12/13/2018 5:20:00 AM

Title XVI. - PLEDGE, MORTGAGE AND ANTICHRESIS

CHAPTER 1
PROVISIONS COMMON TO PLEDGE AND MORTGAGE

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property,
and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property. (1857)

Art. 2086. The provisions of Article 2052 are applicable to a pledge or mortgage. (n)
Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes
due, the things in which the pledge or mortgage consists may be alienated for the payment to the
creditor. (1858)
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void. (1859a)
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the
successors in interest of the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of the other heirs who have not been paid.
From these provisions is expected the case in which, there being several things given in
mortgage or pledge, each one of them guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the
portion of the debt for which each thing is specially answerable is satisfied. (1860)
Art. 2090. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors
are not solidarily liable. (n)
Art. 2091. The contract of pledge or mortgage may secure all kinds of obligations, be they pure
or subject to a suspensive or resolutory condition. (1861)
Art. 2092. A promise to constitute a pledge or mortgage gives rise only to a personal action
between the contracting parties, without prejudice to the criminal responsibility incurred by him
who defrauds another, by offering in pledge or mortgage as unencumbered, things which he
knew were subject to some burden, or by misrepresenting himself to be the owner of the same.
(1862)
CHAPTER 2
PLEDGE

Art. 2093. In addition to the requisites prescribed in Article 2085, it is necessary, in order to
constitute the contract of pledge, that the thing pledged be placed in the possession of the
creditor, or of a third person by common agreement. (1863)
Art. 2094. All movables which are within commerce may be pledged, provided they are
susceptible of possession. (1864)
Art. 2095. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of
stock, bonds, warehouse receipts and similar documents may also be pledged. The instrument
proving the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed.
(n)
Art. 2096. A pledge shall not take effect against third persons if a description of the thing
pledged and the date of the pledge do not appear in a public instrument. (1865a)
Art. 2097. With the consent of the pledgee, the thing pledged may be alienated by the pledgor or
owner, subject to the pledge. The ownership of the thing pledged is transmitted to the vendee or
transferee as soon as the pledgee consents to the alienation, but the latter shall continue in
possession. (n)
Art. 2098. The contract of pledge gives a right to the creditor to retain the thing in his possession
or in that of a third person to whom it has been delivered, until the debt is paid. (1866a)
Art. 2099. The creditor shall take care of the thing pledged with the diligence of a good father of
a family; he has a right to the reimbursement of the expenses made for its preservation, and is
liable for its loss or deterioration, in conformity with the provisions of this Code. (1867)
Art. 2100. The pledgee cannot deposit the thing pledged with a third person, unless there is a
stipulation authorizing him to do so.
The pledgee is responsible for the acts of his agents or employees with respect to the thing
pledged. (n)
Art. 2101. The pledgor has the same responsibility as a bailor in commodatum in the case under
Article 1951. (n)
Art. 2102. If the pledge earns or produces fruits, income, dividends, or interests, the creditor
shall compensate what he receives with those which are owing him; but if none are owing him,
or insofar as the amount may exceed that which is due, he shall apply it to the principal. Unless
there is a stipulation to the contrary, the pledge shall extend to the interest and earnings of the
right pledged.
In case of a pledge of animals, their offspring shall pertain to the pledgor or owner of animals
pledged, but shall be subject to the pledge, if there is no stipulation to the contrary. (1868a)
Art. 2103. Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.
Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged
in order to recover it from, or defend it against a third person. (1869)
Art. 2104. The creditor cannot use the thing pledged, without the authority of the owner, and if
he should do so, or should misuse the thing in any other way, the owner may ask that it be
judicially or extrajudicially deposited. When the preservation of the thing pledged requires its
use, it must be used by the creditor but only for that purpose. (1870a)
Art. 2105. The debtor cannot ask for the return of the thing pledged against the will of the
creditor, unless and until he has paid the debt and its interest, with expenses in a proper case.
(1871)
Art. 2106. If through the negligence or wilful act of the pledgee, the thing pledged is in danger of
being lost or impaired, the pledgor may require that it be deposited with a third person. (n)
Art. 2107. If there are reasonable grounds to fear the destruction or impairment of the thing
pledged, without the fault of the pledgee, the pledgor may demand the return of the thing, upon
offering another thing in pledge, provided the latter is of the same kind as the former and not of
inferior quality, and without prejudice to the right of the pledgee under the provisions of the
following article.
The pledgee is bound to advise the pledgor, without delay, of any danger to the thing pledged.
(n)
Art. 2108. If, without the fault of the pledgee, there is danger of destruction, impairment, or
diminution in value of the thing pledged, he may cause the same to be sold at a public sale. The
proceeds of the auction shall be a security for the principal obligation in the same manner as the
thing originally pledged. (n)
Art. 2109. If the creditor is deceived on the substance or quality of the thing pledged, he may
either claim another thing in its stead, or demand immediate payment of the principal obligation.
(n)
Art. 2110. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge is
extinguished. Any stipulation to the contrary shall be void.
If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or
owner, there is a prima facie presumption that the same has been returned by the pledgee. This
same presumption exists if the thing pledged is in the possession of a third person who has
received it from the pledgor or owner after the constitution of the pledge. (n)
Art. 2111. A statement in writing by the pledgee that he renounces or abandons the pledge is
sufficient to extinguish the pledge. For this purpose, neither the acceptance by the pledgor or
owner, nor the return of the thing pledged is necessary, the pledgee becoming a depositary. (n)
Art. 2112. The creditor to whom the credit has not been satisfied in due time, may proceed
before a Notary Public to the sale of the thing pledged. This sale shall be made at a public
auction, and with notification to the debtor and the owner of the thing pledged in a proper case,
stating the amount for which the public sale is to be held. If at the first auction the thing is not
sold, a second one with the same formalities shall be held; and if at the second auction there is no
sale either, the creditor may appropriate the thing pledged. In this case he shall be obliged to give
an acquittance for his entire claim. (1872a)
Art. 2113. At the public auction, the pledgor or owner may bid. He shall, moreover, have a better
right if he should offer the same terms as the highest bidder.
The pledgee may also bid, but his offer shall not be valid if he is the only bidder. (n)
Art. 2114. All bids at the public auction shall offer to pay the purchase price at once. If any other
bid is accepted, the pledgee is deemed to have been received the purchase price, as far as the
pledgor or owner is concerned. (n)
Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not
the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses
in a proper case. If the price of the sale is more than said amount, the debtor shall not be entitled
to the excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the
creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. (n)
Art. 2116. After the public auction, the pledgee shall promptly advise the pledgor or owner of the
result thereof. (n)
Art. 2117. Any third person who has any right in or to the thing pledged may satisfy the principal
obligation as soon as the latter becomes due and demandable.(n)
Art. 2118. If a credit which has been pledged becomes due before it is redeemed, the pledgee
may collect and receive the amount due. He shall apply the same to the payment of his claim,
and deliver the surplus, should there be any, to the pledgor. (n)
Art. 2119. If two or more things are pledged, the pledgee may choose which he will cause to be
sold, unless there is a stipulation to the contrary. He may demand the sale of only as many of the
things as are necessary for the payment of the debt. (n)
Art. 2120. If a third party secures an obligation by pledging his own movable property under the
provisions of Article 2085 he shall have the same rights as a guarantor under Articles 2066 to
2070, and Articles 2077 to 2081. He is not prejudiced by any waiver of defense by the principal
obligor. (n)
Art. 2121. Pledges created by operation of law, such as those referred to in Articles 546, 1731,
and 1994, are governed by the foregoing articles on the possession, care and sale of the thing as
well as on the termination of the pledge. However, after payment of the debt and expenses, the
remainder of the price of the sale shall be delivered to the obligor. (n)
Art. 2122. A thing under a pledge by operation of law may be sold only after demand of the
amount for which the thing is retained. The public auction shall take place within one month
after such demand. If, without just grounds, the creditor does not cause the public sale to be held
within such period, the debtor may require the return of the thing. (n)
Art. 2123. With regard to pawnshops and other establishments, which are engaged in making
loans secured by pledges, the special laws and regulations concerning them shall be observed,
and subsidiarily, the provisions of this Title. (1873a)
CHAPTER 3
MORTGAGE

Art. 2124. Only the following property may be the object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage. (1874a)
Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a
mortgage may be validly constituted, that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding
between the parties.
The persons in whose favor the law establishes a mortgage have no other right than to demand
the execution and the recording of the document in which the mortgage is formalized. (1875a)
Art. 2126. The mortgage directly and immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it
was constituted. (1876)
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits,
and the rents or income not yet received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or
in virtue of expropriation for public use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession of the mortgagor, or it passes
into the hands of a third person. (1877)
Art. 2128. The mortgage credit may be alienated or assigned to a third person, in whole or in
part, with the formalities required by law. (1878)
Art. 2129. The creditor may claim from a third person in possession of the mortgaged property,
the payment of the part of the credit secured by the property which said third person possesses, in
the terms and with the formalities which the law establishes. (1879)
Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be
void. (n)
Art. 2131. The form, extent and consequences of a mortgage, both as to its constitution,
modification and extinguishment, and as to other matters not included in this Chapter, shall be
governed by the provisions of the Mortgage Law and of the Land Registration Law. (1880a)

CHAPTER 4
ANTICHRESIS

Art. 2132. By the contract of antichresis the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the interest, if
owing, and thereafter to the principal of his credit. (1881)
Art. 2133. The actual market value of the fruits at the time of the application thereof to the
interest and principal shall be the measure of such application. (n)
Art. 2134. The amount of the principal and of the interest shall be specified in writing; otherwise,
the contract of antichresis shall be void. (n)
Art. 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes
and charges upon the estate.
He is also bound to bear the expenses necessary for its preservation and repair.
The sums spent for the purposes stated in this article shall be deducted from the fruits. (1882)
Art. 2136. The debtor cannot reacquire the enjoyment of the immovable without first having
totally paid what he owes the creditor.
But the latter, in order to exempt himself from the obligations imposed upon him by the
preceding article, may always compel the debtor to enter again upon the enjoyment of the
property, except when there is a stipulation to the contrary. (1883)
Art. 2137. The creditor does not acquire the ownership of the real estate for non-payment of the
debt within the period agreed upon.
Every stipulation to the contrary shall be void. But the creditor may petition the court for the
payment of the debt or the sale of the real property. In this case, the Rules of Court on the
foreclosure of mortgages shall apply. (1884a)
Art. 2138. The contracting parties may stipulate that the interest upon the debt be compensated
with the fruits of the property which is the object of the antichresis, provided that if the value of
the fruits should exceed the amount of interest allowed by the laws against usury, the excess
shall be applied to the principal. (1885a)
Art. 2139. The last paragraph of Article 2085, and Articles 2089 to 2091 are applicable to this
contract. (1886a)

CHAPTER 5
CHATTEL MORTGAGE

Art. 2140. By a chattel mortgage, personal property is recorded in the Chattel Mortgage Register
as a security for the performance of an obligation. If the movable, instead of being recorded, is
delivered to the creditor or a third person, the contract is a pledge and not a chattel mortgage. (n)
Art. 2141. The provisions of this Code on pledge, insofar as they are not in conflict with the
Chattel Mortgage Law shall be applicable to chattel mortgages. (n)
REPUBLIC ACT NO. 6552
REALTY INSTALLMENT BUYER PROTECTION ACT
AN ACT TO PROVIDE PROTECTION TO BUYERS OF

REAL ESTATE ON INSTALLMENT PAYMENTS

Section 1. This Act shall be known as the “Realty Installment Buyer Act.”

Sec. 2. It is hereby declared a public policy to protect buyers of real estate on

installment payments against onerous and oppressive conditions.

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under Republic Act Numbered
Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he defaults in the payment of succeeding
installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for
every one year of installment payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the total payments
made, and, after five years of installments, an additional five per cent every year but not
to exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give
the buyer a grace period of not less than sixty days from the date the installment
became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act.

Sec. 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign
the same to another person or to reinstate the contract by updating the account during
the grace period and before actual cancellation of the contract. The deed of sale or
assignment shall be done by notarial act.

Sec. 6. The buyer shall have the right to pay in advance any installment or the full
unpaid balance of the purchase price any time without interest and to have such full
payment of the purchase price annotated in the certificate of title covering the property.

Sec. 7. Any stipulation in any contract hereafter entered into contrary to the provisions
of Sections 3, 4, 5 and 6, shall be null and void.

Sec. 8. If any provision of this Act is held invalid or unconstitutional, no other provision
shall be affected thereby.

Sec. 9. This Act shall take effect upon its approval.

Acts No. 4122 Recto Law

AN ACT TO AMEND THE CIVIL CODE BY INSERTING BETWEEN SECTIONS

FOURTEEN HUNDRED AND FIFTY-FOUR AND FOURTEEN HUNDRED AND FIFTY-
FIVE, THEREOF A NEW SECTION, TO BE KNOWN AS SECTION FOURTEEN
HUNDRED AND FIFTY-FOUR-A.
Be it enacted by the Senate and House of Representatives of the Philippines in
Legislature assembled and by the authority of the same:

SECTION 1. The Civil Code is hereby amended by inserting between sections fourteen
hundred and fifty-four and fourteen hundred and fifty-five thereof a new section, to be
known as section fourteen hundred and fifty-four-A, which shall read as follows:

"SEC. 1454-A. In a contract for the sale of personal property payable in installments,
failure to pay two or more installments shall confer upon the vendor the right to cancel
the sale or foreclose the mortgage if one has been given on the property, without
reimbursement to the purchaser of the installments already paid, if there be an
agreement to this effect.

"However, if the vendor has chosen to foreclose the mortgage he shall have no further
action against the purchaser for the recovery of any unpaid balance owing by the same,
and any agreement to the contrary shall be null and void.

"The same rule shall apply to leases of personal property with option to purchase, when
the lessor has chosen to deprive the lessee of the enjoyment of such personal
property."

SEC. 2. This Act shall take effect on its approval.

