METROPOLITAN BANK AND TRUST COMPANY, INC. VS.
RIVERSIDE MILLS During trial, the Board passed a Resolution in court declaring that the Fund belongs exclusively
CORP
(2010)
FACTS:
The Riverside Mills Corporation (RMC) established a Provident and Retirement Plan (Plan) for
its regular employees on Nov. 1, 1973, wherein the employees shall each contribute 2% of the
employees current basic monthly salary, with the corporation's contribution to increase 1% every
5years up to a maximum of 5%, which shall form part of the plan's provident fund held, invested
and distributed by the Commercial Bank and Trust Company. Stated in Par.13 of the Plan
likewise provides that the Plan may be amended or terminated by the Company at any tie on
account of business conditions, but no action shall operate to permit any part of the assets of the
Fund to be used for, or diverted to purposes other than for the exclusive benefit of the members
of the Plan and their beneficiaries. In no event shall any part of the assets of the Fund revert to
the corporation before all liabilities of the Plan have been satisfied.
On October 15, 1979, its Board of Trustees entered into an Investment Management Agreement
(Agreement) with petitioner Philbank,now Metropolitan Bank and Trust Company (MBTC).
Pursuant to the Agreement, petitioner shall act as an agent of the Board and shall hold, manage,
invest and reinvest the Fund in Trust Account No. 1797 in its behalf. The Agreement shall be in
force for one (1) year and shall be deemed automatically renewed unless sooner terminated either
by petitioner bank or by the Board.
In 1984, RMC ceased business operations but MBTC continued to render investment services to
the Board. In 1995, MBTC informed the Board that MBTC's Board of Directors had decided to
apply the remaining trust assets held by it against part of the outstanding obligations of RMC.
Subsequently, respondent RMC Unpaid Employees Association, Inc. (Association), representing
the terminated employees of RMC, learned of Trust Account No. 1797, and demanded payment
of their share, and when remained unheeded, filed a complaint for accounting against the Board
and its officers as well as MBTC.
to the employees and authorized MBTC to release the proceeds as the court may direct.
The RTC decided in favor of the Association which declared that the reversion and application of
proceeds of the Fund to the outstanding obligation of RMC to petitioner bank.
When appealed, the CA affirmed the trial courts decision, stating that the Fund is distinct from
RMC's account in MBTC and may not be used except for the benefit of the members, it
emphasized Par. 13 of the Plan, that the assets of the Fund shall not revert to the Company until
after the liabilities of the Plan had been satisfied. Further, the Agreement was specific that upon
the termination of the Agreement, petitioner shall deliver the Fund to the Board or its successor,
and not to RMC as trustor.
ISSUES:
1. WON the proceeds of the Fund may be applied to satisfy RMC's debt to MBTC.
2. WON the function of the Board ceased upon with the termination or closure of RMC
RULING:
1. No.
A trust is a fiduciary relationship with respect to property which involves the existence of
equitable duties imposed upon the holder of the title to the property to deal with it for the benefit
of another. A trust is either express or implied. Express trusts are those which the direct and
positive acts of the parties create, by some writing or deed, or will, or by words evincing an
intention to create a trust.
The trust was likewise a revocable trust as RMC reserved the power to terminate the Plan after all
the liabilities of the Fund to the employees under the trust had been paid. Paragraph 13 of the
Plan provided that [i]n no event shall any part of the assets of the Fund revert to the Company
before all liabilities of the Plan have been satisfied.
Relying on this clause, petitioner, as the Fund trustee, considered the Fund to have technically
reverted to RMC, allegedly after no further claims were made thereon since November 1984.
Thereafter, it applied the proceeds of the Fund to RMCs debt with the bank.
2. No.
Under Section 122[] of the Corporation Code, a dissolved corporation shall nevertheless continue
as a body corporate for three (3) years for the purpose of prosecuting and defending suits by or
against it and enabling it to settle and close its affairs, to dispose and convey its property and to
distribute its assets, but not for the purpose of continuing the business for which it was
established. Within those three (3) years, the corporation may appoint a trustee or receiver who
shall carry out the said purposes beyond the three (3)-year winding-up period. Thus, a trustee of a
dissolved corporation may commence a suit which can proceed to final judgment even beyond
the three (3)-year period of liquidation.
In the same manner, during and beyond the three (3)-year winding-up period of RMC, the Board
of Trustees of RMCPRF may do no more than settle and close the affairs of the Fund. The Board
retains its authority to act on behalf of its members, albeit, in a limited capacity. It may
commence suits on behalf of its members but not continue managing the Fund for purposes of
maximizing profits. Here, the Boards act of issuing the Resolution authorizing petitioner to
release the Fund to its beneficiaries is still part of the liquidation process, that is, satisfaction of
the liabilities of the Plan, and does not amount to doing business. Hence, it was properly within
the Boards power to promulgate.
ALABANG DEVELOPMENT CORPORATION, Petitioner, v. ALABANG HILLS
VILLAGE ASSOCIATION, INC. AND RAFAEL TINIO, Respondents.
G.R. No. 187456, June 02, 2014
FACTS:
Petitioner (ADC) is the developer of Alabang Hills Village and still owns certain parcels of
land that are yet to be sold as well as those considered open spaces that have not yet been donated
to the Local Government of Muntinlupa City or the defendant Homeowner’s Association
(AHVAI). On September 2006, petitioner (ADC) learned that (AHVAI) started the construction
of a multi-purpose hall and swimming pool on one of the parcels of land still owned by ADC
without its consent. Thus, it prayed for injunction to enjoin the defendant’s construction of
improvements.
In its opposition, AHVAI contended that ADC has no legal capacity to sue since its
existence as a registered corporate entity was revoked by the Securities and Exchange
Commission (SEC) on May 26, 2003 there being no cause of action because
by law it is no longer the absolute owner but is merely holding the property in question in trust
for the benefit of AHVAI as beneficial owner thereof; and that the subject lot is part of the open
space required by law to be provided in the subdivision.
RTC ruled to deny the petition on the following grounds: (1) no personality of the
petitioner to file the same; (2) that the subject property “is a reserved area for the beneficial use
of the homeowners, as mandated by law;” and (3) that the Housing and Land Use Regulatory
Board (HLURB), not the RTC, has exclusive jurisdiction over the dispute between petitioner and
respondents.
CA affirmed the decision on the basis of no personality to file the same; (2) that the
subject property “is a reserved area for the beneficial use of the homeowners, as mandated by
law;” and (3) that the Housing and Land Use Regulatory Board (HLURB), not the RTC, has
exclusive jurisdiction over the dispute between petitioner and respondents.
Hence, this petition.
ISSUE:
Whether ADC has the capacity to sue
RULING:
No.
The court in citing the case of Columbia Pictures, Inc. v. Court of Appeals ruled that “xxx
“[l]ack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or
does not have the necessary qualification to appear in the case, or does not have the character or
representation he claims[;] 'lack of capacity to sue' refers to a plaintiff's general disability to sue,
such as on account of minority, insanity, incompetence, lack of juridical personality or any other
general disqualifications of a party. ...”.
In the instant case, petitioner lacks capacity to sue because it no longer possesses
juridical personality by reason of its dissolution and lapse of the three-year grace period provided
under Section 122 of the Corporation Code which provides:
SEC. 122. Corporate liquidation. – Every corporation whose charter expires by
its own limitation or is annulled by forfeiture or otherwise, or whose corporate
existence for other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three (3) years after the time
when it would have been so dissolved, for the purpose of prosecuting and
 defending suits by or against it and enabling it to settle and close its affairs, to
dispose of and convey its property and to distribute its assets, but not for the
purpose of continuing the business for which it was established.
At any time during said three (3) years, said corporation is authorized and
empowered to convey all of its property to trustees for the benefit of
stockholders, members, creditors, and other persons in interest. From and after
any such conveyance by the corporation of its property in trust for the benefit of
its stockholders, members, creditors and others in interest, all interest which the
corporation had in the property terminates, the legal interest vests in the trustees,
and the beneficial interest in the stockholders, members, creditors or other
persons in interest.
against a corporation abate when it ceased to be an entity capable of suing or being sued (7
R.C.L., Corps., par. 750); but trustees to whom the corporate assets have been conveyed
pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be sued as such in all matters
connected with the liquidation...
In the absence of trustees, this Court ruled, thus:
… Still in the absence of a board of directors or trustees, those having any pecuniary
interest in the assets, including not only the shareholders but likewise the creditors of the
corporation, acting for and in its behalf, might make proper representations with the Securities
and Exchange Commission, which has primary and sufficiently broad jurisdiction in matters of
this nature, for working out a final settlement of the corporate concerns

Upon winding up of the corporate affairs, any asset distributable to any creditor
or stockholder or member who is unknown or cannot be found shall be
escheated to the city or municipality where such assets are located.

Except by decrease of capital stock and as otherwise allowed by this Code, no

corporation shall distribute any of its assets or property except upon lawful
dissolution and after payment of all its debts and liabilities.

In the instant case, there is no dispute that petitioner's corporate registration was revoked
on May 26, 2003. Based on it had three years or until May 26, 2006 to prosecute or defend any
suit by or against it however, the subject complaint was filed only on October 19, 2006 which is
more than three years after such revocation. This is contrary to the cases of Gelano v. Court of
Appeals, Knecht v. United Cigarette Corporation, and Pepsi-Cola Products Philippines, Inc. v.
Court of Appeals wherein the following corporations already had pending actions at the time that
their corporate existence was terminated thus their trustees were able to continue to prosecute a
case commenced by the corporation within three years from its dissolution until rendition of the
final judgment, even if such judgment is rendered beyond the three-year period allowed by
Section 122 of the Corporation Code.

CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO

For notes purposes:
It is to be noted that the time during which the corporation, through its own officers,
may conduct the liquidation of its assets and sue and be sued as a corporation is limited to three
years from the time the period of dissolution commences; but there is no time limit within which
the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law,
Sec. 78 [now Sec. 122]) that the conveyance to the trustees must be made within the three-year
period. It may be found impossible to complete the work of liquidation within the three-year
period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or
vs. COURT OF APPEALS and INSULAR SAWMILL, INC.
G.R. No. L-39050 February 24, 1981
Facts:
Respondent Insular Sawmill, Inc. is a corporation organized in 1945, with a corporate life of fifty
(50) years. To carry on its business, it leased the paraphernal property of petitioner-wife
Guillermina M. Gelano. But it was petitioner-husband Carlos Gelano who received from the
corporation cash advances on account of rentals to be paid by the corporation on the land.
Out of the cash advances, Mr. Gelano left unpaid balance which he refused to pay despite
repeated demands by Insular Sawmill, Inc. Mrs. Gelano likewise refused to pay on the ground
that said amount was for the personal account of her husband asked for by, and given to him,
without her knowledge and consent and did not benefit the family. On various occasions,
petitioners husband and wife also made credit purchases of lumber materials from private
respondent, the amount of which the petitioners failed to pay.
In 1959, the corporation filed a complaint for collection against herein petitioners before the
Court of First Instance.
In the meantime, Insular Sawmill, Inc. amended its Articles of Incorporation to shorten its term
of existence up to 1960 only. The amended Articles of Incorporation was filed with, and
approved by the SEC, but the trial court was not notified of the amendment shortening the
corporate existence and no substitution of party was ever made. In 1964 and almost four (4) years
after the dissolution of the corporation, the trial court rendered a decision in favor of the
respondent.
Held:
The answer is in the affirmative.
A corporation that has a pending action, and which cannot be terminated within the three-year
period after its dissolution, is authorized under Section 78 of Act No. 1459 (*Old Corporation
Law) to convey all its property to trustees to enable it to prosecute and defend suits by or against
the corporation beyond the three-year period.
Although private respondent did not appoint any trustee, yet the counsel who prosecuted and
defended the interest of the corporation in the instant case and who in fact appeared in behalf of
the corporation may be considered a trustee of the corporation at least with respect to the matter
in litigation only. The word "trustee" must be understood in its general concept as could include
the counsel to whom was entrusted the prosecution of the suit filed by the corporation.

The case was appealed to the CA. We therefore hold that there was a substantial compliance with Section 78 of the Corporation
The CA affirmed the decision, with some modifications and clarification that the conjugal Law and as such, private respondent Insular Sawmill, Inc. could still continue prosecuting the
partnership of the spouses is jointly and severally liable for the obligations adjudged against present case even beyond the period of three (3) years from the time of its dissolution.
defendant Carlos Gelano.

Petitioners filed a motion to dismiss the case and/or reconsideration of the decision of the CA on
grounds that the case was prosecuted even after dissolution of private respondent as a corporation
and that a defunct corporation cannot maintain any suit for or against it without first complying
with the requirements of the winding up of the affairs of the corporation and the assignment of its
property rights within the required period. The motion was denied.

Hence, this petition.

Issue:

Whether a corporation, whose corporate life had ceased by the expiration of its term of existence,
could still continue prosecuting and defending suits after its dissolution and beyond the period of
three years
 CARGILL INC VS INTRA STRATA ASSURACE CORPORATION
GR NO. 168266
March 15, 2010
FACTS:
CARGILL (foreign) is a corporation organized and existing under the laws of the State of
Delaware. Cargill executed a contract with Northern Mindanao Corporation (NMC)(domestic),
whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of molasses to be
delivered from Jan 1 to 30 1990 for $44 per metric ton. The contract provided that CARGILL
was to open a Letter of Credit with the BPI. NMC was permitted to draw up 500,000 representing
the minimum price of the contract. The contract was amended 3 times (in relation to the amount
and the price). But the third amendment required NMC to put up a performance bond which was
intended to guarantee NMC’s performance to deliver the molasses during the prescribed
shipment periods. In compliance, INTRA STRATA issued a performance bond to guarantee
NMC’s delivery. NMC was only able to deliver 219551 metric tons out of the agreed 10,500.
Thus, CARGILL sent demand letters to INTRA claiming payment under the performance and
surety bonds. When INTRA failed to pay, CARGILL filed a complaint. CARGILL, NMC and
INTRA entered into a compromise agreement approved by the court, such provided that NMC
would pay CARGILL 3 million upon signing and would deliver to CARGILL 6,991 metric tons
of molasses. However, NMC still failed to comply with its obligation under the compromise
agreement. Hence, trial proceeded against respondent.
RTC – in favor of CARGILL
CA – CARGILL does not have the capacity to file suit since it was a foreign corporation doing
business in the Philippines without the requisite license. The purchase of molasses were in
pursuance of its basic business and not just mere isolated and incidental transactions.
ISSUES:
 
1. Whether petitioner is doing or transacting business in the Philippines in contemplation of the
law and established jurisprudence; Whether or not CARGILL, an unlicensed foreign corporation,
has legal capacity to sue before Philippine courts.
HELD:
YES.
According to Sec. 123 of the Corporation Code, a foreign corporation must first obtain a license
and a certificate from the appropriate government agency before it can transact business in the
Philippines. Where a foreign corporation does business in the Philippines without the proper
license, it cannot maintain any action or proceeding before Philippine courts, according to Article
133 of the Corporation Code:
Sec. 133. Doing business without a license. No foreign corporation transacting
business in the Philippines without a license, or its successors or assigns, shall
be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws.
 
Thus, the threshold question in this case is whether petitioner was doing business in
the Philippines. The Corporation Code provides no definition for the phrase doing business.
Nevertheless, Section 1 of Republic Act No. 5455 (RA 5455), provides that:
 
x x x the phrase doing business shall include soliciting orders, purchases,
service contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors who are domiciled in the Philippines
or who in any calendar year stay in the Philippines for a period or
periods totalling one hundred eighty days or more; participating in the
management, supervision or control of any domestic business firm, entity or
corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate to
that extent the performance of acts or works, or the exercise of some of the
functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization.
 
Since respondent is relying on Section 133 of the Corporation Code to bar petitioner from
maintaining an action in Philippine courts, respondent bears the burden of proving that
petitioners business activities in the Philippines were not just casual or occasional, but so
systematic and regular as to manifest continuity and permanence of activity to constitute doing
business in the Philippines. In this case, we find that respondent failed to prove that petitioners
activities in the Philippines constitute doing business as would prevent it from bringing an action.
  
 
Otherwise, Philippine exporters, by the mere act alone of exporting their products, could be
Similarly, in this case, petitioner and NMC amended their contract three times to give a chance to considered by the importing countries to be doing business in those countries. This will require
Philippine exporters to secure a business license in every foreign country where they usually
NMC to deliver to petitioner the molasses, considering that NMC already received the minimum export their products, even if they do not perform any specific commercial act within the territory
price of the contract. There is no showing that the transactions between petitioner and NMC of such importing countries. Such a legal concept will have deleterious effect not only on
Philippine exports, but also on global trade.
signify the intent of petitioner to establish a continuous business or extend  
its operations in the Philippines. To be doing or transacting business in the Philippines for purposes of
  Section 133 of the Corporation Code, the foreign corporation must actually
The Implementing Rules and Regulations of RA 7042 provide under Section 1(f), Rule I, that transact business in the Philippines, that is, perform specific business
doing business does not include the following acts: transactions within the Philippine territory on a continuing basis in its own
name and for its own account. Actual transaction of business within the
Philippine territory is an essential requisite for
1.  Mere investment as a shareholder by a foreign entity in domestic corporations the Philippines to to acquire jurisdiction over a foreign corporation and
duly registered to do business, and/or the exercise of rights as such investor; thus require the foreign corporation to secure a Philippine business
2.  Having a nominee director or officer to represent its interests in such corporation; license. If a foreign corporation does not transact such kind of business in
the Philippines, even if it exports its products to the Philippines,
3.  Appointing a representative or distributor domiciled in the Philippines has no jurisdiction to require such foreign corporation to secure
the Philippines which transacts business in the representative's or distributor's own name and a Philippine business license.
account; In the present case, petitioner is a foreign company merely importing molasses from
a Philippine exporter. A foreign company that merely imports goods from a Philippine exporter,
4.  The publication of a general advertisement through any print or broadcast media;
without opening an office or appointing an agent in the Philippines, is not doing business in
5.  Maintaining a stock of goods in the Philippines solely for the purpose of having the same the Philippines.
processed by another entity in the Philippines;
6.  Consignment by a foreign entity of equipment with a local company to be used in the
processing of products for export;
7.  Collecting information in the Philippines; and
8.  Performing services auxiliary to an existing isolated contract of sale which are not on a
continuing basis, such as installing in the Philippines machinery it has manufactured or exported
to the Philippines, servicing the same, training domestic workers to operate it, and similar
incidental services.
 
  
The contract between petitioner and NMC involved the purchase of molasses by petitioner from
NMC. It was NMC, the domestic corporation, which derived income from the transaction and
not petitioner. To constitute doing business, the activity undertaken in the Philippines should
involve profit-making. Besides, under Section 3(d) of RA 7042, soliciting purchases has been
deleted from the enumeration of acts or activities which constitute doing business.
 

