anyone with a conflict of interest.
99
How is conflict of interest generally defined?
When a person is materially influenced in exercising judgment for or against any party in the proceedings.
100
When is a person deemed to have a conflict of interest?
If they are:
1. A creditor, owner, partner, or stockholder of the debtor.
2. Engaged in a competing business.
3. A former director, officer, owner, partner, employee, auditor, or accountant of the debtor or a creditor within 5 years before the petition.
4. An underwriter of the debtor’s securities within 2 years before the petition.
5. Related within the 4th civil degree to key persons in the debtor company.
6. Have any direct or indirect material interest in the debtor or any creditor.
100
What must a person with a conflict of interest do if appointed?
They must disclose it to the court (or creditors in out-of-court rehabilitation).
101
Can a conflict of interest be waived?
Yes, by an adversely affected party. If the waiver is unreasonably withheld, the court may disregard the conflict in the interest of stakeholders.
101
Who is granted immunity under this section?
The rehabilitation receiver, management committee members, and their employees.
102
What is the scope of their immunity?
They cannot be sued for acts done in good faith while exercising their powers and functions under the law, including court-approved actions.
103
When can creditors organize a committee?
After the creditors' meeting under Section 63
103
Who can form a creditors’ committee?
Creditors belonging to a class or all creditors as a body.
103
What are the possible classifications of creditors in the committee?
Secured creditors
Unsecured creditors
Trade creditors and suppliers
Employees of the debtor
103
Can the creditors' committee exercise rights or make decisions on behalf of creditors?
No, unless specifically authorized in writing by the creditor.
104
Who assists in electing the creditors’ representatives?
The rehabilitation receiver or their representative.
105
What is the main role of the creditors' committee?
To assist the rehabilitation receiver in communicating with creditors and serve as the primary liaison between them.
106
Can the creditors’ committee have additional functions?
Yes, if authorized by the court or the rehabilitation receiver,
107
Who establishes the registry of claims?
The rehabilitation receiver.
108
When must the registry of claims be established?
Within 20 days from the rehabilitation receiver’s assumption into office.
108
Within how many days must a challenge be submitted?
Within 30 days from the expiration of the period in Section 44.
108
What must be done after the registry of claims is established?
It must be made available for public inspection, with notice published to inform creditors and stakeholders.
109
What is required for claims to be included in the registry?
They must be duly supported by sufficient evidence.
109
Who can challenge claims in the registry?
The debtor, creditors, stakeholders, and other interested parties.
110
What happens after the 30-day period expires?
The rehabilitation receiver submits the registry of claims to the court, including all undisputed claims that were not challenged.
111
Can a decision of the rehabilitation receiver regarding a claim be appealed?
Yes, it may be appealed to the court.
112
Who retains management of the juridical debtor during rehabilitation?
The existing management, unless otherwise provided.
113
What restrictions apply to the debtor’s management during rehabilitation?
Any disbursements, payments, sales, disposals, assignments, transfers, or encumbrances of property require approval from the rehabilitation receiver and/or the court.
114
When can the debtor use or dispose of its assets during rehabilitation?
Only when:
a) In the ordinary course of business, or
b) Necessary to finance administrative expenses of the rehabilitation proceedings.
115
Who must approve transactions outside the ordinary course of business?
The rehabilitation receiver and/or the court.
116
When can the court authorize the sale of the debtor’s unencumbered property outside the ordinary course of business?
When the property is perishable, costly to maintain, susceptible to devaluation, or otherwise in jeopardy.
117
Who must apply for court approval to sell the debtor’s unencumbered property?
The rehabilitation receiver.
118
What are the conditions for the court to authorize the sale of encumbered property or third-party assets held by the debtor?
(a) The sale is necessary for the continued operation of the debtor’s business.
(b) The debtor provides a substitute lien or ownership right of equal security for the affected party.
119
Does the sale or disposal of property under this section give rise to criminal liability?
No, it does not give rise to criminal liability under applicable laws.
119
Can the debtor sell properties held under trust receipt or consignment arrangements?
Yes, if the sale is necessary for business operations and a substitute lien or ownership right is provided.
120
What can the rehabilitation receiver do regarding assets of the debtor held by third parties?
(a) Demand the surrender or transfer of possession, subject to payment of secured claims.
(b) Allow third parties to retain possession, if it helps preserve or increase the asset's value.
(c) Undertake any other disposition beneficial for the debtor’s rehabilitation, with court approval.
120
What are third parties prohibited from doing with the debtor’s property under possessory pledges, mechanic’s liens, or similar claims?
They cannot transfer, convey, or dispose of the property to persons other than the debtor without the rehabilitation receiver’s prior approval.
121
What type of assets does Section 53 apply to?
Assets subject to rapid obsolescence, depreciation, or diminution in value.
121
What actions regarding the debtor’s unencumbered property may be rescinded or declared null and void?
Any sale, payment, transfer, or conveyance not in the ordinary course of business after the commencement date, unless approved by the court.
122
Under what circumstances may the unencumbered property be sold, encumbered, or disposed of upon court order?
(a) To administer the debtor and facilitate rehabilitation.
(b) To provide a substitute lien, mortgage, or pledge.
(c) To pay administrative expenses.
(d) To pay victims of quasi delicts, if the debtor has insurance for reimbursement.
