MARIA GINALYN P.

CASTILLO
MIDTERM IN CREDIT TRANSACTIONS
In the instant case, XYZ Company has the following assets and liabilities:

Table No. 1: Financial Position of XYZ Company

Assets

Land and Building 250,000,000.00

Beach Resort 50,000,000.00
Trust Fund 600,000.00
Bank Deposits 10,000,000.00
Office Equipment 20,000,000.00
Motor Vehicles 30,000,000.00
Unpaid Subscriptions in Shares of Stock 100,000,000.00

TOTAL ASSETS 460,600,000.00

LIABILITIES

Plan holders 2,000,000,000.00

Unpaid Realty and Business Taxes 15,000,000.00
Unpaid Telephone Bills 300,000.00
Loan Secured by Mortgaged of Land and Building in Makati 100,000,000.00
Salary of employees 10,000,000.00
SSS 5,000,000.00
BIR 300,000,000.00
Water 150,000.00
Unpaid Building Construction Cost of Makati 50,000,000.00
Unpaid Purchase Price of Beach Resort 30,000,000.00
Rentals 35,000,000.00
Loan for Motor Vehicle 25,000,000.00
Attorney's Fees 25,000,000.00

TOTAL LIABILITIES 2,595,450,000.00

DEFICIENCY (2,134,850,000.00)

As per above Table No. 1 the company is insolvent and total deficiency amounted to
P2,134,850.00
Issue:
1. Discuss the rights of the respective claimants to the assets of XYC Corporation
and the respective feasible legal remedies that may be undertaken by them.

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MARIA GINALYN P. CASTILLO
MIDTERM IN CREDIT TRANSACTIONS
2. Discuss the effect, if any, of the suit of the AMLC relative to the rights of the
claimant

Answer to Issue No. 1

Table 2 : INITIAL DISTRIBUTION OF ASSETS

Remainder in the Assets:
Liabilities to be (Assets - Liabilities to be Initially paid)
Assets Amount Initially Paid
Amount
Asset Amount
Loan Secured by
Mortgaged of Land
and Building in
Land and
Building 250,000,000.00
Makati 100,000,000.00 Land 100,000,000.00
Unpaid Construction
Cost of Makati
Building 50,000,000.00
Unpaid Purchase
Price of Beach
Beach Resort 50,000,000.00 Resort 30,000,000.00 Beach Resort 20,000,000.00

Trust Fund 600,000.00 Plan holders 600,000.00 Trust Fund -

Bank Deposits 10,000,000.00 Bank Deposits 10,000,000.00

Office Equipment 20,000,000.00 Office Equipment 20,000,000.00

Loan for Motor
Motor Vehicles 30,000,000.00 Vehicle 25,000,000.00 Motor Vehicles 5,000,000.00
Unpaid Unpaid
Subscriptions in Subscriptions in
Shares of Stock 100,000,000.00 Shares of Stock 100,000,000.00

Total Initial
Total Remaining
TOTAL ASSETS Liabilities to be 255,000,000.00
460,600,000.00 205,600,000.00 Assets
Paid

The Table No. 2 above is explained as follows:

1. The trust fund in ABC Bank amounting to Php 600,000.00 shall be appropriated
to the Plan Holders as per Sec 30 of RA 9829 “Pre-Need Code of the
Philippines”, assets in the trust fund shall at all times remain for the sole benefit
of the plan holders”.

2. With reference to paragraph 4 of New Civil Code Art No. 2241 (preference of
claims for movable property) and paragraph 4 and 5 of Civil Code Art No. 2242
(preference of claims for immovable property) the loan secured by mortgaged of
land and building, unpaid constructions cost of building located in Makati, unpaid

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MIDTERM IN CREDIT TRANSACTIONS
purchase price of beach resort and loan for motor vehicle shall be paid out of the
corresponding asset to which they are related.
NCC Art 2241 states:
With reference to specific movable property of the debtor, the following claims or
liens shall be preferred:
xxx…

(4) Credits guaranteed with a pledge so long as the things pledged

are in the hands of the creditor, or those guaranteed by chattel mortgage,
upon the things pledged or mortgaged up to the value thereof
NCC Art 2242 states:
With reference to the specific immovable property and real rights of the debtor,
the following claims, mortgages and liens shall be preferred , and shall constitute
as encumbrance on the immovable or real right:
xxx…

(4) Claims of furnishers of materials used in the construction,

reconstruction or repair of buildings, canals or other works, upon said buildings,
canals or other works;

(5) Mortgage credits recorded in the Registry of Property, upon the

real estate mortgaged

Thus the loan secured by mortgaged of Land and Building in Makati and the
unpaid construction cost of the said building was deducted from the carrying cost
of the Land and Building up to the extent of the loan and construction cost liability
balances. The same goes to the unpaid purchase of the beach resort and the
loan secured by the chattel mortgage of the motor vehicle
3. Out of the remaining P255 million remaining assets, P10 million shall be paid for
the salaries of the employees and P5 million to SSS which also pertain to claims
or benefits of employees. This is based on Art 110 of Labor Code, “in the event
of bankruptcy or liquidation of an employee’s business , his workers shall enjoy
first preference as regards unpaid wages and other monetary claims, any
provision of law to the contrary notwithstanding. Such unpaid wages and other
monetary claims shall be paid in full before claims of the government and other
creditors may be paid”.

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MIDTERM IN CREDIT TRANSACTIONS
4. The remaining P240 million assets after all preferred creditors are paid shall be
appropriated to the Plan Holders. Thus, they will get a total of P240.60 million
assets which shall be distributed based on their equity in the company.

5. The creditors which are not paid including the Plan Holders (for the unpaid
portion of their plans), as a remedy, may file a collection suit to recover a sum of
money against the fraudulent officers of the company. Applying the doctrine of
piercing the veil of corporate entity, the claimants may file against the corporate
officials wherein they may recover through writ of attachment or garnishment of
the own separate properties of the corporate officials. Furthermore, Section 27
of Article RA No. 9829 states, “in case the insolvency or bankruptcy is a mere
cover-up for fraud or illegality, the plan holder may institute the legal action
directly against the officers and/or controlling owners of the pre-need company”.

Answer to Issue No. 2

The suit filed by the AMLC will hold the disposition of all monetary instruments,
thus the claimants cannot appropriate to themselves, unless the freeze order is lifted, all
monetary instruments in the bank namely the trust fund and bank deposits. This is
pursuant to the 2016 Revised Implementing Rules and Regulations of Republic Act No.
9160 also known as the Anti-Money Laundering Act of 2001. Rule 10, “Freeze Order” of
the said special law states:
a. Freeze Order – Upon verified ex parte petition by the AMLC and after
determination that probable cause exists that any monetary instrument or
property is in way related to an unlawful activity, the Court of Appeals may issue
a freeze order, which shall be effective immediately, directing the concerned
covered persons and government agency to desist from allowing any transaction,
withdrawal, transfer, removal, conversion, concealment, or other disposition of
the subject monetary instrument or property.

The plan holders will not be able to get the trust fund and bank deposits to
satisfy their claims.

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