and (c) the date, place and time of the meeting in which the
CORPORATE DEATH
Sec. 134. Voluntary dissolution where no creditors are affected –
Ground: If dissolution of a corporation does not prejudice the rights of
any creditor having a claim against it,
Voting Requirement:
1. Majority vote of the board of directors or trustees, and
2. by a resolution adopted by the affirmative vote of the
stockholders owning at least a majority of the outstanding
capital stock or majority of the members
3. at a meeting to be held upon the call of the directors or
trustees.
Procedure for meeting:
1. At least 20 days prior to the meeting, notice shall be given to
each shareholder personally
2. Notice of the time, place and object of the meeting shall be
published
Procedure before the Commission:
1. A verified request for dissolution shall be filed with the
Commission stating: (a) the reason for dissolution; (b) the
form, manner, and time when the notices were given; (c) the
names of the stockholders and directors or members and
trustees who approved the dissolution; (c) the date, place and
time of the meeting in which the vote was made; and (d)
details of the publication.
2. The corporation shall submit to the Commission the following:
(a) a copy of the resolution authorizing the dissolution,
certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation; and (b)
proof of publication and (c) favorable recommendation from
the appropriate regulatory agency, when necessary.
3. Within 15 days from receipt of the verified request for
dissolution, and in the absence of any withdrawal within the
said period, the commission shall approve the request and
issue of the certificate of dissolution.
The dissolution shall take effect only upon the issuance by the
commission of a certificate of dissolution.
No application for dissolution of banks, banking and quasi banking
institutions, pre-need insurance and trust companies, non stock savings
and loan associations, pawnshops, and other financial intermediaries
shall be approved by the commission unless accompanied by a
favorable recommendation of the appropriate government agency.
Vesagas vs. Court of Appeals
We note that to substantiate their claim of dissolution, petitioners
submitted only two relevant documents: the Minutes of the First Board
Meeting held on January 5, 1997, and the board resolution issued on
April 14, 1997 which declared to continue to consider the club as a non-
registered or a non-corporate entity and just a social association of
respectable and respecting individual members who have associated
themselves, since the 1970s, for the purpose of playing the sports of
tennis x x x.[12] Obviously, these two documents will not suffice. The
requirements mandated by the Corporation Code should have been
strictly complied with by the members of the club. The records reveal
that no proof was offered by the petitioners with regard to the notice and
publication requirements. Similarly wanting is the proof of the board
members certification. Lastly, and most important of all, the SEC Order
of Dissolution was never submitted as evidence.
Sec 135. Voluntary dissolution were creditors are affected;
procedure and contents of petition –
Ground: the dissolution of a corporation may prejudice the rights of any
creditor,
Form of petition:
1. A verified petition for dissolution shall be filed with the
Commission.
a. The petition shall be signed by a majority of the
corporation’s board of directors or trustees,
b. verified by tis president or secretary or one of its
directors or trustees, and shall set forth all claims
and demands against it,
c. and that its dissolution was resolved upon by the
affirmative vote of the stockholders representing at
least 2/3 of the outstanding capital stock or at least
2/3 of the members at a meeting of its stockholders
or members called for that purpose.
2. The petition shall likewise state: (a) the reason for dissolution;
(b) the form, manner, and time when the notices were given;
vote was made. The corporation shall submit to the
Commission the following: (a) a copy of the resolution
authorizing the dissolution, certified by a majority of the board
of directors or trustees and countersigned by the secretary of
the corporation; and (b) a list of all of its creditors.
If the petition is sufficient in form and substance, the commission shall,
by an order reciting the purpose of the petition:
1. fix a deadline for filing objections to the petition which date
shall not be less that 30 days nor more than 60 days after the
entry of the order.
2. Before such date, a copy of the order shall be published at
least once a week for 3 consecutive weeks in a newspaper of
general circulation published in the municipality or city where
the principal office of the corporation is situated, or if there be
no such newspaper, then in a newspaper of general
circulation in the Philippines, and a similar copy shall be
posted for 3 consecutive weeks in 3 public places in such
municipality or city.
Hearing of the petition:
1. The Commission shall proceed to hear the petition and try any
issue raised in the objections filed upon 5 days notice, given
after the date on which the right to file objections as fixed in
the order has expired
The dissolution shall take effect only upon the issuance by the
commission of certificate of dissolution.
Sec 137. Withdrawal of request and petition for dissolution.
Form:
2. made in writing and duly verified by any incorporator, director,
trustee, shareholder, or member and signed by the same
number of incorporators, directors, trustees, shareholders, or
members necessary to request for dissolution as set forth in
the coregoing sections.
3. in the form of a motion and similar in substance to a
withdrawal of request for dissolution but shall be verified and
filed prior to a publication of the order setting of the deadline
for filing objections to the petitions.
4. The withdrawal shall be submitted no later than 15 days from
receipt by the commission of the request for dissolution.
Upon receipt of a withdrawal of request for dissolution, the commission
shall withhold action on the request for dissolution and shall after
investigation: (a) make a pronouncement that the request for dissolution
is deemed withdrawn; (b) direct a joint meeting of the board of directors
or trustees and the stockholders or members for the purpose of
ascertaining whether to proceed with dissolution; or (c) issue such other
orders as it may deem appropriate.
Sec 136. Dissolution by shortening the corporate term. –
How: voluntary dissolution may be effected by amending the articles
of incorporation to shorten the corporate term. A copy of the
amended articles of incorporation shall be submitted to the Commission
in accordance with this Code.
Upon the expiration of the shortened term as stated in the approved
amended articles of incorporation:
the corporation shall be deemed dissolved without any further
proceedings, subject to the provisions of the Code on liquidation.
In the case of expiration of corporate term:
dissolution shall automatically take effect on the day following the last
day of the corporate term stated in the articles of incorporation without
the need for the issuance by the Commission of a certificate of
dissolution.
Alhambra Cigar and Cigarette Manufacturing Corp. vs. SEC
Plain from the language of the provision is its meaning: continuance
of a "dissolved" corporation as a body corporate for three years has
for its purpose the final closure of its affairs, and no other; the
corporation is specifically enjoined from "continuing the business for
which it was established". The liquidation of the corporation's affairs
set forth in Section 77 became necessary precisely because its life
had ended. For this reason alone, the corporate existence and
juridical personality of that corporation to do business may no longer
be extended.
Worth bearing in mind, at this juncture, is the basic development of
corporation law.
The common law rule, at the beginning, was rigid and inflexible in that
upon its dissolution, a corporation became legally dead for all
 purposes. Statutory authorizations had to be provided for its
continuance after dissolution "for limited and specified purposes
incident to complete liquidation of its affairs". Thus, the moment a
corporation's right to exist as an "artificial person" ceases, its
corporate powers are terminated "just as the powers of a natural
person to take part in mundane affairs cease to exist upon his death".
There is nothing left but to conduct, as it were, the settlement of the
estate of a deceased juridical person.
Sec 138. Involuntary dissolution –
How: A corporation may be dissolved by the Commission motu proprio
or upon filing of a verified complaint by any interested party.
The following may be grounds for dissolution of the corporation:
1. Non use of corporate charter as provided under section 21 of
this Code;
2. Continuous inoperation of a corporation as provided under
Section 21 of this Code;
3. Upon receipt of a lawful court order dissolving the corporation;
4. Upon finding by final judgement that the corporation procured
its incorporation through fraud;
5. Upon finding by final judgement that the corporation:
a. Was created for the purpose of committing,
concealing or aiding the commission of securities
violations, smuggling, tax evasion, money
laundering or graft and corrupt practices
b. Committee or aided in the commission of securities
violations, smuggling, tax evasion, money
laundering or graft and corrupt practices and its
stockholders knew; and
c. Repeatedly and knowingly tolerated
commission of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees,
officers or employees.
10142, otherwise known as the Financial Rehabilitation and Insolvency
Act of 2010 (FRIA), the Insolvency Law was expressly repealed on July
18, 2010. The FRIA is currently the special law that governs insolvency.
However, because the relevant proceedings in this case took place
before the enactment of the FRIA, the case needs to be resolved under
the provisions of the Insolvency Law.
Insolvency proceedings are defined as the statutory procedures by
which a debtor obtains financial relief and undergoes judicially
supervised reorganization or liquidation of its assets for the benefit of its
creditors.
Respondent argues that the Regional Trial Court of Manila obtained
jurisdiction because in its Petition for Voluntary Insolvency, respondent
alleged that its principal office was then found in Manila. On the other
hand, petitioner argues that filing the petition before the Regional Trial
Court of Manila was a patent jurisdictional defect as the Regional Trial
Court of Manila did not have territorial jurisdiction over respondent's
residence.
Respondent argues that the Regional Trial Court of Manila obtained
jurisdiction because in its Petition for Voluntary Insolvency, respondent
alleged that its principal office was then found in Manila. On the other
hand, petitioner argues that filing the petition before the Regional Trial
Court of Manila was a patent jurisdictional defect as the Regional Trial
Court of Manila did not have territorial jurisdiction over respondent's
residence.
Wrong venue is merely a procedural infirmity, not a jurisdictional
impediment.81 Jurisdiction is a matter of substantive law, while venue is
the
a matter of procedural law. Jurisdiction is conferred by law, and the
Insolvency Law vests jurisdiction in the Court of First Instance—now the
Regional Trial Court.

If the corporation is ordered dissolved by final judgement pursuant to the

ground un subparagraph 5 hereof, its assets, after payment of its
liabilities shall, upon petition of the Commission with the appropriate
court, be forfeited in favor of the national government. Such forfeiture
shall be without prejudice to the rights of innocent stockholders and
employees for services rendered, and to the application of other penalty
or sanction under this Code or other laws.
