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AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !

"am#February 1, 2013 So we are done with Corporation Code. We are now starting with the coverage for the third exam, PD 902-A and Sec rities !eg "ation Code. #he "atter sed to $e the !evised Sec rities Act. !evised Sec rities Act sed to $e Sec rities Act. PD 902-A came into "aw in %9&' $are"( ) (ears after the dec"aration of *artia" +aw. ,t is entit"ed S-C reorgani.ation decree to p t the S-C nder the /ffice of the President. 0ow it is no "onger nder the /ffice of the President $ t nder the Department of 1inance. 2 t that is how *arcos contro"s the different corporations. 0ow, what (o have to remem$er with Sec rities !eorgani.ation Decree PD 902-A is the transfer of 3 risdiction of the cases that are en merated in Section 4 of the decree. #hese cases have $een transferred now to the reg "ar corporate co rt. #his co rt was not created $( Sec rities !eg "ation Code $ t on"( designated $( the S preme Co rt to the sa"as dedicated for corporate cases. What are those cases? #he( are en meratedin section 4 PD 902-A5 Section 4. ,n addition to the reg "ator( and ad3 dicative f nctions of the Sec rities and -xchange Commission over corporations, partnerships and other forms of associations registered with it as express"( granted nder existing "aws and decrees, it sha"" have origina" and exc" sive 3 risdiction to hear and decide cases invo"ving. a6 Devices or schemes emp"o(ed $( or an( acts, of the $oard of directors, $ siness associates, its officers or partnership, amo nting to fra d and misrepresentation which ma( $e detrimenta" to the interest of the p $"ic and7or of the stoc8ho"der, partners, mem$ers of associations or organi.ations registered with the Commission9 $6 Controversies arising o t of intra-corporate or partnership re"ations, $etween and among stoc8ho"ders, mem$ers, or associates9 $etween an( or a"" of them and the corporation, partnership or association of which the( are stoc8ho"ders, em$ers or associates, respective"(9 and $etween s ch corporation, partnership or association and the state insofar as it concerns their individ a" franchise or right to exist as s ch entit(9 c6 Controversies in the e"ection or appointments of directors, tr stees, officers or managers of s ch corporations, partnerships or associations. d6 Petitions of corporations, partnerships or associations to $e dec"ared in the state of s spension of pa(ments in cases where the corporation, partnership or association possesses s fficient propert( to cover a"" its de$ts $ t foresees the impossi$i"it( of meeting them when the( respective"( fa"" d e or in cases where the corporation, partnership or association has no s fficient assets to cover its "ia$i"ities, $ t is nder the management of a !eha$i"itation !eceiver or *anagement Committee created p rs ant to this Decree. Letter A5 short hand term for this is devices and schemes, even shorter is the term sed for the practice inc" ded in this categor(- the soca""ed pyramiding schemes. #hat is the name here in the Phi"ippines. #he name in internationa" $ siness is Ponzy scheme- 0amed after a notorio s ,ta"ian who started an investment scheme in 0ew :or8 $are"( 2 (ears after he emigrated from ,ta"( to ;S. Why is it ca ed a pyramiding scheme? ,t on"( wor8s for as "ong as there isa procession of a p(ramid $eing constr cted. /ncethe p(ramid stops $eing deve"oped the who"e scheme co""apses. ,t is "i8e this, some$od( offers (o 2< g aranteed ret rn of investment ever( month. ,n one (ear that is 2)<. :o 3 st give (o r mone( "i8e that. ,n = > (ears, (o do $"e (o r mone(. 0ow, how does he expect to pa( that m ch in ret rn, what is his $ siness, act a""( he has no $ siness. #o pa( (o he has to get two more peop"e to invest and to pa( the two he has to get ) more peop"e to invest and so on and so forth that is wh( it is p(ramiding for as "ong as there are investors (o can sti"" pa( $eca se (o are not pa(ing the principa" $ t on"( the interest. #he moment it stops, that is when the tro $"e $egin. #he S-C has come o t circ "ar differentiating the so ca""ed p(ramiding from direct mar8eting schemes 8nown as networ8ing. #he difference is in networ8ing there is a thing of va" e na( $a"ig(a in p(ramiding w"a g( d .ero. 0ow, wh( can this networ8ing afford these tier and tier of commission? #he c"aim is that the( do not have indirect cost of sa"es mao na da8o si"a( margin down the "ine. *ao na( mga testimonies dira na ginapaminaw sa mga tao. #hat is what the ;S SC sa(s, Scam artists are those who se"" nothing $ t the few feet of the $" e s8ies. #hat is wh( a"" these "aws designed to reg "ate the sa"e of sec rities the( are ca""ed b ue s!y a". #his is $eca seof a certain case that the SC said the p $"ic m st $e protected from a"" artists or peop"e witho t conscience that mi"8s (o with (o r hard earned savings promising (o nothing $ t a few feet of the $" e s8(. #he Sec rities !eg "ation Code and PD 902-A are $" e s8( "aws whichare intended to protect the investing p $"ic from scam artists. @ Stor( ;S "oca" governments who went $an8r pt $eca se of scammers6 So. Who has 3 risdiction over these devices and schemes? :o have to fi"e it with the SC co rt designated sa"a that is an intracorporate co rt. $6 Controversies arising o t of intra-corporate or partnership re"ations, $etween and among stoc8ho"ders, mem$ers, or associates9 $etween an( or a"" of them and the corporation, partnership or association of which the( are stoc8ho"ders, mem$ers or associates, respective"(9 and $etween s ch corporation, partnership or association and the state insofar as it concerns their individ a" franchise or right to exist as s ch entit(9 and #he shortc t name is intra-corporate controversies. @c6 Controversies in the e"ection or appointments of directors, tr stees, officers or managers of s ch corporations, partnerships or associations.

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AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#Shortc t name for this is e"ection controversies. +andmar8 case is the case of AS,S vs CA and !osete et a" Apri" %' 2009. We wi"" "ater on see the so ca""ed prox( r "es. ,n the Sec rities !eg "ation Code @S!C6, there is a part there that covers proxies. A"" the controversies partic "ar to that chapter, it is the S-C that determines s fficienc( of proxies. #hat is wh( Winston Aarcia President7Aenera" *anager @PA*6 of AS,Stried to stop the ann a" meeting the stoc8ho"ders of *era"co $eca se he sa(s that the notice is "ess than %720 of the / tstanding Capita" Stoc8 $ t +ope. sa(s B , have a"" the proxiesC this is what +ope. sa(s. Aarcia wanted to examine the proxies $ t +ope. invo8e that there is a"read( the dead"ine for the examination of proxies and it had a"read( "apsed. Aarcia went to S-C and sec red a #!/ stopping the ann a" meeting on the iss e of s fficienc( of proxies. #he #!/ is signed on"( $( one of the commissioner. !osete and other "ega" co nse" said that this #!/ is fata""( defective as it is on"( signed $( one commissioner. PA* saidthat the signator( signed it on a do $"e capacit(. So to c t it short, SC said that the iss e here is s $ordinate to the iss e of the e"ection, this is act a""( an e"ection controvers( for which prox( is a s $ iss e. ,t is tr e that the S-C nder the S!C has the power to determine s fficienc( of prox( $ t if it is an e"ection controvers(, it fa""s nder section 4 of PD 902-A. So the reg "arco rt have the 3 risdiction. So if the iss e of prox( is part of the overa"" e"ection iss e, the one who has 3 risdiction is the intracorporate co rt. ,f the iss e is so"e"( on the va"idit( of proxies and there is no other iss e, then it is the S-C that has 3 risdiction. #his is the gist of the r "ing in AS,S vs CA. d6 Petitions of corporations, partnerships or associations to $e dec"ared in the state of s spension of pa(ments in cases where the corporation, partnership or association possesses s fficient propert( to cover a"" its de$ts $ t foresees the impossi$i"it( of meeting them when the( respective"( fa"" d e or in cases where the corporation, partnership or association has no s fficient assets to cover its "ia$i"ities, $ t is nder the management of a !eha$i"itation !eceiver or *anagement Committee created p rs ant to this Decree. Shortname for this is suspension o# payments petitions o# corporation. ,t is s $mitted that with the passage of 1!,A of 20%0 this new "aw which we we"" ta8e after the S!C. #hese8inds of petitions now are heard $( a new 8ind of designated co rt. #his is the financia" reha$i"itation and inso"venc( co rt. #hat is another separate sa"a. 1ina""( (o have this provision5 for those cases invo"ving intracorporate disp tes s $mitted for fina" decision which sha"" $e reso"ved within one (ear, these are transitor( provisions for pending cases, derivative s itsand controversies invo"ved in the inspection of corporate $oo8s are a"so p"aced nder the 3 risdiction of the !#C of intra corporate co rt. #he D estion of withdrawa" of corporate franchise is a"so cogni.a$"e $( the intra corporate co rt where it is fi"ed in a D o warranto proceeding and that is $ased on the fo""owing gro nds5 @i6 #o s spend, or revo8e, after proper notice and hearing, the franchise or certificate of registration of corporations, partnerships or associations, pon an( of the gro nds provided $( "aw, inc" ding the fo""owing5chanro$"esvirt a""aw"i$rar( E%F 1ra d in proc ring its certificate of registration9 E2F Serio s misrepresentation as to what the corporation can do or is doing to the great pre3 dice of or damage to the genera" p $"ic9 E=F !ef sa" to comp"( or defiance of an( "awf " order of the Commission restraining commission of acts which wo "d amo nt to a grave vio"ation of its franchise9 E)F Contin o s inoperation for a period of at "east five @46 (ears9 E4F 1ai" re to fi"e $(-"aws within the reD ired period9 E'F 1ai" re to fi"e reD ired reports in appropriate forms as determined $( the Commission within the prescri$ed period9 #hese are the gro nds for s spension and revocation of certificate of registration. So these are the important parts of PD 902-A , wo "d "i8e to as8 (o to read this case$ecurities and %&change 'ommission v( W) *o"ey 'o( 32+ ,$ 2-3 ,n this case, there is a definition of what constit tes sec rities. #he S!C does not define what is sec rit(, it i"" strates and en merates the same. ,n this case at "east with respect to Binvestment contractC, it defines what is a sec rit(. ,t is ca""ed the Gowe( test. What is the howe( test?

2ac8gro nd H. Gowe( was a 1"orida entreprene r who was se""ing rea" estate contracts to finance the deve"opment of citr s groves that he owned @a sa"e-"ease$ac8 t(pe of dea"6. Gowe( was offering peop"e to $ ( his groves and then he wo "d "ease them $ac8 - so the $ (er wo "d earn their ret rns from rents received for Gowe( tending the "and. #he iss e that the S-C too8 with H. Gowe( and his rea" estate dea" was how he was mar8eting his investment opport nit(. :o see, Gowe( mar8eted his "and sa"es via promotiona" materia"s at the to rist resorts in his area. Ge promised "arge profits to those who received the sa"es presentation $( expressing interest. *ost of Gowe(Is $ (ers were neither residents of 1"orida nor experienced in farming or agric "t re. #he S-C @which reg "ates sec rities "aws for rea" estate investors6 fi"ed a "aws it against Gowe(, where the( so ght an in3 nction to stop Gowe( from sing mai" and other means of Jinterstate commerceJ in offering what the( ca""ed the sa"e of non-exempt, nregistered sec rit(.

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AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am##he S preme Co rt r "ed that Gowe( was offering an Jinvestment contractJ as defined $( the Sec rities Act of %9==. As a part of this r "ing, the S preme Co rt deve"oped a test to see whether an opport nit( constit tes an Jinvestment contract.J #his test was ca""ed the JGowe( #est.J An investment contract nder the Gowe( #est was defined as fo""ows5 %. an investment of mone( d e to 2. an expectation of profits arising from =. a common enterprise ). which depends so"e"( on the efforts of a promoter or third part( What this meant for H. Gowe(, and for a"" rea" estate investors in the f t re, was that an(time (o Ire searching for investors, no matter if the investor goes on the deed or has a mortgage, if the investor is re"(ing on (o to ma8e their profits (o are considered to $e se""ing a sec rit(. #he Gowe( #est set the standard for sec rities "aws in raising mone( for rea" estate investments. Artic"e So rce5 http577-.ineArtic"es.com7=409&K= The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others. If that test be satisfied, it is immaterial whether the enterprise is speculative or nonspeculative, or whether there is a sale of property with or without intrinsic value. ($ecurities and %&change 'ommission v( W) *o"ey 'o( 32+ ,$ 2-3) February ., 2013 So in the ;S federa" "aw on sec rities is entit"ed Sec rities Act. We in the Phi"ipines have gone thro gh o"d Sec rities Act, the!evised Sec rities Act and now this time we have the Sec rities reg "ation Code. We said that this is a $" e s8( "aw and we "oo8 at the definition of sec rties at "east in terms of investment contract as defined in S-C vs Gowe( L Co. #he essence of an investment contract is an investment of mone( d e to an expectation of profits arising from a common enterprisewhich depends so"e"( on the efforts of a promoter or third part(. ,n other wordsthe one p"acing the mone( has no effort at a"" in generating therec rring profits of the partic "ar $ siness. #a8e note that there m st $e some commercia" nderta8ing. #here m st $e creation of va" e, something of va" e. ,n p(ramiding, there is nothing of va" e. #hat is wh( it dies immediate"( when no one p ts mone( an(more. #here is a thing of va" e invo"ved. A"right. 2efore (o can se"" sec ritiesto the p $"ic, se""ing sec rities to the p $"ic means (o se"" to at "east 20 peop"e. So if (o form a corporation and (o start needing more than 20 the( wi"" as8 of (o to fi"e a registration statement $eca se nder the S!C (o are se""ing sec rities to the p $"ic. So $efore (o can do that for the protectionof the p $"ic (o have to register what (o se"". ,f some$od( of the mo ntain $ring 24 cara$os to se"", does he have toregister $efore he can se"" them?(es 2eca se of the nat re of the $east that which (o are se""ing is not "i8e a tangi$"e prod ct which is easi"( verifia$"e. #o 8now how m ch a stoc8 is worth (o have to go to financia" statement which is va"id p to a certain date,which is 3 st a snapshot p to a date. ;s a""(, the amo nt there is historica". So there are therefore warranties in these""ing of sec rities that are m ch more comp"ex and $road in scope than when (o se"" tangi$"e propert(. :o have seen in sa"es when does the action caveat emptor app"(? ,t is app"ica$"e first and foremost if what (o $ ( is readi"( open for examination. 2 t if (o order $( mai" and it is sent (o and (o have no chance to examine, that is wh( in sa"es (o have this n m$er of da(s to ret rn, thatMs an exception to the princip"e of caveat emptor. With shares of stoc8, there are $ i"t in warranties for sec rities. #hat is when the state pre chec8s the sec rities. :o fi"e a registrationstatement (o descri$e who the iss er is, the officers5 are the( tr stworth( and (o descri$e the $ siness5 what is the $ siness how "ong has it $een in operation what are its p"ans. ,t is a"" descri$ed in the registration statement. /nce the state is satisfied then it iss es and order that the sec rit( is in effect and the sa"e can $e $eg n nti" there is a contrar( order. A"" the orders of theS-C with respect to a partic "ar sec rit($ecomespart and parce" of the registration statement. #he S-C can order the stopping of thetrading of sec rities in stoc8 mar8et for the period of =0 da(s. #he president can order the s spension of trading for more than =0 $ t not to exceed 90 da(s if there is some irreg "arit( $ehind a partic "ar sec rit(. $ection -( Exempt Securities. N 9.%. #he reD irement of registration nder S $section K.% sha"" not as a genera" r "e app"( to an( of the fo""owing c"asses of sec rities5 @a6 An( sec rit( iss ed or g aranteed $( the Aovernment of the Phi"ippines, or $( an( po"itica" s $division or agenc( thereof, or $( an( person contro""ed or s pervised $(, and acting as an instr menta"it( of said Aovernment. @$6 An( sec rit( iss ed or g aranteed $( the government of an( co ntr( with which the Phi"ippines maintains dip"omatic re"ations, or $( an( state, province or po"itica" s $division thereof on the $asis of reciprocit(5 Provided, #hat the Commission ma( reD ire comp"iance with the form and content for disc"os res the Commission ma( prescri$e. @c6 Certificates iss ed $( a receiver or $( a tr stee in $an8r ptc( d "( approved $( the proper ad3 dicator( $od(. @d6 An( sec rit( or its derivatives the sa"e or transfer of which, $( "aw, is nder the s pervision and reg "ation of the /ffice of the ,ns rance