(e) To repurchase auctioned property.
(f) To reclaim property held under a possessory lien.
123
How is compensation of employees required for business operations classified?
It is classified as an administrative expense.
124
What must the court do when a secured creditor applies for protection of such assets?
Order the debtor or rehabilitation receiver to take reasonable steps to prevent depreciation.
125
How is the interest on secured and unsecured claims determined after the commencement date?
The rate and term of interest, if any, are determined and provided for in the approved Rehabilitation Plan.
125
What are the court’s options if depreciation cannot be avoided and jeopardizes the security interest?
(a) Allow the foreclosure of the encumbered property.
(b) Order the conveyance of a lien or ownership interest in substitute property.
(c) Order the conveyance of a lien on residual funds from the sale.
(d) Allow the sale or disposition of the property to maximize value.
125
What can the debtor do to enhance its rehabilitation with court approval?
(a) Enter into credit arrangements.
(b) Secure credit with unencumbered or encumbered property (with senior secured parties' approval).
(c) Incur obligations essential for rehabilitation.
125
How are post-commencement loans and obligations treated under the law?
They are considered administrative expenses.
126
How are claims for separation pay classified based on the timing of work?
Before commencement date → Pre-commencement claim.
After commencement date → Administrative expense.
127
What is the general rule regarding valid and subsisting contracts of the debtor at the commencement date?
They continue in force.
127
Within what period must the debtor notify contractual counterparties of contract confirmation?
Within ninety (90) days following the commencement of proceedings.
128
Who must consent to the notification of contract confirmation?
The rehabilitation receiver.
128
Under what circumstances can a contract be cancelled?
By a final judgment of a court of competent jurisdiction issued before or during the rehabilitation proceedings or for any ground provided by law.
129
What happens to contracts not confirmed within the 90-day deadline?
They are considered terminated.
130
How are contractual obligations arising or performed during the 90-day period and for confirmed contracts treated?
They are considered administrative expenses.
131
Who may initiate an action to rescind or declare null and void a transaction under Section 58?
The rehabilitation receiver or, with his conformity, any creditor.
131
How are claims for actual damages resulting from contract termination treated?
They are considered pre-commencement claims against the debtor.
132
What can a creditor do if the rehabilitation receiver does not consent to filing an action for rescission or nullity?
The creditor may seek leave of court to commence the action.
133
What happens if the court grants leave for a creditor to file the action?
The rehabilitation receiver must assign and transfer all rights, title, and interest in the subject matter to the creditor.
134
Who benefits from a successful rescission or nullity action filed by a creditor?
The creditor benefits up to the extent of his claim and costs, while any surplus belongs to the estate.
135
What happens if the rehabilitation receiver decides to initiate the action instead?
The court will set a time limit for the rehabilitation receiver to file the case, and any benefits will belong to the estate.
136
Does the Commencement Order or Stay Order diminish a secured creditor’s rights?
No, it does not diminish or impair the security, lien, or value of a secured creditor’s claim.
137
What effect does the Stay Order have on a secured creditor’s ability to enforce a lien?
The secured creditor’s right to enforce the security or lien may be suspended during the Stay Order.
138
Under what condition may the court allow a secured creditor to enforce a lien or foreclose on property?
If the property is not necessary for the rehabilitation of the debtor.
138
If a secured creditor enforces a lien and recovers less than the claim, what happens to the remaining balance?
The secured creditor may join the rehabilitation proceedings for the balance of the claim.
139
Under what conditions may the court terminate, modify, or set conditions on the suspension of payment?
1. If a creditor lacks adequate protection over property securing its claim.
2. If the value of a secured claim exceeds the fair market value of the property, and the property is not necessary for the debtor’s rehabilitation.
140
When is a creditor considered to lack adequate protection?
1. If the debtor fails or refuses to keep the property insured as agreed.
2. If the debtor fails or refuses to take commercially reasonable steps to maintain the property.
3. If the property has depreciated, making the creditor undersecured.
141
What remedies can the court order if a creditor lacks adequate protection?
Require the debtor or rehabilitation receiver to:
1. Insure or maintain the property.
2. Make payments or provide replacement security to fully secure the obligation.
142
What happens if providing adequate protection is not feasible?
The court may modify the Stay Order to allow the secured creditor to enforce its security claim.
143
When can the court deny a creditor's request to enforce its security claim?
If the property is required for the rehabilitation of the debtor.
144
Contents of a Rehabilitation Plan
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. provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment; A
d. maintain the security interest of secured creditors and preserve the liquidation value of the
security unless such has been waived or modified voluntarily;
e. describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;
145
What may the rehabilitation receiver consider during the review or preparation of the Rehabilitation Plan?
The views and proposals of the debtor and creditors.
145
What must the rehabilitation receiver do if the court gives due course to the petition?
Confer with the debtor and all classes of creditors.
145
What is the purpose of consulting with the debtor and creditors?
To ensure their input is considered in the review, revision, or preparation of a new Rehabilitation Plan.
145
What must the rehabilitation receiver do once the Rehabilitation Plan is ready?
Notify the creditors and stakeholders that the Plan is ready for examination.
146
How is approval of the Rehabilitation Plan determined for each class of creditors?
If members of the class holding more than 50% of the total claims of that class vote in favor.