STEELCASE, INC. vs DESIGN INTERNATIONAL SELECTIONS, INC.
G.R. No. 171995 (2012)
Facts:
Steelcase, a foreign corporation existing under the laws of Michigan, U.S.A. engaged in
the manufacture of office furniture with dealers worldwide, and DISI, a corporation existing
under Philippine Laws and engaged in the furniture business, orally entered into a dealership
agreement whereby Steelcase granted DISI the right to market, sell, distribute, install, and service
its products to end-user customers within the Philippines. The business relationship continued
smoothly until it was terminated sometime in January 1999 after the agreement was breached
with neither party admitting any fault. Steelcase filed a complaint for sum of money against DISI
alleging, among others, that DISI had an unpaid account of US$600,000.00. In answer DISI
alleged that the complaint failed to state a cause of action and to contain the required allegations
on Steelcase capacity to sue in the Philippines despite the fact that it (Steelcase) was doing
business in the Philippines without the required license to do so. The RTC dismissed the
complaint concluding that Steelcase was doing business in the Philippines, as contemplated by
Republic Act (R.A.) No. 7042 (The Foreign Investments Act of 1991), and since it did not have
the license to do business in the country, it was barred from seeking redress from our courts until
it obtained the requisite license to do so. Thus, Steelcase has no legal capacity to sue in Philippine
Courts because it was doing business in the Philippines without a license to do so.
Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign Investments Act of
1991 (FIA) expressly states that the phrase doing business excludes the appointment by a foreign
corporation of a local distributor domiciled in the Philippines which transacts business in its own
name and for its own account. Steelcase claims that it was not doing business in the Philippines
when it entered into a dealership agreement with DISI where the latter, acting as the formers
appointed local distributor, transacted business in its own name and for its own account.
DISI asserts that Steelcase treated and considered DISI as a mere conduit, as evidenced
by the fact that Steelcase itself directly sold its products to customers located in the Philippines
who were classified as part of their global accounts. DISI cited other established circumstances
which prove that Steelcase was doing business in the Philippines including the following: (1) the
sale and delivery by Steelcase of furniture to Regus, a Philippine client, through Modernform, a
Thai corporation allegedly controlled by Steelcase; (2) the imposition by Steelcase of certain
requirements over the management and operations of DISI; (3) the representations made by
Steven Husak as Country Manager of Steelcase; (4) the cancellation by Steelcase of orders placed
by Philippine clients; and (5) the expression by Steelcase of its desire to maintain its business in
the Philippines. RTC’s decision was affirmed by the CA. Hence, this petition.
Issue
Whether or not Steelcase is doing business in the Philippines without a license.
Ruling
No, Steelcase is not doing business in the Philippines.
Section 3(d) of R.A. No. 7042 (Foreign Investments Act of 1991) provides that:
The phrase doing business shall include soliciting orders, service contracts, opening offices,
whether called liaison offices or branches; appointing representatives or distributors domiciled in
the Philippines or who in any calendar year stay in the country for a period or periods totalling
one hundred eighty (180) days or more; participating in the management, supervision or control
of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts
that imply a continuity of commercial dealings or arrangements, and contemplate to that extent
the performance of acts or works, or the exercise of some of the functions normally incident to,
and in progressive prosecution of, commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase doing business shall not be deemed to include
mere investment as a shareholder by a foreign entity in domestic corporations duly registered to
do business, and/or the exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its own account.
The following acts shall not be deemed doing business in the Philippines:
 
1.  Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such
investor;
  
2.  Having a nominee director or officer to represent its interest in such
corporation;
3.  Appointing a representative or distributor domiciled in the Philippines
which transacts business in the representative's or distributor's own name
and account;
 
4.  The publication of a general advertisement through any print or broadcast
media;
5.  Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;
6.  Consignment by a foreign entity of equipment with a local company to be
used in the processing of products for export;
 
