CONSUMER PRODUCT QUALITY AND SAFETY
the Philippine Government.
Article 5. Declaration of Policy. – It shall be the duty of the
State:
a) to develop and provide safety and quality standards for
consumer products, including performance or
useoriented standards, codes of practice and methods
of tests;
b) to assist the consumer in evaluating the quality,
including safety, performance and comparative utility of
consumer products;
c) to protect the public against unreasonable risks of
injury associated with consumer products;
d) to undertake research on quality improvement of
products and investigation into causes and prevention
of product related deaths, illness and injuries;
e) to assure the public of the consistency of standardized
products.
Article 6. Implementing Agencies. – The provisions of this
Article and its implementing rules and regulations shall be
enforced by:
a) the Department of Health with respect to food, drugs,
cosmetics, devices and substances;
b) the Department of Agriculture with respect to products
related to agriculture, and;
c) the Department of Trade and Industry with respect to
other consumer products not specified above.
Article 7. Promulgation and Adoption of Consumer Product
Standards. – The concerned department shall establish
consumer product quality and safety standards which shall
consist of one or more of the following:
a) requirements to performance, composition, contents,
design, construction, finish, packaging of a consumer
product;
b) requirements as to kind, class, grade, dimensions,
weights, material;
c) requirements as to the methods of sampling, tests and
codes used to check the quality of the products;
d) requirements as to precautions in storage, transporting
and packaging;
e) requirements that a consumer product be marked with
or accompanied by clear and adequate safety
warnings or instructions, or requirements respecting
the form of warnings or instructions.
For this purpose, the concerned department shall adopt existing
government domestic product quality and safety standards:
Provided, That in the absence of such standards, the concerned
department shall form specialized technical committees
composed of equal number of representatives from each of the
Government, business and consumer sectors to formulate,
develop and purpose consumer product quality and safety
standards. The said technical committees shall consult with the
private sector, which may, motu proprio, develop its own quality
and safety standards that shall be subject or agencies after
public hearings have been conducted for that purpose; and shall
likewise consider existing international standards recognized by
Article 8. Publication of Consumer Product Standards. –
The concerned departments shall, upon promulgation of the
above standards, publish or cause the publication of the same
in two (2) newspapers of general circulation at least once a week
for a period of not less than one (1) month. It may likewise
conduct an information campaign through other means deemed
effective to ensure the proper guidance of consumers,
businesses, industries and other sectors concerned.
Article 9. Effectivity of Rules.
a) Each consumer product standard or safety rule shall
specify the date such rule is to take effect, which shall
not exceed ninety (90) days from the date promulgated
unless the concerned department funds, for good
cause shown, that a later effective date is in the public
interest and publishes its reasons for such finding.
After which, it shall no longer be legal to, or cause to,
sell or distribute the consumer product not complying
with the standards or rules.
b) The department may, by regulation, prohibit a
manufacturer from stockpiling consumer products so
as to prevent such manufacturer from circumventing
the purposes of this paragraph. The term "stockpiling"
means manufacturing or importing a product between
the date of promulgation of its consumer product safety
rule and its effective date, at a rate which is significantly
greater than the rate at which such product was
produced or imported during a base period as
prescribed in the regulation under this paragraph,
ending before the date of promulgation of consumer
product safety rule.
Article 10. Injurious, Dangerous and Unsafe Products. –
Whenever the departments find, by their own initiative or by
petition of a consumer, that a consumer product is found to be
injurious, unsafe or dangerous, it shall, after due notice and
hearing, make the appropriate order for its recall, prohibition or
seizure from public sale or distribution: Provided, That, in the
sound discretion of the department it may declare a consumer
product to be imminently injurious, unsafe or dangerous, and
order is immediate recall, ban or seizure from public sale or
distribution, in which case, the seller, distributor, manufacturer
or producer thereof shall be afforded a hearing within forty-eight
(48) hours from such order.
The ban on the sale and distribution of a consumer product
adjudged injurious, unsafe or dangerous, or imminently
injurious, unsafe or dangerous under the preceding paragraph
shall stay in force until such time that its safety can be assured
or measures to ensure its safety have been established.