The Commission shall give reasonable notice to, and coordinate with the
appropriate regulatory agency prior to the involuntary dissolution of
companies under their special regulatory jurisdiction.
Sec. 139. Corporate liquidation. –
Every corporation whose charter expires pursuant to its articles of
incorporation, is annulled by forfeiture, or whose corporate existence is
terminated in any other manner, shall nevertheless remain as a body
corporate for 3 years after the effective date of dissolution, for the
purpose of:
1. prosecuting and defending suits by or against it and enabling
it to settle and close its affairs;
2. dispose of and convey its property, and
3. distribute its assets,
4. but not for the purpose of continuing the business for which it
was established.
At any time during said 3 years, the corporation is authorized and
empowered:
1. to convey all of its property to trustees for the benefit of
stockholders, members, creditors and other persons in
interest.
2. After any such conveyance by the corporation of its property
in trust for the benefit of its stockholders, members, creditors
and others in interest, all interest which the corporation had in
the property terminates, the legal interest vests in the
trustees, and the beneficial interest in the stockholders,
members, creditors or other persons in interest.
GR: Upon the winding up of its corporate affairs, any asset distributable
to any creditor or stockholder or member who is known or cannot be
found shall be escheated in favor of the national government.
EXP: Except as otherwise provided for in Sections 94 and 95 of this
Code,
GR: No corporation shall distribute any of its assets or property except
upon lawful dissolution and after payment of all its debts and liabilities.
EXP: decrease of capital stock and as otherwise allowed by this Code,
FRIA
Pilipinas Shell Petroleum Corp. vs. Royal Ferry Services, Inc. (2017)
The first insolvency law, Republic Act No. 1956, was entitled "An Act
Providing for the Suspension of Payments, the Relief of Insolvent
Debtors, the Protection of Creditors, and the Punishment of Fraudulent
Debtors (Insolvency Law)". It was derived from the Insolvency Act of
California (1895), with few provisions taken from the United States
Bankruptcy Act of 1898.76 With the enactment of Republic Act No.
Golden Cane Furnityre Manufacturing Corp. vs. Steelpro
Philippines, Inc. (2016)
A corporate rehabilitation case is a special proceeding in rem wherein
the petitioner seeks to establish the status of a party or a particular fact,
i.e., the inability of the corporate debtor to pay its debts when they fall
due. It is summary and non-adversarial in nature. Its end goal is to
secure the approval of a rehabilitation plan to facilitate the successful
recovery of the corporate debtor. It does not seek relief from an injury
caused by another party.
Jurisdiction over corporate rehabilitation cases originally fell within the
jurisdiction of the Securities and Exchange Commission (SEC) which
had absolute jurisdiction, control, and supervision over all Philippine
corporations. With the enactment of the Securities Regulation Code in
2000, this jurisdiction was transferred to the Regional Trial Courts.
Consequently, this Court enacted A.M. No. 00-8-10-SC or the Interim
Rules of Procedure on Corporate Rehabilitation (Interim Rules) which
took effect on December 15, 2000. Under the Interim Rules, a motion for
reconsideration was a prohibited pleading. Orders issued by the
rehabilitation court were also immediately executory unless restrained
by the appellate court.
Viva Shipping Lines, Inc. vs. Keppel Philippines Mining (2016)
Corporate rehabilitation is a remedy for corporations, partnerships, and
associations "who [foresee] the impossibility of meeting [their] debts
when they respectively fall due." A corporation under rehabilitation
continues with its corporate life and activities to achieve solvency, or a
position where the corporation is able to pay its obligations as they fall
due in the ordinary course of business. Solvency is a state where the
businesses' liabilities are less than its assets.
Corporate rehabilitation is a type of proceeding available to a business
that is insolvent. In general, insolvency proceedings provide for
predictability that commercial obligations will be met despite business
downturns. Stability in the economy results when there is assurance to
the investing public that obligations will be reasonably paid.
The rationale in corporate rehabilitation is to resuscitate businesses in
financial distress because "assets . . . are often more valuable when so
maintained than they would be when liquidated." Rehabilitation
assumes that assets are still serviceable to meet the purposes of the
business. The corporation receives assistance from the court and a
disinterested rehabilitation receiver to balance the interest to recover
and continue ordinary business, all the while attending to the interest of
its creditors to be paid equitably. These interests are also referred to as
the rehabilitative and the equitable purposes of corporate rehabilitation.
The nature of corporate rehabilitation was thoroughly discussed in Pryce
Corporation v. China Banking Corporation:
 Corporate rehabilitation is one of many statutorily provided remedies for
businesses that experience a downturn. Rather than leave the various
creditors unprotected, legislation now provides for an orderly procedure
of equitably and fairly addressing their concerns. Corporate
rehabilitation allows a court-supervised process to rejuvenate a
corporation.... It provides a corporation's owners a sound chance to
re-engage the market, hopefully with more vigor and enlightened
services, having learned from a painful experience.
Necessarily, a business in the red and about to incur tremendous losses
may not be able to pay all its creditors. Rather than leave it to the
strongest or most resourceful amongst all of them, the state steps in to
equitably distribute the corporation's limited resources.
....
Rather than let struggling corporations slip and vanish, the better option
is to allow commercial courts to come in and apply the process for
corporate rehabilitation.
Section 2. Declaration of Policy. - It is the policy of the State to
encourage debtors, both juridical and natural persons, and their
creditors to collectively and realistically resolve and adjust competing
claims and property rights. In furtherance thereof, the State shall ensure
a timely, fair, transparent, effective and efficient rehabilitation or
liquidation of debtors. The rehabilitation or liquidation shall be made with
a view to ensure or maintain certainly and predictability in commercial
affairs, preserve and maximize the value of the assets of these debtors,
recognize creditor rights and respect priority of claims, and ensure
equitable treatment of creditors who are similarly situated. When
rehabilitation is not feasible, it is in the interest of the State to facilities a
speedy and orderly liquidation of these debtor's assets and the
settlement of their obligations.
WHO IS A DEBTOR? (Sec. 4)
(k) Debtor shall refer to: sole proprietorship; partnership;
corporation, or an individual debtor who has become insolvent as
defined herein.
EXCLUSIONS (Sec. 5)
The term debtor does not include banks, insurance companies, pre-
need companies, and national and local government agencies or units.
SUBSTANTIVE AND PROCEDURAL CONSOLIDATION (Sec. 7)
RULE: Each juridical entity shall be considered as a separate entity
under the proceedings in this Act.
GR: Under these proceedings, the assets and liabilities of a debtor may
not be commingled or aggregated with those of another,
EXP: the latter is a related enterprise that is owned or controlled directly
or indirectly by the same interests: Provided, that the commingling or
aggregation of assets and liabilities of the debtor with those of a related
enterprise may only be allowed where:
(a) there was commingling in fact of assets and liabilities of
the debtor and the related enterprise prior to the
commencement of the proceedings;
(b) the debtor and the related enterprise have common
creditors and it will be more convenient to treat them together
rather than separately;
(c) the related enterprise voluntarily accedes to join the debtor
as party petitioner and to commingle its assets and liabilities
with the debtor's; and
(d) The consolidation of assets and liabilities of the debtor and
the related enterprise is beneficial to all concerned and
promotes the objectives of rehabilitation.
Note: court not prevented from joining other entities affiliated with the
debtor as parties pursuant to the rules of procedure as may be
promulgated by the Supreme Court.
WHO IS AN INSOLVENT DEBTOR? (Sec. 4)
(p) Insolvent shall refer to the financial condition of a debtor that is:
1. generally unable to pay its or his liabilities as they fall due in
the ordinary course of business or
2. has liabilities that are greater than its or his assets.
(s) Liabilities shall refer to monetary claims against the debtor, including
stockholder's advances that have been recorded in the debtor's audited
financial statements as advances for future subscriptions.
REHABILITATION (Sec. 4)
(gg) Rehabilitation shall refer to:
1. the restoration of the debtor to a condition of successful
operation and solvency,
2. if it is shown that its continuance of operation is economically
feasible
3. 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.
TYPES OF REHABILITATION PROCEEDINGS
(1) Court-Supervised
a. Voluntary Proceedings
b. Involuntary Proceedings
(2) Pre-Negotiated
(3) Out of Court or Informal
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. –
Approval Requirements:
1. When approved by the owner in case of a sole proprietorship,
or
2. a majority of the partners in case of a partnership, or
3. in case of a corporation,
a. by a majority vote of the board of directors or
trustees and
b. authorized by the vote of the stockholders
representing at least two-thirds (2/3) of the
outstanding capital stock
c. at meeting duly called for the purpose
The petition shall be verified to establish the insolvency of the debtor
and the viability of its rehabilitation, and include, whether as an
attachment or as part of the body of the petition, as a minimum the
following:
(a) Identification of the debtor, its principal activities and its addresses;
(b) Statement of the fact of and the cause of the debtor's insolvency or
inability to pay its obligations as they become due;
(c) The specific relief sought pursuant to this Act;
(d) The grounds upon which the petition is based;
(e) Other information that may be required under this Act depending on
the form of relief requested;
(f) Schedule of the debtor's debts and liabilities including a list of creditors
with their addresses, amounts of claims and collaterals, or securities,
(g) An inventory of all its assets including receivables and claims against
third parties;
(h) A Rehabilitation Plan;
(i) The names of at least three (3) nominees to the position of
rehabilitation receiver; and
(j) Other documents required to be filed with the petition pursuant to this
Act and the rules of procedure as may be promulgated by the Supreme
Court.