146
Within how many days must the rehabilitation receiver convene the creditors for voting?
Within 20 days from the notification.
146
When is the Rehabilitation Plan deemed rejected?
If it is not approved by all classes of creditors whose rights are adversely modified or affected.
146
On what basis do creditors vote on the Rehabilitation Plan?
Based solely on the amount of their claims in the registry of claims.
146
What must the rehabilitation receiver do if the Rehabilitation Plan is approved?
Submit the Rehabilitation Plan to the court for confirmation.
146
What are the four circumstances under which the court may confirm a rejected Rehabilitation Plan?
(a) The Plan complies with legal requirements.
(b) The rehabilitation receiver recommends confirmation.
(c) The shareholders/owners/partners lose controlling interest.
(d) The Plan provides greater net present value to objecting creditors than liquidation.
146
Within how many days must the court notify creditors after receiving the Rehabilitation Plan?
Within five (5) days from receipt.
147
What must the court include in its notification to creditors?
1. That the Rehabilitation Plan has been submitted for confirmation.
2. That creditors may obtain copies of the Plan.
3. That any creditor may file an objection to the Plan.
147
Can the court confirm a Rehabilitation Plan even if there are unresolved disputes over claims
Yes, if the Plan provides adequate provisions for paying such claims.
147
Within how many days may a creditor file an objection to the Rehabilitation Plan?
Within twenty (20) days from receipt of notice from the court.
147
Under what circumstances will the court confirm the Rehabilitation Plan?
(a) No objections were filed within the relevant period.
(b) The court finds that objections lack merit.
(c) The defect causing the objection has been cured.
(d) The debtor has complied with an order to cure the objection.
148
What are the valid grounds for objecting to a Rehabilitation Plan?
(a) The creditors' support was induced by fraud.
(b) The documents or data relied upon in the Plan are materially false or misleading.
(c) The Rehabilitation Plan is not actually supported by the voting creditors.
148
What does the court do if objections to the Rehabilitation Plan are submitted?
It issues an order setting the time and date for a hearing on the objections.
149
What are the possible actions of the court if it finds merit in the objection?
(a) Order the rehabilitation receiver or another party to cure the defect, if feasible.
(b) Convert the proceedings into liquidation if the debtor acted in bad faith or if curing is not feasible.
150
Does the Rehabilitation Plan need approval from owners, partners, or stockholders?
No, the court can confirm the Plan even without their approval if it is necessary to restore the debtor’s financial viability.
151
Effect of Confirmation of the Rehabilitation Plan
1. The Rehabilitation Plan is binding on the debtor, creditors, and all affected parties, regardless of their participation or opposition.
2. The debtor must comply with and implement the Plan.
3. Payments to creditors must follow the Plan's provisions.
4. Contracts between the debtor and creditors continue unless they conflict with the Plan.
5. Claims arising after Plan approval are not covered by a Suspension Order.
151
Does the approval of a Rehabilitation Plan affect the rights of creditors to pursue general partners of a partnership for unpaid debts?
No, creditors can still pursue general partners to the extent they are liable under the law.
151
Are amounts of indebtedness or obligations forgiven or reduced under an approved Rehabilitation Plan subject to tax?
No, they are not subject to tax, in line with the purpose of the Act.
152
What is the maximum period for the court to confirm a Rehabilitation Plan?
One (1) year from the date of filing the petition.
152
What happens if no Rehabilitation Plan is confirmed within the one-year period?
The proceedings may be converted into liquidation, either upon motion or motu proprio
153
What is motu proprio?
Motu proprio is a Latin term that means "on its own initiative." In legal contexts, it refers to an action taken by a court or an authority without a request from any party.
154
When is the rehabilitation receiver required to submit a final report and accounting?
Upon the confirmation of the Rehabilitation Plan.
154
Under what condition can the rehabilitation receiver continue their role after the confirmation of the plan?
If the Rehabilitation Plan specifically requires and describes their role.
155
What happens to the rehabilitation receiver after submitting the final report and accounting?
The court shall discharge the rehabilitation receiver unless the Rehabilitation Plan requires and describes their role after approval.
155
Who can file a motion to terminate rehabilitation proceedings?
Any stakeholder or the rehabilitation receiver.
156
What are the two possible outcomes when rehabilitation proceedings are terminated?
(1) A declaration of successful implementation of the Rehabilitation Plan, or (2) A declaration of failure of rehabilitation.
156
What are the grounds for failure of rehabilitation?
1️⃣ Dismissal of the petition by the court.
2️⃣ The debtor fails to submit a Rehabilitation Plan.
3️⃣ The submitted plan has no substantial likelihood of success.
4️⃣ Failure to implement the Rehabilitation Plan or meet its objectives.
5️⃣ Fraud in securing approval of the plan.
6️⃣ Other analogous circumstances as defined by procedural rule
157
What happens if the debtor fails to perform its obligations under the approved Rehabilitation Plan?
It may be considered a failure of rehabilitation, leading to the termination of proceedings.
158
Who can file a motion in case of a breach or failure of the Rehabilitation Plan?
Any affected party.
158
What actions may the court take upon a breach or failure of the Rehabilitation Plan?
1️⃣ Order the breach to be cured within a specified time, failing which proceedings may be converted to liquidation.