Article 11. Amendment and Revocation of Declaration of the
Injurious, Unsafe or Dangerous Character of a Consumer
Product. – Any interested person may petition the appropriate
department to commence a proceeding for the issuance of an
amendment or revocation of a consumer product safety rule or
an order declaring a consumer product injurious, dangerous and
unsafe.
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In case the department, upon petition by an interested party or
its own initiative and after due notice and hearing, determines a
consumer product to be substandard or materially defective, it
shall so notify the manufacturer, distributor or seller thereof of
such finding and order such manufacturer, distributor or seller
to:
a) give notice to the public of the defect or failure to
comply with the product safety standards; and
b) give notice to each distributor or retailer of such
product.
The department shall also direct the manufacturer, distributor or
seller of such product to extend any or all of the following
remedies to the injured person:
a) to bring such product into conformity with the
requirements of the applicable consumer product
standards or to repair the defect in order to conform
with the same;
b) to replace the product with a like or equivalent product
which complies with the applicable consumer product
standards which does not contain the defect;
c) to refund the purchase price of the product less a
reasonable allowance for use; and
d) to pay the consumer reasonable damages as may be
determined by the department.
The manufacturer, distributor or seller shall not charge a
consumer who avails himself of the remedy as provided above
of any expense and cost that may be incurred.
Article 12. Effectivity of Amendments and Revocation of
Consumer Product Safety Rule. – Any amendment or
revocation of a consumer product safety rule made by the
concerned department shall specify the date on which it shall
take effect which shall not exceed ninety days from the date of
amendment or revocation is published unless the concerned
department finds, for a good cause shown, that a later effective
date is in the public interest and publishes its reasons for such
finding. The department shall promulgate the necessary rules
for the issuance, amendment or revocation of any consumer
product safety rule.
Article 13. New Products. – The concerned department shall
take measures to make a list of new consumer products and to
cause the publication by the respective manufacturers or
importers of such products a list thereof together with the
descriptions in a newspaper of general circulation.
Article 14. Certification of Conformity to Consumer Product
Standards. – The concerned department shall aim at having
consumer product standards established for every consumer
product so that consumer products shall be distributed in
commerce only after inspection and certification of its quality and
safety standards by the department. The manufacturer shall
avail of the Philippine Standard Certification Mark which the
department shall grant after determining the product's
compliance with the relevant standard in accordance with the
implementing rules and regulations.
Article 15. Imported Products.
a) Any consumer product offered for importation into the
customs of the Philippine territory shall be refused
admission if such product:
1) fails to comply with an applicable
consumer product quality and safety
standard or rule;
2) is or has been determined to be
injurious, unsafe and dangerous; 3)
is substandard; or
4) has material defect.
b) Samples of consumer products being imported into the
Philippines in a quantity necessary for purposes of
determining the existence of any of the above causes
for non-admission may be obtained by the concerned
department or agency without charge from the owner
or consignee thereof. The owner or consignee of the
imported consumer product under examination shall be
afforded an opportunity to a hearing with respect to the
importation of such products into the Philippines. If it
appears from examination of such samples or
otherwise that an imported consumer product does not
conform to the consumer product safety rule or is
injurious, unsafe and dangerous, is substandard or has
a material defect, such product shall be refused
admission unless the owner or the consignee thereof
manifests under bond that none of the above ground
for non-admission exists or that measures have been
taken to cure them before they are sold, distributed or
offered for sale to the general public. Any consumer
product, the sale or use of which has been banned or
withdrawn in the country of manufacture, shall not be
imported into the country.
c) If it appears that any consumer product which may not
be admitted pursuant to paragraph (a) of this Article
can be so modified that it can already be accepted, the
concerned department may defer final examination as
to the admission of such product for a period not
exceeding ten (10) days, and in accordance with such
regulations as the department and the Commissioner
of Customs shall jointly promulgate, such product may
be released from customs custody under bond for the
purpose of permitting the owner or consignee an
opportunity to so modify such product.
d) All modifications taken by an owner or consignee for
the purpose of securing admission of an imported
consumer product under paragraph (c) shall be subject
to the supervision of the concerned department. If the
product cannot be so modified, or if the owner or
consignee is not proceeding to satisfactorily modify
such product, it shall be refused admission and the
department may direct redelivery of the product into
customs custody, and to seize the product if not so
redelivered.
e) Imported consumer products not admitted must be
exported, except that upon application, the
Commissioner of Customs may permit the destruction
of the product if, within a reasonable time, the owner or
consignee thereof fails to export the same.
