INSOLVENCY LAW

(Act No. 1956, as amended)

PURPOSES:

- To effect an equitable distribution of assets of an insolvent debtor among his

creditors;

- To benefit the individual debtor in discharging him from his liabilities and enabling
him to start anew with the property set apart to him as exempt;

- To provide for an orderly mechanism by which the assets of the insolvent debtor
could be converted into money for distribution

REMEDIES ALLOWED TO A DEBTOR

A. Suspension of Payments proceedings

B. Insolvency proceedings
b.1. voluntary
b.2. involuntary

SUSPENSION OF PAYMENT

- A remedy available to the debtor who possessing sufficient property to cover all his
debts foresees the impossibility of meeting them when they respectively fall due,
and, therefore, presents a proposal to pay his obligations on dates later than due
dates

Purpose:

o To seek postponement of the payment of debts in order to provide the

debtor a given period to convert some of his properties to cash

Jurisdiction:

o Regional Trial Court where the petitioner resides

When suspensive effect commences:

o Upon filing of the petition

Who may avail/ Grounds:

a. Individual debtor

 Debtor has sufficient property but foresees the impossibility of

meeting them when they respectively fall due

b. Corporation, partnership or association debtor

 Corporation, partnership or association which possesses

sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due

 C.P.A. has no sufficient assets to cover its liabilities but is

under management of a Rehabilitation Receiver of
Management Committee (Sec. 5, PD 902-A)

Rules:

1. The petition for suspension of payments must include as annex a statement

of assets and liabilities, proposed agreement with creditors, inventory of
assets and a detailed schedule of obligations, amounts and due dates.

2. The effects of the filing of the petition are:

a. Petitioner is prohibited from disposing his property except in the

ordinary operations of the business and from making any payments
outside of the ordinary course of business (Sec. 3)

b. As to the unsecured creditors:

i. Any pending executions of the debtor shall be suspended

before any sale is made;
ii. They cannot sue to collect their claims during the
suspension of payments proceedings.

c. For secured creditors

 No such suspension of proceedings can be obtained (Sec. 6)

3. The court order is issued upon the filing of the petition and is for the purpose
of calling a meeting of creditors who are in the schedule:

a. The following creditors may opt to join the meeting and be bound
therein (they are not bound by any agreement determined upon at
the creditor’s meeting if they refrain from attending:
 i. Those having claims for personal labor, maintenance,
expenses of the last illness and funeral of wife or child of
debtor, incurred during the 60 days immediately preceding
the filing of the petition

ii. Those having legal or contractual mortgages

4. To hold a valid meeting, the creditors representing at least 3/5 of the

liabilities of the debtor must be present (Sec. 8)

5. To obtain a majority, at least 2/3 of the quorum must vote on the same
proposition (Sec. 8(e)) “double majority or 2/3 – 3/5 rule”

6. If the decision of the meeting be negative or if no decision is had, the

proceedings shall be deemed terminated and the parties shall be at liberty to
enforce their rights. If the agreement is approved by the court, the parties
are bound thereby. (Sec. 11)