REPUBLIC ACT No. 10142
AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF
FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:
CHAPTER I
GENERAL PROVISIONS
Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and Insolvency Act
(FRIA) of 2010".
Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors, both
juridical and natural persons, and their creditors to collectively and realistically resolve and
adjust competing claims and property rights. In furtherance thereof, the State shall ensure a
timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. The
rehabilitation or liquidation shall be made with a view to ensure or maintain certainly and
predictability in commercial affairs, preserve and maximize the value of the assets of these
debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment
of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of
the State to facilities a speedy and orderly liquidation of these debtor's assets and the settlement
of their obligations.
Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction
over all persons affected by the proceedings shall be considered as acquired upon publication of
the notice of the commencement of the proceedings in any newspaper of general circulation in
the Philippines in the manner prescribed by the rules of procedure to be promulgated by the
Supreme Court.
The proceedings shall be conducted in a summary and non-adversarial manner consistent with
the declared policies of this Act and in accordance with the rules of procedure that the Supreme
Court may promulgate.
Section 4. Definition of Terms. - As used in this Act, the term:
(a) Administrative expenses shall refer to those reasonable and necessary expenses:
(1) incurred or arising from the filing of a petition under the provisions of this Act;
(2) arising from, or in connection with, the conduct of the proceedings under this Act, including
those incurred for the rehabilitation or liquidation of the debtor;
(3) incurred in the ordinary course of business of the debtor after the commencement date;
(4) for the payment of new obligations obtained after the commencement date to finance the
rehabilitation of the debtor;
(5) incurred for the fees of the rehabilitation receiver or liquidator and of the professionals
engaged by them; and
(6) that are otherwise authorized or mandated under this Act or such other expenses as may be
allowed by the Supreme Court in its rules.
(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more
intermediaries, is controlled by, or is under the common control of another corporation.
(c) Claim shall refer to all claims or demands of whatever nature or character against the debtor
or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent,
matured or unmatured, disputed or undisputed, including, but not limited to; (1) all claims of the
government, whether national or local, including taxes, tariffs and customs duties; and (2) claims
against directors and officers of the debtor arising from acts done in the discharge of their
functions falling within the scope of their authority: Provided, That, this inclusion does not
prohibit the creditors or third parties from filing cases against the directors and officers acting in
their personal capacities.
(d) Commencement date shall refer to the date on which the court issues the Commencement
Order, which shall be retroactive to the date of filing of the petition for voluntary or involuntary
proceedings.
(e) Commencement Order shall refer to the order issued by the court under Section 16 of this
Act.
(f) Control shall refer to the power of a parent corporation to direct or govern the financial and
operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed
to exist when the parent owns, directly or indirectly through subsidiaries or affiliates, more than
one-half (1/2) of the voting power of an enterprise unless, in exceptional circumstances, it can
clearly be demonstrated that such ownership does not constitute control. Control also exists even
when the parent owns one-half (1/2) or less of the voting power of an enterprise when there is
power:
(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with investors;
(2) to direct or govern the financial and operating policies of the enterprise under a statute or an
agreement;
(3) to appoint or remove the majority of the members of the board of directors or equivalent
governing body; or
(4) to cast the majority votes at meetings of the board of directors or equivalent governing body.
(g) Court shall refer to the court designated by the Supreme Court to hear and determine, at the
first instance, the cases brought under this Act.
(h) Creditor shall refer to a natural or juridical person which has a claim against the debtor that
arose on or before the commencement date.
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation Order.
(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.
(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership
duly registered with the Securities and Exchange Commission (SEC), a corporation duly
organized and existing under Philippine laws, or an individual debtor who has become insolvent
as defined herein.
(l) Encumbered property shall refer to real or personal property of the debtor upon which a lien
attaches.
(m) General unsecured creditor shall refer to a creditor whose claim or a portion thereof its
neither secured, preferred nor subordinated under this Act.
(n) Group of debtors shall refer to and can cover only: (1) corporations that are financially
related to one another as parent corporations, subsidiaries or affiliates; (2) partnerships that are
owned more than fifty percent (50%) by the same person; and (3) single proprietorships that are
owned by the same person. When the petition covers a group of debtors, all reference under these
rules to debtor shall include and apply to the group of debtors.
(o) Individual debtor shall refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent as defined herein.
(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or
his liabilities as they fall due in the ordinary course of business or has liabilities that are greater
than its or his assets.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which includes all the
property and assets of the debtor as of commencement date, plus the property and assets acquired
by the rehabilitation receiver or liquidator after that date, as well as all other property and assets
in which the debtor has an ownership interest, whether or not these property and assets are in the
debtor's possession as of commencement date: Provided, That trust assets and bailment, and
other property and assets of a third party that are in the possession of the debtor as of
commencement date, are excluded therefrom.
(r) Involuntary proceedings shall refer to proceedings initiated by creditors.
(s) Liabilities shall refer to monetary claims against the debtor, including stockholder's advances
that have been recorded in the debtor's audited financial statements as advances for future
subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or personal
property that legality entities a creditor to resort to said property for payment of the claim or debt
secured by such lien.
(u) Liquidation shall refer to the proceedings under Chapter V of this Act.
(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of this Act.
(w) Liquidator shall refer to the natural person or juridical entity appointed as such by the court
and entrusted with such powers and duties as set forth in this Act: Provided, That, if the
liquidator is a juridical entity, it must designated a natural person who possesses all the
qualifications and none of the disqualifications as its representative, it being understood that the
juridical entity and the representative are solidarity liable for all obligations and responsibilities
of the liquidator.
(x) Officer shall refer to a natural person holding a management position described in or
contemplated by a juridical entity's articles of incorporation, bylaws or equivalent documents,
except for the corporate secretary, the assistant corporate secretary and the external auditor.
(y) Ordinary course of business shall refer to transactions in the pursuit of the individual debtor's
or debtor's business operations prior to rehabilitation or insolvency proceedings and on ordinary
business terms.
(z) Ownership interest shall refer to the ownership interest of third parties in property held by the
debtor, including those covered by trust receipts or assignments of receivables.
(aa) Parent shall refer to a corporation which has control over another corporation either directly
or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured creditors'
committee, a stakeholder, a party with an ownership interest in property held by the debtor, a
secured creditor, the rehabilitation receiver, liquidator or any other juridical or natural person
who stands to be benefited or injured by the outcome of the proceedings and whose notice of
appearance is accepted by the court.
(cc) Possessory lien shall refer to a lien on property, the possession of which has been transferred
to a creditor or a representative or agent thereof.
(dd) Proceedings shall refer to judicial proceedings commenced by the court's acceptance of a
petition filed under this Act.
(ee) Property of others shall refer to property held by the debtor in which other persons have an
ownership interest.
(ff) Publication notice shall refer to notice through publication in a newspaper of general
circulation in the Philippines on a business day for two (2) consecutive weeks.
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful
operation and solvency, if it is shown that its continuance of operation is economically feasible
and its creditors can recover by way of the present value of payments projected in the plan, more
if the debtor continues as a going concern than if it is immediately liquidated.
(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as
such by the court pursuant to this Act and which shall be entrusted with such powers and duties
as set forth herein.
(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an
insolvent debtor can be restored using various means including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-
equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of new
business entity as prescribed in Section 62 hereof, or other similar arrangements as may be
approved by the court or creditors.
(jj) Secured claim shall refer to a claim that is secured by a lien.
(kk) Secured creditor shall refer to a creditor with a secured claim.
(ll) Secured party shall refer to a secured creditor or the agent or representative of such secured
creditor.
(mm) Securities market participant shall refer to a broker dealer, underwriter, transfer agent or
other juridical persons transacting securities in the capital market.
(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a member of a
nonstock corporation or association or a partner in a partnership.
(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting stock of
which is owned or controlled directly or indirectly through one or more intermediaries by
another corporation, which thereby becomes its parent corporation.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.
(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.
(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the consent of
which is necessary for the approval of a Rehabilitation Plan under this Act.
Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need
companies, and national and local government agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually subject
to conservatorship, receivership or liquidation proceedings under the New Central Bank Act
(Republic Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially or actually subject to
insolvency proceedings under the Insurance Code (Presidential Decree No. 1460) or successor
legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell
pre-need plans.
Provided, That government financial institutions other than banks and government-owned or
controlled corporations shall be covered by this Act, unless their specific charter provides
otherwise.
Section 6. Designation of Courts and Promulgation of Procedural Rules. - The Supreme Court
shall designate the court or courts that will hear and resolve cases brought under this Act and
shall promulgate the rules of pleading, practice and procedure to govern the proceedings brought
under this Act.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered
as a separate entity under the proceedings in this Act. Under these proceedings, the assets and
liabilities of a debtor may not be commingled or aggregated with those of another, unless the
latter is a related enterprise that is owned or controlled directly or indirectly by the same
interests: Provided, however, That the commingling or aggregation of assets and liabilities of the
debtor with those of a related enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of the debtor and the related enterprise
prior to the commencement of the proceedings;
(b) the debtor and the related enterprise have common creditors and it will be more convenient to
treat them together rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to
commingle its assets and liabilities with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and the related enterprise is beneficial
to all concerned and promotes the objectives of rehabilitation.
Provided, finally, That nothing in this section shall prevent the court from joining other entities
affiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by
the Supreme Court.
Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to the
relevant provisions of the Corporation Code in the case of stock or nonstock corporations or the
Civil Code in the case of partnerships that are not inconsistent with this Act.
Section 9. Creditors Representatives. - Creditors may designate representatives to vote or
otherwise act on their behalf by filing notice of such representation with the court and serving a
copy on the rehabilitation receiver or liquidator.
Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a
Partnership, or Directors and Officers. - Individual debtor, owner of a sole proprietorship,
partners in a partnership, or directors and officers of a debtor shall be liable for double the value
of the property sold, embezzled or disposed of or double the amount of the transaction involved,
whichever is higher to be recovered for benefit of the debtor and the creditors, if they, having
notice of the commencement of the proceedings, or having reason to believe that proceedings are
about to be commenced, or in contemplation of the proceedings, willfully commit the following
acts:
(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary
course of business or authorize or approve any transaction in fraud of creditors or in a manner
grossly disadvantageous to the debtor and/or creditors; or
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or
misappropriates, any property of the debtor.
The court shall determine the extent of the liability of an owner, partner, director or officer under
this section. In this connection, in case of partnerships and corporations, the court shall consider
the amount of the shareholding or partnership or equity interest of such partner, director or
officer, the degree of control of such partner, director or officer over the debtor, and the extent of
the involvement of such partner, director or debtor in the actual management of the operations of
the debtor.
Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable banking
legislation to the contrary, any bank, whether universal or not, may acquire and hold an equity
interest or investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction
of debts pursuant to a Rehabilitation or Liquidation Plan approved by the court: Provided, That
such ownership shall be subject to the ownership limits applicable to universal banks for equity
investments and: Provided, further, That any equity investment or interest acquired or held
pursuant to this section shall be disposed by the bank within a period of five (5) years or as may
be prescribed by the Monetary Board.
CHAPTER II
COURT-SUPERVISED REHABILITATION
(A) Initiation Proceedings.
(1) Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner
in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or in
case of a corporation, by a majority vote of the board of directors or trustees and authorized by
the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock,
or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate
voluntary proceedings under this Act by filing a petition for rehabilitation with the court and on
the grounds hereinafter specifically provided. The petition shall be verified to establish the
insolvency of the debtor and the viability of its rehabilitation, and include, whether as an
attachment or as part of the body of the petition, as a minimum the following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its
obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on the form of relief
requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if any;
(g) An inventory of all its assets including receivables and claims against third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and
(j) Other documents required to be filed with the petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation under this Act when one or more
of its members foresee the impossibility of meeting debts when they respectively fall due, and
the financial distress would likely adversely affect the financial condition and/or operations of
the other members of the group and/or the participation of the other members of the group is
essential under the terms and conditions of the proposed Rehabilitation Plan.
(2) Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or
group of creditors with a claim of, or the aggregate of whose claims is, at least One Million
Pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or
partners' contributions, whichever is higher, may initiate involuntary proceedings against the
debtor by filing a petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least sixty (60) days or that the debtor
has failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor
that will prevent the debtor from paying its debts as they become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for
rehabilitation shall be verified to establish the substantial likelihood that the debtor may be
rehabilitated, and include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation
proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(f) other information that may be required under this Act depending on the form of relief
requested; and
(g) other documents required to be filed with the petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme Court.
(B) Action on the Petition and Commencement of Proceedings.
Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be
sufficient in form and substance, it shall, within five (5) working days from the filing of the
petition, issue a Commencement Order. If, within the same period, the court finds the petition
deficient in form or substance, the court may, in its discretion, give the petitioner/s a reasonable
period of time within which to amend or supplement the petition, or to submit such documents as
may be necessary or proper to put the petition in proper order. In such case, the five (5) working
days provided above for the issuance of the Commencement Order shall be reckoned from the
date of the filing of the amended or supplemental petition or the submission of such documents.
Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The
rehabilitation proceedings shall commence upon the issuance of the Commencement Order,
which shall:
(a) identify the debtor, its principal business or activity/ies and its principal place of business;
(b) summarize the ground/s for initiating the proceedings;
(c) state the relief sought under this Act and any requirement or procedure particular to the relief
sought;
(d) state the legal effects of the Commencement Order, including those mentioned in Section 17
hereof;
(e) declare that the debtor is under rehabilitation;
(f) direct the publication of the Commencement Order in a newspaper of general circulation in
the Philippines once a week for at least two (2) consecutive weeks, with the first publication to
be made within seven (7) days from the time of its issuance;
(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the petition
on each creditor holding at least ten percent (10%) of the total liabilities of the debtor as
determined from the schedule attached to the petition within five (5) days; if the petitioner/s
is/are creditor/s, direct the service by personal delivery of a copy of the petition on the debtor
within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the nominees of the
petitioner/s and who shall exercise such powers and duties defined in this Act as well as the
procedural rules that the Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish their claims against the
debtor and direct all creditors to their claims with the court at least five (5) days before the initial
hearing;
(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment on or
opposition to the petition or its claim/s against the debtor under such procedures as the Supreme
Court provide;
(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods and
services in the ordinary course of business for as long as the debtor makes payments for the
services or goods supplied after the issuance of the Commencement Order;
(l) authorize the payment of administrative expenses as they become due;
(m) set the case for initial hearing, which shall not be more than forty (40) days from the date of
filing of the petition for the purpose of determining whether there is substantial likelihood for the
debtor to be rehabilitated;
(n) make available copies of the petition and rehabilitation plan for examination and copying by
any interested party;
(o) indicate the location or locations at which documents regarding the debtor and the
proceedings under Act may be reviewed and copied;
(p) state that any creditor or debtor who is not the petitioner, may submit the name or nominate
any other qualified person to the position of rehabilitation receiver at least five (5) days before
the initial hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims
against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other provisional remedies against
the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of
its properties except in the ordinary course of business; and
(4) prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the
court's issuance of a Commencement Order shall, in addition to the effects of a Stay or
Suspension Order described in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for this Act, such as the
right to review and obtain records to which the debtor's management and directors have access,
including bank accounts or whatever nature of the debtor subject to the approval by the court of
the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt
to collection or enforce a claim against the debtor after commencement date unless otherwise
allowed in this Act, subject to the provisions of Section 50 hereof;
(c) serve as the legal basis for rendering null and void any setoff after the commencement date of
any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void the perfection of any lien against the
debtor's property after the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the debtor to the court
Provided. However, That the court may allow the continuation of cases on other courts where the
debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor outside these proceedings shall be
sufficient to support a finding of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall
not apply:
(a) to cases already pending appeal in the Supreme Court as of commencement date Provided,
That any final and executory judgment arising from such appeal shall be referred to the court for
appropriate action;
(b) subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-
judicial agency which, upon determination by the court is capable of resolving the claim more
quickly, fairly and efficiently than the court: Provided, That any final and executory judgment of
such court or agency shall be referred to the court and shall be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with the
debtor, and third party or accommodation mortgagors as well as issuers of letters of credit, unless
the property subject of the third party or accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market participant to recover or
otherwise claim moneys and securities entrusted to the latter in the ordinary course of the latter's
business as well as any action of such securities market participant or the appropriate regulatory
agency or self-regulatory organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the settlement of securities transactions in accordance
with the provisions of the Securities Regulation Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the facilities of a clearing agency
or similar entities duly authorized, registered and/or recognized by the appropriate regulatory
agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of
such agencies or entities to reimburse themselves for any transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor
shall not be affected by any proceeding commend under this Act.
Section 19. Waiver of taxes and Fees Due to the National Government and to Local Government
Units (LGUs). - Upon issuance of the Commencement Order by the court, and until the approval
of the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all
taxes and fees including penalties, interests and charges thereof due to the national government
or to LGUs shall be considered waived, in furtherance of the objectives of rehabilitation.
Section 20. Application of Stay or Suspension Order to Government Financial Institutions. - The
provisions of this Act concerning the effects of the Commencement Order and the Stay or
Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies
shall apply to government financial institutions, notwithstanding provisions in their charters or
other laws to the contrary.
Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the
Commencement Order shall be for the effective for the duration of the rehabilitation proceedings
for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In
determining whether there is substantial likelihood for the debtor to be successfully rehabilitated,
the court shall ensure that the following minimum requirements are met:
(a) The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed
by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the
protection of creditors;
(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach
consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the
underlying assumptions and the goals stated in the petitioner's Rehabilitation Plan are realistic
reasonable and reasonable or if not, there is, in any case, a substantial likelihood for the debtor to
be successfully rehabilitated because, among others:
(1) there are sufficient assets with/which to rehabilitate the debtor;
(2) there is sufficient cash flow to maintain the operations of the debtor;
(3) the debtor's, partners, stockholders, directors and officers have been acting in good faith and
which due diligence;
(4) the petition is not s sham filing intended only to delay the enforcement of the rights of the
creditor's or of any group of creditors; and
(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;
(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any
materially false or misleading statement;
(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least
three-fourths (3/4) of its total obligations to the extent reasonably possible and made a good faith
effort to reach a consensus on the proposed Rehabilitation Plan if the petitioner/s is/are a creditor
or group of creditors, that/ the petitioner/s has/have met with the debtor and made a good faith
effort to reach a consensus on the proposed Rehabilitation Plan; and
(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a group of
creditors.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
(a) determine the creditors who have made timely and proper filing of their notice of claims;
(b) hear and determine any objection to the qualifications of the appointment of the rehabilitation
receiver and, if necessary appoint a new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the
same to the court and to the rehabilitation receiver within a period of not more than twenty (20)
days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to
prepare and submit to the court within forty (40) days from initial hearing the report provided in
Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the
schedule of debts and liabilities and who fails to file a notice of claim in accordance with the
Commencement Order but subsequently files a belated claim shall not be entitled to participate
in the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial
hearing and with or without the comments of the creditors or any of them, the rehabilitation
receiver shall submit a report to the court stating his preliminary findings and recommendations
on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or acts
committed by the owner/s of a sole proprietorship partners of a partnership or directors or
officers of a corporation in contemplation of the insolvency of the debtor or which may have
contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures to accomplish such goals
as stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. -
Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section
24 hereof the court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;
(b) dismiss the petition upon a finding that:
(1)debtor is not insolvent;
(2) the petition i8 a sham filing intended only to delay the enforcement of the rights of the
creditor/s or of any group of creditors;
(3)the petition, the Rehabilitation Plan and the attachments thereto contain any materially false or
misleading statements; or
(4)the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group of
creditors;
(c)convert the proceedings into one for the liquidation of the debtor upon a finding that:
(1)the debtor is insolvent; and
(2)there is no substantial likelihood for the debtor to be successfully rehabilitated as determined
in accordance with the rules to be promulgated by the Supreme Court.
Section 26.Petition Given Due Course. - If the petition is given due course, the court shall direct
the rehabilitation receiver to review, revise and/or recommend action on the Rehabilitation Plan
and submit the same or a new one to the court within a period of not more than ninety (90) days.
The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation
proceedings pending before it to arbitration or other modes of dispute resolution, as provided for
under Republic Act No. 9285, Or the Alternative Dispute Resolution Act of 2004, should it
determine that such mode will resolve the dispute more quickly, fairly and efficiently than the
court.
Section 27.Dismissal of Petition. - If the petition is dismissed pursuant to paragraph (b) of
Section 25 hereof, then the court may, in its discretion, order the petitioner to pay damages to
any creditor or to the debtor, as the case may be, who may have been injured by the filing of the
petition, to the extent of any such injury.
(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.
Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified natural or juridical
person may serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a
juridical entity, it must designate a natural person/s who possess/es all the qualifications and
none of the disqualification’s as its representative, it being understood that the juridical entity
and the representative/s are solidarily liable for all obligations and responsibilities of the
rehabilitation receiver.
Section 29.Qualifications of a Rehabilitation Receiver. - The rehabilitation receiver shall have
the following minimum qualifications:
(a)A citizen of the Philippines or a resident of the Philippines in the six (6) months immediately
preceding his nomination;
(b)Of good moral character and with acknowledged integrity, impartiality and independence;
(c)Has the requisite knowledge of insolvency and other relevant commercial laws, rules and
procedures, as well as the relevant training and/or experience that may be necessary to enable
him to properly discharge the duties and obligations of a rehabilitation receiver; and
(d)Has no conflict of interest: Provided, That such conflict of interest may be waived, expressly
or impliedly, by a party who may be prejudiced thereby.
Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the need
to protect the interest of all stakeholders concerned.
Section 30.Initial Appointment of the Rehabilitation Receiver. - The court shall initially appoint
the rehabilitation receiver, who mayor may not be from among the nominees of the petitioner,
However, at the initial hearing of the petition, the creditors and the debtor who are not petitioners
may nominate other persons to the position. The court may retain the rehabilitation receiver
initially appointed or appoint another who mayor may not be from among those nominated.
In case the debtor is a securities market participant, the court shall give priority to the nominee of
the appropriate securities or investor protection fund.
If a qualified natural person or entity is nominated by more than fifty percent (50%) of the
secured creditors and the general unsecured creditors, and satisfactory evidence is submitted, the
court shall appoint the creditors' nominee as rehabilitation receiver.
Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The
rehabilitation receiver shall be deemed an officer of the court with the principal duty of
preserving and maximizing the value of the assets of the debtor during the rehabilitation
proceedings, determining the viability of the rehabilitation of the debtor, preparing and
recommending a Rehabilitation Plan to the court, and implementing the approved Rehabilitation
Plan, To this end, and without limiting the generality of the foregoing, the rehabilitation receiver
shall have the following powers, duties and responsibilities:
(a)To verify the accuracy of the factual allegations in the petition and its annexes;
(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor, and their
valuation;
(c)To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
(d)To evaluate the validity, genuineness and true amount of all the claims against the debtor;
(e)To take possession, custody and control, and to preserve the value of all the property of the
debtor;
(f)To sue and recover, with the approval of the court, all amounts owed to, and all properties
pertaining to the debtor;
(g)To have access to all information necessary, proper or relevant to the operations and business
of the debtor and for its rehabilitation;
(h) To sue and recover, with the. approval of the court, all property or money of the debtor paid,
transferred or disbursed in fraud of the debtor or its creditors, or which constitute undue
preference of creditor/s;
(i) To monitor the operations and the business of the debtor to ensure that no payments or
transfers of property are made other than in the ordinary course of business;
(j) With the court's approval, to engage the services of or to employ persons or entities to assist
him in the discharge of his functions;
(k) To determine the manner by which the debtor may be best rehabilitated, to review) revise
and/or recommend action on the Rehabilitation Plan and submit the same or a new one to the
court for approval;
(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided under the
Rehabilitation Plan;
(m) To assume and exercise the powers of management of the debtor, if directed by the court
pursuant to Section 36 hereof;
(n) To exercise such other powers as may, from time to time, be conferred upon him by the
court; and
To submit a status report on the rehabilitation proceedings every quarter or as may be required
by the court motu proprio. or upon motion of any creditor. or as may be provided, in the
Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall not
take over the management and control of the debtor but may recommend the appointment of a
management committee over the debtor in the cases provided by this Act.
Section 32.Removal of the Rehabilitation Receiver. – The rehabilitation receiver may be
removed at any time by the court either motu proprio or upon motion by any creditor/s holding
more than fifty percent (50%) of the total obligations of the debtor, on such grounds as the rules
of procedure may provide which shall include, but are not limited to, the following:
(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper degree of
care in the performance of his duties and powers;
(b) Lack of a particular or specialized competency required by the specific case;
(c) Illegal acts or conduct in the performance of his duties and powers;
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his appointment; and
(f) Manifest lack of independence that is detrimental to the general body of the stakeholders.
Section 33.Compensation and Terms of Service. The rehabilitation receiver and his direct
employees or independent contractors shall be entitled to compensation for reasonable fees and
expenses from the debtor according to the terms approved by the court after notice and hearing.
Prior to such hearing, the rehabilitation receiver and his direct employees shall be entitled to
reasonable compensation based on quantum meruit. Such costs shall be considered
administrative expenses.
Section 34.Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his powers,
duties and responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such
amount to be fixed by the court, conditioned upon the faithful and proper discharge of his
powers, duties and responsibilities.
Section 35.Vacancy. - Incase the position of rehabilitation receiver is vacated for any reason
whatsoever. the court shall direct the debtor and the creditors to submit the name/s of their
nominee/s to the position. The court may appoint any of the qualified nominees. or any other
person qualified for the position.
Section 36.Displacement of Existing Management by the Rehabilitation Receiver or
Management Committee. – Upon motion of any interested party, the court may appoint and
direct the rehabilitation receiver to assume the powers of management of the debtor, or appoint a
management committee that will undertake the management of the debtor. upon clear and