2️⃣ Convert the proceedings to liquidation.
3️⃣ Allow submission of amendments to the Rehabilitation Plan.
4️⃣ Issue any order to remedy the breach consistent with law and creditors' best interests.
5️⃣ Enforce the Rehabilitation Plan through a writ of execution.
158
If the breach can be remedied, what may the court allow?
The submission of amendments to the Rehabilitation Plan, subject to the same approval process as the original plan.
159
What are the effects of the termination of rehabilitation proceedings?
1️⃣ The rehabilitation receiver is discharged (after submitting a final accounting).
2️⃣ The Stay Order and other court orders suspending claims against the debtor are lifted.
160
What happens if rehabilitation fails or the petition is dismissed for non-technical reasons?
The proceedings are immediately converted to liquidation under Section 92.
161
Who can file a petition for the approval of a pre-negotiated Rehabilitation Plan?
The insolvent debtor (alone or jointly with creditors).
161
What is the minimum creditor approval needed for a pre-negotiated Rehabilitation Plan?
✅ At least two-thirds (2/3) of total liabilities, including:
1. Secured creditors: More than 50% of total secured claims
2. Unsecured creditors: More than 50% of total unsecured claims
161
What is Pre-negotiated rehabilitation plan
A Pre-Negotiated Rehabilitation Plan is a rehabilitation plan that an insolvent debtor prepares and negotiates with its creditors before filing a petition in court. It requires prior approval from a significant majority of creditors before it can be submitted for court approval.
162
What must be included in a petition for a pre-negotiated Rehabilitation Plan?
1️⃣ Schedule of debts and liabilities
2️⃣ Inventory of assets
3️⃣ Pre-negotiated Rehabilitation Plan (with at least 3 nominees for rehabilitation receiver)
4️⃣ Summary of disputed claims and funding provisions
162
Within how many days must the court issue an order after determining that a pre-negotiated rehabilitation petition is sufficient in form and substance?
Within five (5) working days.
163
How must the court notify the public about the debtor's rehabilitation?
The order must be published in a newspaper of general circulation once a week for two (2) consecutive weeks, with the first publication within seven (7) days from issuance.
163
What key information must the court's order include regarding the debtor?
The order must identify:
The debtor's name
Its principal business or activities
Its principal place of business
164
How must creditors holding at least 10% of total liabilities be notified?
By personal delivery of the petition within three (3) days.
165
Who may file an objection to the petition or Rehabilitation Plan?
Any creditor or other interested party.
165
What may prevent the court from immediately approving the Rehabilitation Plan?
An objection submitted by a creditor or other interested party.
165
How long do creditors and interested parties have to file objections or comments on the petition or Rehabilitation Plan?
No later than twenty (20) days from the second publication of the Order.
166
How long does the court have to approve the Rehabilitation Plan after the second publication of the Order?
Within ten (10) days.
166
What are some key elements included in the court's order under Section 77?
The order must:
1. Declare the debtor under rehabilitation
2. Summarize the grounds for the petition
3. Publish the order in a newspaper
4. Notify creditors
5. Make the petition & plan available
6. Allow objections within 20 days
7. Appoint a rehabilitation receiver (if required)
8. Issue a Suspension or Stay Order
167
What is the deadline for filing an objection to the petition or Rehabilitation Plan?
Not later than eight (8) days from the second publication of the Order.
167
What are the valid grounds for objecting to the petition or Rehabilitation Plan?
1. The allegations in the petition or plan are materially false or misleading.
2. The majority of any class of creditors do not actually support the plan.
3. The plan fails to account for a valid claim that is not categorically contested.
4. The support of creditors was induced by fraud.
168
When must the court set a hearing for an objection to the Rehabilitation Plan?
No earlier than 20 days and no later than 30 days from the second publication of the Order.
168
Who must receive copies of an objection to the petition or Rehabilitation Plan?
Copies must be served to:
1. The debtor
2. The rehabilitation receiver (if applicable)
3. The secured creditor with the largest supporting claim
4. The unsecured creditor with the largest supporting claim
168
What actions may the court take if it finds merit in an objection to the Rehabilitation Plan?
1. Order the debtor to cure the defect within a reasonable period (if feasible).
2. Convert the proceedings to liquidation if the debtor or supporting creditors acted in bad faith or the defect is non-curable.
169
What happens if the court finds that an objection has no substantial merit or has been cured?
The Rehabilitation Plan is deemed approved.
170
What is the maximum period for the court to approve the Rehabilitation Plan?
120 days from the filing of the petition.
170
What happens if the court fails to act on the Rehabilitation Plan within 120 days?
The Rehabilitation Plan is deemed approved.
171
What is an Out-of-Court or Informal Restructuring Agreements or Rehabilitation Plans
An Out-of-Court or Informal Restructuring Agreement (OCRA) or Rehabilitation Plan refers to a private negotiation and agreement between a financially distressed debtor and its creditors to restructure its obligations without court intervention.
171
What are the four minimum requirements for an out-of-court restructuring agreement to qualify under RA 10142?
The agreement must meet the following criteria:
1️⃣ The debtor must agree to it.
2️⃣ Approved by 67% of secured creditors.
3️⃣ Approved by 75% of unsecured creditors.
4️⃣ Approved by 85% of total creditors (secured & unsecured).