7.  Collecting information in the Philippines; and
8.  Performing services auxiliary to an existing isolated contract of sale which
are not on a continuing basis, such as installing in the Philippines machinery it
has manufactured or exported to the Philippines, servicing the same, training
domestic workers to operate it, and similar incidental services.
From the foregoing citations, the following can be concluded:
1. The dealership agreement between Steelcase and DISI had been described by the owner
himself as:
xxx basically a buy and sell arrangement whereby we would inform Steelcase
of the volume of the products needed for a particular project and Steelcase
would, in turn, give special quotations or discounts after considering the value
of the entire package. In making the bid of the project, we would then add out
profit margin over Steelcases prices. After the approval of the bid by the client,
we would thereafter place the orders to Steelcase. The latter, upon our payment,
With the foregoing considered, it has been sufficiently demonstrated that DISI was
would then ship the goods to the Philippines, with us shouldering the freight
an independent contractor which sold Steelcase products in its own name and for
charges and taxes.xx
its own account. As a result, Steelcase cannot be considered to be doing business in the
This clearly belies DISI’s assertion that it was a mere conduit through which
Steelcase conducted its business in the country. It can be concluded that DISI is
just an independent contractor distributing products of Steelcase, acting on its
own account, and for its own account.
2. The CA took into consideration the delivery by Steelcase of a letter to Phinma
informing the latter that the distribution rights for its products would be
established in the near future, and also its cancellation of orders placed by
Visteon. It should be pointed out that no sale was concluded as a result of these
communications. Had Steelcase indeed been doing business in the Philippines,
it would have readily accepted and serviced the orders from the
abovementioned Philippine companies.
3. For the point being raised by DISI which is the delivery and sale of Steelcase
products to a Philippine client by Modernform allegedly an agent of Steelcase,
basic is the rule in corporation law that a corporation has a separate and distinct
personality from its stockholders and from other corporations with which it
may be connected. Thus, despite the admission by Steelcase that it owns 25%
of Modernform, with the remaining 75% being owned and controlled by Thai
stockholders, it is grossly insufficient to justify piercing the veil of corporate
fiction and declare that Modernform acted as the alter ego of Steelcase to
enable it to improperly conduct business in the Philippines. The records are
bereft of any evidence which might lend even a hint of credence to DISI’s
assertions. As such, Steelcase cannot be deemed to have been doing business in
the Philippines through Modernform.
4. Finally, both the CA and DISI rely heavily on the Dealer Performance
Expectation required by Steelcase of its distributors to prove that DISI was not
functioning independently from Steelcase because the same imposed certain
conditions pertaining to business planning, organizational structure, operational
effectiveness and efficiency, and financial stability. It is actually logical to
expect that Steelcase, being one of the major manufacturers of office systems
furniture, would require its dealers to meet several conditions for the grant and
continuation of a distributorship agreement. The imposition of minimum
standards concerning sales, marketing, finance and operations is nothing more
than an exercise of sound business practice to increase sales and maximize
profits for the benefit of both Steelcase and its distributors. For as long as these
requirements do not impinge on a distributor’s independence, then there is
nothing wrong with placing reasonable expectations on them.
Philippines by its act of appointing a distributor as it falls under one of the exceptions
under R.A. No. 7042.
FINANCIAL REHABILITATION AND INSOLVENCY ACT OF 2010 1
I. GENERAL PROVISIONS
A. Declaration of Policy – Sec. 2:
1. To encourage debtors, both juridical and natural persons, and their creditors to
collectively and realistically resolve and adjust competing claims and property
rights.
2. To ensure a timely, fair, transparent, effective and efficient rehabilitation or
liquidation of debtors.
3. To ensure or maintain certainly and predictability in commercial affairs, preserve
and maximize the value of the assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable treatment of creditors who are
similarly situated.
4. When rehabilitation is not feasible, to facilitate a speedy and orderly liquidation of
these debtor's assets and the settlement of their obligations.
B. Nature of Proceedings – Sec. 3:
1. In Rem: The proceedings under this Act shall be in rem. Jurisdiction over all
persons affected by the proceedings shall be considered as acquired upon
publication of the notice of the commencement of the proceedings in any newspaper
of general circulation in the Philippines in the manner prescribed by the rules of
procedure to be promulgated by the Supreme Court.
2. Summary/Non-Adversarial: The proceedings shall be conducted in a summary
and non-adversarial manner consistent with the declared policies of this Act and in
accordance with the rules of procedure that the Supreme Court may promulgate.
C. Coverage:
1. Insolvent – Sec. 4(p): Insolvent shall refer to the financial condition of a debtor that
is generally unable to pay its or his liabilities as they fall due in the ordinary course
of business or has liabilities that are greater than its or his assets.
2. Debtor – Sec. 4(k): Debtor 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
1.
Exchange Commission (SEC), a corporation duly organized and existing under
Philippine laws, or an individual debtor who has become insolvent as defined
herein.
3. Exclusions – Sec. 5: The term debtor does not include banks, insurance companies,
pre-need companies, and national and local government agencies or units.
Provided, That government financial institutions other than banks and government-
owned or controlled corporations shall be covered by this Act, unless their specific
charter provides otherwise.
D. Designation of Courts and Promulgation of Procedural Rules – Sec. 6
E. Substantive and Procedural Consolidation – Sec. 7: Each juridical entity shall be
considered as a separate entity under the proceedings in this Act. Under these
proceedings, the assets and liabilities of a debtor may not be commingled or aggregated
with those of another, unless the latter is a related enterprise that is owned or controlled
directly or indirectly by the same interests: Provided, however, That the commingling or
aggregation of assets and liabilities of the debtor with those of a related enterprise may
only be allowed where:
1. there was commingling in fact of assets and liabilities of the debtor and the related
enterprise prior to the commencement of the proceedings;
2. the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;
3. the related enterprise voluntarily accedes to join the debtor as party petitioner and to
commingle its assets and liabilities with the debtor's; and
4. the consolidation of assets and liabilities of the debtor and the related enterprise is
beneficial to all concerned and promotes the objectives of rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other
entities affiliated with the debtor as parties pursuant to the rules of procedure as may be
promulgated by the Supreme Court.
F. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a
Partnership, or Directors and Officers – Sec. 10: Individual debtor, owner of a sole
proprietorship, partners in a partnership, or directors and officers of a debtor shall be
liable for double the value of the property sold, embezzled or disposed of or double the
amount of the transaction involved, whichever is higher to be recovered for benefit of
the debtor and the creditors, if they, having notice of the commencement of the
proceedings, or having reason to believe that proceedings are about to be commenced, or
in contemplation of the proceedings, willfully commit the following acts:
 1. Dispose or cause to be disposed of any property of the debtor other than in the
ordinary course of business or authorize or approve any transaction in fraud of
creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
2. Conceal or authorize or approve the concealment, from the creditors, or embezzles
or misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or
officer under this section. In this connection, in case of partnerships and corporations,
the court shall consider the amount of the shareholding or partnership or equity interest
of such partner, director or officer, the degree of control of such partner, director or
officer over the debtor, and the extent of the involvement of such partner, director or
debtor in the actual management of the operations of the debtor.
G. Authorization to Exchange Debt for Equity – Sec. 11
II. COURT-SUPERVISED REHABILITATION
A. Initiation of Proceedings
1. Voluntary Proceedings.
a. How initiated – Sec. 12: Petition to initiate voluntary proceedings filed by
debtor, approved by:
i. Sole Proprietorship – by the owner
ii. Partnership – by a majority of the partners
iii. Stock Corporation – by a majority vote of the board of directors and
authorized by the vote of the stockholders representing at least two-thirds
2.
(2/3) of the outstanding capital stock in a stockholder's meeting duly called
for the purpose,
iv. Non-Stock Corporation – by a majority vote of the board of trustees and
authorized by the vote of at least two-thirds (2/3) of the members, in a
member's meeting duly called for the purpose.
Note: A group of debtors may jointly file a petition for rehabilitation under
this Act when one or more of its members foresee the impossibility of meeting
debts when they respectively fall due, and the financial distress would likely
adversely affect the financial condition and/or operations of the other members
of the group and/or the participation of the other members of the group is
essential under the terms and conditions of the proposed Rehabilitation Plan.
b. Grounds: Insolvency of debtor and viability of rehabilitation
c. Contents of Petition – Sec. 12: The petition shall be verified to establish the
insolvency of the debtor and the viability of its rehabilitation, and include,
whether as an attachment or as part of the body of the petition, as a minimum
the following:
i. Identification of the debtor, its principal activities and its addresses;
ii. Statement of the fact of and the cause of the debtor's insolvency or
inability to pay its obligations as they become due;
iii. The specific relief sought pursuant to this Act;
iv. The grounds upon which the petition is based;
v. Other information that may be required under this Act depending on the
form of relief requested;
vi. Schedule of the debtor's debts and liabilities including a list of creditors
with their addresses, amounts of claims and collaterals, or securities, if
any;
vii. An inventory of all its assets including receivables and claims against third
parties;
viii. A Rehabilitation Plan;
ix. The names of at least three (3) nominees to the position of rehabilitation
receiver; and
x. Other documents required to be filed with the petition pursuant to this Act
and the rules of procedure as may be promulgated by the Supreme Court.
Involuntary Proceedings.
a. How initiated – Sec. 13: By petition for rehabilitation filed by Any creditor or
group of creditors with a claim of, or the aggregate of whose claims is, at least
One Million Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of
the subscribed capital stock or partners' contributions, whichever is higher,
b. Circumstances Necessary to Initiate Involuntary Proceedings – Sec. 13:
i. there is no genuine issue of fact on law on the claim/s of the petitioner/s,
and that the due and demandable payments thereon have not been made for
at least sixty (60) days or that the debtor has failed generally to meet its
liabilities as they fall due; or
ii. a creditor, other than the petitioner/s, has initiated foreclosure proceedings
against the debtor that will prevent the debtor from paying its debts as they
become due or will render it insolvent.
 c. Contents of Petition – Sec. 14: The petition shall be verified to establish the
substantial likelihood that the debtor may be rehabilitated, and include:
i. identification of the debtor its principal activities and its address;
ii. the circumstances sufficient to support a petition to initiate involuntary
rehabilitation proceedings under Section 13 of this Act;
iii. the specific relief sought under this Act;
iv. a Rehabilitation Plan;
v. the names of at least three (3) nominees to the position of rehabilitation
receiver;
vi. other information that may be required under this Act depending on the
form of relief requested; and
vii. other documents required to be filed with the petition pursuant to this Act
and the rules of procedure as may be promulgated by the Supreme Court.
B. Action on the Petition and Commencement of Proceedings.
1. Action on the Petition. – Sec. 15: Within 5 working days from filing of petition,
court shall
a. If petition for rehabilitation sufficient in form and substance, court shall issue
Commencement Order; or
b. If petition deficient in form or substance, court may, in its discretion, give the
petitioner/s a reasonable period of time within which to amend or supplement
the petition, or to submit such documents as may be necessary or proper to put
the petition in proper order.
2. Commencement of Proceedings and Issuance of a Commencement Order –
Sec. 16: The rehabilitation proceedings shall commence upon the issuance of the
Commencement Order (See Sec. 16 for contents) which shall, among others,
appoint rehabilitation receiver, and include a Stay or Suspension Order which
shall:
a. suspend all actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor;
b. suspend all actions to enforce any judgment, attachment or other provisional
remedies against the debtor;
c. prohibit the debtor from selling, encumbering, transferring or disposing in any
manner any of its properties except in the ordinary course of business; and
d. prohibit the debtor from making any payment of its liabilities outstanding as of
the commencement date except as may be provided herein.
3. Effects of the Commencement Order – Sec. 17: Unless otherwise provided for in