convincing evidence of any of the following circumstances:
(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s assets
or other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part of, or
gross or willful violation of this Act by. existing management of the debtor Or the owner,
partner, director, officer or representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the powers of management of the
debtor. the court may:
(1) require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persona or entities to assist him in the
discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.
Section 37.Role of the Management Committee. – When appointed pursuant to the foregoing
section, the management committee shall take the place of the management and the governing
body of the debtor and assume their rights and responsibilities.
The specific powers and duties of the management committee, whose members shall be
considered as officers of the court, shall be prescribed by the procedural rules.
Section 38.Qualifications of Members of the Management Committee. - The qualifications and
disqualification’s of the members of the management committee shall be set forth in the
procedural rules, taking into consideration the nature of the business of the debtor and the need
to protect the interest of all stakeholders concerned.
Section 39.Employment of Professionals. - Upon approval of the court, and after notice and
hearing, the rehabilitation receiver or the management committee may employ specialized
professionals and other experts to assist each in the performance of their duties. Such
professionals and other experts shall be considered either employees or independent contractors
of the rehabilitation receiver or the management committee, as the case may be. The
qualifications and disqualification’s of the professionals and experts may be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the need
to protect the interest of all stakeholders concerned.
Section 40.Conflict of Interest. - No person may be appointed as a rehabilitation receiver,
member of a_ management committee, or be employed by the rehabilitation receiver or the
management committee if he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he is so situated as to be materially
influenced in the exercise of his judgment for or against any party to the proceedings. Without
limiting the generality of the foregoing, an individual shall be deemed to have a conflict of
interest if:
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a director, officer, owner,
partner or employee of the debtor or any of the creditors, or the auditor or accountant of the
debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the
outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree to any individual
creditor, owners of a sale proprietorship-debtor, partners of a partnership- debtor or to any
stockholder, director, officer, employee or underwriter of a corporation-debtor; or
(f) he has any other direct or indirect material interest in the debtor or any of the creditors.
Any rehabilitation receiver, member of the management committee or persons employed or
contracted by them possessing any conflict of interest shall make the appropriate disclosure
either to the court or to the creditors in case of out-of-court rehabilitation proceedings. Any party
to the proceeding adversely affected by the appointment of any person with a conflict of interest
to any of the positions enumerated above may however waive his right to object to such
appointment and, if the waiver is unreasonably withheld, the court may disregard the conflict of
interest, taking into account the general interest of the stakeholders.
Section 41.Immunity. - The rehabilitation receiver and all persons employed by him, and the
members of the management committee and all persons employed by it, shall not be subject to
any action. claim or demand in connection with any act done or omitted to be done by them in
good faith in connection with the exercise of their powers and functions under this Act or other
actions duly approved by the court.1awp++il
Section 42.Creditors' Committee. - After the creditors' meeting called pursuant to Section 63
hereof, the creditors belonging to a class may formally organize a committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors' committee
composed of a representative from each class of creditors, such as the following:
(a) Secured creditors;
(b) Unsecured creditors;
(c) Trade creditors and suppliers; and
(d) Employees of the debtor.
In the . election of the creditors' representatives, the rehabilitation receiver or his representative
shall attend such meeting and extend the appropriate assistance as may be defined in the
procedural rules.
Section 43.Role of Creditors' Committee. - The creditors' committee when constituted pursuant
to Section 42 of this Act shall assist the rehabilitation receiver in communicating with the
creditors and shall be the primary liaison between the rehabilitation receiver and the creditors.
The creditors' committee cannot exercise or waive any right or give any consent on behalf of any
creditor unless specifically authorized in writing by such creditor. The creditors' committee may
be authorized by the court or by the rehabilitation receiver to perform such other tasks and
functions as may be defined by the procedural rules in order to facilitate the rehabilitation
process.
(D) Determination of Claims.
Section 44.Registry of Claims. - Within twenty (20) days from his assumption into office, the
rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation receiver
shall make the registry available for public inspection and provide
publication notice to the debtor, creditors and stakeholders on where and when they may inspect
it. All claims included in the registry of claims must be duly supported by sufficient evidence.
Section 45.Opposition or Challenge of Claims. – Within thirty (30) days from the expiration of
the period stated in the immediately preceding section, the debtor, creditors, stakeholders and
other interested parties may submit a challenge to claim/s to the court, serving a certified copy on
the rehabilitation receiver and the creditor holding the challenged claim/so Upon the expiration
of the thirty (30)-day period, the rehabilitation receiver shall submit to the court the registry of
claims which shall include undisputed claims that have not been subject to challenge.
Section 46.Appeal. - Any decision of the rehabilitation receiver regarding a claim may be
appealed to the court.
(E) Governance.
Section 47.Management. - Unless otherwise provided herein, the management of the juridical
debtor shall remain with the existing management subject to the applicable law/s and
agreement/s, if any, on the election or appointment of directors, managers Or managing partner.
However, all disbursements, payments or sale, disposal, assignment, transfer or encumbrance of
property , or any other act affecting title or interest in property, shall be subject to the approval of
the rehabilitation receiver and/or the court, as provided in the following subchapter.
(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after
Commencement Date.
Section 48.Use or Disposition of Assets. - Except as otherwise provided herein, no funds or
property of the debtor shall he used or disposed of except in the ordinary course of business of
the debtor, or unless necessary to finance the administrative expenses of the rehabilitation
proceedings.
Section 49.Sale of Assets. - The court, upon application of the rehabilitation receiver, may
authorize the sale of unencumbered property of the debtor outside the ordinary course of
business upon a showing that the property, by its nature or because of other circumstance, is
perishable, costly to maintain, susceptible to devaluation or otherwise injeopardy.
Section 50.Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties
Held by Debtor. The court may authorize the sale, transfer, conveyance or disposal of
encumbered property of the debtor, or property of others held by the debtor where there is a
security interest pertaining to third parties under a financial, credit or other similar transactions
if, upon application of the rehabilitation receiver and with the consent of the affected owners of
the property, or secured creditor/s in the case of encumbered property of the debtor and, after
notice and hearing, the court determines that:
(a) such sale, transfer, conveyance or disposal is necessary for the continued operation of the
debtor's business; and
(b) the debtor has made arrangements to provide a substitute lien or ownership right that
provides an equal level of security for the counter-party's claim or right.
Provided, That properties held by the debtor where the debtor has authority to sell such as trust
receipt or consignment arrangements may be sold or disposed of by the .debtor, if such sale or
disposal is necessary for the operation of the debtor's business, and the debtor has made
arrangements to provide a substitute lien or ownership right that provides an equal level of
security for the counter-party's claim or right.
Sale or disposal of property under this section shall not give rise to any criminal liability under
applicable laws.
Section 51.Assets of Debtor Held by Third Parties. – In the case of possessory pledges,
mechanic's liens or similar claims, third parties who have in their possession or control property
of the debtor shall not transfer, conveyor otherwise dispose of the same to persons other than the
debtor, unless upon prior approval of the rehabilitation receiver. The rehabilitation receiver may
also:
(a) demand the surrender or the transfer of the possession or control of such property to the
rehabilitation receiver or any other person, subject to payment of the claims secured by any
possessory Iien/s thereon;
(b) allow said third parties to retain possession or control, if such an arrangement would more
likely preserve or increase the value of the property in question or the total value of the assets of
the debtor; or
(c) undertake any otI1er disposition of the said property as may be beneficial for the
rehabilitation of the debtor, after notice and hearing, and approval of the court.
Section 52.Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. - The court
may rescind or declare as null and void any sale, payment, transfer or conveyance of the debtor's
unencumbered property or any encumbering thereof by the debtor or its agents or representatives
after the commencement date which are not in the ordinary course of the business of the debtor:
Provided, however, That the unencumbered property may be sold, encumbered or otherwise
disposed of upon order of the court after notice and hearing:
(a) if such are in the interest of administering the debtor and facilitating the preparation and
implementation of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;
(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi delicts upon a showing that the claim is valid and the debtor
has insurance to reimburse the debtor for the payments made;
(e) for payments made to repurchase property of the debtor that is auctioned off in a judicial or
extrajudicial sale under. This Act; or
(f) for payments made to reclaim property of the debtor held pursuant to a possessory lien.
Section 53.Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. - Upon
the application of a secured creditor holding a lien against or holder of an ownership interest in
property held by the debtor that is subject to potentially rapid obsolescence, depreciation or
diminution in value, the court shall, after notice and hearing, order the debtor or rehabilitation
receiver to take reasonable steps necessary to prevent the depreciation. If depreciation cannot be
avoided and such depreciation is jeopardizing the security or property interest of the secured
creditor or owner, the court shall:
(a) allow the encumbered property to be foreclosed upon by the secured creditor according to the
relevant agreement between the debtor and the secured creditor, applicable rules of procedure
and relevant legislation: Provided. That the proceeds of the sale will be distributed in accordance
with the order prescribed under the rules of concurrence and preference of credits; or
(b) upon motion of, or with the consent of the affected secured creditor or interest owner. order
the conveyance of a lien against or ownership interest in substitute property of the debtor to the
secured creditor: Provided. That other creditors holding liens on such property, if any, do not
object thereto, or, if such property is not available;
(c) order the conveyance to the secured creditor or holder . of an ownership interest of a lien on
the residual funds from the sale of encumbered property during the proceedings; or
(d) allow the sale or disposition of the property: Provided. That the sale or disposition will
maximize the value of the property for the benefit of the secured creditor and the debtor, and the
proceeds of the sale will be distributed in accordance with the order prescribed under the rules of
concurrence and preference of credits.
Section 54.Post-commencement Interest. - The rate and term of interest, if any, on secured and
unsecured claims shall be determined and provided for in the approved Rehabilitation Plan.
Section 55.Post-commencement Loans and Obligations. - With the approval of the court upon
the recommendation of the rehabilitation receiver, the debtor, in order to enhance its
rehabilitation. may:
(a) enter into credit arrangements; or
(b) enter into credit arrangements, secured by mortgages of its unencumbered property or
secondary mortgages of encumbered property with the approval of senior secured parties with
regard to the encumbered property; or
(c) incur other obligations as may be essential for its rehabilitation.
The payment of the foregoing obligations shall be considered administrative expenses under this
Act.
Section 56.Treatment of Employees, Claims. Compensation of employees required to carry on
the business shall be considered an administrative expense. Claims of separation pay for months
worked prior to the commencement date shall be considered a pre- ommencement claim. Claims
for salary and separation pay for work performed after the commencement date shall be an
administrative expense.
Section 57.Treatment of Contracts. - Unless cancelled by virtue of a final judgment of a court of
competent jurisdiction issued prior to the issuance of the Commencement Order, or at anytime
thereafter by the court before which the rehabilitation proceedings are pending, all valid and
subbsisting contracts of the debtor with creditors and other third parties as at the commencement
date shall continue in force: Provided, That within ninety (90) days following the
commencement of proceedings, the debtor, with the consent of the rehabilitation receiver, shall
notify each contractual counter-party of whether it is confirming the particular contract.
Contractual obligations of the debtor arising or performed during this period, and afterwards for
confirmed contracts, shall be considered administrative expenses. Contracts not confirmed within
the required deadline shall be considered terminated. Claims for actual damages, if any, arising
as a result of the election to terminate a contract shall be considered a pre-commencement claim
against the debtor. Nothing contained herein shall prevent the cancellation or termination of any
contract of the debtor for any ground provided by law.
(G) Avoidance Proceedings.
Section 58.Rescission or Nullity of Certain Pre-commencement Transactions. Any transaction
occurring prior to commencement date entered into by the debtor or involving its funds or assets
may be rescinded or declared null and void on the ground that the same was executed with intent
to defraud a creditor or creditors or which constitute undue preference of creditors. Without
limiting the generality of the foregoing, a disputable presumption of such design shall arise if the
transaction:
(a) provides unreasonably inadequate consideration to the debtor and is executed within ninety
(90) days prior to the commencement date;
(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior to the
commencement date;
(c) provides security or additional security executed within ninety (90) days prior to the
commencement date;
(d) involves creditors, where a creditor obtained, or received the benefit of, more than its pro
rata share in the assets of the debtor, executed at a time when the debtor was insolvent; or
(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where the
effect of the transaction is to put assets of the debtor beyond the reach of creditors or to
otherwise prejudice the interests of creditors.
Provided, however, That nothing in this section shall prevent the court from rescinding or
declaring as null and void a transaction on other grounds provided by relevant legislation and
jurisprudence: Provided, further, That the provisions of the Civil Code on rescission shall in any
case apply to these transactions.
Section 59.Actions for Rescission or Nullity. - (a) The rehabilitation receiver or, with his
conformity, any creditor may initiate and prosecute any action to rescind, or declare null and
void any transaction described in Section 58 hereof. If the rehabilitation receiver does not
consent to the filing or prosecution of such action,
(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign and
transfer to the creditor all rights, title and interest in the chose in action or subject matter of the
proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent of his
claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the
surplus, if any, belongs to the estate.
(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or
liquidator) signifies to the court his readiness to institute the proceeding for the benefit of the
creditors, the order shall fix the time within which he shall do so and, m that case, the benefit
derived from the proceeding, if instituted within the time limits so fixed, belongs to the estate.
(H) Treatment of Secured Creditors.
Section 60.No Diminution of Secured Creditor Rights. The issuance of the Commencement
Order and the Suspension or Stay Order, and any other provision of this Act, shall not be
deemed in any way to diminish or impair the security or lien of a secured creditor, or the value of
his lien or security, except that his right to enforce said security or lien may be suspended during
the term of the Stay Order.
The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured
creditor to enforce his security or lien, or foreclose upon property of the debtor
securing his/its claim, if the said property is not necessary for the rehabilitation of the debtor.
The secured creditor and/or the other lien holders shall be admitted to the rehabilitation
proceedings only for the balance of his claim, if any.
Section 61.Lack of Adequate Protection. - The court, on motion or motu proprio, may terminate,
modify or set conditions for the continuance of suspension of payment, or relieve a claim from
the coverage thereof, upon showing that: (a) a creditor does not have adequate protection over
property securing its claim; or
(b) the value of a claim secured by a lien on property which is not necessary for rehabilitation of
the debtor exceeds the fair market value of the said property.
For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be
shown that:
(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the
property insured;
(b) the debtor fails or refuses to take commercially reasonable steps to maintain the property; or
(c) the property has depreciated to an extent that the creditor is under secured.
Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation
receiver to make arrangements to provide for the insurance or maintenance of the property; or to
make payments or otherwise provide additional or replacement security such that the obligation
is fully secured. If such arrangements are not feasible, the court may modify the Stay Order to
allow the secured creditor lacking adequate protection to enforce its security claim against the
debtor: Provided, however, That the court may deny the creditor the remedies in this paragraph if
the property subject of the enforcement is required for the rehabilitation of the debtor.
(i) Administration of Proceedings.
Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan shall, as a minimum:
(a) specify the underlying assumptions, the financial goals and the procedures proposed to
accomplish such goals;
(b) compare the amounts expected to be received by the creditors under the Rehabilitation Plan
with those that they will receive if liquidation ensues within the next one hundred twenty (120)
days;
(c) contain information sufficient to give the various classes of creditors a reasonable basis for
determining whether supporting the Plan is in their financial interest when compared to the
immediate liquidation of the debtor, including any reduction of principal interest and penalties
payable to the creditors;
(d) establish classes of voting creditors;
(e) establish subclasses of voting creditors if prior approval has been granted by the court;
(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization. dacion en pago, debt-
equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of a
new business entity or other similar arrangements as may be necessary to restore the financial
well-being and visibility of the insolvent debtor;
(g) specify the treatment of each class or subclass described in subsections (d) and (e);
(h) provide for equal treatment of all claims within the same class or subclass, unless a particular
creditor voluntarily agrees to less favorable treatment;
(i) ensure that the payments made under the plan follow the priority established under the
provisions of the Civil Code on concurrence and preference of credits and other applicable laws;
(j) maintain the security interest of secured creditors and preserve the liquidation value of the
security unless such has been waived or modified voluntarily;
(k) disclose all payments to creditors for pre-commencement debts made during the proceedings
and the justifications thereof;
(1) describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;
(m) identify the debtor's role in the implementation of the Plan;
(n) state any rehabilitation covenants of the debtor, the breach of which shall be considered a
material breach of the Plan;
(o) identify those responsible for the future management of the debtor and the supervision and
implementation of the Plan, their affiliation with the debtor and their remuneration;
(p) address the treatment of claims arising after the confirmation of the Rehabilitation Plan;
(q) require the debtor and its counter-parties to adhere to the terms of all contracts that the debtor
has chosen to confirm;
(r) arrange for the payment of all outstanding administrative expenses as a condition to the Plan's
approval unless such condition has been waived in writing by the creditors concerned;
(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted amount
pursuant to a compromise settlement with the BlR Or other applicable tax authorities;
(t) include a certified copy of a certificate of tax clearance or evidence of a compromise
settlement with the BIR;
(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders to increase
the shares by the required amount in cases where the Plan contemplates an additional issuance of
shares by the debtor;
(v) state the compensation and status, if any, of the rehabilitation receiver after the approval of
the Plan; and
(w) contain provisions for conciliation and/or mediation as a prerequisite to court assistance or
intervention in the event of any disagreement in the interpretation or implementation of the
Rehabilitation Plan.
Section 63.Consultation with Debtor and Creditors. – if the court gives due course to the
petition, the rehabilitation receiver shall confer with the debtor and all the classes of creditors,
and may consider their views and proposals ill the review, revision or preparation of a new
Rehabilitation Plan.
Section 64.Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify
the creditors and stakeholders that the Plan is ready for their examination. Within twenty (2Q)
days from the said notification, the rehabilitation receiver shall convene the creditors, either as a
whole or per class, for purposes of voting on the approval of the Plan. The Plan shall be deemed
rejected unless approved by all classes of creditors w hose rights are adversely modified or
affected by the Plan. For purposes of this section, the Plan is deemed to have been approved by a
class of creditors if members of the said class holding more than fifty percent (50%) of the total
claims of the said class vote in favor of the Plan. The votes of the creditors shall be based solely
on the amount of their respective claims based on the registry of claims submitted by the
rehabilitation receiver pursuant to Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the requirements specified in this Act.
(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling
interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have received if
the debtor were under liquidation.
Section 65.Submission of Rehabilitation Plan to the Court. - 1fthe Rehabilitation Plan is
approved, the rehabilitation receiver shall submit the same to the court for confirmation. Within
five (5) days from receipt of the Rehabilitation Plan, the court shall notify the creditors that the
Rehabilitation Plan has been submitted for confirmation, that any creditor may obtain copies of
the Rehabilitation Plan and that any creditor may file an objection thereto.
Section 66.Filing of Objections to Rehabilitation Plan. – A creditor may file an objection to the
Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the
Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan
shall be limited to the following:
(a) The creditors' support was induced by fraud;
(b)The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or
(c)The Rehabilitation Plan is in fact not supported by the voting creditors.
Section 67.Hearing on the Objections. - If objections have been submitted during the relevant
period, the court shall issue an order setting the time and date for the hearing or hearings on the
objections.
If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to
cure the defect, whenever feasible. If the court determines that the debtor acted in bad faith, or
that it is not feasible to cure the defect, the court shall convert the proceedings into one for the
liquidation of the debtor under Chapter V of this Act.
Section 68.Confirmation of the Rehabilitation Plan. – If no objections are filed within the
relevant period or, if objections are filed, the court finds them lacking in merit, or determines that
the basis for the objection has been cured, or determines that the debtor has complied with an
order to cure the objection, the court shall issue an order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims
if the Rehabilitation Plan has made adequate provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the
court shall have the power to approve or implement the Rehabilitation Plan despite the lack of
approval, or objection from the owners, partners or stockholders of the insolvent debtor:
Provided, That the terms thereof are necessary to restore the financial well-being and viability of
the insolvent debtor.
Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the
Rehabilitation Plan by the court shall result in the following:
(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons
who may be affected by . it, including the creditors, whether or not such persons have
participated in the proceedings or opposed the Rehabilitation Plan or whether or not their claims
have been scheduled;
(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all
actions necessary to carry out the Plan;
(c) Payments shall be made to the creditors in accordance with the provisions of the
Rehabilitation Plan;
(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as
continuing to apply to the extent that they do not conflict with the provisions of the
Rehabilitation Plan;
(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be
binding on creditors regardless of whether or not the Plan is successfully implement; and
(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not
subject to any Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided,
however, That the court may maintain jurisdiction over the case in order to resolve claims against
the debtor that remain contested and allegations that the debtor has breached the Plan.
Section 70. Liability of General Partners of a Partnership for Unpaid Balances Under an
Approved Plan. - The approval of the Plan shall not affect the rights of creditors to pursue
actions against the general partners of a partnership to the extent they are liable under relevant
legislation for the debts thereof.
Section 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. -
Amounts of any indebtedness or obligations reduced or forgiven in connection with a Plan's
approval shall not be subject to any tax in furtherance of the purposes of this Act.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a
maximum period of one (1) year from the date of the filing of the petition to confirm a
Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion
or motu propio, be converted into one for the liquidation of the debtor .
Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the
Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the
court. Unless the Rehabilitation Plan specifically requires and describes the role of the
rehabilitation receiver after the approval of the Rehabilitation Plan, the court shall discharge the
rehabilitation receiver of his duties.
(j) Termination of Proceedings
Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall,
upon motion by any stakeholder or the rehabilitation receiver be terminated by order of the court
either declaring a successful implementation of the Rehabilitation Plan or a failure of
rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that
the debtor can be rehabilitated within a reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation
thereof, the debtor fails to perform its obligations thereunder or there is a failure to realize the
objectives, targets or goals set forth therein, including the timelines and conditions for the
settlement of the obligations due to the creditors and other claimants;
(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its
amendment; and
(f) Other analogous circumstances as may be defined by the rules of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an
affected party may:
(1) Issue an order directing that the breach be cured within a specified period of time, falling
which the proceedings may be converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan,
the approval of which shall be governed by the same requirements for the approval of a
Rehabilitation Plan under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation, other
applicable law and the best interests of the creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.
Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:
(a) The discharge of the rehabilitation receiver subject to his submission of a final accounting;
and
(b) The lifting of the Stay Order and any other court order holding in abeyance any action for the
enforcement of a claim against the debtor.
Provided, however, That if the termination of proceedings is due to failure of rehabilitation or
dismissal of the petition for reasons other than technical grounds, the proceedings shall be
immediately converted to liquidation as provided in Section 92 of this Act.
CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for the approval of a pre-negotiated
Rehabilitation Plan which has been endorsed or approved by creditors holding at least two-thirds
(2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty
percent (50%) of the total secured claims of the debtor and unsecured creditors holding more
than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall include as
a minimum:
(a) a schedule of the debtor's debts and liabilities;
(b) an inventory of the debtor's assets;
(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified
nominees for rehabilitation receiver; and
(d) a summary of disputed claims against the debtor and a report on the provisioning of funds to
account for appropriate payments should any such claims be ruled valid or their amounts
adjusted.
Section 77. Issuance of Order. - Within five (5) working days, and after determination that the
petition is sufficient in form and substance, the court shall issue an Order which shall;
(a) identify the debtor, its principal business of activity/ies and its principal place of business;
(b) declare that the debtor is under rehabilitation;
(c) summarize the ground./s for the filling of the petition;
(d) direct the publication of the Order in a newspaper of general circulation in the Philippines
once a week for at least two (2) consecutive weeks, with the first publication to be made within
seven (7) days from the time of its issuance;
(e) direct the service by personal delivery of a copy of the petition on each creditor who is not a
petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as determined in
the schedule attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for examination and
copying by any interested party;
(g) state that creditors and other interested parties opposing the petition or Rehabilitation Plan
may file their objections or comments thereto within a period of not later than twenty (20) days
from the second publication of the Order;
(h) appoint a rehabilitation receiver, if provided for in the Plan; and
(i) include a Suspension or Stay Order as described in this Act.
Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication
of the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested
party submits an objection to it in accordance with the next succeeding section.
Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or other interested
party may submit to the court a verified objection to the petition or the Rehabilitation Plan not
later than eight (8) days from the date of the second publication of the Order mentioned in
Section 77 hereof. The objections shall be limited to the following:
(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto are
materially false or misleading;
(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;
(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the
claim in not categorically declared as a contested claim; or
(d) The support of the creditors, or any of them was induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor,
the rehabilitation receiver (if applicable), the secured creditor with the largest claim and who
supports the Rehabilitation Plan, and the unsecured creditor with the largest claim and who
supports the Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the
same for hearing. The date of the hearing shall be no earlier than twenty (20) days and no later
than thirty (30) days from the date of the second publication of the Order mentioned in Section
77 hereof. If the court finds merit in the objection, it shall direct the debtor, when feasible to cure
the detect within a reasonable period. If the court determines that the debtor or creditors
supporting the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the
court may order the conversion of the proceedings into liquidation. A finding by the court that
the objection has no substantial merit, or that the same has been cured shall be deemed an
approval of the Rehabilitation Plan.
Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum
period of one hundred twenty (120) days from the date of the filing of the petition to approve the
Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan shall be
deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal
effect as confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS
Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An
out-of-curt or informal restructuring agreement or Rehabilitation Plan that meets the minimum
requirements prescribed in this chapter is hereby recognized as consistent with the objectives of
this Act.
Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and
Rehabilitation Plans. - For an out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan to qualify under this chapter, it must meet the following minimum
requirements:
(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan;
(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured
obligations of the debtor;
(c) It must be approved by creditors representing at least seventy-five percent (75%) of the
unsecured obligations of the debtor; and
(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total
liabilities, secured and unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties
pending negotiation and finalization of the out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan contemplated herein shall be effective and enforceable not only
against the contracting parties but also against the other creditors: Provided, That (a) such
agreement is approved by creditors representing more than fifty percent (50%) of the total
liabilities of the debtor; (b) notice thereof is publishing in a newspaper of general circulation in
the Philippines once a week for two (2) consecutive weeks; and (c) the standstill period does not
exceed one hundred twenty (120) days from the date of effectivity. The notice must invite
creditors to participate in the negotiation for out-of-court rehabilitation or restructuring
agreement and notify them that said agreement will be binding on all creditors if the required
majority votes prescribed in Section 84 of this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that
is approved pursuant to an informal workout framework referred to in this chapter shall have the
same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the
Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at least
three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The
Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15)
days from the date of the last publication of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court
restructuring/workout agreement or Rehabilitation Plan must be made in accordance with the
terms of the agreement and with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings
arising from, or relating to, the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan shall not stay its implementation, unless the relevant party is able to secure a
temporary restraining order or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court assistance
for the execution or implementation of a Rehabilitation Plan under this Chapter, under such rules
