FRIA Other Special Laws and Intellectual Property Law

Commercial Law Review
COVERAGE: Special Laws

A. Financial Rehabilitation and Insolvency Act of 2010
B. Securities Regulation Code
C. Intellectual Property Law
D. Foreign Investment Act
Direction: Read and study the following concepts.
I. Insolvency Law for Insolvent Individual Debtors who are not businessmen (R.A. No. 10142 a.k.a. Financial
Rehabilitation and Insolvency Act (FRIA) of 2010)
a. Nature of Proceedings under Financial Rehabilitation and Insolvency Act or FRIA of 2010
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.
b. Persons, institutions or businesses not covered by Financial Rehabilitation and Insolvency Act or
FRIA of 2010
 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;
 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
 Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell pre-need
plans.
 National government agencies
 Local government agencies and units
c. Definition of Insolvency
Insolvency shall refer to (1) 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 (2) financial condition of a debtor when he
has liabilities that are greater than its or his assets.
d. Procedures for Suspension of Payments by an Insolvent Individual Debtor
i. Filing of Petition for Declaration of Statement of Suspension of Payments - 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 resided
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 assets; and (c) a proposed agreement
with his creditors.
ii. Action by the Court 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:
1. 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;
2. Directing such creditors to prepare and present written evidence of their claims before the
scheduled creditors' meeting;
3. 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;
4. 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;
5. 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;
6. 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
7. Appointing a commissioner to preside over the creditors' meeting.
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iii. Effects of issuance by Court of an Order Suspending any pending execution against
individual debtor upon motion filed by Insolvent Debtor
1. No creditor shall sue or institute proceedings to collect 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.
2. Properties held as security by secured creditors shall not be the subject of such
suspension order.
iv. Duration of Suspension of Payments or Suspension Order issued by the Trial Court - 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.
v. Quorum in Meeting of Creditors for the approval of the proposal of insolvent individual
debtor – The presence of creditors holding claims amounting to at least three-fifths (3/5) of the
liabilities shall be necessary for holding of meeting.
vi. Required Vote by the creditors for the approval of the proposal of insolvent debtor (Double
Majority)
1. Two-thirds (2/3) of the creditors voting unite upon the same proposition; and
2. 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.
a. Note: No creditor who incurred his credit within ninety (90) days prior to the
filing of the petition shall be entitled to vote.
vii. Instances when the proposed agreement by the insolvent debtor is deemed rejected by the
creditors
1. If the number of creditors required for holding a meeting do not attend thereat; or
2. If the double majorities required for the approval of the proposed agreement have not
been met.
viii. Effects of Approval of Proposed Agreement by the insolvent debtor

1. The court shall order that the agreement be carried out and all parties bound thereby to
comply with its terms.
2. The court may also issue all orders which may be necessary or proper to enforce the
agreement on motion of any affected party.
ix. Effects of Failure of Individual Debtor to Perform the Approved Agreement

1. 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.
2. The individual debtor may be made subject to the insolvency proceedings in the manner
established by this Act.
e. Procedures for Voluntary Liquidation of Insolvent Individual Debtor as initiated by the Insolvent
Individual Debtor
i. Application - An individual debtor whose properties are not sufficient to cover his liabilities,
and owing debts exceeding Five hundred thousand pesos (P500,000), 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.
ii. If the court finds the petition sufficient in form and substance, it shall, within five (5) working
days, issue the Liquidation Order to be discussed below.
iii. Requirements for Voluntary Liquidation of Insolvent Individual Debtor
1. The individual debtor’s properties are not sufficient to cover his liabilities; and
2. The debts of the individual debtor exceed P500,000.
f. Procedures for Involuntary Liquidation of Insolvent Individual Debtor as initiated by Creditors

i. Application – Any creditor or group of creditors with a claim of, or with claims aggregating, at
least Five hundred thousand pesos (P500,000) may file a verified petition for liquidation with
the court of the province or city in which the individual debtor resides.
ii. Acts of Insolvency which must be alleged by the creditors in the petition
1. That such person is about to depart or has departed from the Republic of the Philippines,
with intent to defraud his creditors;
2. That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;
3. 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;
4. That he conceals, or is removing, any of his property to avoid its being attached or taken
on legal process;
5. 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;
6. 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 creditor or
claimant;
7. That he has wilfully suffered judgment to be take against him by default for the purpose
of hindering or delaying the liquidation or of defrauding his creditors;
8. 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 anyone of his creditors;
9. 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;
10. That he has, in contemplation of insolvency, made an payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;
11. That being a merchant or tradesman, he has generally defaulted in the payment of his
current obligations for a period of thirty (30) days;
12. 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 capacity; and '
13. 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.
iii. Posting of Bond by Creditors - The petitioning creditors shall post a bond in such a sum as the
court direct conditioned that if the petition for liquidation is dismissed by the court, or
withdrawn by the petitioner, or 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.
iv. Orders the court may issue during the involuntary liquidation
1. Upon the filing of such creditors' petition, the court shall issue a Show Cause Order
requiring the individual debtor to show cause, at a time any place to be fixed by the said
court, why he should not be adjudged an insolvent.
2. 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.
v. Default by Individual Insolvent Debtor – 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 to be discussed below.
II. Corporate Rehabilitation for Insolvent Businessman (R.A. No. 10142 a.k.a. Financial Rehabilitation and
Insolvency Act (FRIA) of 2010)
a. Definition of Terms

i. Administrative Expenses – Those reasonable and necessary expenses incurred for the filing of
petition, arising from rehabilitation, incurred in the ordinary course of business of the debtor after
the commencement order, fees of rehabilitator and for the payment of new obligations obtained
after the commencement date of rehabilitation.
ii. Affiliate – shall refer to a corporation directly or indirectly, through one or more subsidiaries, is
controlled by, or is under the common control of another corporation.
iii. Claims – shall refer to all claims or demands of whatever nature or character against the debtor or
its property, whetherfor money or otherwise, liquidated or unliquidated, fixed or contingent,
matured or unmatured, disputed or undisputed
iv. 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.
v. Commencement Order – shall refer to the order issued by the court evidencing the
commencement of the rehabilitation proceedings.
vi. 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.
vii. Creditor – shall refer to a' natural or juridical person which has a claim against the debtor that
arose on or before the commencement date.
viii. Debtor – shall refer to, unless specifically excluded by a provision of this Act, (1) a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), (2) a partnership
duly registered with the Securities and Exchange Commission (SEC), (3) a corporation duIy
organized and existing under Philippine laws, or (4) an individual debtor who has become
insolvent as defined herein.
ix. Encumbered property shall refer to real or personal property of the debtor upon which a lien
attaches.
x. General unsecured creditor shall refer to a creditor whose claim or a portion thereof is neither
secured, preferred nor subordinated under this Act.
xi. 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.
xii. Individual debtor shall refer to a natural person who is a resident and citizen of the Philippines
that has become insolvent as defined herein ..
xiii. 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.
xiv. 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.
xv. Involuntary proceedings shall refer to proceedings initiated by creditors.
xvi. 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.
xvii. Lien shall refer to a statutory or contractual claim or judicial charge on real or personal property
that legally entitles a creditor to resort to said property for payment o fthe claim or debt secured
by such lien.
xviii. 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 designate 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 solidarily liable for all obligations and responsibilities of the liquidator.
xix. 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.
xx. 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.
xxi. 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.
xxii. Parent shall refer to a corporation which has control over another corporation either directly or
indirectly through one or more intermediaries.
xxiii. 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.
xxiv. 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.
xxv. Proceedings shall refer to judicial proceedings commenced by the court's acceptance of a petition
filed under this Act.
xxvi. Property of others shall refer to property held by the debtor in which other persons have an
ownership interest.
xxvii. 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.
xxviii. Rehabilitation shall refer to the restoration of t.he 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
dehtor continues as a going concern than if it is immediately liquidated.
xxix. 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.
xxx. 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.
xxxi. Secured claim shall refer to a claim that is secured by alien.
xxxii. Secured creditor shall refer to a creditor with a secured claim.
xxxiii. Secured party shall refer to a secured creditor or the agent or representative of such secured
creditor.
xxxiv. Securities market participant shall refer to a broker, dealer, underwriter, transfer agent or other
jurdical persons transacting securities in the capital market.
xxxv. 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.
xxxvi. 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.
xxxvii. Unsecured claim shall refer to a claim that is not secured by a lien.
xxxviii. Unsecured creditor shall refer to a creditor with an unsecured claim.
xxxix. Voluntary proceedings shall refer to proceedings initiated by the debtor.
xl. 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.
b. Types of Rehabilitation of a Businessman

1. Court-Supervised Rehabilitation is a type of rehabilitation that involves filing of a petition
before Regional Trial Court wherein the rehabilitation of the business is under the supervision
and control by the rehabilitation court.
a. Voluntary Court-Supervised Rehabilitation is a type of court-supervised rehabilitation
wherein it is the insolvent businessman who filed the petition for rehabilitation before the
rehabilitation court.
b. Involuntary Court-Supervised Rehabilitation is a type of court-supervised
rehabilitation wherein it is the creditors of the insolvent businessman who filed the
petition for rehabilitation before the rehabilitation court.
2. Pre-negotiated Rehabilitation is a type of rehabilitation that involves the filing before the
Regional Trial Court of rehabilitation plan which is already pre-negotiated by the insolvent
business debtor and its creditors.
3. Out-of-Court Restructuring or Informal Rehabilitation is a type of rehabilitation that does not
involve the filing before the Regional Trial Court of any petition but the rehabilitation shall be
governed by the outside agreement of the insolvent businessman and its creditors. It will have the
same effect as the other types of rehabilitation filed before the court as long as the requisites
provided by FRIA are present.
c. Court-Supervised Rehabilitation
i. Voluntary Court-Supervised Rehabilitation (Initiated by Insolvent Businessman)

1. Required Vote for Voluntary Rehabilitation

a. When approved by the owner in case of a sole proprietorship, or
b. By a majority of the partners in case of a partnership, or,
c. On 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
d. In case of nonstock corporation, by the vote of at least two-thirds (2/3) of the
members, in a member's meeting duly called for the purpose.
2. Grounds for Court-Supervised Rehabilitation

a. The debtor is generally unable to pay its or his liabilities as they fall due in the
ordinary course of business; or
b. The debtor has liabilities that are greater than its or his assets.
3. Minimum Allegations for Voluntary Rehabilitation

a. The petition shall be verified to establish the insolvency of the debtor.
b. The petition shall be verified to establish the viability of the rehabilitation of the
insolvent debtor.
4. Joint Filing of Petition for Rehabilitation by a group of debtors - 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.
5. Contents of Petition for Voluntary Rehabilitation

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.
ii. Involuntary Court-Supervised Rehabilitation (Initiated by Creditors of Insolvent

Businessman)
1. Required Vote for Involuntary Rehabilitation

a. Any creditor or group of creditors with a claim of or the aggregate of whose
claims is, at least One million pesos (P1,000,000) or at least twenty-five percent
(25%) of the subscribed capital stock or partners’s contributions, whichever is
higher, may initiate involuntary proceedings against the debtor by filing a
petition for rehabilitation.
2. Grounds for Involuntary Rehabilitation

a. There is no genuine issue of fact or law on the claims 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 petitioners, 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.
3. Contents of Petition for Involuntary Rehabilitation

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.
d. Court’s Action on the Petition for Rehabilitation - 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.
Note: The rehabilitation proceedings shall commence upon the issuance of the Commencement Order
e. Effects of the Issuance of Commencement Order

a. It shall vest the rehabilitation receiver with all the powers and functions provided for in this Act,
such as the right to review and obtain all records to which the debtor's management and directors
have access, including bank accounts of whatever nature of the debtor, subject to the approval by
the court of the performance bond filed by the rehabilitation receiver;
b. It shall prohibit, or otherwise serve as the legal basis for rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt
to collect on or enforce a claim against the debtor after the commencement date unless otherwise
allowed in this Act, subject to the provisions of Section 50 hereof;
c. It shall 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. It shall serve as the legal basis for rendering null and void the perfection of any lien against the
debtor's property after the commencement date;
e. It shall 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 in other courts where the
debtor had initiated the suit.
f. Attempts to seek legal or other recourse against the debtor outside these proceedings shall be
sufficient to support a finding of indirect contempt of court.
g. 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 mid charges thereof, due to the national government or to
LGUs shall be considered waived, in furtherance of the objectives of rehabilitation.
f. Stay Order a.k.a. Suspension Order in Rehabilitation Proceedings
The rehabilitation proceedings of an insolvent debtor shall commence upon issuance by the rehabilitation
court of Commencement Order which shall include among others a Stay Order or Suspension Order.
g. Effects of Issuance by Rehabilitation Court of Stay or Suspension Order
i. It shall suspend all actions or proceedings, in court or otherwise, for the enforcement of claims
against the debtor;
ii. It shall suspend all actions to enforce any judgment, attachment or other provisional remedies
against the debtor;
iii. It shall prohibit the debtor from selling, encumbering, transferring or disposing in any manner
any of its properties except in the ordinary course of business; and .
iv. It shall prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.
v. 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.
Note: 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.
h. Exceptions to the Stay or Suspension Order (Cases not covered by Stay or Suspension Order)
i. to cases already pending appeal in the Supreme Court as of commencement date: Provided, That
any final and executor judgment arising from such appeal shall be referred to the court for
appropriate action;

ii. 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;
iii. 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;
iv. 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 payor settle such claims or liabilities;
v. 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;
vi. 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 .
vii. any criminal action against the individual debtor or owner, partner, director or officer of a debtor
shall not be affected by any proceeding commenced under this Act.
i. Receiver
i. 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 who possesses all the qualifications and none of the
disqualifications as its representative, it being understood that for all obligations and
responsibilities of the rehabilitation receiver.
ii. Qualifications of a Rehabilitation Receiver

1. A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;
2. Of good moral character and with acknowledged integrity, impartiality and
independence;
3. 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 d utles and obligations of a rehabilitation receiver;
and
4. 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.
iii. Appointment of the Rehabilitation Receiver
1. The court shall initially appoint the rehabilitation receiver, who mayor may not be f:t°om
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.
2. 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.
iv. Powers, Duties and Responsibilities of the Rehabilitation Receiver

1. To verify the accuracy of the factual allegations in the petition and its annexes;
2. To verify and correct, if necessary, the inventory of all of the assets of the debtor, and
their valuation;
3. To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;
4. To evaluate the validity, genuineness and true among of all the claims against the debtor;
5. To take possession, custody and control, and to preserve the value of all the property of
the debtor;
6. To sue and recover, with the approval of the court, all amounts owed to, and all properties
pertaining to the debtor;
7. To have access to all information necessary, proper or relevant to the operations and
business of the debtor and for Its rehabilitation;
8. 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;
9. 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;

