SUSPENSION ORDER/STAY ORDER COMMENCEMENT ORDER LIQUIDATION ORDER

1. suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims against
the debtor;
2. suspend all actions to enforce any judgment,
attachment or other provisional remedies against
the debtor;
3. prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of its
properties except in the ordinary course of
business; and
4. prohibit the debtor from making any payment of
its liabilities outstanding as of the
commencement date except as may be
provided herein.
EXCEPTIONS TO STAY OR SUSPENSION ORDER
1. Cases pending appeal in the Supreme Court as
of commencement date
2. Subject to the discretion of the court, 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:
3. 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;
4. Any form of action of customers or clients of a
securities market participant to recover or
otherwise claim moneys and securities entrusted
to the latter in the ordinary course of the latter's
business as well as any action of such securities
market participant or the appropriate regulatory
agency or self-regulatory organization to pay or
settle such claims or liabilities;
5. 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;
6. Clearing and settlement of financial transactions
through the facilities of a clearing agency like BSP
and the SEC for any transactions settled for the
debtor;
7. Any criminal action against individual debtor or
owner, partner, director or officer of a debtor
1. Prohibits, or serves as a legal basis for rendering 1. Declare the debtor insolvent;
void the results of any 2. Order the liquidation of the debtor and, in the
a. Extrajudicial activity to seize property case of a juridical debtor, declare it as dissolved;
b. Attempt to collect on or enforce claim 3. Order the sheriff to take possession and control
against debtor of all the property of the debtor, except those
2. Serves as legal basis for rendering void and set- that may be exempt from execution;
off after commencement date of any debt 4. Order the publication of the petition or motion in
owed to the debtors by any of the creditors a newspaper of general circulation once a
3. Serves as legal basis for rendering void week for two (2) consecutive weeks;
perfection of any lien against debtor’s property 5. Direct payments of any claims and conveyance
after the commencement date. of any property due the debtor to the liquidator;
6. Prohibit payments by the debtor and the transfer
CONTENTS: of any property by the debtor;
1. Declare that debtor is under rehabilitation 7. Direct all creditors to file their claims with the
2. Appoint a rehabilitation receiver liquidator within the period set by the rules of
3. Prohibit debtor’s suppliers of goods or services procedure;
from withholding supply in the ordinary course of 8. Authorize the payment of administrative
business as long as debtor pays. expenses as they become due;
4. Authorize payment of administrative expenses as 9. State that the debtor and creditors who are not
they become due. petitioner/s may submit the names of other
nominees to the position of liquidator; and
EFFECTS 10. Set the case for hearing for the election and
1. Vest the rehabilitation with all the powers and appointment of the liquidator, which date shall
functions provided for this Act, such as the right not be less than thirty (30) days nor more than
to review and obtain records to which the forty-five (45) days from the date of the last
debtor's management and directors have publication.
access, including bank accounts or whatever
nature of the debtor subject to the approval by
the court of the performance bond filed by the
rehabilitation receiver;
2. Prohibit or otherwise serve as the legal basis
rendering null and void the results of any
extrajudicial activity or process to seize property,
sell encumbered property, or otherwise attempt
to collection or enforce a claim against the
debtor after commencement date unless
otherwise allowed in this Act, subject to the
provisions of Section 50 hereof;
3. 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;
4. Serve as the legal basis for rendering null and
void the perfection of any lien against the
debtor's property after the commencement
date; and
5. Consolidate the resolution of all legal
proceedings by and against the debtor to the
court Provided. However, That the court may
allow the continuation of cases on other courts
where the debtor had initiated the suit.

INSOLVENT JURIDICAL DEBTOR

CORPORATE REHABILITATION LIQUIDATION
COURT SUPERVISED PRE-NEGOTIATED OUT OF COURT
VOLUNTARY INVOLUNTARY
VOLUNTARY INVOLUNTARY REHABILITATION REHABILITATION
PETITION TO INITIATE Any creditor or group of An insolvent debtor, by MINIMUM REQUIREMENTS 1. petition must be filed 1. Petition filed by 3 or
VOLUNTARY PROCEEDINGS creditors with a claim of, itself or jointly with any of 1. The debtor must agree by an insolvent more creditors the
FILED BY DEBTOR, APPROVED
or the aggregate of its creditors, may file a to the out-of-court or debtor with the court aggregate claim is at
BY:
i. SOLE PROPRIETORSHIP – whose claims is, at least 1 verified petition with the informal 2. petition must be least P1 million or at
by the owner Million Pesos court for the approval of restructuring/workout verified least 25% of capital
ii. PARTNERSHIP – by a (Php1,000,000.00) or at a pre-negotiated agreement or 3. petition shall establish stock or partner’s
majority of the partners least 25% of the Rehabilitation Plan which Rehabilitation Plan; insolvency of debtor contribution
iii. STOCK CORPORATION – subscribed capital stock has been endorsed or 2. It must be approved whichever is higher
by a majority vote of the
board of directors and
or partner’s approved by: by creditors with court
authorized by the vote contributions, whichever 1. creditors holding at representing at least 2. Petition must be
of the stockholders is higher, may initiate least 2/3 of the total 67% of the secured verified
representing at least 2/3 involuntary proceedings liabilities of the obligations of the 3. Petition must show
of the outstanding against the debtor by debtor, debtor; that there is no
capital stock in a
filing a petition for 2. including secured 3. It must be approved genuine issue of fact
stockholder’s meeting
duly called for the rehabilitation with the creditors holding by creditors or law and no
purpose court. more than 50% of the representing at least substantial likelihood
iv. NON-STOCK total secured claims 75% of the unsecured debtor be
CORPORATION – by a of the debtor and obligations of the rehabilitated
majority vote of the 3. unsecured creditors debtor; and
board of trustees
authorized by the vote holding more than 4. It must be approved
of at least 2/3 of the 50% of the total by creditors holding at
members, in a unsecured claims of least 85% of the total
member’s meeting duly the debtor. liabilities, secured and
called for the purpose. unsecured, of the
debtor.
Note: A group of debtors
may jointly file a petition for
rehabilitation, when one or
more of its members foresee
the impossibility of meeting
debts when they respectively
fall due
JLYRREVERRE | BLOCK B2020 | FRIA QUICKIE REV | 1
 INSOLVENT INDIVIDUAL DEBTOR
SUSPENSION OF LIQUIDATION
PAYMENTS VOLUNTARY INVOLUNTARY
1. Petition must be filed by a debtor 1. Petition to be filed by an insolvent debtor owing 1. Petition to be filed by any creditor or group of
a. Possessing sufficient property to cover all debts exceeding in amount of P500,000 in the creditors with claim or with aggregate claim of at
debts; court of the province or city in which he has least P500,000 in the court of the province or city
b. Foreseeing the impossibility of meeting resided for 6 months prior to the filing of such in which the individual debtor resides
them when they respectively fall due; and petition 2. Petition must be verified
c. Petitioning that he be declared in the 2. Petition must be verified 3. Petitioning creditor must post a bond
state of suspension of payments
2. Petition must be verified