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 f) All expenses in connection with the destruction
provided for in this Article, and all expenses in
connection with the storage, cartage or labor with
respect to any consumer product refused admission
under this Article, shall be paid by the owner or
consignee and, in default of such payment, shall
constitute a lien against any future importation made
by such owner or consignee.
Article 16. Consumer Products for Export. – The preceding
article on safety not apply to any consumer product if:
a) it can be shown that such product is manufactured,
sold or held for sale for export from the Philippines, or
that such product was imported for export, unless such
consumer product is in fact distributed in commerce for
use in the Philippines; and
b) such consumer product or the packaging thereof bears
a stamp or label stating that such consumer product is
intended for export and actually exported.
Article 17. Powers, functions and duties. – In addition to their
powers, functions and duties under existing laws, the concerned
department shall have the following powers, functions and
duties:
a) to administer and supervise the implementation of this
Article and its implementing rules and regulations;
b) to undertake researches, develop and establish quality
and safety standards for consumer products in
coordination with other government and private
agencies closely associated with these products;
c) to inspect and analyze consumer products for
purposes of determining conformity to established
quality and safety standards;
d) to levy, assess, collect and retain fees as are
necessary to cover the cost of inspection, certification,
analysis and tests of samples of consumer products
and materials submitted in compliance with the
provisions of this Article;
e) to investigate the causes of and maintain a record of
product-related deaths, illnesses and injuries for use in
researches or studies on the prevention of such
product-related deaths, illnesses and injuries.
f) to accredit independent, competent non-government
bodies, to assist in (1) monitoring the market for the
presence of hazardous or non-certified products and
other forms of violations of Article 18; and (2) other
appropriate means to expand the monitoring and
enforcement outreach of the department in relation to
its manpower, testing and certification resources at a
given time.
g) to accredit independent competent testing
laboratories.
PROHIBITED ACTS AND PENALTIES
Article 18. Prohibited Acts. – It shall be unlawful for any person
to:
a) manufacture for sale, offer for sale, distribute in
commerce, or import into the Philippines any consumer
product which is not in conformity with an applicable
consumer product quality or safety standard
promulgated in this Act;
b) manufacture for sale, offer for sale, distribute in
commerce, or import into the Philippines any consumer
product which has been declared as banned consumer
product by a rule in this Act;
c) refuse access to or copying of pertinent records or fail
or refuse to permit entry of or inspection by authorized
officers or employees of the department;
d) fail to comply with an order issued under Article II
relating to notifications of substantial product hazards
and to recall, repair, replacement or refund of unsafe
products;
e) fail to comply with the rule prohibiting stockpiling.
Article 19. Penalties.
a) Any person who shall violate any provision of Article 18
shall upon conviction, be subject to a fine of not less
than One thousand pesos (P1,000.00) but not more
than Ten thousand pesos (P10,000.00) or
imprisonment of not less than two (2) months but not
more than one (1) year, or both upon the discretion of
the court. If the offender is an alien, he shall be
deported after service of sentence and payment of fine
without further deportation proceedings.
b) In case the offender is a naturalized citizen, he shall, in
addition to the penalty prescribed herein, suffer the
penalty of cancellation of his naturalization certificate
and its registration in the civil register and immediate
deportation after service of sentence and payment of
fine.
c) Any director, officer or agent of a corporation who shall
authorize, order or perform any of the acts or practices
constituting in whole or in part a violation of Article 18,
and who has knowledge or notice of noncompliance
received by the corporation from the concerned
department, shall be subject to penalties to which that
corporation may be subject.
In case the violation is committed by, or in the interest of a
foreign juridical person duly licensed to engage in business in
the Philippines, such license to engage in business in the
Philippines shall immediately be revoked.
DECEPTIVE, UNFAIR AND UNCONSCIONABLE SALES
ACTS OR PRACTICES
Article 48. Declaration of Policy. – The State shall promote
and encourage fair, honest and equitable relations among
parties in consumer transactions and protect the consumer
against deceptive, unfair and unconscionable sales acts or
practices.