10. 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;
11. 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;
12. To implement the Rehabilitation Plan as approved by the court, if 80 provided under the
Rehabilitation Plan;
13. To assume and exercise the powers of management of the debtor, if directed by the court
pursuant to Section 36 hereof;
14. To exercise such other powers as may, from time to time, be conferred upon him by the
court; and
15. 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
v. 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.
vi. Grounds for Removal of Rehabilitation Receiver

1. Incompetence, gross negligence, failure to perform or failure to exercise the proper
degree of care in the performance of his duties and powers;
2. Lack of a particular or specialized competency required by the specific case;
3. Illegal acts or conduct in the performance of his duties and powers;
4. Lack of qualification or presence of any disqualification;
5. Conflict of interest that arises after his appointment; and
6. Manifest lack of independence that is detrimental to the general body of the stakeholders.
vii. Compensation, Term of Office and Bonds of a Rehabilitation Receiver
1. 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.
2. 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.
j. Rehabilitation Plan
i. Minimum Contents of Rehabilitation Plan
1. specify the underlying assumptions, the financial goals and the procedures proposed to
accomplish such goals;
2. 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;
3. 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;
4. establish classes of voting creditors;
5. establish subclasses of voting creditors if prior approval has been granted by the court;
6. 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 viability of the insolvent debtor;
7. specify the treatment of each class or subclass described in subsections (d) and (e);
8. provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment;
9. 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;
10. maintain the security interest of secured creditors and preserve the liquidation value of
the security unless such has been waived or modified voluntarily;

11. disclose all payments to creditors for precommencement debts made during the
proceedings and the justifications thereof
12. describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;
13. identify the debtor's role in the implementation of the Plan
14. state any rehabilitation covenants of the debtor, the breach of which shall be considered a
material breach of the Plan;
15. 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;
16. address the treatment of claims arising after the confirmation of the Rehabilitation Plan;
17. require the debtor and its counter-parties to adhere to the terms of all contracts that the
debtor has chosen to confirm;
18. (arrange for the payment of all outstanding administrative expenses as a condition to the
Plan's approval unless such condition has been waived ;n writing by the creditors
concerned;
19. 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;
20. include a certified copy of a certificate of tax clearance or evidence of a compromise
settlement with the BIR;
21. 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;
22. state the compensation and status, if any, of the rehabilitation receiver after the approval
of the Plan; an
23. contains 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.
ii. Required Vote for Creditor Approval of Rehabilitation Plan

1. The rehabilitation plan shall be deemed rejected unless approved by all classes of
creditors whose right are adversely modified or affected by the Plan.
2. For purposes of this section, the rehabilitation 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.
iii. Requisites for Court’s Confirmation of the Rehabilitation Plan notwithstanding the
rejection by some opposing Creditors
1. The rehabilitation plan complies with the requirement as specified in FRIA;
2. The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
3. The shareholders, owners or' partners of the juridical, debtor lose at least their controlling
interest as a result of the Rehabilitation Plan; and
4. 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
receive4if the debtor were under liquidation.
iv. Submission of Rehabilitation Plan to the Court and Filing of Objection to Rehabilitation
Plan
1. If the 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 or
confirmation, that any creditor may obtain copies of the rehabilitation plan and that any
creditor may file an objection thereto.
2. 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.
v. Grounds for objection to Rehabilitation Plan

1. The creditors' support was induced by fraud;
2. The documents or data relied upon in the rehabilitation plan are materially false or
misleading; or
3. The rehabilitation plan is in fact not supported by the voting creditors.
vi. Confirmation of the Rehabilitation Plan by the Court

1. 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.

2. The court may confirm the rehabilitation plan notwithstanding unresolved disputes over
claims if the rehabilitation plan has made adequate provisions for paying such claim.
vii. Effects of Confirmation by the Court of the Rehabilitation Plan

1. The Rehabilitation Plan and its provisions shall be binding upon the debtor and all person
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;
2. The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all
actions necessary to carry " out the Plan;
3. Payments shall be made to the creditors in accordance 'with the provisions of the
4. 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
5. 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 implemented;
and·
6. Claims arising after approval of the plan that are otherwise not treated by the plan are not
subject to any Suspension Order.
viii. Period for Court’s Confirmation of Rehabilitation Plan

1. The court shall have a maximum period of one (l} year from the date of the filing of the
petition to confirm a Rehabilitation Plan.
2. If no Rehabilitation Plan is confirmed within the said period, the proceedings may, upon
motion or motu proprio, be converted into one for the liquidation of the debtor.
ix. Instances of failure of rehabilitation justifying its termination

1. Dismissal of the petition by the court;
2. The debtor, fails to submit a Rehabilitation Plan;
3. Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood
that the debtor can be rehabilitated within a reasonable period;
4. The Rehabilitation Plan or its amendment is approved, by the court but in the
implementation thereof, the debtor falls 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;
The commission of fraud in securing the approval off the Rehabilitation Plan or its
amendment;
5. Other analogous circumstances as may be defined by the rules of procedure.
x. Effects of termination of Rehabilitation
1. The discharge of the rehabilitation receiver, subject to his submission of a final
accounting; and
2. 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.
k. Other Types of Rehabilitation
i. Pre-Negotiated Rehabilitation - 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.

1. Required Creditor’s Vote for Approval of Pre-negotiated Rehabilitation Plan
a. Endorsement or Approval by 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%); or
b. Endorsement or Approval by the total secured claims of the debtor and unsecured
creditors holding more than fifty percent (50%) of the total unsecured claims of
the debtor.
ii. Out-of-Court or Informal Restructuring Agreements or Rehabilitation Plans - An out-of-

court 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.
1. Minimum Requirements of Out-of-Court or Informal Rehabilitation Plans

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 percent (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.
2. 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 of FRIA.
A. Procedures for Involuntary Liquidation of Insolvent Businessman (Initiated by Insolvent Juridical Debtor)
a. 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:
1. 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;
2. an inventory of all its assets including receivables and claims against third parties; and
3. the names of at least three (3) nominees to the position of liquidator .
a. Grounds for Voluntary Liquidation of Insolvent Juridical Person

i. Insolvency of Juridical Debtor
ii. Conversion of Rehabilitation Proceedings to Liquidation Proceedings by
establishing that the debtor is seeking immediate dissolution and
termination of its corporate existence
b. Required Vote for Voluntary Liquidation of Insolvent Juridical Person

i. At least majority vote of the members of the Board of Directors/Trustees;
and
ii. Approval by at least 2/3 of the outstanding stockholders/members.
B. Procedures for Involuntary Liquidation of Insolvent Juridical Person (Initiated by Creditors of Insolvent
Juridical Person
1. Required Creditor’s Vote for Petition for Involuntary Liquidation (Initiated by

Creditors of Insolvent Debtors)

a. Three (3) or more creditors the aggregate of whose claims is at least either One
million pesos (P1,000,000) or at least twenty-five percent (25%) of the
subscribed capital stock or partner's contributions of the debtor, whichever is
higher.
2. Requisites or Allegations for Involuntary Liquidation of Insolvent Juridical Person

a. There is no genuine issue of fact or law on the claim/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 maybe rehabilitated.
3. 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 Php 1,000,000.00) 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.
C. Common Provisions for Liquidation of Insolvent Individual Debtor and Insolvent Businessman
i. Effects of Issuance of Liquidation Order
1. The juridical debtor shall be deemed dissolved and its corporate or juridical existence
terminated.
2. 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.
3. 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 the contracting party agrees.
4. 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 I 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 executory judgment therein for a claim
against debtor shall be filed and allowed in court.
5. No foreclosure proceeding shall be allowed for a period of one hundred eighty (180)
days.
ii. Rights of Secured Creditors in case of Liquidation Proceedings

1. They may waive his rights under the security or lien, prove his claim in the liquidation
proceedings and share in the distribution of the assets of the debtor; or
2. They may maintain his rights under his security or lien.
iii. Types of Liquidator

1. Elected Liquidator by Creditors
2. Court-Appointed Liquidator
a. Instances when Court may appoint a liquidator
i. on the date set for the election of the liquidator, the creditors do not attend;
ii. the creditors who attend, fail or refuse to elect a liquidator;
iii. after being elected, the liquidator fails to qualify; or
iv. a vacancy occurs for any reason whatsoever. In any of the cases provided
herein, the court may instead set another hearing for the election of the
liquidator.
iv. Oath, Bond and Qualifications of Liquidator

1. 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.

2. The liquidator shall have the qualifications of Rehabilitator. He may be removed at any
time by the court for cause, either motu proprio or upon motion of any creditor entitled to
vote for the election of the liquidator.
3. Powers, Duties and Responsibilities of Liquidator - The liquidator shall be deemed an
officer of the court with the principal duty 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 be 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 to satisfy any judgment 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 his functions and which shall have powers as the court
deems just, reasonable and necessary; and
h. upon approval of the court, to engage such professionals as may be necessary and
reasonable to assist him in the discharge of his duties.
i. 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.
v. Right of Off-Set - If the debtor and a 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.
vi. Determination 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, owners 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.
vii. 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, owners 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 a 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 thirty (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 filing of the register and may be
subsequently set aside only on grounds of fraud, accident, mistake or inexcusable neglect.
viii. Submission of Disputed Claims to Court - The liquidator shall resolve disputed claims and
submit his findings thereon to the court for final apl1roval. The liquidator may disallow claims.
ix. Action for 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 to liquidation 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.
x. Submission of 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, all the claims against the debtor and a
schedule of liquidation of the assets and payment of the claims.

xi. 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.
xii. 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.
xiii. 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 Articles 2241 and 2242 thereof.
a. Types of Credits in case of Liquidation based on Concurrence and Preference of Credit under New
Civil Code of the Philippines
i. Fully secured credits
ii. Partially secured credits
iii. Unsecured credits without priority
iv. Unsecured credits with priority
1. Proper funeral expenses for the debtor, or children under his or her parental authority who have no
property of their own, when approved by the court;
2. Credits for services rendered the insolvent by employees, laborers, or household helpers for one year
preceding the commencement of the proceedings in insolvency;
3. Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental
authority, if they have no property of their own;
4. Compensation due the laborers or their dependents under laws providing for indemnity for damages in
cases of labor accident, or illness resulting from the nature of the employment;
5. Credits and advancements made to the debtor for support of himself or herself, and family, during the last
year preceding the insolvency;
6. Support during the insolvency proceedings, and for three months thereafter;
7. Fines and civil indemnification arising from a criminal offense;
8. Legal expenses, and expenses incurred in the administration of the insolvent's estate for the common
interest of the creditors, when properly authorized and approved by the court;
9. Taxes and assessments due the national government, other than those mentioned in articles 2241, No. 1,
and 2242, No. 1;
10. Taxes and assessments due any province, other than those referred to in articles 2241, No. 1, and 2242,
No. 1;
11. Taxes and assessments due any city or municipality, other than those indicated in articles 2241, No. 1, and
2242, No. 1;
12. Damages for death or personal injuries caused by a quasi-delict;
13. Gifts due to public and private institutions of charity or beneficence;
14. Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if
they have been the subject of litigation. These credits shall have preference among themselves in the
order of priority of the dates of the instruments and of the judgments, respectively.
III. Securities Regulation Code (R.A. No. 8799)
a. Implementing Agency of Securities Regulation Code – The law shall be implemented by Securities and
Exchange Commission which is a collegial body composing of Chairperson and four (4) Commissioners.
i. Powers and Functions of Securities and Exchange Commission

1. Have jurisdiction and supervision over all corporations, partnership or associations who
are the grantees of primary franchises and/or a license or a permit issued by the
Government;
2. Formulate policies and recommendations on issues concerning the securities market,
advise Congress and other government agencies on all aspect of the securities market and
propose legislation and amendments thereto;
3. Approve, reject, suspend, revoke or require amendments to registration statements, and
registration and licensing applications;
4. Regulate, investigate or supervise the activities of persons to ensure compliance; (e)
Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies
and other SROs;
5. Impose sanctions for the violation of laws and rules, regulations and orders, and issued
pursuant thereto;
6. Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and
provide guidance on and supervise compliance with such rules, regulation and orders;
7. Enlist the aid and support of and/or deputized any and all enforcement agencies of the
Government, civil or military as well as any private institution, corporation, firm,
association or person in the implementation of its powers and function under its Code;
8. Issue cease and desist orders to prevent fraud or injury to the investing public;
9. Punish for the contempt of the Commission, both direct and indirect, in accordance with
the pertinent provisions of and penalties prescribed by the Rules of Court;
10. Compel the officers of any registered corporation or association to call meetings of
stockholders or members thereof under its supervision;
11. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the examination, search and seizure of all
documents, papers, files and records, tax returns and books of accounts of any entity or
person under investigation as may be necessary for the proper disposition of the cases
before it, subject to the provisions of existing laws;
12. Suspend, or revoke, after proper notice and hearing the franchise or certificate of
registration of corporations, partnership or associations, upon any of the grounds
provided by law; and
13. Exercise such other powers as may be provided by law as well as those which may be
implied from, or which are necessary or incidental to the carrying out of, the express
powers granted the Commission to achieve the objectives and purposes of these laws.
ii. Jurisdiction of Securities and Exchange Commission to Intra-Corporate Disputes

1. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court: Provided, that the Supreme Court in the exercise of its
authority may designate the Regional Trial Court branches that shall exercise jurisdiction
over these cases a.k.a. Special Commercial Courts.
i. Four Principal Departments of Securities and Exchange Commission
1. The Markets and Securities Regulation Department develops the registration criteria
for all market participants and supervises them to ensure compliance with registration
requirements and endorses infractions of the Code and rules and regulations to the
Enforcement and Investor Protection Department. It registers equity securities and debt
instruments, or recommends their exemption from registration, before they are sold,
offered for sale, or distributed to the public and ensures that full, timely and accurate
information is available about the said securities.
2. The Corporate Governance and Finance Department registers mutual funds,
including exchange-traded funds, membership certificates, club shares, both proprietary
and non-proprietary, and time shares before they are offered for sale or sold to the public
and ensures that adequate information is available about the said securities. It also
ensures that investors have access to all material disclosures regarding the said offering
and the securities of public companies. The department also monitors compliance by the
above issuers with the Code and rules and regulations adopted thereunder and compliance
of financing, lending companies and foundations with existing laws, rules and regulations
and endorse infractions thereof to the Enforcement and Investor Protection Department. It
monitors covered companies' compliance with the Revised Code of Corporate
Governance and other corporate governance issuances of the Commission.
3. The Company Registration and Monitoring Department registers domestic
corporations, partnerships and associations, including representative offices and foreign
corporations intending to do business in the Philippines. It also supervises and monitors
such entities relative to their compliance with law, rules and regulations administered by
the Commission.