MINIMUM VOTE REQUIREMENTS FOR THE APPROVAL OF A PROPOSED REHABILITATION PLAN

COURT-SUPERVISED
the PLAN IS DEEMED TO HAVE BEEN APPROVED BY A
CLASS OF CREDITORS IF MEMBERS OF THE SAID CLASS
HOLDING MORE THAN FIFTY PERCENT (50%) OF THE
TOTAL CLAIMS OF THE SAID CLASS VOTE IN FAVOR OF
THE PLAN. The votes of the creditors shall be based
solely on the amount of their respective claims based
on the registry of claims submitted by the rehabilitation holding
receiver
PRE-NEGOTIATED
An insolvent debtor, by itself or jointly with any of its An out-of-court or informal restructuring/workout
creditors, may file a verified petition with the court for agreement or rehabilitation plan (OCRA shall comply
the approval of a Pre-Negotiated Rehabilitation Plan.
The petition shall be supported by an affidavit showing
the written approval or endorsement of creditors
§ at least two-thirds (2/3) of the total
liabilities of the debtor,
§ including secured creditors holding more
than fifty percent (50%) of the total
secured claims of the debtor and
§ unsecured creditors holding more than
fifty percent (50%) of the total unsecured
claims of the debtor.
OUT-OF-COURT OR INFORMAL RESTRUCTURING
AGREEMENTS OR REHABILITATION PLANS
with both requirements:
1. Approval by the:
a. debtor;
b. creditors representing at least sixty-
seven percent (67%) of the secured
obligations of the debtor;
c. creditors representing at least
seventy-five percent (75%) of the
unsecured obligations of the debtor;
and,
d. creditors holding at least eighty-five
percent (85%) of the total liabilities,
secured and unsecured, of the
debtor; and,
2. Publication of the notice of the OCRA once a
week for at least three (3) consecutive weeks in
a newspaper of general circulation in the
Philippines, as prescribed in Section 4 of this Rule

REHABILITATION LIQUIDATION NOTE:

COMMISSIONER
RECEIVER RECEIVER § Any rehabilitation receiver, member of the management committee or
One who presides over Deemed an officer of One appointed when persons employed or contracted by them possessing any conflict of
the creditor’s meeting the court with the a company is in the interest shall make the appropriate disclosure either to the court or to the
in connection with the principal duty of process of winding-up creditors in case of out-of-court rehabilitation proceedings.
suspension of payment preserving and by selling off its assets § Any party to the proceeding adversely affected by the appointment of
proceedings maximizing the value of and setting all claims any person with a conflict of interest to any of the positions enumerated
the assets of the debtor above may however waive his right to object to such appointment and, if
during rehabilitation the waiver is unreasonably withheld, the court may disregard the conflict
of interest, taking into account the general interest of the stakeholders.
Determines the Viability
of the Rehabilitation of COMMINGLING OR AGGREGATION OF ASSETS AND LIABILITIES OF THE DEBTOR
the debtor. ALLOWED WHEN:
1. there was commingling prior to the commencement of the proceedings;
Prepare, recommend 2. the debtor and the related enterprise have common creditors and it will
and implement RP be more convenient to treat them together rather than separately;
Natural Person Natural/ Juridical Natural/ Juridical 3. the related enterprise voluntarily accedes to join the debtor as party
Person Person petitioner and to commingle its assets and liabilities with the debtor's; and
1. Citizen (6 years if the juridical entity, it must designate a natural 4. The consolidation of assets and liabilities of the debtor and the related
residency prior) person/s who possess/es all the qualifications and enterprise is beneficial to all concerned and promotes the objectives of
2. Good moral none of the disqualification’s as its representative, rehabilitation.
Character it being understood that the juridical entity and the
3. Requisite representative/s are solidarily liable for all STANDSTILL PERIOD may be agreed upon by the parties pending negotiation and
knowledge obligations and responsibilities of the rehabilitation finalization of the out-of-court or informal restructuring/workout agreement or
4. No conflict of receiver. Rehabilitation Plan contemplated herein shall be effective and enforceable not
interest only against the contracting parties but also against the other creditors:
MINIMUM QUALIFICATIONS: 1. such agreement is approved by creditors representing more than 50%
1. A citizen of the Philippines or a resident of the of the total liabilities of the debtor;
Philippines in the six (6) months immediately 2. notice thereof is publishing in a newspaper of general circulation in
preceding his nomination; the Philippines once a week for 2 consecutive weeks; and
2. Of good moral character and with 3. the standstill period does not exceed 120 days from the date of
acknowledged integrity, impartiality and effectivity.
independence; (good standing if juridical)
3. Has the requisite knowledge of insolvency and CRAM-DOWN POWER: Court’s power to approve or implement the Plan despite
other relevant commercial laws lack of approval, or objection from owners, partners, stockholders or creditors
4. Has no conflict of interest provided terms are necessary to restore financial well-being and viability of the
insolvent debtors
CONFLICT OF INTEREST § CIRCUMSTANCES PRESENT
1. He is a creditor, owner, partner or stockholder of the debtor; a. The Rehabilitation Plan complies with the requirements
2. He is engaged in a line of business which competes with that of the debtor; specified in this Act.
3. He is, or was, within five (5) years from the filing of the petition, a director, officer, b. The rehabilitation receiver recommends the confirmation of
owner, partner or employee of the debtor or any of the creditors, or the auditor the Rehabilitation Plan;
or accountant of the debtor; c. The shareholders, owners or partners of the juridical debtor lose
4. He is, or was, within two (2) years from the filing of the petition, an underwriter of at least their controlling interest as a result of the Rehabilitation
the outstanding securities of the debtor; Plan; and
5. He is related by consanguinity or affinity within the fourth civil degree to any
d. The Rehabilitation Plan would likely provide the objecting class
individual creditor, owners of a sale proprietorship-debtor, partners of a
of creditors with compensation which has a net present value
partnership- debtor or to any stockholder, director, officer, employee or
underwriter of a corporation-debtor; or
greater than that which they would have received if the
6. he has any other direct or indirect material interest in the debtor or any of the debtor were under liquidation.
creditors.
JLYRREVERRE | BLOCK B2020 | FRIA QUICKIE REV | 2
Financial Rehabilitation and
Insolvency Act of 2010
• Repealed the Insolvency Law (Section 148)