Article 49. Implementing Agency. – The Department of Trade
and Industry, hereby referred to as the Department, shall
enforce the provisions of this Chapter.
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REGULATION OF SALES ACTS AND PRACTICES
Article 50. Prohibition Against Deceptive Sales Acts or
Practices. – A deceptive act or practice by a seller or supplier
in connection with a consumer transaction violates this Act
whether it occurs before, during or after the transaction. An act
or practice shall be deemed deceptive whenever the producer,
manufacturer, supplier or seller, through concealment, false
representation of fraudulent manipulation, induces a consumer
to enter into a sales or lease transaction of any consumer
product or service.
Without limiting the scope of the above paragraph, the act or
practice of a seller or supplier is deceptive when it represents
that:
a) a consumer product or service has the sponsorship,
approval, performance, characteristics, ingredients,
accessories, uses, or benefits it does not have;
b) a consumer product or service is of a particular
standard, quality, grade, style, or model when in fact it
is not;
c) a consumer product is new, original or unused, when
in fact, it is in a deteriorated, altered, reconditioned,
reclaimed or second-hand state;
d) a consumer product or service is available to the
consumer for a reason that is different from the fact;
e) a consumer product or service has been supplied in
accordance with the previous representation when in
fact it is not;
f) a consumer product or service can be supplied in a
quantity greater than the supplier intends;
g) a service, or repair of a consumer product is needed
when in fact it is not;
h) a specific price advantage of a consumer product
exists when in fact it does not;
i) the sales act or practice involves or does not involve a
warranty, a disclaimer of warranties, particular
warranty terms or other rights, remedies or obligations
if the indication is false; and
j) the seller or supplier has a sponsorship, approval, or
affiliation he does not have.
Article 51. Deceptive Sales Act or Practices By Regulation.
– The Department shall, after due notice and hearing,
promulgate regulations declaring as deceptive any sales act,
practice or technique which is a misrepresentation of facts other
than these enumerated in Article 50.
Article 52. Unfair or Unconscionable Sales Act or Practice.
– An unfair or unconscionable sales act or practice by a seller or
supplier in connection with a consumer transaction violates this
Chapter whether it occurs before, during or after the consumer
transaction. An act or practice shall be deemed unfair or
unconscionable whenever the producer, manufacturer,
distributor, supplier or seller, by taking advantage of the
consumer's physical or mental infirmity, ignorance, illiteracy,
lack of time or the general conditions of the environment or
surroundings, induces the consumer to enter into a sales or
lease transaction grossly inimical to the interests of the
consumer or grossly one-sided in favor of the producer,
manufacturer, distributor, supplier or seller.
In determining whether an act or practice is unfair and
unconscionable, the following circumstances shall be
considered:
a) that the producer, manufacturer, distributor, supplier or
seller took advantage of the inability of the consumer
to reasonably protect his interest because of his
inability to understand the language of an agreement,
or similar factors;
b) that when the consumer transaction was entered into,
the price grossly exceeded the price at which similar
products or services were readily obtainable in similar
transaction by like consumers;
c) that when the consumer transaction was entered into,
the consumer was unable to receive a substantial
benefit from the subject of the transaction;
d) that when the consumer was entered into, the seller or
supplier was aware that there was no reasonable
probability or payment of the obligation in full by the
consumer; and
e) that the transaction that the seller or supplier induced
the consumer to enter into was excessively one-sided
in favor of the seller or supplier.
Article 53. Chain Distribution Plans or Pyramid Sales
Schemes. – Chain distribution plans or pyramid sales schemes
shall not be employed in the sale of consumer products.
Article 54. Home Solicitation Sales. – No business entity shall
conduct any home solicitation sale of any consumer product or
service without first obtaining a permit from the Department.
Such permit may be denied suspended or revoked upon cause
as provided in the rules and regulations promulgated by the
Department, after due notice and hearing.
Article 55. Home Solicitation Sales; When Conducted. –
Home solicitation sales may be conducted only between the
hours of nine o'clock in the morning and seven o'clock in the
evening of each working day: Provided, That solicitation sales
may be made at a time other than the prescribed hours where
the person solicited has previously agreed to the same.
