Liquidation plan

By: Francis Ed Lim- @inquirerdotnet

Philippine Daily Inquirer / 12:16 AM August 25, 2016

(Third of four parts)

The Financial Liquidation and Suspension of Payments Rules of Procedure for

Insolvent Debtors (FLSP Rules) expressly provides that a liquidator must submit a
liquidation plan to the insolvency court within three months from assumption of office.

The plan must, at the minimum: (a) enumerate all assets of the debtor not exempt from
execution; (b) list all creditors and their claims which have been duly proved as shown
in the final registry of claims; (c) state a proposed mode and schedule of liquidation of
the assets and payment of the claims; and (d) make provisions for disputed claims and
any action for rescission or nullity of certain transactions.
ADVERTISEMENT

The court must consider comments and counter-proposals. This is to ensure the plan
maximizes the value of the debtor’s assets and maximum payment is given to creditors
in line with the objective of the Financial Rehabilitation and Insolvency Act (FRIA).

Section 133 of the FRIA also requires in no uncertain terms that the “[l]iquidation Plan
and its implementation shall ensure that the concurrence and preference of credits as
enumerated in the Civil Code of the Philippines and other relevant laws shall be
observed, unless a preferred creditor voluntarily waives his preferred right.”

For example, if there are unpaid real estate taxes over a piece of land belonging to the
insolvent debtor, the plan must ensure the relevant local government unit must partake
first from the proceeds of the sale of said land. Article 2242, paragraph 1 of the Civil
Code provides such taxes have preference over all other claims and must be paid first
pursuant to Article 2243 of the same Code.

If there are no unpaid real estate taxes but there is a duly registered mortgage over the
same land, the plan must ensure the mortgage creditor must be given preference. This is
required under Article 2242, paragraph 5 of the Civil Code, which gives preference to
mortgage credits recorded in the Registry of Property.

How about a situation where the debtor has unpaid income taxes due to the national
government and at the same time has unpaid debts to a bank secured only by a
mortgage over a piece of land it owns? As stated above, under Article 2242 of the Civil
Code, the liquidation plan must give preference to the mortgagee (and not to the
government for unpaid income taxes due from the insolvent debtor) insofar as the
mortgaged property is concerned.

The FLSP also laid to rest the question on whether employees are given priority over
the government and secured creditors for their unpaid salaries vis-a-vis specific
immovable and movable properties of their employer. Credits for services rendered by
employees or laborers to the debtor shall enjoy first preference under Article 2244 of
the Civil Code, unless the claims constitute legal liens under Articles 2241 and 2242.

As a general rule, the government and mortgage creditors come first over employees
insofar as real properties on which there are tax or mortgage liens are concerned.

The FRIA also contains special provisions for the liquidation of a market participant in
the securities market. This refers to a broker, dealer, underwriter, transfer agent or other
juridical persons transacting securities in the capital market.
ADVERTISEMENT

Section 136 of the FRIA expressly provides, “trade-related claims of clients or

customers of a securities market participant” have “absolute priority over other claims
of whatever nature or kind insofar as trade-related assets are concerned.” Trade-related
assets include “cash, securities, trading right and other assets owned and used by the
securities market participant in the ordinary course of this business.”

If a stockbroker has an unpaid debt for office equipment used in business and he also
owes clients for their securities trades, the liquidation plan must provide for the
payment of the clients’ claims first via proceeds from the sale of the office equipment.
Payments to creditors shall be made only in accordance with the provisions of the
court-approved liquidation plan.

After the completion of the liquidation, the liquidator shall make his final report to the
court. If the court is satisfied, it shall direct the discharge of the individual debtor from
his liabilities included in the liquidation plan.

Insofar as a juridical debtor is concerned, the court shall order its removal from the
register of legal entities of the SEC and other government agencies. Thereafter, the
court shall order the termination of the insolvency proceedings.

Read more: http://business.inquirer.net/214023/liquidation-plan#ixzz59Cd0jltB

Follow us: @inquirerdotnet on Twitter | inquirerdotnet on Facebook