• Section 148. Repealing Clause. — The

Insolvency Law (Act No. 1956), as amended, is
hereby repealed. All other laws, orders, rules
and regulations or parts thereof inconsistent
with any provision of this Act are hereby
repealed or modified accordingly.
 Relevant Issuances
November 16, 2015 -- THE EXPANSION OF THE COVERAGE
OF CASES COGNIZABLE BY SPECIAL COMMERCIAL COURTS
TO INCLUDE ALL CASES ON INSOLVENCY AND
LIQUIDATION UNDER THE FRIA
April 21, 2015 A.M. No. 15-04-06-SC
FINANCIAL LIQUIDATION AND SUSPENSION OF PAYMENTS
RULES OF PROCEDURE FOR INSOLVENT DEBTORS (2015)
August 27, 2013 A.M. No. 12-12-11-SC
FINANCIAL REHABILITATION RULES OF PROCEDURE (2013)
 ① unable or liabilities I
pay
fulfill obligations normally
orin ordinary course of
business
> assets
@ liabilities

p
• Insolvent shall refer to the financial condition of a debtor
that is⑦generally unable to pay its or his liabilities as they
fall due in the ordinary course of business or has liabilities
that are greater than its or his assets. ②

• Rehabilitation shall refer to the restoration of the debtor to

a condition of successful operation and solvency, if it is
shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present
value of payments projected in the plan, more if the debtor
continues as a going concern than if it is immediately
liquidated.
 Purposes
• Encourage debtors, both juridical and natural persons, and
their creditors to collectively and realistically resolve and
adjust competing claims and property rights
• Ensure a timely, fair, transparent, effective and efficient
rehabilitation or liquidation of debtors.
• Ensure or maintain certainty and predictability in
commercial affairs, preserve and maximize the value of the
assets of these debtors, recognize creditor rights and
respect priority of claims, and ensure equitable treatment
of creditors who are similarly situated.
• Facilitate a speedy and orderly liquidation of these debtors'
assets and the settlement of their obligations.
 Nature of FRIA Proceedings
• In rem – jurisdiction over all affected persons
is acquired by publication in newspaper of
general circulation in the Philippines
• Summary – note prohibited pleadings; orders
are immediately executory
• Non-adversarial – the court may decide
matters on the basis of pleadings and other
documentary evidence, and conduct
clarificatory hearings when necessary
 Coverage
COVERED NOT COVERED

a. Juridical and natural persons a. Banks

who are debtors
b. Government FIs and GOCCs
c. Foreign companies
undergoing rehab
proceedings abroad but also
doing business in the
country
b. Insurance companies
c. Pre-need companies
d. National and local
government agencies or
units. (but government FIs
and GOCCs are covered)
 Remedies
• Rehabilitation
• Court supervised rehab
• Debtor-initiated (voluntary)
• Creditor-initiated (involuntary)

• Pre-negotiated rehabilitation

• Out of court restructuring agreements (OCRA)

• Liquidation

• Juridical debtors
• Liquidation

• Individual debtors
• Suspension of payments
• Liquidation
Court supervised rehab- how initiated?
• 2014 bar exam:

Under the Financial Rehabilitation and Insolvency Act (FRIA), the filing of a
petition for voluntary rehabilitation must be approved by: (1%)

• (A) a majority vote of the Board of Directors and authorized by the vote of
the stockholders representing at least a majority of the outstanding capital
stock
0
• (B) a majority vote of the Board of Directors and authorized by the vote of
the stockholders representing at least two-thirds of the outstanding
capital stock
• (C) two-thirds vote of the Board of Directors and authorized by the vote of
the stockholders representing at least a majority of the outstanding capital
stock
• (D) two-thirds vote of the Board of Directors and authorized by the vote of
the stockholders representing at least two-thirds of the outstanding
capital stock
Debtor - initiated

Court Supervised Rehab-How Initiated

• Debtor initiated
• Filed by: owner in case of a sole proprietorship, or by a majority of
the partners in case of a partnership, or, in case of a corporation,
by a majority vote of the board of directors or trustees and
authorized by the vote of the stockholders representing at least
two-thirds (2/3) of the outstanding capital stock
• Ground: It is insolvent and it may be rehabilitated
Creditor -
initiated

Court Supervised Rehab-How Initiated

• Creditor-initiated
• Filed by: Any creditor or group of creditors with a claim of at least
Php1,000,000.00 or at least twenty-five percent (25%) of the
subscribed capital stock or partners' contributions, whichever is
higher
• Grounds:
• Creditors’ due and demandable claims have not been paid for at
least sixty (60) days or that the debtor has failed generally to meet
its liabilities as they fall due; or
• A creditor, other than the petitioner/s, has initiated foreclosure
proceedings against the debtor that will prevent the debtor from
paying its debts as they become due or will render it insolvent.
• Creditors must establish that the debtor may be rehabilitated
 Pre-negotiated Rehab—How Initiated
• Filed by: An insolvent debtor, by itself or jointly
with any of its creditors