this Act, the court's issuance of a Commencement Order shall, in addition to the
effects of a Stay or Suspension Order described in Section 16 hereof:
a. vest the rehabilitation receiver with all the powers and functions provided for this
Act, such as the right to review and obtain records to which the debtor's
management and directors have access, including bank accounts or whatever
nature of the debtor subject to the approval by the court of the performance
bond filed by the rehabilitation receiver;
b. prohibit or otherwise serve as the legal basis rendering null and void the results of
any extrajudicial activity or process to seize property, sell encumbered
property, or otherwise attempt to collection or enforce a claim against the
debtor after commencement date unless otherwise allowed in this Act, subject
to the provisions of Section 50 hereof;
c. serve as the legal basis for rendering null and void any setoff after the
commencement date of any debt owed to the debtor by any of the debtor's
creditors;
d. serve as the legal basis for rendering null and void the perfection of any lien
against the debtor's property after the commencement date; and
e. consolidate the resolution of all legal proceedings by and against the debtor to
the court Provided. However, That the court may allow the continuation of
cases on other courts where the debtor had initiated the suit.
Note: Attempts to seek legal of other resource against the debtor outside these
proceedings shall be sufficient to support a finding of indirect contempt of court.
4. Exceptions to the Stay or Suspension Order – Sec. 18: The Stay or Suspension
Order shall not apply:
a. to cases already pending appeal in the Supreme Court as of commencement
date Provided, That any final and executory judgment arising from such appeal
shall be referred to the court for appropriate action;
b. subject to the discretion of the court, to cases pending or filed at a specialized
court or quasi-judicial agency which, upon determination by the court is
capable of resolving the claim more quickly, fairly and efficiently than the
court: Provided, That any final and executory judgment of such court or agency
shall be referred to the court and shall be treated as a non-disputed claim;
c. to the enforcement of claims against sureties and other persons solidarily liable
with the debtor, and third party or accommodation mortgagors as well as
 issuers of letters of credit, unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation of the debtor as
determined by the court upon recommendation by the rehabilitation receiver;
d. to any form of action of customers or clients of a securities market participant
to recover or otherwise claim moneys and securities entrusted to the latter in
the ordinary course of the latter's business as well as any action of such
securities market participant or the appropriate regulatory agency or self-
9.
regulatory organization to pay or settle such claims or liabilities;
e. to the actions of a licensed broker or dealer to sell pledged securities of a debtor
pursuant to a securities pledge or margin agreement for the settlement of
securities transactions in accordance with the provisions of the Securities
Regulation Code and its implementing rules and regulations;
10. Report of the Rehabilitation Receiver – Sec. 24: Within 40 days from the initial
f. the clearing and settlement of financial transactions through the facilities of a
clearing agency or similar entities duly authorized, registered and/or recognized
by the appropriate regulatory agency like the Bangko Sentral ng Pilipinas
(BSP) and the SEC as well as any form of actions of such agencies or entities to
11. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings –
reimburse themselves for any transactions settled for the debtor; and
g. any criminal action against individual debtor or owner, partner, director or
officer of a debtor shall not be affected by any proceeding commend under this
Act.
5. Waiver of taxes and Fees Due to the National Government and to Local
Government Units (LGUs) – Sec. 19
6. Application of Stay or Suspension Order to Government Financial Institutions.
– Sec. 20
7. Effectivity and Duration of Commencement Order – Sec. 21: Unless lifted by
the court, the Commencement Order shall be for the effective for the duration of the
rehabilitation proceedings for as long as there is a substantial likelihood that the
debtor will be successfully rehabilitated. See Sec. 21 for minimum requirements to
determining whether there is substantial likelihood for the debtor to be successfully
rehabilitated.
8. Action at the Initial Hearing – Sec. 22: At the initial hearing, the court shall:
a. determine the creditors who have made timely and proper filing of their notice
of claims;
b. hear and determine any objection to the qualifications of the appointment of the
rehabilitation receiver and, if necessary appoint a new one in accordance with
this Act;
c. direct the creditors to comment on the petition and the Rehabilitation Plan, and
to submit the same to the court and to the rehabilitation receiver within a period
of not more than twenty (20) days; and
d. direct the rehabilitation receiver to evaluate the financial condition of the
debtor and to prepare and submit to the court within forty (40) days from initial
hearing the report provided in Section 24 hereof.
Effect of Failure to File Notice of Claim – Sec. 23: A creditor whose claim is not
listed in the schedule of debts and liabilities and who fails to file a notice of claim in
accordance with the Commencement Order but subsequently files a belated claim
shall not be entitled to participate in the rehabilitation proceedings but shall be
entitled to receive distributions arising therefrom.
hearing and with or without the comments of the creditors or any of them, the
rehabilitation receiver shall submit a report to the court stating his preliminary
findings and recommendations.
Sec. 25: Within 10 days from receipt of the report of the rehabilitation receiver the
court may:
a. give due course to the petition upon a finding that:
i. the debtor is insolvent; and
ii. there is a substantial likelihood for the debtor to be successfully
rehabilitated;
b. dismiss the petition upon a finding that:
i. debtor is not insolvent;
ii. the petition is a sham filing intended only to delay the enforcement of the
rights of the creditor/s or of any group of creditors;
iii. the petition, the Rehabilitation Plan and the attachments thereto contain
any materially false or misleading statements; or
iv. the debtor has committed acts of misrepresentation or in fraud of its
creditor/s or a group of creditors;
c. convert the proceedings into one for the liquidation of the debtor upon a finding
that:
i. the debtor is insolvent; and
 ii. there is no substantial likelihood for the debtor to be successfully
rehabilitated as determined in accordance with the rules to be promulgated
by the Supreme Court.
11. Petition Given Due Course – Sec. 26: If the petition is given due course, the court
shall direct the rehabilitation receiver to review, revise and/or recommend action on
the Rehabilitation Plan and submit the same or a new one to the court within a
period of not more than 90 days.
Note: The court may refer any dispute relating to the Rehabilitation Plan or the
rehabilitation proceedings pending before it to arbitration or other modes of dispute
resolution, as provided for under Republic Act No. 9285, Or the Alternative Dispute
Resolution Act of 2004, should it determine that such mode will resolve the dispute
more quickly, fairly and efficiently than the court.
12. Dismissal of Petition – Sec. 27: If the petition is dismissed pursuant to paragraph
(b) of Sec. 25, then the court may, in its discretion, order the petitioner to pay
damages to any creditor or to the debtor, as the case may be, who may have been
injured by the filing of the petition, to the extent of any such injury.
C. The Rehabilitation Receiver, Management
Committee and Creditors' Committee
1. Rehabilitation Receiver
a. Who May Serve – Sec. 28: Any qualified natural or juridical person may serve
as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a
juridical entity, it must designate a natural person/s who possess/es all the
qualifications and none of the disqualification’s as its representative, it being
understood that the juridical entity and the representative/s are solidarily liable
for all obligations and responsibilities of the rehabilitation receiver.
b. Qualifications – Sec. 29:
i. Philippine citizen or resident for 6 months immediately preceding his
nomination
ii, Of good moral character and with acknowledged integrity, impartiality and
independence;
iii. Has the requisite knowledge of insolvency and other relevant commercial
laws, rules and procedures, as well as the relevant training and/or
experience that may be necessary to enable him to properly discharge the
duties and obligations of a rehabilitation receiver; and
iv. Has no conflict of interest: Provided, That such conflict of interest may be
waived, expressly or impliedly, by a party who may be prejudiced thereby.
v. Other qualifications and disqualification’s of the rehabilitation receiver
shall be set forth in procedural rules, taking into consideration the nature of
the business of the debtor and the need to protect the interest of all
stakeholders concerned.
c. Initial Appointment – Sec. 30
d. Powers, Duties and Responsibilities – Sec. 31: Deemed an officer of the court
with the principal duty of preserving and maximizing the value of the assets of
the debtor during the rehabilitation proceedings, determining the viability of the
rehabilitation of the debtor, preparing and recommending a Rehabilitation Plan
to the court, and implementing the approved Rehabilitation Plan. See Sec. 31
for enumeration.
e. Removal – Sec. 32: The rehabilitation receiver may be removed at any time by
the court either motu proprio or upon motion by any creditor/s holding more
than fifty percent (50%) of the total obligations of the debtor, on such grounds
as the rules of procedure may provide which shall include, but are not limited
to, the following:
i. Incompetence, gross negligence, failure to perform or failure to exercise
the proper degree of care in the performance of his duties and powers;
ii. Lack of a particular or specialized competency required by the specific
case;
iii. Illegal acts or conduct in the performance of his duties and powers;
iv. Lack of qualification or presence of any disqualification;
v. Conflict of interest that arises after his appointment; and
vi. Manifest lack of independence that is detrimental to the general body of
the stakeholders.
f. Compensation and Terms of Service – Sec. 33: reasonable fees and expenses
from the debtor according to the terms approved by the court after notice and
hearing. Such costs shall be considered administrative expenses.
g. Oath and Bond of the Rehabilitation Receiver – Sec. 34: required prior to
entering upon his powers, duties and responsibilities
h. Vacancy – Sec. 35: court shall direct the debtor and the creditors to submit the
name/s of their nominee/s to the position, and court shall appoint any qualified
nominee or any other qualified person
i. Displacement of Existing Management by the Rehabilitation Receiver or
Management Committee – Sec. 36: Upon motion of any interested party, the
court may appoint and direct the rehabilitation receiver to assume the powers of
 management of the debtor, or appoint a management committee that will
undertake the management of the debtor. upon clear and convincing evidence
of any of the following circumstances:
i. Actual or imminent danger of dissipation, loss, wastage or destruction of
the debtor’s assets or other properties;
ii. Paralyzation of the business operations of the debtor; or
iii. Gross mismanagement of the debtor. or fraud or other wrongful conduct on
the part of, or gross or willful violation of this Act by. existing
management of the debtor Or the owner, partner, director, officer or
representative/s in management of the debtor.
2. Management Committee
a. Role of the Management Committee. – Sec. 37: When appointed pursuant to
Sec. 36, the management committee shall take the place of the management and
the governing body of the debtor and assume their rights and responsibilities.
Specifics to be provided by procedural rules.
b. Qualifications of Members of the Management Committee. – Sec. 38:
Specifics to be provided by procedural rules, taking into consideration the
nature of the business of the debtor and the need to protect the interest of all
stakeholders concerned.
3. Common Provisions
a. Employment of Professionals – Sec. 39: allowed upon approval of the court,
and after notice and hearing.
b. Conflict of Interest – Sec. 40: No person may be appointed as a rehabilitation
receiver, member of a management committee, or be employed by the
rehabilitation receiver or the management committee if he has a conflict of
interest. An individual shall be deemed to have a conflict of interest if he is so
situated as to be materially influenced in the exercise of his judgment for or
against any party to the proceedings. See Sec. 40 for enumeration. Conflict of
interest must be disclosed.
c. Immunity – Sec. 41: for act done or omitted to be done by them in good faith
in connection with the exercise of their powers and functions under FRIA or
other actions duly approved by the court.
4. Creditors’ Committee
a. Constitution – Sec. 42: After the creditors' meeting called pursuant to Sec. 63,
the creditors belonging to a class may formally organize a committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors'
committee composed of a representative from each class of creditors (secured,
unsecured, trade creditors and suppliers, employees).
b. Role – Sec. 43: To assist the rehabilitation receiver in communicating with the
creditors and shall be the primary liaison between the rehabilitation receiver
and the creditors. The creditors' committee cannot exercise or waive any right
or give any consent on behalf of any creditor unless specifically authorized in
writing by such creditor. The creditors' committee may be authorized by the
court or by the rehabilitation receiver to perform such other tasks and functions
as may be defined by the procedural rules in order to facilitate the rehabilitation
process.
D. Determination of Claims
1. Definition of Claim – Sec. 4(c): Claim shall refer to all claims or demands of
whatever nature or character against the debtor or its property, whether for money
or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured,