Article 56. Home Solicitation Sales; by Whom Conducted. –
Home solicitation sales shall only be conducted by a person who
has the proper identification and authority from his principal to
make such solicitations.
Article 57. Receipts for Home Solicitation Sales. – Sales
generated from home solicitation sales shall be properly
receipted as per existing laws, rules and regulations on sale
transactions.
Article 58. Prohibited Representations. – A home solicitation
sale shall not represent that:
a) the buyer has been specially selected;
b) a survey, test or research is being conducted; or
c) the seller is making a special offer to a few persons
only for a limited period of time.
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Article 59. Referral Sales. – Referral selling plans shall not be
used in the sale of consumer products unless the seller executes
in favor of the buyer a written undertaking that will grant a
specified compensation or other benefit to said buyer in return
for each and every transaction consummated by said seller with
the persons referred by said buyer or for subsequent sales that
said buyers has helped the seller enter into.
Article 60. Penalties.
a) Any person who shall violate the provisions of Title III,
Chapter I, shall upon conviction, be subject to a fine of
not less than Five Hundred Pesos (P500.00) but not
more than Ten Thousand Pesos (P10,000.00) or
imprisonment of not less than five (5) months but not
more than one (1) year or both, upon the discretion of
the court.
b) In addition to the penalty provided for in paragraph (1),
the court may grant an injunction restraining the
conduct constituting the contravention of the provisions
of Articles 50 and 51 and/or actual damages and such
other orders as it thinks fit to redress injury to the
person caused by such conduct.
CONSUMER PRODUCT AND SERVICE WARRANTIES
Article 66. Implementing Agency. – The Department of Trade
and Industry, shall strictly enforce the provision of this Chapter
and its implementing rules and regulations.
Article 67. Applicable Law on Warranties. – The provisions of
the Civil Code on conditions and warranties shall govern all
contracts of sale with conditions and warranties.
Article 68. Additional Provisions on Warranties. – In addition
to the Civil Code provisions on sale with warranties, the following
provisions shall govern the sale of consumer products with
warranty:
a) Terms of express warranty. – Any seller or
manufacturer who gives an express warranty shall: 1)
set forth the terms of warranty in clear and readily
understandable language and clearly identify himself
as the warrantor;
2) identify the party to whom the warranty is
extended;
3) state the products or parts covered;
4) state what the warrantor will do in the event of
a defect, malfunction of failure to conform to
the written warranty and at whose expense;
5) state what the consumer must do to avail of
the rights which accrue to the warranty; and
6) stipulate the period within which, after notice
of defect, malfunction or failure to conform to
the warranty, the warrantor will perform any
obligation under the warranty.
b) Express warranty – operative from moment of sale. –
All written warranties or guarantees issued by a
manufacturer, producer, or importer shall be operative
from the moment of sale.
1) Sales Report. – All sales made by
distributors of products covered by this Article
shall be reported to the manufacturer,
producer, or importer of the product sold
within thirty (30) days from date of purchase,
unless otherwise agreed upon. The report
shall contain, among others, the date of
purchase, model of the product bought, its
serial number, name and address of the
buyer. The report made in accordance with
this provision shall be equivalent to a warranty
registration with the manufacturer, producer,
or importer. Such registration is sufficient to
hold the manufacturer, producer, or importer
liable, in appropriate cases, under its
warranty.
2) Failure to make or send report. – Failure of
the distributor to make the report or send
them the form required by the manufacturer,
producer, or importer shall relieve the latter of
its liability under the warranty: Provided,
however, That the distributor who failed to
comply with its obligation to send the sales
reports shall be personally liable under the
warranty. For this purpose, the manufacturer
shall be obligated to make good the warranty
at the expense of the distributor.
3) Retail. – The retailer shall be subsidiarily
liable under the warranty in case of failure of
both the manufacturer and distributor to honor
the warranty. In such case, the retailer shall
shoulder the expenses and costs necessary
to honor the warranty. Nothing therein shall
prevent the retailer from proceeding against
the distributor or manufacturer.