4. The Enforcement and Investor Protection Department ensures compliance by all
market participants, issuers and individuals, and takes appropriate enforcement action
against them for legal infraction of the Code and other relevant laws, rules and
regulations administered by the Commission.
b. Requirement for Registration of Securities Prior to Disposal in Public
i. No securities shall be sold or offered for sale, or distributed by any person or entity within the
Philippines unless such securities are duly registered with the Securities and Exchange
Commission.
ii. No information relating to an offering of securities shall be disseminated unless a registration
statement has been filed with the Securities and Exchange Commission and the written
communication proposed to be released contains the required information under SRC.
iii. No person shall offer, sell or enter into commodity futures contracts except in accordance with
the rules, regulations and orders the SEC may prescribe in the public interest. The SEC shall
promulgate rules and regulations involving commodity futures contracts to protect investors to
ensure the development of a fair and transparent commodities market.
iv. Requirements for Registration of Securities
1. All securities required to be registered under Subsection 8. I shall be registered through

the filing by the issuer in the main office of the Commission, of a sworn registration
statement with the respect to such securities, in such form and containing such
information and document as the Commission prescribe. The registration statement shall
include any prospectus required.
2. The information required for the registration of any kind, and all securities, shall include,
among others, the effect of the securities issue on ownership, on the mix of ownership,
especially foreign and local ownership.
3. The registration statement shall be signed by the issuer’s executive officer, its principal
operating officer, its principal financial officer, its comptroller, its principal accounting
officer, its corporate secretary, or persons performing similar functions accompanied by a
duly verified resolution of the board of directors of the issuer corporation. The written
consent of the expert named as having certified any part of the registration statement or
any document used in connection therewith shall also be filed. Where the registration
statement shares to be sold by selling shareholders, a written certification by such selling
shareholders as to the accuracy of any part of the registration statement contributed to by
such selling shareholders shall be filed.
4. Upon filing of the registration statement, the issuer shall pay to the Commission a fee of
not more than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price
at which such securities are proposed to be offered.
5. Within forty-five (45) days after the date of filing of the registration statement, or by such
later date to which the issuer has consented, the SEC shall declare the registration
statement effective or rejected, unless the applicant is allowed to amend the registration
statement.
6. Upon affectivity of the registration statement, the issuer shall state under oath in every
prospectus that all registration requirements have been met and that all information are
true and correct as represented by the issuer or the one making the statement. Any untrue
statement of fact or omission to state a material fact required to be stated herein or
necessary to make the statement therein not misleading shall constitute fraud.
7. If a registration statement is on its face incomplete or inaccurate in any material respect,
the SEC shall issue an order directing the amendment of the registration statement.
v. Grounds for Rejection or Revocation of Registration of Securities
1. The issuer:
a. Has been judicially declared insolvent;
b. Has violated any of the provision of this Code, the rules promulgate pursuant
thereto, or any order of the Commission of which the issuer has notice in
connection with the offering for which a registration statement has been filed
c. Has been or is engaged or is about to engage in fraudulent transactions;
d. Has made any false or misleading representation of material facts in any
prospectus concerning the issuer or its securities;
e. Has failed to comply with any requirements that the Commission may impose as
a condition for registration of the security for which the registration statement has
been filed; or
2. The registration statement is on its face incomplete or inaccurate in any material respect
or includes any untrue statements of a material fact required to be stated therein or
necessary to make the statement therein not misleading; or

3. The issuer, any officer, director or controlling person performing similar functions, or any
under writer has been convicted, by a competent judicial or administrative body, upon
plea of guilty, or otherwise, of an offense involving moral turpitude and /or fraud or is
enjoined or restrained by the Commission or other competent or administrative body for
violations of securities, commodities, and other related laws.
vi. Grounds for Suspension of Registration of Securities

1. If at any time, the information contained in the registration statement filed is or has
become misleading, incorrect, inadequate or incomplete in any material respect, or the
sale or offering for sale of the security registered thereunder may work or tend to work a
fraud.
2. Refusal to furnish information required by the SEC.
c. Kinds of Securities under Securities Regulation Code
i. Definition of Securities - "Securities" are shares, participation or interests in a corporation or in a

commercial enterprise or profit-making venture and evidenced by a certificate, contract, instruments,
whether written or electronic in character.
1. Commodity futures contract means a contract providing for the making or taking delivery
at a prescribed in the future of a specific quantity and quality of a commodity or the cash
value thereof, which is customarily offset prior to the delivery date, and includes standardized
contracts having the indicia of commodities futures, commodity options and commodity
leverage, or margin contracts.
2. Commodity means any goods, articles, agricultural and mineral products, services, rights and
interests, financial instruments, foreign currencies, including any group or index of any of the
foregoing, in which commodity interest contracts are presently or in the future dealt in.
3. Forward means a contract between a buyer and a seller whereby the buyer is obligated to
take delivery and the seller is obliged to deliver a fixed amount of an underlying commodity
at a pre-determined price and date. Payment in full is due at the time of delivery.
4. Warrant Certificate - means the certificate representing the right to a Warrant, which mayor
may not be detachable, that is issued by an Issuer to a Warrant holder.
5. Warrant Instrument - means the written document or deed containing the terms and
conditions of the issue and exercise of a Warrant whose terms and conditions shall include (i)
the maximum underlying shares that can be purchased upon exercise, (ii) the exercise period,
and (iii) such other terms and conditions as the Commission may require.
6. Detachable Warrant - means a Warrant that may be sold, transferred or assigned to any
person by the Warrant holder separate from, and independent of, the corresponding
Beneficiary Securities.
7. Non-detachable Warrant - means a Warrant that may not be sold, transferred or assigned to
any person by the Warrant holder separate from, and independent of, the Beneficiary
Securities.
8. Beneficiary Securities - means the shares of stock and other securities of the Issuer which
form the basis of entitlement in a Warrant.
9. Underlying Shares - means the unissued shares ofa corporation that may be purchased by the
Warrant holder upon the exercise of the right granted under the Warrant.
10. Pre-need plans are contracts which provide for the performance of future services of or the
payment of future monetary considerations at the time actual need, for which plan holders pay
in cash or installment at stated prices, with or without interest or insurance coverage and
includes life, pension, education, interment, and other plans which the Commission may from
time to time approve.
ii. Securities Required To Be Registered to SEC

1. Shares of stocks,
2. Bonds, debentures, notes or evidences of indebtedness
3. Asset-backed securities and Investment contracts
4. Certificates of interest or participation in a profit sharing agreement
5. Certifies of deposit for a future subscription
6. Fractional undivided interests in oil, gas or other mineral rights
7. Derivatives like option and warrants
8. Certificates of assignments, certificates of participation, trust certificates
9. Voting trust certificates or similar instruments
10. Proprietary or nonproprietary membership certificates in corporations
11. Other instruments as may in the future be determined by the Securities and Exchange
Commission
iii. Exempted Securities from Requirement of Registration with SEC

1. Any security issued or guaranteed by the Government of the Philippines, or by any political
subdivision or agency thereof, or by any person controlled or supervised by, and acting as an
instrumentality of said Government.

2. Any security issued or guaranteed by the government of any country with which the
Philippines maintains diplomatic relations, or by any state, province or political subdivision
thereof on the basis of reciprocity: Provided, That the Commission may require compliance
with the form and content for disclosures the Commission may prescribe.
3. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper
adjudicatory body.
4. Any security or its derivatives the sale or transfer of which, by law, is under the supervision
and regulation of the Office of the Insurance Commission, Housing and Land Use Rule
Regulatory Board, or the Bureau of Internal Revenue.
5. Any security issued by a bank because covered by BSP Regulation except its own shares of
stock.
6. Ordinary deeds or instruments that are not normally sold to the public such as contract of
lease, contract of sale, contract of real estate mortgage
iv. Exempted Transactions from Requirement of Registration with SEC

1. At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee
in insolvency or bankruptcy.
2. By or for the account of a pledge holder, or mortgagee or any of a pledge lien holder
selling of offering for sale or delivery in the ordinary course of business and not for the
purpose of avoiding the provision of this Code, to liquidate a bonafide debt, a security
pledged in good faith as security for such debt.
3. An isolated transaction in which any security is sold, offered for sale, subscription or
delivery by the owner therefore, or by his representative for the owner’s account, such
sale or offer for sale or offer for sale, subscription or delivery not being made in the
course of repeated and successive transaction of a like character by such owner, or on his
account by such representative and such owner or representative not being the
underwriter of such security.
4. The distribution by a corporation actively engaged in the business authorized by its
articles of incorporation, of securities to its stockholders or other security holders as a
stock dividend or other distribution out of surplus.
5. The sale of capital stock of a corporation to its own stockholders exclusively, where no
commission or other remuneration is paid or given directly or indirectly in connection
with the sale of such capital stock.
6. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal
property, when the entire mortgage together with all the bonds or notes secured thereby
are sold to a single purchaser at a single sale.
7. The issue and delivery of any security in exchange for any other security of the same
issuer pursuant to a right of conversion entitling the holder of the security surrendered in
exchange to make such conversion: Provided, That the security so surrendered has been
registered under this Code or was, when sold, exempt from the provision of this Code,
and that the security issued and delivered in exchange, if sold at the conversion price,
would at the time of such conversion fall within the class of securities entitled to
registration under this Code. Upon such conversion the par value of the security
surrendered in such exchange shall be deemed the price at which the securities issued and
delivered in such exchange are sold.
8. Broker’s transaction, executed upon customer’s orders, on any registered Exchange or
other trading market.
9. Subscriptions for shares of the capitals stocks of a corporation prior to the incorporation
thereof or in pursuance of an increase in its authorized capital stocks under the
Corporation Code, when no expense is incurred, or no commission, compensation or
remuneration is paid or given in connection with the sale or disposition of such securities,
and only when the purpose for soliciting, giving or taking of such subscription is to
comply with the requirements of such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can be registered and duly incorporated,
or its authorized, capital increase.
10. The exchange of securities by the issuer with the existing security holders exclusively,
where no commission or other remuneration is paid or given directly or indirectly for
soliciting such exchange.
11. The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines
during any twelve-month period.
12. The sale of securities to any number of the following qualified buyers: (i) Bank; (ii)
Registered investment house; (iii) Insurance company; (iv) Pension fund or retirement
plan maintained by the Government of the Philippines or any political subdivision thereof
or manage by a bank or other persons authorized by the Bangko Sentral to engage in trust
functions; (v) Investment company or; (vi) Such other person as the Commission may
rule by determine as qualified buyers, on the basis of such factors as financial
sophistication, net worth, knowledge, and experience in financial and business matters, or
amount of assets under management.

d. Protection of Shareholders Interest
i. Tender Offer - means a publicly announced intention by a person acting alone or in concert
with other persons (hereinafter referred to as "person") to acquire outstanding equity securities
of a public company as defined in SRC Rule 3, or outstanding equity securities of an associate
or related company of such public company which controls the said public company.
ii. Issuer Tender Offers - means a publicly announced intention by an Issuer to reacquire any of
its own class of equity securities, or by an associate of such Issuer to acquire such securities.
iii. "Tender offer materials" mean: (i) the Offeror's formal offer, including all the material terms
and conditions of the tender offer and all their amendments; (ii) the related transmittal letter
(whereby equity securities of the target company that are sought in the tender offer may be
transmitted to the Offeror or its depository) and all their amendments; and (iii) press releases,
advertisements, letters and other documents published by the Offeror or sent or given by the
Offeror to security holders which, directly or indirectly, solicit, invite or request tenders of the
equity securities being sought in the tender offer.
iv. Instances of Mandatory Tender Offers

1. Any person or group of persons acting in concert, who intends to acquire fifteen percent
(15 %) of equity securities in a public company in one or more transactions within a
period of twelve (12) months, shall file a declaration to that effect with the SEC.
2. Any person or group of persons acting in concert, who intends to acquire thirty five
percent (35%) of the outstanding voting shares or such outstanding voting shares that are
sufficient to gain control of the board in a public company in one or more transactions
within a period of twelve (12) months, shall disclose such intention and
contemporaneously make a tender offer for the percentage sought to all holders of such
securities within the said period. If the tender offer is oversubscribed, the aggregate
amount of securities to be acquired at the close of such tender offer shall be
proportionately distributed across selling shareholders with whom the acquirer may have
been in private negotiations and other shareholders. For purposes of SRC Rule 19.2.2, the
last sale that meets the threshold shall not be consummated until the closing and
completion of the tender offer.
sufficient to gain control of the board in a public company through the Exchange trading
system shall not be required to make a tender offer even if such person or group of
persons acting in concert acquire the remainder through a block sale if, after acquisition
through the Exchange trading system, they fail to acquire their target of thirty five
percent (35%) or such outstanding voting shares that is sufficient to gain control of the
board.
sufficient to gain control of the board in a public company directly from one or more
stockholders shall be required to make a tender offer for all the outstanding voting shares.
The sale of shares pursuant to the private transaction or block sale shall not be completed
prior to the closing and completion of the tender offer.
5. If any acquisition that would result in ownership of over fifty percent (50%) of the total
outstanding equity securities of a public company, the acquirer shall be required to make
a tender offer under this Rule for all the outstanding equity securities to all remaining
stockholders of the said company at a price supported by a fairness opinion provided by
an independent financial advisor or equivalent third party. The acquirer in such a tender
offer shall be required to accept all securities tendered.
v. Transactions Exempted from Mandatory Tender Offers
1. Any purchase of securities from the unissued capital stock; Provided, the acquisition will
not result to a fifty percent (50%) or more ownership of securities by the purchaser or
such percentage that is sufficient to gain control of the board
2. Any purchase of securities from an increase in authorized capital stock
3. Purchase in connection with foreclosure proceedings involving a duly constituted pledge
or security arrangement where the acquisition is made by the debtor or creditor;
4. Purchases in connection with a privatization undertaken by the government of the
Philippines
5. Purchases in connection with corporate rehabilitation under court supervision
6. Purchases in the open market at the prevailing market price; and
7. Merger or consolidation.
vi. Tender Offer by an Issuer or Buy Back - A reacquisition or repurchase by an Issuer of its own
securities shall only be made if such Issuer has unrestricted retained earnings in its books to

cover the amount of shares to be purchased, and is undertaken for any of the following
purposes:
1. To implement a stock option or stock purchase plan;
2. To meet short-term obligations which can be settled by the re-issuance of the repurchased
shares;
3. To pay dissenting or withdrawing stockholders entitled to payment for their securities
under the Corporation Code; and
4. Such other legitimate corporate purposes.
vii. Dissemination Requirements of Tender Offer

1. An Offeror or Issuer shall publish the terms and conditions of the tender offering in two
(2) national newspapers of general circulation in the Philippines on the date of
commencement of the tender offer and for two (2) consecutive days after compliance
with SRC Rule 19.7.1.
2. If a material change occurs in the information published, sent or given to security holders,
the Offeror shall disseminate promptly a disclosure of such change in a manner
reasonably calculated to inform security holders of such change.
viii. Period and Manner of Making Tender Offers