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AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#Commission, Go sing and +and ;se ! "e !eg "ator( 2oard, or the 2 rea of ,nterna" !even e. @e6 An( sec rit( iss ed $( a $an8 except its own shares of stoc8. 9.2. #he Commission ma(, $( r "e or reg "ation after p $"ic hearing, add to the foregoing an( c"ass of sec rities if it finds that the enforcement of this Code with respect to s ch sec rities is not necessar( in the p $"ic interest and for the protection of investors. 0ot a"" sec rities need to $e registered exempt sec rities need not $e registered. #he iss er is a"read( s pervised $( some oversight government agenc(. 1or instance, sec rities iss ed$( the $an8 need not $e registered except the $an8s own sharesof stoc8. Sec rities iss ed$( the government itse"f, it is the 2SP that is the agent of the iss ance of treas r( $i""s. #he treas r( $i""s are not registered with the S-C $eca se it is the government itse"f which iss es. +and$an8 $onds iss ed $( A/CC p rs ant to the comprehensive agrarian reform "aw are a"so exempt. And so on. $ection 10( Exempt Transactions. N %0.%. #he reD irement of registration nder S $section K.% sha"" not app"( to the sa"e of an( sec rit( in an( of the fo""owing transactions5 @a6 At an( 3 dicia" sa"e, or sa"e $( an exec tor, administrator, g ardian or receiver or tr stee in inso"venc( or $an8r ptc(. @$6 2( or for the acco nt of a p"edge ho"der, or mortgagee or an( of a p"edge "ien ho"der se""ing of offering for sa"e or de"iver( in the ordinar( co rse of $ siness and not for the p rpose of avoiding the provision of this Code, to "iD idate a bonafide de$t, a sec rit( p"edged in good faith as sec rit( for s ch de$t. @c6 An iso"ated transaction in which an( sec rit( is so"d, offered for sa"e, s $scription or de"iver( $( the owner therefore, or $( his representative for the ownerMs acco nt, s ch sa"e or offer for sa"e or offer for sa"e, s $scription or de"iver( not $eing made in the co rse of repeated and s ccessive transaction of a "i8e character $( s ch owner, or on his acco nt $( s ch representative and s ch owner or representative not $eing the nderwriter of s ch sec rit(. @d6 #he distri$ tion $( a corporation active"( engaged in the $ siness a thori.ed $( its artic"es of incorporation, of sec rities to its stoc8ho"ders or other sec rit( ho"ders as a stoc8 dividend or other distri$ tion o t of s rp" s. @e6 #he sa"e of capita" stoc8 of a corporation to its own stoc8ho"ders exc" sive"(, where no commission or other rem neration is paid or given direct"( or indirect"( in connection with the sa"e of s ch capita" stoc8. @f6 #he iss ance of $onds or notes sec red $( mortgage pon rea" estate or tangi$"e persona" propert(, when the entire mortgage together with a"" the $onds or notes sec red there$( are so"d to a sing"e p rchaser at a sing"e sa"e. @g6 #he iss e and de"iver( of an( sec rit( in exchange for an( other sec rit( of the same iss er p rs ant to a right of conversion entit"ing the ho"der of the sec rit( s rrendered in exchange to ma8e s ch conversion5Provided, #hat the sec rit( so s rrendered has $een registered nder this Code or was, when so"d, exempt from the provision of this Code, and that the sec rit( iss ed and de"ivered in exchange, if so"d at the conversion price, wo "d at the time of s ch conversion fa"" within the c"ass of sec rities entit"ed to registration nder this Code. ;pon s ch conversion the par va" e of the sec rit( s rrendered in s ch exchange sha"" $e deemed the price at which the sec rities iss ed and de"ivered in s ch exchange are so"d. @h6 2ro8erMs transaction, exec ted pon c stomerMs orders, on an( registered -xchange or other trading mar8et. @i6 S $scriptions for shares of the capita"s stoc8s of a corporation prior to the incorporation thereof or in p rs ance of an increase in its a thori.ed capita" stoc8s nder the Corporation Code, when no expense is inc rred, or no commission, compensation or rem neration is paid or given in connection with the sa"e or disposition of s ch sec rities, and on"( when the p rpose for so"iciting, giving or ta8ing of s ch s $scription is to comp"( with the reD irements of s ch "aw as to the percentage of the capita" stoc8 of a corporation which sho "d $e s $scri$ed $efore it can $e registered and d "( incorporated, or its a thori.ed, capita" increase. @36 #he exchange of sec rities $( the iss er with the existing sec rit( ho"ders exc" sive"(, where no commission or other rem neration is paid or given direct"( or indirect"( for so"iciting s ch exchange. @86 #he sa"e of sec rities $( an iss er to fewer than twent( @206 persons in the Phi"ippines d ring an( twe"ve-month period. @"6 #he sa"e of sec rities to an( n m$er of the fo""owing D a"ified $ (ers5 @i6 2an89 @ii6 !egistered investment ho se9 @iii6 ,ns rance compan(9 @iv6 Pension f nd or retirement p"an maintained $( the Aovernment of the Phi"ippines or an( po"itica" s $division thereof or manage $( a $an8 or other persons a thori.ed $( the 2ang8o Sentra" to engage in tr st f nctions9 @v6 ,nvestment compan( or9 @vi6 S ch other person as the Commission ma( r "e $( determine as D a"ified $ (ers, on the $asis of s ch factors as financia" sophistication, net worth, 8now"edge, and experience in financia" and $ siness matters, or amo nt of assets nder management. %0.2. #he Commission ma( exempt other transactions, if it finds that the reD irements of registration nder this Code is not necessar( in the p $"ic interest or for the protection of the investors s ch as $( the reason of the sma"" amo nt invo"ved or the "imited character of the p $"ic offering. %0.=. An( person app"(ing for an exemption nder this Section, sha"" fi"e

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AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#with the Commission a notice identif(ing the exemption re"ied pon on s ch form and at s ch time as the Commission $( the r "e ma( prescri$e and with s ch notice sha"" pa( to the Commission fee eD iva"ent to one-tenth @%7%06 of one percent @%<6 of the maxim m va" e aggregate price or iss ed va" e of the sec rities. -xempt transactions #he iss ance of sec rities as stoc8 dividends is exempt. Shares of stoc8 $( wa( of dividends of stoc8ho"ders and to no one e"se $ t to stoc8ho"ders are exempt transactions !-A,S#!A#,/0 $ection 12( Procedure of e!istration Securities. " %2.%. A"" sec rities reD ired to $e registered nder S $section K. , sha"" $e registered thro gh the fi"ing $( the iss er in the main office of the Commission, of a sworn registration statement with the respect to s ch sec rities, in s ch form and containing s ch information and doc ment as the Commission prescri$e. #he registration statement sha"" inc" de an( prospect s reD ired or permitted to $e de"ivered nder S $sections K.2, K.=, and K.). %2.2. ,n prom "gating r "es governing the content of an( registration statement @inc" ding an( prospect s made a part thereof or annex thereto6, the Commission ma( reD ire the registration statement to contain s ch information or doc ments as it ma(, $( r "e, prescri$e. ,t ma( dispense with an( s ch reD irements, or ma( reD ire additiona" information or doc ments, inc" ding written information from an expert, depending on the necessit( thereof or their app"ica$i"it( to the c"ass of sec rities so ght to $e registered. %2.=. #he information reD ired for the registration of an( 8ind, and a"" sec rities, sha"" inc" de, among others, the effect of the sec rities iss e on ownership, on the mix of ownership, especia""( foreign and "oca" ownership. %2.). #he registration statement sha"" $e signed $( the iss erMs exec tive officer, its principa" operating officer, its principa" financia" officer, its comptro""er, its principa" acco nting officer, its corporate secretar(, or persons performing simi"ar f nctions accompanied $( a d "( verified reso" tion of the $oard of directors of the iss er corporation. #he written consent of the expert named as having certified an( part of the registration statement or an( doc ment sed in connection therewith sha"" a"so $e fi"ed. Where the registration statement shares to $e so"d $( se""ing shareho"ders, a written certification $( s ch se""ing shareho"ders as to the acc rac( of an( part of the registration statement contri$ ted to $( s ch se""ing shareho"ders sha"" $e fi"ed. %2.4. @a6 ;pon fi"ing of the registration statement, the iss er sha"" pa( to the Commission a fee of not more than one-tenth @%7%06 of one per centum @%<6 of the maxim m aggregate price at which s ch sec rities are proposed to $e offered. #he Commission sha"" prescri$e $( the r "e diminishing fees in inverse proportion the va" e of the aggregate price of the offering. @$6 0otice of the fi"ing of the registration statement sha"" $e immediate"( p $"ished $( the iss er, at its own expense, in two @26 newspapers of genera" circ "ation in the Phi"ippines, once a wee8 for two @26 consec tive wee8s, or in s ch other manner as the Commission $( the r "e sha"" prescri$e, reciting that a registration statement for the sa"e of s ch sec rities has $een fi"ed, and that aforesaid registration statement, as we"" as the papers attached thereto are open to inspection at the Commission d ring $ siness ho rs, and copies thereof, photostatic or otherwise, sha"" $e f rnished to interested parties at s ch reasona$"e charge as the Commission ma( prescri$e. %2.'. Within #orty/#ive 0123 days a#ter the date o# #i ing o# the registration statement, or by such ater date to "hich the issuer has consented, the 'ommission sha dec are the registration statement e##ective or re4ected, un ess the app icant is a o"ed to amend the registration statement as provided in $ection 11 hereo#( 5he 'ommission sha enter an order dec aring the registration statement to be e##ective i# it #inds that the registration statement together "ith a the other papers and documents attached thereto, is on its #ace comp ete and that the re6uirements have been comp ied "ith( 5he 'ommission may impose such terms and conditions as may be necessary or appropriate #or the protection o# the investors( %2.&. ;pon affectivit( of the registration statement, the iss er sha"" state nder oath in ever( prospect s that a"" registration reD irements have $een met and that a"" information are tr e and correct as represented $( the iss er or the one ma8ing the statement. An( ntr e statement of fact or omission to state a materia" fact reD ired to $e stated herein or necessar( to ma8e the statement therein not mis"eading sha"" constit te fra d. As , to"d (o the S-Cdo not approve the statement of sec ritiesas it ma( $e mis nderstood as indorsing a partic "ar sec rit(. So that is one wa( that the S-C can he"p protect the p $"ic $( wa( of registration. #a8e note the sec rities are registered. Second the actors m st $e registered. Where can (o find it? #hese persons are registered =.2. J,ss erJ is the originator, ma8er, o$"igor, or creator of the sec rit(. =.=. J2ro8erJ is a person engaged in the $ siness of $ (ing and se""ing sec rities for the acco nt of others. =.). JDea"erJ means man( person who $ (s se""s sec rities for his7her own acco nt in the ordinar( co rse of $ siness. -xamp"e of a dea"er5 2ro8er5 stoc8 $ro8er Dea"er5 socia" sec rit( is a dea"er it $ (s sec rit( for itse"f as a form of investment of the f nds of sss AS,S is a dea"er it can $id for treas r( $ids a"tho gh the AS,S does not have a seat in the PS- so the( have to emp"o( a $ro8er to $ ( for them $ t the( $ ( for their own acco nt. Stoc8 exchange or an( exchange. #he on"( pro$"em is the definitionin the "aw is antiD ated wh(? ,t sa(s5

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#=.&. J-xchangeJ is an organi.ed mar8et p"ace or faci"it( that $rings together $ (ers and se""ers and exec tes trade of sec rities and7or commodities. ;n"i8e the s a" over the co nter mar8et, an exchange has ph(sica" faci"it(. #his is no "onger tr e. :o can have an exchange witho t a ph(sica" p"ace. -xamp"e5 0ASDAO7ationa Association o# $ecurities 8ea ers Automated 9uotations. does not have, it exist in the internet. ,t is 3 st a mechanism or faci"it( for the $ (ing and se""ing of sec rities #he mone( mar8et is an exchange and (et no "ocation (o 3 st pic8 p the phone. ,n the Phi"ippines, the mone( mar8et is act a""( made p $( $an8s. So exchanges are registered. What (o trade are a"so registered so as the peop"e. Aive examp"es of peop"e who are registered. %. 2. =. ). ;nderwriters Promoters S"aes persons Associate of sa"esperson sma"" so it depends pon vo" me. So that is % wa( that the "aw protects the investing p $"ic, the order wa( is $( so ca""ed disc"os re reD irement. $ection 1+( eports by five per centum (#$) %olders of E&uity Securities. N %K.%. ,n ever( case in which an iss er satisfies the reD irements of S $section %&.2 hereof an( person who acD ires direct"( or indirect"( the $eneficia" ownership of more than five of per cent m @4<6 of s ch c"ass or in excess of s ch "esser per cent m as the Commission $( r "e ma( prescri$e, sha"", within ten @%06 da(s after s ch acD isition or s ch reasona$"e time as fixed $( the Commission, s $mit to the iss er of the sec rities, to the -xchange where the sec rit( is traded, and to the Commission a sworn statement containing the fo""owing information and s ch order information as the Commission ma( reD ire in the p $"ic interest or for the protection of investors. @a6 #he persona" $ac8gro nd, identit(, residence, and citi.enship of, and the nat re of s ch $eneficia" ownership $(, s ch person and a"" other person $( whom or on whose $eha"f the p rchases are effected9 in the event the $eneficia" owner is a 3 ridica" person, the of $ siness of the $eneficia" owner sha"" a"so $e reported9 @$6 ,f the p rpose of the p rchases or prospective p rchases is to acD ire contro" of the $ siness of the iss er of the sec rities, an( p"ans or proposa"s which s ch persons ma( have that wi"" effect a ma3or change in its $ siness or corporate str ct re9 @c6 #he n m$er of shares of s ch sec rit( which are $eneficia""( owned, and the n m$er of shares concerning which there is a right to acD ire, direct"( or indirect"(, $(9 @i6 s ch person, and @ii6 each associate of s ch person, giving the $ac8gro nd, identit(, residence, and citi.enship of each s ch associate9 and @d6 ,nformation as to an( contracts, arrangements, or nderstanding with an( person with respect to an( sec rities of the iss er inc" ding $ t not "imited to transfer, 3oint vent res, "oan or option arrangements, p ts or ca"" g arantees or division of "osses or profits, or proxies naming the persons with whom s ch contracts, arrangements, or nderstanding have $een entered into, and giving the detai"s thereof. 1irst is the 4<. #he moment (o p rchase at "east 4< of / tstanding Capta" Stoc8 of a p $"ic"( traded corporation in thePhi"ippine Stoc8 -xchange, (o m st ma8e the disc"os re as to who the $eneficia" owner of shares of stoc8 are. 0ow reca"" the $asic princip"e that (o "earn in propert( in the civi" code. #he owner in the tit"e is pres med to $e the one who wi"" $enefit for the se of the propert(. ,n sec rities, the tit "ar owner is not pres med to $e the $eneficia" owner that is wh( $( the time (o have 4< of /SC (o m st ma8e the disc"os re. ,f (o are the same $eneficia" owner and tit "ar owner then (o sa( so. So 4< Again, nder $ection 1-( Tender 'ffers. N An( person or gro p of persons acting in concert who intends to acD ire at "east %4< of an( c"ass of an( eD it( sec rit( of a "isted corporation of an( c"ass of an( eD it( sec rit( of a corporation with assets of at "east fift( mi""ion pesos @40,000,000.006 and having two h ndred@2006 or more stoc8ho"ders at "east one h ndred shares each or who intends to acD ire at "east thirt( percent@=0<6 of s ch eD it( over a period of twe"ve months@%26 sha"" ma8e a tender offer to stoc8ho"ders $( fi""ing with the Commission a dec"aration to that effect9 and f rnish the iss er, a statement containing s ch of the information reD ired in Section %& of this Code as the Commission ma( prescri$e. S ch person or gro p of persons sha"" p $"ish a"" reD est or invitations or tender offer or reD esting s ch tender offers s $seD ent to the initia" so"icitation or reD est sha"" contain s ch information as the Commission ma( prescri$e, and sha"" $e fi"ed with the Commission and sent to the iss er not a"ter than the time copies of s ch materia"s are first p $"ished or sent or given to sec rit( ho"ders. @a6 An( so"icitation or recommendation to the ho"ders of s ch a sec rit( to accept or re3ect a tender offer or reD est or invitation for tenders sha"" $e made in accordance with s ch r "es and reg "ations as ma( $e prescri$e. @$6 Sec rities deposited p rs ant to a tender offer or reD est or invitation

#hese are a"" registered. ,f (o are registered with the S-C as a $ro8er, can (o immediate"( $ ( and se"" shares of stoc8 form the Phi"ippine Stoc8 -xchange. #he answer is 0o $eca se (o sti"" have to $e a mem$er of the PS-. /ver and a$ove (o r "icense to $e a $ro8er (o have to have a seat and there are on"( a given n m$er of seats. 0ow it is ver( expensive in the PS-. 2 t the $ro8er ma8es mone( on commission for as "ong as there are transactions, he can pa( for his rent he does not earn $( the amo nt of profits the c"ient made, he earns $( transactions. #he commission is

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#for tenders ma( $e withdrawn $( or on $eha"f of the depositor at an( time thro gho t the period that tender offer remains open and if the sec rities deposited have not $een previo s"( accepted for pa(ment, and at an( time after sixt( @'06 da(s from the date of the origina" tender offer to reD est or invitation, except as the Commission ma( otherwise prescri$e. @c6 Where the sec rities offered exceed that which person or gro p of persons is $o nd or wi""ing to ta8e p and pa( for, the sec rities that are s $3ect of the tender offers sha"" $e ta8en p s near"( as ma( $e pro data, disregarding fractions, according to the n m$er of sec rities deposited to each depositor. #he provision of this s $3ect sha"" a"so app"( to sec rities deposited within ten @%06 da(s after notice of increase in the consideration offered to sec rit( ho"ders, as descri$ed in paragraph @e6 of this s $section, is first p $"ished or sent or given to sec rit( ho"ders. @d6 Where an( person varies the terms of a tender offer or reD est or invitation for tenders $efore the expiration thereof $( increasing the consideration offered to ho"ders of s ch sec rities, s ch person sha"" pa( the increased consideration to each sec rit( ho"der whose sec rities are ta8en p and paid for whether or not s ch sec rities have $een ta8en p $( s ch person $efore the variation of the tender offer or reD est or invitation. %9.2. ,t sha"" $e "awf " for an( person to ma8e an( ntr e statement of a materia" fact or omit to state an( materia" fact necessar( in order to ma8e the statements made in the "ight of the circ mstances nder which the( are made, not mis-"eading, or to engaged to an( fra d "ent, deceptive or manip "ative acts or practices, in connection with an( tender offer or reD est or invitation for tenders, or an( so"icitation for an( sec rit( ho"ders in opposition to or in favor of an( s ch favor of an( s ch offer, reD est, or invitation. #he Commission sha"", for the p rposes of this s $section, define and prescri$e means reasona$"( designed to prevent, s ch acts and practices as are fra d "ent, deceptive and manip "ative. #he moment (o disc"ose (o ma8e a tender offer. What do you mean by that? :o anno nce to the genera" p $"ic that (o are $ (ing %4<. so if (o are the owner of shares of stoc8 of which the $ (er want to p rchase (o can se"" to him to the extent of (o r proportionate ownership of the o tstanding capita" stoc8. -xamp"e5 (o want to $ ( %4< of #and a( shares (o have a"read( contacted 2 or more $ (ers (o cannot 3 st go and $ ( from them (o m st anno nce to the other stoc8ho"ders of the #and a( share sthat (o are $ (ing %4<. An($od( there can se"" to (o . 0ow if (o are 20< and (o want to tender (o r shares to $e $o ght $( the one $ (ing %4< and there are others a"so who want to se"". Gow m ch can (o se"" to him? :o m "tip"( 20< x %4< that is the n m$er of shares that (o can tender. 0ow 8atong imong 8asa$ot ma nsa na to. #hat is wh( man( peop"e to escape this the( $ ( %).99< so that (o wi"" not $e nder comp "sion to ma8e s ch disc"os re. #his is the second < (o need to remem$er. #he %4< 0ext is a"so nder Section %9 Where the person intends to acD ire at "east thirt( percent@=0<6 of s ch eD it( over a period of twe"ve months@%26, sha"" ma8e a tender offer to stoc8ho"ders $( fi""ing with the Commission a dec"aration to that effect. #his is the wa( to nderstand tender offer ha5 , want to $ ( =0< of San *ig e", , anno nced it thro gh the san *ig e" disc"os re statement. /ther stoc8ho"ders ma8e tender. #he( tender the shares pa"ita 8o, (o accept it $eca se (o made an offer. So =0< (o are s pposed to ma8e disc"os re and tender offer r "e 1ina""( there is 40<. ,f (o $ ( shares that wi"" res "t in the ownership of more than 40< eD it( shares of a p $"ic"( "isted compan( then it is not 3 st a tender offer $ t a genera" offer. :o have to te"" ever$od( that (o are wi""ing to $ ( at the same price or "ast price that (o comp ted for the 40< shares. So p"ease remem$er 4<, %4<, =0< and 40< and the tender offer r "e. ,Md "i8e to give (o an i"" stration.