A group of debtors may jointly file a petition for rehabilitation when:
1. one or more of its members foresee the impossibility of
meeting debts when they respectively fall due, and
2. the financial distress would likely adversely affect the financial
condition and/or operations of the other members of the group
3. and/or the participation of the other members of the group is
essential under the terms and conditions of the proposed
Rehabilitation Plan.
INVOLUNTARY PROCEEDINGS (Sec. 13)
Section 13. Circumstances Necessary to Initiate Involuntary
Proceedings. – Any creditor or group of creditors with a claim of, or the
aggregate of whose claims is:
1. at least One Million Pesos (Php1,000,000.00) or
2. at least twenty-five percent (25%) of the subscribed capital
stock or partners' contributions, whichever is higher,
May initiate involuntary proceedings against the debtor by filing a
petition for rehabilitation with the court if:
(a) there is no genuine issue of fact on law on the claim/s of the
petitioner/s, and that the due and demandable payments thereon
have not been made for at least sixty (60) days or that the debtor has
failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure
proceedings against the debtor that will prevent the debtor from
paying its debts as they become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s'
petition for rehabilitation shall be verified to establish the substantial
likelihood that the debtor may be rehabilitated, and include:
(a) identification of the debtor its principal activities and its address;
(b) the circumstances sufficient to support a petition to initiate involuntary
rehabilitation proceedings under Section 13 of this Act;
(c) the specific relief sought under this Act;
(d) a Rehabilitation Plan;
(e) the names of at least three (3) nominees to the position of rehabilitation
receiver;
(f) other information that may be required under this Act depending on the
form of relief requested; and
(g) other documents required to be filed with the petition pursuant to this Act
and the rules of procedure as may be promulgated by the Supreme Court.
Section 16. Commencement of Proceedings and Issuance of a
Commencement Order. - The rehabilitation proceedings shall
commence upon the issuance of the Commencement Order, which
shall:
(e) declare that the debtor is under rehabilitation
(g) If the petitioner is the debtor direct the service by personal delivery
of a copy of the petition on each creditor holding at least ten percent
(10%) of the total liabilities of the debtor as determined from the
schedule attached to the petition within five (5) days; if the petitioner/s
is/are creditor/s, direct the service by personal delivery of a copy of the
petition on the debtor within five (5) days;
(h) appoint a rehabilitation receiver who may or not be from among the
nominees of the petitioner/s and who shall exercise such powers and
duties defined in this Act as well as the procedural rules that the
Supreme Court will promulgate;
(i) summarize the requirements and deadlines for creditors to establish
their claims against the debtor and direct all creditors to their claims
with the court at least five (5) days before the initial hearing;
(k) prohibit the debtor's suppliers of goods or services from withholding
the supply of goods and services in the ordinary course of business for
as long as the debtor makes payments for the services or goods
supplied after the issuance of the Commencement Order;
(m) set the case for initial hearing, which shall not be more than forty
(40) days from the date of filing of the petition for the purpose of
determining whether there is substantial likelihood for the debtor to be
rehabilitated;
(p) state that any creditor or debtor who is not the petitioner, may
submit the name or nominate any other qualified person to the position
of rehabilitation receiver at least five (5) days before the initial hearing;
(q) include s Stay or Suspension Order which shall:
(1) suspend all actions or proceedings, in court or otherwise, for
the enforcement of claims against the debtor;
(2) suspend all actions to enforce any judgment, attachment or
other provisional remedies against the debtor;
(3) prohibit the debtor from selling, encumbering, transferring or
disposing in any manner any of its properties except in the
ordinary course of business; and
(4) prohibit the debtor from making any payment of its liabilities
outstanding as of the commencement date except as may be
provided herein.
Section 17. Effects of the Commencement Order. - Unless otherwise
provided for in this Act, the court's issuance of a Commencement Order
shall, in addition to the effects of a Stay or Suspension Order described
in Section 16 hereof:
(a) vest the rehabilitation with all the powers and functions provided for
this Act, such as the right to review and obtain records to which the
debtor's management and directors have access, including bank
accounts or whatever nature of the debtor subject to the approval by the
court of the performance bond filed by the rehabilitation receiver;
(b) prohibit or otherwise serve as the legal basis rendering null and void:
1. the results of any extrajudicial activity or process to seize
property,
2. sell encumbered property, or
3. otherwise attempt to collection or enforce a claim against the
debtor after commencement date
(c) serve as the legal basis for rendering null and void:
1. any setoff after the commencement date
2. of any debt owed to the debtor by any of the debtor's creditors;
(d) serve as the legal basis for rendering null and void:
1. the perfection of any lien against the debtor's property after
the commencement date; and
(e) consolidate the resolution of all legal proceedings by and against the
debtor to the court Provided. However, That the court may allow the
continuation of cases on other courts where the debtor had initiated the
suit.
Attempts to seek legal of other resource against the debtor outside these
proceedings shall be sufficient to support a finding of indirect contempt
of court.
Section 18. Exceptions to the Stay or Suspension Order. - The Stay
or Suspension Order shall not apply:
(a) to cases already pending appeal in the Supreme Court as of
commencement date Provided, That any final and executory judgment
arising from such appeal shall be referred to the court for appropriate
action;
(b) subject to the discretion of the court:
1. to cases pending or filed at a specialized court or quasi-
judicial agency
2. which is capable of resolving the claim more quickly, fairly and
efficiently than the court:
3. Provided, That any final and executory judgment of such court
or agency shall be referred to the court and shall be treated
as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons
solidarily liable with the debtor, and third party or accommodation
mortgagors as well as issuers of letters of credit:
1. unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation
of the debtor
2. as determined by the court upon recommendation by the
rehabilitation receiver;
(d) to any form of action of customers or clients of a securities market
participant:
1. to recover or otherwise claim moneys and securities entrusted
to the latter in the ordinary course of the latter's business
2. as well as any action of such securities market participant or
the appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;
(e) to the actions of a licensed broker or dealer to sell pledged securities
of a debtor:
1. pursuant to a securities pledge or margin agreement for the
settlement of securities transactions
2. in accordance with the provisions of the Securities Regulation
Code and its implementing rules and regulations;
(f) the clearing and settlement of financial transactions through the
facilities of a clearing agency or similar entities duly authorized,
registered and/or recognized by the appropriate regulatory agency like
the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form
of actions of such agencies or entities to reimburse themselves for any
transactions settled for the debtor; and
(g) any criminal action against individual debtor or owner, partner,
director or officer of a debtor shall not be affected by any proceeding
commend under this Act.
Section 19. Waiver of taxes and Fees Due to the National Government
and to Local Government Units (LGUs). - Upon issuance of the
Commencement Order by the court, and until the approval of the
Rehabilitation Plan or dismissal of the petition, whichever is earlier,
the imposition of all taxes and fees including penalties, interests and
charges thereof due to the national government or to LGUs shall be
considered waived, in furtherance of the objectives of rehabilitation.
Section 20. Application of Stay or Suspension Order to Government
Financial Institutions.
Section 21. Effectivity and Duration of Commencement Order. – Unless
lifted by the court, the Commencement Order shall be effective:
1. for the duration of the rehabilitation proceedings
2. for as long as there is a substantial likelihood that the debtor
will be successfully rehabilitated.
Section 22. Action at the Initial Hearing. - At the initial hearing, the court
shall:
(a) determine the creditors who have made timely and proper filing of
their notice of claims;
(b) hear and determine any objection to the qualifications of the
appointment of the rehabilitation receiver and, if necessary appoint a
new one in accordance with this Act;
(c) direct the creditors to comment on the petition and the Rehabilitation
Plan, and to submit the same to the court and to the rehabilitation
receiver within a period of not more than twenty (20) days; and
(d) direct the rehabilitation receiver to evaluate the financial condition of
the debtor and to prepare and submit to the court within forty (40) days
from initial hearing the report provided in Section 24 hereof.
Section 23. Effect of Failure to File Notice of Claim. - A creditor whose
claim:
1. is not listed in the schedule of debts and liabilities and
2. who fails to file a notice of claim in accordance with the
Commencement Order
3. but subsequently files a belated claim,
Effect: shall not be entitled to participate in the rehabilitation proceedings
but shall be entitled to receive distributions arising therefrom.
Section 24. Report of the Rehabilitation Receiver. - Within forty (40)
days from the initial hearing and with or without the comments of the
creditors or any of them, the rehabilitation receiver shall submit a report
to the court stating his preliminary findings and recommendations on
whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful
or irregular act or acts committed by the owner/s of a sole proprietorship
partners of a partnership or directors or officers of a corporation in
contemplation of the insolvency of the debtor or which may have
contributed to the insolvency of the debtor;
(b) the underlying assumptions, the financial goals and the procedures
to accomplish such goals as stated in the petitioner's Rehabilitation Plan
are realistic, feasible and reasonable;
(c) there is a substantial likelihood for the debtor to be successfully
rehabilitated;
(d) the petition should be dismissed; and
(e) the debtor should be dissolved and/or liquidated.
Section 25. Giving Due Course to or Dismissal of Petition, or
Conversion of Proceedings. - Within ten (10) days from receipt of the
report of the rehabilitation receiver mentioned in Section 24 hereof the
court may:
(a) give due course to the petition upon a finding that:
(1) the debtor is insolvent; and
(2) there is a substantial likelihood for the debtor to be successfully
rehabilitated;
(b) dismiss the petition upon a finding that:
(1)debtor is not insolvent;
(2) the petition is a sham filing intended only to delay the
enforcement of the rights of the creditor/s or of any group of
creditors;
(3)the petition, the Rehabilitation Plan and the attachments thereto
contain any materially false or misleading statements; or
(4)the debtor has committed acts of misrepresentation or in fraud of
its creditor/s or a group of creditors;
(c)convert the proceedings into one for the liquidation of the debtor upon
a finding that:
(1)the debtor is insolvent; and
(2)there is no substantial likelihood for the debtor to be successfully
rehabilitated as determined in accordance with the rules to be
promulgated by the Supreme Court.