of procedure as may be promulgated by the Supreme Court.
CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a
petition for liquidation with the court. The petition shall be verified, shall establish the
insolvency of the debtor and shall contain, whether as an attachment or as part of the body of the
petition;
(a) a schedule of the debtor's debts and liabilities including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if any;
(b) an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-negotiated rehabilitation
proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the same
court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings
into liquidation proceedings. The motion shall be verified, shall contain or set forth the same
matters required in the preceding paragraph, and state that the debtor is seeking immediate
dissolution and termination of its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and substance, the court
shall issue a Liquidation Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims
is at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of
the subscribed capital stock or partner's contributions of the debtor, whichever is higher, may
apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the
debtor with the court. The petition shall show that:
(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least one hundred eighty (180) days or
that the debtor has failed generally to meet its liabilities as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated
rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million
pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or
partner's contributions of the debtor, whichever is higher, may also initiate liquidation
proceedings by filing a motion in the same court where the rehabilitation proceedings are
pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall
be verified, shall contain or set forth the same matters required in the preceding paragraph, and
state that the movants are seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall issue an Order:
(1) directing the publication of the petition or motion in a newspaper of general circulation once
a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to file their comment on the
petition or motion within fifteen (15) days from the date of last publication.
If, after considering the comments filed, the court determines that the petition or motion is
meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of
court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion
of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act;
or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any
other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the
debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in
Section 112 hereof.
Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this
chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree
No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and
heard before it.
CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS
(A) Suspension of Payments.
Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his
debts but foreseeing the impossibility of meeting them when they respectively fall due, may file
a verified petition that he be declared in the state of suspension of payments by the court of the
province or city in which he has resides for six (6) months prior to the filing of his petition. He
shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory
of assess; and (c) a proposed agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the petition sufficient in form and
substance, it shall, within five (5) working days from the filing of the petition, issue an Order:
(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such
time not less than fifteen (15) days nor more than forty (40) days from the date of such Order and
designating the date, time and place of the meeting;
(b) directing such creditors to prepare and present written evidence of their claims before the
scheduled creditors' meeting;
(c) directing the publication of the said order in a newspaper of general circulation published in
the province or city in which the petition is filed once a week for two (2) consecutive weeks,
with the first publication to be made within seven (7) days from the time of the issuance of the
Order;
(d) directing the clerk of court to cause the sending of a copy of the Order by registered mail,
postage prepaid, to all creditors named in the schedule of debts and liabilities;
(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any
manner of his property, except those used in the ordinary operations of commerce or of industry
in which the petitioning individual debtor is engaged so long as the proceedings relative to the
suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment outside of the necessary or
legitimate expenses of his business or industry, so long as the proceedings relative to the
suspension of payments are pending; and
(g) appointing a commissioner to preside over the creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue
an order suspending any pending execution against the individual debtor. Provide, That
properties held as security by secured creditors shall not be the subject of such suspension order.
The suspension order shall lapse when three (3) months shall have passed without the proposed
agreement being accepted by the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim from the debtor from the time
of the filing of the petition for suspension of payments and for as long as proceedings remain
pending except:
(a) those creditors having claims for personal labor, maintenance, expense of last illness and
funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to
the filing of the petition; and
(b) secured creditors.
Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least
three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner
appointed by the court shall preside over the meeting and the clerk of court shall act as the
secretary thereof, subject to the following rules:
(a) The clerk shall record the creditors present and amount of their respective claims;
(b) The commissioner shall examine the written evidence of the claims. If the creditors present
hold at least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall
declare the meeting open for business;
(c) The creditors and individual debtor shall discuss the propositions in the proposed agreement
and put them to a vote;
(d) To form a majority, it is necessary:
(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
(2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the
total liabilities of the debtor mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the majority vote
shall be drawn up, and the commissioner and the individual debtor together with all creditors
taking part in the voting shall sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall
be entitled to vote.
Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the
Suspension Order may refrain from attending the meeting and from voting therein. Such persons
shall not be bound by any agreement determined upon at such meeting, but if they should join in
the voting they shall be bound in the same manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed
rejected if the number of creditors required for holding a meeting do not attend thereat, or if the
two (2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances, the
proceeding shall be terminated without recourse and the parties concerned shall be at liberty to
enforce the rights which may correspond to them.
Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof
made during the creditors' meeting, is approved by the majority of creditors in accordance with
Section 97 hereof, any creditor who attended the meeting and who dissented from and protested
against the vote of the majority may file an objection with the court within ten (10) days from the
date of the last creditors' meeting. The causes for which objection may be made to the decision
made by the majority during the meeting shall be: (a) defects in the call for the meeting, in the
holding thereof and in the deliberations had thereat which prejudice the rights of the creditors;
(b) fraudulent connivance between one or more creditors and the individual debtor to vote in
favor of the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of
obtaining a majority. The court shall hear and pass upon such objection as soon as possible and
in a summary manner.
In case the decision of the majority of creditors to approve the individual debtor's proposal or
any amendment thereof made during the creditors' meeting is annulled by the court, the court
shall declare the proceedings terminated and the creditors shall be at liberty to exercise the rights
which may correspond to them.
Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the
creditors to approve the proposed agreement or any amendment thereof made during the
creditors' meeting is uphold by the court, or when no opposition or objection to said decision has
been presented, the court shall order that the agreement be carried out and all parties bound
thereby to comply with its terms.
The court may also issue all orders which may be necessary or proper to enforce the agreement
on motion of any affected party. The Order confirming the approval of the proposed agreement
or any amendment thereof made during the creditors' meeting shall be binding upon all creditors
whose claims are included in the schedule of debts and liabilities submitted by the individual
debtor and who were properly summoned, but not upon: (a) those creditors having claims for
personal labor, maintenance, expenses of last illness and funeral of the wife or children of the
debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and (b)
secured creditors who failed to attend the meeting or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails,
wholly or in part, to perform the agreement decided upon at the meeting of the creditors, all the
rights which the creditors had against the individual debtor before the agreement shall revest in
them. In such case the individual debtor may be made subject to the insolvency proceedings in
the manner established by this Act.
(B) Voluntary Liquidation.
Section 103. Application. - An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply
to be discharged from his debts and liabilities by filing a verified petition with the court of the
province or city in which he has resided for six (6) months prior to the filing of such petition. He
shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing
of such petition shall be an act of insolvency.
Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance
it shall, within five (5) working days issue the Liquidation Order mentioned in Section 112
hereof.
(C) In voluntary Liquidation.
Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or
with claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a
verified petition for liquidation with the court of the province or city in which the individual
debtor resides.
The following shall be considered acts of insolvency, and the petition for liquidation shall set
forth or allege at least one of such acts:
(a) That such person is about to depart or has departed from the Republic of the Philippines, with
intent to defraud his creditors;
(b) That being absent from the Republic of the Philippines, with intent to defraud his creditors,
he remains absent;
(c) That he conceals himself to avoid the service of legal process for the purpose of hindering or
delaying the liquidation or of defrauding his creditors;
(d) That he conceals, or is removing, any of his property to avoid its being attached or taken on
legal process;
(e) That he has suffered his property to remain under attachment or legal process for three (3)
days for the purpose of hindering or delaying the liquidation or of defrauding his creditors;
(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the
purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant;
(g) That he has willfully suffered judgment to be taken against him by default for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to give
a preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud
any one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property,
rights or credits with intent to hinder or delay the liquidation or defraud his creditors;
(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance
or transfer of his estate, property, rights or credits;
(k) That being a merchant or tradesman, he has generally defaulted in the payment of his current
obligations for a period of thirty (30) days;
(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited
with him or received by him in a fiduciary; and
(m) That an execution having been issued against him on final judgment for money, he shall
have been found to be without sufficient property subject to execution to satisfy the judgment.
The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if
the petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the
debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs, expenses,
damages occasioned by the proceedings and attorney's fees.
Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors'
petition, the court shall issue an Order requiring the individual debtor to show cause, at a time
and place to be fixed by the said court, why he should not be adjudged an insolvent. Upon good
cause shown, the court may issue an Order forbidding the individual debtor from making
payments of any of his debts, and transferring any property belonging to him. However, nothing
contained herein shall affect or impair the rights of a secured creditor to enforce his lien in
accordance with its terms.
Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found
in favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in
Section 112 hereof.
Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of
the Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be
found therein; or conceals himself to avoid service of the Order to show cause, or any other
preliminary process or orders in the matter, then the petitioning creditors, upon submitting the
affidavits requisite to procedure an Order of publication, and presenting a bond in double the
amount of the aggregate sum of their claims against the individual debtor, shall be entitled to an
Order of the court directing the sheriff of the province or city in which the matter is pending to
take into his custody a sufficient amount of property of the individual debtor to satisfy the
demands of the petitioning creditors and the costs of the proceedings. Upon receiving such Order
of the court to take into custody of the property of the individual debtor, it shall be the duty of
the sheriff to take possession of the property and effects of the individual debtor, not exempt
from execution, to an extent sufficient to cover the amount provided for and to prepare within
three (3) days from the time of taking such possession, a complete inventory of all the property
so taken, and to return it to the court as soon as completed. The time for taking the inventory and
making return thereof may be extended for good cause shown to the court. The sheriff shall also
prepare a schedule of the names and residences of the creditors, and the amount due each, from
the books of the debtor, or from such other papers or data of the individual debtor available as
may come to his possession, and shall file such schedule or list of creditors and inventory with
the clerk of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to
Sureties. - In all cases where property is taken into custody by the sheriff, if it does not embrace
all the property and effects of the debtor not exempt from execution, any other creditor or
creditors of the individual debtor, upon giving bond to be approved by the court in double the
amount of their claims, singly or jointly, shall be entitled to similar orders and to like action, by
the sheriff; until all claims be provided for, if there be sufficient property or effects. All property
taken into custody by the sheriff by virtue of the giving of any such bonds shall be held by him
for the benefit of all creditors of the individual debtor whose claims shall be duly proved as
provided in this Act. The bonds provided for in this section and the preceding section to procure
the order for custody of the property and effects of the individual debtor shall be conditioned that
if, upon final hearing of the petition in insolvency, the court shall find in favor of the petitioners,
such bonds and all of them shall be void; if the decision be in favor of the individual debtor, the
proceedings shall be dismissed, and the individual debtor, his heirs, administrators, executors or
assigns shall be entitled to recover such sum of money as shall be sufficient to cover the damages
sustained by him, not to exceed the amount of the respective bonds. Such damages shall be fixed
and allowed by the court. If either the petitioners or the debtor shall appeal from the decision of
the court, upon final hearing of the petition, the appellant shall be required to give bond to the
successful party in a sum double the amount of the value of the property in controversy, and for
the costs of the proceedings.
Any person interested in the estate may take exception to the sufficiency of the sureties on such
bond or bonds. When excepted to the petitioner's sureties, upon notice to the person excepting of
not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon
failure to justify, or of others in their place fail to justify at the time and place appointed the
judge shall issue an Order vacating the order to take the property of the individual debtor into the
custody of the sheriff, or denying the appeal, as the case may be.
Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to
the court or a judge thereof, asking for and obtaining an Order of publication and an Order for
the custody of the property of the individual debtor and thereafter the petitioners shall make it
appear satisfactorily to the court or a judge thereof that the interest of the parties to the
proceedings will be subserved by a sale thereof, the court may order such property to be sold in
the same manner as property is sold under execution, the proceeds to de deposited in the court to
abide by the result of the proceedings.
CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL
AND JURIDICAL DEBTORS
Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall include
both individual debtor as defined in Section 4(o) and debtor as defined in Section 4(k) of this
Act.
(A) The Liquidation Order.
Section 112. Liquidation Order. - The Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as
dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except those
that may be exempt from execution;
(d) order the publication of the petition or motion in a newspaper of general circulation once a
week for two (2) consecutive weeks;
(e) direct payments of any claims and conveyance of any property due the debtor to the
liquidator;
(f) prohibit payments by the debtor and the transfer of any property by the debtor;
(g) direct all creditors to file their claims with the liquidator within the period set by the rules of
procedure;
(h) authorize the payment of administrative expenses as they become due;
(i) state that the debtor and creditors who are not petitioner/s may submit the names of other
nominees to the position of liquidator; and
(j) set the case for hearing for the election and appointment of the liquidator, which date shall not
be less than thirty (30) days nor more than forty-five (45) days from the date of the last
publication.
Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:
(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence
terminated;
(b) legal title to and control of all the assets of the debtor, except those that may be exempt from
execution, shall be deemed vested in the liquidator or, pending his election or appointment, with
the court;
(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator,
within ninety (90) days from the date of his assumption of office, declares otherwise and the
contracting party agrees;
(d) no separate action for the collection of an unsecured claim shall be allowed. Such actions
already pending will be transferred to the Liquidator for him to accept and settle or contest. If the
liquidator contests or disputes the claim, the court shall allow, hear and resolve such contest
except when the case is already on appeal. In such a case, the suit may proceed to judgment, and
any final and executor judgment therein for a claim against the debtor shall be filed and allowed
in court; and
(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.
Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a
secured creditor to enforce his lien in accordance with the applicable contract or law. A secured
creditor may:
(a) waive his right under the security or lien, prove his claim in the liquidation proceedings and
share in the distribution of the assets of the debtor; or
(b) maintain his rights under the security or lien:
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the
liquidator. When the value of the property is less than the claim it secures, the liquidator may
convey the property to the secured creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance. If its value exceeds the claim secured, the liquidator
may convey the property to the creditor and waive the debtor's right of redemption upon
receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the
proceeds of the sale; or
(3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable
laws.
(B) The Liquidator.
Section 115. Election of Liquidator. - Only creditors who have filed their claims within the
period set by the court, and whose claims are not barred by the statute of limitations, will be
allowed to vote in the election of the liquidator. A secured creditor will not be allowed to vote,
unless: (a) he waives his security or lien; or (b) has the value of the property subject of his
security or lien fixed by agreement with the liquidator, and is admitted for the balance of his
claim.
The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the
highest number of votes cast in terms of amount of claims, ad who is qualified pursuant to
Section 118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
(a) on the date set for the election of the liquidator, the creditors do not attend;
(b) the creditors who attend, fail or refuse to elect a liquidator;
(c) after being elected, the liquidator fails to qualify; or
(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court
may instead set another hearing of the election of the liquidator.
Provided further, That nothing in this section shall be construed to prevent a rehabilitation
receiver, who was administering the debtor prior to the commencement of the liquidation, from
being appointed as a liquidator.
Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers, duties and
responsibilities, the liquidator shall take an oath and file a bond, In such amount to be fixed by
the court, conditioned upon the proper and faithful discharge of his powers, duties and
responsibilities.
Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications
enumerated in Section 29 hereof. He may be removed at any time by the court for cause, either
motu propio or upon motion of any creditor entitled to vote for the election of the liquidator.
Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be
deemed an officer of the court with the principal duly of preserving and maximizing the value
and recovering the assets of the debtor, with the end of liquidating them and discharging to the
extent possible all the claims against the debtor. The powers, duties and responsibilities of the
liquidator shall include, but not limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;
(b) to take possession of all the property of the debtor except property exempt by law from
execution;
(c) to sell, with the approval of the court, any property of the debtor which has come into his
possession or control;
(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an
encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval of the court;
(f) to recover any property or its value, fraudulently conveyed by the debtor;
(g) to recommend to the court the creation of a creditors' committee which will assist him in the
discharge of the functions and which shall have powers as the court deems just, reasonable and
necessary; and
(h) upon approval of the court, to engage such professional as may be necessary and reasonable
to assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right
and duty to take all reasonable steps to manage and dispose of the debtor's assets with a view
towards maximizing the proceedings therefrom, to pay creditors and stockholders, and to
terminate the debtor's legal existence. Other duties of the liquidator in accordance with this
section may be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation
receiver.
Section 120. Compensation of the Liquidator. - The liquidator and the persons and entities
engaged or employed by him to assist in the discharge of his powers and duties shall be entitled
to such reasonable compensation as may determined by the liquidation court, which shall not
exceed the maximum amount as may be prescribed by the Supreme Court.
Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a record of all
moneys received and all disbursements mad by him or under his authority as liquidator. He shall
render a quarterly report thereof to the court , which report shall be made available to all
interested parties. The liquidator shall also submit such reports as may be required by the court
from time to time as well as a final report at the end of the liquidation proceedings.
Section 122. Discharge of Liquidator. - In preparation for the final settlement of all the claims
against the debtor , the liquidator will notify all the creditors, either by publication in a
newspaper of general circulation or such other mode as the court may direct or allow, that will
apply with the court for the settlement of his account and his discharge from liability as
liquidator. The liquidator will file a final accounting with the court, with proof of notice to all
creditors. The accounting will be set for hearing. If the court finds the same in order, the court
will discharge the liquidator.
(C) Determination of Claims
Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the
liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors.
Secured creditors who have waived their security or lien, or have fixed the value of the property
subject of their security or lien by agreement with the liquidator and is admitted as a creditor for
the balance , shall be considered as unsecured creditors. The liquidator shall make the registry
available for public inspection and provide publication notice to creditors, individual debtors
owner/s of the sole proprietorship-debtor, the partners of the partnership-debtor and shareholders
or members of the corporation-debtor, on where and when they may inspect it. All claims must
be duly proven before being paid.
Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each
other one debt shall be set off against the other, and only the balance, if any shall be allowed in
the liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration
of the period for filing of applications for recognition of claims, creditors, individual debtors,
owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and shareholders or
members of the corporation -debtor and other interested parties may submit a challenge to claim
or claims to the court, serving a certified copy on the liquidator and the creditor holding the
challenged claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall
submit to the court the registry of claims containing the undisputed claims that have not been
subject to challenge. Such claims shall become final upon the filling of the register and may be
subsequently set aside only on grounds or fraud, accident, mistake or inexcusable neglect.
Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims
and submit his findings thereon to the court for final approval. The liquidator may disallow
claims.
(D) Avoidance Proceedings.
Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to
the issuance of the Liquidation Order or, in case of the conversion of the rehabilitation
proceedings prior to the commencement date, entered into by the debtor or involving its assets,
may be rescinded or declared null and void on the ground that the same was executed with intent
to defraud a creditor or creditors or which constitute undue preference of creditors. The
presumptions set forth in Section 58 hereof shall apply.
Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a
creditor may initiate and prosecute any action to rescind, or declare null and void any transaction
described in the immediately preceding paragraph. If the liquidator does not consent to the filling
or prosecution of such action, any creditor may seek leave of the court to commence said action.
(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign and transfer
to the creditor all rights, title and interest in the chose in action or subject matter of the
proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the extent
of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the
surplus, if any, belongs to the estate.
(d) Where, before an orders is made under subsection (a) hereof, the liquidator signifies to the
court his readiness to the institute the proceeding for the benefit of the creditors, the order shall
fix the time within which he shall do so and, in that case the benefit derived from the
proceedings, if instituted within the time limits so fixed, belongs to the estate.
(E) The Liquidation Plan.
Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office,
the Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a
minimum enumerate all the assets of the debtor and a schedule of liquidation of the assets and
payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition
and after hearing, to exempt and set apart, for the use and benefit of the said insolvent, such real
and personal property as is by law exempt from execution, and also a homestead; but no such
petition shall be heard as aforesaid until it is first proved that notice of the hearing of the
application therefor has been duly given by the clerk, by causing such notice to be posted it at
least three (3) public places in the province or city at least ten (10) days prior to the time of such
hearing, which notice shall set forth the name of the said insolvent debtor, and the time and place
appointed for the hearing of such application, and shall briefly indicate the homestead sought to
be exempted or the property sought to be set aside; and the decree must show that such proof was
made to the satisfaction of the court, and shall be conclusive evidence of that fact.
Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of
the debtor and convert the same into money. The sale shall be made at public auction. However,
a private sale may be allowed with the approval of the court if; (a) the goods to be sold are of a
perishable nature, or are liable to quickly deteriorate in value, or are disproportionately
expensive to keep or maintain; or (b) the private sale is for the best interest of the debtor and his
creditors.
With the approval of the court, unencumbered property of the debtor may also be conveyed to a
creditor in satisfaction of his claim or part thereof.
Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the
Liquidation Plan as approved by the court. Payments shall be made to the creditors only in
accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its
Implementation shall ensure that the concurrence and preference of credits as enumerated in the
Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred
creditor voluntarily waives his preferred right. For purposes of this chapter, credits for services
rendered by employees or laborers to the debtor shall enjoy first preference under Article 2244 of
the Civil Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.
Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities
and Exchange Commission. - Upon determining that the liquidation has been completed
according to this Act and applicable law, the court shall issue an Order approving the report and
ordering the SEC to remove the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor has
been removed from the registry of legal entities at the SEC. The court shall issue an Order
terminating the proceedings.
(F) Liquidation of a Securities Market Participant.
Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this
chapter shall be without prejudice to the power of a regulatory agency or self- regulatory
organization to liquidate trade-related claims of clients or customers of a securities market
participant which, for purposes of investor protection, are hereby deemed to have absolute
priority over other claims of whatever nature or kind insofar as trade-related assets are
concerned.
For purposes of this section, trade -related assets include cash, securities, trading right and other
owned and used by the securities market participant in the ordinary course of this business.
CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION
PROCEEDINGS
(A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant to
a State-funded or State-mandated Insurance System.
Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims and
provide other relief necessary to assist in the liquidation of a financial under rehabilitation
receivership established by a state-funded or state-mandated insurance system.
Section 138. Application of Relevant Legislation. - The liquidation of bank, financial institutions,
insurance companies and pre-need companies shall be determined by relevant legislation. The
provisions in this Act shall apply in a suppletory manner.
(B) Cross-Border Insolvency Proceedings.
Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the
provision of Section 136 hereof and the rules of procedure that may be adopted by the Supreme
Court, the Model Law on Cross-Border Insolvency of the United Nations Center for International
Trade and Development is hereby adopted as part of this Act.
Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an
insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the
submission of a petition by the representative of the foreign entity that is the subject of the
foreign proceeding.
Section 141. Provision of Relief. - The court may issue orders:
(a) suspending any action to enforce claims against the entity or otherwise seize or foreclose on
property of the foreign entity located in the Philippines;
(b) requiring the surrender property of the foreign entity to the foreign representative; or
(c) providing other necessary relief.
Section 142. Factors in Granting Relief. - In determining whether to grant relief under this
subchapter, the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in pursuing their claim in
a foreign proceeding;
(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation
proceedings;
(c) whether other jurisdictions have given recognition to the foreign proceeding;
(d) the extent that the foreign proceeding recognizes the rights of creditors and other interested
parties in a manner substantially in accordance with the manner prescribed in this Act; and
(e) the extent that the foreign proceeding has recognized and shown deference to proceedings
under this Act and previous legislation.
CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED
CORPORATIONS
Section 143. Funds for Rehabilitation of Government -owned and Controlled Corporations. -
Public funds for the rehabilitation of government-owned and controlled corporations shall be
released only pursuant to an appropriation by Congress and shall be supported by funds actually
available as certified by the National Treasurer.
The Department of Finance, in collaboration with the Department of Budget and Management,
shall promulgate the rules for the use and release of said funds.
CHAPTER X
MISCELLANEOUS PROVISIOS
Section 144. Applicability of Provisions. - The provisions in Chapter II, insofar as they are
applicable, shall likewise apply to proceedings in Chapters II and IV.
Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor
who commits any one of the following acts shall, upon conviction thereof, be punished by a fine
of not more than One million pesos (Php 1, 000,000.00) and imprisonment for not less than
three(3) months nor more than five (5) years for each offense;
(a) if he shall, having notice of the commencement of the proceedings, or having reason to
believe that proceedings are about to be commented, or in contemplation of the proceedings hide
or conceal, or destroy or cause to be destroyed or hidden any property belonging to the debtor or
if he shall hide, destroy, after mutilate or falsify, or cause to be hidden, destroyed, altered,
mutilated or falsified, any book, deed, document or writing relating thereto; if he shall, with
intent to defraud the creditors of the debtor, make any payment sale, assignment, transfer or
conveyance of any property belongings to the debtor
(b) if he shall, having knowledge belief of any person having proved a false or fictitious claim
against the debtor, fail to disclose the same to the rehabilitation receiver of liquidator within one
(1) month after coming to said knowledge or belief; or if he shall attempt to account for any of
the debtors property by fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation
established by this Act.
Section 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation
Cases. - This Act shall govern all petitions filed after it has taken effect. All further proceedings
in insolvency, suspension of payments and rehabilitation cases then pending, except to the extent
that in opinion of the court their application would not be feasible or would work injustice, in
which event the procedures set forth in prior laws and regulations shall apply.
Section 147. Application to Pending Contracts. - This Act shall apply to all contracts of the
debtor regardless of the date of perfection.
Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As amended is hereby
repealed. All other laws, orders, rules and regulations or parts thereof inconsistent with any
provision of this Act are hereby repealed or modified accordingly.
Section 149. Separability Clause. - If any provision of this Act shall be held invalid, the
remainder of this Act not otherwise affected shall remain in full force effect
Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two (2) national newspaper of general
circulation.