disputed or undisputed, including, but not limited to; (1) all claims of the
government, whether national or local, including taxes, tariffs and customs duties;
and (2) claims against directors and officers of the debtor arising from acts done in
the discharge of their functions falling within the scope of their authority: Provided,
That, this inclusion does not prohibit the creditors or third parties from filing cases
against the directors and officers acting in their personal capacities.
2. Registry of Claims – Sec. 44: Within twenty (20) days from his assumption into
office, the rehabilitation receiver shall establish a preliminary registry of claims.
The rehabilitation receiver shall make the registry available for public inspection
and provide publication notice to the debtor, creditors and stakeholders on where
and when they may inspect it. All claims included in the registry of claims must be
duly supported by sufficient evidence.
3. Opposition or Challenge of Claims – Sec. 45: Within thirty (30) days from the
expiration of the period stated in the immediately preceding section, the debtor,
creditors, stakeholders and other interested parties may submit a challenge to
claim/s to the court, serving a certified copy on the rehabilitation receiver and the
creditor holding the challenged claim/so Upon the expiration of the thirty (30)-day
period, the rehabilitation receiver shall submit to the court the registry of claims
which shall include undisputed claims that have not been subject to challenge.
3. Appeal – Sec. 46: Any decision of the rehabilitation receiver regarding a claim may
be appealed to the court.
E. Governance
 1. Management – Sec. 47: Unless otherwise provided herein, the management of the
juridical debtor shall remain with the existing management subject to the applicable
law/s and agreement/s, if any, on the election or appointment of directors, managers
Or managing partner. However, all disbursements, payments or sale, disposal,
assignment, transfer or encumbrance of property , or any other act affecting title or
interest in property, shall be subject to the approval of the rehabilitation receiver
and/or the court, as provided in the following subchapter.
F. Use, Preservation and Disposal of Assets and Treatment
of Assets and Claims after Commencement Date.
1. Use or Disposition of Assets – Sec. 48: Except as otherwise provided herein, no
funds or property of the debtor shall he used or disposed of except in the ordinary
course of business of the debtor, or unless necessary to finance the administrative
expenses of the rehabilitation proceedings.
2. Sale of Assets – Sec. 49: The court, upon application of the rehabilitation receiver,
may authorize the sale of unencumbered property of the debtor outside the ordinary
course of business upon a showing that the property, by its nature or because of
other circumstance, is perishable, costly to maintain, susceptible to devaluation or
otherwise in jeopardy.
3. Sale or Disposal of Encumbered Property of the Debtor and Assets of Third
Parties Held by Debtor – Sec. 50
4. Assets of Debtor Held by Third Parties – Sec. 51
5. Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets – Sec.
52: The court may rescind or declare as null and void any sale, payment, transfer or
conveyance of the debtor's unencumbered property or any encumbering thereof by
the debtor or its agents or representatives after the commencement date which are
not in the ordinary course of the business of the debtor: Provided, however, That the
unencumbered property may be sold, encumbered or otherwise disposed of upon
order of the court after notice and hearing:
a. if such are in the interest of administering the debtor and facilitating the
preparation and implementation of a Rehabilitation Plan;
b. in order to provide a substitute lien, mortgage or pledge of property under this
Act;
c. for payments made to meet administrative expenses as they arise;
d. for payments to victims of quasi delicts upon a showing that the claim is valid
and the debtor has insurance to reimburse the debtor for the payments made;
e. for payments made to repurchase property of the debtor that is auctioned off in
a judicial or extrajudicial sale under. This Act; or
f. for payments made to reclaim property of the debtor held pursuant to a
possessory lien.
6. Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value.
– Sec. 53
7. Post-commencement Interest – Sec. 54: The rate and term of interest, if any, on
secured and unsecured claims shall be determined and provided for in the approved
Rehabilitation Plan.
8. Post-commencement Loans and Obligations – Sec. 55: With the approval of the
court upon the recommendation of the rehabilitation receiver, the debtor, in order to
enhance its rehabilitation. may:
a. enter into credit arrangements; or
b. enter into credit arrangements, secured by mortgages of its unencumbered
property or secondary mortgages of encumbered property with the approval of
senior secured parties with regard to the encumbered property; or
c. incur other obligations as may be essential for its rehabilitation.
Note: The payment of the foregoing obligations shall be considered administrative
expenses under this Act.
9. Treatment of Employees, Claims – Sec. 56: Compensation of employees required
to carry on the business shall be considered an administrative expense. Claims of
separation pay for months worked prior to the commencement date shall be
considered a pre- ommencement claim. Claims for salary and separation pay for
work performed after the commencement date shall be an administrative expense.
10. Treatment of Contracts – Sec. 57: Unless cancelled by virtue of a final judgment
of a court of competent jurisdiction issued prior to the issuance of the
Commencement Order, or at anytime thereafter by the court before which the
rehabilitation proceedings are pending, all valid and subsisting contracts of the
debtor with creditors and other third parties as at the commencement date shall
continue in force: Provided, That within 90 days following the commencement of
proceedings, the debtor, with the consent of the rehabilitation receiver, shall notify
each contractual counter-party of whether it is confirming the particular contract.
Contractual obligations of the debtor arising or performed during this period, and
afterwards for confirmed contracts, shall be considered administrative expenses.
Contracts not confirmed within the required deadline shall be considered
terminated. Claims for actual damages, if any, arising as a result of the election to
terminate a contract shall be considered a pre-commencement claim against the
 debtor. Nothing contained herein shall prevent the cancellation or termination of
any contract of the debtor for any ground provided by law.
G. Avoidance Proceedings
1. Rescission or Nullity of Certain Pre-commencement Transactions – Sec. 58:
Any transaction occurring prior to commencement date entered into by the debtor or
involving its funds or assets may be rescinded or declared null and void on the
ground that the same was executed with intent to defraud a creditor or creditors or
which constitute undue preference of creditors. See Sec. 58 for enumeration of
disputable presumption of such design.
Note: Provided, however, That nothing in this section shall prevent the court from
rescinding or declaring as null and void a transaction on other grounds provided by
relevant legislation and jurisprudence: Provided, further, That the provisions of the
Civil Code on rescission shall in any case apply to these transactions.
2. Actions for Rescission or Nullity – Sec. 59
H. Treatment of Secured Creditors
1. No Diminution of Secured Creditor Rights – Sec. 60
2. Lack of Adequate Protection – Sec. 61: The court, on motion or motu proprio,
may terminate, modify or set conditions for the continuance of suspension of
payment, or relieve a claim from the coverage thereof, upon showing that: (a) a
creditor does not have adequate protection over property securing its claim; or(b)
the value of a claim secured by a lien on property which is not necessary for
rehabilitation of the debtor exceeds the fair market value of the said property. See
Sec. 61 for enumeration of factors.
I. Administration of Proceedings.
1. Contents of a Rehabilitation Plan – Sec. 62
2. Consultation with Debtor and Creditors – Sec. 63
3. Creditor Approval of Rehabilitation Plan – Sec. 64
4. Submission of Rehabilitation Plan to the Court. – Sec. 65
5. Filing of Objections to Rehabilitation Plan – Sec. 66
6. Hearing on the Objections – Sec. 67
7. Confirmation of the Rehabilitation Plan – Sec. 68
8. Effect of Confirmation of the Rehabilitation Plan – Sec. 69: The confirmation of
the Rehabilitation Plan by the court shall result in the following:
a. The Rehabilitation Plan and its provisions shall be binding upon the debtor and
all persons who may be affected by . it, including the creditors, whether or not
such persons have participated in the proceedings or opposed the Rehabilitation
Plan or whether or not their claims have been scheduled;
b. The debtor shall comply with the provisions of the Rehabilitation Plan and shall
take all actions necessary to carry out the Plan;
c. Payments shall be made to the creditors in accordance with the provisions of
the Rehabilitation Plan;
d. Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan;
e. Any compromises on amounts or rescheduling of timing of payments by the
debtor shall be binding on creditors regardless of whether or not the Plan is
successfully implement; and
f. Claims arising after approval of the Plan that are otherwise not treated by the
Plan are not subject to any Suspension Order.
9. Liability of General Partners of a Partnership for Unpaid Balances Under an
Approved Plan – Sec. 70
10. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced –
Sec. 71
11. Period for Confirmation of the Rehabilitation Plan – Sec. 72: The court shall
have a maximum period of one (1) year from the date of the filing of the petition to
confirm a Rehabilitation Plan.
Note: If no Rehabilitation Plan is confirmed within the said period, the proceedings
may upon motion or motu propio, be converted into one for the liquidation of the
debtor .
12. Accounting Discharge of Rehabilitation Receiver – Sec. 73
J. Termination of Proceedings
1. Termination of Proceedings – Sec. 74: The rehabilitation proceedings under
Chapter II shall, upon motion by any stakeholder or the rehabilitation receiver be
terminated by order of the court either declaring a successful implementation of the
Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
 (b) The debtor fails to submit a Rehabilitation Plan;
A. Initiation of Proceedings – Sec. 76
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial
likelihood that the debtor can be rehabilitated within a reasonable period; 1. Who May Initiate: An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for the approval of a pre-
(d) The Rehabilitation Plan or its amendment is approved by the court but in the
negotiated Rehabilitation Plan which has been endorsed or approved by:
implementation thereof, the debtor fails to perform its obligations thereunder or
there is a failure to realize the objectives, targets or goals set forth therein, a. creditors holding at least 2/3 of the total liabilities of the debtor,
including the timelines and conditions for the settlement of the obligations due
b. including secured creditors holding more than 50% of the total secured claims
to the creditors and other claimants;
of the debtor and
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or
c. unsecured creditors holding more than 50% of the total unsecured claims of the
its amendment; and
debtor.
(f) Other analogous circumstances as may be defined by the rules of procedure.
2. Contents of Petition: The petition shall include as a minimum:
2. Action of Court upon Termination – Sec. 74: Upon a breach of, or upon a failure
a. a schedule of the debtor's debts and liabilities;
of the Rehabilitation Plan the court, upon motion by an affected party may:
b. an inventory of the debtor's assets;
i. Issue an order directing that the breach be cured within a specified period of
time, falling which the proceedings may be converted to a liquidation; c. the pre-negotiated Rehabilitation Plan, including the names of at least 3
qualified nominees for rehabilitation receiver; and
ii. Issue an order converting the proceedings to a liquidation;
d. a summary of disputed claims against the debtor and a report on the
iii. Allow the debtor or rehabilitation receiver to submit amendments to the
provisioning of funds to account for appropriate payments should any such
Rehabilitation Plan, the approval of which shall be governed by the same
claims be ruled valid or their amounts adjusted.
requirements for the approval of a Rehabilitation Plan under this subchapter;
B. Issuance of Order – Sec. 77: Within 5 working days, and after determination that the
iv. Issue any other order to remedy the breach consistent with the present
petition is sufficient in form and substance, the court shall issue an Order which shall:
regulation, other applicable law and the best interests of the creditors; or
1. identify the debtor, its principal business of activity/ies and its principal place of
v. Enforce the applicable provisions of the Rehabilitation Plan through a writ of
business;
execution.
2. declare that the debtor is under rehabilitation;
3. Effects of Termination – Sec. 75: Termination of the proceedings shall result in
the following: 3. summarize the ground./s for the filling of the petition;
(a) The discharge of the rehabilitation receiver subject to his submission of a final 4. direct the publication of the Order in a newspaper of general circulation in the
accounting; and Philippines once a week for at least 2 consecutive weeks, with the first publication
to be made within 7 days from the time of its issuance;
(b) The lifting of the Stay Order and any other court order holding in abeyance any
action for the enforcement of a claim against the debtor. 5. direct the service by personal delivery of a copy of the petition on each creditor who
is not a petitioner holding at least 10% of the total liabilities of the debtor, as
Provided, however, That if the termination of proceedings is due to failure of
determined in the schedule attached to the petition, within 3 days;
rehabilitation or dismissal of the petition for reasons other than technical grounds,
the proceedings shall be immediately converted to liquidation as provided in 6. state that copies of the petition and the Rehabilitation Plan are available for
Section 92 of this Act. examination and copying by any interested party;