Section 26.Petition Given Due Course. - If the petition is given due
course:
1. the court shall direct the rehabilitation receiver to review,
revise and/or recommend action on the Rehabilitation Plan
and submit the same or a new one to the court within a period
of not more than ninety (90) days.
2. The court may refer any dispute relating to the Rehabilitation
Plan or the rehabilitation proceedings pending before it to
arbitration or other modes of dispute resolution, should it
determine that such mode will resolve the dispute more
quickly, fairly and efficiently than the court.
Section 27.Dismissal of Petition. - If the petition is dismissed pursuant
to paragraph (b) of Section 25 hereof, then the court may:
1. order the petitioner to pay damages to any creditor or to the
debtor, as the case may be,
2. who may have been injured by the filing of the petition, to the
extent of any such injury.
Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified
natural or juridical person may serve as a rehabilitation receiver:
Provided, That if the rehabilitation receiver is a juridical entity, it must
designate a natural person/s who possess/es all the qualifications and
none of the disqualification’s as its representative, it being understood
that the juridical entity and the representative/s are solidarily liable for all
obligations and responsibilities of the rehabilitation receiver.
Section 29.Qualifications of a Rehabilitation Receiver. - The
rehabilitation receiver shall have the following minimum qualifications:
(a)A citizen of the Philippines or a resident of the Philippines in the six
(6) months immediately preceding his nomination;
(b)Of good moral character and with acknowledged integrity, impartiality
and independence;
(c)Has the requisite knowledge of insolvency and other relevant
commercial laws, rules and procedures, as well as the relevant training
and/or experience that may be necessary to enable him to properly
discharge the duties and obligations of a rehabilitation receiver; and
(d)Has no conflict of interest: Provided, That such conflict of interest may
be waived, expressly or impliedly, by a party who may be prejudiced
thereby.
Other qualifications and disqualification’s of the rehabilitation receiver
shall be set forth in procedural rules, taking into consideration the nature
of the business of the debtor and the need to protect the interest of all
stakeholders concerned.
Section 30.Initial Appointment of the Rehabilitation Receiver. - The
court shall initially appoint the rehabilitation receiver, who may or may
not be from among the nominees of the petitioner. However, at the initial
hearing of the petition, the creditors and the debtor who are not
petitioners may nominate other persons to the position. The court may
retain the rehabilitation receiver initially appointed or appoint another
who mayor may not be from among those nominated.
In case the debtor is a securities market participant:
the court shall give priority to the nominee of the appropriate securities
or investor protection fund.
If a qualified natural person or entity is nominated:
1. by more than fifty percent (50%) of the secured creditors and
the general unsecured creditors,
2. and satisfactory evidence is submitted,
3. the court shall appoint the creditors' nominee as rehabilitation
receiver.
Section 31.Powers, Duties and Responsibilities of the Rehabilitation
Receiver. - The rehabilitation receiver shall be deemed an officer of the
court with the principal duty of:
1. preserving and maximizing the value of the assets of the
debtor during the rehabilitation proceedings,
2. determining the viability of the rehabilitation of the debtor,
3. preparing and recommending a Rehabilitation Plan to the
court,
4. and implementing the approved Rehabilitation Plan. Xxx
Note: Unless appointed by the court, pursuant to Section 36 hereof, the
rehabilitation receiver shall not take over the management and control
of the debtor but may recommend the appointment of a management
committee over the debtor in the cases provided by this Act.
Section 32.Removal of the Rehabilitation Receiver. – The rehabilitation
receiver may be removed at any time by the court:
1. motu proprio
2. or upon motion by any creditor/s holding more than fifty
percent (50%) of the total obligations of the debtor
GROUNDS:
(a) Incompetence, gross negligence, failure to perform or failure to
exercise the proper degree of care in the performance of his duties and
powers;
(b) Lack of a particular or specialized competency required by the
specific case;
(c) Illegal acts or conduct in the performance of his duties and powers;
(d) Lack of qualification or presence of any disqualification;
(e) Conflict of interest that arises after his appointment; and
(f) Manifest lack of independence that is detrimental to the general body
of the stakeholders.
Compensation and Terms of Service (Sec. 33)
Oath and Bond of the Rehabilitation Receiver (Sec. 34)
Section 35.Vacancy. - Incase the position of rehabilitation receiver is
vacated for any reason whatsoever, the court shall:
1. direct the debtor and the creditors to submit the name/s of
their nominee/s to the position
2. may appoint any of the qualified nominees. or any other
person qualified for the position.
Section 36.Displacement of Existing Management by the Rehabilitation
Receiver or Management Committee. – Upon motion of any interested
party, the court may:
1. appoint and direct the rehabilitation receiver to assume the
powers of management of the debtor,
2. or appoint a management committee that will undertake the
management of the debtor.
GROUNDS:
(a) Actual or imminent danger of dissipation, loss, wastage or
destruction of the debtor’s assets or other properties;
(b) Paralyzation of the business operations of the debtor; or
(c) Gross mismanagement of the debtor. or fraud or other wrongful
conduct on the part of, or gross or willful violation of this Act by. existing
management of the debtor or the owner, partner, director, officer or
representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume the
powers of management of the debtor. the court may:
(1) require the rehabilitation receiver to post an additional bond;
(2) authorize him to engage the services or to employ persona or entities
to assist him in the discharge of his managerial functions; and
(3) authorize a commensurate increase in his compensation.
ROLE OF MANAGEMENT COMMITTEE (Sec. 37)
Section 40.Conflict of Interest. - No person may be appointed as a
rehabilitation receiver, member of a management committee, or be
employed by the rehabilitation receiver or the management committee if
he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he is so
situated as to be materially influenced in the exercise of his
judgment for or against any party to the proceedings. Without
limiting the generality of the foregoing, an individual shall be deemed to
have a conflict of interest if:
(a) he is a creditor, owner, partner or stockholder of the debtor;
(b) he is engaged in a line of business which competes with that of the
debtor;
(c) he is, or was, within five (5) years from the filing of the petition, a
director, officer, owner, partner or employee of the debtor or any of the
creditors, or the auditor or accountant of the debtor;
(d) he is, or was, within two (2) years from the filing of the petition, an
underwriter of the outstanding securities of the debtor;
(e) he is related by consanguinity or affinity within the fourth civil degree
to any individual creditor, owners of a sale proprietorship-debtor,
partners of a partnership- debtor or to any stockholder, director, officer,
employee or underwriter of a corporation-debtor; or
(f) he has any other direct or indirect material interest in the debtor or
any of the creditors.

Any rehabilitation receiver, member of the management committee or
persons employed or contracted by them possessing any conflict of
interest shall make the appropriate disclosure either to the court or
to the creditors in case of out-of-court rehabilitation proceedings.
Any party to the proceeding adversely affected by the appointment of
any person with a conflict of interest to any of the positions enumerated
above may however waive his right to object to such appointment and,
if the waiver is unreasonably withheld, the court may disregard the
conflict of interest, taking into account the general interest of the
stakeholders.
Section 41.Immunity. - The rehabilitation receiver and all persons
employed by him, and the members of the management committee and
all persons employed by it, shall not be subject to any action. claim
or demand in connection with any act done or omitted to be done
by them in good faith in connection with the exercise of their powers
and functions under this Act or other actions duly approved by the court.
Section 42.Creditors' Committee. The Creditors’ Committee shall assist
the rehabilitation receiver in communicating with the creditors and
shall be the primary liason between the rehabilitation receiver and
creditors.
Section 43.Role of Creditors' Committee
Section 47.Management. - Unless otherwise provided herein, the
management of the juridical debtor shall remain with the existing
management subject to the applicable law/s and agreement/s, if any,
on the election or appointment of directors, managers Or managing
partner
The ff shall be subject to the approval of the rehabilitation receiver and/or
the court:
1. all disbursements, payments or sale, disposal, assignment,
transfer or encumbrance of property , or
2. any other act affecting title or interest in property,
USE, PRESERVATION, AND DISPOSAL OF ASSETS & TREATMENT
OF ASSETS AND CLAIMS AFTER COMMENCEMENT DATE
Section 48.Use or Disposition of Assets. -
GR: no funds or property of the debtor shall be used or disposed of
EXP:
1. in the ordinary course of business of the debtor, or
2. unless necessary to finance the administrative expenses of
the rehabilitation proceedings.
Section 49.Sale of Assets. - The court, upon application of the
rehabilitation receiver, may authorize the sale of unencumbered
property of the debtor outside the ordinary course of business upon a
showing that:
1. the property, by its nature or because of other circumstance,
2. is perishable, costly to maintain, susceptible to devaluation or
otherwise in jeopardy.