Republic of the Philippines

Congress of the Philippines
Metro Manila
Sixteenth Congress
Third Regular Session
Begun and held in Metro Manila, on Monday, the twenty-seventh day of July, two thousand
fifteen.
[REPUBLIC ACT NO. 10846]
AN ACT ENHANCING THE RESOLUTION AND LIQUIDATION FRAMEWORK FOR BANKS,
AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 3591, AS AMENDED, AND OTHER
RELATED LAWS
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:
SECTION 1. Section 1 of Republic Act No. 3591, as amended, is hereby amended to read as
follows:
“THE CREATION OF THE PHILIPPINE
DEPOSIT INSURANCE CORPORATION
“SECTION 1. — There is hereby created a Philippine Deposit Insurance Corporation
hereinafter referred to as the ‘Corporation’ which shall insure as herein provided, the
deposits of all banks which are entitled to the benefits of insurance under this Act, and
which shall have the powers hereinafter granted.
“The Corporation shall, as a basic policy, promote and safeguard the interests of the
depositing public by providing insurance coverage on all insured deposits and helping
maintain a sound and stable banking system.”
SEC. 2. A new section entitled Section 2 of the same Act shall be inserted between Sections
1 and 3 which shall read as follows:
“STATE POLICY
“SEC. 2. — It is hereby declared to be the policy of the State to strengthen the mandatory
deposit insurance coverage system to generate, preserve, maintain faith and confidence in
the country’s banking system, and protect it from illegal schemes and machinations.
“Towards this end, the government must extend all means and mechanisms necessary for
the Corporation to effectively fulfill its vital task of promoting and safeguarding the
interests of the depositing public by way of providing insurance coverage on bank deposits
and in helping develop a sound and stable banking system.
“In view of the crucial role and the nature of its functions and responsibilities, the
Corporation, while being a government instrumentality with corporate powers, shall enjoy
fiscal and administrative autonomy.”
SEC. 3. Section 2 of the same Act is accordingly renumbered as Section 3 and is hereby
amended to read as follows:
“BOARD OF DIRECTORS: COMPOSITION
AND AUTHORITY
“SEC. 3. (a) The powers and functions of the Corporation shall be vested in and exercised by
a Board of Directors which shall be composed of seven (7) members as follows:
“(1) The Secretary of Finance who shall be the ex officio Chairman of the Board without
compensation;
“(2) The Governor of the Bangko Sentral ng Pilipinas who shall be ex officio member of the
Board without compensation;
“(3) The President of the Corporation, who shall be appointed by the President of the
Philippines from a shortlist prepared by the Governance Commission for Government-
Owned or -Controlled Corporations pursuant to Republic Act No. 10149 to serve on a full-
time basis for a term of six (6) years. The President of the Corporation shall also serve as
Vice Chairman of the Board;
“(4) Four (4) members from the private sector to be appointed by the President of the
Philippines from a shortlist prepared by the Governance Commission for Government-
Owned or -Controlled Corporations pursuant to Republic Act No. 10149. The appointive
directors shall serve for a term of six (6) years unless sooner removed for cause and shall
be subject to only one (1) reappointment: Provided, That of those first appointed, the first
two (2) appointees shall serve for a period of three (3) years: Provided, however, That the
appointive director shall continue to hold office until the successor is appointed. An
appointive director may be nominated by the Governance Commission for Government-
Owned or -Controlled Corporations for reappointment by the President only if one obtains
a performance score of above average or its equivalent or higher in the immediately
preceding year of tenure as appointive director based on the performance criteria for
appointive directors of the Corporation.
“Appointment to any vacancy shall be only for the unexpired term of the predecessor
pursuant to Republic Act No. 10149.
“No person shall be appointed as member of the Board unless he or she be of good moral
character, of unquestionable integrity and responsibility, of known probity and patriotism,
and who is of recognized competence in economics, banking and finance, law, management
administration or insurance, and shall be at least thirty-five (35) years of age. For the
duration of their tenure or term of office and for a period of one (1) year thereafter, the
appointive members of the Board shall be disqualified from holding any office, position or
employment in any insured bank.
“The Secretary of Finance and the Governor of the Bangko Sentral ng Pilipinas may each
designate an alternate, who shall be an official with a rank not lower than assistant
secretary or its equivalent with written authority from the Secretary of Finance or the
Governor of the Bangko Sentral ng Pilipinas to attend such meetings and to vote on behalf
of their respective principals. Whenever the Chairman of the Board is unable to attend a
meeting of the Board, or in the event of a vacancy in the office of the Secretary of Finance,
and in the absence of the Vice Chairman, the members of the Board shall designate from
among themselves who shall act as Chairman.
“The President of the Philippines may remove any appointive member of the Board of
Directors for any of the following reasons:
“(i) If the member is physically or mentally incapacitated that he or she cannot properly
discharge his or her duties and responsibilities, and such incapacity has lasted for more
than six (6) months; or
“(ii) If the member is guilty of acts or operations which are of fraudulent or illegal character
or which are manifestly opposed to the aims and interests of the Corporation; or
“(iii) If the member no longer possesses the qualifications specified in this Act; or
“(iv) If the member does not meet the standards for performance based on the evaluation
by the Governance Commission for Government-Owned or -Controlled Corporations under
Republic Act No. 10149.
“The presence of four (4) members shall constitute a quorum. All decisions of the Board of
Directors shall require the concurrence of at least four (4) members.
“The compensation, per diems, allowances, incentives, and other benefits for board
members shall be determined by the Governance Commission for Government-Owned or -
Controlled Corporations.
“In addition to the requirements of Republic Act No. 6713, otherwise known as the ‘Code of
Conduct and Ethical Standards for Public Officials and Employees’, any member of the
Board of Directors with personal or pecuniary interest in any matter in the agenda of the
Board of Directors shall disclose his or her interest to the Board and shall recuse from the
meeting when the matter is taken up. The minutes shall reflect the disclosure made and the
recusal of the member concerned.
“(b) The Board of Directors shall have the authority:
“(1) To approve and issue rules and regulations for banks and the depositing public as it
considers necessary for the effective discharge of its responsibilities;
“(2) To act as the policy-making body of the Corporation and constitute Board committees
to oversee the management, operations and administration of the Corporation;
“(3) To establish a human resource management system which shall govern the selection,
hiring, appointment, transfer, promotion, or dismissal of personnel. Such system shall aim
to establish professionalism and excellence at all levels of the Corporation in accordance
with sound principles of management;
“(4) To approve a compensation structure as an integral component of the Corporation’s
human resource development program based on job evaluation studies and wage surveys,
and revise the same as it may deem necessary: Provided, That all positions in the
Corporation shall be governed by a compensation package, position classification system
and qualification standards approved by the Board based on a comprehensive job analysis
and audit of actual duties and responsibilities. The compensation structure shall be
comparable to that of other financial institutions based on prevailing market standards,
and shall provide for yearly merit reviews or increases based on productivity. The
Corporation shall therefore be exempt from existing laws, rules and regulations on
compensation package, position classification and qualification standards. It shall however
endeavor to make its system conform as closely as possible with the principles under
Republic Act No. 6758, as amended;
“(5) To appoint, establish the rank, fix the remuneration, benefits, including health care
services through a Health Maintenance Organization (HMO) and medical benefits other
than those provided for under Republic Act No. 7875, as amended, and remove any officer
or employee of the Corporation, for cause, subject to pertinent civil service laws: Provided,
That the Board of Directors may delegate this authority to the President subject to specific
guidelines: Provided, further, That in no case shall there be any diminution of existing
salaries, benefits and other emoluments;
“(6) To approve policy on local and foreign travel, and the corresponding expenses,
allowances and per diems, of officers, employees, agents of the Corporation, which shall be
comparable with the expenses, allowances and per diems of personnel of other financial
institutions based on prevailing market standards, notwithstanding the provisions of
Presidential Decree No. 1177, Executive Order No. 292, Executive Order No. 248, as
amended, Executive Order No. 298, and similar laws;
“(7) To adopt an annual budget for, and authorize such expenditures by the Corporation, as
are in the interest of the effective administration and operation of the Corporation;
“(8) To approve the target level of the Deposit Insurance Fund (DIF) and the methodology
for determining reserves for insurance and financial assistance losses;
“(9) To review the organizational set-up of the Corporation and adopt a new or revised
organizational structure as it may deem necessary for the Corporation to undertake its
mandate and functions;
“(10) To design, adopt and revise, as it may deem necessary, an early separation plan for
employees of the Corporation to ensure availability of a human resource pool qualified and
capable of implementing the Corporation’s authorities under this Charter in a manner
responsive and attuned to market developments, and to provide incentives for all those
who shall be separated from the service. Notwithstanding any law to the contrary, these
incentives shall be in addition to all gratuities and benefits the employee is entitled to
under existing laws; and
“(11) To promote and sponsor the local or foreign training or study of personnel in the
fields of banking, finance, management, information technology and law. Towards this end,
the Corporation is hereby authorized to defray the costs of such training or study. The
Board shall prescribe rules and regulations to govern the training or study programs of the
Corporation.”
SEC. 4. Section 3 of the same Act is accordingly renumbered as Section 4.
SEC. 5. The first paragraph of Section 4 of the same Act, as renumbered, is hereby amended
to read as follows:
“PRESIDENT OF THE CORPORATION
COMPENSATION, POWERS AND DUTIES
“SEC. 4. The President of the Corporation shall be its Chief Executive Officer and the Vice
Chairman of its Board of Directors and his or her salary shall be fixed by the President of
the Philippines upon the recommendation of the Governance Commission for Government-
Owned or -Controlled Corporations, at a sum commensurate to the importance and
responsibility attached to the position. The sum total of the salary, allowances, benefits and
other emoluments of the President of the Corporation shall be higher than the
compensation package of the next highest ranking executive of the Corporation.”
SEC. 6. Section 4, paragraphs (d), (f) and (h) of the same Act, as renumbered, are hereby
amended to read as follows:
“(d) To represent the Corporation in all dealings with other offices, agencies and
instrumentalities of the government and with all other persons or entities, public or
private, whether domestic, foreign or international;
“(f) To represent the Corporation, either personally or through counsel, including private
counsel, as may be authorized by the PDIC Board, in any legal proceeding or action;
“(h) x x x. The President shall be assisted by a Vice President and other officials whose
appointment and removal for cause shall be approved and whose salary shall be fixed by
the Board of Directors upon recommendation of the President of the Corporation. During
the absence or temporary incapacity of the President, or in case of vacancy or permanent
incapacity and pending appointment of a new President of the Corporation by the
President of the Philippines, the Board of Directors shall designate the officer-in-charge of
the Corporation.”
SEC. 7. Section 4 of the same Act is accordingly renumbered as Section 5, and is hereby
amended to read as follows:
“DEFINITION OF TERMS
“SEC. 5. As used in this Act –
“(a) The term asset refers to movable, immovable, tangible, or intangible resources or
properties over which a bank has an established or equitable interest, including the
proceeds of the sale of its bank and branch licenses subject to the approval of the Bangko
Sentral ng Pilipinas.
“(b) The term asset distribution plan refers to the plan of distribution of the assets of a
closed bank to its creditors, based on its estimated realizable value as of a certain cut-off
date, prepared in accordance with the Rules on Concurrence and Preference of Credits
under the Civil Code or other laws.
“An asset distribution plan may be partial when it pertains to the distribution of a portion
or some of the assets of the closed bank, or final when it pertains to the distribution of all
the assets of the closed bank.
“(c) The term Board of Directors means the Board of Directors of the Corporation.
“(d) The term bank and banking institution shall be synonymous and interchangeable and
shall include banks, commercial banks, savings banks, mortgage banks, rural banks,
development banks, cooperative banks, stock savings and loan associations and branches
and agencies in the Philippines of foreign banks and all other corporations authorized to
perform banking functions in the Philippines.
“(e) The term closed bank refers to a bank placed under liquidation by the Monetary Board.
“(f) The term creditor refers to any individual or entity with a valid claim against the assets
of the closed bank.
“(g) The term deposit means the unpaid balance of money or its equivalent received by a
bank in the usual course of business and for which it has given or is obliged to give credit to
a commercial, checking, savings, time or thrift account, evidenced by a passbook, certificate
of deposit, or other evidence of deposit issued in accordance with Bangko Sentral ng
Pilipinas rules and regulations and other applicable laws, together with such other
obligations of a bank, which, consistent with banking usage and practices, the Board of
Directors shall determine and prescribe by regulations to be deposit liabilities of the bank:
Provided, That any obligation of a bank which is payable at the office of the bank located
outside of the Philippines shall not be a deposit for any of the purposes of this Act or
included as part of the total deposits or of insured deposit: Provided, further, That subject to
the approval of the Board of Directors, any insured bank which is incorporated under the
laws of the Philippines which maintains a branch outside the Philippines may elect to
include for insurance its deposit obligations payable only at such branch.
“The Corporation shall not pay deposit insurance for the following accounts or
transactions:
“(1) Investment products such as bonds and securities, trust accounts, and other similar
instruments;
“(2) Deposit accounts or transactions which are fictitious or fraudulent as determined by
the Corporation;
“(3) Deposit accounts or transactions constituting, and/or emanating from, unsafe and
unsound banking practice/s, as determined by the Corporation, in consultation with the
Bangko Sentral ng Pilipinas, after due notice and hearing, and publication of a directive to
cease and desist issued by the Corporation against such deposit accounts, transactions or
practices; and
“(4) Deposits that are determined to be the proceeds of an unlawful activity as defined
under Republic Act No. 9160, as amended.
“The actions of the Corporation taken under Section 5(g) shall be final and executory, and
may only be restrained or set aside by the Court of Appeals, upon appropriate petition for
certiorari on the ground that the action was taken in excess of jurisdiction or with such
grave abuse of discretion as to amount to a lack or excess of jurisdiction. The petition for
certiorari may only be filed within thirty (30) days from notice of denial of claim for
deposit insurance.
“(h) The term disputed claim refers to a claim or suit against the assets of a closed bank, or
for specific performance, or breach of contract, or damages, of whatever nature or
character, whether for money or otherwise, liquidated or unliquidated, fixed or contingent,
matured or current, denied by the receiver.
“(i) The term insured bank means any bank the deposits of which are insured in accordance
with the provisions of this Act.
“(j) The term insured deposit means the amount due to any bonafide depositor for legitimate
deposits in an insured bank as of the date of closure but not to exceed Five hundred
thousand pesos (P500,000.00). Such amount shall be determined according to such
regulations as the Board of Directors may prescribe. In determining such amount due to
any depositor, there shall be added together all deposits in the bank maintained in the
same right and capacity for his or her benefit either in his or her own name or in the name
of others. A joint account regardless of whether the conjunction ‘and’, ‘or’, ‘and/or’ is used,
shall be insured separately from any individually-owned deposit account: Provided, That
(1) if the account is held jointly by two or more natural persons, or by two or more juridical
persons or entities, the maximum insured deposit shall be divided into as many equal
shares as there are individuals, juridical persons or entities, unless a different sharing is
stipulated in the document of deposit, and (2) if the account is held by a juridical person or
entity jointly with one or more natural persons, the maximum insured deposit shall be
presumed to belong entirely to such juridical person or entity: Provided, further, That the
aggregate of the interest of each co-owner over several joint accounts, whether owned by
the same or different combinations of individuals, juridical persons or entities, shall
likewise be subject to the maximum insured deposit of Five hundred thousand pesos
(P500,000.00): Provided, furthermore, That the provisions of any law to the contrary
notwithstanding, no owner/holder of any passbook, certificate of deposit, or other
evidence of deposit shall be recognized as a depositor entitled to the rights provided in this
Act unless the passbook, certificate of deposit, or other evidence of deposit is determined
by the Corporation to be an authentic document or record of the issuing bank: Provided,
finally, That in case of a condition that threatens the monetary and financial stability of the
banking system that may have systemic consequences, as defined in Section 22 hereof, as
determined by the Monetary Board, the maximum deposit insurance cover may be adjusted
in such amount, for such a period, and/or for such deposit products, as may be determined
by a unanimous vote of the Board of Directors in a meeting called for the purpose and
chaired by the Secretary of Finance, subject to the approval of the President of the
Philippines.
“(k) The term liquidation refers to the proceedings under Sections 12 to 16 of this Act.
“(1) The term liquidation court refers to the Regional Trial Court (RTC) of general
jurisdiction where the petition for assistance in the liquidation of a closed bank is filed and
given due course.
“(m) The term payout refers to the payment of insured deposits.
“(n) The term petition for assistance in the liquidation of a closed bank refers to the petition
filed by the receiver with the RTC in accordance with Section 16 of this Act.
“(o) The term purchase of assets and assumption of liabilities refers to a transaction where
an insured bank purchases any or all assets and assumes any or all liabilities of another
bank under resolution or liquidation, as provided in this Act.
“(p) The term receiver refers to the Corporation or any of its duly authorized agents acting
as receiver of a closed bank.
“(q) The term records include all documents, titles, papers and electronic data of the closed
bank, including those pertaining to deposit accounts of and with the closed bank, its assets,
transactions and corporate affairs.
“(r) The term residual assets refer to assets, in cash or in kind, to be turned over to the
closed bank’s stockholders of record, in proportion to their interest in the closed bank as of
date of closure, after payment in full of liquidation costs, fees and expenses, and the valid
claims and surplus dividends to all the creditors.
“(s) The term resolution refers to the actions undertaken by the Corporation under Section
11 of this Act to:
“(1) Protect depositors, creditors and the DIF;
“(2) Safeguard the continuity of essential banking services or maintain financial stability;
and
“(3) Prevent deterioration or dissipation of bank assets.
“(t) The term risk-based assessment system pertains to a method for calculating an insured
bank’s assessment on the probability that the DIF will incur a loss with respect to the bank,
and the likely amount of any such loss, based on its risk rating that takes into consideration
the following:
“(1) Quality and concentration of assets;
“(2) Categories and concentration of liabilities, both insured and uninsured, contingent and
noncontingent;
“(3) Capital position;
“(4) Liquidity position;
“(5) Management and governance; and
“(6) Other factors relevant to assessing such probability, as may be determined by the
Corporation:
“(u) The term statement of affairs refers to a report of financial condition of the closed bank
at a given date, showing the: (1) estimated realizable value of assets; (2) classification of
credits; and (3) estimated liabilities to be settled.
“(v) The term surplus dividends refers to the remaining assets of the closed bank after
satisfaction in full of all the liquidation costs, fees and expenses, and valid claims. The
surplus dividends shall be computed at the legal rate of interest from the date of takeover
to cut-off date of the distribution plan, and shall be paid, in cash or in kind, to creditors of
the closed bank in accordance with the Rules on Concurrence and Preference of Credits
under the Civil Code or other laws.
“(w) The term takeover refers to the act of physically taking possession and control of the
premises, assets and affairs of a closed bank for the purpose of liquidating the bank.
“(x) The term transfer deposit means, a deposit in an insured bank made available to a
depositor by the Corporation as payment of insured deposit of such depositor in a closed
bank and assumed by another insured bank.
“(y) The term trust funds means funds held by an insured bank in a fiduciary capacity and
includes without being limited to, funds held as trustee, executor, administrator, guardian
or agent.
“(z) The term valid claim refers to the claim recognized by the receiver or allowed by the
liquidation court.
“(aa) The term winding up period refers to the period provided in Section 16 of this Act.”
SEC. 8. Section 5 of the same Act is accordingly renumbered as Section 6, and is hereby
amended to read as follows:
“DEPOSIT INSURANCE COVERAGE
“SEC. 6. The deposit liabilities of any bank which is engaged in the business of receiving
deposits as herein defined on the effective date of this Act, or which thereafter may engage
in the business of receiving deposits, shall be insured with the Corporation.
“Whenever a bank is determined by the Bangko Sentral ng Pilipinas to be capital deficient,
the Corporation may conduct an insurance risk evaluation on the bank to enable it to assess
the risks to the DIF. Such evaluation may include the determination of: (i) the fair market
value of the assets and liabilities of a bank; or (ii) the risk classification of a bank; or (iii)
possible resolution modes under Section 11 of this Act, subject to such terms and
conditions as the PDIC Board may prescribe.”
SEC. 9. Section 6 of the same Act is accordingly renumbered as Section 7.
SEC. 10. Section 7 paragraph (a) of the same Act, as renumbered, is hereby amended to
read as follows:
“ASSESSMENT OF MEMBER BANKS
“SEC. 7. (a) The assessment rate shall be determined by the Board of Directors: Provided,
That the assessment rate shall not exceed one-fifth (1/5) of one per centum (1%) per
annum. The semi-annual assessment for each insured bank shall be in the amount of the
product of one-half (1/2) the assessment rate multiplied by the assessment base but in no
case shall it be less than Five thousand pesos (P5,000.00). The assessment base shall be the
amount of the liability of the bank for deposits as defined under subsection (g) of Section 5
without any deduction for indebtedness of depositors.
“In addition, the Board of Directors may establish a risk-based assessment system and
impose a risk-based assessment rate which shall not exceed two-fifth (2/5) of one per
centum (1%) per annum multiplied by the assessment base.
“The semi-annual assessment base for one semi-annual period shall be the average of the
assessment base of the bank as of the close of business on March thirty-one and June thirty
and the semi-annual assessment base for the other semi-annual period shall be the average
of the assessment base of the bank as of the close of business on September thirty and
December thirty-one: Provided, That when any of said days is a nonbusiness day or legal
holiday, either national or provincial, the preceding business day shall be used. The
certified statements required to be filed with the Corporation under subsections (b) and (c)
of this section shall be in such form and set forth such supporting information as the Board
of Directors shall prescribe. The assessment payments required from the insured banks
under subsections (b) and (c) of this section shall be made in such manner and at such time
or times as the Board of Directors shall prescribe.”
SEC. 11. Section 7, paragraphs (d) and (h), of the same Act, as renumbered, are hereby
amended to read as follows:
“(d) All assessment collections and income from operations after expenses and charges
shall be added to the DIF under Section 17 hereof. Such expenses and charges are: (1) the
operating costs and expenses of the Corporation for the calendar year; (2) additions to
reserve to provide for insurance and financial assistance losses, net of recoverable amounts
from applicable assets and collaterals, during the calendar year; and (3) the net insurance
and financial assistance losses sustained in said calendar year.
“(h) Should any insured bank fail or refuse to pay any assessment required to be paid by
such bank under any provision of this Act, and should the bank not correct such failure or
refusal within thirty (30) days after written notice has been given by the Corporation to an
officer of the bank citing this subsection, and stating that the bank has failed or refused to
pay as required by the law, the Corporation may, at its discretion, file a case for collection
before the appropriate court without prejudice to the imposition of administrative
sanctions allowed under the provisions of this law on the bank officials responsible for the
nonpayment of assessment fees.”
SEC. 12. An additional paragraph to Section 7 of the same Act, as renumbered, is hereby
inserted after paragraph (h) which shall read as follows:
“(i) The Corporation shall have the authority to collect a special assessment from any
member bank and prescribe the terms and conditions thereof to maintain the target level
of the DIF set by the Board of Directors in accordance with this Act.”
SEC. 13. Section 7 of the same Act is accordingly renumbered as Section 8, and is hereby
amended to read as follows:
“SANCTIONS AGAINST UNSAFE AND
UNSOUND BANKING PRACTICES
“SEC. 8. (a) Whenever upon examination by the Corporation into the condition of any
insured bank, it shall be disclosed that an insured bank or its directors or agents have
committed, are committing or about to commit unsafe or unsound practices in conducting
the business of the bank, or have violated, are violating or about to violate any provisions of
any law or regulation to which the insured bank is subject, the Board of Directors shall
submit the report of the examination to the Monetary Board to secure corrective action
thereon. If no such corrective action is taken by the Monetary Board within forty-five (45)
days from the submission of the report, the Board of Directors shall, motu proprio, institute
corrective action which it deems necessary. The Board of Directors may thereafter issue a
cease and desist order, and require the bank or its directors or agents concerned to correct
the practices or violations within forty-five (45) days. However, if the practice or violation
is likely to cause insolvency or substantial dissipation of assets or earnings of the bank, or
is likely to seriously weaken the condition of the bank or otherwise seriously prejudice the