Go"ding Compan( @owns %00< of intermediate Compan(6 @HA S mmit6

,ntermediate Compan( @owns '0< of ;niversa" !o$ina6

;niversa" !o$ina@ "isted compan(6 Wh( is there a need for an intermediate compan(? 2eca se of the acco nting tro $"es if (o have to n"oad the shares $eca se the financia" statements of the ho"ding and the he"d companies have to $e conso"idated. 0ow what happens? ,nstead of $ (ing shares in ;niversa" !o$ina direct"( (o $ ( the shares of the intermediate compan(. Are (o sti"" covered $( the disc"os re r "e? SC said the effect is the same so :es. When (o p rchase shares of the intermediate corporation owning contro""ing interest (o are covered $( the disc"os re, (o m st ma8e the tender offer.

February 13, 2013 , am giving (o a cop( of the case '%:'; *o dings <ncorporated vs 7ationa Li#e <nsurance 'ompany

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#22- scra 322 0200=3. #he case where the S preme Co rt r "ed that even if (o do not $ ( direct"( the shares of the corporation "isted in the stoc8 mar8et, if (o $ ( the ho"ding corporation (o m st sti"" ma8e a tender offer, in direct vio"ation of the tender offer r "e. , am giving (o a cop( of o r o t"ine of the sa"ient feat res of the Financia >ehabi itation and <nso vency Act. #his is the "ast specia" "aw we wi"" ta8e p. #his is not a s $stit te for not reading the "aw itse"f. /nce again, it is a ver( dr( "aw if (o do not 8now how to ma8e it come a"ive. :o m st ma8e "ove to this "aw so that (o wi"" not resist "earning it. So (o fo""ow the "aw on the $asis of this o t"ine $eca se this ta8es the p"ace of the ,nso"venc( Act. #his ta8es the p"ace of the !eha$i"itation Provision of the PD 902-A and a"so with some of the anci""ar( proceedings in the, specia" proceedings for receivership etc. #his is now the "atest "aw. >epub ic Act 10112. :o cannot convince the office to m "tip"( this with o r $ dget constraints so (o have to m "tip"( it (o rse"f. 0ow $efore we go into the 1!,A "aw, we have to ta8e p a few of the specia" "aws. We have ta8en p $ecurities >egu ation 'ode/ P8 -02/ A and we sho "d ta8e p some of the provisions of the specia" r "e in the S preme Co rt covering intra/corporate controversies $eca se (o m st $e aware that there is a specia" r "e. /f co rse this r "e is 3 st sed in the specia" sa"a of each 3 dicia" district that has $een designated as an intra-corporate co rt. So this is the interim r "es and proced res for intra-corporate controversies. #his $ecame effective in Apri" %, 200%. 0A: 1/2/01>% ? P>;P;$%8 <75%><: >,L%$ ;F P>;'%8,>% @;A%>7<7@ <75>A/';>P;>A5% ';75>;A%>$<%$ ,78%> >(A( 7;( +=--3 >u e 1, $ection 1 reiterates the 8ind of cases that are covered $( this specia" intra-corporate controversies. What are the(? #he( are most"( $ siness covered $( $ection 2 o# the $ecurities >egu ation 'ode. +i8e for instance, "etter A devices or schemes emp"o(ed $( or an( act of the $oard of directors, $ siness associates, officers or partners amo nting to fra d or misrepresentation which ma( $e detrimenta" to the interest of the p $"ic and or the stoc8ho"ders, partners or mem$ers of an( corporation, partnership or association. !emem$er , to"d (o the short name for this c"ass of cases is Devices or Schemes. #he 2nd gro p of cases covered $( this intra-corporate r "e are controversies arising o t of intra-corporate partnerships or associations, re"ations $etween and among stoc8ho"ders, mem$ers or associates and $etween an( or a"" of them in an( corporation, partnership or association of which the( are stoc8ho"ders, mem$ers or associates respective"(. #hese are ca""ed, short name, intra-corporate controversies. ,t is a fight or controvers( or conf"ict within a corporation $( actors that are constit ent of the corporation Ncorporators, incorporators, directors, and officers and so on then it is intra-corporate. And then =rd, the short name for this t(pe of cases are -"ection Controversies. Controversies in the e"ection or appointment of directors, tr stees, officers or managers of corporations, partnerships or associations. #he fo rth c"ass of cases are Derivatives S its. ,f (o fi"e a derivative s it, it m st $e within intra-corporate wor8. ,f its an intra corporate controvers(, di"i na na iraff"e2x pa 8a( sa ra man na 8a sa"a ang gadawat ana. #hatMs the difference when (o fi"e. Wh( is derivative s it not inc" ded in the intracorporate controversies? 2eca se the rea" part( in interest, the comp"ainant, in the derivative s it is the corporation itse"f. And the stoc8ho"der who fi"es it is fi"ing it in a representative capacit(. So it is not intra-corporate. #he $asis for the fi"ing of the s it is $etra(a" of tr st. #he officers, directors, principa" stoc8ho"ders of the corporation who are s pposed to $e the main agents to act for the good of the corporation and the( are harming the corporation so secondari"( the comp"ainant stoc8ho"der is given the prerogative to fi"e a comp"aint in the name of the corporation. So the stoc8ho"der is granted the derivative right to fi"e the action for and in $eha"f of the corporation. #hat is a distinct c"ass of s it. #he derivative s it. 1ifth, cases invo"ving controversies of inspection of corporate $oo8s. :o 8now, it is not eas( to charge a corporation of defra ding the stoc8ho"ders or against the officers defra ding the corporation $eca se (o are not in possession of a"" the doc ments and records. So pre"iminar( to s ch an action, necessari"(, (o wi"" fi"e an action to inspect the $oo8s of the corporation if (o are not granted the opport nit( to inspect the $oo8s of the corporation. So need"ess to sa(, $efore (o can fi"e an action to compe" a corporation to open its $oo8s to (o , (o m st first exha st the interna" remedies. :o m st a""ow the corporation the opport nit( to grant (o the time and p"ace to inspect its $oo8s. ,f the( den( (o that right, and (o are a stoc8ho"der, then thatMs the time (o can go to co rt, as8 the co rt for that order to compe" the corporation to open its $oo8s to (o . 0orma""(, what wi"" happen is, (o fi"e a mandam s s it as8ing the co rt to command the corporation to open its $oo8s to (o after the corporation gives an acco nting of certain matters. Section %. @a6 (ases covered. - #hese ! "es sha"" govern the proced re to $e o$served in civi" cases invo"ving the fo""owing5chanro$"esvirt a""aw"i$rar( @%6 Devices or schemes emp"o(ed $(, or an( act of, the $oard of directors, $ siness associates, officers or partners, amo nting to fra d or misrepresentation which ma( $e detrimenta" to the interest of the p $"ic and7or of the stoc8ho"ders, partners, or mem$ers of an( corporation, partnership, or association9 @26 Controversies arising o t of intra-corporate, partnership, or association re"ations, $etween and among stoc8ho"ders, mem$ers, or associates9 and $etween, an( or a"" of them and the corporation, partnership, or association of which the( are stoc8ho"ders, mem$ers, or associates, respective"(9 @=6 Controversies in the e"ection or appointment of directors, tr stees, officers, or managers of corporations, partnerships, or associations9 @)6 Derivative s its9 and cra"aw

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#as *etro *ani"a, the action m st $e fi"ed in the cit( or m nicipa"it( where the head office is "ocated. Sec. '. Service of pleadin!s. - When so a thori.ed $( the co rt, an( p"eading and7or doc ment reD ired $( these ! "es ma( $e fi"ed with the co rt and7or served pon the other parties $( facsimi"e transmission @fax6 or e"ectronic mai" @e-mai"6. ,n s ch cases, the date of transmission sha"" $e deemed to $e prima facie the date of service.

@46 ,nspection of corporate $oo8s.cra"aw @$6 Prohibition a!ainst nuisance and harassment suits. - 0 isance and harassment s its are prohi$ited. ,n determining whether a s it is a n isance or harassment s it, the co rt sha"" consider, among others, the fo""owing5chanro$"esvirt a""aw"i$rar( @%6 #he extent of the shareho"ding or interest of the initiating stoc8ho"der or mem$er9 @26 S $3ect matter of the s it9 @=6 +ega" and fact a" $asis of the comp"aint9 @)6 Avai"a$i"it( of appraisa" rights for the act or acts comp"ained of9 and cra"aw @46 Pre3 dice or damage to the corporation, partnership, or association in re"ation to the re"ief so ght.cra"aw ,n case of n isance or harassment s its, the co rt ma(, motu proprio or pon motion, forthwith dismiss the case. 0ow, $ec( 2 o# >u e 1, what is the ven e of these cases? ,t is tried in the !#C which has 3 risdiction over the principa" office of the corporation, partnership, association concerned. When the principa" office of the corporation, partnership, association is registered in the S-C as *etro *ani"a, the action m st $e fi"ed in the cit( or m nicipa"it( where the head office is "ocated. So norma""( when we sa( nationa" corporation, the address is in *a8ati or Pasig, so it is in those !#CsM intra-corporate co rts that these cases are "odged. Sec. 4. )enue. - A"" actions covered $( these ! "es sha"" $e commenced and tried in the !egiona" #ria" Co rt which has 3 risdiction over the principa" office of the corporation, partnership, or association concerned. Where the principa" office of the corporation, partnership or association is registered in the Sec rities and -xchange Commission -

0ow, princip"es of constr ction as to the r "es as en nciated in $ec(3. #he r "es are to $e "i$era""( constr ed in order to promote their o$3ective of sec ring a 3 st, s mmar(, speed( and inexpensive determination of ever( action or proceeding. Sec. =. (onstruction. - #hese ! "es sha"" $e "i$era""( constr ed in order to promote their o$3ective of sec ring a 3 st, s mmar(, speed( and inexpensive determination of ever( action or proceeding

Gow is this ta8en? - 1irst, a"" decisions and a"" those iss ed $( the co rts nder r "es are immediate"( exec tor( and petition for review or appea" sha"" not sta( the endorsement or imp"ementation of an order n"ess restrained $( an a"ternate co rt. ,mmediate"( exec tor(.$ec 1 Sec. ). Executory nature of decisions and orders. - A"" decisions and orders iss ed nder these ! "es sha"" immediate"( $e exec tor(. 0o appea" or petition ta8en therefrom sha"" sta( the enforcement or imp"ementation of the decision or order, n"ess restrained $( an appe""ate co rt. ,nter"oc tor( orders sha"" not $e s $3ect to appea".

- #hird, motions to dismiss for $i""s of partic "ars, for new tria" or for a consideration are prohi$ited. #hese are considered di"ator(, these 8inds of proceedings. 2 t in some cases, the S preme Co rt has a""owed motion to dismiss if it is gro nded on "ac8 of 3 risdiction. #hat is one of the few motions to dismiss that are a""owed in intra-corporate co rts. 2 t if it is in some other gro nd, in proper ven e, the co rt wi"" 3 st ta8e note of it, $ t it wi"" reso"ve it together with the reso" tion of the case $ased on its merits. $%' + Sec. K. Prohibited pleadin!s. - #he fo""owing p"eadings are prohi$ited5 @%6 *otion to dismiss9 @26 *otion for a $i"" of partic "ars9 @=6 *otion for new tria", or for reconsideration of 3 dgment or order, or for re-opening of tria"9 @)6 *otion for extension of time to fi"e p"eadings, affidavits or an( other paper, except those fi"ed d e to c"ear"( compe""ing reasons. S ch motion m st $e verified and nder oath9 and @46 *otion for postponement and other motions of simi"ar intent, except those fi"ed d e to c"ear"( compe""ing reasons. S ch motion m st $e verified and nder oath.

- Second, p"eadings and doc ments reD ired $( these r "es when so a thori.ed $( the co rt $( facsimi"e transmission or e"ectronic means. :o r exhi$its especia""( if the( are vo" mino s, financia" statements, (o can p t it in e"ectronic discs or f"ash drives or what have (o and that is what (o serve. #hat is a""owed. /r when the( sa( facsimi"e, fax. :o transmit it to them. Aet a fax n m$er of their machine then (o fax the p"eadings and doc ments. #hat is now a""owed. $%' .

- 1o rth, the on"( p"eadings a""owed to $e fi"ed nder the r "es are comp"aints, answer, comp "sor( co nterc"aims or crossc"aims p"eaded in

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#the answer, and the answer to the co nterc"aims or cross c"aims. #hose are the p"eadings that are a""owed to $e fi"ed. >,L% 2, section 2 1o rth reD isite5 #hat the s it is not a n isance or a harassment s it. 0ow, the reD isites for the fi"ing of derivative s it. #his is fo nd in ru e + $ection 1( 1irst reD isite5 #hat he was a stoc8ho"der or mem$er at the time the acts or transactions s $3ect of the action occ rred and at the time the action was fi"ed. So (o have to $e a stoc8ho"der in these 2 times- when the act was committed and p to the time when the case, derivative s it, was fi"ed. Can (o "ose (o r $eing a stoc8ho"der in $etween? - :es, provided that (o are a stoc8ho"der d ring these 2 times- when this action, this action which ca sed in3 r( to the corporation occ rred (o are a stoc8ho"der and when (o fi"e the derivative s it (o are a"so a stoc8ho"der. Section %. *erivative action. P A stoc8ho"der or mem$er ma( $ring an action in the name of a corporation or association, as the case ma( $e, provided, that5chanro$"esvirt a""aw"i$rar( @%6 Ge was a stoc8ho"der or mem$er at the time the acts or transactions s $3ect of the action occ rred and the time the action was fi"ed9 @26 Ge exerted a"" reasona$"e efforts, and a""eges the same with partic "arit( in the comp"aint, to exha st a"" remedies avai"a$"e nder the artic"es of incorporation, $(-"aws, "aws or r "es governing the corporation or partnership to o$tain the re"ief he desires9 @=6 0o appraisa" rights are avai"a$"e for the acts or acts comp"ained of9 and cra"aw @)6 #he s its is not a n isance or harassment s it.cra"aw Second reD isite5 #hat the stoc8ho"der exerted a"" reasona$"e efforts and a""eges the same with partic "arit( in the comp"aint to exha st a"" remedies avai"a$"e nder the artic"es of incorporation, $(-"aws and r "es governing the corporation to o$tain the re"ief he desires.So exha stion of interna" remedies. :o m st prove that, (o m st a""ege that and show proof to that in the comp"aint. ,n case of n isance of harassment s it, the co rt sha"" forthwith dismiss the case.

!;+- 2, Sec. 2. Pleadings allowed. - #he on"( p"eadings a""owed to $e fi"ed nder these ! "es are the comp"aint, answer, comp "sor( co nterc"aims or cross-c"aims p"eaded in the answer, and the answer to the co nterc"aims or cross-c"aims.cra"aw 0ow, e"ection contests.>u e ., $ec( 2. What is an e"ection contest? - #he controvers( or disp te invo"ving the tit"e or c"aim to an( e"ective office in a stoc8 or non-stoc8 corporation, the va"idation of proxies, the manner and va"idit( of e"ections, the D a"ifications of candidates inc" ding the proc"amation of winners, the office of directors 7 tr stees or other officers direct"( e"ected $( the stoc8ho"ders in a c"ose corporation or $( mem$ers of a non-stoc8 corporation where the artic"es of incorporation or $(-"aws have provided. Sec. 2. *efinition. - An e"ection contests refers to an( controvers( or disp te invo"ving tit"e or c"aim to an( e"ective office in a stoc8 or nonstoc8 corporation, the va"idation of proxies, the manner and va"idit( of e"ections, and the D a"ifications of candidates, inc" ding the proc"amation of winners, to the office of director, tr stee or other officer direct"( e"ected $( the stoc8ho"ders in a c"ose corporation or $( mem$ers of a non-stoc8 corporation where the artic"e of incorporation or $(-"aws so provide.

What disp tes are covered $( >u e =- inspection of corporate $oo8s and records? ,t covers disp tes exc" sive"( invo"ving the rights of stoc8ho"ders and mem$ers to inspect the $oo8s and records and7or to $e f rnished the financia" statements of the corporation nder $ections =1 and =2 o# the 'orporation 'ode.