• Must be endorsed or approved by creditors

holding at least two-thirds (2/3) of the total
liabilities of the debtor, including secured
creditors holding more than fifty percent (50%) of
the total secured claims of the debtor and
unsecured creditors holding more than fifty
percent (50%) of the total unsecured claims of
the debtor.
 Commencement Order
• Section 16. The rehabilitation proceedings shall commence upon the issuance of
the Commencement Order

• Section 17. Effects of Commencement Order

• Vest the rehabilitation receiver with all the powers and functions of a receiver

• Serve as the legal basis for the initiation of avoidance proceedings or proceedings
to render null and void:
1. 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
2. any set-off after the commencement date of any debt owed to the debtor by any
of the debtor's creditors
3. the perfection of any lien against the debtor's property after the commencement
date

• Consolidate the resolution of all legal proceedings by and against the debtor to the
court: Provided, that the court may allow the continuation of cases in other courts
where the debtor had initiated the suit.
 Commencement Order
2017 bar exam:

What is a commencement order, and what is the

effect of its issuance? Explain your answer. (4%)
 Commencement Order
• Section 16. Contents of the Commencement Order:
• Appointment of the rehab receiver
• Prohibit the debtor's suppliers of goods or services from
withholding the supply of goods and services in the
ordinary course of business for as long as the debtor makes
payments
• A stay order

• Section 21. The Commencement Order shall be effective

for the duration of the rehabilitation proceedings for as
long as there is a substantial likelihood that the debtor will
be successfully rehabilitated.
 Stay Order
• Suspends all actions or proceedings, in court or otherwise, for the enforcement of
claims against the debtor;

• Suspends all actions to enforce any judgment, attachment or other provisional

remedies against the debtor;

• Prohibits the debtor from selling, encumbering, transferring or disposing in any

manner any of its properties except in the ordinary course of business; and

• Prohibits the debtor from making any payment of its liabilities outstanding as of the
commencement date.

• “Claims” refer to all claims or demands of whatever nature or character against the
debtor or its property, whether for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed, including, but
not limited to: (1) all claims of the government, whether national or local, including
taxes, tariffs and customs duties; and (2) claims against directors and officers of the
debtor arising from acts done in the discharge of their functions falling within the
scope of their authority.
 Stay Order
Section 10. Debtor shall be liable for double the
value of the property sold, embezzled or
disposed of or double the amount of the
transaction involved if it willfully disposes any
property of the debtor other than in the
ordinary course of business or authorize, or
conceal any property of the debtor.
 Exceptions to Stay Order
• Cases already pending appeal in the Supreme Court as of commencement date:
• Cases pending or filed at a specialized court or quasi-judicial agency
• Enforcement actions 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;
• Action of customers or clients of a securities market participant to recover moneys
and securities entrusted to the latter in the ordinary course of the latter's business as
well as any action of such securities market participant or the appropriate regulatory
agency or self-regulatory organization to pay or settle such claims or liabilities;
• 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;
• 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
• Criminal action against the individual debtor or owner, partner, director or officer
of a debtor.
 Management During Rehab
GR: The rehabilitation receiver shall not take over the management and control of the
debtor. However, all disbursements, payments or sale, disposal, assignment, transfer or
encumbrance of property, or any other act affecting title or interest in property, shall be
subject to the approval of the rehabilitation receiver and/or the court.

Exceptions:
• Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor's
assets or other properties;
• Paralyzation of the business operations of the debtor; or
• Gross mismanagement of the debtor, or fraud or other wrongful conduct on the part of,
or gross or willful violation of this Act by, existing management of the debtor or the
owner, partner, director, officer or representative/s in management of the debtor.

In which case, the court may appoint:

• the rehabilitation receiver to assume the powers of management of the debtor, or
• a management committee that will undertake the management of the debtor
 Stay Order
• 2006 bar

What is the rationale for the Stay Order? 5%

 Stay Order
“The justification for the suspension of actions or claims,
without distinction, pending rehabilitation proceedings is to
enable the management committee or rehabilitation receiver
to effectively exercise its/his powers free from any judicial or
extra-judicial interference that might unduly hinder or prevent
the "rescue" of the debtor company.

To allow such other actions to continue would only add to the

burden of the management committee or rehabilitation
receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being
directed toward its restructuring and rehabilitation.”
 Equality in Equity
• 2008 bar:

Explain the key phrase "equality is equity" in

corporate rehabilitation proceedings. (2%)
• “During rehabilitation receivership, the assets are held in
trust for the equal benefit of all creditors to preclude one
from obtaining an advantage or preference over another by
the expediency of an attachment, execution or otherwise.
For what would prevent an alert creditor, upon learning of
the receivership, from rushing posthaste to the courts to
secure judgments for the satisfaction of its claims to the
prejudice of the less alert creditors.

• As between creditors, the key phrase is "equality is equity."

When a corporation threatened by bankruptcy is taken over
by a receiver, all the creditors should stand on an equal
footing. Not anyone of them should be given any preference
by paying one or some of them ahead of the others. This is
precisely the reason for the suspension of all pending claims
against the corporation under receivership. Instead of
creditors vexing the courts with suits against the distressed
firm, they are directed to file their claims with the receiver
who is a duly appointed officer of the SEC.”
 Disposition of Assets
GR: No funds or property of the debtor shall be used or disposed of except in
the ordinary course of business of the debtor, or unless necessary to finance the
administrative expenses of the rehabilitation proceedings. (Section 48)

Administrative expenses are those:

• Incurred or arising from the filing of a petition for rehabilitation or
liquidation
• Incurred in the ordinary course of business of the debtor after the
commencement date;
• Incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them (Section 4)
• Compensation of employees required to carry on the business after the
commencement date (Section 56)
• Claims for salary and separation pay for work performed after the
commencement date (Section 56)
• Obligations from post commencement loans or credit arrangements (Section
56)
• Contractual obligations of the debtor arising or performed during
rehabilitation, and afterwards for confirmed contracts (Section 57)
 Disposition of Assets
Exceptions to the GR that no funds or property of the
debtor shall be used or disposed of except in the ordinary
course of business of the debtor:

Three general kinds of properties that may be disposed of

during rehab:
• Unencumbered property of the debtor
• Encumbered property of the debtor
• Property of the debtor held by third persons pursuant
to statutory liens
 Disposition of Assets
Sections 49 and 52 The court may authorize the sale of unencumbered
property of the debtor outside the ordinary course of business upon a
showing that:
• The property is perishable, costly to maintain, susceptible to devaluation
or otherwise in jeopardy;
• If the sale is for the implementation of a Rehabilitation Plan;
• In order to provide a substitute lien, mortgage or pledge of property
allowed under the FRIA;
• For payments made to meet administrative expenses as they arise;
• For payments to victims of quasi delicts upon a showing that the claim is
valid and the debtor has insurance to reimburse the debtor for the
payments made;
• For payments made to repurchase property of the debtor that is
auctioned off in a judicial or extrajudicial sale; or
• For payments made to reclaim property of the debtor held pursuant to a
possessory lien.
 Disposition of Assets
Sections 50 and 53. The court may authorize the sale of
encumbered property of the debtor, or property of others
held by the debtor where there is a security interest
pertaining to third parties under a financial, credit or other
similar transactions if:
• such sale, transfer, conveyance or disposal is not necessary
for the continued operation of the debtor's business;
• the debtor has made arrangements to provide a substitute
lien or ownership right that provides an equal level of
security for the counter-party's claim or right.
• property is subject to rapid obsolescence, depreciation or
diminution in value
• The secured creditor has no adequate protection (debtor
refuses to maintain or insure the property) Section 61.
 Disposition of Assets
Section 51. In case of third parties who have in
their possession or control property of the debtor
pursuant to a pledge, mechanic's lien or similar
claims, the court may allow the disposition of the
said property as may be beneficial for the
rehabilitation of the debtor.

* the proceeds of the sale will be distributed in

accordance with the order prescribed under the
rules of concurrence and preference of credits
 Avoidance Proceedings
Any transaction occurring prior to
commencement date may be rescinded or
declared null and void

Grounds:
• Transaction was executed with intent to
defraud a creditor or creditors or
• Transaction constitutes undue preference of
creditors.
 Avoidance Proceedings
Section 58. Disputable presumption of design to defraud creditors:
• Provides unreasonably inadequate consideration to the debtor and
is executed within ninety (90) days prior to the commencement
date;
• Involves an accelerated payment of a claim to a creditor within
ninety (90) days prior to the commencement date;
• Provides security or additional security executed within ninety (90)
days prior to the commencement date;
• Involves creditors that obtained more than its pro rata share in the
assets of the debtor, executed at a time when the debtor was
insolvent; or
• Is intended to defeat, delay or hinder the ability of the creditors to
collect claims where the effect of the transaction is to put assets of
the debtor beyond the reach of creditors or to otherwise prejudice
the interests of creditors.
 Avoidance Proceedings
Presumptions under the Civil Code
Art. 1382. Payments made in a state of insolvency for obligations to
whose fulfilment the debtor could not be compelled at the time they
were effected, are also rescissible.

Art. 1387. All contracts by virtue of which the debtor alienates

property by gratuitous title are presumed to have been entered into in
fraud of creditors, when the donor did not reserve sufficient property
to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made

by persons against whom some judgment has been issued. The
decision or attachment need not refer to the property alienated, and
need not have been obtained by the party seeking the rescission.
 Avoidance Proceedings
Section 127. Any transaction occurring prior to
the issuance of the Liquidation Order 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.
 Avoidance Proceedings
Who may initiate avoidance proceedings:
• Rehab receiver – benefit belongs to the estate
• Creditor – benefit belongs to the creditor
exclusively
 Approval of Rehab Plan
COURT SUPERVISED
Required Must be approved by:
votes for a. All classes of creditors whose right are adversely
approval modified or affected by the Plan.
of the b. The
S Plan is deemed to have been approved by a
rehab class of creditors if members of the said class
plan holding more than fifty percent (50%) of the total
claims of the said class vote in favor of the Plan.
Period Section 72. The court shall have a maximum period
for of one (1) year from the date of the filing of the
confirma petition to confirm a Rehabilitation Plan.
tion
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.
PRE-NEGOTIATED
Must be approved by:
creditors holding at least two-thirds (2/3) of
the total liabilities of the debtor,
including
a. secured creditors holding more than
fifty percent (50%) of the total secured
claims of the debtor and
b. unsecured creditors holding more than
fifty percent (50%) of the total
unsecured claims of the debtor.
Section 81. Period for Approval of
Rehabilitation Plan. — The court shall have a
maximum period of one hundred twenty
(120) days from the date of the filing of the
petition to approve the Rehabilitation Plan.
If the court fails to act within the said period,
the Rehabilitation Plan shall be deemed
approved.
 Cram-Down Power
Section 64. Notwithstanding the rejection of the
Rehabilitation Plan, the court may confirm the Rehabilitation
Plan if all of the following circumstances are present:
• The Rehabilitation Plan complies with the requirements
specified in this Act;
• The rehabilitation receiver recommends the confirmation
of the Rehabilitation Plan;
• The shareholders, owners or partners of the juridical
debtor lose at least their controlling interest as a result of
the Rehabilitation Plan; and
• The Rehabilitation Plan would likely provide the objecting
class of creditors with compensation which has a net
present value greater than that which they would have
received if the debtor were under liquidation.
 Cram-down power

Section 68. For the avoidance of doubt, the provisions of other laws to
the contrary notwithstanding, the court shall have the power to
approve or implement the Rehabilitation Plan despite the lack of
approval, or objection from the owners, partners or stockholders of
the insolvent debtor: Provided, That the terms thereof are necessary
to restore the financial well-being and viability of the insolvent debtor.