interests of its depositors and the Corporation, the period to take corrective action shall not
be more than fifteen (15) days. The order may also include the imposition of fines provided
in Section 26(g) hereof. The Board of Directors shall duly inform the Monetary Board of the
Bangko Sentral ng Pilipinas of action it has taken under this subsection with respect to such
practices or violations.
“(b) The actions and proceedings provided in the preceding subsections may be
undertaken by the Corporation if, in its opinion, an insured bank or its directors or agents
have violated, are violating or about to violate any provision of this Act or any order, rule or
instruction issued by the Corporation or any written condition imposed by the Corporation
in connection with any transaction with or grant by the Corporation.
“(c) The Corporation may terminate the insured status of any bank that fails or refuses to
comply, within thirty (30) days from notice, with any cease-and-desist order issued by the
Corporation, or with any corrective action imposed by the Monetary Board, under this
section pertaining to a deposit-related unsafe and/or unsound banking practice.
“Such termination shall be final and executory, and shall be effective upon publication of
the notice of termination in a newspaper of general circulation.
“The deposits of each depositor in the bank on the effective date of the termination of
insurance coverage, less all subsequent withdrawals, shall continue to be insured up to the
maximum deposit insurance coverage for a period of one hundred eighty (180) days.
Additions to, or renewal of, existing deposits and new deposits in such bank after the
effective date of termination of insured status of the bank shall not be insured by the
Corporation.
“The bank shall not advertise or represent that additions to, or renewal of, existing deposits
and new deposits made after the effective date of termination aye covered by deposit
insurance.”
SEC. 14. Section 8 of the same Act is accordingly renumbered as Section 9.
SEC. 15. Section 9, paragraph Twelfth of the same Act, as renumbered, is hereby amended
to read as follows:
“Twelfth – The provisions of Presidential Decree No. 1445, as amended, Executive Order
No. 292, and other similar laws notwithstanding, to compromise, condone or release, in
whole or in part, any claim or settled liability to the Corporation, regardless of the amount
involved, under such terms and conditions as may be imposed by the Board of Directors to
protect the interest of the Corporation, and to write off the Corporation’s receivables and
assets which are no longer recoverable or realizable;”
SEC. 16. Section 9 of the same Act, as renumbered, is further amended by inserting
additional paragraphs after paragraph Twelfth, which shall read as follows:
“Thirteenth – To determine qualified interested acquirers or investors for any of the modes
of resolution or liquidation of banks;
“Fourteenth – To determine the appropriate resolution method and to implement the same
for a bank subject of resolution; and
“Fifteenth – To determine the appropriate mode of liquidation of a closed bank and to
implement the same.”
SEC. 17. Section 9 of the same Act is accordingly renumbered as Section 10.
SEC. 18. Section 10 paragraph (b-1) of the same Act, as renumbered, is hereby amended to
read as follows:
“(b-1) The investigators appointed by the Board of Directors shall have the power on behalf
of the Corporation to conduct investigations on frauds, irregularities and anomalies
committed in banks, based on reports of examination conducted by the Corporation and
Bangko Sentral ng Pilipinas or complaints from depositors or from other government
agency. Each such investigator shall have the power to administer oaths, and to examine
and take and preserve the testimony of any person relating to the subject of investigation.
For this purpose, the Corporation may appoint or hire persons or entities of recognized
competence in forensic and fraud investigations as its agents.”
SEC. 19. Section 10 paragraph (c) of the same Act, as renumbered, is hereby amended to
read as follows:
“(c) Each insured bank shall make to the Corporation reports of condition in such form and
at such times as the Board of Directors may require such reports to be published in such
manner, not inconsistent with any applicable law, as it may direct. Every such bank which
fails to make or publish any such report within such time, as the Board of Directors may
require, shall be subject to a penalty of not more than Ten thousand pesos (P10,000.00) for
each day of such failure recoverable by the Corporation for its use.”
SEC. 20. Section 10 paragraph (d-1) of the same Act, as renumbered, is hereby amended to
read as follows:
“(d-1) Each insured bank shall keep and maintain a true and accurate record or statement
of its daily deposit transactions consistent with the standards set by the Bangko Sentral ng
Pilipinas and the Corporation. Compliance with such standards shall be duly certified by
the president of the bank and the compliance officer: Provided, That refusal or willful
failure to issue the required certification shall constitute a violation of this section and shall
subject such officers of the bank to the sanctions provided for under Section 26(f) of this
Act.”
SEC. 21. Section 10 paragraph (f) of the same Act, as renumbered, is hereby amended to
read as follows:
“(f) The Corporation shall underwrite or advance all legal costs and expenses, including
legal fees and other expenses of external counsel, or provide legal assistance to, directors,
officers, employees or agents of the Corporation in connection with any civil, criminal,
administrative or any other action or proceeding, to which such director, officer, employee
or agent is made a party by reason of, or in connection with, the exercise of authority or
performance of functions and duties under this Act: Provided, That such legal protection
shall not apply to any civil, criminal, administrative or any action or proceeding that may be
initiated by the Corporation, in whatever capacity, against such director, officer, employee
or agent: Provided, further, That directors, officers, employees or agents who shall resign,
retire, transfer to another agency or be separated from the service, shall continue to be
provided with such legal protection in connection with any act done or omitted to be done
by them in good faith during their tenure or employment with the Corporation: Provided,
finally, That in the event of a settlement or compromise, indemnification shall be provided
only in connection with such matters covered by the settlement as to which the
Corporation is advised by counsel that the persons to be indemnified did not commit any
negligence or misconduct.”
SEC. 22. The second paragraph of Section 10 paragraph (i) of the same Act, as renumbered,
is hereby amended to read as follows:
“(i) Notwithstanding the provisions of this section and Section 3 of this Act, members of the
Board of Directors and personnel of the Corporation may become directors and officers of
any bank and banking institution and of any entity related to such institution in connection
with financial assistance extended by the Corporation to such institution and when, in the
opinion of the Board, it is appropriate to make such designation to protect the interest of
the Corporation.”
SEC. 23. A new section entitled Section 11 of the same Act is hereby inserted between
Sections 10 and 12 which shall read as follows:
“BANK RESOLUTION
“SEC. 11. (a) The Corporation, in coordination with the Bangko Sentral ng Pilipinas, may
commence the resolution of a bank under this section upon:
“(1) Failure of prompt corrective action as declared by the Monetary Board; or
“(2) Request by a bank to be placed under resolution.
“The Corporation shall inform the hank of its eligibility for entry into resolution.
“(b) The Bangko Sentral ng Pilipinas shall inform the Corporation of the initiation of
prompt corrective action on any bank and shall be authorized to share with the
Corporation all information, agreements or documents, including any order of the
Monetary Board, in relation to the prompt corrective action. The Corporation shall have the
authority to inquire and monitor the status of banks under prompt corrective action.
“(c) When there is a failure of prompt corrective action as declared by the Monetary Board
due to capital deficiency, the Corporation, its duly authorized officers or employees, may
examine, inquire or look into the deposit records of a bank: Provided, That such authority
may not be exercised when the failure of prompt corrective action is due to grounds other
than capital deficiency. For this purpose, banks, their officers and employees are hereby
mandated to disclose and report to the Corporation or its duly authorized officers and
employees, deposit account information in said bank.
“The Corporation, its duly authorized officers or employees are prohibited from disclosing
information obtained under this section to any person, government official, bureau or
office. Any act done pursuant to this section shall not be deemed as a violation of Republic
Act No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and
other similar laws protecting or safeguarding the secrecy or confidentiality of bank
deposits: Provided, That any unauthorized disclosure of the information under this section
shall be subject to the same penalty under the foregoing laws protecting the secrecy or
confidentiality of bank deposits.
“(d) The stockholders, directors, officers or employees of the bank shall have the following
obligations:
“(1) Ensure bank compliance with the terms and conditions prescribed by the Corporation
for the resolution of the bank;
“(2) Cause the engagement, with the consent of the Corporation, of an independent
appraiser or auditor for the purpose of determining the valuation of the bank consistent
with generally accepted valuation standards;
“(3) Ensure prudent management and administration of the bank’s assets, liabilities and
records; and
“(4) Cooperate with the Corporation in the conduct or exercise of any or all of its
authorities under this Act and honor in good faith its commitment or undertaking with the
Corporation on the resolution of the bank.
“(e) Within a period of one hundred eighty (180) days from a bank’s entry into resolution,
the Corporation, through the affirmative vote of at least five (5) members of the PDIC
Board, shall determine whether the bank may be resolved through the purchase of all its
assets and assumption of all its liabilities, or merger or consolidation with, or its
acquisition, by a qualified investor.
“For this purpose, the Corporation may:
“(1) Determine a resolution package for the bank;
“(2) Identify and, with the approval of the Monetary Board, pre-qualify possible acquirers
or investors;
“(3) Authorize pre-qualified acquirers or investors to conduct due diligence on the bank,
for purposes of determining the valuation of a bank through an objective and thorough
review and appraisal of its assets and liabilities, and assessment of risks or events that may
affect its valuation; and
“(4) Conduct a bidding to determine the acquirer of the bank.
“(f) In determining the appropriate resolution method for a bank, the Corporation shall
consider the:
“(1) Fair market value of the assets of the bank, its franchise, as well as the amount of its
liabilities;
“(2) Availability of a qualified investor;
“(3) Least cost to the DIF; and
“(4) Interest of the depositing public.
“(g) The Corporation may appoint or hire persons or entities of recognized competence in
banking, finance, asset management or remedial management, as its agents, to perform
such powers and functions of the Corporation in the resolution of a bank, or assist in the
performance thereof.
“(h) The PDIC Board shall prescribe the guidelines or criteria for a bank to be placed under
resolution.
“(i) Upon a determination by the Corporation that the bank may not be resolved, the
Monetary Board may act in accordance with Section 30 of Republic Act No. 7653 or the
New Central Bank Act.
“(j) Bank resolution involving the purchase of all assets and assumption of all liabilities of a
bank shall be exempt from the provisions of Act No. 3952, otherwise known as ‘The Bulk
Sales Law’.
“(k) The provisions of this section are without prejudice to any action that the Monetary
Board may take under existing laws.”
SEC. 24. Sections 10, 11 and 12 of the same Act are hereby deleted.
SEC. 25. A new section entitled Section 12 of the same Act is hereby inserted between
Sections 11 and 13 which shall read as follows:
“LIQUIDATION OF A CLOSED BANK
“SEC. 12. (a) Whenever a bank is ordered closed by the Monetary Board, the Corporation
shall be designated as receiver and it shall proceed with the takeover and liquidation of the
closed bank in accordance with this Act. For this purpose, banks closed by the Monetary
Board shall no longer be rehabilitated.”
SEC. 26. A new section entitled Section 13 of the same Act is hereby inserted between
Sections 12 and 14 which shall read as follows:
“AUTHORITIES OF A RECEIVER AND EFFECTS OF
PLACEMENT OF A BANK UNDER LIQUIDATION
“SEC. 13. (a) The receiver is authorized to adopt and implement, without need of consent of
the stockholders, board of directors, creditors or depositors of the closed bank, any or a
combination of the following modes of liquidation:
“(1) Conventional liquidation; and
“(2) Purchase of assets and/or assumption of liabilities.
“(b) In addition to the powers of a receiver provided under existing laws, the Corporation,
as receiver of a closed bank, is empowered to:
“(1) Represent and act for and on behalf of the closed bank;
“(2) Gather and take charge of all the assets, records and affairs of the closed bank, and
administer the same for the benefit of its creditors;
“(3) Convert the assets of the closed bank to cash or other forms of liquid assets, as far as
practicable;
“(4) Bring suits to enforce liabilities of the directors, officers, employees, agents of the
closed bank and other entities related or connected to the closed bank or to collect,
recover, and preserve all assets, including assets over which the bank has equitable
interest;
“(5) Appoint or hire persons or entities of recognized competence in banking, finance, asset
management or remedial management, as its deputies, assistants or agents, to perform
such powers and functions of the Corporation as receiver of the closed bank, or assist in the
performance thereof;
“(6) Appoint or hire persons or entities of recognized competence in forensic and fraud
investigations;
“(7) Pay accrued utilities, rentals and salaries of personnel of the closed bank for a period
not exceeding three (3) months, from available funds of the closed bank;
“(8) Collect loans and other claims of the closed bank and for this purpose, modify,
compromise or restructure the terms and conditions of such loans or claims as may be
deemed advantageous to the interests of the creditors of the closed bank;
“(9) Hire or retain private counsel as may be necessary;
“(10) Borrow or obtain a loan, or mortgage, pledge or encumber any asset of the closed
bank, when necessary to preserve or prevent dissipation of the assets, or to redeem
foreclosed assets of the closed bank, or to minimize losses to its depositors and creditors;
“(11) If the stipulated interest rate on deposits is unusually high compared with prevailing
applicable interest rates, the Corporation as receiver, may exercise such powers which may
include a reduction of the interest rate to a reasonable rate: Provided, That any
modifications or reductions shall apply only to earned and unpaid interest;
“(12) Utilize available funds of the bank, including funds generated by the receiver from the
conversion of assets to pay for reasonable costs and expenses incurred for the preservation
of the assets, and liquidation of, the closed bank, without need for approval of the
liquidation court;
“For banks with insufficient funds, the Corporation is authorized to advance the foregoing
costs and expenses, and collect payment, as and when funds become available.
“(13) Charge reasonable fees for the liquidation of the bank from the assets of the bank:
Provided, That payment of these fees, including any unpaid advances under the
immediately preceding paragraph, shall be subject to approval by the liquidation court;
“(14) Distribute the available assets of the closed bank, in cash or in kind, to its creditors in
accordance with the Rules on Concurrence and Preference of Credits under the Civil Code
or other laws;
“(15) Dispose records of the closed bank that are no longer needed in the liquidation in
accordance with guidelines set by the PDIC Board of Directors, notwithstanding the laws on
archival period and disposal of records; and
“(16) Exercise such other powers as are inherent and necessary for the effective discharge
of the duties of the Corporation as receiver.
“The Board of Directors shall adopt such policies and guidelines as may be necessary for
the performance of the above powers by personnel, deputies, assistants and agents of the
Corporation.
“(c) After the payment of all liabilities and claims against the closed bank, the Corporation
shall pay surplus, if any, dividends at the legal rate of interest from date of takeover to date
of distribution to creditors and claimants of the closed bank in accordance with the Rules
on Concurrence and Preference of Credits under the Civil Code or other laws before
distribution to the shareholders of the closed bank.
“(d) The officers, employees, deputies, assistants and agents of the receiver shall have no
liability and shall not be subject to any action, claim or demand in connection with any act
done or omitted to be done by them in good faith in connection with the exercise of their
powers and functions under this Act and other applicable laws, or other actions duly
approved by the court.
“(e) The placement of a bank under liquidation shall have the following effects:
“(1) On the corporate franchise or existence
“Upon placement by the Monetary Board of a bank under liquidation, it shall continue as a
body corporate until the termination of the winding-up period under Section 16 of this Act.
Such continuation as a body corporate shall only be for the purpose of liquidating, settling
and closing its affairs and for the disposal, conveyance or distribution of its assets pursuant
to this Act. The receiver shall represent the closed bank in all cases by or against the closed
bank and prosecute and defend suits by or against it. In no case shall the bank be reopened
and permitted to resume banking business after being placed under liquidation.
“(2) On the powers and functions of its directors, officers and stockholders
“The powers, voting rights, functions and duties, as well as the allowances, remuneration
and perquisites of the directors, officers, and stockholders of such bank are terminated
upon its closure. Accordingly, the directors, officers, and stockholders shall be barred from
interfering in any way with the assets, records, and affairs of the bank.
“The receiver shall exercise all authorities as may be required to facilitate the liquidation of
the closed bank for the benefit of all its creditors.
“(3) On the assets
“Upon service of notice of closure as provided in Section 14 of this Act, all the assets of the
closed bank shall he deemed in custodia legis in the hands of the receiver, and as such,
these assets may not be subject to attachment, garnishment, execution, levy or any other
court processes. A’ judge, officer of the court or any person who shall issue, order, process
or cause the issuance or implementation of the garnishment order, levy, attachment or
execution, shall be liable under Section 27 of this Act: Provided, however, That collaterals
securing the loans and advances granted by the Bangko Sentral ng Pilipinas shall not be
included in the assets of the closed bank for distribution to other creditors: Provided,
further, That the proceeds in excess of the amount secured shall be returned by the Bangko
Sentral ng Pilipinas to the receiver.
“Any preliminary attachment or garnishment on any of the assets of the closed bank
existing at the time of closure shall not give any preference to the attaching or garnishing
party. Upon motion of the receiver, the preliminary attachment or garnishment shall be
lifted and/or discharged.
“(4) On labor relations
“Notwithstanding the provisions of the Labor Code, the employer-employee relationship
between the closed bank and its employees shall be deemed terminated upon service of the
notice of closure of the bank in accordance with this Act. Payment of separation pay or
benefits provided for by law shall be made from available assets of the bank in accordance
with the Rules on Concurrence and Preference of Credits under the Civil Code or other
laws.
‘(5) Contractual obligations
“The receiver may cancel, terminate, rescind or repudiate any contract of the closed bank
that is not necessary for the orderly liquidation of the bank, or is grossly disadvantageous
to the closed bank, or for any ground provided by law.
“(6) On interest payments
“The liability of a bank to pay interest on deposits and all other obligations as of closure
shall cease upon its closure by the Monetary Board without prejudice to the first paragraph
of Section 85 of Republic Act No. 7653 (the New Central Bank Act): Provided, That the
receiver shall have the authority, without need for approval of the liquidation court, to
assign, as payment to secured creditors, the bank assets serving as collaterals to their
respective loans up to the extent of the outstanding obligations, including interest as of
date of closure of the hank, as validated by the receiver. The valuation of the asset shall be
based on the prevailing market value of the collaterals as appraised by an independent
appraiser on an ‘as is where is’ basis.
“(7) Liability for penalties and surcharges for late payment and nonpayment of taxes
“From the time of closure, the closed bank shall not be liable for the payment of penalties
and surcharges arising from the late payment or nonpayment of real property tax, capital
gains tax, transfer tax and similar charges.
“(8) Bank charges and fees on services
“The receiver may impose, on behalf of the closed bank, charges and fees for services
rendered after bank closure, such as, but not limited to, the execution of pertinent deeds
and certifications.
“(9) Actions pending for or against the closed bank
“Except for actions pending before the Supreme Court, actions pending for or against the
closed bank in any court or quasi-judicial body shall, upon motion of the receiver, be
suspended for a period not exceeding one hundred eighty (180) days and referred to
mandatory mediation. Upon termination of the mediation, the case shall be referred back to
the court or quasi-judicial body for further proceedings.
“(10) Final decisions against the closed bank
“The execution and enforcement of a final decision of a court other than the liquidation
court against the assets of a closed bank shall be stayed. The prevailing parly shall file the
final decision as a claim with the liquidation court and settled in accordance with the Rules
on Concurrence and Preference of Credits under the Civil Code or other laws.
“(11) Docket and other court fees
“Payment of docket and other court fees relating to all cases or actions filed by the receiver
with any judicial or quasi-judicial bodies shall be deferred until the action is terminated
with finality. Any such fees shall constitute as a first Hen on any judgment in favor of the
closed bank or in case of unfavorable judgment, such fees shall be paid as liquidation costs
and expenses during the distribution of the assets of the closed bank.
“(12) All assets, records, and documents in the possession of the closed bank at the time of
its closure are presumed held by the bank in the concept of an owner.
“(13) The exercise of authority, functions, and duties by the receiver under this Act shall be
presumed to have been performed in the regular course of business.
“(14) Assets and documents of the closed bank shall retain their private nature even if
administered by the receiver. Matters relating to the exercise by the receiver of the
functions under this Act shall be subject to visitorial audit only by the Commission on
Audit.”
SEC. 27. A new section entitled Section 14 of the same Act is hereby inserted between
Sections 13 and 15 which shall read as follows:
“NOTICE OF CLOSURE AND
TAKEOVER ACTIVITIES
“SEC. 14. (a) Upon the designation of the Corporation as receiver of a closed bank, it shall
serve a notice of closure to the highest-ranking officer of the bank present in the bank
premises, or in the absence of such officer, post the notice of closure in the bank premises
or on its main entrance. The closure of the bank shall be deemed effective upon the service
of the notice of closure. Thereafter, the receiver shall takeover the bank and exercise the
powers of the receiver as provided in this Act.
“(b) The receiver shall have authority to use reasonable force, including the authority to
force open the premises of the bank, and exercise such acts necessary to take actual
physical possession and custody of the bank and all its assets, records, documents, and take
charge of its affairs upon the service of the notice of closure.
“(c) Directors, officers, employees or agents of a bank hold money and other assets of the
bank in trust or under administration or management by them for the bank in their
fiduciary capacity.
Upon service of the notice of closure to the bank, all directors, officers, employees or agents
of the closed bank shall have the duty to immediately account for, surrender and turn over
to the receiver, and provide information relative to, the assets, records, and affairs of the
closed bank in their possession, custody, administration or management.
“(d) When the circumstances so warrant, the local government unit and law enforcement
agencies concerned shall, upon request, immediately provide assistance to the receiver
during the service of notice of closure and actual takeover operations to ensure the orderly
conduct thereof and the security and safety of the personnel of the receiver and the
employees of the closed bank.”
SEC. 28. A new section entitled Section 15 of the same Act is hereby inserted between
Sections 14 and 16 which shall read as follows:
“PURCHASE OF ASSETS AND
ASSUMPTION OF LIABILITIES
“SEC. 15. (a) The receiver shall have the authority to facilitate and implement the purchase
of the assets of the closed bank and the assumption of its liabilities by another insured
bank, without need for approval of the liquidation court. The exercise of this authority shall
be in accordance with the Rules on Concurrence and Preference of Credits under the Civil
Code or other laws, subject to such terms and conditions as the Corporation may prescribe.
The disposition of the branch licenses and other bank licenses of the closed bank shall be
subject to the approval of the Bangko Sentral ng Pilipinas.
“(b) Such action of the receiver to determine whether a bank may be the subject of a
purchase of assets and assumption of liabilities transaction shall be final and executory,
and may not be set aside by any court.”
SEC. 29. A new section entitled Section 16 of the same Act is hereby inserted between
Sections 15 and 17 which shall read as follows:
“CONVENTIONAL LIQUIDATION
“A. ASSET MANAGEMENT AND CONVERSION
“SEC. 16. (a) The assets gathered by the receiver shall be evaluated and verified as to their
existence, ownership, condition, and other factors to determine their realizable value. In
the management, preservation and disposition of assets, the receiver shall be guided by
cost-benefit considerations, resources of the closed bank, and potential asset recovery.
“(b) The conversion of the assets of the closed bank shall be carried out in a fair and
transparent manner in accordance with the rules and procedures as may be determined by
the receiver.
“(c) In the management and/or conversion of the assets of the closed bank, the receiver
shall have the authority to:
“(1) Represent the closed bank before the Land Registration Authority (LRA), the Bureau of
Lands, the Register of Deeds, the Land Transportation Office (LTO), the Assessor’s Office or
other appropriate office of the local government unit, the Securities and Exchange
Commission (SEC), or such other similar government agencies or private entities in:
“(i) Verifying the authenticity of ownership documents;
“(ii) Registering the interest of the closed bank on a specific property;
“(iii) Consolidating ownership over an asset of the closed bank;
“(iv) Securing certified true copies of documents held by the foregoing agencies/entities in
relation to an asset of the closed bank;
“(v) Securing the appropriate certification from the foregoing agencies/entities in relation
to an asset of the closed bank; and
“(vi) Performing other related activities;
“(2) Conduct a physical or ocular inspection of the properties owned by, or mortgaged to,
the closed bank, to determine their existence and present condition;
“(3) Determine the disposal price of assets in accordance with generally accepted valuation
principles, standards and practices, subject to such guidelines as the receiver may
determine;
“(4) Dispose real or personal properties of the closed bank through bidding, negotiated sale
or any other mode including lease with option to purchase, whether by piece or by lot, as
may be reasonably determined by the receiver based on cost-benefit considerations and to
allow efficient distribution of assets to creditors; and