171
What is a standstill period in the context of out-of-court restructuring?
A temporary suspension of debt enforcement actions agreed upon by parties during negotiations for an out-of-court restructuring or Rehabilitation Plan.
172
What must the published notice for the standstill period include?
1. Invitation for creditors to participate in negotiations.
2. Notification that the agreement will be binding on all creditors if the required majority is met (as per Section 84).
172
What are the conditions for a standstill period to be effective and enforceable against all creditors?
1. Approval by creditors representing more than 50% of total liabilities.
2. Publication of notice in a newspaper of general circulation once a week for 2 consecutive weeks.
3. The standstill period must not exceed 120 days from effectivity
173
What is the maximum duration for a standstill period?
120 days from the date it takes effect.
173
How often and for how long must the notice of the Rehabilitation Plan or Out-of-court restructuring agreement be published?
Once a week for at least three (3) consecutive weeks in a newspaper of general circulation.
173
When does the Rehabilitation Plan or Out-of-court restructuring agreement take effect?
Upon the lapse of fifteen (15) days from the date of the last publication of the notice.
173
How can an out-of-court restructuring/workout agreement or Rehabilitation Plan be amended or modified?
Back: In accordance with the terms of the agreement and with due notice to all creditors.
174
What is essential when amending an out-of-court restructuring agreement?
Due notice to all creditors.
175
Does a court action or other proceeding automatically stay the implementation of an out-of-court restructuring/workout agreement or Rehabilitation Plan?
No.
176
Can a debtor convert rehabilitation proceedings into liquidation?
Yes, by filing a verified motion in the same court where the rehabilitation proceedings are pending.
176
What is required to stay the implementation of an out-of-court restructuring agreement through court action?
The relevant party must secure a temporary restraining order or injunctive relief from the Court of Appeals.
176
How can an insolvent debtor apply for liquidation?
By filing a verified petition for liquidation with the court.
177
What must be included in the petition for voluntary liquidation?
1. Schedule of debts and liabilities (including creditors' details, amounts, and securities)
2. Inventory of assets (including receivables and claims)
3. Names of at least three (3) nominees for liquidator
4. Schedule of income and expenditures – Covering the three (3) months before filing.
5. List of acquired properties – In the last two (2) years.
6. List of disposed/donated properties – In the last two (2) years.
7. Schedule of executory contracts and unexpired leases.
8. Audited financial statements – For the last three (3) years.
9. Income tax return – For the immediately preceding year.
178
What must the motion for conversion to liquidation include?
1. The same requirements as a liquidation petition
2. A statement that the debtor is seeking immediate dissolution and termination of its corporate existence
179
What happens if the voluntary petition or motion is sufficient in form and substance?
The court shall issue a Liquidation Order under Section 112.
180
Who can file a petition for involuntary liquidation?
Three (3) or more creditors whose aggregate claims are at least Php1,000,000 or 25% of the subscribed capital stock or partner’s contributions, whichever is higher.
181
What must the petition for involuntary liquidation show?
1. There is no genuine issue of fact or law on the claim(s), and payments have not been made for at least 180 days OR the debtor has failed to meet its liabilities as they fall due.
2. There is no substantial likelihood that the debtor may be rehabilitated.
181
What must the motion to convert rehabilitation into liquidation include?
1. Same requirements as an voluntary liquidation petition
2. A statement that the creditors seek immediate liquidation of the debtor
182
Can creditors convert ongoing rehabilitation into liquidation?
Yes, three (3) or more creditors meeting the claim threshold may file a verified motion in the same court where rehabilitation is pending.
183
Where should an insolvent juridical debtor and 3 or more creditors file a petition for liquidation?
1. In the Regional Trial Court (RTC) that has jurisdiction over its principal office as specified in its articles of incorporation or partnership.
2. If the principal office is in Metro Manila, it must be filed in the RTC of the city or municipality where the head office is located.
184
What certificates must be attached to the petition for liquidation of insolvent juridical debtor
a. a certificate attesting to the Meeting held of BOD of Stock Corporation and Non-stock corporation, called the approval to file the petition, signed by the secretary of the meeting and at least a majority of the members of the Board present during the meeting
b. a certificate attesting to the holding of a meeting of the stockholders, members or partners comprising the debtor. Approved by at least two-thirds (2/3) of the stockholders, members, or partners, signed by the chairman and secretary of the meeting.
185
Within how many working days must the court act on a petition or motion for voluntary liquidation?
Ten (10) working days from the date of filing.
185
What happens if the voluntary petition or motion is NOT sufficient in form and substance?
The court shall dismiss the petition or deny the motion.
185
What actions may the court take within the 10-day period?
1. Issue the Liquidation Order.
2. Dismiss the petition.
3. Deny the motion.
4. Take any action necessary to determine sufficiency.
186
What must petitioners post when filing an involuntary liquidation petition?
A bond at least equal in value to the aggregate of their claims.
186
What must be included in the petition for involuntary liquidation?
a. names of at least three (3) nominees to the position of liquidator
b. Also to the best knowledge of the petitioners:
1. the schedule of debts and liabilities, including a list of its known creditors with their addresses, amounts of claims and collaterals, or securities
2. the debtor’s assets, including receivables and claims against third parties
3. the audited financial statements of the debtor for the immediately preceding three (3) years.