1. Expiration Period of Tender Offer - A tender offer shall, unless withdrawn, remain
open until the expiration of:
a. At least twenty (20) business days from its commencement; Provided, that an offer
should as much as possible be completed within sixty (60) business days from the date
the intention to make such offer is publicly announced; or
b. At least ten (10) business days from the date the notice of a change in the percentage
of the class of securities being sought or in the consideration offered is first published,
sent or given to security holders.
2. In a mandatory tender offer, the Offeror shall be compelled to offer the highest price paid
by him for such securities during the preceding six (6) months. If the offer involves
payment by transfer or allotment of securities, such securities must be valued on an
equitable basis.
3. In case of a tender offer other than by an Issuer, the subject of the tender offer ("the target
company") shall not engage in any of the following transactions during the course of a
tender offer, or before its commencement if its board has reason to believe that an offer
might be imminent, except if such transaction is pursuant to a contract entered into
earlier, or with the approval of the shareholders in a general meeting or, where special
circumstances exist, the Commission's approval has been obtained:
a. Issue any authorized but unissued shares;
b. Issue or grant options in respect to any unissued shares;
c. Create or issue, or permit the creation or issuance of, any securities carrying
d. rights of conversion into, or subscription to, shares;
e. Sell, dispose of or acquire, or agree to acquire, any asset whose value amounts to five
percent (5 %) or more of the total value of the assets prior to acquisition; or
f. Enter into contracts that are not in the ordinary course of business.
4. The Offeror in a tender offer shall permit the securities tendered to be withdrawn (i) at
any time during the period such tender offer remains open; and(ii) if not yet accepted for
payment, after the expiration of sixty (60) business days from the commencement of the
tender offer.
5. If the tender offer shall be for less than the total outstanding securities of a class, but a
greater number of securities is tendered, the Offeror shall be obliged to accept and pay
the securities on a pro rata basis, disregarding fractions, according to the number of
securities tendered by each security holder during the period the offer was open.
6. In the event the Offeror in a tender offer increases the consideration offered after the
tender offer has commenced, the Offeror shall pay such increased consideration to all
security holders whose tendered securities have been accepted for payment by such
Offeror, whether or not the securities were tendered prior to the variation of the tender
offer's terms.
7. The Offeror in a tender offer shall either pay the consideration offered, or return the
tendered securities, not later than ten (10) business days after the termination or the
withdrawal of the tender offer.
8. No tender offer shall be made unless:
a. It is open to all security holders of the class of securities subject to the tender offer;
and
b. The consideration paid to any security holder pursuant to the tender offer shall be the
highest consideration paid to any other security holder during such tender offer.
9. Unless with the prior approval of the Commission, if an offer has been announced but has
not become unconditional in all respects and has been withdrawn or has lapsed, neither

the Offeror nor any person who acted in concert with it in the course of the offer may,
within six (6) months from the date on which such offer has been withdrawn or has
lapsed, announce an offer for the target company nor acquire any securities of the target
company which would require such person to make a mandatory tender offer under this
Rule and Section 19.1 of the Code.
10. Prohibited Acts in any Tender Offer
a. To employ any device, scheme or artifice to defraud any person;
b. To make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; or
c. To engage in any act, practice or course of business which operates or would operate
as a fraud or deceit upon any person.
d. If a person shall become aware of a potential tender offer before the tender offer has
been publicly announced, such person shall buy or sell, directly or indirectly, the
securities of the target company until the tender offer shall have been publicly
announced. Such buying or selling shall constitute insider trading which is prohibited
Section 27.4 of the Code.
i. Manipulation of Security Prices, Devices and Practices (Unlawful Acts Involving

Manipulation of Security Prices, Devices and Practices). It shall be unlawful for any person
acting for himself or through a dealer or broker, directly or indirectly:
1. To create a false or misleading appearance of active trading in any listed security traded
in an Exchange of any other trading market (hereafter referred to purposes of this Chapter
as "Exchange"):
2. By effecting any transaction in such security which involves no change in the beneficial
ownership thereof;
3. By entering an order or orders for the purchase or sale of such security with the
knowledge that a simultaneous order or orders of substantially the same size, time and
price, for the sale or purchase of any such security, has or will be entered by or for the
same or different parties; or
4. By performing similar act where there is no change in beneficial ownership.

5. To affect, alone or with others, a securities or transactions in securities that: (I) Raises
their price to induce the purchase of a security, whether of the same or a different class of
the same issuer or of controlling, controlled, or commonly controlled company by others;
or (iii) Creates active trading to induce such a purchase or sale through manipulative
devices such as marking the close, painting the tape, squeezing the float, hype and dump,
boiler room operations and such other similar devices.
6. To circulate or disseminate information that the price of any security listed in an
Exchange will or is likely to rise or fall because of manipulative market operations of any
one or more persons conducted for the purpose of raising or depressing the price of the
security for the purpose of inducing the purpose of sale of such security.
7. To make false or misleading statement with respect to any material fact, which he knew
or had reasonable ground to believe was so false or misleading, for the purpose of
inducing the purchase or sale of any security listed or traded in an Exchange.
8. No person shall use or employ, in connection with the purchase or sale of any security
any manipulative or deceptive device or contrivance. Neither shall any short sale be
effected nor any stop-loss order be executed in connection with the purchase or sale of
any security except in accordance with such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest for the protection of
investors.
9. To effect, either alone or others, any series of transactions for the purchase and/or sale of
any security traded in an Exchange for the purpose of pegging, fixing or stabilizing the
price of such security; unless otherwise allowed by this Code or by rules of the
Commission.
b.
i. Fraudulent Transactions - It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any securities to:
1. Employ any device, scheme, or artifice to defraud;
2. Obtain money or property by means of any untrue statement of a material fact of any
omission to state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading; or
3. Engage in any act, transaction, practice or course of business which operates or would
operate as a fraud or deceit upon any person.
ii. Insider Trading - It shall be unlawful for an insider to sell or buy a security of the issuer, while
in possession of material information with respect to the issuer or the security that is not generally

available to the public, unless: (a) The insider proves that the information was not gained from
such relationship; or (b) If the other party selling to or buying from the insider (or his agent) is
identified, the insider proves: (I) that he disclosed the information to the other party, or (ii) that he
had reason to believe that the other party otherwise is also in possession of the information. A
purchase or sale of a security of the issuer made by an insider defined in Subsection 3.8, or such
insider’s spouse or relatives by affinity or consanguinity within the second degree, legitimate or
common-law, shall be presumed to have been effected while in possession of material nonpublic
information if transacted after such information came into existence but prior to dissemination of
such information to the public and the lapse of a reasonable time for market to absorb such
information: Provided, however, That this presumption shall be rebutted upon a showing by the
purchaser or seller that he was aware of the material nonpublic information at the time of the
purchase or sale.
1. For purposes of this Section, information is "material nonpublic" if: (a) It has not been
generally disclosed to the public and would likely affect the market price of the security
after being disseminated to the public and the lapse of a reasonable time for the market to
absorb the information; or (b) would be considered by a reasonable person important
under the circumstances in determining his course of action whether to buy, sell or hold a
security.
2. It shall be unlawful for any insider to communicate material nonpublic information about
the issuer or the security to any person who, by virtue of the communication, becomes an
insider as defined in Subsection 3.8, where the insider communicating the information
knows or has reason to believe that such person will likely buy or sell a security of the
issuer whole in possession of such information.
3. It shall be unlawful where a tender offer has commenced or is about to commence for: (i)
Any person (other than the tender offeror) who is in possession of material nonpublic
information relating to such tender offer, to buy or sell the securities of the issuer that are
sought or to be sought by such tender offer if such person knows or has reason to believe
that the information is nonpublic and has been acquired directly or indirectly from the
tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought
by such tender offer, or any insider of such issuer; and (ii) Any tender offeror, those
acting on its behalf, the issuer of the securities sought or to be sought by such tender
offer, and any insider of such issuer to communicate material nonpublic information
relating to the tender offer to any other person where such communication is likely to
result in a violation of Subsection 27.4.
c. Regulation of Pre-need Plans
i. No person shall sell or offer for sale to the public any pre-need plan except in accordance with
rules and regulations which the Commission shall prescribe. Such rules shall regulate the sale of
pre-need plans by, among other things, requiring the registration of pre-need plans, licensing
persons involved in the sale of pre- need plans, requiring disclosures to prospective plan holders,
prescribing advertising guidelines, providing for uniform accounting system, reports and
recording keeping with respect to such plans, imposing capital, bonding and other financial
responsibility, and establishing trust funds for the payment of benefits under such plans.
e. Code of Corporate Governance (Revised Code of Corporate Governance)
ix. Companies Covered by the Revised Code of Corporate Governance

1. Corporations that sell equity and/or debt securities to the public that are required to be
registered with the Commission, or
2. Corporations that have assets in excess of Fifty Million Pesos and at least two hundred
(200) stockholders who own at least one hundred (100) shares each of equity securities,
or
3. Corporations whose equity securities are listed on an Exchange Market; or
4. Corporations that are grantees of secondary licenses from the SEC.
x. Corporation Governance refers to the framework of rules, systems and processes in the
corporation that governs the performance by the Board of Directors and Management of their
respective duties and responsibilities to the stockholders.
xi. Board of Directors refers to the governing body elected by the stockholders that exercises the
corporate powers of a corporation, conducts all its business and controls its properties.
xii. Composition of the Board of Directors of Corporations covered by Revised Code of

Corporate Governance

1. The Board shall be composed of at least five (5), but not more than fifteen (15), members
who are elected by the stockholders.
2. All companies covered by this Code shall have at least two (2) independent directors or
such number of independent directors that constitutes twenty percent (20%) of the
members of the Board, whichever is lesser, but in no case less than two (2). All other
companies are encouraged to have independent directors in their boards.
3. The membership of the Board may be a combination of executive and non-executive
directors (which include independent directors) in order that no director or small group of
directors can dominate the decision making process.
4. The non-executive directors should possess such qualifications and stature that would
enable them to effectively participate in the deliberations of the Board.
xiii. Additional Qualifications of Directors of Corporations covered by Revised Code of

Corporate Governance. In addition to the qualifications for membership in the Board
provided for in the Corporation Code, Securities Regulation Code and other relevant laws, the
Board may provide for additional qualifications which include, among others, the following:
1. College education or equivalent academic degree;
2. Practical understanding of the business of the corporation;
3. Membership in good standing in relevant industry, business or professional organizations;
and
4. Previous business experience.
xiv. Grounds for Permanent Disqualifications of Directors of Corporations covered by

Revised Code of Corporate Governance
1. Any person convicted by final judgment or order by a competent judicial or
administrative body of any crime that (a) involves the purchase or sale of securities, as
defined in the Securities Regulation Code; (b) arises out of the person’s conduct as an
underwriter, broker, dealer, investment adviser, principal, distributor, mutual fund dealer,
futures commission merchant, commodity trading advisor, or floor broker; or (c) arises
out of his fiduciary relationship with a bank, quasi-bank, trust company, investment
house or as an affiliated person of any of them;
2. Any person who, by reason of misconduct, after hearing, is permanently enjoined by a
final judgment or order of the Commission or any court or administrative body of
competent jurisdiction from: (a) acting as underwriter, broker, dealer, investment adviser,
principal distributor, mutual fund dealer, futures commission merchant, commodity
trading advisor, or floor broker; (b) acting as director or officer of a bank, quasibank, trust
company, investment house, or investment company;
3. engaging in or continuing any conduct or practice in any of the capacities mentioned in
sub-paragraphs (a) and (b) above, or wilfully violating the laws that govern securities and
banking activities. The disqualification shall also apply if such person is currently the
subject of an order of the Commission or any court or administrative body denying,
revoking or suspending any registration, license or permit issued to him under the
Corporation Code, Securities Regulation Code or any other law administered by the
Commission or Bangko Sentral ng Pilipinas (BSP), or under any rule or regulation issued
by the Commission or BSP, or has otherwise been restrained to engage in any activity
involving securities and banking; or such person is currently the subject of an effective
order of a self-regulatory organization suspending or expelling him from membership,
participation or association with a member or participant of the organization;
4. Any person convicted by final judgment or order by a court or competent administrative
body of an offense involving moral turpitude, fraud, embezzlement, theft, estafa,
counterfeiting, misappropriation, forgery, bribery, false affirmation, perjury or other
fraudulent acts;
5. Any person who has been adjudged by final judgment or order of the Commission, court,
or competent administrative body to have wilfully violated, or wilfully aided, abetted,
counselled, induced or procured the violation of any provision of the Corporation Code,
Securities Regulation Code or any other law administered by the Commission or BSP, or
any of its rule, regulation or order;
6. Any person earlier elected as independent director who becomes an officer, employee or
consultant of the same corporation;
7. Any person judicially declared as insolvent; (vii) Any person found guilty by final
judgment or order of a foreign court or equivalent financial regulatory authority of acts,
violations or misconduct similar to any of the acts, violations or misconduct enumerated
in sub-paragraphs (i) to (v) above;
8. Conviction by final judgment of an offense punishable by imprisonment for more than
six (6) years, or a violation of the Corporation Code committed within five (5) years prior
to the date of his election or appointment.

xv. Grounds for Temporary Disqualification of Directors of Corporations covered by Revised
Code of Corporate Governance
1. Refusal to comply with the disclosure requirements of the Securities Regulation Code
and its Implementing Rules and Regulations. The disqualification shall be in effect as
long as the refusal persists.
2. Absence in more than fifty (50) percent of all regular and special meetings of the Board
during his incumbency, or any twelve (12) month period during the said incumbency,
unless the absence is due to illness, death in the immediate family or serious accident.
The disqualification shall apply for purposes of the succeeding election.
3. Dismissal or termination for cause as director of any corporation covered by this Code.
The disqualification shall be in effect until he has cleared himself from any involvement
in the cause that gave rise to his dismissal or termination.
4. If the beneficial equity ownership of an independent director in the corporation or its
subsidiaries and affiliates exceeds two percent of its subscribed capital stock. The
disqualification shall be lifted if the limit is later complied with.
5. If any of the judgments or orders cited in the grounds for permanent disqualification has
not yet become final.
6. A temporarily disqualified director shall, within sixty (60) business days from such
disqualification, take the appropriate action to remedy or correct the disqualification. If
he fails or refuses to do so for unjustified reasons, the disqualification shall become
permanent.
xvi. Specific Duties and Responsibilities of a Director - A director’s office is one of trust and
confidence. A director should act in the best interest of the corporation in a manner
characterized by transparency, accountability and fairness. He should also exercise leadership,
prudence and integrity in directing the corporation towards sustained progress.
1. Conduct fair business transactions with the corporation, and ensure that his personal
interest does not conflict with the interests of the corporation.
2. Devote the time and attention necessary to properly and effectively perform his duties
and responsibilities.
3. Act judiciously.
4. Exercise independent judgment.
5. Have a working knowledge of the statutory and regulatory requirements that affect the
corporation, including its articles of incorporation and by-laws, the rules and regulations
of the Commission and, where applicable, the requirements of relevant regulatory
agencies.
6. Observe confidentiality.
xvii. Establishment of Audit Committee