“(5) Engage third parties to assist in the liquidation, manage and/or dispose the assets,
handle cases filed against or by the closed bank, subject to such guidelines as determined
by the receiver.
“(d) Notwithstanding any provision of law to the contrary, the following rules shall apply to
the management and/or conversion by the receiver of the assets of the closed bank:
“(1) Upon notification of the closure of a bank, the LRA, the Bureau of Lands, the Register of
Deeds, the LTO, the assessor’s office or other appropriate office of the local government
unit, or such other similar government agencies shall not allow any transaction affecting
the assets of the closed bank without the consent of the receiver.
“(2) Upon issuance by the Monetary Board of the resolution ordering the closure of a bank,
any person or entity in custody or possession of assets or records of the closed bank,
including, but not limited to, the closed bank’s deposit accounts, titles to real property,
collaterals, promissory notes, evidence of indebtedness or investments shall immediately
turn over custody of said assets and records to the receiver. Such obligation shall cover
evidences of deposit such as passbooks or certificates of deposit issued by the bank to its
depositors. Pending turnover, all persons or entities in custody or possession of any asset
or record of the closed bank shall hold the said assets or records in trust for the receiver.
“(3) The persons or entities in custody or possession of such asset shall not allow,
authorize or cause the withdrawal, transfer, disposition, removal, conversion, concealment,
or other transaction involving or relating to the subject asset, unless otherwise directed by
the receiver.
“(e) The receiver shall have the authority to invest funds received from the conversion of
the assets of the closed bank in government securities, other government-guaranteed
marketable securities or investment-grade debt instruments.
“(f) The proceeds of the sale of the bank and branch licenses shall be for the benefit of the
creditors of the closed bank which shall be distributed in accordance with this Act and the
Rules on Concurrence and Preference of Credits under the Civil Code or other laws.
“B. PETITION FOR ASSISTANCE IN THE
LIQUIDATION OF A CLOSED BANK
“(g) A petition for assistance in the liquidation is a special proceeding for the liquidation of
a closed bank, and includes the declaration of the concomitant right of its creditors and the
order of payment of their valid claims in the disposition of its assets.
“Any proceeding initiated under this section shall be considered in rem. Jurisdiction over all
persons affected by the proceeding shall be considered as acquired upon publication of the
order setting the case for initial hearing in any newspaper of general circulation in the
Philippines.
“(h) The liquidation court shall have exclusive jurisdiction to adjudicate disputed claims
against the closed banks, assist in the enforcement of individual liabilities of the
stockholders, directors and officers and decide on all other issues as may be material to
implement the distribution plan adopted by the Corporation for general application to all
closed banks.
“(i) The provisions of Republic Act No. 8799, otherwise known as ‘The Securities
Regulation Code’, and Supreme Court Administrative Matter No. 00-8-10-SC, entitled, ‘The
Rules of Procedure on Corporate Rehabilitation’, shall not be applicable to the petition for
assistance in the liquidation of the closed bank.
“(j) The petition shall be filed in the RTC which has jurisdiction over the principal office of
the closed bank or the principal office of the receiver, at the option of the latter.
“(k) The petition shall be filed ex parte within a reasonable period from receipt of the
Monetary Board Resolution placing the bank under liquidation.
“(1) All persons or entities with claims against the assets of the closed bank shall file their
claims with the receiver within sixty (60) days from the date of publication of the notice of
closure. Claims filed outside the foregoing prescribed period shall be disallowed.
“Claims denied by the receiver shall be filed with the liquidation court within sixty (60)
days from receipt of the final notice of denial of claim.
“(m) A claim whose validity has not yet been determined with finality at the time of the
submission of the final asset distribution plan, either by reason of a pending suit or for
whatever reason, shall be considered as contingent claim and shall not be paid under the
proposed final asset distribution plan.
“(n) Upon finality of the order approving the final asset distribution plan, the petition for
assistance in the liquidation of a closed bank shall henceforth be, for all intents and
purposes, considered closed and terminated and the receiver, its officers, employees or
agents, are forever discharged from any and all claims and/or liability arising from or in
connection with the liquidation of the closed bank.
“(o) The receiver shall submit a final report on the implementation of the approved final
asset distribution plan to the Monetary Board and the SEC after the expiration of the
winding-up period provided in this Act.
“(p) The Supreme Court shall promulgate the appropriate procedural rules to implement
this section.
“C. WINDING-UP
“(q) The creditors shall have a period of six (6) months from the date of publication of
notice of the approval by the court of the final asset distribution plan of the closed bank
within which to claim payment of the principal obligations and surplus dividends. During
this six-month period, the receiver shall hold as trustee the assets allocated in the final
asset distribution plan for said creditors.
“Failure by the creditor to comply with the documentary requirements within the
prescribed period and/or refusal to accept the asset as payment shall be deemed as
abandonment or waiver of his or her right to payment.
“(r) The individual stockholders of record or their duly-authorized representative or the
court-appointed stockholders’ representative shall have a period of six (6) months from
publication of notice of the approval by the court of the final asset distribution plan of the
closed bank within which to claim the residual assets. During this six-month period, the
receiver shall hold as trustee the assets allocated in the final asset distribution plan for said
stockholders of record.
“Failure by the individual stockholders of record or their duly-authorized representative or
the court-appointed stockholders’ representative to comply with the documentary
requirements within the prescribed period and/or refusal to accept the residual assets in
kind shall be deemed as abandonment or waiver of right to receive the residual assets.
“(s) After the lapse of the six-month period provided in paragraphs (q) and (r) of this
section, all assets which remain unclaimed by the creditors and/or stockholders of record
shall be turned over to the Bureau of Treasury.
“(t) The receiver shall continue to keep all the pertinent records of the closed bank for a
period of six (6) months from the date of publication of the approval of the final asset
distribution plan.
After the lapse of this period, the receiver is authorized to dispose of the same in
accordance with the rules and regulations to be prescribed by the receiver.”
SEC. 30. Section 13 of the same Act is hereby renumbered as Section 17.
SEC. 31. A new section entitled Section 18 of the same Act is hereby inserted between
Sections 17 and 19 which shall read as follows:
“DIVIDEND DECLARATION
“SEC. 18. Consistent with the policy of the State to generate, preserve, maintain faith and
confidence in the country’s banking system, the Corporation shall build up and maintain
the DIF at the target level set by the PDIC Board of Directors. Such target level shall be
subject to periodic review and may be adjusted as necessary.
“The Corporation is exempt from Republic Act No. 7656; instead, the Corporation shall
remit dividends to the national government only if the target DIF level for the applicable
year has been reached. For purposes of computing the amount of dividends to be declared
and remitted to the national government, all assessment collections shall not be considered
as income. The dividend rate shall be at least fifty percent (50%) of the income from other
sources only.”
SEC. 32. Section 14 of the same Act is accordingly renumbered as Section 19 and is hereby
amended to read as follows:
“PAYMENT OF INSURED DEPOSITS
“SEC. 19. Whenever an insured bank shall have been closed by the Monetary Board
pursuant to Section 30 of Republic Act No. 7653, or upon expiration or revocation of a
bank’s corporate term, payment of the insured deposits on such closed bank shall be made
by the Corporation as soon as possible either (1) by cash or (2) by making available to each
depositor a transferred deposit in another insured bank in an amount equal to insured
deposit of such depositor: Provided, however, That the Corporation, in its discretion, may
require proof of claims to be filed before paying the insured deposits, and that in any case
where the Corporation is not satisfied as to the validity of a claim for an insured deposit, it
may require final determination of a court of competent jurisdiction before paying such
claim: Provided, further, That failure to settle the claim, within six (6) months from the date
of filing of claim for insured deposit, where such failure was due to grave abuse of
discretion, gross negligence, bad faith, or malice, shall, upon conviction, subject the
directors, officers or employees of the Corporation responsible for the delay, to
imprisonment from six (6) months to one (1) year: Provided, furthermore, That the period
shall not apply if the validity of the claim requires the resolution of issues of facts and or
law by another office, body or agency including the case mentioned in the first proviso or
by the Corporation together with such other office, body or agency.”
SEC. 33. Section 15 of the same Act is accordingly renumbered as Section 20 and is hereby
amended to read as follows:
“SEC. 20. The Corporation, upon payment of any depositor as provided for in Section 19 of
this Act, shall be subrogated to all rights of the depositor against the closed bank to the
extent of such payment. Such subrogation shall include the right on the part of the
Corporation to receive the same dividends and payments from the proceeds of the assets of
such closed bank and recoveries on account of stockholders’ liability as would have been
payable to the depositor on a claim for the insured deposits: Provided, That such depositor
shall retain his or her claim for any uninsured portion of his or her deposit, which legal
preference shall be the same as that of the subrogated claim of the Corporation for its
payment of insured deposits. All payments by the Corporation of insured deposits in closed
banks partake of the nature of public funds, and as such, must be considered a preferred
credit in the order of preference under Article 2244 (9) of the New Civil Code.”
SEC. 34. Section 16 of the same Act is accordingly renumbered as Section 21 and paragraph
(c) thereof is hereby amended to read as follows:
“(c) Except as otherwise prescribed by the Board of Directors, neither the Corporation nor
such other insured bank shall be required to recognize as the owner of any portion of a
deposit evidenced by a passbook, certificate of deposit or other evidence of deposit
determined by the Corporation to be an authentic document or record of the closed bank
under a name other than that of the claimant, any person whose name or interest as such
owner is not disclosed on the passbook, certificate of deposit or other evidence of deposit
of such closed bank as part owner of said deposit, if such recognition would increase the
aggregate amount of the insured deposits in such closed bank.”
SEC. 35. Section 17 of the same Act is accordingly renumbered as Section 22.
SEC. 36. Section 22 paragraph (a) of the same Act, as renumbered, is hereby amended to
read as follows:
“CORPORATE FUNDS AND ASSETS
“SEC. 22. (a) Subject to guidelines and limits as approved by the Board of Directors, money
of the Corporation denominated in the local currency, not otherwise employed, shall be
invested in obligations of the Republic of the Philippines or in obligations guaranteed as to
principal and interest by the Republic of the Philippines.
“The Corporation may also invest in debt instruments denominated in foreign currencies
issued or guaranteed by the Republic of the Philippines, or debt instruments denominated
in freely convertible foreign currencies issued by supranationals, multilateral agencies, or
foreign governments with at least an investment grade credit rating.
“The Corporation shall likewise be authorized to buy and/or sell debt instruments and
foreign currencies from any government securities eligible dealers or any counterparties or
brokers, accredited by the PDIC Board.
“For this purpose, the Corporation shall be authorized to open securities custodianship and
settlement accounts.”
SEC. 37. Section 22 paragraph (b) of the same Act, as renumbered, is hereby amended to
read as follows:
“(b) The banking or checking accounts of the Corporation shall be kept with the Bangko
Sentral ng Pilipinas, or with any other bank designated as depository or fiscal agent of the
Philippine government.”
SEC. 38. An additional paragraph to Section 22 of the same Act, as renumbered, is hereby
inserted after paragraph (c) which shall read as follows:
“(d) Assets of the Corporation shall be exempt from attachment, garnishment or any other
order or process of any court, agency or any other administrative body.”
SEC. 39. Section 17 paragraph (d) of the same Act is accordingly renumbered as Section 22
paragraph (e) and is hereby amended to read as follows:
“FINANCIAL ASSISTANCE
“(e) In the exercise of its authorities under Section 11 of this Act, the Corporation is
authorized to make loans to, or purchase the assets of, or assume liabilities of, or make
deposits in:
“(1) A bank in danger of closing, upon its acquisition by a qualified investor; or
“(2) A qualified investor, upon its purchase of all assets and assumption of all liabilities of a
bank in danger of closing; or
“(3) A surviving or consolidated institution that has merged or consolidated with a bank in
danger of closing; upon such terms and conditions as the Board of Directors may prescribe,
when in the opinion of the Board of Directors, such acquisition, purchase of assets,
assumption of liabilities, merger or consolidation, is essential to provide adequate banking
service in the community or maintain financial stability in the economy.
“The Corporation, prior to the exercise of the powers under this section, shall determine
that actual payoff and liquidation thereof will be more expensive than the exercise of this
power: Provided, That when the Monetary Board has determined that there are systemic
consequences of a probable failure or closure of an insured bank, the Corporation may
grant financial assistance to such insured bank in such amount as may be necessary to
prevent its failure or closure and/or restore the insured bank to viable operations, under
such terms and conditions as may be deemed necessary by the Board of Directors, subject
to concurrence by the Monetary Board and without additional cost to the DIF.
“A systemic risk refers to the possibility that failure of one bank to settle net transactions
with other banks will trigger a chain reaction, depriving other banks of funds leading to a
general shutdown of normal clearing and settlement activity. Systemic risk also means the
likelihood of a sudden, unexpected collapse of confidence in a significant portion of the
banking or financial system with potentially large real economic effects. Finally, the
Corporation may not use its authority under this subsection to purchase the voting or
common stock of an insured bank but it can enter into and enforce agreements that it
determines to be necessary to protect its financial interests: Provided, That the financial
assistance may take the form of equity or quasi-equity of the insured bank as may be
deemed necessary by the Board of Directors with concurrence by the Monetary Board:
Provided, further, That the Corporation shall dispose of such equity as soon as practicable.”
SEC. 40. Section 18 of the same Act is accordingly renumbered as Section 23 and is hereby
amended to read as follows:
“AUTHORITY TO BORROW
“SEC. 23. The Corporation is authorized to borrow from the Bangko Sentral ng Pilipinas and
the Bangko Sentral ng Pilipinas is authorized to lend to the Corporation on such terms as
may be agreed upon by the Corporation and the Bangko Sentral ng Pilipinas, such funds as
in the judgment of the Board of Directors of the Corporation are from time to time required
for insurance purposes and financial assistance provided for in Section 22(e) of this Act:
Provided, That any such loan as may be granted by the Bangko Sentral ng Pilipinas shall be
consistent with monetary policy: Provided, further, That the rate of interest thereon shall be
fixed by the Monetary Board.
“When in the judgment of the Board of Directors the funds of the Corporation are not
sufficient to provide for an emergency or urgent need to attain the purposes of this Act, the
Corporation is likewise authorized to borrow money, obtain loans or arrange credit lines or
other credit accommodations from any bank: Provided, That such loan shall be of short-
term duration: Provided, further, That no prior Monetary Board opinion shall be required
for the Corporation and its counterparties on individual drawdowns or borrowings within
an approved borrowing program where prior Monetary Board opinion has already been
obtained, pursuant to Section 123 of Republic Act No. 7653.”
SEC. 41. Section 19 of the same Act is accordingly renumbered as Section 24 and is hereby
amended to read as follows:
“ISSUANCE OF BONDS, DEBENTURES
AND OTHER OBLIGATIONS
“SEC. 24. With the approval of the President of the Philippines, upon the recommendation
of the Department of Finance, the Corporation is authorized to issue bonds, debentures,
and other obligations, both local or foreign, as may be necessary for purposes of providing
liquidity for settlement of insured deposits in closed banks, to facilitate the implementation
of bank resolution under Section 11 of this Act, as well as for financial assistance as
provided herein: Provided, That the Board of Directors shall determine the interest rates,
maturity and other requirements of said obligations: Provided, further, That the
Corporation may provide for appropriate reserves for the redemption or retirement of said
obligation.
“All notes, debentures, bonds, or such obligations issued by the Corporation shall be
exempt from taxation both as to principal and interest, and shall be fully guaranteed by the
Government of the Republic of the Philippines. Such guarantee, which in no case shall
exceed two times the DIF as of date of the debt issuance, shall be expressed on the face
thereof.
“The Corporation may issue notes, debentures, bonds, or other debt instruments without
the approval of the President of the Philippines, as long as these shall not be guaranteed by
the national government.
“The Board of Directors shall have the power to prescribe the terms and conditions, rules
and regulations for the issuance, reissuance, servicing, placement and redemption of the
bonds herein authorized to be issued as well as the registration of such bonds at the
request of the holders thereof.”
SEC. 42. Section 20 of the same Act is accordingly renumbered as Section 25.
SEC. 43. Section 21 of the same Act is accordingly renumbered as Section 26.
SEC. 44. Section 26 paragraph (f) of the same Act, as renumbered, is hereby amended to
read as follows:
“(f) The penalty of imprisonment of not less than six (6) years but not more than twelve
(12) years or a fine of not less than Fifty thousand pesos (P50,000.00) but not more than
Ten million pesos (P10,000,000.00), or both, at the discretion of the court, shall be imposed
upon:
“(1) Any director, officer, employee or agent of a bank for:
“(a) Any willful refusal to submit reports as required by law, rules and regulations;
“(b) Any unjustified refusal to permit examination and audit of the deposit records or the
affairs of the institution;
“(c) Any willful making of a false statement or entry in any bank report or document
required by the Corporation;
“(d) Submission of false material information in connection with or in relation to any
financial assistance of the Corporation extended to the bank;
“(e) Splitting of deposits or creation of fictitious or fraudulent loans or deposit accounts.
“Splitting of deposits occurs whenever a deposit account with an outstanding balance of
more than the statutory maximum amount of insured deposit maintained under the name
of natural or juridical persons is broken down and transferred into two (2) or more
accounts in the name/s of natural or juridical persons or entities who have no beneficial
ownership on transferred deposits in their names within one hundred twenty (120) days
immediately preceding or during a bank-declared bank holiday, or immediately preceding
a closure order issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the
purpose of availing of the maximum deposit insurance coverage;
“(f) Refusal to receive the notice of closure as provided under Section 14 of this Act;
“(g) Refusal to allow the Corporation to take over a closed bank or obstructing such action
of the Corporation;
“(h) Refusal to turn over or destroying or tampering bank records;
“(i) Fraudulent disposal, transfer or concealment of any asset, property or liability of the
closed bank;
“(j) Violation of, or causing any person to violate, the exemption from garnishment, levy,
attachment or execution provided under this Act and the New Central Bank Act;
“(k) Any willful failure or refusal to comply with, or violation of any provision of this Act, or
commission of any other irregularities, and/or conducting business in an unsafe or
unsound manner as may be determined by the Board of Directors in relation to Section 56
of Republic Act No. 8791, or ‘The General Banking Law of 2000’.
“Notwithstanding any law to the contrary, the foregoing acts of directors, officers,
employees or agents of the bank shall be considered as additional grounds for
disqualification under the fit and proper rules of the Bangko Sentral ng Pilipinas.
“(1) Other acts inimical to the interest of the bank or the Corporation, such as, but not
limited to, conflict of interest, disloyalty, authorizing related party transactions with terms
detrimental to the bank and its stakeholders, and unauthorized disclosure of confidential
information, as may be determined by the Corporation.
“(2) Any person for:
“(a) Refusal to disclose information, records or data pertaining to the bank accounts of a
closed bank to the receiver;
“(b) Refusal to turn over possession or custody of the asset and record of the closed bank to
the receiver, notwithstanding any agreement to the contrary;
“(c) Refusal or delaying the:
“(i) Verification of authenticity of the ownership documents;
“(ii) Registration of interest of the closed bank on a specific property;
“(iii) Consolidation of ownership over an asset of the closed bank;
“(iv) Act of securing certified true copies of documents in relation to an asset of the closed
bank;
“(v) Act of securing the appropriate certification from the agencies or entities stated in
Section 16 of this Act in relation to an asset of the closed bank;
“(vi) Conduct of a physical or ocular inspection of the properties owned by, or mortgaged
to, the closed bank, to determine their existence and present condition; or
“(vii) Other related activities of the receiver; or
“(d) Allowing the withdrawal from deposits or disposition of any asset of the closed bank
other than by the receiver;
“(e) Willfully violating any provision of this Act;
“(f) Conspiring or willfully participating in any of the offenses enumerated in Paragraph 1
of this section;
“(3) Any law enforcement officer or local government official who refuses or fails to assist
the receiver in the service of the notice of closure, as provided under Section 14 of this Act.”
SEC. 45. Additional paragraphs to Section 26 of the same Act, as renumbered, are hereby
inserted after paragraph (g) which shall read as follows:
“(h) The penalty of imprisonment of not less than ten (10) years but not more than twelve
(12) years, or a fine of not less than Five hundred thousand pesos (P500,000.00) but not
more than Ten million pesos (P 10,000,000.00), or both, at the discretion of the court, shall
be imposed upon:
“(1) Any depositor who files a fictitious and/or fraudulent claim for deposit insurance; and
“(2) Any bank officer who certifies to the validity of the deposit liabilities which is
subsequently verified to be fictitious and/or fraudulent.
“(i) The penalty of imprisonment of not less than twelve (12) years but not more than
fourteen (14) years shall be imposed upon any person who participates, or attempts to
participate, in a scheme to defraud a bank.
“If the offense shall have been committed by a director or officer of the bank, the penalty of
imprisonment of not less than fifteen (15) years, but not more than seventeen (17) years
shall be imposed.
“If the offense shall have resulted in systemic consequences, as determined by the Bangko
Sentral ng Pilipinas, the penalty of imprisonment of not less than eighteen (18) years but
not more than twenty (20) years shall be imposed.”
SEC. 46. Section 22 of the same Act is accordingly renumbered as Section 27.
SEC. 47. Section 23 of the same Act is hereby renumbered as Section 28 and amended to
read as follows:
“SEC. 28. Exempting Clause. – The Corporation shall be exempt from Presidential Decree No.
985, Presidential Decree No. 1597, Republic Act No. 6758, as amended, Joint Resolution No.
4 (2009) and other laws on salary standardization, Presidential Decree No. 1177, Executive
Order No. 248, as amended, Executive Order No. 298 and the provisions of Republic Act No.
10149 with regard to position classification, qualification standards, and the compensation
package of the employees of the Corporation: Provided, That the PDIC shall be subject to all
other policies under Republic Act No. 10149, including, but not limited to, performance
evaluation by the Governance Commission for Government-Owned or -Controlled
Corporations, selection and nomination of appointive directors, and limitations on the
creation of subsidiaries and the acquisition of affiliates except in the case of acquisition of
shares in the grant of financial assistance under this Act.”
SEC. 48. Section 24 of the same Act is deleted and a new Section 29 is added to read as
follows:
“SEC. 29. Transitory Provisions. — (a) The incumbent President of the Corporation and
private sector members of the Board of Directors shall continue to exercise their respective
duties and functions until replaced by the President of the Philippines: Provided, That such
new appointees shall be subject to the term of office provided under Section 3 of this Act, as
amended.
“(b) Payment of surplus dividends under Section 13(c) of this Act, as amended, shall be
applicable to banks without a court-approved final asset distribution plan at the time of the
effectivity of this Act.
“(c) The preference indicated under Section 15 of this Act, as amended, shall be likewise
effective upon liquidation proceedings already commenced and pending as of the
effectivity of this Act, where no distribution of assets has been made.
“(d) The provisions in Section 10 of this Act, as amended, on legal assistance, protection
and indemnification shall apply to all cases pending before the effectivity of this Act.”
SEC. 49. Section 25 of the same Act is accordingly renumbered as Section 30.
SEC. 50. The Corporation may be reorganized by its Board of Directors by adopting if it so
desires, an entirely new staffing pattern or organizational structure to suit the operations
of the Corporation under this Act. No preferential or priority right shall be given to or
enjoyed by any personnel for appointment to any position in the new staffing pattern nor
shah any personnel be considered as having prior or vested rights with respect to retention
in the Corporation or in any position which may be created in the new staffing pattern,
even if he or she should be the incumbent of a similar position prior to reorganization. The
reorganization shall be completed within six (6) months after the effectivity of this Act.
Personnel who are not retained are deemed separated horn the service.
SEC. 51. The Board of Directors is hereby authorized to provide separation incentives, and
all those who shall retire or be separated from the service on account of reorganization
under the preceding section shall be entitled to such incentives which may be in addition to
all gratuities and benefits to which they may be entitled under existing laws.
SEC. 52. Separability Clause. – If any provision or section of this Act or the application
thereof to any person or circumstances is held invalid, the other provisions or sections of
this Act, in the application of such provision or section to other persons or circumstances,
shall not be affected thereby.
SEC. 53. Repealing Clause. – All acts or parts of acts and executive orders, administrative
orders, or parts thereof which are inconsistent with the provisions of this Act are hereby
repealed.
SEC. 54. Effectivity Clause. – This Act shall take effect fifteen (15) days following the
completion of its publication in the Official Gazette or in two (2) newspapers of general
circulation.
Approved,
ACT NO. 1508