4) Enforcement of warranty or guarantee. –
The warranty rights can be enforced by
presentment of a claim. To this end, the
purchaser needs only to present to the
immediate seller either the warranty card of
the official receipt along with the product to be
serviced or returned to the immediate seller.
No other documentary requirement shall be
demanded from the purchaser. If the
immediate seller is the manufacturer's factory
or showroom, the warranty shall immediately
be honored. If the product was purchased
from a distributor, the distributor shall likewise
immediately honor the warranty. In the case
of a retailer other than the distributor, the
former shall take responsibility without cost to
the buyer of presenting the warranty claim to
the distributor in the consumer's behalf.
5) Record of purchases. – Distributors and
retailers covered by this Article shall keep a
record of all purchases covered by a warranty
or guarantee for such period of time
corresponding to the lifetime of the product's
respective warranties or guarantees.
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 6) Contrary stipulations – null and void. – All
covenants, stipulations or agreements
contrary to the provisions of this Article shall
be without legal effect.
c) Designation of warranties. – A written warranty shall
clearly and conspicuously designate such warranty as:
1) "Full warranty" if the written warranty meets
the minimum requirements set forth in
paragraph (d);
or
2) "Limited warranty" if the written warranty
does not meet such minimum requirements.
d) Minimum standards for warranties. – For the
warrantor of a consumer product to meet the minimum
standards for warranty, he shall:
1) remedy such consumer product within a
reasonable time and without charge in case of
a defect, malfunction or failure to conform to
such written warranty;
2) permit the consumer to elect whether to ask
for a refund or replacement without charge of
such product or part, as the case may be,
where after reasonable number of attempts to
remedy the defect or malfunction, the product
continues to have the defect or to malfunction.
The warrantor will not be required to perform the above duties if
he can show that the defect, malfunction, or failure to conform
to a written warranty was caused by damage due to
unreasonable use thereof.
e) Duration of warranty. – The seller and the consumer
may stipulate the period within which the express
warranty shall be enforceable. If the implied warranty
on merchantability accompanies an express warranty,
both will be of equal duration.
Any other implied warranty shall endure not less than
sixty (60) days nor more than one (1) year following the
sale of new consumer products.
f) Breach of warranties.
1) In case of breach of express warranty, the
consumer may elect to have the goods
repaired or its purchase price refunded by the
warrantor. In case the repair of the product in
whole or in part is elected, the warranty work
must be made to conform to the express
warranty within thirty (30) days by either the
warrantor or his representative. The thirty-day
period, however, may be extended by
conditions which are beyond the control of the
warrantor or his representative. In case the
refund of the purchase price is elected, the
amount directly attributable to the use of the
consumer prior to the discovery of the non-
conformity shall be deducted.
2) In case of breach of implied warranty, the
consumer may retain in the goods and
recover damages, or reject the goods, cancel
and contract and recover from the seller so
much of the purchase price as has been paid,
including damages.
Article 69. Warranties in Supply of Services.
a) In every contract for the supply of services to a
consumer made by a seller in the course of a business,
there is an implied warranty that the service will be
rendered with due care and skill and that any material
supplied in connection with such services will be
reasonably fit for the purpose for which it is supplied.
b) Where a seller supplies consumer services in the
course of a business and the consumer, expressly or
by implication, makes known to the seller the particular
purpose for which the services are required, there is an
implied warranty that the services supplied under the
contract and any material supplied in connection
therewith will be reasonably fit for that purpose or are
of such a nature or quality that they might reasonably
be expected to achieve that result, unless the
circumstances show that the consumer does not rely
or that it is unreasonable for him to rely, on the seller's
skill or judgment.
Article 70. Professional Services. – The provision of this Act
on warranty shall not apply to professional services of certified
public accountants, architects, engineers, lawyers,
veterinarians, optometrists, pharmacists, nurses, nutritionists,
dietitians, physical therapists, salesmen, medical and dental
practitioners and other professionals engaged in their respective
professional endeavors.
Article 71. Guaranty of Service Firms. – Service firms shall
guarantee workmanship and replacement of spare parts for a
period not less than ninety (90) days which shall be indicated in
the pertinent invoices.