1. Audit Committee shall assist the Board in the performance of its oversight responsibility
for the financial reporting process, system of internal control, audit process, and
monitoring of compliance with applicable laws, rules and regulations
2. The Audit Committee shall consist of at least three (3) directors, who shall preferably
have accounting and finance backgrounds, one of whom shall be an independent director
and another with audit experience. The chair of the Audit Committee should be an
independent director.
xviii. Appointment of Compliance Officer - The Board shall appoint a Compliance Officer who
shall report directly to the Chair of the Board. He shall perform the following duties:
1. Monitor compliance by the corporation with this Code and the rules and regulations of
regulatory agencies and, if any violations are found, report the matter to the Board and
recommend the imposition of appropriate disciplinary action on the responsible parties
and the adoption of measures to prevent a repetition of the violation;
2. Appear before the Commission when summoned in relation to compliance with this
Code; and
3. Issue a certification every January 30th of the year on the extent of the corporation’s
compliance with this Code for the completed year and, if there are any deviations, explain
the reason for such deviation.

f. Period for Filing of Annual Financial Statements and General Information Sheet (SEC Circular No.
2 Series of 2017)
i. Corporation whose fiscal year ends on a date other than December 31– The audited financial
statements shall be filed within 120 calendar days from the end of fiscal year.
ii. Corporation whose fiscal year ends on December 31– The SEC issues a specific schedule or
specific date depending on the license number of the corporation for the submission of audited
financial statements. There are various date provided in the circular depending on the
registration number of the entity.
iii. The audited financial statements shall have the stamped “received by the BIR or its authorized
banks.”
iv. All corporations shall filed their General Information Sheet within 30 calendar days from
1. Stock corporation – date of actual annual stockholder’s meeting
2. Non-stock corporation – date of actual annual member’s meeting
3. Foreign corporation – Anniversary date of the issuance of the SEC License.
g. Securities Regulation Code Rule 68 (SRC Rule 68) (Financial Reporting Requirements)
(a) Covered entities

i. Stock corporations with paid-up capital stock of P50,000 or more
ii. Non-stock corporations with total assets of P500,000 or more, or gross annual receipts of
P100,000 or more
iii. Branch offices of stock foreign corporations with assigned capital in the equivalent
amount of P1,000,000 or more
iv. Branch offices of nonstock corporations with total assets in the equivalent amount of
P1,000,000 or more
v. Regional operating headquarters of foreign corporations with total revenues in the
equivalent amount of P1,000,000 or more
(b) Applicable Financial Reporting Framework
i. Full Philippine Financial Reporting Standards (Full PFRS)
1. Large and/or Publicly-Accountable Entities

a. Those with total assets of more than P350M or total liabilities of more
than P250M; or
b. Those which are required to file financial statements under Part II of
SRC Rule 68; or
c. Those in the process of filing their financial statements for the purpose of
issuing any class of instruments in a public market; or
d. Those which are holders of secondary licenses issued by regulatory
agencies.
ii. Philippine Financial Reporting Standards for Medium Entities (PFRS for SMEs)
1. Medium-Sized Entities
a. Total assets of between P100M to P350M or total liabilities of between
P100M to P250M. If the entity is a parent company, the said amount
shall be based on consolidated figures; and
b. Are not required to file financial statements under Part II of SRC Rule
68; and
c. Are not in the process of filing their financial statements for the purpose
of issuing any class of instruments in a public market; and
d. Are not holders of secondary licenses issued by regulatory agencies.
iii. Philippine Financial Reporting Standards for Small Entities (PFRS for Small
Entities)
1. Small Entities
a. Total assets of between P3M to P100M or total liabilities of between
P3M to P100M. If the entity is a parent company, the said amount shall
be based on consolidated figures; and
68; and

iv. Full PFRS or PFRS for SMEs or PFRS for Small Entities or Tax/Cash Basis
1. Micro Entities
a. Total assets and total liabilities below P3M; and
68; and
IV. Intellectual Property Law (R.A. No. 8293 a.k.a. Intellectual Property Code of the Philippines)
a. The Law on Patents
i. Definition of Patent – It is a grant issued by the government through the Intellectual Property
Office of the Philippines (IP Philippines). It is an exclusive right granted for a product, process or
an improvement of a product or process which is new, inventive and useful. This exclusive right
gives the inventor the right to exclude others from making, using, or selling the product of his
invention during the life of the patent.
ii. Mode of creation of right – It must be registered with IPO to be protected by law (Created by
Registration with IPO).
iii. Term of Patent - A patent has a term of protection of twenty (20) years providing an inventor
significant commercial gain. In return, the patent owner must share the full description of the
invention. This information is made available to the public in the form of the Intellectual Property
Official Gazette and can be utilized as basis for future research and will in turn promote
innovation and development.
iv. Requisites of Patentable Inventions
1. It must be a technical solution to a problem in any field of human activity. It may be, or
may relate to, a product, or process, or an improvement of any of the foregoing.
2. (Novelty) It must be new. An invention shall not be considered new if it forms part of a
prior art.
a. Prior art shall consist of:
i. Everything which has been made available to the public anywhere in the
world, before the filing date or the priority date of the application
claiming the invention; and
ii. The whole contents of an application for a patent, utility model, or
industrial design registration, published in accordance with this Act, filed
or effective in the Philippines, with a filing or priority date that is earlier
than the filing or priority date of the application: Provided, That the
application which has validly claimed the filing date of an earlier
application under Section 31 of this Act, shall be prior art with effect as
of the filing date of such earlier application: Provided further, That the
applicant or the inventor identified in both applications are not one and
the same.
3. (Inventive Step) It must involve an inventive step. An invention involves an inventive
step if, having regard to prior art, it is not obvious to a person skilled in the art at the time
of the filing date or priority date of the application claiming the invention.
4. (Industrial Applicability) It must be industrially applicable. An invention that can be
produced and used in any industry shall be industrially applicable.
v. Non-Patentable Inventions. The following shall be excluded from patent protection:

1. Discoveries, scientific theories and mathematical methods;
2. Schemes, rules and methods of performing mental acts, playing games or doing business,
and programs for computers;
3. Methods for treatment of the human or animal body by surgery or therapy and diagnostic
methods practiced on the human or animal body. This provision shall not apply to
products and composition for use in any of these methods;
4. Plant varieties or animal breeds or essentially biological process for the production of
plants or animals. This provision shall not apply to microorganisms and non-biological
and microbiological processes. Provisions under this subsection shall not preclude
Congress to consider the enactment of a law providing sui generis protection of plant
varieties and animal breeds and a system of community intellectual rights protection:
5. Aesthetic creations; and
6. Anything which is contrary to public order or morality.

vi. First to File Rule. — If two (2) or more persons have made the invention separately and
independently of each other, the right to the patent shall belong to the person who filed an
application for such invention, or where two or more applications are filed for the same invention,
to the applicant who has the earliest filing date or, the earliest priority date.
vii. Right of Priority. — An application for patent filed by any person who has previously applied
for the same invention in another country which by treaty, convention, or law affords similar
privileges to Filipino citizens, shall be considered as filed as of the date of filing the foreign
application: Provided, That: a. the local application expressly claims priority; b. it is filed within
twelve (12) months from the date the earliest foreign application was filed; and c. a certified copy
of the foreign application together with an English translation is filed within six (6) months from
the date of filing in the Philippines.
viii. Right to a Patent. — The right to a patent belongs to the inventor, his heirs, or assigns. When
two (2) or more persons have jointly made an invention, the right to a patent shall belong to them
jointly.
ix. Remedies of a Person with a Right to a Patent - If a person referred to in Section 29 other than
the applicant, is declared by final court order or decision as having the right to the patent, such
person may, within three (3) months after the decision has become final:
1. Prosecute the application as his own application in place of the applicant
2. File a new patent application in respect of the same invention
3. Request that the application be refused
4. Seek cancellation of the patent, if one has already been issued
ii. Remedies of the True and Actual Inventor - If a person, who was deprived of the patent
without his consent or through fraud is declared by final court order or decision to be the true and
actual inventor, the court shall order for his substitution as patentee, or at the option of the true
inventor, cancel the patent, and award actual and other damages in his favor if warranted by the
circumstances.
x. Inventions Created Pursuant to a Commission. The person who commissions the work shall
own the patent, unless otherwise provided in the contract. 30.2.
1. In case the employee made the invention in the course of his employment contract, the
patent shall belong to:
a. The employee, if the inventive activity is not a part of his regular duties even if
the employee uses the time, facilities and materials of the employer.
b. The employer, if the invention is the result of the performance of his regularly-
assigned duties, unless there is an agreement, express or implied, to the contrary.
xi. Rights of Patent Holder

1. Where the subject matter of a patent is a product, exclusive right to restrain, prohibit and
prevent any unauthorized person or entity from making, using, offering for sale, selling or
importing that product
2. Where the subject matter of a patent is a process, exclusive right to restrain, prevent or
prohibit any unauthorized person or entity from using the process, and from
manufacturing, dealing in, using, selling or offering for sale, or importing any product
obtained directly or indirectly from such process
3. Right to assign, or transfer by succession the patent, and to conclude licensing contracts
for the same.
xii. Limitations on Rights of Patent Holder (Exception to Patent Infringement also known as
allowed unauthorized use of Patent)
1. Using a patented product which has been put on the market in the Philippines by the
owner of the product, or with his express consent, insofar as such use is performed after
that product has been so put on the said market
2. Where the act is done privately and on a non-commercial scale or for a non-commercial
purpose: Provided, That it does not significantly prejudice the economic interests of the
owner of the patent
3. Where the act consists of making or using exclusively for the purpose of experiments that
relate to the subject matter of the patented invention
4. Where the act consists of the preparation for individual cases, in a pharmacy or by a
medical professional, of a medicine in accordance with a medical prescription or acts
concerning the medicine so prepared
5. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any other
country entering the territory of the Philippines temporarily or accidentally: Provided,

That such invention is used exclusively for the needs of the ship, vessel, aircraft, or land
vehicle and not used for the manufacturing of anything to be sold within the Philippines
6. Prior User - Any prior user, who, in good faith was using the invention or has
undertaken serious preparations to use the invention in his enterprise or business, before
the filing date or priority date of the application on which a patent is granted, shall have
the right to continue the use thereof as envisaged in such preparations within the territory
where the patent produces its effect. The right of the prior user may only be transferred or
assigned together with his enterprise or business, or with that part of his enterprise or
business in which the use or preparations for use have been made.
7. Use of Invention by Government - A Government agency or third person authorized by
the Government may exploit the invention even without agreement of the patent owner
where:
a. The public interest, in particular, national security, nutrition, health or the
development of other sectors, as determined by the appropriate agency of the
government, so requires; or
b. A judicial or administrative body has determined that the manner of exploitation,
by the owner of the patent or his licensee is anti-competitive.
ii. Compulsory Licensing - The Director of Legal Affairs may grant a license to exploit a patented
invention, even without the agreement of the patent owner, in favor of any person who has shown
his capability to exploit the invention.
1. Grounds for Compulsory Licensing
a. National emergency or other circumstances of extreme urgency
b. Where the public interest, in particular, national security, nutrition, health or the
development of other vital sectors of the national economy as determined by the
appropriate agency of the Government, so requires
c. Where a judicial or administrative body has determined that the manner of
exploitation by the owner of the patent or his licensee is anti-competitive
d. In case of public non-commercial use of the patent by the patentee, without
satisfactory reason
e. If the patented invention is not being worked in the Philippines on a commercial
scale, although capable of being worked, without satisfactory reason: Provided,
That the importation of the patented article shall constitute working or using the
patent
2. Requirement to Obtain a License on Reasonable Commercial Terms - The license
will only be granted after the petitioner has made efforts to obtain authorization from the
patent owner on reasonable commercial terms and conditions but such efforts have not
been successful within a reasonable period of time.
a. Exempted cases from this requirement of making efforts to obtain license
i. Where the petition for compulsory license seeks to remedy a practice
determined after judicial or administrative process to be anti-competitive
ii. In situations of national emergency or other circumstances of extreme
urgency but the right holder shall be notified as soon as reasonably
practicable
iii. In cases of public non-commercial use but where the government or
contractor, without making a patent search, knows or has demonstrable
grounds to know that a valid patent is or will be used by or for the
government, the right holder shall be informed promptly.
3. Terms and Conditions of Compulsory License
a. The scope and duration of such license shall be limited to the purpose for which
it was authorized.
b. The license shall be non-exclusive.
c. The license shall be non-assignable, except with that part of the enterprise or
business with which the invention is being exploited.
d. Use of the subject matter of the license shall be devoted predominantly for the
supply of the Philippine market: Provided, That this limitation shall not apply
where the grant of the license is based on the ground that the patentee's manner
of exploiting the patent is determined by judicial or administrative process, to be
anti-competitive.
e. The license may be terminated upon proper showing that circumstances which
led to its grant have ceased to exist and are unlikely to recur: Provided, That
adequate protection shall be afforded to the legitimate interest of the licensee
f. The patentee shall be paid adequate remuneration taking into account the
economic value of the grant or authorization, except that in cases where the
license was granted to remedy a practice which was determined after judicial or
administrative process, to be anti-competitive, the need to correct the anti-
competitive practice may be taken into account in fixing the amount of
remuneration.