#hird reD isite5 #hat no appraisa" rights are avai"a$"e for the act or acts comp"ained of. Wh( do (o have to a""ege that there is no appraisa" right? - 2eca se an appraisa" right is one of the remedies, one of the remedies of a stoc8ho"der who is dissatisfied with the corporation.

0ow, P8 -02/A provides for the appointment of either a receiver or a management committee when the corporation is in distress, financia" distress. 0ow this is a"so ta8en p in 1!,A. >u e -, $ection 1 provides for the circ mstances and the gro nds that wi"" 3 stif( the appointment of a management committee. What are the(? When (o a""ege and (o show proof that the "oss, wastage, or destr ction of assets or other properties is occ rring. Second, when (o prove that para"(.ation of the $ siness operation of the corporation which ma($e pre3 dicia" to the interest of the minorit( stoc8ho"der, the parties, or the genera"

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

07

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#p $"ic is occ rring. :o have to show that in order to provide for the gro nds for the appointment of a management committee. Section %. (reation of a mana!ement committee . - As an incident to an( of the cases fi"ed nder these ! "es or the ,nterim ! "es Corporate !eha$i"itation, a part( ma( app"( for the appointment of a management committee for the corporation, partnership or association, when there is imminent danger of5 @%6 Dissipation, "oss, wastage or destr ction of assets or other properties9 and @26 Para"(.ation of its $ siness operations which ma( $e pre3 dicia" to the interest of the minorit( stoc8ho"ders, parties-"itigants or the genera" p $"ic imm ne from s it in connection with s ch act or transaction. So, with transactions, it can modif(, n ""if(, re$ 8e, or revo8e provided it is detrimenta". #hat means (o m st prove in3 r(, damage, "oss $eca se these are transactions that have a"read( occ rred. #he first, (o can revo8e reso" tions of the -xec tive Committee of the 2oard $ t (o have to prove that it is gross"( disadvantageo s to the corporation. So in this case (o do not have to prove act a" damage here. :o can prove it $( comparison.

Powers and f nctions of a management committee.>u e -, $ection 2 of the r "e. @P+S !-1-! 0A +0A SA +AW P+S QA: GAS#A0A #AASA 0A P!/R,S,/06 - ,t has the power to ta8e c stod( and contro" of a"" assets and properties owned or possessed $( the corporation nder management. - ,t sha"" ta8e the p"ace of the management and the 2oard of Directors of the entit( nder management. - ,t sha"" ass me their rights and responsi$i"ities and preserve the entit(Ms assets and properties in its possession. - ,n addition, it ma( revo8e reso" tions passed $( the -xec tive Committee or 2oard of Directors to efficient"( exercise its powers and f nctions. - ,t ma( modif(, n ""if(, or re$ 8e, revo8e transactions coming to its 8now"edge which it deems detrimenta" or pre3 dicia" to the interest of the entit( nder management.

0ow, what actions can $e ta8en $( the management committee if it comes pon fra d "ent acts of the former management. #he transactions ma(, according to >u e -, $ection =, when previo s management and directors of the corporation p"ace nder management committee sha"" $e deemed fra d "ent and rescissi$"e if made within =0 da(s prior to the appointment of the receiver or the management committee or d ring their inc m$enc( as receiver or management committee.

Sec. &. Transactions deemed to be in bad faith . - A"" transactions made $( the previo s management and directors sha"" $e deemed fra d "ent and are rescissi$"e if made within thirt( @=06 da(s prior to the appointment of the receiver or management committee or d ring their inc m$enc( as receiver or management committee. $ection - o# >u e - dea"s with imm nit( on the part of the management committee. So that the( can act with speed and confidence the( are s pposed to $e imm ned from s it provided the( act within their scope of their d ties. #he receiver or the mem$ers of the management committee and the persons emp"o(ed $( them sha"" not $e s $3ect to an( action, comp"aint or demand in connection with an( act done or committed $( them in good faith in the exercise of their f nctions and powers. A"" officia" acts and transactions of the receiver or management committee d "( approved or ratified $( the co rt sha"" render them

Sec. 9. Immunity from suit. - #he receiver and mem$ers of the management committee and the persons emp"o(ed $( them sha"" not $e s $3ect to an( action, c"aim or demand in connection with an( act done or omitted $( them in good faith in the exercise of their f nctions and powers. A"" officia" acts and transactions of the receiver or management committee d "( approved or ratified $( the co rt sha"" render them imm ne from an( s it in connection with s ch act or transaction. So, if the( go o t of the scope of their d ties as receiver or management committee, then the( are not imm ne from s it. 1or as "ong as the( sta( within the $o nds of their d ties the( are imm ne from s it. So those are the sa"ient points that (o have to remem$er with respect to the intra-corporate r "e in the fi"ing of cases. So it is possi$"e that when (o fi"e a p"eading (o do not have to attach a"" the exhi$its. And $an, pwede nimo pada"a thro gh co rier hatag nimo sa respondent and he signs the receipt and that is proof of service. Attach that to (o r p"eading. 2eca se there is no need to give them the entire p"eading. Can (o imagine if (o trace something "i8e 4 (ears of operation, (o have to attach the financia" statements of 4 (ears. ;nsaon na nimo pagmai"? 2 g-at man na 8aa(o. #his is good for the stoc8ho"der. Di"i na si(a ma8agastos. So, pwede na p d ;S2 or dis8..Pi"a man 8aron ang dis8? Sing8o "ang man na. Ang ;S2, maha"2x. , thin8 this partic "ar r "e is the destination of most of the p"eadings now, with the 3 dicia" affidavit r "e, as m ch as possi$"e do awa( with paper. So (o have to $e more fami"iar with hand"ing e"ectronic data or data red ced to e"ectronic form $eca se that is where the co rt is moving with respect to p"eadings.. 0ext time we wi"" ta8e p 1!,A "aw. @-0D6 -0D /1 C/R-!AA- 1/! #G,!D -SA* 1/;!#G -SA* C/R-!AA- S#A!#S G-!February 11, 2013 #oda( we $egin with 1inancia" !eha$i"itation and ,nso"venc( Act of 20%0. #his "aw "apsed into "aw on H "( %K, 20%0. 2eforethat most "ega"

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

00

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#scho"ars are of the agreement that the Phi"ippines never rea""( had an effective $an8r ptc( "aw. Phi"ippines is more fort nate than #hai"and or indonesia $ t sti"" it has no Bhonest to goodnessC $an8r ptc( +aw. ,f (o were to $e as8ed to answer in the $ar,who does the "aw favo r? Creditor or the de$tor? #he more deve"opedthe societ( the more sophisticatedthe societ( is. ,t is easier for a de$tor to restart the $ siness. 2an8r ptc( as an economic rea"it( sho "d not $ear the socia" stigma that traditiona" societ( has. ,n other words ind stria"i.ation is said to have occ rred $eca se there was an advance infrastr ct re in the societ( and one of the 8e( mechanism is an effective inso"venc( "aw. 2eca se here, (o are re"eased form o$"igation after (o have given p a"" (o r assets then (o can start again. 1rom o r 2an8r ptc( "aw at %94' which $ecame effective %949 "oo8 at an( case where there is a definitive dec"aration of $an8r ptc( no one ta8es ref ge nder that "aw $eca se of the socia" stigma of $an8r ptc(. #hatMs wh( the "egis"at re thro gh the Phi"ippine Assem$"( that $ro ght p this "aw and it is approved $( the Congress of the ;S that is wh( it is an Act. #he( did not p t in "aw that the termina" order so ght after in $an8r ptc( is granted $( the co rt, there is no re"ease granted if (o are corporation and so ght protection of inso"venc( act (o are not re"ease if (o are an individ a" (o can $e re"eased. :o on"( have decided cases on individ a" $an8r ptc( and notin corporation $ t the greatest wonder of it a"" is that the inso"venc( act was sti"" covered $( the $ar examinations. ,f (o are $an8r pt (o r main pro$"em is (o cannot go aro nd 8a( g 8 ron 8a sa mga creditors. Act %9K9 covers on"( nsec red creditors, sec red creditor are not covered magsige "ang gihapon g 8od nimo si"a $ t now nder 1!,A a"" creditors are covered. Gow a$o t the government with the taxes? ,s the government covered $( the sta( order? :es it is covered. ,t is rea" protection. 0ow. So in the Phi"ippines we had this "aw Act %94', the first thing the "aw sa(s that there is no difference $etween inso"venc( and $an8r ptc(. ,nso"venc( is the civi" "aw term. 2an8r ptc( is the common "aw term. 0ow in the %9&', PD 902-A was enacted to provide for what the( tho ght a remedia" meas re so that the inso"venc( act wo "d $e resorted to $( distressed corporation. #here is a provision in 902-A which a""owed a corporation see8ing assistance from this $an8r ptc( provision Act %949 to opt for reha$i"itation that is s pervised $( the co rt. So that is how the $eginning of reha$i"itation came a$o t, that partic "ar sit ation pave the wa( for the appointment of what is now ca""ed reha$i"itation receiver or a management committee. #he reha$i"itation receiver sho "d oversee the co rt approved reha$i"itation p"an. Gow does the proceedings r n? #he !eha$i"itation !eceiver @!!6 periodica""( reports to the co rt for the progress of !eha$i"itation P"an @!P6 norma""( a !P entai"s the inf sion of additiona" fresh f nds into the corporation. /r if he were to ta8e ref ge nder the specia" provision of s spension of pa(ment the main condition is that the corporation has more assets than "ia$i"it( $ t not ripening at the same time that the "ia$i"ities are ripening so he is as8ing for the co rt to resched "e pa(ments of "ia$i"ities. S spend the pa(ment to the creditors. 2 t then after he has fi"ed that, he finds o t that his asset is act a""( "ess than his "ia$i"ities he has a choice to convert the proceeding into a reha$i"itation proceeding mangita na xa d gang assets into the corporation. What is the ro e o# the 4udge? #his 1!,A gives a "ot of power to the 3 dge that is wh( Aod merc( on the parties to the case if the 3 dge cannot nderstand the financia" wor8ings of the corporation $eca se $efore n"ess ever($od( agreed it was se"ess. ;n"ess ever($od( agreed, the creditors and stoc8ho"derscannot enforce the the p"an of reha$i"itation $ t now nder the 1!,A "aw the 3 dge has what is ca""ed cram down (o r throat power even if it was opposed, the 3 dge can r "e that this p"an is now to $e ass med whether (o "i8e it or not (o m st comp"( with the p"an. Financia >ehabi itation 1!,A is directing the SC to create its own r "es with respect to financia" reha$i"itation and $an8r ptc(. #here is an o"d r "e $ t it was raisedin the o"d r "e PD 902-A, the provision there on 1inancia" !eha$i"itation and an acc m "ation of decision of SC now that has $een rendered s rpassed $( the 1!,A. When "i the $' come out "ith its ru es? #hat is sti"" to come. $o "ho are covered by the F><A? What (o have to 8now are those who are not covered $eca se the rest are covered. $ection 2( Exclusions. - #he term de$tor does not inc" de $an8s, ins rance companies, pre-need companies, and nationa" and "oca" government agencies or nits. 1or p rposes of this section5 @a6 2an8 sha"" refer to an( d "( "icensed $an8 or D asi-$an8 that is potentia""( or act a""( s $3ect to conservatorship, receivership or "iD idation proceedings nder the 0ew Centra" 2an8 Act @!ep $"ic Act 0o. &'4=6 or s ccessor "egis"ation9 @$6 ,ns rance compan( sha"" refer to those companies that are potentia""( or act a""( s $3ect to inso"venc( proceedings nder the ,ns rance Code @Presidentia" Decree 0o. %)'06 or s ccessor "egis"ation9 and @c6 Pre-need compan( sha"" refer to an( corporation a thori.ed7"icensed to se"" or offer to se"" pre-need p"ans. Provided, #hat government financia" instit tions other than $an8s and

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

01

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#government-owned or contro""ed corporations sha"" $e covered $( this Act, n"ess their specific charter provides otherwise. Wh( are $an8s not inc" ded $eca se the( are a"read( covered $( the 0ew Centra" 2an8 Act. #he proceedings of which are with the 3 risdiction of 2ang8o Sentra". Again ins rance companies are not covered $eca se the( are nder the s pervision and oversight of the ins rance commission nder PD %)'0 of the ins rance code, pre need companies and then A/CC are not covered provided that their charters do not sa( that the( sha"" $e covered $( this "aw. And then there is a D asi exception5 $ection 13.( +i&uidation of a Securities ,ar-et Participant. - #he foregoing provisions of this chapter sha"" $e witho t pre3 dice to the power of a reg "ator( agenc( or se"f- reg "ator( organi.ation to "iD idate trade-re"ated c"aims of c"ients or c stomers of a sec rities mar8et participant which, for p rposes of investor protection, are here$( deemed to have a$so" te priorit( over other c"aims of whatever nat re or 8ind insofar as trade-re"ated assets are concerned. 1or p rposes of this section, trade -re"ated assets inc" de cash, sec rities, trading right and other owned and sed $( the sec rities mar8et participant in the ordinar( co rse of this $ siness. Sec rities *ar8et Participant5 whether (o are a $ro8er or a de"aer, sa"es person etc. (o are a participant in an exchange of stoc8s, f t res, $onds registered with the government, (o rtrade re"ated c"aims are not covered $( the 1!,A "aw. Why is that? 2eca se that wi"" disr pt the $asic faith in o r capita" mar8ets essentia" for investment even if (o are $an8r pt if there are c"aimed against (o from c"ients thro gh (o as a $ro8er (o m st satisf( them that is not covered $( the corp s of assets that are now s $3ect for distri$ tion to other creditors. Who "i cover them? #he reg "ator( agenc( or se"f-reg "ator( organi.ation. /ne examp"e is the Phi"ippine Stoc8 -xchange. PS- wi"" preside over the transaction that was entered into the( m st $e satisfied even if (o as a $ro8er is a"read( nder the 1!,A. A"right. *o" about the $$$, i# its ban!rupt can it see! protection under F><A? @$<$? S ppose AS,S is $an8r pt can it see8 protection nder 1!,A? ,t cannot. Wh(? the governmentt itse"f g arantees the so"venc( of SSS and AS,S so the( are not covered. ,t is one of those specifica""( exc" ded $( its charter. So a"right. Proceedings provided $( Act %0)%2 the 1!,A +aw #he main proceedings are %. 1inancia" !eha$i"itation #he order of re"ease is $inding against the who"e wor"d that is wh( this proceedings are in rem proceedings.

=.

+iD idation proceedings

Wh( is "iD idation distinct from inso"venc(? +iD idation ,S D,C#,0# 1rom ,nso"venc( $eca se +iD idation can f"ow from an( 8ind of proceeding. +et s sa( the initiator( proceeding is s spension of pa(ment so (o r Petition a""eges5 , have these n m$er of assets and (o en merate (o r assets and sa( , have the fo""owing creditors who are after me and (o en merate the creditors and their credit and (o show that (o r assets are more than "ia$i"ities and (o end p sa(ing give me an order to s spend $eca se , wi"" and , can meet m( de$ts and the co rt receiving it initia""( determine in form and s $stance as to whether (o r Petition is in accordance. ,f it is adeD ate in 1orm and S $stance immediate"( the co rt iss es a S#A: order. Di"i na civi" "aw restraining order sa civi" a"w sta( order is common "aw. So from s spension if it is fo nd o t that it is act a""( has"ess assets than "ia$i"ities the co rt wi"" move to "iD idation, (o wi"" oppose that order to "iD idation, we have a p"an for reha$i"itation and the co rt wi"" as8 (o is this p"an for rea" then the( wi"" ma8e proposa"s from peop"e. 0ew investor and then there is a de$ate whether or not the reha$i"itation p"an is via$"e. 0ow if the co rt finds that there is no s $stance in this p"an then the co rt wi"" den( the motion for approva" and order "iD idation. :o $egin with s spension of pa(ment and (o end p with "iD idation $eca se act a""( (o have "ess assets than "ia$i"ities. So it is a distinct proceeding. +iD idation is a"wa(s termina". ,nso"venc( is not termina". ,nso"venc( can sti"" go to reha$i"itation and fina""( end p with dismissa". 2eca se these are distinct proceedings. Wh( am , ma8ing s re (o nderstand this?

H st to c"arif( (o , the o$3ect of 1inancia" !eha$i"itation is an order of dismissa". When the co rt $efore which 1inancia" !eha$i"itation is fi"ed $( petition dismisses the case that is the fina" order. Sa ato pa (o are no "onger nder the monitoring of the co rt (o are now 3 st "i8e an ordinar( operating corporation, (o are now no "onger nder reha$i"itation. Gow "ong is that? there is 0o term. 2. ,n inso"venc( case, the order is an order of re"ease. !e"ease from o$"igations (o no "onger have to pa( an(thing. Did (o pa(? of co rse not $ t the co rt apportion a"" the assets in accordance with conc rrence of credits and the co rts are sa(ing that to a"" the creditors that this g ( who owed (o is re"eased. What does that mean? :o can start $ siness again and there is some other creditors who wi"" "end (o mone(.