Section 69. The confirmed Rehabilitation Plan shall be binding

upon the debtor and all persons who may be affected by it, including
the creditors, whether or not such persons have participated in the
proceedings or opposed the Rehabilitation Plan or whether or not
their claims have been scheduled.
 Breach of Rehab Plan
Section 72. In case of breach of the terms of the
rehab plan, the court may:
• Order that the breach be cured;
• Order amendments to the rehab plan;
• Convert the proceedings to one for
liquidation;
• Enforce the applicable provisions of the rehab
plan through a writ of execution.
 Grounds for Termination
Section 74. Grounds for Termination of proceedings. —
• Successful rehabilitation
• Failure of rehabilitation

There is failure of rehabilitation in the following cases:

• Dismissal of the petition by the court;
• The debtor fails to submit a Rehabilitation Plan;
• Under the Rehabilitation Plan submitted by the debtor, there is no substantial
likelihood that the debtor can be rehabilitated within a reasonable period;
• The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder, or
there is a failure to realize the objectives, targets or goals set forth therein,
including the timelines and conditions for the settlement of the obligations due to
the creditors and other claimants;
• The commission of fraud in securing the approval of the Rehabilitation Plan or its
amendment; and
• Other analogous circumstances as may be defined by the rules of procedure.
 Termination of Rehab

Section 75. Effects of Termination. — Termination of the

proceedings shall result in the following:
• The discharge of the rehabilitation receiver, subject to his
submission of a final accounting; and
• 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.
 OCRA
Section 84. It must be approved by creditors representing at least
• At least eighty-five percent (85%) of the total liabilities, secured and unsecured, of
the debtor.
• At least sixty-seven percent (67%) of the secured obligations of the debtor;
• At least seventy-five percent (75%) of the unsecured obligations of the debtor; and

Section 85. Standstill Period. — A standstill period that may be agreed upon by the
parties pending negotiation and finalization of the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan contemplated herein shall be
effective and enforceable not only against the contracting parties but also against the
other creditors

Requirements:
• It is approved by creditors representing more than fifty percent (50%) of the total
liabilities of the debtor;
• Notice is published in a newspaper of general circulation in the Philippines once a
week for two (2) consecutive weeks; and
• The standstill period does not exceed one hundred twenty (120) days from the
date of effectivity.
 Liquidation
JURIDICAL DEBTOR-INITIATED CREDITOR-INITIATED
DEBTOR

Debtor must Three (3) or more creditors the aggregate of whose

establish his claims is at least either One million pesos
insolvency (Php1,000,000.00) or at least twenty-five percent
(25%) of the subscribed capital stock or partner's
contributions of the debtor, whichever is higher

Grounds:
a. due and demandable payments thereon have
not been made for at least one hundred eighty
(180) days or that the debtor has failed generally
to meet its liabilities as they fall due; and
b. there is no substantial likelihood that the debtor
may be rehabilitated.
 Liquidation
INDIVIDUAL DEBTOR-INITIATED CREDITOR-INITIATED
DEBTOR

Debtor must establish his Any creditor or group of creditors with a claim
insolvency, and that he of, or with claims aggregating, at least Five
owes debts exceeding hundred thousand pesos (Php500,000.00)
Five hundred thousand
pesos (Php500,000.00) Creditors must set forth or allege at least one
act of insolvency in Section 105

Special rules:
a. Bond required. upon filing
b. Bond required (2x value of claims) if
creditors want absent debtor’s properties
to be sold during the proceedings
 Liquidation Order
Section 112. Liquidation Order. — The Liquidation Order shall:
• (a) order the sheriff to take possession and control of all the property of the
debtor, except those that may be exempt from execution;
• (b) prohibit payments by the debtor and the transfer of any property by the
debtor;

Section 113. Effects of the Liquidation Order. —

• The juridical debtor shall be deemed dissolved and its corporate or juridical
existence terminated;
• 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;
• All contracts of the debtor shall be deemed terminated and/or breached, unless
the liquidator, within ninety (90) days from the date of his assumption of office,
declares otherwise and the contracting party agrees;
• 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.
• No foreclosure proceeding shall be allowed for a period of one hundred eighty
(180) days.
Rights of Secured Creditors-Liquidation
vs. Rehabilitation
Liquidation:
Section 114. Rights of Secured Creditors. — The Liquidation Order shall not
affect the right of a secured creditor to enforce his lien in accordance with the
applicable contract or law.

A secured creditor may:

• 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
• Maintain his rights under his security or lien.

If the secured creditor maintains his rights under the security or lien:
• The value of the property may be fixed in a manner agreed upon by the creditor
and the liquidator.
• The liquidator may sell the property and satisfy the secured creditor's entire claim
from the proceeds of the sale; or
• The secured creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.
Rights of Secured Creditors-Liquidation
vs. Rehabilitation
Rehabilitation:
• Section 60. No Diminution of Secured The issuance of the
Commencement Order and the Suspension or Stay Order shall not
be deemed in any way to diminish or impair the security or lien of a
secured creditor, or the value of his lien or security, except that his
right to enforce said security or lien may be suspended during the
term of the Stay Order.

• The court, upon motion or recommendation of the rehabilitation

receiver, may allow a secured creditor to enforce his security or
lien, or foreclose upon property of the debtor securing his/its claim,
if the said property is not necessary for the rehabilitation of the
debtor. The secured creditor and/or the other lien holders shall be
admitted to the rehabilitation proceedings only for the balance of
his claim, if any.
 Suspension of Payments
Ground: An individual debtor possesses sufficient property to cover all his debts but
foresees the impossibility of meeting them when they respectively fall due

Effects of suspension order:

• Debtor prohibited from selling, transferring, encumbering or disposing in any
manner of his property, except those used in the ordinary course of business
• Debtor prohibited from making any payment outside of the necessary or
legitimate expenses of his business or industry
• Upon motion filed by the individual debtor, the court may issue an order
suspending any pending execution against the individual debtor: Provided, that
properties held as security by secured creditors shall not be the subject of such
suspension order. The suspension order shall lapse when three (3) months shall
have passed without the proposed agreement being accepted by the creditors or
as soon as such agreement is denied.
• No creditor shall sue or institute proceedings to collect his claim from the debtor
from the time of the filing of the petition for suspension of payments and for as
long as proceedings remain pending except:
• 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
• secured creditors.
 Suspension of Payments
Debtor is required to submit to the court a proposed agreement with his creditors.
The manner of approval of the proposed agreement is as follows:

Quorum requirement: The presence of creditors holding claims amounting to at least

three-fifths (3/5) of the liabilities shall be necessary for holding a meeting.