4. Grounds for Cancellation of Compulsory License
a. If the ground for the grant of the compulsory license no longer exists and is
unlikely to recur
b. If the licensee has neither begun to supply the domestic market nor made serious
preparation therefor
c. If the licensee has not complied with the prescribed terms of the license
iii. Voluntary Licensing of Patent

1. Voluntary License Contract - To encourage the transfer and dissemination of
technology, prevent or control practices and conditions that may in particular cases
constitute an abuse of intellectual property rights having an adverse effect on competition
and trade, all technology transfer arrangements shall comply with the provisions of
Intellectual Property Code.
2. Jurisdiction To Settle Disputes on Royalties - The Director of the Documentation,
Information and Technology Transfer Bureau shall exercise quasi-judicial jurisdiction in
the settlement of disputes between parties to a technology transfer arrangement arising
from technology transfer payments, including the fixing of appropriate amount or rate of
royalty.
3. Rights of Licensor - In the absence of any provision to the contrary in the technology
transfer arrangement, the grant of a license shall not prevent the licensor from granting
further licenses to third person nor from exploiting the subject matter of the technology
transfer arrangement himself.
4. Rights of Licensee - The licensee shall be entitled to exploit the subject matter of the
technology transfer arrangement during the whole term of the technology transfer
arrangement.
5. Mandatory Provisions in Voluntary License Contract
a. That the laws of the Philippines shall govern the interpretation of the same and in
the event of litigation, the venue shall be the proper court in the place where the
licensee has its principal office
b. Continued access to improvements in techniques and processes related to the
technology shall be made available during the period of the technology transfer
arrangement
c. In the event the technology transfer arrangement shall provide for arbitration, the
Procedure of Arbitration of the Arbitration Law of the Philippines or the
Arbitration Rules of the United Nations Commission on International Trade Law
(UNCITRAL) or the Rules of Conciliation and Arbitration of the International
Chamber of Commerce (ICC) shall apply and the venue of arbitration shall be the
Philippines or any neutral country
d. The Philippine taxes on all payments relating to the technology transfer
arrangement shall be borne by the licensor
6. Prohibited Clauses in Voluntary License Contract for being Prima Facie having
adverse effect on competition and trade
a. Those which impose upon the licensee the obligation to acquire from a specific
source capital goods, intermediate products, raw materials, and other
technologies, or of permanently employing personnel indicated by the licensor
b. Those pursuant to which the licensor reserves the right to fix the sale or resale
prices of the products manufactured on the basis of the license
c. Those that contain restrictions regarding the volume and structure of production
d. Those that prohibit the use of competitive technologies in a non-exclusive
technology transfer agreement
e. Those that establish a full or partial purchase option in favor of the licensor
f. Those that obligate the licensee to transfer for free to the licensor the inventions
or improvements that may be obtained through the use of the licensed technology
g. Those that require payment of royalties to the owners of patents for patents
which are not used
h. Those that prohibit the licensee to export the licensed product unless justified for
the protection of the legitimate interest of the licensor such as exports to
countries where exclusive licenses to manufacture and/or distribute the licensed
product(s) have already been granted
i. Those which restrict the use of the technology supplied after the expiration of the
technology transfer arrangement, except in cases of early termination of the
technology transfer arrangement due to reason(s) attributable to the licensee
j. Those which require payments for patents and other industrial property rights
after their expiration, termination arrangement
k. Those which require that the technology recipient shall not contest the validity of
any of the patents of the technology supplier
l. Those which restrict the research and development activities of the licensee
designed to absorb and adapt the transferred technology to local conditions or to

initiate research and development programs in connection with new products,
processes or equipment
m. Those which prevent the licensee from adapting the imported technology to local
conditions, or introducing innovation to it, as long as it does not impair the
quality standards prescribed by the licensor
n. Those which exempt the licensor for liability for non-fulfilment of his
responsibilities under the technology transfer arrangement and/or liability arising
from third party suits brought about by the use of the licensed product or the
licensed technology
o. Other clauses with equivalent effects
7. Exceptional Cases to Voluntary Licensing Provision - In exceptional or meritorious
cases where substantial benefits will accrue to the economy, such as high technology
content, increase in foreign exchange earnings, employment generation, regional
dispersal of industries and/or substitution with or use of local raw materials, or in the case
of Board of Investments, registered companies with pioneer status, exemption from any
of the above requirements may be allowed by the Documentation, Information and
Technology Transfer Bureau after evaluation thereof on a case by case basis.
8. Non-Registration with the Documentation, Information and Technology Transfer
Bureau. - Technology transfer arrangements that conform with the provisions of
Voluntary Licensing need not be registered with the Documentation, Information and
Technology Transfer Bureau. Non-conformance with any of the provisions of Voluntary
Licensing, however, shall automatically render the technology transfer arrangement
unenforceable, unless said technology transfer arrangement is approved and registered
with the Documentation, Information and Technology Transfer Bureau under the
provisions Voluntary Licensing on exceptional cases.
xiii. Patent Infringement refers to the making, using, offering for sale, selling, or importing a
patented product or a product obtained directly or indirectly from a patented process, or the use of
a patented process without the authorization of the patentee.
xiv. Remedies of Patent Holder for Patent Infringement

1. File a Civil Action for Patent Infringement
a. Any patentee, or anyone possessing any right, title or interest in and to the
patented invention, whose rights have been infringed, may bring a civil action
before a court of competent jurisdiction, to recover from the infringer such
damages sustained thereby, plus attorney's fees and other expenses of litigation,
and to secure an injunction for the protection of his rights.
b. If the damages are inadequate or cannot be readily ascertained with reasonable
certainty, the court may award by way of damages a sum equivalent to reasonable
royalty.
c. The court may, according to the circumstances of the case, award damages in a
sum above the amount found as actual damages sustained: Provided, That the
award does not exceed three (3) times the amount of such actual damages.
d. The court may, in its discretion, order that the infringing goods, materials and
implements predominantly used in the infringement be disposed of outside the
channels of commerce or destroyed, without compensation.
e. Anyone who actively induces the infringement of a patent or provides the
infringer with a component of a patented product or of a product produced
because of a patented process knowing it to be especially adopted for infringing
the patented invention and not suitable for substantial non-infringing use shall be
liable as a contributory infringer and shall be jointly and severally liable with the
infringer.
f. No damages can be recovered for acts of infringement committed more than four
(4) years before the institution of the action for infringement.
2. File a Criminal Action for violation of Intellectual Property Code
a. If infringement is repeated by the infringer or by anyone in connivance with him
after finality of the judgment of the court against the infringer, the offenders
shall, without prejudice to the institution of a civil action for damages, be
criminally liable therefor and, upon conviction, shall suffer imprisonment for the
period of not less than six (6) months but not more than three (3) years and/or a
fine of not less than One hundred thousand pesos (P100,000) but not more than
Three hundred thousand pesos (P300,000), at the discretion of the court. The
criminal action herein provided shall prescribe in three (3) years from date of the
commission of the crime.

xv. Tests of Patent Infringement
1. Literal infringement - In using literal infringement as a test, resort must be had, in the
first instance, to the words of the claim. If accused matter clearly falls within the claim,
infringement is made out and that is the end of it." To determine whether the particular
item falls within the literal meaning of the patent claims, the court must juxtapose the
claims of the patent and the accused product within the overall context of the claims and
specifications, to determine whether there is exact identity of all material elements.
2. Doctrine of equivalents infringement – It provides that infringement also takes place

when a device appropriates a prior invention by incorporating its innovative concept and,
although with some modification and change, performs substantially the same function in
substantially the same way to achieve substantially the same result. It requires
satisfaction of the function-means-and-result test.
xvi. Defenses in case of Action for Patent Infringement

1. The covered invention or technical solution is non-patentable.
2. The covered invention or technical solution is part of prior art.
3. The respondent is the true owner of the patent.
4. Right of Priority in Registration
5. Doctrine of Prior Use
a. Any prior user, who, in good faith was using the invention or has undertaken
serious preparations to use the invention in his enterprise or business, before the
filing date or priority date of the application on which a patent is granted, shall
have the right to continue the use thereof as envisaged in such preparations
within the territory where the patent produces its effect.
b. The right of the prior user may only be transferred or assigned together with his
enterprise or business, or with that part of his enterprise or business in which the
use or preparations for use have been made.
6. Any person who works a patented product, substance and/or process under a compulsory
license granted by Government.
ii. Cancellation of Patents and Substitution of Patentee - Any interested person may, upon
payment of the required fee, petition to cancel the patent or any claim thereof, or parts of the
claim.
1. Grounds for Cancellation of Patents
a. That what is claimed as the invention is not new or Patentable
b. That the patent does not disclose the invention in a manner sufficiently clear and
complete for it to be carried out by any person skilled in the art
c. That the patent is contrary to public order or morality
b. The Law on Trademarks, Service Marks and Trade Names
i. Definition of Terms
1. “Trademark” – It means any visible sign capable of distinguishing the goods of an
enterprise and shall include a stamped or marked container of goods.
2. “Service mark” – It means any visible sign capable of distinguishing goods of an

enterprise and shall include a stamped or marked container of services.
3. "Collective mark" means any visible sign designated as such in the application for
registration and capable of distinguishing the origin or any other common characteristic,
including the quality of goods or services of different enterprises which use the sign
under the control of the registered owner of the collective mark.
4. "Trade name" means the name or designation identifying or distinguishing an

enterprise.
ii. Mode of creation of right – Trademark, service mark and collective mark must be registered
with IPO to be protected by law while trade name need not be registered to be protected. (Created
by Registration)

iii. Non-registrable marks - A mark cannot be registered if it:
1. Consists of immoral, deceptive or scandalous matter, or matter which may disparage or
falsely suggest a connection with persons, living or dead, institutions, beliefs, or national
symbols, or bring them into contempt or disrepute
2. Consists of the flag or coat of arms or other insignia of the Philippines or any of its
political subdivisions, or of any foreign nation, or any simulation thereof
3. Consists of a name, portrait or signature identifying a particular living individual except
by his written consent, or the name, signature, or portrait of a deceased President of the
Philippines, during the life of his widow, if any, except by written consent of the widow
4. Is identical with a registered mark belonging to a different proprietor or a mark with an
earlier filing or priority date, in respect of: i The same goods or services, or ii. Closely
related goods or services, or iii. If it nearly resembles such a mark as to be likely to
deceive or cause confusion;
5. Is identical with, or confusingly similar to, or constitutes a translation of a mark which is
considered by the competent authority of the Philippines to be well-known internationally
and in the Philippines, whether or not it is registered here, as being already the mark of a
person other than the applicant for registration, and used for identical or similar goods or
services: Provided, That in determining whether a mark is well-known, account shall be
taken of the knowledge of the relevant sector of the public, rather than of the public at
large, including knowledge in the Philippines which has been obtained as a result of the
promotion of the mark
6. Is identical with, or confusingly similar to, or constitutes a translation of a mark
considered well-known in accordance with the preceding paragraph, which is registered
in the Philippines with respect to goods or services which are not similar to those with
respect to which registration is applied for: Provided, That use of the mark in relation to
those goods or services would indicate a connection between those goods or services, and
the owner of the registered mark: Provided further, That the interests of the owner of the
registered mark are likely to be damaged by such use
7. Is likely to mislead the public, particularly as to the nature, quality, characteristics or
geographical origin of the goods or service
8. Consists exclusively of signs that are generic for the goods or services that they seek to
identify
9. Consists exclusively of signs or of indications that have become customary or usual to
designate the goods or services in everyday language or in bona fide and established trade
practice
10. Consists exclusively of signs or of indications that may serve in trade to designate the
kind, quality, quantity, intended purpose, value, geographical origin, time or production
of the goods or rendering of the services, or other characteristics of the goods or services;
11. Consists of shapes that may be necessitated by technical factors or by the nature of the
goods themselves or factors that affect their intrinsic value
12. Consists of color alone, unless defined by a given form
13. Is contrary to public order or morality.
iv. Term of Trademark and Service Mark – It has a term of 10 years but subject to unlimited times
of renewal. Therefore, it has indefinite life.
v. Rights conferred by a Trademark

1. The owner of a registered mark shall have the exclusive right to prevent all third parties
not having the owner's consent from using in the course of trade identical or similar signs
or containers for goods or services which are identical or similar to those in respect of
which the trademark is registered where such use would result in a likelihood of
confusion. In case of the use of an identical sign for identical goods or services, a
likelihood of confusion shall be presumed.
2. The exclusive right of the owner of a well-known mark which is registered in the
Philippines, shall extend to goods and services which are not similar to those in respect of
which the mark is registered: Provided, That use of that mark in relation to those goods or
services would indicate a connection between those goods or services and the owner of
the registered mark: Provided further, That the interests of the owner of the registered
mark are likely to be damaged by such use.
3. Registration of the mark shall not confer on the registered owner the right to preclude
third parties from using bona fide their names, addresses, pseudonyms, a geographical
name, or exact indications concerning the kind, quality, quantity, destination, value, place
of origin, or time of production or of supply, of their goods or services: Provided, That
such use is confined to the purposes of mere identification or information and cannot
mislead the public as to the source of the goods or services.

ii. Assignment and Transfer of Application and Registration of Trademark
1. An application for registration of a mark, or its registration, may be assigned or
transferred with or without the transfer of the business using the mark.
2. Such assignment or transfer shall, however, be null and void if it is liable to mislead the
public, particularly as regards the nature, source, manufacturing process, characteristics,
or suitability for their purpose, of the goods or services to which the mark is applied.
3. The assignment of the application for registration of a mark, or of its registration, shall be
in writing and require the signatures of the contracting parties. Transfers by mergers or
other forms of succession may be made by any document supporting such transfer.
4. Assignments and transfers of registrations of marks shall be recorded at the Office on
payment of the prescribed fee; assignment and transfers of applications for registration
shall, on payment of the same fee, be provisionally recorded, and the mark, when
registered, shall be in the name of the assignee or transferee.
5. Assignments and transfers shall have no effect against third parties until they are
recorded at the Intellectual Property Office
iii. License Contracts of Trademark

1. Any license contract concerning the registration of a mark, or an application therefor,
shall provide for effective control by the licensor of the quality of the goods or services of
the licensee in connection with which the mark is used. If the license contract does not
provide for such quality control, or if such quality control is not effectively carried out,
the license contract shall not be valid.
2. A license contract shall be submitted to the Office which shall keep its contents
confidential but shall record it and publish a reference thereto. A license contract shall
have no effect against third parties until such recording is effected. The Regulations shall
fix the procedure for the recording of the license contract.
vi. Trademark Infringement is the unauthorized use of a trademark or service mark on or in

connection with goods/services in a manner that is likely to cause confusion, deception, or
mistake about the source of the goods and/or services.
1. Any person who shall, without the consent of the owner of the registered mark use in
commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark
or the same container or a dominant feature thereof in connection with the sale, offering
for sale, distribution, advertising of any goods or services including other preparatory
steps necessary to carry out the sale of any goods or services on or in connection with
which such use is likely to cause confusion, or to cause mistake, or to deceive.
2. Any person who shall, without the consent of the owner of the registered mark
Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature
thereof and apply such reproduction, counterfeit, copy or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements intended to be used in
commerce upon or in connection with the sale, offering for sale, distribution, or
advertising of goods or services on or in connection with which such use is likely to
cause confusion, or to cause mistake, or to deceive, shall be liable in a civil action for
infringement by the registrant for the remedies hereinafter set forth: Provided, That the
infringement takes place at the moment any of the acts stated in Subsection 155.1 or this
subsection are committed regardless of whether there is actual sale of goods or services
using the infringing material.
vii. Tests of Trademark Infringement
1. Dominancy Test – It focuses on the similarity of the main, prevalent or essential features
of the competing trademarks that might cause confusion. Infringement takes place when
the competing trademark contains the essential features of another. Imitation or an effort
to imitate is unnecessary. The question is whether the use of the marks is likely to cause
confusion or deceive purchasers.
2. Holistic Test - The focus is not only on the predominant words but also on the other
features appearing on the labels.

viii. Remedies in case of Trademark Infringement
1. The owner of a registered mark may recover damages from any person who infringes his
rights, and the measure of the damages suffered shall be either the reasonable profit
which the complaining party would have made, had the defendant not infringed his
rights, or the profit which the defendant actually made out of the infringement, or in the
event such measure of damages cannot be readily ascertained with reasonable certainty,
then the court may award as damages a reasonable percentage based upon the amount of
gross sales of the defendant or the value of the services in connection with which the
mark or trade name was used in the infringement of the rights of the complaining party.
2. On application of the complainant, the court may impound during the pendency of the
action, sales invoices and other documents evidencing sales.
3. In cases where actual intent to mislead the public or to defraud the complainant is shown,
in the discretion of the court, the damages may be doubled.
4. The complainant, upon proper showing, may also be granted injunction.
5. In any action arising under Intellectual Property Code, in which a violation of any right of
the owner of the registered mark is established, the court may order that goods found to
be infringing be, without compensation of any sort, disposed of outside the channels of
commerce in such a manner as to avoid any harm caused to the right holder, or destroyed;
and all labels, signs, prints, packages, wrappers, receptacles and advertisements in the
possession of the defendant, bearing the registered mark or trade name or any
reproduction, counterfeit, copy or colorable imitation thereof, all plates, molds, matrices
and other means of making the same, shall be delivered up and destroyed.
i. Defenses in case of Action for Trademark Infringement