Article 72. Prohibited Acts. – The following acts are prohibited:
a) refusal without any valid legal cause by the total
manufacturer or any person obligated under the
warranty or guarantee to honor a warranty or
guarantee issued;
b) unreasonable delay by the local manufacturer or any
person obligated under the warranty or guarantee in
honoring the warranty;
c) removal by any person of a product's warranty card for
the purpose of evading said warranty obligation;
d) any false representation in an advertisement as to the
existence of a warranty or guarantee.
Article 73. Penalties.
a) Any person who shall violate the provisions of Article
67 shall be subject to fine of not less than Five hundred
pesos (P500.00) but not more than Five thousand
pesos (P5,000.00) or an imprisonment of not less than
three (3) months but not more than two (2) years or
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 both upon the discretion of the court. A second
conviction under this paragraph shall also carry with it
the penalty or revocation of his business permit and
license.
b) Any person, natural or juridical, committing any of the
illegal acts provided for in Chapter III, except with
respect to Article 67, shall be liable for a fine of not less
than One thousand pesos (P1,000.00) but not more
than Fifty thousand pesos (P50,000.00) or
imprisonment for a period of at least one (1) year but
not more than five (5) years, or both, at the discretion
of the court.
The imposition of any of the penalties herein provided is without
prejudice to any liability incurred under the warranty or
guarantee.
LABELING AND FAIR PACKAGING
Article 74. Declaration of Policy. – The State shall enforce
compulsory labeling, and fair packaging to enable the consumer
to obtain accurate information as to the nature, quality and
quantity of the contents of consumer products and to facilitate
his comparison of the value of such products.
Article 75. Implementing Agency. – The Department of Trade
and Industry shall enforce the provisions of this Chapter and its
implementing rules and regulations: Provided, That with respect
to food, drugs, cosmetics, devices and hazardous substances,
it shall be enforced by the concerned department.
Article 76. Prohibited Acts on Labeling and Packaging. – It
shall be unlawful for any person, either as principal or agent,
engaged in the labeling or packaging of any consumer product,
to display or distribute or to cause to be displayed or distributed
in commerce any consumer product whose package or label
does not conform to the provisions of this Chapter.
The prohibition in this Chapter shall not apply to persons
engaged in the business of wholesale or retail distributors of
consumer products except to the extent that such persons:
a) are engaged in the packaging or labeling of such
products;
b) prescribe or specify by any means the manner in
which such products are packaged or labeled; or
c) having knowledge, refuse to disclose the source of
the mislabeled or mispackaged products.
Article 77. Minimum Labeling Requirements for Consumer
Products. – All consumer products domestically sold whether
manufactured locally or imported shall indicate the following in
their respective labels of packaging:
a) its correct and registered trade name or brand
name;
b) its duly registered trademark;
c) its duly registered business name;
d) the address of the manufacturer, importer, re-
packer of the consumer product in the Philippines;
e) its general make or active ingredients;
f) the net quality of contents, in terms of weight,
measure or numerical count rounded off to at least
the nearest tenths in the metric system;
g) country of manufacture, if imported; and
h) if a consumer product is manufactured, refilled or
repacked under license from a principal, the label
shall so state the fact.
The following may be required by the concerned department in
accordance with the rules and regulations they will promulgate
under authority of this Act:
a) whether it is flammable or inflammable;
b) directions for use, if necessary;
c) warning of toxicity;
d) wattage, voltage or amperes; or
e) process of manufacture used if necessary.
Any word, statement or other information required by or under
authority of the preceding paragraph shall appear on the label
or labeling with such conspicuousness as compared with other
words, statements, designs or devices therein, and in such
terms as to render it likely to be read and understood by the
ordinary individual under customary conditions of purchase or
use.
The above requirements shall form an integral part of the label
without danger of being erased or detached under ordinary
handling of the product.
Article 78. Philippine Product Standard Mark. – The label
may contain the Philippine Product Standard Mark if it is certified
to have passed the consumer product standard prescribed by
the concerned department.