187
When does the petitioner’s bond become payable to the debtor?
🔹 If the liquidation petition is:
✅ Denied or dismissed by the court.
✅ Withdrawn by the petitioners without the debtor’s consent.
187
What is the purpose of the bond required from petitioners?
🔹 To cover expenses and damages the debtor may incur if the petition is:
1️⃣ Denied or dismissed by the court.
2️⃣ Withdrawn by the petitioners without the debtor’s consent.
188
What must the court do if it finds an involuntary liquidation petition sufficient in form and substance?
🔹 It must issue an order directing:
1️⃣ Publication of the petition in a newspaper of general circulation once a week for two (2) consecutive weeks.
2️⃣ Debtor, creditors, and interested parties to file their comment within fifteen (15) days from notice.
3️⃣ Service of a copy of the petition on the debtor and on all known creditors, unless they exceed twenty (20) in number.
189
What happens if there are more than twenty (20) known creditors?
Service is made on at least the first twenty (20) largest known creditors.
190
What happens if there are more than 20 creditors, and some aquired their credits within 6 months of the petition?
The number of creditors to be served is increased by the amount of creditors that aquired their credits in the last 6 months.
191
When shall the court conduct a hearing on the liquidation petition or motion?
If the petition or motion, along with the comments filed, raises issues of fact.
192
What does the court determine based on the pleadings and the hearing, if conducted?
🔹 Whether the evidence is sufficient to issue a Liquidation Order under Section 2, Rule 4 (A).
🔹 If insufficient, the court dismisses the petition or denies the motion.
193
When may the court convert rehabilitation proceedings into liquidation proceedings?
After notice and hearing, if conversion is authorized by law or if the rehabilitation receiver or management committee recommends it because rehabilitation is no longer feasible.
194
Which rules apply when the court converts rehabilitation proceedings into liquidation proceedings?
The Financial Liquidation and Suspension of Payment (FLSP) Rules.
195
Within how many working days must the court issue a Suspension of Payments Order if the petition is sufficient?
Within five (5) working days from the filing of the petition.
195
What must the petition for suspension of payments include?
🔹 Names of at least three (3) nominees for commissioner.
🔹 Minimum attachments:
📌 Schedule of debts & liabilities (creditors, claims, collaterals)
📌 Inventory of assets (receivables, claims vs. third parties)
📌 Schedule of income & expenses (past 3 months)
📌 Income tax return (previous year)
📌 List of properties acquired (past 2 years)
📌 List of properties sold, disposed, or donated (past 2 years)
📌 Schedule of executory contracts & unexpired leases
📌 Proposed agreement with creditors
195
Where should the petition for suspension of payments be filed?
In the court that has jurisdiction over the province or city where the debtor resided for at least six (6) months prior to filing.
195
Who may file a petition for suspension of payments?
An individual debtor whose assets exceed liabilities but foresees the impossibility of paying debts when due.
196
Effects of the Suspension of Payments Order
a. Creditors cannot sue or collect from the debtor, except for:
1. Claims for personal labor, maintenance, last illness, and funeral expenses (incurred within 60 days prior to filing).
2. Secured creditors (who can still enforce their security).
b. The court sets a meeting of all creditors between 15 to 40 days from the order.
c. Creditors must present written evidence of their claims.
d. The order must be published in a newspaper of general circulation once a week for two (2) consecutive weeks (first publication within 7 days of issuance).
e. The clerk of court must send registered mail copies to all creditors listed.
f. Cannot sell, transfer, encumber, or dispose of property (except for normal business operations).
g. Cannot make payments outside necessary business expenses.
h. A commissioner is appointed to preside over the creditors' meeting (may or may not be from the debtor’s nominees).
197
Are secured creditors affected by the suspension order?
No, property held as security by secured creditors is not subject to suspension.
198
When can the court suspend a pending execution against the debtor?
Upon motion of the petitioner.
199
When does the suspension order lapse?
After three (3) months if no agreement is accepted or as soon as the proposed agreement is rejected.
200
Who can object to the appointment of the commissioner?
The debtor or any creditor.
200
What are the minimum qualifications of a commissioner?
(a) Citizen of the Philippines or a resident for six (6) months before appointment.
(b) Good moral character, integrity, impartiality, and independence.
(c) Knowledge of insolvency laws, rules, and procedures.
(d) No conflict of interest (unless waived by an affected party).
200
Who may refrain from attending and voting during the creditors' meeting?
Secured creditors and creditors with claims for:
a. Personal labor
b. Maintenance
c. expenses of last illness and funeral of the wife or children of the debtor(within 60 days before filing the petition).
200
Who presides over the creditors’ meeting in suspension of payments proceedings?
The commissioner.
201
When is an individual considered to have a conflict of interest?
If they are materially influenced in their judgment for or against any party in the proceedings.
202
What happens if the court finds merit in the objection?
The court shall appoint a new commissioner.
203
What is the required presence of creditors to hold a creditors' meeting?
Creditors holding at least three-fifths (3/5) of the liabilities of the petitioner, excluding liabilities unaffected by the Suspension of Payments Order.
203
Who presides over the creditors’ meeting, and who acts as the secretary?
The court-appointed commissioner presides, and the clerk of court acts as the secretary.