Section 52.Rescission or Nullity of Sale, Payment, Transfer or
Conveyance of Assets. - The court may rescind or declare as null and
void any sale, payment, transfer or conveyance of the debtor's
unencumbered property or any encumbering thereof by the debtor or its
agents or representatives after the commencement date which are
not in the ordinary course of the business of the debtor:
Provided, however, That the unencumbered property may be sold,
encumbered or otherwise disposed of upon order of the court after notice
and hearing:
(a) if such are in the interest of administering the debtor and facilitating
the preparation and implementation of a Rehabilitation Plan;
(b) in order to provide a substitute lien, mortgage or pledge of property
under this Act;
(c) for payments made to meet administrative expenses as they arise;
(d) for payments to victims of quasi delicts upon a showing that the claim
is valid and the debtor has insurance to reimburse the debtor for the
payments made;
(e) for payments made to repurchase property of the debtor that is
auctioned off in a judicial or extrajudicial sale under. This Act; or
(f) for payments made to reclaim property of the debtor held pursuant to
a possessory lien.
POST-COMMENCEMENT INTEREST (Sec. 54)
POST-COMMENCEMENT LOANS AND OBLIGATIONS (Sec. 55)
REHABILITATION PLAN (Sec. 62)
Section 64.Creditor Approval of Rehabilitation Plan. – The rehabilitation
receiver shall notify the creditors and stakeholders that the Plan is ready
for their examination. Within twenty (2Q) days from the said notification,
the rehabilitation receiver shall convene the creditors, either as a whole
or per class, for purposes of voting on the approval of the Plan.
The Plan shall be deemed rejected unless:
1. approved by all classes of creditors whose rights are
adversely modified or affected by the Plan.
a. 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.
b. The votes of the creditors shall be based solely on
the amount of their respective claims based on the
registry of claims submitted by the rehabilitation
receiver pursuant to Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the court may
confirm the Rehabilitation Plan if all of the following circumstances are
present:
(a)The Rehabilitation Plan complies with the requirements
(b) The rehabilitation receiver recommends the confirmation of the
Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at
least their controlling interest as a result of the Rehabilitation Plan; and
(d) The Rehabilitation Plan would likely provide the objecting class of
creditors with compensation which has a net present value greater than
that which they would have received if the debtor were under liquidation.
Section 68.Confirmation of the Rehabilitation Plan.
EFFECT OF CONFIMATION OF THE REHABILITATION PLAN (Sec.
69)
Section 70. Liability of General Partners of a Partnership for Unpaid
Balances Under an Approved Plan. - The approval of the Plan shall not
affect the rights of creditors to pursue actions against the general
partners of a partnership to the extent they are liable under relevant
legislation for the debts thereof.
Section 72. Period for Confirmation of the Rehabilitation Plan. - The
court shall have a maximum period of one (1) year from the date of
the filing of the petition to confirm a Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the
proceedings may upon motion or motu propio, be converted into
one for the liquidation of the debtor .
Section 74. Termination of Proceedings. - The rehabilitation
proceedings under Chapter II shall, upon motion by any stakeholder
or the rehabilitation receiver be terminated by order of the court either
declaring a successful implementation of the Rehabilitation Plan or a
failure of rehabilitation.
There is failure of rehabilitation in the following cases:
(a) Dismissal of the petition by the court;
(b) The debtor fails to submit a Rehabilitation Plan;
(c) Under the Rehabilitation Plan submitted by the debtor, there is
no substantial likelihood that the debtor can be rehabilitated within a
reasonable period;
(d) The Rehabilitation Plan or its amendment is approved by the
court but in the implementation thereof, the debtor fails to perform
its obligations thereunder or there is a failure to realize the
objectives, targets or goals set forth therein, including the timelines
and conditions for the settlement of the obligations due to the
creditors and other claimants;
(e) The commission of fraud in securing the approval of the
Rehabilitation Plan or its amendment; and
(f) Other analogous circumstances as may be defined by the rules
of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the court,
upon motion by an affected party may:
(1) Issue an order directing that the breach be cured within a
specified period of time, falling which the proceedings may be
converted to a liquidation;
(2) Issue an order converting the proceedings to a liquidation;
(3) Allow the debtor or rehabilitation receiver to submit amendments
to the Rehabilitation Plan, the approval of which shall be governed
by the same requirements for the approval of a Rehabilitation Plan
under this subchapter;
(4) Issue any other order to remedy the breach consistent with the
present regulation, other applicable law and the best interests of the
creditors; or
(5) Enforce the applicable provisions of the Rehabilitation Plan
through a writ of execution.
Section 75. Effects of Termination. - Termination of the proceedings
shall result in the following:
(a) The discharge of the rehabilitation receiver subject to his
submission of a final accounting; and
(b) The lifting of the Stay Order and any other court order holding in
abeyance any action for the enforcement of a claim against the
debtor.
The proceedings shall be immediately converted to liquidation when:
2. the termination of proceedings is due to failure of rehabilitation
3. or dismissal of the petition for reasons other than technical
grounds,
Phil. Bank of Communications vs. Basic Polyprinters and
Packaging Corp. (2014)
The petitioner next argues that Basic Polyprinters did not present any
material financial commitment in the rehabilitation plan, thereby
violating Section 5, Rule 4 of the Interim Rules, the rule applicable at
the time of the filing of the petition for rehabilitation. In that regard,
Basic Polyprinters made no commitment in relation to the infusion of
fresh capital by its stakeholders, and presented only a “lopsided”
protracted repayment schedule that included the dacion en pago
involving an asset mortgaged to the petitioner itself in favor of another
creditor.
A material financial commitment 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. vs. Fastech Synergy
Philippines, Inc. (2016)
The test in evaluating the economic feasibility of the plan was laid
down in Bank of the Philippine Islands v. Sarabia Manor Hotel
Corporation (Bank of the Philippine Islands), to wit:
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.
In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines
Mining, Inc., the Court took note of the characteristics of an
economically feasible rehabilitation plan as opposed to an infeasible
rehabilitation plan:
Professor Stephanie V. Gomez of the University of the Philippines
College of Law suggests specific 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.
In addition to the tests of economic feasibility, Professor Stephanie V.
Gomez also suggests that the Financial and Rehabilitation and
Insolvency Act of 2010 emphasizes on rehabilitation that provides for
better present value recovery for its creditors.
Present value recovery acknowledges that, in order to pave way for
rehabilitation, the creditor will not be paid by the debtor when the credit
falls due. The court may order a suspension of payments to set a
rehabilitation plan in motion; in the meantime, the creditor remains
unpaid. By the time the creditor is paid, the financial and economic
conditions will have been changed. Money paid in the past has a
different value in the future. It is unfair if the creditor merely receives
the face value of the debt. Present value of the credit takes into
account the interest that the amount of money would have earned if
the creditor were paid on time.
Trial courts must ensure that the projected cash flow from a business'
rehabilitation plan allows for the closest present value recovery for its
creditors. If the projected cash flow is realistic and allows the
corporation to meet all its obligations, then courts should favor
rehabilitation over liquidation. However, if the projected cash flow is
unrealistic, then courts should consider converting the proceedings
into that for liquidation to protect the creditors.
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly
with any of its creditors, may file a verified petition with the court for the
approval of a pre-negotiated Rehabilitation Plan
RQSTS:
1. It must be endorsed or approved by creditors holding at least
two-thirds (2/3) of the total liabilities of the debtor,
2. including secured creditors holding more than fifty percent
(50%) of the total secured claims of the debtor
3. and unsecured creditors holding more than fifty percent (50%)
of the total unsecured claims of the debtor. Xxx
Section 83. Out-of-Court or Informal Restructuring Agreements and
Rehabilitation Plans.
Section 84. Minimum Requirements of Out-of- Court or Informal
Restructuring Agreements and Rehabilitation Plans. - For an out-of-
court or informal restructuring/workout agreement or Rehabilitation Plan
to qualify under this chapter, it must meet the following minimum
requirements:
[a] The debtor must agree to the out-of-court or informal
restructuring/workout agreement or Rehabilitation Plan;
[b] It must be approved by creditors representing at least sixty-
seven (67%) of the secured obligations of the debtor;
[c] It must be approved by creditors representing at least seventy-
five percent (75%) of the unsecured obligations of the debtor; and
[d] It must be approved by creditors holding at least eighty-five
percent (85%) of the total liabilities, secured and unsecured, of the
debtor.
Section 85. Standstill Period. - A standstill period that may be agreed
upon by the parties pending negotiation and finalization of the out-of-
court or informal restructuring/workout agreement or Rehabilitation Plan
contemplated herein shall be effective and enforceable not only against
the contracting parties but also against the other creditors: Provided:
[a] such agreement is approved by creditors representing more than fifty
percent (50%) of the total liabilities of the debtor;
[b] notice thereof is publishing in a newspaper of general circulation in
the Philippines once a week for two (2) consecutive weeks; and
[c] the standstill period does not exceed one hundred twenty (120) days
from the date of effectivity. The notice must invite creditors to participate
in the negotiation for out-of- court rehabilitation or restructuring
agreement and notify them that said agreement will be binding on all
creditors if the required majority votes prescribed in Section 84 of this
Act are met.
Section 86. Cram Down Effect. - A restructuring/workout agreement or
Rehabilitation Plan that is approved pursuant to an informal workout
framework referred to in this chapter shall have the same legal effect
as confirmation of a Plan under Section 69 hereof. The notice of the
Rehabilitation Plan or restructuring agreement or Plan shall be published
once a week for at least three (3) consecutive weeks in a newspaper of
general circulation in the Philippines. The Rehabilitation Plan or
restructuring agreement shall take effect upon the lapse of fifteen (15)
days from the date of the last publication of the notice thereof.
Victorio-Aquino vs. Pacific Plans, Inc. (2014)
Successful rehabilitation of a distressed corporation will benefit its
debtors, creditors, employees, and the economy in general. The court
may approve a rehabilitation plan even over the opposition of creditors
holding a majority of the total liabilities of the debtor if, in its judgment,
the rehabilitation of the debtor is feasible and the opposition of the
creditors is manifestly unreasonable. The rehabilitation plan, once
approved, is 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 have opposed the plan or
whether or not their claims have been scheduled.