III. PRE-NEGOTIATED REHABILITATION

 7. state that creditors and other interested parties opposing the petition or
Rehabilitation Plan may file their objections or comments thereto within a period of
not later than 20 days from the second publication of the Order;
8. appoint a rehabilitation receiver, if provided for in the Plan; and
9. include a Suspension or Stay Order as described in this Act.
IV. OUT-OF-COURT OR INFORMAL RESTRUCTURING
C. Approval of the Plan – Sec. 78: Within 10 days from the date of the second publication
of the Order, the court shall approve the Rehabilitation Plan unless a creditor or other
interested party submits an objection to it in accordance with the next succeeding
section.
D. Objection to the Petition or Rehabilitation Plan – Sec. 79: Any creditor or other
interested party may submit to the court a verified objection to the petition or the
Rehabilitation Plan not later than 8 days from the date of the second publication of the
Order mentioned in Section 77. The objections shall be limited to the following:
1. The allegations in the petition or the Rehabilitation Plan or the attachments thereto
are materially false or misleading;
2. The majority of any class of creditors do not in fact support the Rehabilitation Plan;
3. The Rehabilitation Plan fails to accurately account for a claim against the debtor
and the claim in not categorically declared as a contested claim; or
4. The support of the creditors, or any of them was induced by fraud.
Note: Copies of any objection to the petition of the Rehabilitation Plan shall be served
on the debtor, the rehabilitation receiver (if applicable), the secured creditor with the
largest claim and who supports the Rehabilitation Plan, and the unsecured creditor with
the largest claim and who supports the Rehabilitation Plan.
E. Hearing on the Objections – Sec. 80: After receipt of an objection, the court shall set
the same for hearing. The date of the hearing shall be no earlier than 20 days and no
later than 30 days from the date of the second publication of the Order mentioned in
Section 77.
1. If the court finds merit in the objection – it shall direct the debtor, when feasible to
cure the detect within a reasonable period.
2. If the court determines that the debtor or creditors supporting the Rehabilitation
Plan acted in bad faith, or that the objection is non-curable – the court may order the
conversion of the proceedings into liquidation. A finding by the court that the
objection has no substantial merit, or that the same has been cured shall be deemed
an approval of the Rehabilitation Plan.
F. Period for Approval of Rehabilitation Plan – Sec. 81: The court shall have a
maximum period of 120 days from the date of the filing of the petition to approve the
Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation
Plan shall be deemed approved.
G. Effect of Approval – Sec. 82: Same legal effect as confirmation of a Plan under
Chapter II.
AGREEMENTS OR REHABILITATION PLANS
A. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans;
Minimum Requirements – Sec. 83 and 84: consistent with FRIA if it meets the
following minimum requirements:
1. The debtor must agree to the out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan;
2. It must be approved by creditors representing at least 67% of the secured
obligations of the debtor;
3. It must be approved by creditors representing at least 75% of the unsecured
obligations of the debtor; and
4. It must be approved by creditors holding at least 85% of the total liabilities, secured
and unsecured, of the debtor.
B. Standstill Period – Sec. 85: A standstill period that may be agreed upon by the parties
pending negotiation and finalization of the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan contemplated herein shall be
effective and enforceable not only against the contracting parties but also against the
other creditors: Provided, That:
1. such agreement is approved by creditors representing more than 50% of the total
liabilities of the debtor;
2. notice thereof is publishing in a newspaper of general circulation in the Philippines
once a week for 2 consecutive weeks; and
3. the standstill period does not exceed 120 days from the date of effectivity.
Note: The notice must invite creditors to participate in the negotiation for out-of-court
rehabilitation or restructuring agreement and notify them that said agreement will be
binding on all creditors if the required majority votes prescribed in Section 84 are met.
C. Cram Down Effect – Sec. 86: A restructuring/workout agreement or Rehabilitation
Plan that is approved pursuant to an informal workout framework referred to in this
chapter shall have the same legal effect as confirmation of a Plan under Section 69. The
notice of the Rehabilitation Plan or restructuring agreement or Plan shall be published
once a week for at least 3 consecutive weeks in a newspaper of general circulation in the
 Philippines. The Rehabilitation Plan or restructuring agreement shall take effect upon
the lapse of 15 days from the date of the last publication of the notice thereof.
D. Amendment or Modification – Sec. 87: Any amendment of an out-of-court
restructuring/workout agreement or Rehabilitation Plan must be made in accordance
with the terms of the agreement and with due notice on all creditors.
E. Effect of Court Action or Other Proceedings – Sec. 88: Any court action or other
proceedings arising from, or relating to, the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan shall not stay its
implementation, unless the relevant party is able to secure a temporary restraining order
or injunctive relief from the Court of Appeals.
F. Court Assistance – Sec. 89: The insolvent debtor and/or creditor may seek court
assistance for the execution or implementation of a Rehabilitation Plan under this
Chapter, under such rules of procedure as may be promulgated by the Supreme Court.
V. LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
A. Voluntary Liquidation – Sec. 90
1. Petition for Liquidation: An insolvent debtor may apply for liquidation by filing a
petition for liquidation with the court. The petition shall be verified, shall establish
the insolvency of the debtor and shall contain:
a. a schedule of the debtor's debts and liabilities including a list of creditors with
their addresses, amounts of claims and collaterals, or securities, if any;
b. an inventory of all its assets including receivables and claims against third
parties; and
c. the names of at least three (3) nominees to the position of liquidator.
2. Motion for Liquidation: At any time during the pendency of court-supervised or
pre-negotiated rehabilitation proceedings, the debtor may also initiate liquidation
proceedings by filing a motion in the same court where the rehabilitation
proceedings are pending to convert the rehabilitation proceedings into liquidation
proceedings. The motion:
a. shall be verified;
b. shall contain or set forth the same matters required in the preceding paragraph;
and
c. shall state that the debtor is seeking immediate dissolution and termination of
B. Involuntary Liquidation – Sec. 91
its corporate existence.
3. Action on Petition or Motion: If the petition or the motion is sufficient in form
and substance, the court shall issue a Liquidation Order mentioned in Section 112.
B. Involuntary Liquidation – Sec. 91
1. Petition for Liquidation: Three (3) or more creditors the aggregate of whose
claims is at least either One million pesos or at least 25% of the subscribed capital
stock or partner's contributions of the debtor, whichever is higher, may apply for
and seek the liquidation of an insolvent debtor by filing a petition for liquidation of
the debtor with the court. The petition shall show that:
a. there is no genuine issue of fact or law on the claims/s of the petitioner/s, and
that the due and demandable payments thereon have not been made for at least
180 days or that the debtor has failed generally to meet its liabilities as they fall
due; and
b. there is no substantial likelihood that the debtor may be rehabilitated.
2. Motion for Liquidation: At any time during the pendency of or after a
rehabilitation court-supervised or pre-negotiated rehabilitation proceedings, three
(3) or more creditors whose claims is at least either One million pesos or at least
25% of the subscribed capital or partner's contributions of the debtor, whichever is
higher, may also initiate liquidation proceedings by filing a motion in the same
court where the rehabilitation proceedings are pending to convert the rehabilitation
proceedings into liquidation proceedings. The motion:
a. shall be verified;
b. shall contain or set forth the same matters required in the preceding paragraph;
and
c. state that the movants are seeking the immediate liquidation of the debtor.
3. Action on Petition and Motion: If the petition or motion is sufficient in form and
substance, the court shall issue an Order:
a. directing the publication of the petition or motion in a newspaper of general
circulation once a week for two (2) consecutive weeks; and
b. directing the debtor and all creditors who are not the petitioners to file their
comment on the petition or motion within fifteen (15) days from the date of last
publication.
If, after considering the comments filed, the court determines that the petition or
motion is meritorious, it shall issue the Liquidation Order mentioned in Section 112.
1. Petition for Liquidation: Three (3) or more creditors the aggregate of whose
claims is at least either One million pesos or at least 25% of the subscribed capital
stock or partner's contributions of the debtor, whichever is higher, may apply for
 and seek the liquidation of an insolvent debtor by filing a petition for liquidation of 2. Action on the Petition – Sec. 95: If the court finds the petition sufficient in form
the debtor with the court. The petition shall show that: and substance, it shall, within five 5 working days from the filing of the petition,
issue an Order:
a. there is no genuine issue of fact or law on the claims/s of the petitioner/s, and
that the due and demandable payments thereon have not been made for at least a. calling a meeting of all the creditors named in the schedule of debts and
180 days or that the debtor has failed generally to meet its liabilities as they fall liabilities at such time not less than 15 days nor more than 40 days from the
due; and date of such Order and designating the date, time and place of the meeting;
b. there is no substantial likelihood that the debtor may be rehabilitated. b. directing such creditors to prepare and present written evidence of their claims
before the scheduled creditors' meeting;
C. Conversion by the Court into Liquidation Proceedings – Sec. 92:
c. directing the publication of the said order in a newspaper of general circulation
1. During the pendency of court-supervised or pre-negotiated rehabilitation published in the province or city in which the petition is filed once a week for 2
proceedings, the court may order the conversion of rehabilitation proceedings to consecutive weeks, with the first publication to be made within 7 days from the
liquidation proceedings pursuant to time of the issuance of the Order;
a. Section 25(c); d. directing the clerk of court to cause the sending of a copy of the Order by
registered mail, postage prepaid, to all creditors named in the schedule of debts
b. Section 72;
and liabilities;
c. Section 75; or
e. forbidding the individual debtor from selling, transferring, encumbering or
d Section 90; or disposing in any manner of his property, except those used in the ordinary
operations of commerce or of industry in which the petitioning individual
2. at any other time upon the recommendation of the rehabilitation receiver that the
debtor is engaged so long as the proceedings relative to the suspension of
rehabilitation of the debtor is not feasible.
payments are pending;
Thereupon, the court shall issue the Liquidation Order mentioned in Section 112.
f. prohibiting the individual debtor from making any payment outside of the
necessary or legitimate expenses of his business or industry, so long as the
D. Powers of the SEC – Sec. 93: The provisions of this chapter shall not affect the
proceedings relative to the suspension of payments are pending; and
regulatory powers of the SEC under Section 6 of PD No. 902-A, as amended, with
respect to any dissolution and liquidation proceeding initiated and heard before it. g. appointing a commissioner to preside over the creditors' meeting.
3. Actions Suspended – Sec. 96: Upon motion filed by the individual debtor, the
VI. INSOLVENCY OF INDIVIDUAL DEBTORS
court may issue an order suspending any pending execution against the individual
debtor. Provided, That properties held as security by secured creditors shall not be
A. Suspension of Payments.
the subject of such suspension order. The suspension order shall lapse when 3
1. Petition – Sec. 94: An individual debtor who, possessing sufficient property to months shall have passed without the proposed agreement being accepted by the
cover all his debts but foreseeing the impossibility of meeting them when they creditors or as soon as such agreement is denied.
respectively fall due, may file a verified petition that he be declared in the state of
Note: No creditor shall sue or institute proceedings to collect his claim from the
suspension of payments by the court of the province or city in which he has resides
debtor from the time of the filing of the petition for suspension of payments and for
for 6 months prior to the filing of his petition. He shall attach to his petition, as a
as long as proceedings remain pending except:
minimum:
a. those creditors having claims for personal labor, maintenance, expense of last
a. a schedule of debts and liabilities;
illness and funeral of the wife or children of the debtor incurred in the 60 days
b. an inventory of assets; and immediately prior to the filing of the petition; and
c. a proposed agreement with his creditors. b. secured creditors.
4. Creditors’ Meeting – Sec. 97:
a. Quorum – The presence of creditors holding claims amounting to at least 3/5
of the liabilities shall be necessary for holding a meeting.
b. Who Presides – The commissioner appointed by the court shall preside over
the meeting and the clerk of court shall act as the secretary thereof
c. Voting: The creditors and individual debtor shall discuss the propositions in
the proposed agreement and put them to a vote. To form a majority, it is
necessary:
i. that 2/3 of the creditors voting unite upon the same proposition; and
ii. that the claims represented by said majority vote amount to at least 3/5 of
the total liabilities of the debtor mentioned in the petition
Note: No creditor who incurred his credit within ninety (90) days prior to the
filing of the petition shall be entitled to vote.
d. Protests: After the result of the voting has been announced, all protests made
against the majority vote shall be drawn up, and the commissioner and the
individual debtor together with all creditors taking part in the voting shall sign
the affirmed propositions.
5. Persons Who May Refrain From Voting – Sec. 98: Creditors who are unaffected
by the Suspension Order may refrain from attending the meeting and from voting
therein. Such persons shall not be bound by any agreement determined upon at such
meeting, but if they should join in the voting they shall be bound in the same
manner as are the other creditors.
6. Rejection of the Proposed Agreement – Sec. 99: The proposed agreement shall be
deemed rejected if the number of creditors required for holding a meeting do not
attend thereat, or if the two (2) majorities mentioned in Section 97 are not in favor
thereof. In such instances, the proceeding shall be terminated without recourse and
the parties concerned shall be at liberty to enforce the rights which may correspond
to them.
7. Objections – Sec. 100: If the proposal of the individual debtor, or any amendment
thereof made during the creditors' meeting, is approved by the majority of creditors
in accordance with Section 97, any creditor who attended the meeting and who
dissented from and protested against the vote of the majority may file an objection
with the court within 10 days from the date of the last creditors' meeting. (See Sec.
100 for causes for objections.)
Note: In case the decision of the majority of creditors to approve the individual
debtor's proposal or any amendment thereof made during the creditors' meeting is
annulled by the court, the court shall declare the proceedings terminated and the
creditors shall be at liberty to exercise the rights which may correspond to them.
8. Effects of Approval of Proposed Agreement – Sec. 101:
a. If the decision of the majority of the creditors to approve the proposed
agreement or any amendment thereof made during the creditors' meeting is
upheld by the court, or when no opposition or objection to said decision has
been presented, the court shall order that the agreement be carried out and all
parties bound thereby to comply with its terms.
b. The court may also issue all orders which may be necessary or proper to
enforce the agreement on motion of any affected party.
c. The Order confirming the approval of the proposed agreement or any
amendment thereof made during the creditors' meeting shall be binding upon
all creditors whose claims are included in the schedule of debts and liabilities
submitted by the individual debtor and who were properly summoned, but not
upon:
i. those creditors having claims for personal labor, maintenance, expenses of
last illness and funeral of the wife or children of the debtor incurred in the
60 days immediately prior to the filing of the petition; and
ii. secured creditors who failed to attend the meeting or refrained from voting
therein.
9. Failure of Individual Debtor to Perform Agreement – Sec. 102: If the individual
debtor fails, wholly or in part, to perform the agreement decided upon at the
meeting of the creditors, all the rights which the creditors had against the individual
debtor before the agreement shall revest in them. In such case the individual debtor
may be made subject to the insolvency proceedings in the manner established by
this Act.
B. Voluntary Liquidation.
1. Petition – Sec. 103: An individual debtor whose properties are not sufficient to
cover his liabilities, and owing debts exceeding Five hundred thousand pesos, may
apply to be discharged from his debts and liabilities by filing a verified petition with
the court of the province or city in which he has resided for 6 months prior to the
filing of such petition. He shall attach to his petition a schedule of debts and
liabilities and an inventory of assets. The filing of such petition shall be an act of
insolvency.
2. Liquidation Order – Sec. 104: If the court finds the petition sufficient in form and
substance it shall, within 5 working days issue the Liquidation Order mentioned in
Section 112.