ACT NO. 1508 - AN ACT PROVIDING FOR THE MORTGAGING OF

PERSON AL PROPERTY AND FOR THE REGISTRATION OF THE
MORTGAGES SO EXECUTED

Section 1. The short title of this Act shall be "The Chattel Mortgage Law."
Sec. 2. All personal property shall be subject to mortgage, agreeably to the
provisions of this Act, and a mortgage executed in pursuance thereof shall
be termed chattel mortgage.

Sec. 3. Chattel mortgage defined. – A chattel mortgage is a conditional sale

of personal property as security for the payment of a debt, or the
performance of some other obligation specified therein, the condition being
that the sale shall be void upon the seller paying to the purchaser a sum of
money or doing some other act named. If the condition is performed
according to its terms the mortgage and sale immediately become void, and
the mortgagee is thereby divested of his title.

Sec. 4. Validity. – A chattel mortgage shall not be valid against any person
except the mortgagor, his executors or administrators, unless the possession
of the property is delivered to and retained by the mortgagee or unless the
mortgage is recorded in the office of the register of deeds of the province in
which the mortgagor resides at the time of making the same, or, if he
resides without the Philippine Islands, in the province in which the property
is situated: Provided, however, That if the property is situated in a different
province from that in which the mortgagor resides, the mortgage shall be
recorded in the office of the register of deeds of both the province in which
the mortgagor resides and that in which the property is situated, and for the
purposes of this Act the city of Manila shall be deemed to be a province.

Sec. 5. Form. – A chattel mortgage shall be deemed to be sufficient when

made substantially in accordance with the following form, and shall be
signed by the person or persons executing the same, in the presence of two
witnesses, who shall sign the mortgage as witnesses to the execution
thereof, and each mortgagor and mortgagee, or, in the absence of the
mortgagee, his agent or attorney, shall make and subscribe an affidavit in
substance as hereinafter set forth, which affidavit, signed by the parties to
the mortgage as above stated, and the certificate of the oath signed by the
authority administering the same, shall be appended to such mortgage and
recorded therewith.
Sec. 6. Corporations. – When a corporation is a party to such mortgage the
affidavit required may be made and subscribed by a director, trustee,
cashier, treasurer, or manager thereof, or by a person authorized on the
part of such corporation to make or to receive such mortgage. When a
partnership is a party to the mortgage the affidavit may be made and
subscribed by one member thereof.

Sec. 7. Descriptions of property. – The description of the mortgaged

property shall be such as to enable the parties to the mortgage, or any other
person, after reasonable inquiry and investigation, to identify the same.

If the property mortgaged be large cattle," as defined by section one of Act

Numbered Eleven and forty-seven, 2 and the amendments thereof, the
description of said property in the mortgage shall contain the brands, class,
sex, age, knots of radiated hair commonly known as remolinos, or cowlicks,
and other marks of ownership as described and set forth in the certificate of
ownership of said animal or animals, together with the number and place of
issue of such certificates of ownership.

If growing crops be mortgaged the mortgage may contain an agreement

stipulating that the mortgagor binds himself properly to tend, care for and
protect the crop while growing, and faithfully and without delay to harvest
the same, and that in default of the performance of such duties the
mortgage may enter upon the premises, take all the necessary measures for
the protection of said crop, and retain possession thereof and sell the same,
and from the proceeds of such sale pay all expenses incurred in caring for,
harvesting, and selling the crop and the amount of the indebtedness or
obligation secured by the mortgage, and the surplus thereof, if any shall be
paid to the mortgagor or those entitled to the same.

A chattel mortgage shall be deemed to cover only the property described

therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary notwithstanding.

Sec. 8. Failure of mortgagee to discharge the mortgage. – If the mortgagee,

assign, administrator, executor, or either of them, after performance of the
condition before or after the breach thereof, or after tender of the
performance of the condition, at or after the time fixed for the performance,
does not within ten days after being requested thereto by any person
entitled to redeem, discharge the mortgage in the manner provided by law,
the person entitled to redeem may recover of the person whose duty it is to
discharge the same twenty pesos for his neglect and all damages occasioned
thereby in an action in any court having jurisdiction of the subject-matter
thereof.

Sec. 9-12. (inclusive) 3

Sec. 13. When the condition of a chattel mortgage is broken, a mortgagor or

person holding a subsequent mortgage, or a subsequent attaching creditor
may redeem the same by paying or delivering to the mortgagee the amount
due on such mortgage and the reasonable costs and expenses incurred by
such breach of condition before the sale thereof. An attaching creditor who
so redeems shall be subrogated to the rights of the mortgagee and entitled
to foreclose the mortgage in the same manner that the mortgagee could
foreclose it by the terms of this Act.

Sec. 14. Sale of property at public auction; Officer's return; Fees;

Disposition of proceeds. – The mortgagee, his executor, administrator, or
assign, may, after thirty days from the time of condition broken, cause the
mortgaged property, or any part thereof, to be sold at public auction by a
public officer at a public place in the municipality where the mortgagor
resides, or where the property is situated, provided at least ten days' notice
of the time, place, and purpose of such sale has been posted at two or more
public places in such municipality, and the mortgagee, his executor,
administrator, or assign, shall notify the mortgagor or person holding under
him and the persons holding subsequent mortgages of the time and place of
sale, either by notice in writing directed to him or left at his abode, if within
the municipality, or sent by mail if he does not reside in such municipality, at
least ten days previous to the sale.

The officer making the sale shall, within thirty days thereafter, make in
writing a return of his doings and file the same in the office of the register of
deeds where the mortgage is recorded, and the register of deeds shall
record the same. The fees of the officer for selling the property shall be the
same as in the case of sale on execution as provided in Act Numbered One
hundred and ninety, 4 and the amendments thereto, and the fees of the
register of deeds for registering the officer's return shall be taxed as a part
of the costs of sale, which the officer shall pay to the register of deeds. The
return shall particularly describe the articles sold, and state the amount
received for each article, and shall operate as a discharge of the lien thereon
created by the mortgage. The proceeds of such sale shall be applied to the
payment, first, of the costs and expenses of keeping and sale, and then to
the payment of the demand or obligation secured by such mortgage, and the
residue shall be paid to persons holding subsequent mortgages in their
order, and the balance, after paying the mortgages, shall be paid to the
mortgagor or person holding under him on demand.

If the sale includes any "large cattle," a certificate of transfer as required by

section sixteen of Act Numbered Eleven hundred and forty-seven 5 shall be
issued by the treasurer of the municipality where the sale was held to the
purchaser thereof.

Sec. 15. 6, 6a

Sec. 16. This Act shall take effect on August first, nineteen hundred and six.