Similarly, the reasoning laid down by the CA for the application of the
cram-down power of the Rehabilitation Court is enlightening, thus:
This Court likewise rejects petitioner Aquino’s claims that the Modified
Rehabilitation Plan constitutes an impairment of contracts. The non-
impairment clause under the Constitution applies only to the exercise
 of legislative power. It does not apply to the Rehabilitation Court which
exercises judicial power over the rehabilitation proceedings. As held
by the Supreme Court in Bank of the Philippine Islands vs. Securities
and Exchange Commission, [G.R. No. 164641, December 20, 2007:
"The Court reiterates that the SEC’s approval of the Rehabilitation
Plan did not impair BPI’s right to contract. As correctly contended by
private respondents, the non-impairment clause is a limit on the
exercise of legislative power and not of judicial or quasi-judicial power.
The SEC, through the hearing panel that heard the petition for
approval of the Rehabilitation Plan, was acting as a quasi -judicial
body and thus, its order approving the plan cannot constitute an
impairment of the right and the freedom to contract.
LIQUIDATION
Section 90. Voluntary Liquidation. - An insolvent debtor may apply for
liquidation by filing a petition for liquidation with the court. The petition
shall be verified, shall establish the insolvency of the debtor and shall
contain, whether as an attachment or as part of the body of the petition;
(a) a schedule of the debtor's debts and liabilities including a list of
creditors with their addresses, amounts of claims and collaterals, or
securities, if any;
(b) an inventory of all its assets including receivables and claims against
third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre-
negotiated rehabilitation proceedings, the debtor may also initiate
liquidation proceedings by filing a motion in the same court where
the rehabilitation proceedings are pending to convert the rehabilitation
proceedings into liquidation proceedings. The motion shall be verified,
shall contain or set forth the same matters required in the preceding
paragraph, and state that the debtor is seeking immediate dissolution
and termination of its corporate existence.
If the petition or the motion, as the case may be, is sufficient in form and
substance, the court shall issue a Liquidation Order mentioned in
Section 112 hereof.
Section 91. Involuntary Liquidation. –
WHO: Three (3) or more creditors the aggregate of whose claims
1. is at least either One million pesos (Php1,000,000,00) or
2. at least twenty-five percent (25%0 of the subscribed capital
stock or partner's contributions of the debtor,
3. whichever is higher,
May apply for and seek the liquidation of an insolvent debtor by filing a
petition for liquidation of the debtor with the court. The petition shall
show that:
(a) there is no genuine issue of fact or law on the claims/s of the
petitioner/s, and that the due and demandable payments thereon have
not been made for at least one hundred eighty (180) days or that the
debtor has failed generally to meet its liabilities as they fall due; and
(b) there is no substantial likelihood that the debtor may be rehabilitated.
At any time during the pendency of or after a rehabilitation court-
supervised or pre-negotiated rehabilitation proceedings, three (3) or
more creditors whose claims is at least either One million pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital or partner's contributions of the debtor, whichever is
higher, may also initiate liquidation proceedings by filing a motion
in the same court where the rehabilitation proceedings are pending
to convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set forth the
same matters required in the preceding paragraph, and state that the
movants are seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the court shall
issue an Order:
(1) directing the publication of the petition or motion in a newspaper of
general circulation once a week for two (2) consecutive weeks; and
(2) directing the debtor and all creditors who are not the petitioners to
file their comment on the petition or motion within fifteen (15) days from
the date of last publication.
If, after considering the comments filed, the court determines that the
petition or motion is meritorious, it shall issue the Liquidation Order
mentioned in Section 112 hereof.
Section 92. Conversion by the Court into Liquidation Proceedings. -
During the pendency of court-supervised or pre-negotiated rehabilitation
proceedings, the court may order the conversion of rehabilitation
proceedings to liquidation proceedings pursuant to (a) Section 25(c) of
this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d)
Section 90 of this Act; or at any other time upon the recommendation of
the rehabilitation receiver that the rehabilitation of the debtor is not
feasible. Thereupon, the court shall issue the Liquidation Order
mentioned in Section 112 hereof.
INSOLVENCY OF INDIVIDUAL DEBTORS (Sec. 94)
Section 94. Petition. - An individual debtor who, possessing sufficient
property to cover all his debts but foreseeing the impossibility of meeting
them when they respectively fall due, may file a verified petition that he
be declared in the state of suspension of payments by the court of the
province or city in which he has resides for six (6) months prior to the
filing of his petition.
He shall attach to his petition, as a minimum: (a) a schedule of debts
and liabilities; (b) an inventory of assess; and (c) a proposed agreement
with his creditors.
THE LIQUIDATION ORDER (Sec. 112)
EFFECTS OF LIQUIDATION ORDER (Sec. 113)
A.M. No. 15-04-06 SC
PROHIBITED PLEADINGS (Sec. 3)
Section 9. Conversion by the Court of Rehabilitation Proceedings into
Liquidation Proceedings.
After notice and hearing, the court where rehabilitation proceedings are
pending may also order the conversion of rehabilitation proceedings into
liquidation proceedings in those cases authorized by law, or at any other
time upon the recommendation of the rehabilitation receiver or
management committee that the rehabilitation of the debtor is no longer
feasible. In such case, the FLSP Rules shall apply.
BLUE-SKY SELLING: THE NEED TO REGULATE
"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.xxx
CONSIDERED AS “SECURITIES”
[1] Investment unit instruments,
[2] Investment in real estate,
[3] Investment trust fund and
[4] Derivate
KINDS OF SECURITIES
1. Registrable
2. Exempt from registration
REGISTRABLE:
SEC. 8. Requirement of Registration of Securities.
[8.1] Securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly filed
with and approved by the Commission. Prior to such sale,
information on the securities, in such form and with such substance
as the Commission may prescribe, shall be made available to each
prospective purchaser.
EXEMPT:
[1] exempt securities —themselves are exempt; and
[2] exempt transaction —in other words, even if the securities are not
exempt, they could still be exempt if they are sold in a transaction which
is exempt.
SEC. 12. Procedure for Registration of Securities.
PROSPECTUS DELIVERY RULE
Prospectus Required. - Securities required to be, and which are,
registered pursuant to Sections 8 and 12 of the Code shall not be sold
unless a prospectus:
1. has been filed with the registration statement in the form and
containing the information hereinafter described,
2. widely disseminated and sufficient copies have been made
available
Section 9. Exempt Securities. –
[24.1] The requirement of registration under Subsection 8.1 shall not as
a general rule apply to any of the following classes of securities:
[a] 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.
[b] 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.
[c] Certificates issued by a receiver or by a trustee in bankruptcy
duly approved by the proper adjudicatory body.
[d] 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.
[e] Any security issued by a bank except its own shares of stock.
[f] Any security issued by a financial institution licensed by the
Bangko Sentral ng Pilipinas to engage in quasi-banking, other
than its own shares of stock, shall be exempt from registration under
Section 8.1 of the Code; provided, however, that the purchase and
sale of any such security shall not be exempt from antifraud, civil
liability or other provisions of the Code.
[24.2] The Commission may, by rule or regulation after public hearing,
add to the foregoing any class of securities if it finds that the enforcement
of this Code with respect to such securities is not necessary in the public
interest and for the protection of investors.
Section 10. Exempt Transactions. – 10.1. The requirement of
registration under Subsection 8.1 shall not apply to the sale of any
security in any of the following transactions:
(a) At any judicial sale, or sale by an executor, administrator, guardian
or receiver or trustee in insolvency or bankruptcy.
(c) 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.
(i) 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:
1. when no expense is incurred,
2. or no commission, compensation or remuneration is paid or
given in connection with the sale or disposition of such
securities,
3. 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.
(k) The sale of securities by an issuer to fewer than twenty (20) persons
in the Philippines during any twelve-month period. (Private Placement)
(l) 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.
EFFECT OF AN EXEMPT TRANSACTION:
10.1.1. Disclosure to Investors Any person claiming exemption under
of the Code shall provide to any party to whom it offers or sells securities
in reliance on such exemption a written disclosure containing the
following information:
1. The specific provision of Section 10.1 of the Code on which
the exemption from registration is claimed; and
2. The following statement in bold face:
THE SECURITIES BErNG OFFERED OR SOLD HEREIN HAVE NOT
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES REGULATION CODE. ANY
FUTURE OFFER OR SALE OF THE SECURITIES IS SUBJECT TO
THE REGISTRATION REQUIREMENTS UNDER THE CODE UNLESS
SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT TRANSACTION.
PRIVATE PLACEMENT
10.1 Exemptive relief under Section 10.1(k) (Private Placement) shall be
subject to the following terms and conditions:
[a] The issuer claiming such relief shall not engage in any form of
general solicitation or advertising in connection therewith;
[b] Securities sold in any such transaction may only be sold to
persons purchasing for their own account;
[c] Sales may be made to no more than nineteen (19) non-qualified
buyers. A corporation, partnership or other entity shall be counted
as one buyer; provided, however, if that entity is organized for the
specific purpose of acquiring the securities offered and is not a
qualified buyer under Section 10.1(l) of the Code, then each
beneficial owner of equity securities in the entity shall count as a
separate buyer under this Rule;
[d] The issuer provides any person to whom they offer for sale or
sell securities pursuant thereto with the following information:
[e] The issuer files with the Commission a notice of exemption
from registration requirements
10.1.2.1. A confirmation for an exemption under Private Placement
shall only be given if:
1. the securities sold pursuant to such exemption are purchased
by persons purchasing for their own account
2. and who shall not sell the same for a period of at least one (1)
year (restriction period) from the date of such acquisition.
