CHAPTER 16 The Insolvency Law (Act No. 1956, as amen e !

"#n s o$ Insolvency %& 'hen #s a (e)son cons# e)e the Insolvency Law+ #nsolvent *n e)

declaring him an insolvent. This is so because the petition is filed by creditors. In the petition, the creditors allege that the debtor is insolvent. The debtor is still given the chance to oppose the petition as any person cannot ust be declared insolvent considering the stigma of insolvency. In the case of involuntary insolvency, there is still a need for hearing to comply with the re!uirements of due process. After hearing, the court may even dismiss the petition if it is found to be unmeritorious. "nly when the court finds that the petition is meritorious can an order be issued declaring the debtor insolvent. Acts o$ Insolvency

A: A person is considered insolvent under the Insolvency Law when his liabilities are more than his assets. %& 'hen #s the (e)son cons# e)e #nsolvent *n e) the C#v#l Co e+ A: For purposes of the Civil Code provisions, a person is considered insolvent, even if his assets are more than his liabilities, if he does not pay his obligations regularly as they fall due. %& 'hen #s a e,to) eeme #nsolvent #n a ()ocee #n- $o) #nsolvency *n e) the Insolvency Law+ A: In voluntary insolvency, a debtor is deemed insolvent upon filing of the petition. The filing of such petition on the part of the debtor is considered an admission of insolvency on his part. In involuntary insolvency, a debtor is considered insolvent upon the issuance of an order by the court
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%& 'hat a)e the so.calle acts o$ #nsolvency, at least one o$ wh#ch sho*l ,e alle-e #n the (et#t#on $o) #nsolvency, whethe) vol*nta)y o) #nvol*nta)y+ A: The following are the so#called acts of insolvency: $% That the debtor is about to depart or has departed from the &hilippines with intent to defraud his creditors' That being absent from the &hilippines, with intent to defraud creditors, he remains absent' That he conceals himself to avoid the service of legal process for the purpose of

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hindering or delaying or defrauding his creditors' -% The he conceals, or is removing, any of his property to avoid its being attached or ta.en on legal process'

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That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or transfer of his estate, property, rights, or credits' That being a merchant or tradesman, he has generally defaulted in the payment of his current obligation for a period of thirty 0)3% days' That for a period of thirty 0)3% days, he has failed, after demand, to pay any moneys deposited with him or received by him in a fiduciary capacity' That an e4ecution having been issued against him on final udgment for money, he shall have been found to be without sufficient property sub ect to e4ecution to satisfy the udgment.

$$% /% That he has suffered his property to remain under attachment or legal process for three 0)% days for the purpose of hindering or delaying or defrauding creditors' $(% 1% That he has confessed or offered to allow udgment in favor of any creditor or claimant for the purpose of hindering of delaying or defrauding any creditor or claimant' The he has willfully suffered udgment to be ta.en against him by default for the purpose of hindering or delaying or defrauding creditors' That he has suffered or procured his property to be ta.en on legal process with intent to give a preference to one 0$% or more of his creditors and thereby hinder, delay or defraud any one of his creditors' That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights, or credits with intent to delay, defraud or hinder his creditors'
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E$$ect o$ ecla)at#on o$ #nsolvency #n vol*nta)y #nsolvency ()ocee #n-s %& 'hat a)e the e$$ects o$ a ecla)at#on o$ #nsolvency #n a vol*nta)y #nsolvency case+ A: The ad udication or declaration of insolvency by the court, after hearing or default, shall have the following effects:

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Forbid the payment to the debtor of any debt due to him and the delivery to him of any property belonging to him' Forbid the transfer of any property by him' and

A: It is in an affidavit form, and attaching thereto the evidence of indebtedness, li.e receipts, invoices, promisory notes, vouchers and even mortgages. Ph#loso(hy ,eh#n Insolvency Law

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5tay of all civil proceedings against the insolvent by foreclosure may be allowed.

%& 'hat #s the (*)(ose o) (h#loso(hy ,eh#n the Insolvency Law+ A: There are times when a person wants to pay his debts but cannot pay them despite his efforts and desire to do so. The philosophy behind the Insolvency Law is to allow such debtor to turn over all his assets, e4cept those e4empt from e4ecution, for distribution among his creditors and, thereafter, to turn a new leaf in his economic life. Then he can start anew without being bothered by his old creditors. Com(os#t#on #n Insolvency %& 'hat #s ()ocee #n-s+ the com(os#t#on #n #nsolvency

Ass#-nee #n #nsolvency %& A: 'hat #s the nat*)e o$ an ass#-nee #n #nsolvency+ It is in a nature of a receiver. *t#es an $*nct#ons o$ an

%& 'hat a)e the ass#-nee+

A: 6e gathers all the assets of the debtor, and proceeds to ma.e the inventory. If he discovers some properties of the debtor to be in the possession of third parties, he must ta.e action to recover them. 6is main function is to preserve the property and convert the assets into cash to await the order of the court for the payment of approved claims. Cla#m #n Insolvency P)ocee #n-s %& How o yo* ()ocee #nsolvency ()ocee #n-s+ to ()e(a)e a cla#m #n

A: This is in the nature of a compromise agreement which may be entered into by the debtor and his creditors. 7hen the parties to an insolvency proceedings indicate to the court their desire to e4plore the possibility of settling the case, the court will suspend the proceedings for a period of not more than si4 01% months to enable the parties to e4plore that possibility.