204
What are the two requirements for a majority vote?
(1) Two-thirds (2/3) of the voting creditors must agree.
(2) The claims of the agreeing creditors must amount to at least three-fifths (3/5) of total liabilities.
204
What is the role of the commissioner regarding claims?
Examine the written evidence of the claims and declare a quorum if creditors present hold at least three-fifths (3/5) of the debtor’s liabilities.
204
What are the roles of the clerk of court during the creditors' meeting?
(a) Record the creditors present and the amount of their claims.
205
Can a creditor who incurred credit within 90 days before the petition vote?
No, such creditors are not allowed to vote.
206
What must be done after the announcement of the voting results?
All protests against the majority vote shall be drawn up, and the commissioner, debtor, and voting creditors must sign the affirmed propositions.
207
What must the commissioner submit to the court after the creditors’ meeting?
A report of the proceedings, including voting results and any affirmed propositions, within three (3) days after the last creditors' meeting.
208
Who may file an objection to the approval of the debtor’s proposal?
A creditor who attended the meeting, dissented, and protested against the majority vote.
209
When is the debtor’s proposal deemed rejected?
If no creditors’ meeting with the required quorum is held within 90 days from the last publication or if the proposal is not approved within the same period.
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What happens when the debtor’s proposal is rejected?
The court shall dismiss the petition within five (5) days from the lapse of the 90-day period or upon receiving the commissioner’s report.
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Within what period must an objection be filed?
Within ten (10) days from the date of the creditors' meeting.
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What are the grounds for objecting to the debtor’s proposal?
(a) Defects in the call, holding, or deliberations of the meeting that prejudice creditors' rights.
(b) Fraudulent connivance between the debtor and creditors to gain approval.
(c) Fraudulent conveyance of claims to obtain a majority vote.
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How long does the court have to decide on the objection?
The court must decide within thirty (30) days from the filing of the objection.
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What happens if the court annuls the majority decision approving the debtor’s proposal?
The petition shall be dismissed.
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What happens if the court upholds the majority decision approving the debtor’s proposal?
The court shall issue an order confirming the approval of the proposed agreement or its amendment.
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What happens if no opposition or objection is filed against the approved agreement?
The court shall confirm the approval and direct all parties to comply with its terms.
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What power does the court have after confirming the debtor’s proposal?
The court may issue any order necessary or proper to enforce the agreement.
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What happens if the debtor fails to comply with the agreement or any court order?
Upon motion of any creditor, the court shall declare the agreement terminated.
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What is the effect of the termination of the agreement?
All creditors’ rights before the agreement shall revest in them.
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What power does the court have to enforce the approved agreement?
The court may issue all orders necessary or proper to enforce the agreement upon motion of any affected party.
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Who is bound by the order confirming the approval of the proposed agreement?
All creditors whose claims are included in the schedule of debts and liabilities and who were properly summoned.
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Which creditors are NOT bound by the approved agreement?
(a) Creditors with claims for personal labor, maintenance, last illness, and funeral expenses incurred within 60 days prior to the filing.
(b) Secured creditors who either failed to attend the meeting or refrained from voting.
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Where should the petition for liquidation be filed?
In the court having jurisdiction over the province or city where the debtor has resided for at least six (6) months before filing.
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Who may file a petition for liquidation?
An individual debtor whose liabilities exceed his assets and whose debts exceed ₱500,000.
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How many nominees for liquidator must be included in the petition?
At least three (3) nominees.
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What are the minimum attachments required in a liquidation petition?
(a) Schedule of debts and liabilities (list of creditors, addresses, claims, collaterals).
(b) Inventory of assets (including receivables and claims).
(c) Schedule of income and expenditures (within 3 months before filing).
(d) Income tax return (for the previous year).
(e) List of properties acquired (in the last 2 years).
(f) List of properties sold, disposed of, or donated (in the last 2 years).
(g) Schedule of executory contracts and unexpired leases.
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What must the court determine before acting on a liquidation petition?
The court must determine if the petition is sufficient in form and substance.
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What happens if the petition is sufficient in form and substance?
The court shall issue a Liquidation Order as mentioned in Section 2, Rule 4 (A).
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What happens if the petition is insufficient?
The court shall dismiss the petition.
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How long does the court have to issue a Liquidation Order or dismiss the petition?
A maximum of ten (10) working days from the date of filing.
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Who may file a petition for liquidation against an individual debtor?
Any creditor or group of creditors with a claim of at least ₱500,000.00.
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Where should the petition for liquidation be filed?
In the court of the province or city where the debtor resides.
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What must the petition state?
The petition must state at least one act of insolvency committed by the debtor.
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What are some examples of acts of insolvency that justify a liquidation petition?
a. The debtor is about to depart or has departed from the Philippines with intent to defraud creditors.
b. The debtor conceals himself to avoid legal process.
c. The debtor transfers or hides property to avoid legal action.
d. The debtor defaults on obligations for 30 days.
e. The debtor fails to pay money held in a fiduciary capacity for 30 days after demand.
f. The debtor has no property available for execution on final judgment.
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How long must a debtor's property remain under attachment to be considered an act of insolvency?
Three (3) days, with intent to hinder or delay or defraud.
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How long must a merchant or tradesman default on current obligations to be considered insolvent?
30 days.