CONFIRMATION OF AVAILABILITY OF EXEMPTION
If the consideration for the offered securities is other than cash, except
in the case of issuance of shares by way of stock dividends:
1. a request for confirmation of exemption from registration shall
be filed with the Company Registration and Monitoring
Department of the Commission
2. and shall be deemed to include an application for approval of
valuation required under Section 62 ofthe Corporation Code
and vice versa.
Section 13. Rejection and Revocation of Registration of Securities. –
The Commission may reject a registration statement and refuse
registration of the security there-under, or revoke the affectivity of a
registration statement and the registration of the security there-under
after the due notice and hearing by issuing an order to such effect,
setting forth its finding in respect thereto, if it finds that:
(a)The issuer:
(i) Has been judicially declared insolvent;
(ii) 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
(iii) Has been or is engaged or is about to engage in fraudulent
transactions;
(iv) Has made any false or misleading representation of material
facts in any prospectus concerning the issuer or its securities;
(v) 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
(b) The registration statement is on its face:
1. incomplete or inaccurate in any material respect or
2. includes any untrue statements of a material fact required to
be stated therein or necessary to make the statement therein
not misleading; or
(c) The issuer, any officer, director or controlling person performing
similar functions, or any under writer:
1. has been convicted, by a competent judicial or administrative
body, upon plea of guilty, or otherwise,
a. of an offense involving moral turpitude and /or fraud
2. or is enjoined or restrained by the Commission or other
competent or administrative body
a. for violations of securities, commodities, and other
related laws.
Philippine Stock Exchange vs. CA, SEC G.R. 125469
A reading of the foregoing grounds reveals the intention of the
lawmakers to make the registration and issuance of securities
dependent, to a certain extent, on the merits of the securities
themselves, and of the issuer, to be determined by the Securities and
Exchange Commission. This measure was meant to protect the
interests of the investing public against fraudulent and worthless
securities, and the SEC is mandated by law to safeguard these
interests, following the policies and rules therefore provided. The
absolute reliance on the full disclosure method in the registration of
securities is, therefore, untenable. As it is, the Court finds that the
private respondent PALI, on at least two points (nos. 1 and 5) has
failed to support the propriety of the issue of its shares with unfailing
clarity, thereby lending support to the conclusion that the PSE acted
correctly in refusing the listing of PALI in its stock exchange. This does
not discount the effectivity of whatever method the SEC, in the
exercise of its vested authority, chooses in setting the standard for
public offerings of corporations wishing to do so. However, the SEC
must recognize and implement the mandate of the law, particularly the
Revised Securities Act, the provisions of which cannot be amended
or supplanted by mere administrative issuance.
COMMODITY FUTURES CONTRACTS
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.
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.
PROHIBITIONS ON FRAUD, MANIPLATION AND INSIDER
TRADING
Section 24. 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:
(a) 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"):
(i) By effecting any transaction in such security which involves no
change in the beneficial ownership thereof;
(ii) 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
(iii) By performing similar act where there is no change in beneficial
ownership.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
WASH SALE - A wash sale is a sale of a security (stocks, bonds,
options) at a loss and repurchase of the same or substantially identical
security shortly before or after.
IMPROPERLY MATCHED ORDER (SRC RULE 24.1(b)-1-5)
Engaging in transactions where both the buy and sell orders are entered
at the same time with the same price and quantity by different but
colluding parties
MARKING THE CLOSE (SRC RULE 24.1(b)-1-5)
Buying and selling securities at the close of the market in an effort to
alter the closing price of the security
HYPE AND DUMP
Engaging in buying activity at increasingly higher prices and then selling
securities in the market at the higher prices (hype and dump) or vice
versa (i.e. selling activity at lower prices and then buying at such lower
prices);
SQUEEZIING THE FLOAT (SRC RULE 24.1(b)-1-5)
Taking advantage of a shortage of securities in the market by controlling
the demand side and exploiting market congestion during such
shortages in a way as to create artificial prices
STOP LOSS ORDER (INVESTOPEDIA)
A stop-loss order is an order placed with a broker to sell a security when
it reaches a certain price. Stop-loss orders are designed to limit an
investor’s loss on a position in a security. Although most investors
associate a stop-loss order with a long position, it can also protect a
short position, in which case the security gets bought if it trades above
a defined price
Section 26. Fraudulent Transactions. – It shall be unlawful for any
person, directly or indirectly, in connection with the purchase or sale of
any securities to:
26.1. Employ any device, scheme, or artifice to defraud;
26.2. 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
26.3. Engage in any act, transaction, practice or course of business
which operates or would operate as a fraud or deceit upon any person.
INSIDER TRADING
"Insider" means
(a) the issuer;
(b) a director or officer (or any person performing similar functions) of,
or a person controlling the issuer; gives or gave him access to material
information about the issuer or the security that is not generally available
to the public;
(d) A government employee, director, or officer of an exchange, clearing
agency and/or self-regulatory organization who has access to material
information about an issuer or a security that is not generally available
to the public; or
(e) a person who learns such information by a communication from any
forgoing insiders.
Section 27. Insider’s Duty to Disclose When Trading. – 27.1. 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:
1. if transacted after such information came into existence
2. but prior to dissemination of such information to the public
3. 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.
27.2. 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.
PROTECTION OF INVESTORS
TENDER OFFER RULE (Sec. 19, SRC)
Section 19. Tender Offers. – Any person or group of persons acting in
concert who intends to acquire:
1. at least 15% of any class of any equity security of a listed
corporation of any class of any equity security or
2. a corporation with assets of at least fifty million pesos
(50,000,000.00) and having two hundred(200) or more
stockholders at least one hundred shares each or
3. who intends to acquire at least thirty percent(30%) of such
equity over a period of twelve months(12)
4. shall make a tender offer to stockholders by filling with the
Commission a declaration to that effect; and furnish the
issuer, a statement containing such of the information
required in Section 17 of this Code as the Commission may
prescribe.
Such person or group of persons shall publish all request or invitations
or tender offer or requesting such tender offers subsequent to the initial
solicitation or request shall contain such information as the Commission
may prescribe, and shall be filed with the Commission and sent to the
issuer not alter than the time copies of such materials are first published
or sent or given to security holders.
MANDATORY TENDER OFFERS (SRC, RULE 19.1.2)
19.2.1. Except as provided in paragraph 3 below, a person is required
to make a tender offer for equity shares of a public company in an
amount equal to the number of shares that the person intends to acquire
in the following circumstances:
 [i] The person intends to acquire fifteen percent (15%) or more of
the equity shares of a public company pursuant to an agreement
made between or among the person and one or more sellers;
[ii] The person intends to acquire thirty percent (30%) or more of
the equity shares of a public company within a period of 12 months;
or
[iii] The person intends shares that would result in ownership of
more than fifty percent (50%) of the equity shares of a public
company.
RELIEF FROM MANDATORY TENDER OFFER REQUIREMENT
[a] The Commission, upon written application, and consistent with the
policies set forth in Section 2 of the Code and pursuant to its powers
under Section 72.1 thereof, may exempt from the requirement to
make a mandatory tender offer the following proposed purchases of
equity shares of a public company:
[i] the purchase of newly issued shares from unissued capital
stock;
[ii] in connection with foreclosure proceeding involving a duly
constituted pledge or security arrangement where the acquisition
is made by the debtor or creditor;
[iii] purchases in connection with privatization undertaken by the
government of the Philippines; or
[iv] purchases in connection with corporate rehabilitation under
court supervision.
VOLUNTARY TENDER OFFERS (SRC, RULE 19.1.4)
Section 20. Proxy solicitations.
20.2. Proxies must be in writing, signed by the stockholder or his
duly authorized representative and file before the scheduled
meeting with the corporate secretary.
GR: it shall be valid only for the meeting for which it is intended.
EXP: Unless otherwise provided in the proxy,
RULE: No proxy shall be valid and effective for a period longer than five
(5) years at one time.
20.4. No broker or dealer shall give any proxy, consent or any
authorization, in respect of any security carried for the account of the
customer, to a person other than the customer, without written
authorization of such customer.
20.5. A broker or dealer who holds or acquire the proxy for at least ten
percent (10%) or such percentage as the commission may prescribe of
the outstanding share of such issuer, shall submit a report identifying the
beneficial owner of ten days after such acquisition, for its own account
or customer, to the issuer of security, to the exchange where the security
is traded and to the Commission.
REPORTORIAL REQUIREMENTS SEC. 17
CIVIL LIABILITIES ON ACCOUNT OF FALSE REGISTRATION
STATEMENT (Sec. 56, SRC)
CIVIL LIABILITIES ARISING IN CONNECTION WITH PROSPECTUS,
COMMICATIONS AND REPORTS (Sec. 57, SRC)
CIVIL LIABILITY ON ACCOUNT OF INSIDER TRADING (Sec. 61, SRC)
Section 62. Limitation of Actions. – 62.1. No action shall be maintained
to enforce any liability created under Section 56 or 57 of this Code
unless:
1. brought within two (2) years after the discovery of the untrue
statement or the omission, or,
2. if the action is to enforce a liability created under Subsection
57.1 (a), brought within two (2) yeas after the violation upon
which it is based.
In no event shall an such action be brought to enforce a liability created
under Section 56 or Subsection 57.1 (a):
1. more than five (5) years after the security was bona fide
offered to the public, or
2. under Subsection 57.1 (b) more than five (5) years after the
sale.