Vote requirement: To form a majority, it is necessary that:

• Two-thirds (2/3) of the creditors voting unite upon the same proposition; and
• 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

Section 99. The proposed agreement shall be deemed rejected if the number
of creditors required for holding a meeting do not attend thereat, or if the two (2)
majorities are not in favor thereof (meeting should be held/approval must be obtained
within 90 days from last publication of the suspension order --FLR). In such instances,
the proceeding shall be terminated without recourse and the parties concerned shall
be at liberty to enforce the rights which may correspond to them.
 Suspension of Payments
Section 101. The Order confirming the approval of the
proposed agreement on any amendment thereof made during
the creditors' meeting shall be binding upon all creditors
whose claims are included in the schedule of debts and
liabilities submitted by the individual debtor and who were
properly summoned.

Section 102. Failure of Individual Debtor to Perform

Agreement. — If the individual debtor fails, wholly or in part,
to perform the agreement decided upon at the meeting of the
creditors, all the rights which the creditors had against the
individual debtor before the agreement shall revest in them,
and the individual debtor may be subject to insolvency
proceedings.
 Receiver
Qualifications (same as liquidator)
• (May be juridical or natural person. Juridical person must
appoint an individual representative)
• A citizen of the Philippines or a resident of the Philippines in the
six (6) months immediately preceding his nomination;
• Of good moral character and with acknowledged integrity,
impartiality and independence;
• Has the requisite knowledge of insolvency and other relevant
commercial laws, rules and procedures, as well as the relevant
training and/or experience that may be necessary to enable
him to properly discharge the duties and obligations of a
rehabilitation receiver; and
• 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. (applicable to liquidator and
members of the management committee)
 Conflict of Interest
• he is a creditor, owner, partner or stockholder of the debtor;
• he is engaged in a line of business which competes with that of the
debtor;
• he is, or was, within five (5) years from the filing of the petition, a director,
officer, owner, partner or employee of the debtor or any of the creditors,
or the auditor or accountant of the debtor;
• he is, or was, within two (2) years from the filing of the petition, an
underwriter of the outstanding securities of the debtor;
• he is related by consanguinity or affinity within the fourth civil degree to
any individual creditor, owner/s of a sole proprietorship-debtor, partners
of a partnership-debtor or to any stockholder, director, officer, employee
or underwriter of a corporation-debtor; or
• he has any other direct or indirect material interest in the debtor or any of
the creditors.
 Receiver
Principal duties
• Preserve and maximize the value of the assets of the
debtor during the rehabilitation proceedings,
• Determine the viability of the rehabilitation of the debtor,
• Prepare and recommend a Rehabilitation Plan to the court,
and
• Implement the approved Rehabilitation Plan.

How decisions are challenged

• Any decision of the rehabilitation receiver regarding a claim
may be appealed to the court.
 Receiver
Removal (same as liquidator)
• The rehabilitation receiver may be removed at any time by the court,
either motu proprio or upon motion by any creditor/s holding more than
fifty percent (50%) of the total obligations of the debtor, on such grounds
as the rules of procedure may provide which shall include, but are not
limited to, the following:
• Incompetence, gross negligence, failure to perform or failure to exercise
the proper degree of care in the performance of his duties and powers;
• Lack of a particular or specialized competency required by the specific
case;
• Illegal acts or conduct in the performance of his duties and powers;
• Lack of qualification or presence of any disqualification;
• Conflict of interest that arises after his appointment; and
• Manifest lack of independence that is detrimental to the general body of
the stakeholders.
 Tax Matters
Section 19. Waiver of Taxes and Fees Due to the National
Government and to Local Government Units (LGUs). — Upon
issuance of the Commencement Order by the court, and until
the approval of the Rehabilitation Plan or dismissal of the
petition, whichever is earlier, the imposition of all taxes and
fees, including penalties, interests and charges thereof, due to
the national government or to LGUs shall be considered
waived, in furtherance of the objectives of rehabilitation.

Section 71. Treatment of Amounts of Indebtedness or

Obligations Forgiven or Reduced. — Amounts of any
indebtedness or obligations reduced or forgiven in connection
with a Plan's approval shall not be subject to any tax, in
furtherance of the purposes of this Act.
• LAND BANK OF THE PHILIPPINES V. FASTECH SYNERGY
PHILIPPINES, GR NO. 206150, AUGUST 9, 2017

• A material financial commitment to support a

Rehabilitation Plan becomes significant in gauging the
resolve, determination, earnestness, and good faith of the
distressed corporation in financing the proposed
rehabilitation plan. This commitment may include the
voluntary undertakings of the stockholders or the would-be
investors of the debtor-corporation indicating their
readiness, willingness, and ability to contribute funds or
property to guarantee the continued successful operation
of the debtor-corporation during the period of
rehabilitation.
• PHILIPPINE ASSET GROWTH TWO, INC. V. FASTECH SYNERGY
PHILIPPINES, GR NO. 206528, JUNE 28, 2016

• The purpose of rehabilitation proceedings is not only to enable the

company to gain a new lease on life, but also to allow creditors to
be paid their claims from its earnings when so rehabilitated. Hence,
the remedy must be accorded only after a judicious regard of all
stakeholders' interests; it is not a one-sided tool that may be
graciously invoked to escape every position of distress. Thus, the
remedy of rehabilitation should be denied to corporations whose
insolvency appears to be irreversible and whose sole purpose is to
delay the enforcement of any of the rights of the creditors, which is
rendered obvious by: (a) the absence of a sound and workable
business plan; (b) baseless and unexplained assumptions, targets,
and goals; and (c) speculative capital infusion or complete lack
thereof for the execution of the business plan, as in this case.
• VIVA SHIPPING LINES, INC. V. KEPPEL PHILIPPINES MINING, INC., G.R. NO.
177382, FEBRUARY 17, 2016.

SC took note of the characteristics of an economically feasible rehabilitation plan as

opposed to an infeasible rehabilitation plan:

Characteristics of an economically feasible rehabilitation plan:

a. The debtor has assets that can generate more cash if used in its daily operations
than if sold.
b. Liquidity issues can be addressed by a practicable business plan that will generate
enough cash to sustain daily operations.
c. The debtor has a definite source of financing for the proper and full
implementation of a Rehabilitation Plan that is anchored on realistic assumptions and
goals.