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

03

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#,t is $eca se $efore it was the S-C which has 3 risdiction for s spension vo" ntar( and invo" ntar( petitions. So $efore when the S-C finds o t that there is rea""( no more assets , nsa( $ hat n sa S-C, "ar n "ng na ni"a ang S-C nti" the S-C re"eases the corporation the assets are f rther dissipated so that $( the end wa"a na ma8 ha ng creditors. Precise"(, it is $eca se of this that *arcos divided the 3 risdiction of s spension of pa(ments with S-C then p t invo" ntar( and vo" ntar( inso"venc( with the reg "ar co rts. #hat is what *arcos did. #he proceedings sha"" $e cond cted in a s mmar( and non-adversaria" manner consistent with the dec"ared po"icies of this Act and in accordance with the r "es of proced re that the S preme Co rt ma( prom "gate. #his is common in a"" in rem proceedings. ,t is $inding against the who"e wor"d $eca se it see8s to esta$"ish a fact or an order and it reD ires p $"ication. So there wi"" a"wa(s $e p $"ication reD irement in 1!,A proceedings. ,t is to s mmon $( p $"ication an( and a"" creditors. And, the( m st report to the co rt to esta$"ish their credit within a partic "ar period. #hen, no credits wi"" $e entertained. So (o forfeit (o r credit even if (o are gen ine"( a creditor if (o do not report to the co rt and esta$"ish (o r credit. #hat is a form of a waiver. Since (o were s mmoned and fai"ed to report, (o are deemed to have waived (o r credit. ,t is a"so S;**A!: in nat re. #he moment the co rt finds that the petition is in accordance with the "aw in s $stance and in form, ,**-D,A#-+: the proceedings $egin. #he co rt wi"" iss e a commencement order. #his is not even hearing (et. H st on the $asis of the petition that is wh( "ater on we wi"" find o t the partic "ars that a petition m st o$tain and the attachments on the petition. *ost petitions nder 1!,A m st contain the "ist of a"" the creditors. ,f the de$tor p rpose"( "eaves o t a creditor, what happens? #he creditors are made aware $( p $"ication. Ge is s mmoned $( p $"ication. #he moment the co rt iss es a commencement order, to determine the commencement order is the so ca""ed sta( order. 0o creditor can fi"e for recover( in another for m. /n"( in that inso"venc( for m. -ven if (o are a sec red de$tor, (o cannot forec"ose a mortgage. :o have to present (o r credit in the inso"venc( proceedings. #hat is the genera" r "e. !emem$er, that is granted ex parte. #hat is wh( (o r petition m st $e comp"ete. ,8aw ra( 8a"a$an sa imong 8a ga"ingon. Q ng mag$ina8a8 8a diha, the co rt wi"" examine (o . :o have a "ist of a"" (o r creditors and (o have proposa" of (o r reha$i"itation p"an. ,f it is an invo" ntar( inso"venc(, it is fi"ed $( the creditors whose c"aims are at "east P%,000,000 and there are other reD irements. #he( a"so present a p"an for reha$i"itation. Gow wi"" this de$tor $e p t $ac8 to its feet financia""(? So (o draw o t (o r financia" statements a"so in the petition $eca se how can (o reha$i"itate some$od( financia""(. !emem$er, financia" reha$i"itation is not a "ega" endeavor. ,t is an economic or financia" enterprise. #he co rtMs ro"e is to find o t whether this for the $est interest of a"" the partiesM concern. 1rom the de$tor to the creditors and other = rd parties who are essentia". An examp"e of a =rd part( that is essentia" to the $ siness activit( is the government. #he government is not a creditor. ,f (o "oo8 at it from the point of view of taxation, the government is a permanent si"ent partner in an( $ siness endeavor. So that is the 3o$ of the co rt to find o t.

February 20, 2013 Financial Rehabilitation and Insolvency Act (FRIA) of 2 ! >%P,BL<' A'5 7o( 10112

What is the nat re of the proceedings for Financial Rehabilitation and Insolvency ? 2efore it was not D ite s re whether it was ,0 !-* $eca se if (o are a corporate de$tor and (o are a petitioner nder the inso"venc( "aw, (o co "d not o$tain an order for re"ease. /n"( nat ra" persons can fi"e for re"ease of their o$"igation.

,s the co rt s pposed to 3 dge as to which is the cheaper wa( to reha$i"itate the corporation? 0/. #he 3o$ of the co rt is to find o t whether the reha$i"itation is in accordance with "aw $eca se if (o fo""ow the "aw s pposed"(, a"" the interest of the parties, creditors, sta8eho"ders of the corporation, = rd parties are ta8en care of. ,f (o donMt fo""ow the "aw, there is something that (o sacrificed. ,0 !-*, proceeding in S;**A!:, thatMs the nat re. ,t is a"so nonadversaria". 0on-adversaria". ,t is ref"ected in the tit"e of the case.

0ow, it is c"ear. #he nat re of the proceedings nder the 1!,A "aw is ,0 !-*. ,t is $inding against the who"e wor"d. $ection 3( .ature of Proceedin!s. - #he proceedings nder this Act sha"" $e in rem. H risdiction over a"" persons affected $( the proceedings sha"" $e considered as acD ired pon p $"ication of the notice of the commencement of the proceedings in an( newspaper of genera" circ "ation in the Phi"ippines in the manner prescri$ed $( the r "es of proced re to $e prom "gated $( the S preme Co rt.

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#What is the tit e o# a petition #or inso vency or rehabi itation? #he tit"e of the case is B,0 !-5 petition reha$i"itation @or inso"venc(6 of S:T Corp.C. #hat is the tit"e. Wa"a 8a( 8a"a$an, imo rang 8a ga"ingon imong 8a"a$an. ,t is non-adversaria". proced re does not imp"ement the !PC. ,t provides the remedia" rights $( which parties who have rights or o$"igations nder the "aw wi"" tr( it o t the remedies to assert the rights or vindicate their transgressions. #he SC is a"so granted the a thorit( to designate a partic "ar sa"a. #hat is inacc rate. ,t is not to designate the partic "ar co rt. A partic "ar $ranch. So who has 3 risdiction over the proceedings that are fo nd here? ,t is the !#C that has 3 risdiction $ t the SC is granted the power to designate a partic "ar $ranch, that this $ranch on"( hears financia" reha$i"itations and petitions for inso"venc( or s spension of pa(ments. paired with that. Ge has his own sa"a. S pposed na( 3 dge na appoint dra, n(a t ngod na c(a man nag"ing8od nagd ngog at ng dr g-re"ated case, he is a"read( sitting exc" sive"( in his own sa"a he writes the decision and signs it himse"f and p ts it nder his $ranch, not the 3 dgeMs $ranch, is it a va"id decision? Ra"id. Ge might get discip"ined. #hat is what is ca""ed@+atin for not a""owed $ t va"id6. S pposed to $e not a""owed $ t va"id. ,t is not void and inva"id. So, thatMs the meaning of designation of a partic "ar co rt. ,t is not transferring (o to the * nicipa" co rt or to some other co rt. ,t is a partic "ar $ranch or sa"a. #hat is the prerogative granted $( the "aw to the SC.

What is the #act sought to be determined? Whether or not (o are petitioning and $e re"eased in case of inso"venc( @in case of reha$i"itation dismissed6. #his is s pposed to $e nder the s pervision of the co rt. What is the co rt s ppose to s pervise? #he imp"ementation of the financia" reha$i"itation p"an. #he moment there is no need, the co rt can grant the motion or the de$tor wi"" $e dismissed. Q ng na dismiss, ang petitioner daog. Q ng re"ease, daog 8a( re"ease naman si(a. ,t is on"( non-adversaria" when the order of the co rt dismissing the case, the petitioner act a""( wins. And a"so a"" other parties are $e o$served.

#a8e note that this has imp"ications of 3 risdictions. S pposed $( mista8e (o fi"e it in the wrong co rt, and the exec tive c"er8 of co rt raff"es it and it does not fa"" in the sa"a of the reha$ co rt and another co rt hand"es it. 2eca se the reha$ proceedings are not that prono nced, "et s sa( it is a prenegotiated reha$i"itation, p"anchado na daan. +et s sa( it is s $mitted to the co rt and the co rt wi"" adopt it as its own and iss e the orders and ever($od( is satisfied then the next order is a"read( re"eased. Dismissa". S ppose another 3 dge wi"" do that, not the specific sa"a designated $( the co rt, is that a va"id 3 dgment?

Gere is a 8e( change in the "aw which c"arifies so man( things which in the past was ver( diffic "t to c"arif(, the definition of a de$tor. Who is the inso"vent? , am referring to sec )@86 of 1!,A "aw. ,t sa(s,

,n this partic "ar "aw 1!,A, the receiver is granted power to iss e specific r "es that are governed $( the mechanics in 1!,A. #here is now an existing r "e on the financia" reha$ and inso"venc( $ t this is $ased on an o"d "aw, $ased on PD 902-A and the inso"venc( "aw. 0ow, of co rse man( of those provisions in the r "e have $een 8eeping? in consideration in passing the 1!,A "aw. So there is no agreement in the existing r "e of SC that there is disagreement with the new "aw. 2 t it is m( opinion that the SC has to iss e a new r "e. ;nti" SC iss es a new r "e, the existing r "e is what app"ies. So, that is one of the prerogatives granted $( the "aw to the SC. P"ease do not ma8e the mista8e in thin8ing that the r "e on imp"ementation? iss ed $( the SC imp"ements the 1!,A. 0o it does not. ,t provides for the r "es on the remedies of 1!,A. ,t provides for, 3 st "i8e crimina"

,t isU 2eca se the one that has 3 risdiction is the co rt. #he 3 dge who iss ed the 3 dgment is s $3ect to discip"inar( action $( the SC for exercising something which it is not specifica""( empowered to do. 2 t as far as the who"e wor"d is concerned, that is a va"id 3 dgment. 2eca se it is the co rt that retains 3 risdiction. ,t is the same r "ing in the dr gs case, there is specific sa"a. S ppose (o fi"e it and it was fi"ed in the wrong sa"a. ,s that a va"id 3 dgment? Ra"id $eca se it is that co rt that has 3 risdiction.

0!3 "ebtor sha re#er to, un ess speci#ica y e&c uded by a provision o# this Act, a so e proprietorship du y registered "ith the 8epartment o# 5rade and <ndustry 085<3, a partnership du y registered "ith the $ecurities and %&change 'ommission 0$%'3, a corporation du y organized and e&isting under Phi ippine a"s, or an individua debtor "ho has become inso vent as de#ined herein(

What is the meaning o# inso vent? 0p3 Insolvent sha re#er to the #inancia condition o# a debtor that is genera y unab e to pay its or his iabi ities as they #a due in the ordinary course o# business or has iabi ities that are greater than its or his assets( ,f (o have more assets than (o r "ia$i"ities, technica""( in the $ siness "ang age, (o are not inso"vent. 2 t the "aw here sa(s, that (o can $e inso"vent if (o see8 ref ge nder 1!,A even if (o have more assets

A sa"a is 3 st another for m of the same co rt. #hatMs wh( it is possi$"e to have those 3 dge sitting in that sa"a and there is another 3 dge who is

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

02

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#than (o have "ia$i"ities $eca se (o r assets are not ripening at a$o t the same time that (o r "ia$i"ities are ripening. :o are see8ing ref ge nder 1!,A nder that partic "ar proceeding 8nown as petition for s spension of pa(ments. :o r as8ing (o r creditors to rearrange the sched "e of pa(ments $eca se "eft to the origina" sched "e, (o wi"" not $e a$"e to pa( them. na m $a"i8 sa co rt 8a( d"i c(a m ang8on na inso"vent. 0ow that is remedied. February 21, 2013 :esterda( we saw the ma3or change in 1!,A "aw on the interpretation of the inso"vent, so technica""( spea8ing nder the "aw the petition for s spension of pa(ments if (o are D a"ified which means that (o have more than eno gh assets than (o r "ia$i"ities (o are sti"" c"assified as inso"vent. So, as compared to the ordinar( nderstanding of the $ siness wor"d with regards to the word inso"vent the meaning em$race $( 1!,A is m ch wider. 0ow, to the D estion what the remedies or proceedings provided for in Act %0%)2 of 1!,A there is now a ma3or c"assification into three headings ca""ed5 %. Co rt s pervise reha$i"itation9 2. Pre-negotiated reha$i"itation9 =. / t of co rt or informa" restr ct ring agreements or reha$i"itation p"an. ,f (o go thro gh the "aw itse"f there are severa" proceedings. 5he court supervised proceedings may be? 1( 2( Ao untaryC or <nvo untary(

Wh( is it that the( are 3 st the same? With some$od( who does not have eno gh assets to pa( his "ia$i"ities? Some$od( who does not have eno gh assets to pa( his "ia$i"ities sti"" means inso"vent, needs the intervention of co rt to proper"( apportion his "imited assets in accordance with the provisions of "aw on conc rrence and preference of credits. Who has the right to get more, who has to get "ess, who wi"" get nothing, that is determined $( "aw. C"ear"( this g ( is inso"vent. Wh( in the past it was separate? /ne was not an inso"vent and here the( are $oth inso"vent. ,n the past, if (o fi"e s spension of pa(ment proceedings, and (o are a corp, (o fi"e nder PD 902-A, the one that has 3 risdiction is the S-C. 0ow, in the co rse of proceedings when the sec finds o t that (o are rea""( not in the position to have more assets than (o r "ia$i"ities, when the( find o t (o have "ess asset than "ia$i"ities, (o are act a""( inso"vent. #he S-C has to dismiss the case, not $eca se (o are now free $ t $eca se it has no 3 risdiction over (o . #hat (o are rea""( inso"vent. 0ow, here, $eca se the 3 risdiction over inso"venc( and s spension of pa(ment are now in the same co rt, (o can f"ow immediate"( and go into "iD idation, from petition for s spension of pa(ments when the( find that (o act a""( have "ess assets than "ia$i"ities and (o have no wa( of reha$i"itating, (o can go into "iD idation. * ch in the same wa( as a petitioner for inso"venc( who a"read( admits that he has "ess assets than "ia$i"ities and he cannot reha$i"itate and he goes ahead to "iD idation.

What is the meaning of this? #his is when (o have to rea"i.e, , thin8 acco ntants have to rea"i.e, that the technica" meaning of inso"venc( is $roader than the $ siness or acco nting meaning of inso"venc(, not exact"( the same. 1or p rposes of faci"itation of remedia" processes, that is wh( the idea of inso"venc( is $roader than the technica" meaning of inso"venc(.

Pag ingon de$tor, nder 1!,A. :o are inso"vent. :o can sa( that the inso"vent petitioner, (o are not wrong even if he has more assets than "ia$i"ities provided (o are in co rt and (o state that in (o r p"eadings. :o refer to one and the same thing. :o are a proper part( to see8 ref ge nder the 1!,A $eca se (o are technica""( not inso"vent.

+etMs sa( 400php imong gi tang. ;pat imong gi tangan. Panahon na i$a(ad ron. ,mong asset %000php, ti$ o8, nsaon mn nimo, g ntingon nimo? Pasinsi"(o n "ng nimo..w"a mn si"a sinsi"(o. :o have more assets than "ia$i"ities. An inso"vent, technica""( ang i(ang tang 400Php, pat 8a$ o8 i(ang gi tangan. ,(ang 8warta tres sintos na "ng. *a na i(ang asset.*aingon dosentos.awa( na na . thatMs when the co rt comes in. and the co rt wi"" decide who wi"" get how m ch in accordance with the "aw.

#he pre-negotiated reha$i"itation made in with a Ro" ntar( or ,nvo" ntar( co rt proceedings and ma($e converted to pre- negotiated, in this case there is a s spension of proceedings and in fact $ased on agreement if it is s ccessf " the( wi"" arrived at an agreement s a""( the creditors are few in n m$er then the( wi"" 3 st s $mit their agreement in co rt. 7o" out/o#/court or in#orma restructuring agreements or rehabi itation p ans there are many variations o# that( +iD idation is the opposite of reha$i"itation, when (o go to "iD idation that means there is no reha$i"itation that is a proceeding in the proceeding in the 1!,A "aw that covers Sections %0= to %='. S spension of pa(ments is a"so another distinct proceeding which is covered $( sections 9) to %02. And then there are other anci""ar( proceedings.

#he sec cannot dec"are an($od( inso"vent. #hatMs the power nder PD 902-A. So conf sing. Dismiss n(a ang case n(a dia( inso"vent dia( to. D

P400 ang tang nimo. Ang 200 imong gi tangan sa % tao para sa tam$a". Ang $an tang 8a( para tan aw sine, pa"it sanina. Sa imong h na h na, sa imong 8asing8asing 8insa na $a(ron? #hose are the r "es on conc rrence and preference of credits, how m ch sho "d go to who, who is senior, who is 3 nior.