Section 64. Cease and Desist Order. – 64.1. The Commission, after
proper investigation or verification, motu proprio or upon verified
complaint by any aggrieved party, may issue a cease and desist order
without the necessity of a prior hearing if in its judgment
GROUNDS:
1. the act or practice, unless restrained, will operate as a fraud
on investors
2. or is otherwise likely to cause grave or irreparable injury or
prejudice to the investing public.
64.2. Until the Commission issue a cease and desist order, the fact that
an investigation has been initiated or that a complaint has been filed,
including the contents of the complaint, shall be confidential. Upon
issuance of a cease and desist order, the Commission shall make public
such order and a copy thereof shall be immediately furnished to each
person subject to the order.
64.3. Any person against whom a cease and desist order was issued:
1. May within five (5) days from receipt of the order, file a formal
request for a lifting thereof.
2. request shall be set for hearing by the Commission not later
than fifteen (15) days from its filing
3. the resolution thereof shall be made not later than ten (10)
days from the termination of the hearing.
If the Commission fails to resolve the request within the time herein
prescribed, the cease and desist order shall automatically be lifted.
SEC vs. Performance Foreign Exchange Corporation, G.R. No.
154131, July 20, 2006
Under the above provision, there are two essential requirements that
must be complied with by the SEC before it may issue a cease and
desist order: First, it must conduct proper investigation or verification;
and Second, there must be a finding that the act or practice, unless
restrained, will operate as a fraud on investors or is otherwise likely to
cause grave or irreparable injury or prejudice to the investing public.
Here, the first requirement is not present. Petitioner did not conduct
proper investigation or verification before it issued the challenged
orders. The clarificatory conference undertaken by petitioner
regarding respondents business operations cannot be considered a
proper investigation or verification process to justify the issuance of
the Cease and Desist Order. It was merely an initial stage of such
process, considering that after it issued the said order following the
clarificatory conference, petitioner still sought verification from the
BSP on the nature of respondents business activity. Its letter to the
BSP dated February 8, 2001 states in part:
The Securities and Exchange Commission has been investigating
corporations which engage in foreign currency trading abroad. The
following illustrates their operations:
xxx
Enclosed are pertinent documents which were submitted by a
corporation showing how its transactions operate. It is claimed by the
corporation in question that theirs are all spot transactions and are not
covered by the Bangko Sentral ng Pilipinas. We understand, however,
that in other jurisdiction, this type of activity can only be done by
banks.
Previous inquiries from the Bangko Sentral ng Pilipinas, specifically
Department of Commercial Banks II, and your department,
Commercial Banks I, lead to conclude that this kind of trading in
foreign currencies may be a form of financial derivatives.
May we, therefore, request a definitive statement that the above-
described transactions, and as illustrated in the attached documents,
are a form of financial derivatives and, therefore, can only be
undertaken by banks, or non-bank financial intermediaries performing
quasi-banking functions and/or its subsidiaries/affiliates.[20]
(Underscoring supplied)
Which brings us to the second requirement. Before a cease and desist
order may be issued by the SEC, there must be a showing that the act
or practice sought to be restrained will operate as a fraud on investors
or is likely to cause grave, irreparable injury or prejudice to the
investing public. Such requirement implies that the act to be restrained
has been determined after conducting the proper
investigation/verification. In this case, the nature of the act to be
restrained can only be determined after the BSP shall have submitted
its findings to petitioner. However, there is nothing in the questioned
Orders that shows how the public is greatly prejudiced or damaged by
respondents business operation.
PENALTIES (Sec. 73, SRC)
INTRA-CORPORATE REMEDIEs A.M. NO. 01-2-04-SC
PD 902-A
Sec. 5. In addition to the regulatory and adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships
and other forms of associations registered with it as expressly granted
under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
[a] Devices or schemes employed by or any acts, of the board of In case of nuisance of harassment suit, the court shall forthwith dismiss
directors, business associates, its officers or partnership, amounting to the case
fraud and misrepresentation which may be detrimental to the interest of
the public and/or of the stockholder, partners, members of associations TEST TO DETERMINE THE EXISTENCE OF INTRA-CORPORATE
or organizations registered with the Commission; CONTROVERSY

(1) Relationship Test.

[b] Controversies arising out of intra-corporate or partnership relations,
between and among stockholders, members, or associates; between
(2) Nature of Controversy Test.
any or all of them and the corporation, partnership or association of
which they are stockholders, members or associates, respectively; and
between such corporation, partnership or association and the state • GULFO VS ANCHETA
insofar as it concerns their individual franchise or right to exist as such
Jurisprudence consistently states that an intra-corporate dispute is one
entity; and
that arises from intra-corporate relations; relationships between or
among stockholders; or the relationships between the stockholders and
[c] Controversies in the election or appointments of directors, trustees, the corporation.21 In order to limit the broad definition of intra-corporate
officers or managers of such corporations, partnerships or associations. dispute, this Court has applied the relationship test and
the controversy test.

Section 1. (a) Cases covered. - These Rules shall govern the

procedure to be observed in civil cases involving the following:
(1) Devices or schemes employed by, or any act of, the board of
directors, business associates, officers or partners, amounting to fraud
or misrepresentation which may be detrimental to the interest of the
public and/or of the stockholders, partners, or members of any
corporation, partnership, or association;
(2) Controversies arising out of intra-corporate, partnership, or
association relations, between and among stockholders, members, or
associates; and between, any or all of them and the corporation,
partnership, or association of which they are stockholders, members, or
associates, respectively;
(3) Controversies in the election or appointment of directors, trustees,
officers, or managers of corporations, partnerships, or associations;
(4) Derivative suits; and
(5) Inspection of corporate books.
Sec. 8. Prohibited pleadings. - The following pleadings are
prohibited:
(1) Motion to dismiss;
(2) Motion for a bill of particulars;
(3) Motion for new trial, or for reconsideration of judgment or order, or
for re-opening of trial;
(4) Motion for extension of time to file pleadings, affidavits or any other
paper, except those filed due to clearly compelling reasons. Such motion
must be verified and under oath; and
(5) Motion for postponement and other motions of similar intent, except
those filed due to clearly compelling reasons. Such motion must be
verified and under oath.
ELECTION CONTESTS (Rule 6)
An election contest refers to any controversy or dispute involving title or
claim to any elective office in a stock or non-stock corporation, the
validation of proxies, the manner and validity of elections, and the
qualifications of candidates, including the proclamation of winners, to the
office of director, trustee or other officer directly elected by the
stockholders in a close corporation or by members of a non-stock
corporation where the articles of incorporation or by-laws so provide.
These two tests, when applied, have been the guiding principle in
determining whether the dispute is an intra-corporate controversy or a
civil case.
In Union Glass & Container Corp., et al. v. SEC, et al.,23 the Court
declared that the relationship test determines whether the relationship
is: "
[a] between the corporation, partnership or association and the public;
[b] between the corporation, partnership or association and its
stockholders, partners, members, or officers;
[c] between the corporation, partnership or association and the State
[insofar] as its franchise, permit or license to operate is concerned; and
[d] among the stockholders, partners or associates themselves."
Under this test, no doubt exists that the parties were members of the
same association, but this conclusion must still be supplemented by the
controversy test before it may be considered as an intra-corporate
dispute. Relationship alone does not ipso facto make the dispute intra-
corporate; the mere existence of an intra-corporate relationship does not
always give rise to an intra-corporate controversy. The incidents of that
relationship must be considered to ascertain whether the controversy
itself is intra-corporate.24 This is where the controversy test becomes
material.
Under the controversy test, the dispute must be rooted in the existence
of an intra-corporate relationship, and must refer to the enforcement of
the parties' correlative rights and obligations under the Corporation
Code, as well as the internal and intra-corporate regulatory rules of the
corporation,25 in order to be an intra-corporate dispute. These are
essentially determined through the allegations in the complaint which
determine the nature of the action.
MANAGEMENT COMMITTEE
Section 1. Creation of a management committee. - As an incident to any
of the cases filed under these Rules or the Interim Rules Corporate
Rehabilitation, a party may apply for the appointment of a management
committee for the corporation, partnership or association, when there is
imminent danger of:
(1) Dissipation, loss, wastage or destruction of assets or other
properties; and

INSPECTION OF CORPORATE BOOKS AND RECORDS
Section 1. Cases covered. - The provisions of this Rule shall apply to
disputes exclusively involving the rights of stockholders or members to
inspect the books and records and/or to be furnished with the financial
statements of a corporation, under Sections 74 and 75 of Batas
Pambansa Blg. 68, otherwise known as the Corporation Code of the
Philippines.
(2) Paralyzation of its business operations which may be prejudicial to
the interest of the minority stockholders, parties-litigants or the general
public.
JUDGMENT BEFORE PRE-TRIAL (Rule 4, Sec. 4)
PROVISIONAL REMEDIES (Rule 10)
SANCTIONS ON THE PARTIES OR COUNSEL (Rule 11, Sec. 1)

DERIVATIVE SUITS (Rule 8) DISCIPLINARY SANCTIONS ON THE JUDGE (Rule 11, Sec. 2)
Section 1. Derivative action. — A stockholder or member may bring an
action in the name of a corporation or association, as the case may be,
provided, that:

(1) He was a stockholder or member at the time the acts or transactions

subject of the action occurred and the time the action was filed;

(2) He exerted all reasonable efforts, and alleges the same with
particularity in the complaint, to exhaust all remedies available under the
articles of incorporation, by-laws, laws or rules governing the corporation
or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the acts or acts complained of;
and

(4) The suits is not a nuisance or harassment suit.