1. The mark is non-registrable.
2. The respondent is the true owner of the mark.
3. Right of Priority in Registration
i. Difference between Trademark Infringement and Unfair Competition
1. Trademark Infringement means any person who shall use, without the consent of
the registrant, any reproduction, counterfeit, copy or colorable imitation of any registered
mark or trade-name in connection with the sale, offering for sale, or advertising
of any goods, business or services on or in connection with which such use is likely to
cause confusion or mistake or to deceive purchasers or others as to the source or origin of
such goods or services, or identity of such business; or [2] reproduce, counterfeit, copy,
or colorably imitate any such mark or trade-name and apply such reproduction,
counterfeit, copy, or colorable imitation to labels, signs, prints, packages, wrappers,
receptacles or advertisements intended to be used upon or in connection with such goods,
business or services, shall be liable to a civil action by the registrant for any or all of the
remedies herein provided. To establish trademark infringement, the following elements
must be proven: (1) the validity of plaintiffs mark; (2) the plaintiffs ownership of the
mark; and (3) the use of the mark or its colorable imitation by the alleged infringer results
in likelihood of confusion.
2. Unfair competition has been defined as the passing off (or palming off) or attempting to
pass off upon the public of the goods or business of one person as the goods or business
of another with the end and probable effect of deceiving the public. The
essential elements of unfair competition are (1) confusing similarity in the general
appearance of the goods; and (2) intent to deceive the public and defraud a competitor.
Jurisprudence also formulated the following true test of unfair competition: whether the
acts of the defendant have the intent of deceiving or are calculated to deceive the ordinary
buyer making his purchases under the ordinary conditions of the particular trade to which
the controversy relates. One of the essential requisites in an action to restrain unfair
competition is proof of fraud; the intent to deceive, actual or probable must be shown
before the right to recover can exist.
Note: there can be trademark infringement without unfair competition such as when the
infringer discloses on the labels containing the mark that he manufactures the goods, thus
preventing the public from being deceived that the goods originate from the trademark
owner. In this case, no issue of confusion arises because the same manufactured products
are sold; only the ownership of the trademarks is at issue.

Distinctions between trademark infringement and unfair competition
a. Infringement of trademark is the unauthorized use of a trademark, whereas
unfair competition is the passing off of one's goods as those of another.
b. In infringement of trademark fraudulent intent is unnecessary whereas in
unfair competition fraudulent intent is essential.
c. In infringement of trademark the prior registration of the trademark is a
prerequisite to the action, whereas in unfair competition registration is not
necessary.
Cancellation of Trademark - A petition to cancel a registration of a mark under this Act may be
filed with the Bureau of Legal Affairs by any person who believes that he is or will be damaged
by the registration of a mark under Intellectual Property Code as follows:
a. Within five (5) years from the date of the registration of the mark under the
Intellectual Property Code
b. At any time, if the registered mark becomes the generic name for the goods or
services, or a portion thereof, for which it is registered, or has been abandoned, or
its registration was obtained fraudulently or contrary to the provisions of the
Intellectual Property Code, or if the registered mark is being used by, or with the
permission of, the registrant so as to misrepresent the source of the goods or
services on or in connection with which the mark is used. If the registered mark
becomes the generic name for less than all of the goods or services for which it is
registered, a petition to cancel the registration for only those goods or services
may be filed. A registered mark shall not be deemed to be the generic name of
goods or services solely because such mark is also used as a name of or to
identify a unique product or service. The primary significance of the registered
mark to the relevant public rather than purchaser motivation shall be the test for
determining whether the registered mark has become the generic name of goods
or services on or in connection with which it has been used.
c. At any time, if the registered owner of the mark without legitimate reason fails to
use the mark within the Philippines, or to cause it to be used in the Philippines by
virtue of a license during an uninterrupted period of three (3) years or longer.
Instances when Non-Use of a Mark is excused
a. Non-use of a mark may be excused if caused by circumstances arising
independently of the will of the trademark owner. Lack of funds shall not excuse
non-use of a mark.
b. The use of the mark in a form different from the form in which it is registered,
which does not alter its distinctive character, shall not be ground for cancellation
or removal of the mark and shall not diminish the protection granted to the mark.
c. The use of a mark in connection with one or more of the goods or services
belonging to the class in respect of which the mark is registered shall prevent its
cancellation or removal in respect of all other goods or services of the same class.
d. The use of a mark by a company related with the registrant or applicant shall
inure to the latter's benefit, and such use shall not affect the validity of such mark
or of its registration: Provided, That such mark is not used in such manner as to
deceive the public. If use of a mark by a person is controlled by the registrant or
applicant with respect to the nature and quality of the goods or services, such use
shall inure to the benefit of the registrant or applicant.
c. The Law on Copyright
i. Definition of Copyright – It is the legal protection extended to the owner of the rights in an
original work.
ii. Definition of “Original Work” – It refers to every production in the literary, scientific and
artistic domain. Among the literary and artistic works enumerated in the IP Code includes books
and other writings, musical works, films, paintings and other works, and computer programs.
iii. Mode of creation of right - Works are protected by the sole fact of their creation, irrespective of
their mode or form of expression, as well as their content, quality and purpose. Thus, it does not
matter if, in the eyes of some critics, a certain work has little artistic value. So long as it has been
independently created and has a minimum of creativity, the same enjoys copyright protection.
(From the moment of Creation without a need for registration)
iv. Term of copyright - In general, the term of protection of copyright for original and derivative
works is the life of the author plus fifty (50) years after his death. The Code specifies the terms of
protection for the different types of works. In calculating the term of protection, the term of
protection subsequent to the death of the author shall run from the date of his death or of
publication, but such terms shall always be deemed to begin on the first day of January of the
year following the event which gave rise to them (i.e. death, publication, making).

v. Two rights under Copyright
1. Economic rights which enable the creator to obtain remuneration from the exploitation
of his works by third parties.
a. Reproduction
b. Transformation
c. First public distribution
d. Rental
e. Public display
f. Public performance
g. Other communication to the public of the work
2. Moral rights which make it possible for the creator to undertake measures to maintain
and protect the personal connection between himself and the work.
a. Right of attribution
b. Right of alteration
c. Right of integrity (to object to any prejudicial distortion)
d. Right to restrain use of his name
vi. Ownership of copyright
1. Generally, the natural person who created the literary and artistic work owns the
copyright to the same.
2. For work created during or in the course of employment (works for hire):
a. Employee - if the work is not part of his regular duties, even if he used the time,
facilities and materials of the employer;
b. Employer - if the work is the result of the performance of his regularly assigned
duties, unless there is an express or implied agreement to the contrary.
3. For commissioned works: the person who commissioned the work owns the work but the
copyright thereto remains with the creator, unless there is a written agreement to the
contrary.
4. For audiovisual works: the producer, the author of the scenario, the composer of the
music, the film director, and the author of the work so adapted.
vii. Infringement of Copyright – It consists in infringing any right secured or protected under the
Code. It may also consist in aiding or abetting such infringement. The law also provides for the
liability of a person who at the time when copyright subsists in a work has in his possession an
article which he knows, or ought to know, to be an infringing copy of the work for the purpose of:
1. Selling or letting for hire, or by way of trade offering or exposing for sale or hire, the
article;
2. Distributing the article for the purpose of trade, or for any other purpose to an extent that
will prejudice the rights of the copyright owner in the work; or
3. Trade exhibit of the article in public.
viii. Works that can be protected by Copyrights (Copyrightable Works)
1. Books, pamphlets, articles and other writings;

2. Periodicals and newspapers;
3. Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not
reduced in writing or other material form;
4. Letters;
5. Dramatic or dramatico-musical compositions; choreographic works or entertainment in
dumb shows;
6. Musical compositions, with or without words;
7. Works of drawing, painting, architecture, sculpture, engraving, lithography or other
works of art; models or designs for works of art;
8. Original ornamental designs or models for articles of manufacture, whether or not
registrable as an industrial design, and other works of applied art;
9. Illustrations, maps, plans, sketches, charts and three-dimensional works relative to
geography, topography, architecture or science;
10. Drawings or plastic works of a scientific or technical character;

11. Photographic works including works produced by a process analogous to photography;
lantern slides;
12. Audiovisual works and cinematographic works and works produced by a process
analogous to cinematography or any process for making audio-visual recordings;
13. Pictorial illustrations and advertisements;
14. Computer programs;
15. Other literary, scholarly, scientific and artistic works.
ix. Works that are not protected by Copyrights (Non-copyrightable Works)
1. any idea, procedure, system, method or operation, concept, principle, discovery or mere
data as such, even if they are expressed, explained, illustrated or embodied in a work;
2. news of the day and other miscellaneous facts having the character of mere items of
press information; or
3. any official text of a legislative, administrative or legal nature, as well as any official
translation thereof.
ii. Doctrine of Fair Use - It is "a privilege to use the copyrighted material in a reasonable manner
without the consent of the copyright owner or as copying the theme or ideas rather than their
expression."It is an exception to the copyright owner's monopoly of the use of the work to
avoid stifling "the very creativity which that law is designed to foster. In determining whether
the use made of a work in any particular case is fair use, the factors to be considered shall
include the following
1. The purpose and character of the use, including whether such use is of a commercial
nature or is for non-profit educational purposes
2. The nature of the copyrighted work
3. The amount and substantiality of the portion used in relation to the copyrighted work as a
whole
4. The effect of the use upon the potential market for or value of the copyrighted work.
i. Application of Fair Use

1. First, the purpose and character of the use of the copyrighted material must fall under
those listed in Section 185, thus: "criticism, comment, news reporting, teaching including
multiple copies for classroom use, scholarship, research, and similar purposes." The
purpose and character requirement is important in view of copyright's goal to promote
creativity and encourage creation of works. Hence, commercial use of the copyrighted
work can be weighed against fair use. The "transformative test" is generally used in
reviewing the purpose and character of the usage of the copyrighted work. This court
must look into whether the copy of the work adds "new expression, meaning or message"
to transform it into something else. "Meta-use" can also occur without necessarily
transforming the copyrighted work used.
2. Second, the nature of the copyrighted work is significant in deciding whether its use was
fair. If the nature of the work is more factual than creative, then fair use will be weighed
in favor of the user.
3. Third, the amount and substantiality of the portion used is important to determine
whether usage falls under fair use. An exact reproduction of a copyrighted work,
compared to a small portion of it, can result in the conclusion that its use is not fair. There
may also be cases where, though the entirety of the copyrighted work is used without
consent, its purpose determines that the usage is still fair. For example, a parody using a
substantial amount of copyrighted work may be permissible as fair use as opposed to a
copy of a work produced purely for economic gain.
4. Lastly, the effect of the use on the copyrighted work's market is also weighed for or
against the user. If this court finds that the use had or will have a negative impact on the
copyrighted work's market, then the use is deemed unfair.

A. Remedies for Infringement of Copyright
a. Filing a Civil Action and ask for the following:

i. To an injunction restraining such infringement. The court may also order the defendant to desist
from an infringement, among others, to prevent the entry into the channels of commerce of
imported goods that involve an infringement, immediately after customs clearance of such goods.
ii. Pay to the copyright proprietor or his assigns or heirs such actual damages, including legal costs
and other expenses, as he may have incurred due to the infringement as well as the profits the
infringer may have made due to such infringement, and in proving profits the plaintiff shall be
required to prove sales only and the defendant shall be required to prove every element of cost
which he claims, or, in lieu of actual damages and profits, such damages which to the court shall
appear to be just and shall not be regarded as penalty.
iii. Deliver under oath, for impounding during the pendency of the action, upon such terms and
conditions as the court may prescribe, sales invoices and other documents evidencing sales, all
articles and their packaging alleged to infringe a copyright and implements for making them.
iv. Deliver under oath for destruction without any compensation all infringing copies or devices, as
well as all plates, molds, or other means for making such infringing copies as the court may order.
v. Such other terms and conditions, including the payment of moral and exemplary damages, which
the court may deem proper, wise and equitable and the destruction of infringing copies of the
work even in the event of acquittal in a criminal case.
1. In an infringement action, the court shall also have the power to order the seizure and
impounding of any article which may serve as evidence in the court proceedings. (Sec.
28, P.D. No. 49a)
b. Filing a criminal action against the Infringer

i. Defense of Good Faith in Prosecution for Violation of Intellectual Property Code
1. Infringement under the Intellectual Property Code is malum prohibitum. The Intellectual
Property Code is a special law.
2. The general rule is that acts punished under a special law are malum prohibitum. "An act
which is declared malum prohibitum, malice or criminal intent is completely immaterial."
3. Unlike other jurisdictions that require intent for a criminal prosecution of intellectual
property infringement, the Philippines does not statutorily support good faith as a
defense.
V. Notes in Foreign Investment Act of 1991 (R.A. No. 7042)
A. Declaration of Policy
a. It is the policy of the State to attract, promote and welcome productive investments from foreign
individuals, partnerships, corporations, and governments, including their political subdivisions, in
activities which significantly contribute to national industrialization and socio-economic development to
the extent that foreign investment is allowed in such activity by the Constitution and relevant laws.
Foreign investments shall be encouraged in the enterprises that significantly expand livelihood and
employment opportunities for Filipinos; enhance economic value of farm products; promote the welfare
of Filipino consumers; expand the scope, quality and volume of exports and their access to foreign
markets; and/or transfer relevant technologies in agriculture, industry and support services. Foreign
investments shall be welcome as a supplement to Filipino capital and technology in those enterprises
serving mainly the domestic market.
b. As a general rule, there are no restrictions on extent of foreign ownership of export enterprises. In
domestic market enterprises, foreigners can invest as much as one hundred percent [100%] equity except
in areas included in the negative list. Foreign-owned firms catering mainly to the domestic market shall
be encouraged to undertake measures that will gradually increase Filipino participation in their businesses
by taking in Filipino partners, electing Filipinos to the board of directors, implementing transfer of
technology to Filipinos, generating more employment for the economy and enhancing skills of Filipino
workers.