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

03

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#0ow, "iD idation, s spension of pa(ments and anci""ar( proceedings are a"" co rt s pervise, there is no "iD idation that is not co rt s pervised $eca se there wi"" $e disagreements if the( 3 st a""ow the de$tor to himse"f cond ct the "iD idation of his assets to meet the "ia$i"ities. +et s ta8e the first ma3or c"assification the co rt s pervised proceedings. 1( <n 'hapter 2 D Ao untary Proceedings !eD irements of the petition fo nd in $ection 12 o# the F><A La"( 0A3 <nitiation Proceedings( 013 Ao untary Proceedings( $ection 12( Petition to Initiate )oluntary Proceedin!s by *ebtor. - When approved $( the owner in case of a so"e proprietorship, or $( a ma3orit( of the partners in case of a partnership, or in case of a corporation, $( a ma3orit( vote of the $oard of directors or tr stees and a thori.ed $( the vote of the stoc8ho"ders representing at "east two-thirds @27=6 of the o tstanding capita" stoc8, or in case of nonstoc8 corporation, $( the vote of at "east two-thirds @27=6 of the mem$ers, in a stoc8ho"derIs or mem$erIs meeting d "( ca""ed for the p rpose, an inso"vent de$tor ma( initiate vo" ntar( proceedings nder this Act $( fi"ing a petition for reha$i"itation with the co rt and on the gro nds hereinafter specifica""( provided. #he petition sha"" $e verified to esta$"ish the inso"venc( of the de$tor and the via$i"it( of its reha$i"itation, and inc" de, whether as an attachment or as part of the $od( of the petition, as a minim m the fo""owing5 @a6 ,dentification of the de$tor, its principa" activities and its addresses9 @$6 Statement of the fact of and the ca se of the de$torIs inso"venc( or ina$i"it( to pa( its o$"igations as the( $ecome d e9 @c6 #he specific re"ief so ght p rs ant to this Act9 @d6 #he gro nds pon which the petition is $ased9 @e6 /ther information that ma( $e reD ired nder this Act depending on the form of re"ief reD ested9 @f6 Sched "e of the de$torIs de$ts and "ia$i"ities inc" ding a "ist of creditors with their addresses, amo nts of c"aims and co""atera"s, or sec rities, if an(9 @g6 An inventor( of a"" its assets inc" ding receiva$"es and c"aims against third parties9 @h6 A !eha$i"itation P"an9 @i6 #he names of at "east three @=6 nominees to the position of reha$i"itation receiver9 and @36 /ther doc ments reD ired to $e fi"ed with the petition p rs ant to this Act and the r "es of proced re as ma( $e prom "gated $( the S preme Co rt. A gro p of de$tors ma( 3oint"( fi"e a petition for reha$i"itation nder this Act when one or more of its mem$ers foresee the impossi$i"it( of meeting de$ts when the( respective"( fa"" d e, and the financia" distress wo "d "i8e"( adverse"( affect the financia" condition and7or operations of the other mem$ers of the gro p and7or the participation of the other mem$ers of the gro p is essentia" nder the terms and conditions of the proposed !eha$i"itation P"an. 2( <nvo untary Proceeding !eD irements of the petition fo nd in $ection 13 o# the F><A La"( 023 <nvo untary Proceedings( $ection 13( (ircumstances .ecessary to Initiate Involuntary Proceedin!s. - An( creditor or gro p of creditors with a c"aim of, or the aggregate of whose c"aims is, at "east /ne *i""ion Pesos @Php%,000,000.006 or at "east twent(-five percent @24<6 of the s $scri$ed capita" stoc8 or partnersI contri$ tions, whichever is higher, ma( initiate invo" ntar( proceedings against the de$tor $( fi"ing a petition for reha$i"itation with the co rt if5 @a6 there is no gen ine iss e of fact on "aw on the c"aim7s of the petitioner7s, and that the d e and demanda$"e pa(ments thereon have not $een made 2. for at "east sixt( @'06 da(s or that the de$tor has fai"ed genera""( to meet its "ia$i"ities as the( fa"" d e9 or @$6 a creditor, other than the petitioner7s, has initiated forec"os re proceedings against the de$tor that wi"" prevent the de$tor from pa(ing its de$ts as the( $ecome d e or wi"" render it inso"vent. 7o", ta!e a oo! at the di##erence the contents o# the petition bet"een the vo untary and invo untary proceedings? %. #he main difference is in the petition, the vo" ntar( proceeding @RP6 m st contain the sched "e of the de$torMs de$ts or "ia$i"ities inc" ding the "ist of the creditors with their addresses, amo nt of c"aim and co""atera" if there is an(, inventor( of the assets inc" ding receiva$"e. Whi"e in invo" ntar( proceeding @,P6 petition there is no s ch reD irement. Wh(? 2eca se the one who initiates the ,P is the creditors and the creditor is not in possession of the "ist creditors against the de$tor with whom he is fi"ing the petition for ,P. Ge is of co rse reD ired to attached the reha$i"itation p"an "i8e the RP What gives him a ca se of action? What give him the recitation of "timate facts $( which the co rt o$tains 3 risdiction over the petition? ,n RP (o m st recite in (o r petition after (o identif( (o rse"f as a de$tor, the 3 risdictiona" fact if (o are a corporation proof that the ma3orit( vote of the 2/D or 2/# have $een sec red and there has $een an a thori.ation $( the vote of the stoc8ho"ders representing at "east 27= of the o tstanding capita" stoc8 or 27= of the mem$ers of the non-stoc8 corporation in the stoc8ho"ders or mem$ers meeting d "( ca""ed for that p rpose. #he iss e is and there has $een no r "e (et5 what is the $asis of 27= of a thori.ation of the stoc8ho"ders? ,s it for the voting shares or does it inc" des non-voting shares? #a8e note this is no "onger the Corporation Code, this is a new "aw that is o tside the Corporation Code. So what r "e do (o se in

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

04

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#stat tor( constr ction? Where the "aw does not disting ish, neither sho "d we disting ish, it is m( s $mission that a"" shares sho "d vote, when it sa(s the o tstanding shares @/S6 then it is the entiret( of the /S voting or non-voting. Wh(? 2eca se this no "onger covered $( the Corporation Code. So that is 3 risdictiona", if (o cannot a""ege and attach proof that to effect in (o r petition then the co rt does not o$tain 3 risdiction over (o r vo" ntar( petition for reha$i"itation. 0ow, if it is ,P petition, what are the "timate facts that give the co rt 3 risdiction? #he petition m st recite and show proof that the creditor or the gro p of creditors who fi"es the petition has a c"aim or an aggregate c"aim of at "east % mi""ion pesos or at "east 24< of the s $scri$ed stoc8 or partnerMs contri$ tion whichever is higher according to section %=. And f rthermore (o m st a""ege and show proof that there is no gen ine iss e of fact or "aw on the c"aims of the petitioner and the d e and demanded pa(ments thereon had not $een made for at "east '0 da(s or the de$tor has fai"ed genera""( to meet its "ia$i"ities as the( fa"" d e. #hat is 3 risdictiona", if (o cannot show proof of that then the petition is not s fficient in form and s $stance. =. Another important item, there m st $e m st $e an initia" proposa" of a reha$i"itation p"an. ,f (o a""ege in the vo" ntar( petition that (o a"read( have the ma3orit( votes of the 2/D or 2/#, 27= vote of the stoc8ho"ders or mem$ers, then (o p t (o r reha$i"itation p"an @!P6 and that (o r !P is this that (o $orrow an additiona" 40 mi""ion from a $an8, is that s fficient? #hat is ins fficient, so (o r petition for vo" ntar( reha$i"itation is ins fficient in form and s $stance. When (o sa( (o wi"" $orrow there m st $e an effective ass rance that the $an8 wi"" "end. ,n invo" ntar( it is the creditors who wi"" fi"e a petition, the( have to attached there p"an, what is there p"an? S ppose the( sa( in their p"an that one of s creditors wi"" ta8e over the compan( and p t in 40 mi""ion and this m st converted into shares of stoc8s s ch as that we now are contro""ing the corporation, now 8 ng 8 to$ "ang 8a dinha im p"an that is a"so ? ,t is ins fficient. What do (o do to ma8e it a rea" p"an? :o m st attach a certification from a $an8 that there is this m ch mone( at the contro" or command of the petitioner and read( to inf se, the on"( D estion $eing W/0 the de$tor wi"" a""ow the ceding of contro". Q ng wa"a gani na wa"a( hearing (o r petition wi"" $e dismissed. ,nvo" ntar( (o have the certification from the $an8 the 40 mi""ion is read( to $e inf sed nder the contro" of the creditor, this petitioner, in hearing if the de$tor wi"" oppose it and sa( that this is 3 st temporar( (o are going to ma8e me "oss contro" of the corporation which , $egan 20 (ears ago and (o were paid so man( times in the past etc, , have done $ siness for so man( (ears (o have made so m ch mone( from me now (o are going to ta8e over me $eca se this a good $ siness. *ao na i"ang com$atihan ana sa co rt, that is wh( (o m st prove that c"aim (o are ma8ing as creditor is gen ine, there sho "d $e no iss e a$o t that. Gow do (o do that? :o prove past pa(ments, 2 nd $eca se he has not made pa(ments to (o c"aim which is d e and demanda$"e for at "east '0 da(s or that the de$tor has fai"ed genera""( to meet his "ia$i"ities, (o m st attached that $eca se this 3 risdictiona". ). 2oth the petition for vo" ntar( or invo" ntar( (o m st a"so have a proposa" for as to who wi"" $e the reha$i"itation receiver. ,f it is a vo" ntar( (o have three, if it is invo" ntar( (o can have 3 st one it does not have to $e three $eca se it is ass med that (o $eing the petitioner (o are wi""ing to (ie"d to the receiver. petition, iss e a Commencement /rder. ,f, within the same period, the co rt finds the petition deficient in form or s $stance, the co rt ma(, in its discretion, give the petitioner7s a reasona$"e period of time within which to amend or s pp"ement the petition, or to s $mit s ch doc ments as ma( $e necessar( or proper to p t the petition in proper order. ,n s ch case, the five @46 wor8ing da(s provided a$ove for the iss ance of the Commencement /rder sha"" $e rec8oned from the date of the fi"ing of the amended or s pp"ementa" petition or the s $mission of s ch doc ments. #he first intermediate prod ct of the proceeding a commencement order, once it is given then it can move to the next step $ t section %4 sa(s5 If, within the same period, the court finds the petition deficient in form or substance, the court may, in its discretion, !ive the petitioner0s 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. Gow does a co rt do that? Does the co rt iss e an order? #he "aw does not sa( so, the co rt since this a s mmar( proceeding and in rem proceeding, this is not an adversaria" the 3 dge wi"" te"" the petitioner @if vo" ntar( the de$tor, if invo" ntar( the creditor6 that there is a defect in the petition. Are the( covered $( the five da( period? Section %4 sa(s5 In such case, the five (#) wor-in! days provided above for the issuance of the (ommencement 'rder shall be rec-oned from the date of the filin! of the amended or supplemental petition or the submission of such documents. So f"exi$"e, so 8 ng sa(op im petition then fi"e the amended petition or s pp"ement petition then the five da( period commence. 0ow, what is the significance of the commencement order? ,t commences the second phase of the inso"venc( reha$i"itation proceeding. What does the second phase consists of? #he commencement order according to section %' @f65 $ection 1.( (ommencement of Proceedin!s and Issuance of

What is the co rtMs action? #hat is fo nd in section %4 of 1!,A 0B3 Action on the Petition and 'ommencement o# Proceedings( $ection 12( /ction on the Petition. - ,f the co rt finds the petition for reha$i"itation to $e s fficient in form and s $stance, it sha"", within five @46 wor8ing da(s from the fi"ing of the

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

05

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#a (ommencement 'rder. - #he reha$i"itation proceedings sha"" commence pon the iss ance of the Commencement /rder, which sha""5 xxxxx @f6 direct the p $"ication of the Commencement /rder in a newspaper of genera" circ "ation in the Phi"ippines once a wee8 for at "east two @26 consec tive wee8s, with the first p $"ication to $e made within seven @&6 da(s from the time of its iss ance9 And then, together with the commencement order is the sta( order. What is sta( order? The sus#ension or stay order sus#ends or stays all actions or #roceedings for the enforcement of claims or $udgment against the debtor and #rohibiting the debtor from selling% encumbering or dis#osing of any of its #ro#erties and from ma&ing any #ayment its liabilities. #hat is wh( it has to $e p $"ished, so no more creditors can $ring an( action against this de$tor that has see8 ref ge to the 1!,A "aw. ,f there is an( co rt that receives a comp"aint, what m st that co rt do? #he co rt m st dismiss the case and advice the comp"ainant to refer it to the reha$i"itation co rt where a de$tor has a petition for reha$i"itation. +i8ewise the de$tor is prohi$ited from pa(ing an( of the creditors in this case. s spended animation or contin ing in $ siness? #he corporation is contin ing in $ siness, in fact one of the orders in the commencement order is that a"" other creditors cannot withho"d the necessar( materia"s from the de$tor that wi"" prevent from contin ing $ siness. +et s sa( one of the creditor is Davao +ight 8a( = (ears na s(a w"a $a(ari sa petitioning cement factor(, part of the order is (o m st contin e to s pp"( e"ectricit( to this de$tor as "ong he pa(s from then on, it is rea""( in favo r of the de$tor, 8adtong past tang or in arrears sta( aron mapada n ang negos(o. ,n the end the p"an is approve and once it is approve there is now a change in the Corporation it is grad a""( p"ace in a more sta$"e financia" ?$eca se the p"an is effected and it contin es nder co rtMs s pervision $ t the reha$i"itation receiver s"ow"( goes o t of the pict re. When the Corporation is f ""( restored $eca se it comp"ete"( imp"emented the p"an then the Corporation itse"f can fi"e a motion to the co rt to have the case dismiss, then the co rt wi"" dismiss it if it finds that the reha$i"itation p"an has $een comp"ete"( imp"emented. Gopef ""( the creditors are satisfied9 the Corporation is $ac8 to norma". So that is the seD ence. #he rest (o wi"" read what wi"" happen if something goes wrong, "et s sa( it $etween as the co rt examines the credits or c"aims that come in, then it rea"i.es that it is more than what was reasona$"( p t forth in the p"an, the de$ts are so m ch, so that now the = rd part( that is wi""ing to come in with fresh f nds are no "onger wi""ing to come in $eca se the( have seen that the facts are not as the( tho ght it wo "d $e. What happen now? #hen the reha$i"itation receiver wi"" recommend "iD idation. What was reha$i"itation $ecomes now "iD idation, im$es na maa(o na d"i na ma8a(a 8a( termina" na. $ection 1+( Exceptions to the Stay or Suspension 'rder. - #he Sta( or S spension /rder sha"" not app"(5 (explanation1 so this are 2 rd parties. Since they are 2 rd parties they are separate and distinct from the debtor actions a!ainst them can continue. .ow what if they pay a particular debt3 Then their payment will be presented as evidence in the rehabilitation court and to that extent the claim of the particular creditor is remove from the list of credits because it has been made by a 2rd party) @d6 to an( form of action of c stomers or c"ients of a sec rities mar8et participant to recover or otherwise c"aim mone(s and sec rities entr sted to the "atter in the ordinar( co rse of the "atterIs $ siness as we"" as an( action of s ch sec rities mar8et participant or the appropriate reg "ator( agenc( or se"freg "ator( organi.ation to pa( or sett"e s ch c"aims or "ia$i"ities9 (explanation1 this has to do with the stoc- mar-et, bro-ers or dealers of the stoc- mar-et. Suppose the bro-er or dealer is a debtor in the rehabilitation proceedin! and its petition is sufficient in form and substance and there is an issuance of a commencement order, does that commencement order at a specia"i.ed co rt or D asi-3 dicia" agenc( which, pon determination $( the co rt is capa$"e of reso"ving the c"aim more D ic8"(, fair"( and efficient"( than the co rt5 Provided, #hat an( fina" and exec tor( 3 dgment of s ch co rt or agenc( sha"" $e referred to the co rt and sha"" $e treated as a non-disp ted c"aim9 (explanation1 so if there are pendin! cases where the validity, scope or amount of the claim are in &uestion that case will be allowed to !o on, once it become final and executory the court are now incorporated with the rehabilitation court and this will now become as one of those non"disputed claims) @c6 to the enforcement of c"aims against s reties and other persons so"idari"( "ia$"e with the de$tor, and third part( or accommodation mortgagors as we"" as iss ers of "etters of credit, n"ess the propert( s $3ect of the third part( or accommodation mortgage is necessar( for the reha$i"itation of the de$tor as determined $( the co rt pon recommendation $( the reha$i"itation receiver9

1or how "ong is the sta( order? ,t sha"" $e effective for a period of three months from the date of fi"ing a petition extendi$"e for three months at a time with the tota" extension not to exceed %4 months. Within %4 months (o m st come p with a reha$i"itation p"an, , (o cannot arrive, what happens? ,t wi"" $e "iD idation. What do (o do d ring the sta( order which is %4 months maxim m? %. 2. :o va"idate the c"aims, the creditors have to prove that their c"aim is va"id that is one of the things that the receiver have to do9 D ring %4 months the receiver have to $e appointed9

(a# to cases a"read( pending appea" in the S preme Co rt as of


commencement date Provided, #hat an( fina" and exec tor( 3 dgment arising from s ch appea" sha"" $e referred to the co rt for appropriate action9

What happens d ring the %4 months is the corporation dead, in

($# s $3ect to the discretion of the co rt, to cases pending or fi"ed

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

06

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#include the settlement of trades that are made by the bro-er3 This exception says no, they are not included because if they are included then it will brin! (3) dan!er to the people who will brin! money to the stoc- mar-et and invest on the thin-in! that their investments are protected. Suppose one of his clients of the bro-er is also a debtor and files a petition for rehabilitation, are this trades with the bro-er are also covered3 .o, they are not covered, it mi!ht cause the bro-er4s own insolvency and that mi!ht affect the mar-et. So if this debtor who is petitionin! is now the sub5ect of the bro-er4s mar!in 3 and the bro-er executes upon his securities that are in certificates held by the bro-er even if it is part of the assets of the (orporation that is exclude from the stay order) @e6 to the actions of a "icensed $ro8er or dea"er to se"" p"edged sec rities of a de$tor p rs ant to a sec rities p"edge or margin agreement for the sett"ement of sec rities transactions in accordance with the provisions of the Sec rities !eg "ation Code and its imp"ementing r "es and reg "ations9 @f6 the c"earing and sett"ement of financia" transactions thro gh the faci"ities of a c"earing agenc( or simi"ar entities d "( a thori.ed, registered and7or recogni.ed $( the appropriate reg "ator( agenc( "i8e the 2ang8o Sentra" ng Pi"ipinas @2SP6 and the S-C as we"" as an( form of actions of s ch agencies or entities to reim$ rse themse"ves for an( transactions sett"ed for the de$tor9 and appoints a reha$i"itation receiver if the petition is in order. #his is a cr cia" D estion9 can a creditor $e a receiver? 2eca se in the o"d practice, norma""( the o"d reha$i"itation proceedings the $iggest creditor is norma""( appointed as receiver $eca se he stands to "ose the most if the compan( is f rther mismanage. #hatMs wh( he is appointed as the reha$i"itation receiver. What is the r "e now? #he r "e now is that, one the reD isites is that he m st not on"( $e a person of nD estioned integrit(, one with good mora" character with ac8now"edged integrit(, impartia"it( and independence. Ge has the reD isite 8now"edge of inso"venc( and other re"evant commercia" "aw as fo nd in section 29. 1ina""( he has no conf"ict of interest. So if (o Mre a creditor and (o are charged with preserving the corp s of the properties and assets of the inso"vent petitioner, (o are in conf"ict of interest $eca se (o have an own interest to recover. 0ow, however in the same $reath that the "aw sa(s he has no conf"ict of interest, it D a"ifies him provided s ch conf"ict of interest ma($e waived express"( or imp"ied"( $( the part( who ma( $e pre3 diced there$(. So it is sti"" possi$"e toda( nder this "aw for a creditor to $e appointed. 2 t as a genera" r "e, he sho "d not $e, it sho "d $e the person who has no conf"ict of interest. ,s a receiver a nat ra" person or a 3 ridica" person? ;nder section 2K he can either $e a nat ra" person or a 3 ridica" person provided that if the reha$i"itation receiver is a 3 ridica" person it m st designate a nat ra" person or persons who possess a"" the D a"ifications and none of the disD a"ification as its representative, it $eing nderstood that the 3 ridica" entit( and the representative are so"idari"( "ia$"e for a"" o$"igations and responsi$i"ities of the reha$i"itation receiver. #a8e note, it might $e possi$"e that the receiver appointed is a 3 ridica" person and there is not conf"ict of interest $ t if the nat ra" person designated $( the 3 ridica" person is in conf"ict of interest then he co "d not act as a reha$i"itation receiver @ RR for short6, he m st $e changed. !emem$er that a !! is appointed a$o t the same time that the commencement order is iss ed. When is the commencement order iss ed? Within 4 da(s from the fi"ing of the petition for reha$i"itation or inso"venc(. What is the $asis for the appointment of the reha$i"itation receiver @RR for short6? #he petition wi"" contain nominees or s ggested persons as !!. 2efore, the( ma( choose one person that is so named in the petition. What happens to a petition that has no nominee for a !!? #hat petition is not s fficient in form and s $stance. #he co rt wi"" throw it $ac8 to the petitioner. :o m st p t there a possi$"e set of nominees. /nce the co rt has appointed, when the co rt ma8es its initia" hearing of the case @remem$er there wi"" $e s $seD ent ca"" to creditors to come to co rt6 there can $e a motion fi"ed $( the creditors and or de$tors petitioning for the appointment of another person as !!. So the co rt can change its mind $eca se it sa(s in section =0 "ast paragraph ,f a D a"ified nat ra" person or entit( is nominated $( more than fift( percent @40<6 of the sec red creditors and the genera" nsec red creditors, and satisfactor( evidence is s $mitted, the co rt sha"" appoint the creditorsI nominee as reha$i"itation receiver.