These requirements put emphasis on liquidity: the cash flow that the distressed
corporation will obtain from rehabilitating its assets and operations. A corporation's
assets may be more than its current liabilities, but some assets may be in the form of
land or capital equipment, such as machinery or vessels. Rehabilitation sees to it that
these assets generate more value if used efficiently rather than if liquidated.
On the other hand, this court enumerated the
characteristics of a rehabilitation plan that is infeasible:
(a) the absence of a sound and workable business
plan;
(b) baseless and unexplained assumptions, targets and
goals;
(c) speculative capital infusion or complete lack
thereof for the execution of the business plan;
(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full
depreciation or fully depreciated.
VICTORIO AQUINO V. PACIFIC PLANS, GR NO. 193108, DECEMBER 10,
2014

The cram-down rule states that a rehabilitation plan may be approved

even over the opposition of the creditors holding a majority of the
corporation's total liabilities if there is a showing that rehabilitation is
feasible and the opposition of the creditors is manifestly unreasonable.
This rule is necessary to curb the majority creditors' natural tendency
to dictate their own terms and conditions to the rehabilitation, absent
due regard to the greater long-term benefit of all stakeholders.
Otherwise stated, it forces the creditors to accept the terms and
conditions of the rehabilitation plan, preferring long-term viability over
immediate but incomplete recovery.
BANK OF THE PHILIPPINE ISLANDS V. SARABIA MANOR HOTEL
CORPORATION, G.R. NO. 175844, JULY 29, 2013

In order to determine the feasibility of a proposed rehabilitation plan,

it is imperative that a thorough examination and analysis of the
distressed corporation's financial data must be conducted. If the
results of such examination and analysis show that there is a real
opportunity to rehabilitate the corporation in view of the assumptions
made and financial goals stated in the proposed rehabilitation plan,
then it may be said that a rehabilitation is feasible. In this accord, the
rehabilitation court should not hesitate to allow the corporation to
operate as an on-going concern, albeit under the terms and conditions
stated in the approved rehabilitation plan. On the other hand, if the
results of the financial examination and analysis clearly indicate that
there lies no reasonable probability that the distressed corporation
could be revived and that liquidation would, in fact, better subserve
the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation
court may convert the proceedings into one for liquidation.
Good luck!!!!
Anything worth doing
is worth doing well.
AVOIDANCE PROCEEDINGS: Rescission or Nullity of Certain Transactions
§ Any transaction occurring prior to the issuance of the Liquidation
Order or, in case of the conversion of the rehabilitation proceedings
prior to the commencement date, entered into by the debtor or
involving its assets, may be rescinded or declared null and void on the
ground that the same was executed with intent to defraud a creditor
or creditors or which constitute undue preference of creditors
§ a disputable presumption of such design shall arise if the transaction:
1. provides unreasonably inadequate consideration to the
debtor and is executed within ninety (90) days prior to the
commencement date;
2. involves an accelerated payment of a claim to a creditor
within ninety (90) days prior to the commencement date;
3. provides security or additional security executed within ninety
(90) days prior to the commencement date;
4. involves creditors, where a creditor obtained, or received the
benefit of, more than its pro rata share in the assets of the
debtor, executed at a time when the debtor was insolvent; or
5. is intended to defeat, delay or hinder the ability of the creditors
to collect claims where the effect of the transaction is to put
assets of the debtor beyond the reach of creditors or to
otherwise prejudice the interests of creditors.
ENUMERATION OF ACTS OF INSOLVENCY
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 servirece 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 creditors or claimant;
7. That he has willfully suffered judgment to be taken against him by default
for the purpose of hindering or delaying the liquidation or of defrauding his
creditors;
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 any one 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 any 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; 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.
CONVERSION INTO LIQUIDATION PROCEEDINGS
1. Insolvent debtor and no substantial likelihood for debtor to be successfully
rehabilitatiod
2. Merit in objection of creditors to Plan and not possible to cure defect
3. Court does not confirm within 1 year (Court-supervised) or 120 days (Pre-
negotiated), convert upon motion or motu propio
4. Termination of rehabilitation proceedings due to failure of rehabilitation or
dismissal of petition for reasons other than technical grounds
5. Debtor initiates liquidation proceedings by filing a motion with same court
where rehabilitation proceedings are pending.
FAILURE OF REHABILITATION IN THE FOLLOWING CASES:
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 fails to perform its obligations
thereunder or there is a failure to realize the objectives, targets or goals set
forth therein, including the timelines and conditions for the settlement of
the obligations due to the creditors and other claimants;
5. The commission of fraud in securing the approval of the Rehabilitation Plan
or its amendment; and
6. Other analogous circumstances as may be defined by the rules of
procedure.
UPON A BREACH OF, OR UPON A FAILURE OF THE REHABILITATION PLAN THE COURT,
UPON MOTION BY AN AFFECTED PARTY MAY:
1. Issue an order directing that the breach be cured within a specified period
of time, falling which the proceedings may be converted to a liquidation;
2. Issue an order converting the proceedings to a liquidation;
3. Allow the debtor or rehabilitation receiver to submit amendments to the
Rehabilitation Plan, the approval of which shall be governed by the same
requirements for the approval of a Rehabilitation Plan under this
subchapter;
4. Issue any other order to remedy the breach consistent with the present
regulation, other applicable law and the best interests of the creditors; or
5. Enforce the applicable provisions of the Rehabilitation Plan through a writ
of execution.
EFFECTS OF TERMINATION OF REHAB PROCEEDING
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.
ADMINISTRATIVE EXPENSES
1. Incurred or arising from the filing of a petition under the provisions of this
Act;
2. Arising from, or in connection with, the conduct of the proceedings under
this Act, including those incurred for the rehabilitation or liquidation of the
debtor;
3. Incurred in the ordinary course of business of the debtor after the
commencement date;
4. For the payment of new obligations obtained after the commencement
date to finance the rehabilitation of the debtor;
5. Incurred for the fees of the rehabilitation receiver or liquidator and of the
professionals engaged by them; and
6. That are otherwise authorized or mandated under this Act or such other
expenses as may be allowed by the Supreme Court in its rules.
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