B. “Philippine National” under R.A. No. 7042
a. Citizen of the Philippines; or

b. Domestic Partnership or Association wholly owned by citizens of the Philippines; or
c. A Corporation organized under the laws of the Philippines of which at least sixty percent (60%) of the
capital stock outstanding and entitled to vote is owned and held by citizens of the Philippines ; or
d. A Corporation organized abroad and registered as doing business in the Philippines under the Corporation
Code of which one hundred percent (100%) of the capital stock outstanding and entitled to vote is wholly
owned by Filipinos or a trustee of funds for pension or other employee retirement or separation benefits,
where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the
benefit of Philippine nationals;
e. That where a corporation and its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the capital stock outstanding and
entitled to vote of each of both corporations must be owned and held by citizens of the Philippines and at
least sixty percent (60%) of the members of the Board of Directors of each of both corporations must be
citizens of the Philippines, in order that the corporation, shall be considered a “Philippine national.”
C. “Foreign Investment” under R.A. No. 7042
The term “foreign investment” shall mean an equity investment made by non-Philippine national in the form of
foreign exchange and/or other assets actually transferred to the Philippines and duly registered with the Central
Bank which shall assess and appraise the value of such assets other than foreign exchange
D. Requirement before Engaging in Business by a Non-Philippine National
a. A Non-Philippine National must register before the appropriate government agencies before it engages in
business.
b.
i. A sole proprietor non-Philippine National must register before Department of Trade and Industry.
ii. A partnership or corporation non-Philippine National must register before Securities and
Exchange Commission.
E. Acts considered “Doing Business”
a. Soliciting orders, service contracts, opening offices, whether called “liaison” offices or branches;
appointing representatives or distributors domiciled in the Philippines or who in any calendar year stay in
the country for a period or periods of one hundred eighty [180] days or more; or
b. Participating in the management, supervision or control of any domestic business, firm, entity or
corporation in the Philippines; or
c. Any other act or acts that imply a continuity of commercial dealings or arrangements and contemplate to
that extent the performance of acts or works, or the exercise of some of the functions normally incident
to, and in progressive prosecution of commercial gain or of the purpose and object of the business
organization.
F. Acts not considered “Doing Business”
a. Mere investment as a shareholder by a foreign entity in domestic corporations duly registered to do

business, and/or the exercise of rights as such investor; or
b. Having a nominee director or officer to represent its interests in such corporation; or
c. Appointing a representative or distributor domiciled in the Philippines which transacts business in its own
name and for its own account

G. Foreign Investment Negative List
A. No Foreign Equity
 Mass Media except recording
 Practice of professions
o Engineering
 Aeronautical
 Agricultural
 Chemical
 Civil
 Electrical
 Electronics and Communication
 Geodetic
 Mechanical
 Metallurgical
 Mining
 Naval Architecture and Marine
 Sanitary
o Medicine and Allied Professions
 Medicine
 Medical Technology
 Dentistry
 Midwifery
 Nursing
 Nutrition and Dietetics
 Optometry
 Pharmacy
 Physical and Occupational Therapy
 Radiologic and X-ray Technology
 Veterinary Medicine
o Accountancy
o Architecture
o Criminology
o Chemistry
o Customs Brokerage
o Environmental Planning
o Forestry
o Geology
o Interior Design
o Landscape Architecture
o Law
o Librarianship
o Marine Deck Officers
o Marine Engine Officers
o Master Plumbing
o Sugar Technology
o Social Work
o Teaching
o Agriculture
o Fisheries
o Guidance counseling
o Real estate service
o Respiratory therapy
o Psychology
 Retail trade enterprises with paid-up capital of less than US$ 2,500,00
 Cooperatives
 Private Security Agencies
 Small-scale Mining
 Utilization of Marine Resources in archipelagic waters, territorial sea, and exclusive economic zone as well as
small-scale 41stoppels41n of natural resources in rivers, lakes, bays, and lagoons
 Ownership, operation, and management of cockpits
 Manufacture, repair, stockpiling, and/or distribution of nuclear weapons
 Manufacture, repair, stockpiling, and/or distribution of biological, chemical and radiological weapons, and anti-
personal mines (various treaties to which the Philippines is a signatory and conventions supported by the
Philippines)
 Manufacture of firecrackers and other pyrotechnic devices

B. Up to Twenty Percent (20%) Foreign Equity
 Private radio communication network
C. Up to Twenty-Five Percent (25%) Foreign Equity

 Private recruitment, whether for local or overseas employment
 Contracts for the construction and repair of locally-funded public works except:
o Infrastructure/development projects covered in RA 7718; and
o Projects which are foreign-funded or assisted and required to undergo international competitive bidding
of contracts for construction of defense-related structure.
D. Up to Thirty Percent (30%) Foreign Equity

 Advertising
E. Up to Forty Percent (40%) Foreign Equity

 Exploration, development, and utilization of natural resources
 Ownership of Private Lands
 Operation and management of public utilities
 Ownership/establishment and administration of educational institutions
 Culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter,
purchase or otherwise, rice and corn and the by-products thereof
 Contracts for the supply of materials, goods, and commodities to government-owned or controlled corporation,
company, agency, or municipal corporation
 Project Proponent and facility operator of a BOT project requiring a public utilities franchise
 Operation of deep sea commercial fishing vessels
 Adjustment Companies
 Ownership of condominium units where the common areas in the condominium projects are co-owned by the
owners of the separate units or owned by a corporation
F. Up to Forty-Nine Percent (49%) Foreign Equity

 Lending companies
G. Up to Sixty Percent (60%) Foreign Equity

 Financing companies regulated by the Securities and Exchange Commission
 Investment houses regulated by the SEC
1. This is limited to Filipino citizens save in cases prescribed by law
2. Full foreign participation is allowed for retail trade enterprises: (a) with paid-up capital of US$2,500,000 or more
provided that investments for establishing a store is not less than US$830,000; or (b) specializing in high-end or
luxury products, provided that the paid-up capital per store is not less than US$250,000
3. Domestic investments are also prohibited (Conventions/Treaties to which the Philippines is a signatory)
4. Full foreign participation is allowed through financial or technical assistance agreement with the President (Art.
XII, Sec. 2 of the Constitution)
5. Full foreign participation is allowed provided that within the 30-year period from start of operation, the foreign
investor shall divest a minimum of 60 percent of their equity to Filipino citizens
6. No foreign national may be allowed to own stock in financing companies or investment houses unless the country
of which he is a national accords the same reciprocal rights to Filipinos
LIST B: FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY, DEFENSE, RISK TO HEALTH, AND
MORALS AND PROTECTION OF SMALL AND MEDIUM-SCALE ENTERPRISES
H. Up to Forty Percent (40%) Foreign Equity
 Manufacture, repair, storage, and/or distribution of products and/or ingredients requiring Philippine National
Police (PNP) clearance:
o Firearms (handguns to shotguns), parts of firearms and ammunition therefore, instruments or implements
used or intended to be used in the manufacture of firearms
o Gunpowder
o Dynamite
o Blasting supplies
o Ingredients used in making explosives:
 Chlorates of potassium and sodium
 Nitrates of ammonium, potassium, sodium barium, copper (11), lead (11), calcium, and cuprite
 Nitric acid
 Nitrocellulose
 Perchlorates of ammonium, potassium, and sodium
 Dinitrocellulose
 Glycerol
 Amorphous phosphorus
 Hydrogen peroxide

 Strontium nitrate powder
 Toluene
 Telescopic sight, sniper scope, and other similar devices
However, the manufacture or repair of these items may be authorized by the Chief of the PNP to non-Philippine nationals;
provided that a substantial percentage of output, as determined by the said agency, is exported. Provided further that the
extent of foreign equity ownership allowed shall be specified in the said authority/clearance.
 Manufacture, repair, storage, and/or distribution of products requiring Department of National Defense (DND)
clearance;
o Guns and ammunition for warfare
o Military ordnance and parts thereof (e.g., torpedoes, depth charges, bombs, grenades, missiles)
o Gunnery, bombing, and fire control systems and components
o Guided missiles/missile systems and components
o Tactical aircraft (fixed and rotary-winged), parts and components thereof
o Space vehicles and component systems
o Combat vessels (air, land, and naval) and auxiliaries
o Weapons repair and maintenance equipment
o Military communications equipment
o Night vision equipment
o Stimulated coherent radiation devices, components, and accessories
o Armament training devices
o Others as may be determined by the Secretary of the DND
However, the manufacture or repair of these items may be authorized by the Secretary of National Defence to non-
Philippine nationals; provided that a substantial percentage of output, as determined by the said agency, is exported.
Provided further that the extent of foreign equity ownership allowed shall be specified in the said authority/clearance.
 Manufacture and distribution of dangerous drugs
 Sauna and steam bathhouses, massage clinics, and other like activities regulated by law because of risks posed to
public health and morals
 All forms of gambling, except those covered by investment agreements with PAGCOR or the PAGCOR Charter
 Domestic market enterprises with paid-in equity capital of less than the equivalent of US$200,000
 Domestic market enterprises which involve advanced technology or employ at least fifty (50) direct employees
with paid-in-equity capital of less than the equivalent of US$100,000
I. Up to One Hundred Percent (100%) Foreign Equity

a. All other businesses or industries not enumerated above are allowed to have 100% Maximum Foreign
Equity.
H. Basis for Computation of Maximum Foreign Equity Ownership or Minimum Filipino Equity Ownership
The minimum equity ownership shall be based on Outstanding Common stocks and Preferred stocks if the latter have
voting rights in the election of Board of Directors. Outstanding Stocks means Issued Stocks plus Subscribed Stocks minus
Treasury Stocks.
I. Tests for Determining Nationality of a Corporation
a. Place of Incorporation Test – It is the principal doctrine as enunciated in BP 68 which provides that a
corporation is a national of the country under whose laws it has been organized and registered.
b. Control Test – It means that the nationality of a corporation is determined by the nationality of the
majority of the stockholders on whom equity control is vested and it is normally used as war-time test or
to determine the compliance with minimum requirement of Filipino ownership in industry reserved for
Filipinos.
c. Grandfather Rule Test – It is a three-level relationship test by which the percentage of Filipino equity is
computed in a corporation engaged in fully or partly nationalized areas of activities provided in the
Constitution and other nationalization laws, in cases where corporate shareholders are present in the
situation, by attributing the nationality of the second or even subsequent tier of ownership to determine
the nationality of the corporate shareholder.
J. Effect of Non-Compliance with Minimum Filipino Ownership

a. The corporation shall be considered a de facto corporation. Such non-compliance is considered a non-
automatic ground for corporate dissolution. The juridical personality of a de facto corporation is subject to
a direct attack by the State through the Office of Solicitor General via Quo Warranto Proceedings.

K. Effects of Engaging in Business by a Foreign Corporation without license
a. The said foreign corporation shall not be permitted to maintain or intervene in any action, suit, or
proceeding in any court or administrative agency of the Philippines. However, as an exception to the
general rule, such foreign corporation may be permitted to file a case despite on a contract it entered into
despite doing business in the Philippines without the necessary license by virtue of doctrine of Estoppel
but it must first acquire the necessary license before the government agency.
b. The said foreign corporation may be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippines laws.
Note: The purpose of requiring license on part of foreign corporation doing business in the Philippines is to
subject foreign corporation doing business in the Philippines to the jurisdiction of Philippine courts but not to
subject foreign corporation doing business in the Philippines to harsher rules, nor commit inequity, injustice
or discrimination against them.
XII. Effects of Lack of License on the part of foreign corporation not doing business in the Philippines
a. It may sue in any court or administrative agency of the Philippines for violation of its intellectual property
rights.
b. It may sue and be sued only for isolated transactions, as well as for those which are casual or incidental
thereto.

FRIA Other Special Laws and Intellectual Property Law

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Commercial Law Review

COVERAGE: Special Laws

d. Procedures for Suspension of Payments by an Insolvent Individual Debtor

i. Filing of Petition for Declaration of Statement of Suspension of Payments - An individual

Commercial Law Review Page 1 of 44

viii. Effects of Approval of Proposed Agreement by the insolvent debtor

ix. Effects of Failure of Individual Debtor to Perform the Approved Agreement

f. Procedures for Involuntary Liquidation of Insolvent Individual Debtor as initiated by Creditors

Commercial Law Review Page 3 of 44

Commercial Law Review Page 4 of 44

b. Types of Rehabilitation of a Businessman

i. Voluntary Court-Supervised Rehabilitation (Initiated by Insolvent Businessman)

Commercial Law Review Page 5 of 44

2. Grounds for Court-Supervised Rehabilitation

3. Minimum Allegations for Voluntary Rehabilitation

4. Joint Filing of Petition for Rehabilitation by a group of debtors - A group of debtors

5. Contents of Petition for Voluntary Rehabilitation

ii. Involuntary Court-Supervised Rehabilitation (Initiated by Creditors of Insolvent

1. Required Vote for Involuntary Rehabilitation

2. Grounds for Involuntary Rehabilitation

3. Contents of Petition for Involuntary Rehabilitation

Commercial Law Review Page 6 of 44

e. Effects of the Issuance of Commencement Order

Commercial Law Review Page 7 of 44

ii. Qualifications of a Rehabilitation Receiver

iv. Powers, Duties and Responsibilities of the Rehabilitation Receiver

Commercial Law Review Page 8 of 44

vi. Grounds for Removal of Rehabilitation Receiver

vii. Compensation, Term of Office and Bonds of a Rehabilitation Receiver

Commercial Law Review Page 9 of 44

ii. Required Vote for Creditor Approval of Rehabilitation Plan

v. Grounds for objection to Rehabilitation Plan

vi. Confirmation of the Rehabilitation Plan by the Court

Commercial Law Review Page 10 of 44

vii. Effects of Confirmation by the Court of the Rehabilitation Plan

viii. Period for Court’s Confirmation of Rehabilitation Plan

ix. Instances of failure of rehabilitation justifying its termination

k. Other Types of Rehabilitation

Commercial Law Review Page 11 of 44

ii. Out-of-Court or Informal Restructuring Agreements or Rehabilitation Plans - An out-of-

1. Minimum Requirements of Out-of-Court or Informal Rehabilitation Plans

2. Cram Down Effect - A restructuring/workout agreement or Rehabilitation Plan that is

a. Grounds for Voluntary Liquidation of Insolvent Juridical Person

b. Required Vote for Voluntary Liquidation of Insolvent Juridical Person

1. Required Creditor’s Vote for Petition for Involuntary Liquidation (Initiated by

Commercial Law Review Page 12 of 44

2. Requisites or Allegations for Involuntary Liquidation of Insolvent Juridical Person

ii. Rights of Secured Creditors in case of Liquidation Proceedings

iii. Types of Liquidator

iv. Oath, Bond and Qualifications of Liquidator

Commercial Law Review Page 13 of 44

Commercial Law Review Page 14 of 44

III. Securities Regulation Code (R.A. No. 8799)

i. Powers and Functions of Securities and Exchange Commission

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ii. Jurisdiction of Securities and Exchange Commission to Intra-Corporate Disputes

i. Four Principal Departments of Securities and Exchange Commission

Commercial Law Review Page 16 of 44

b. Requirement for Registration of Securities Prior to Disposal in Public

iv. Requirements for Registration of Securities

1. All securities required to be registered under Subsection 8. I shall be registered through

v. Grounds for Rejection or Revocation of Registration of Securities

Commercial Law Review Page 17 of 44