@g6 an( crimina" action against individ a" de$tor or owner, partner, director or officer of a de$tor sha"" not $e affected $( an( proceeding commend nder this Act. (explanation1 The stay order is only on the civil rem of the debtor4s obli!ations.) February 2=, 2013 We have reha$i"itation receiver. We have seen the commencement order sim "taneo s with the commencement order. When the inso"venc( and reha$i"itation co rt iss es a commencement order a"so

#he co rt can change its mind. +oo8 at the reD irement, more than 40< of the sec red creditors and the genera" nsec red creditors. P"ease ta8e note, it is not 40< of credits $ t 40< of the creditors. #he "ive $odies. :o might $e a creditor and the compan( owes (o more than 40< of its nets and (o Mre the on"( one. Can (o dictate (o the !! wi"" $e? 0o (o cannot. :o are not more than 40< of the creditors. :o are 3 st one of them $eca se the ma3orit( is not determined $( the credits. ,t is determined $( n m$er of warm $odies. We come to the iss e. What does the !! do? So that (o wi"" see where we are going, it has two $asic d ties. %. ,ts principa" d t( as a receiver and 2. ,f co rt wishes so, it has secondar( or additiona" d t( of $eing a manager $eca se it is possi$"e "ater on that the co rt wi"" appoint a !! as manage who wi"" r n the compan( itse"f. +et s see the d t( as a receiver, its principa" primar( d t( as a receiver that as fo nd in section =%. #his is the d t( of the !! as an officer of the co rt. ,n genera" this is

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17

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#his d t(5 a. Preserving and maximi.ing the va" e of the assets of the de$tor in the reha$i"itation proceeding. Determining the via$i"it( of the reha$i"itation of the de$tor. Preparing and recommending a reha$i"itation p"an to the co rt. ,mp"ementing the approved reha$i"itation p"an. &. '. tao didto para isec re ang co rt order nga imo nang $irahon. *ao nang tra$aho sa receiver. A(aw 8og igna ang 3 dge pa mangita ana. Wa"a( "a$ot ang 3 dge ana. ,t is the !! who does the wor8. #o s e and recover, with the approva" of the co rt, a"" amo nts owed to, and a"" properties pertaining to the de$tor9 #o have access to a"" information necessar(, proper or re"evant to the operations and $ siness of the de$tor and for its reha$i"itation9 #o s e and recover, with the. approva" of the co rt, a"" propert( or mone( of the de$tor paid, transferred or dis$ rsed in fra d of the de$tor or its creditors, or which constit te nd e preference of creditor7s9 #o monitor the operations and the $ siness of the de$tor to ens re that no pa(ments or transfers of propert( are made other than in the ordinar( co rse of $ siness9

%0.

$. c. d.

#o determine the manner $( which the de$tor ma( $e $est reha$i"itated, to review, revise and7or recommend action on the !eha$i"itation P"an and s $mit the same or a new one to the co rt for approva"9 #his is a ver( $road power. #he !! can s ggest changes on the proposed reha$i"itation p"an of the petition.

%%.

#hose d ties are as an officer of the co rt. Powers, what power does he have. %. #o verif( the acc rac( of the fact a" a""egations of the petition and its annexes. #o verif( and correct if necessar( the inventor( of a"" the assets of the de$tor nder eva" ation. Ge is acting here as an a ditor, he verifies the inventor( of the assets. ;nsa man na si(a mags ro( s ro( rana si(a? 0o. he has the a thorit( to engage the service of an a diting firm $ t the wor8 of that a diting compan( wi"" $e nder his direct responsi$i"it(. #o verif( and correct if necessar( the sched "e of de$ts and "ia$i"ities of the de$tor. #here might $e sim "ated de$ts there. 2efore he fi"es the petition for reha$i"ation he might have arranged the corporation of his re"ative to $e "isted down there as one of the de$tors. 0aa( masave ni(a if ma-awardan to. Who changed that? ,t is the !! as an officer of the co rt. #o eva" ate the va"idit(, gen ineness, and tr e amo nt of a"" the c"aims against the de$tor. #o ta8e possession, c stod(, and contro" to preserve the va" e of the propert( of the de$tor. 0orma""( what the !! does is act on the reports that are reaching him. Qinsa man magp risige an mang"ocate sa asset? Ang mga creditors. 0aa( $a"ita na naa ang $ ""do.er aning 8ompan(aha so magpas go na8ag

#o imp"ement the !eha$i"itation P"an as approved $( the co rt, if so provided nder the !eha$i"itation P"an9

K.

2.

9.

#o ass me and exercise the powers of management of the de$tor, if directed $( the co rt p rs ant to S-C#,/0 =' hereof. #hat is an entire"( different set of d ties and power when (o ta8e over the management of the de$tor. What is the mar8, what is necessar( that this set of d ties is apart from the reg "ar d t( of a !! $eca se the "aw sa(s that sho "d the co rt order the !! to ta8e over the management of the management of the ongoing de$tor, the !! ma($e reD ired to p t p an additiona" $ond and additiona" s ret(. #hat is fo nd in section ='. $%'5<;7 3.( 8isp acement o# %&isting :anagement by the >ehabi itation >eceiver or :anagement 'ommittee( N xxxxxxx @c6 Aross mismanagement of the de$tor. or fra d or other wrongf " cond ct on the part of, or gross or wi""f " vio"ation of this Act $(. existing management of the de$tor /r the owner, partner, director, officer or representative7s in management of the de$tor. ,n case the co rt appoints the reha$i"itation receiver to ass me the powers of management of the de$tor. the co rt ma(5 @%6 reD ire the reha$i"itation receiver to post an additiona" $ond9 As he is appointed as receiver, he p ts a $ond. ,f he is f rther appointed to manage the de$tor then he is reD ired to p t p an additiona" $ond. Section =% "ast paragraph is ver( c"ear, n"ess appointed $( the co rt, p rs ant to S-C#,/0 =' hereof, the reha$i"itation receiver sha"" not ta8e

=.

).

4.

#his is "oo8ing forward. After his appointment, the de$tor as a 3 ridica" person contin es to operate. Ge sho "d see to it that the pa(ments made are in the ordinar( co rse of $ siness. ,n other words no pa(ments to those de$tors that are "isted are creditors. #he( are not paid except for the good and services the( are now rendering to the petitioner in the ordinar( co rse of $ siness. !emem$er we said that once there is a commencement order there is a"so a sta( order. #he sta( order wi"" sta( the partic "ar creditor as to his c"aims or credits in arrears. #he petitioner can contin e $ siness and the creditor is f rther prohi$ited from withho"ding the s a" raw materia" and services that he extends to give on credit to the petitioner as "ong as he contin es to pa( now the s $seD ent to the fi"ing of the petition. WhoMs 3o$ is it to determine that nothing in excess of the ordinar( $ siness is paid to receive from the s pp"ier goods and raw materia"s to cover past de$ts $eca se the past de$ts m st $e sett"ed together with the genera"it( of a"" the creditors, it is the 3o$ of the !!.

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

10

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#over the management and contro" of the de$tor $ t ma( recommend the appointment of a management committee over the de$tor in the cases provided $( this Act. ,n genera" that is the scope, power s and responsi$i"ities of the !!. O estion5 can the !! $e removed? Ge is s pposed to $e watcher, the overseer. What happens if he is $anta( sa"a8a(? Ge is s pposed to $e removed. Section =2 gives s the gro nd. 2 t the "ist in section =2 is not exc" sive $eca se the "aw sa(s so. $%'5<;7 32( >emova o# the >ehabi itation >eceiver( N #he reha$i"itation receiver ma( $e removed at an( time $( the co rt either motu proprio or pon motion $( an( creditor7s ho"ding more than fift( percent @40<6 of the tota" o$"igations of the de$tor, on s ch gro nds as the r "es of proced re ma( provide which sha"" inc" de, $ t are not "imited to, the fo""owing5 @a6 ,ncompetence, gross neg"igence, fai" re to perform or fai" re to exercise the proper degree of care in the performance of his d ties and powers9 @$6 +ac8 of a partic "ar or specia"i.ed competenc( reD ired $( the specific case9 @c6 ,""ega" acts or cond ct in the performance of his d ties and powers9 @d6 +ac8 of D a"ification or presence of an( disD a"ification9 @e6 Conf"ict of interest that arises after his appointment9 and @f6 *anifest "ac8 of independence that is detrimenta" to the genera" $od( of the sta8eho"ders. *ost of these i""ega"ities are s a""( sp"itting of case. Ge wi"" hire a specia" "aw(er then he wi"" te"" the "aw(er nga naa si(a( $ahin ana. #hen he recommends the fees and 3 dge wi"" approve it and manga(o si(ag $ahin. #hat is i""ega" for the !!. #hose are gro nds that are not exc" sive. #here can $e other gro nds. Gow is the !! paid? $%'5<;7 33( 'ompensation and 5erms o# $ervice( / #he reha$i"itation receiver and his direct emp"o(ees or independent contractors sha"" $e entit"ed to compensation for reasona$"e fees and expenses from the de$tor according to the terms approved $( the co rt after notice and hearing. Prior to s ch hearing, the reha$i"itation receiver and his direct emp"o(ees sha"" $e entit"ed to reasona$"e compensation $ased on &uantum meruit. S ch costs sha"" $e considered administrative expenses. @a6 Act a" or imminent danger of dissipation, "oss, wastage or destr ction of the de$torMs assets or other properties9 @$6 Para"(.ation of the $ siness operations of the de$tor9 or @c6 Aross mismanagement of the de$tor or fra d or other wrongf " cond ct on the part of, or gross or wi""f " vio"ation of this Act $( existing management of the de$tor /r the owner, partner, director, officer or representative7s in management of the de$tor. ,n case the co rt appoints the reha$i"itation receiver to ass me the powers of management of the de$tor the co rt ma(5 @%6 reD ire the reha$i"itation receiver to post an additiona" $ond9 @26 a thori.e him to engage the services or to emp"o( persona or entities to assist him in the discharge of his manageria" f nctions9 and @=6 A thori.e a commens rate increase in his compensation. circ mstances5 xxxxxxxxxx ,f he fi"es a motion that the present management of the de$tor sho "d $e rep"aced either $( !! or $( management committee then he prove an( of these circ mstances.

$%'5<;7 31( ;ath and Bond o# the >ehabi itation >eceiver( / Prior to entering pon his powers, d ties and responsi$i"ities, the reha$i"itation receiver sha"" ta8e an oath and fi"e a $ond, in s ch amo nt to $e fixed $( the co rt, conditioned pon the faithf " and proper discharge of his powers, d ties and responsi$i"ities.

+et s go to when !! is appointed $( the co rt to manage the de$tor. Section ='. #he co rt has a choice to appoint the !! and designate to r n the compan( or appoint a management committee. When does the co rt do this? $%'5<;7 3.( 8isp acement o# %&isting :anagement by the >ehabi itation >eceiver or :anagement 'ommittee( N ;pon motion of an( interested part(, the co rt ma( appoint and direct the reha$i"itation receiver to ass me the powers of management of the de$tor, or appoint a management committee that wi"" nderta8e the management of the de$tor. pon c"ear and convincing evidence of an( of the fo""owing

+etMs sa( he is a receiver of an e"ectric power generator de$tor $ t he does not 8now an(thing a$o t that $ siness $eca se his $ac8gro nd is on retai". Qai"angan high"( technica" 8a( engineering man na. #hat is the meaning of that specia"i.ed competenc( reD ired $( the specific case.

D ngagan imong s ho" $eca se he has to manage the ongoing operation of the compan(.O a"ifications of the management committee is $asica""( the D a"ifications of good management. Section =9 that is the 3o$ of reha$i"itator, receiver, or management committee. $%'5<;7 3-( %mp oyment o# Pro#essiona s( - ;pon approva" of the co rt, and after notice and hearing, the reha$i"itation receiver or the

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

11

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#management committee ma( emp"o( specia"i.ed professiona"s and other experts to assist each in the performance of their d ties. S ch professiona"s and other experts sha"" $e considered either emp"o(ees or independent contractors of the reha$i"itation receiver or the management committee, as the case ma( $e. #he D a"ifications and disD a"ificationMs of the professiona"s and experts ma( $e set forth in proced ra" r "es, ta8ing into consideration the nat re of the $ siness of the de$tor and the need to protect the interest of a"" sta8eho"ders concerned. An( reha$i"itation receiver, mem$er of the management committee or persons emp"o(ed or contracted $( them possessing an( conf"ict of interest sha"" ma8e the appropriate disc"os re either to the co rt or to the creditors in case of o t-of-co rt reha$i"itation proceedings. An( part( to the proceeding adverse"( affected $( the appointment of an( person with a conf"ict of interest to an( of the positions en merated a$ove ma( however waive his right to o$3ect to s ch appointment and, if the waiver is nreasona$"( withhe"d, the co rt ma( disregard the conf"ict of interest, ta8ing into acco nt the genera" interest of the sta8eho"ders. ver( start from the moment (o fi"e a vo" ntar( petition for inso"venc( or invo" ntar( petition for inso"venc( or a s spension of pa(ment there m st $e a p"an. S spension of pa(ments5 how wi"" (o pa( the creditors? how m ch time do (o need? ,f reha$i"itation, how wi"" (o reha$i"itate, (o state that in (o r p"an. So, $ection .2((ontents of a ehabilitation Plan. N #he !eha$i"itation P"an sha"", as a minim m5 @a6 specif( the nder"(ing ass mptions, the financia" goa"s and the proced res proposed to accomp"ish s ch goa"s9 @$6 compare the amo nts expected to $e received $( the creditors nder the !eha$i"itation P"an with those that the( wi"" receive if "iD idation ens es within the next one h ndred twent( @%206 da(s9 @c6 contain information s fficient to give the vario s c"asses of creditors a reasona$"e $asis for determining whether s pporting the P"an is in their financia" interest when compared to the immediate "iD idation of the de$tor, inc" ding an( red ction of principa" interest and pena"ties pa(a$"e to the creditors9 @d6 esta$"ish c"asses of voting creditors9 Ge is at peace if he 3 st performs his d ties. Ge sho "d not have an( D a"ms if he "oo8s after the common good of a"" $eca se he is imm ne from s it. #hat is the !!, $e fami"iar with that. !emem$er in the $an8, there is a stat tor( !!. #he stat tor( !! in the $an8 is the PD,C, no$od( e"se that is wh( it is not here. ,t is with the new centra" $an8 act. ,t is not covered here. February 2+, 2013 #his is o r "ast c"ass. +iD idation P"an (o 8now how important it is so m ch so that if the corporation is in distress, if there is no p"an that is approved, it wi"" res "t to "iD idation. /r if the p"an is approved $ t there are serio s vio"ations of the p"an that cannot $e remedied then the co rt ma( order with the recommendation of the reha$i"itation receiver for the "iD idation of the corporation. 0ow, the p"an is a"wa(s there from the @e6 esta$"ish s $c"asses of voting creditors if prior approva" has $een granted $( the co rt9 @f6 indicate how the inso"vent de$tor wi"" $e reha$i"itated inc" ding, $ t not "imited to, de$t forgiveness, de$t resched "ing, reorgani.ation or D asi-reorgani.ation. dacion en pa!o, de$t-eD it( conversion and sa"e of the $ siness @or parts of it6 as a going concern, or setting- p of a new $ siness entit( or other simi"ar arrangements as ma( $e necessar( to restore the financia" we""-$eing and visi$i"it( of the inso"vent de$tor9 @g6 specif( the treatment of each c"ass or s $c"ass descri$ed in s $sections @d6 and @e69 @h6 provide for eD a" treatment of a"" c"aims within the same c"ass or s $c"ass, n"ess a partic "ar creditor vo" ntari"( agrees to "ess favora$"e treatment9 @i6 ens re that the pa(ments made nder the p"an fo""ow the priorit( esta$"ished nder the provisions of the Civi" Code on conc rrence and preference of credits and other app"ica$"e "aws9

Gere is the definition of the conf"ict of interest. #he !! m st not have a conf"ict of interest. $%'5<;7 10( 'on# ict o# <nterest( - 0o person ma( $e appointed as a reha$i"itation receiver, mem$er of a management committee, or $e emp"o(ed $( the reha$i"itation receiver or the management committee if he has a conf"ict of interest. An individ a" sha"" $e deemed to have a conf"ict of interest if he is so sit ated as to $e materia""( inf" enced in the exercise of his 3 dgment for or against an( part( to the proceedings. Witho t "imiting the genera"it( of the foregoing, an individ a" sha"" $e deemed to have a conf"ict of interest if5 @a6 he is a creditor, owner, partner or stoc8ho"der of the de$tor9 @$6 he is engaged in a "ine of $ siness which competes with that of the de$tor9 @c6 he is, or was, within five @46 (ears from the fi"ing of the petition, a director, officer, owner, partner or emp"o(ee of the de$tor or an( of the creditors, or the a ditor or acco ntant of the de$tor9 @d6 he is, or was, within two @26 (ears from the fi"ing of the petition, an nderwriter of the o tstanding sec rities of the de$tor9 @e6 he is re"ated $( consang init( or affinit( within the fo rth civi" degree to an( individ a" creditor, owners of a sa"e proprietorship-de$tor, partners of a partnership- de$tor or to an( stoc8ho"der, director, officer, emp"o(ee or nderwriter of a corporation-de$tor9 or @f6 he has an( other direct or indirect materia" interest in the de$tor or an( of the creditors.