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If the debtor can agree with his creditors as to the amount0s% which the latter would receive for their respective claims, the agreement shall be reduced to writing and submitted for approval of the court. In its order approving the agreement, and the proceeding will thereafter be terminated. "n the other hand, if the period fi4ed by the court, for the suspension of the proceedings to afford the parties a chance to e4plore the possibility of amicable settlement, e4pires without the parties reaching any agreement, the court will order the resumption of the proceedings as if the same has not been suspended. Payment o$ cla#ms/ 0#v# en s 8: Assuming that the proceedings go along well, all the assets have been delivered to the assignee, all the claims have been resolved and, if there are claims on appeal, a provision for contingencies has been made, and all the approved claims are now ready to be paid, what do the creditors with approved claims get9 A: The creditors with approved claims get what is .nown as dividends, meaning the proportional amount of their claims in relation to the amount of the net assets. If the ratio of the liability to the asset is (:$, for every peso claimed, the creditor will receive fifty centavos 0&3.3/%. 0#scha)-e #n Insolvency %& 'hat #s the $#nal sta-e #n ,oth vol*nta)y an #nvol*nta)y #nsolvency ()ocee #n-s+
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A: It is .nown as the discharge which means the graduation of the debtor from all his obligations. The certificate of discharge is the diploma of the insolvent debtor. %& 'hat a)e the 11 ca) #nal s#ns o$ the #nsolvent e,to) that w#ll ()event a #scha)-e, o) w#ll )evo2e one al)ea y -)ante + A: The following are the so#called cardinal sins of an insolvent debtor that will prevent his discharge, or revo.e one already granted, namely: $% If the debtor shall have sworn falsely in his affidavit anne4ed to his petition, schedule, or inventory, or upon e4amination, in the course of the proceedings in insolvency in relation to any material fact concerning his estate or his debts or to any other material fact' or If he has concealed any part of his estate or effects, or any boo.s or writing relating thereto' or If he has been guilty of fraud or will neglect in the care and custody of his property or in the delivery to the assignee of the property belonging to his at the time of the presentation of his petition or inventory e4cepting such property as he is presumed to retain under the law' or

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If, within $ month before the commencement of such proceedings, he has procured his real estate, goods, moneys, or chattels, to be attached or sei:ed on e4ecution' or If he has destroyed, mutilated, altered, or falsified any of his boo.s, documents, papers, writings or securities, or has made, or been privy to the ma.ing of any false or fraudulent entry in any boo. of account or other document with intent to defraud his creditors' or If he has given any fraudulent preference, contrary to the provisions of the Insolvency Law, or has made any fraudulent payment, gift, transfer, conveyance or assignment of any part of his property, or has admitted a false or fictitious debt against his estate' or If, having .nowledge that any person has proven such false or fictitious debt, he has not disclosed the same to his assignee within one 0$% month after such .nowledge' or

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If he has, in contemplation of becoming insolvent, made any pledge, payment, transfer, assignment, or conveyance of any part of his property, directly or indirectly, absolutely or conditionally, for the purpose of preferring any creditor or person having a claim against him, or who is, or may be, under liability for him, or for the purpose of preventing the property from coming into the hands of the assignee, or of being distributed under the Insolvency Law in satisfaction of his debts' or If he has been convicted of any misdemeanor under the Insolvency Law, or has been guilty of fraud contrary to the true intent of the Insolvency Law' or In case of voluntary insolvency, he has received the benefit of this or any other law on insolvency or ban.ruptcy within si4 01% years ne4t preceding his application for discharge' or If insolvency proceedings in which he could have applied for a discharge are pending by or against him in the ,egional Trial Court of any other province of city in the &hilippines.

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$)% 2% If, being a merchant or tradesman, he has not .ept proper boo.s of accounts in Arabic numerals and in accordance with the provisions of the Code of Commerce' or If he, or any other person on his account, or in his behalf, has influenced the action of any creditor, at any stage of the proceedings, by any pecuniary consideration or obligation' or
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Comment: +% Any of the abovementioned grounds will prevent discharge or be the basis of revocation, if discharge has already been granted.

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