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What happens if an execution is issued against the debtor and they have no sufficient property to satisfy the judgment?
This is considered an act of insolvency and may justify a liquidation petition.
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What are the categories of actions that would be considered acts of insolvency?
Departing the Philippines to defraud, remaining absent to defraud, concealing oneself, concealing/removing property, allowing property under attachment, confessing judgment, allowing default judgment, procuring property seizure, fraudulent transfers, payments in contemplation of insolvency, defaulting on obligations (merchant), failing to pay fiduciary funds, and insufficient property to satisfy judgment.
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What is the intent required for a debtor's departure from the Philippines to be considered an act of insolvency?
Intent to defraud creditors.
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What condition related to execution of judgment is considered an act of insolvency?
Being found without sufficient property to satisfy a final money judgment.
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What is the purpose of the bond in a liquidation petition?
It ensures payment to the debtor for any expenses or damages incurred if:
1. The petition is dismissed.
2. The petition is withdrawn without the debtor’s consent.
3. The debtor is found not to be insolvent.
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What is required from a petitioner when filing a petition for liquidation?
The petitioner must post a bond equal to the total value of their claims.
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What must the court do within five (5) working days of filing a liquidation petition?
Issue a summons requiring the debtor to show cause why they should not be declared insolvent.
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What order can the court issue upon a creditor’s motion after a hearing?
An order prohibiting the debtor from:
1. Paying any debts.
2. Transferring any property.
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How long does the debtor have to respond to the summons?
15 days from the service of the summons.
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Until when does the order prohibiting debt payments or property transfers remain effective?
Until the court issues a Liquidation Order or dismisses the petition, whichever comes first.
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Does the prohibition on debt payments or property transfers affect secured creditors?
No, secured creditors can still enforce their lien according to its terms.
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What happens if the individual debtor defaults or the court rules in favor of the petitioning creditors?
The court shall issue a Liquidation Order as mentioned in Section 112.
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What must the court do after the issues are joined in a liquidation petition?
The court shall set a hearing to determine if the evidence is sufficient for issuing a Liquidation Order.
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Under what circumstances will the court issue a Liquidation Order?
a. If the debtor fails to file a comment or opposition within the given period.
b. If the evidence presented during the hearing supports liquidation.
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How long does the absent debtor have to respond to the petition after final publication?
Fifteen (15) days after the last publication of the summons and order, or within any other period given by the court.
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When is a debtor considered "absent" under Section 19?
When the debtor:
1. Resides outside the Philippines
2. Has an unknown residence
3. Departed from the Philippines with intent to defraud creditors
4. Cannot be found after due diligence
5. Conceals himself to avoid service of summons
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What actions may the court order regarding an absent debtor?
1. The sheriff to take custody of sufficient debtor property within 30 days, not
exempt from execution and not subject of a secured creditor's lien
2. Publication of the summons & order in a newspaper of general circulation (once a week for 2 consecutive weeks)
3. Mailing of the petition, summons, & order to the debtor’s last known address
4. Emailing copies of the petition, summons, & order to the debtor’s last known email address (if available)
5. Posting copies of the petition & summons on at least three (3) conspicuous places on any real property owned by the debtor
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How often must the sheriff report to the court?
The sheriff must make a return to the court within two (2) days every time he takes property.
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What is the sheriff’s duty upon receiving the order to take custody of the debtor’s property?
Take custody of the debtor’s property not exempt from execution and not subject to a secured creditor’s lien, sufficient to cover the amount specified in the order.
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What happens if the absent debtor fails to respond within the given period?
The court shall issue a Liquidation Order under Section 2, Rule 4 (A)
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When must the sheriff submit an inventory of the property taken?
Within three (3) days from the time of the last taking.
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What document must the sheriff prepare based on the debtor’s books or other available data?
A schedule of the names and residences of creditors and the amount due to each.
246
If there is still remaining property of the debtor after the sheriff’s initial action, what can other creditors do?
They may give a bond (double their claim amount) and obtain a similar order for the sheriff to take additional property.
247
For whose benefit does the sheriff hold the debtor’s seized property?
For the benefit of all creditors whose claims are duly established in the proceedings.
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What is the purpose of the bonds required under Sections 19 and 21?
To ensure payment of damages to the debtor if the petition is dismissed.
248
What is the maximum amount of damages that may be awarded to the debtor?
It shall not exceed the amount of the bond.
248
What is required from an appellant if they appeal the court’s decision on the petition?
A bond in double the amount of the value of the property in controversy and for the costs of the proceedings.
249
Who may object to the sufficiency of the sureties on the bond?
Any person interested in the estate.
250
What happens if the court finds the sureties insufficient?
The court may:
1. Dismiss the petition
2. Vacate the order to take custody of the debtor’s property
3. Deny the appeal
251
Under what circumstances may the court order the sale of the debtor’s property in the sheriff’s custody?
If the property is:
1. Perishable
2. Costly to maintain
3. At risk of rapid obsolescence or depreciation
4. Diminishing in value
5. In the best interest of the debtor and creditors to sell
252
What must a creditor file to request the sale of the debtor’s property?
A motion supported by an affidavit narrating the facts.
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What additional requirement must the creditor fulfill before the sale is approved?
Posting a bond equivalent to the estimated value of the property.
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