So "ong as the !! comp"ies with his d ties and does not exceed the scope of his responsi$i"it( he is imm ne from s it that is nder section )%. $%'5<;7 11( <mmunity( - #he reha$i"itation receiver and a"" persons emp"o(ed $( him, and the mem$ers of the management committee and a"" persons emp"o(ed $( it, sha"" not $e s $3ect to an( action c"aim or demand in connection with an( act done or omitted to $e done $( them in good faith in connection with the exercise of their powers and f nctions nder this Act or other actions d "( approved $( the co rt.

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

13

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#@36 maintain the sec rit( interest of sec red creditors and preserve the "iD idation va" e of the sec rit( n"ess s ch has $een waived or modified vo" ntari"(9 @86 disc"ose a"" pa(ments to creditors for pre-commencement de$ts made d ring the proceedings and the 3 stifications thereof9 @%6 descri$e the disp ted c"aims and the provisioning of f nds to acco nt for appropriate pa(ments sho "d the c"aim $e r "ed va"id or its amo nt ad3 sted9 @m6 identif( the de$torIs ro"e in the imp"ementation of the P"an9 @n6 state an( reha$i"itation covenants of the de$tor, the $reach of which sha"" $e considered a materia" $reach of the P"an9 @o6 identif( those responsi$"e for the f t re management of the de$tor and the s pervision and imp"ementation of the P"an, their affi"iation with the de$tor and their rem neration9 @p6 address the treatment of c"aims arising after the confirmation of the !eha$i"itation P"an9 @D6 reD ire the de$tor and its co nter-parties to adhere to the terms of a"" contracts that the de$tor has chosen to confirm9 @r6 arrange for the pa(ment of a"" o tstanding administrative expenses as a condition to the P"anIs approva" n"ess s ch condition has $een waived in writing $( the creditors concerned9 @s6 arrange for the pa(mentJ of a"" o tstanding taxes and assessments, or an ad3 sted amo nt p rs ant to a compromise sett"ement with the 2"! /r other app"ica$"e tax a thorities9 @t6 inc" de a certified cop( of a certificate of tax c"earance or evidence of a compromise sett"ement with the 2,!9 @ 6 inc" de a va"id and $inding r@,so" tion of a meeting of the de$torIs stoc8ho"ders to increase the shares $( the reD ired amo nt in cases where the P"an contemp"ates an additiona" iss ance of shares $( the de$tor9 @v6 state the compensation and stat s, if an(, of the reha$i"itation receiver after the approva" of the P"an9 and @w6 contain provisions for conci"iation and7or mediation as a prereD isite to co rt assistance or intervention in the event of an( disagreement in the interpretation or imp"ementation of the !eha$i"itation P"an. Section '2 te""s s that what the contents of the reha$i"itation p"an, itMs a "ong "ist. ,f (o r premise is a"read( wrong, (o r p"an is se"ess. #hat is what happened to the C-/ of the $iggest mining cong"omerate in the wor"d 3 st "ast wee8. #he President of 2GP 2i""ition, A stra"ian Compan(. #his g ( $o ght A+C/A. ;nsa ma( sa(op dira, ang i(ang premise na m $a$a$ na ang mar8et sa a" mini m. @stor( sa a" mini m sa co8e can and dia$etes6 <s your rehabi itation correct on its under ying assumptions? :o are r nning an earthen pot compan( nsa imo prod ct mga cogon earthen pots imong pro3ection 8ana ho seho"d 8e"angan g pot,ma"i na naa nama( rice coo8er 8aron, de8oras(on n "ng na. Where do (o get this, not form "aw $ t from reading and finding o t what happens in rea"it(. @stor( sa 2" e Rote.. Who cares? A"" those candidates who came here nag si8 si8 "ng na sa panahon (aw(aw "ng diri w"aa( $oto diri6 @ 0CCC na nahimon $ siness center 8inada8 ang tinonto.. p to pedd"ers..6 @ the niversit( is a ha.ard it wi"" ma8e (o $e detached from rea"it(6 0ow, (o specif( the nder"(ing ass mption, the financia" goa"s and proced res to accomp"ish s ch goa"s. Compare the amo nts expected to $e received $( the creditors nder the !eha$i"itation P"an with those that the( wi"" receive if "iD idation ens es. #his is cost $enefit ana"(sis. #his reha$i"itation p"an is ver( detai"ed. #his is what the co rt examines $efore the co rt indorses this, that is written ha attached to the petition, the opening doc ment of a p"eading s ch as inso"venc( or reha$i"itation. #he next step is to cons "t the de$tors and creditors. $ection .3((onsultation with *ebtor and (reditors. N if the co rt gives d e co rse to the petition, the reha$i"itation receiver sha"" confer with the de$tor and a"" the c"asses of creditors, and ma( consider their views and proposa"s i"" the review, revision or preparation of a new !eha$i"itation P"an. When do you !no" that the court gives due course? ,f the co rt iss es the commencement order within 4 da(s from the fi"ing of the petition. 0ow the creditors within 20 da(s from notification, $ection .1((reditor /pproval of ehabilitation Plan. N #he reha$i"itation receiver sha"" notif( the creditors and sta8eho"ders that the P"an is read( for their examination. Within twent( @2O6 da(s from the said notification, the reha$i"itation receiver sha"" convene the creditors, either as a who"e or per c"ass, for p rposes of voting on the approva" of the P"an. #he P"an sha"" $e deemed re3ected n"ess approved $( a"" c"asses of creditors w hose rights are adverse"( modified or affected $( the P"an. 1or p rposes of this section, the P"an is deemed to have $een approved $( a c"ass of creditors if mem$ers of the said c"ass ho"ding more than #i#ty percent 020E3 o# the tota c aims o# the said c ass vote in #avor o# the P an( #he votes of the creditors sha"" $e $ased so"e"( on the amo nt of their respective c"aims $ased on the registr( of c"aims s $mitted $( the reha$i"itation receiver p rs ant to Section )) hereof. 0otwithstanding the re3ection of the !eha$i"itation P"an, the co rt ma( confirm the !eha$i"itation P"an if a"" of the fo""owing circ mstances are present5 @a6#he !eha$i"itation P"an comp"ies with the reD irements specified in this Act. @$6 #he reha$i"itation receiver recommends the confirmation of the !eha$i"itation P"an9 @c6 #he shareho"ders, owners or partners of the 3 ridica" de$tor "ose at "east their contro""ing interest as a res "t of the !eha$i"itation P"an9 and @d6 #he !eha$i"itation P"an wo "d "i8e"( provide the o$3ecting c"ass of creditors with compensation which has a net present va" e greater than that which the( wo "d have received if the de$tor were nder "iD idation.

#here are two $asic c"asses5 sec red and non-sec red creditors.0ow

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#once it is approved $( the creditors the next step is the $ection .2(Submission of ehabilitation Plan to the (ourt. - %fthe !eha$i"itation P"an is approved, the reha$i"itation receiver sha"" s $mit the same to the co rt for confirmation. Within five @46 da(s from receipt of the !eha$i"itation P"an, the co rt sha"" notif( the creditors that the !eha$i"itation P"an has $een s $mitted for confirmation, that an( creditor ma( o$tain copies of the !eha$i"itation P"an and that an( creditor ma( fi"e an o$3ection thereto. 0ow this time, if the creditor fi"es an o$3ection of the reha$i"itation p"an that has $een approved, it is "imited to the fo""owing gro nds5 $ection ..(6ilin! of 'b5ections to ehabilitation Plan. N A creditor ma( fi"e an o$3ection to the !eha$i"itation P"an within twent( @206 da(s from receipt of notice from the co rt that the !eha$i"itation P"an has $een s $mitted for confirmation. /$3ections to a !eha$i"itation P"an sha"" $e "imited to the fo""owing5 @a6 #he creditorsI s pport was ind ced $( fra d9 @$6#he doc ments or data re"ied pon in the !eha$i"itation P"an are materia""( fa"se or mis"eading9 or @c6#he !eha$i"itation P"an is in fact not s pported $( the voting creditors. 0ow if the p"an is p"antsado $ection .+((onfirmation of the ehabilitation Plan. N ,f no o$3ections are fi"ed within the re"evant period or, if o$3ections are fi"ed, the co rt finds them "ac8ing in merit, or determines that the $asis for the o$3ection has $een c red, or determines that the de$tor has comp"ied with an order to c re the o$3ection, the co rt sha"" iss e an order confirming the !eha$i"itation P"an. #he co rt ma( confirm the !eha$i"itation P"an notwithstanding nreso"ved disp tes over c"aims if the !eha$i"itation P"an has made adeD ate provisions for pa(ing s ch c"aims. 1or the avoidance of do $t, the provisions of other "aws to the contrar( notwithstanding, the co rt sha"" have the power to approve or imp"ement the !eha$i"itation P"an despite the "ac8 of approva", or o$3ection from the owners, partners or stoc8ho"ders of the inso"vent de$tor5 Provided, #hat the terms thereof are necessar( to restore the financia" we""-$eing and via$i"it( of the inso"vent de$tor. What is the e##ect o# con#irmation o# the rehabi itation p an? $ection .-(Effect of (onfirmation of the ehabilitation Plan, - #he confirmation of the !eha$i"itation P"an $( the co rt sha"" res "t in the fo""owing5 @a6 #he !eha$i"itation P"an and its provisions sha"" $e $inding pon the de$tor and a"" persons who ma( $e affected $( . it, inc" ding the creditors, whether or not s ch persons have participated in the proceedings or opposed the !eha$i"itation P"an or whether or not their c"aims have $een sched "ed9 @$6 #he de$tor sha"" comp"( with the provisions of the !eha$i"itation P"an and sha"" ta8e a"" actions necessar( to carr( o t the P"an9 @c6 Pa(ments sha"" $e made to the creditors in accordance with the provisions of the !eha$i"itation P"an9 @d6 Contracts and other arrangements $etween the de$tor and its creditors sha"" $e interpreted as contin ing to app"( to the extent that the( do not conf"ict with the provisions of the !eha$i"itation P"an9 @e6 An( compromises on amo nts or resched "ing of timing of pa(ments $( the de$tor sha"" $e $inding on creditors regard"ess of whether or not the P"an is s ccessf ""( imp"ement9 and @f6 C"aims arising after approva" of the P"an that are otherwise not treated $( the P"an are not s $3ect to an( S spension /rder. #he /rder confirming the P"an sha"" comp"( with ! "es =' of the ! "es of Co rt5 Provided, however, #hat the co rt ma( maintain 3 risdiction over the case in order to reso"ve c"aims against the de$tor that remain contested and a""egations that the de$tor has $reached the P"an. $ection =1( Treatment of /mounts of Indebtedness or 'bli!ations 6or!iven or educed. - Amo nts of an( inde$tedness or o$"igations red ced or forgiven in connection with a P"anIs approva" sha"" not $e s $3ect to an( tax in f rtherance of the p rposes of this Act. What is the genera" r "e if (o have condonation in the 0ationa" ,nterna" !even e Code? Donation s $3ect to donorMs tax -xception5 in -!--- re"ationship, it is income tax Gow "ong does it ta8e? $ection =2( Period for (onfirmation of the ehabilitation Plan. - #he co rt sha"" have a maxim m period of one @%6 (ear from the date of the fi"ing of the petition to confirm a !eha$i"itation P"an. ,f no !eha$i"itation P"an is confirmed within the said period, the proceedings ma( pon motion or motu propio, $e converted into one for the "iD idation of the de$tor .

#hese are extraneo s. 0o "onger the merits of the p"an What is the court supposedto do "ith these ob4ections? ,t is s pposed to cond ct hearing $eca se these gro nds are "ega". $ection .=(%earin! on the 'b5ections. - ,f o$3ections have $een s $mitted d ring the re"evant period, the co rt sha"" iss e an order setting the time and date for the hearing or hearings on the o$3ections. ,f the co rt finds merit in the o$3ection, it sha"" order the reha$i"itation receiver or other part( to c re the defect, whenever feasi$"e. ,f the co rt determines that the de$tor acted in $ad faith, or that it is not feasi$"e to c re the defect, the co rt sha"" convert the proceedings into one for the "iD idation of the de$tor nder Chapter R of this Act.

0ow s ppose (o have a new p"an $ t (o r creditors o$3ected, is there a possi$i"it( that a p"an can neverthe"ess $e carried over and a$ove the o$3ections of creditors? :es. ;nder section ') $ection .1((reditor /pproval of ehabilitation Plan. N #he reha$i"itation

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

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AMDG From the lectures of Fr. Gus Nazareno - Corporation Law (3rd and th !"am#receiver sha"" notif( the creditors and sta8eho"ders that the P"an is read( for their examination. Within twent( @2O6 da(s from the said notification, the reha$i"itation receiver sha"" convene the creditors, either as a who"e or per c"ass, for p rposes of voting on the approva" of the P"an. #he P"an sha"" $e deemed re3ected n"ess approved $( a"" c"asses of creditors w hose rights are adverse"( modified or affected $( the P"an. 1or p rposes of this section, the P"an is deemed to have $een approved $( a c"ass of creditors if mem$ers of the said c"ass ho"ding more than fift( percent @40<6 of the tota" c"aims of the said c"ass vote in favor of the P"an. #he votes of the creditors sha"" $e $ased so"e"( on the amo nt of their respective c"aims $ased on the registr( of c"aims s $mitted $( the reha$i"itation receiver p rs ant to Section )) hereof. 7ot"ithstanding the re4ection o# the >ehabi itation P an, the court may con#irm the >ehabi itation P an i# a o# the #o o"ing circumstances are present? 0a35he >ehabi itation P an comp ies "ith the re6uirements speci#ied in this Act( 0b3 5he rehabi itation receiver recommends the con#irmation o# the >ehabi itation P anC 0c3 5he shareho ders, o"ners or partners o# the 4uridica debtor ose at east their contro ing interest as a resu t o# the >ehabi itation P anC and 0d3 5he >ehabi itation P an "ou d i!e y provide the ob4ecting c ass o# creditors "ith compensation "hich has a net present va ue greater than that "hich they "ou d have received i# the debtor "ere under i6uidation( restr ct ring agreement sha"" ta8e effect pon the "apse of fifteen @%46 da(s from the date of the "ast p $"ication of the notice thereof. #his was a"read( se $( the S preme Co rt in adecided case $efore the 1!,A r "e as a too" $eca se there m st $e a wa( for se"fish creditor that he m st not $e given f "" power to prevent the intention of the "aw. 0ow. #he approva" of the reha$i"itation ta8es one (ear. *o" ong "i it ta!e to imp ement the rehabi itation p an ? #hat is s pposed to $e provided $( the p"an, the moment the p"an is imp"emented the de$tor is no "onger a de$tor $ t a via$"e $ siness concern, it wi"" fi"e a motion to dismiss the petition with the co rt $eca se the p"an is f ""( imp"emented and the corporation is now restored to financia" hea"th. #he co rts can then grant the order for dismissa", th s, the reha$i"itation sha"" not $e f ""( conc" ded. @ stor( fo Aaisano ," stre ta8en $( Aaisano Arand thro gh pre negotiated reha$i"itation, vitarich, Rictoria P"a.a6 1!,A is 3 st "i8e e"ection "aw. *astera nang e"ection "aw xaro ever( = (ears naa 8a tra$aho tapos h man pah wa( 8a. Qini sad gama( ra 8aa(o masteron nimo the nice thing a$o t this is on"( few "aw(ers 8now this. So a"right this is o r )th exam. =rd exam is sec rities reg "ation and PD 902-A. -S;P-! -0D-

,f this is the case the co rt can approve over and a$ove the creditors o$3ections. #his is a"so 8nown as the 'ram 8o"n >u e( $ection +.( (ram *own Effect. - A restr ct ring7wor8o t agreement or !eha$i"itation P"an that is approved p rs ant to an informa" wor8o t framewor8 referred to in this chapter sha"" have the same "ega" effect as confirmation of a P"an nder Section '9 hereof. #he notice of the !eha$i"itation P"an or restr ct ring agreement or P"an sha"" $e p $"ished once a wee8 for at "east three @=6 consec tive wee8s in a newspaper of genera" circ "ation in the Phi"ippines. #he !eha$i"itation P"an or

Contri$utors% &NG A'(AN)!*+ *AN)&*+ !C,A-!.+ N/N!.A+ GALAGA(+ )AN

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