C. Involuntary Liquidation.
1. Petition – Sec. 105: Any creditor or group of creditors with a claim of, or with
claims aggregating at least Five hundred thousand pesos may file a verified petition
for liquidation with the court of the province or city in which the individual debtor
resides. The following shall be considered acts of insolvency, and the petition for
liquidation shall set forth or allege at least one of such acts: (Important: See Sec.
105 for enumeration of acts of insolvency)
Note: The petitioning creditor/s shall post a bond in such as the court shall direct,
conditioned that if the petition for liquidation is dismissed by the court, or
withdrawn by the petitioner, or if the debtor shall not be declared an insolvent the
petitioners will pay to the debtor all costs, expenses, damages occasioned by the
proceedings and attorney's fees.
2. Order to Individual Debtor to Show Cause – Sec. 106: Upon the filing of such
creditors' petition, the court shall issue an Order requiring the individual debtor to
show cause, at a time and place to be fixed by the said court, why he should not be
adjudged an insolvent. Upon good cause shown, the court may issue an Order
forbidding the individual debtor from making payments of any of his debts, and
transferring any property belonging to him. However, nothing contained herein
B. The Liquidator.
shall affect or impair the rights of a secured creditor to enforce his lien in
accordance with its terms.
3. Default – Sec. 107: If the individual debtor shall default or if, after trial, the issues
are found in favor of the petitioning creditors the court shall issue the Liquidation
Order mentioned in Section 112.
4. Absent Individual Debtor – Sec. 108
5. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to
Sureties – Sec. 109:
6. Sale Under Execution – Sec. 110
VII.PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY
A. The Liquidation Order.
1. Contents of Liquidation Order – Sec. 112
2. Effects of the Liquidation Order – Sec. 113: Upon the issuance of the Liquidation
Order:
a. the juridical debtor shall be deemed dissolved and its corporate or juridical
existence terminated;
b. legal title to and control of all the assets of the debtor, except those that may be
exempt from execution, shall be deemed vested in the liquidator or, pending his
election or appointment, with the court;
c. all contracts of the debtor shall be deemed terminated and/or breached, unless
the liquidator, within ninety (90) days from the date of his assumption of office,
declares otherwise and the contracting party agrees;
d. no separate action for the collection of an unsecured claim shall be allowed.
Such actions already pending will be transferred to the Liquidator for him to
accept and settle or contest. If the liquidator contests or disputes the claim, the
court shall allow, hear and resolve such contest except when the case is already
on appeal. In such a case, the suit may proceed to judgment, and any final and
executor judgment therein for a claim against the debtor shall be filed and
allowed in court; and
e. no foreclosure proceeding shall be allowed for a period of 180 days.
3. Rights of Secured Creditors – Sec. 114: The Liquidation Order shall not affect the
right of a secured creditor to enforce his lien in accordance with the applicable
contract or law. (See Sec. 114 for rights of secured creditor)
1. Election of Liquidator – Sec. 115
2. Court-Appointed Liquidator – Sec. 116
3. Oath and Bond of the Liquidator – Sec. 117
4. Qualifications of the Liquidator – Sec. 118
5. Powers, Duties and Responsibilities of the Liquidator – Sec. 119: The liquidator
shall be deemed an officer of the court with the principal duly of preserving and
maximizing the value and recovering the assets of the debtor, with the end of
liquidating them and discharging to the extent possible all the claims against the
debtor. (See Sec. 119 for enumeration of powers.)
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall
have the right and duty to take all reasonable steps to manage and dispose of the
debtor's assets with a view towards maximizing the proceeds therefrom, to pay
creditors and stockholders, and to terminate the debtor's legal existence. Other
duties of the liquidator in accordance with this section may be established by
procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a
rehabilitation receiver.
 6. Compensation of the Liquidator – Sec. 120 4. Manner of Implementing the Liquidation Plan – Sec. 132: The Liquidator shall
implement the Liquidation Plan as approved by the court. Payments shall be made
7. Reporting Requirements – Sec. 121
to the creditors only in accordance with the provisions of the Plan.
8. Discharge of Liquidator – Sec. 122 5. Concurrence and Preference of Credits – Sec. 133: The Liquidation Plan and its
Implementation shall ensure that the concurrence and preference of credits as
C. Determination of Claims 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
1. Registry of Claims – Sec. 123
purposes of this chapter, credits for services rendered by employees or laborers to
2. Right of Set-off – Sec. 124 the debtor shall enjoy first preference under Article 2244 of the Civil Code, unless
the claims constitute legal liens under Article 2241 and 2242 thereof.
3. Opposition or Challenge to Claims – Sec. 125 6. Order Removing the Debtor from the List of Registered Entitles at the
4. Submission of Disputed Claim to the Court – Sec. 126 Securities and Exchange Commission – Sec. 134
7. Termination of Proceedings – Sec. 135
D. Avoidance Proceedings
G. Liquidation of a Securities Market Participant – Sec. 136
1. Rescission or Nullity of Certain Transactions – Sec. 127: Any transaction
occurring prior to the issuance of the Liquidation Order or, in case of the conversion
of the rehabilitation proceedings prior to the commencement date, entered into by
the debtor or involving its assets, may be rescinded or declared null and void on the
ground that the same was executed with intent to defraud a creditor or creditors or
which constitute undue preference of creditors. The presumptions set forth in
Section 58 hereof shall apply.
2. Actions for Rescission or Nullity – Sec. 128

E. The Liquidation Plan

1. The Liquidation Plan – Sec. 129: Within three (3) months from his assumption
into office, the Liquidator shall submit a Liquidation Plan to the court. The
Liquidation Plan shall, as a minimum enumerate all the assets of the debtor and a
schedule of liquidation of the assets and payment of the claims.
2. Exempt Property to be Set Apart – Sec. 130
3. Sale of Assets in Liquidation – Sec. 131: The liquidator may sell the
unencumbered assets of the debtor and convert the same into money. The sale shall
be made at public auction. However, a private sale may be allowed with the
approval of the court if;
a. the goods to be sold are of a perishable nature, or are liable to quickly
deteriorate in value, or are disproportionately expensive to keep or maintain; or
b. the private sale is for the best interest of the debtor and his creditors.
Note: With the approval of the court, unencumbered property of the debtor may
also be conveyed to a creditor in satisfaction of his claim or part thereof.