Article 79. Authority of the Concerned Department to
Provide for Additional Labeling and Packaging
Requirements. – Whenever the concerned department
determines that regulations containing requirements other than
those prescribed in Article 77 hereof are necessary to prevent
the deception of the consumer or to facilitate value comparisons
as to any consumer product, it may issue such rules and
regulations to:
a) establish and define standards for characterization
of the size of a package enclosing any consumer
product which may be used to supplement the
label statement of net quality, of contents of
packages containing such products but this clause
shall not be construed as authorizing any limitation
on the size, shape, weight, dimensions, or number
of packages which may be used to enclose any
product;
b) regulate the placement upon any package
containing any product or upon any label affixed to
such product of any printed matter stating or
representing by implication that such product is
offered for retail at a price lower than the ordinary
and customary retail price or that a price
advantage is accorded to purchases thereof by
7
 reason of the size of the package or the quantity
of its contents;
c) prevent the nonfunctional slack-fill of packages
containing consumer products.
For purposes of paragraph (c) of this Article, a package shall be
deemed to be nonfunctionally slack-filled if it is filled to
substantially less than its capacity for reasons other than (1)
protection of the contents of such package, (2) the requirements
of machines used for enclosing the contents in such package,
or (3) inherent characteristics of package materials or
construction being used.
Article 80. Special Packaging of Consumer Products for the
Protection of Children. – The concerned department may
establish standards for the special packaging of any consumer
product if it finds that:
a) the degree or nature of the hazard to children in
the availability of such product, by reason of its
packaging, is such that special packaging is
required to protect children from serious personal
injury or serious illness resulting from handling and
use of such product; and
b) the special packaging to be required by such
standard is technically feasible, practicable and
appropriate for such product. In establishing a
standard under this Article, the concerned
department shall consider:
1) the reasonableness of such
standard;
2) available scientific, medical and
engineering data concerning special
packaging and concerning
accidental, ingestions, illnesses and
injuries caused by consumer
product; 3) the manufacturing
practices of industries affected by
this Article; and 4) the nature and
use of consumer products.
Article 81. Price Tag Requirement. – It shall be unlawful to
offer any consumer product for retail sale to the public without
an appropriate price tag, label or marking publicly displayed to
indicate the price of each article and said products shall not be
sold at a price higher than that stated therein and without
discrimination to all buyers: Provided, That lumber sold,
displayed or offered for sale to the public shall be tagged or
labeled by indicating thereon the price and the corresponding
official name of the wood: Provided, further, That if consumer
products for sale are too small or the nature of which makes it
impractical to place a price tag thereon price list placed at the
nearest point where the products are displayed indicating the
retail price of the same may suffice.
Article 82. Manner of Placing Price Tags. – Price tags, labels
or markings must be written clearly, indicating the price of the
consumer product per unit in pesos and centavos.
Article 83. Regulations for Price Tag Placement. – The
concerned department shall prescribe rules and regulations for
the visible placement of price tags for specific consumer
products and services. There shall be no erasures or alterations
of any sort of price tags, labels or markings.
Article 84. Additional Labeling Requirements for Food. –
The following additional labeling requirements shall be imposed
by the concerned department for food:
a) expiry or expiration date, where applicable;
b) whether the consumer product is semi-processed,
fully processed, ready-to-cook, ready-to-eat,
prepared food or just plain mixture;
c) nutritive value, if any;
d) whether the ingredients use are natural or
synthetic, as the case may be;
e) such other labeling requirements as the
concerned department may deem necessary and
reasonable.
Article 85. Mislabeled Food. – A food shall also be deemed
mislabeled:
a) if its labeling or advertising is false or misleading
in any way;
b) if it is offered for sale under the name of another
food;
c) if it is an imitation of another food, unless its label
bears in type of uniform size and prominence, the
word "imitation" and, immediately thereafter, the
name of the food imitated;
d) its containers is so made, formed, or filled as to be
misleading;
e) if in package form unless it bears a label
conforming to the requirements of this Act:
Provided, That reasonable variation on the
requirements of labeling shall be permitted and
exemptions as to small packages shall be
established by the regulations prescribed by the
concerned department of health;
f) if any word, statement or other information
required by or under authority of this Act to appear
on the principal display panel of the label or
labeling is not prominently placed thereon with
such conspicuousness as compared with other
words, statements, designs or devices in the
labeling and in such terms as to render it likely to
be read and understood by the ordinary individual
under customary conditions of purchase and use;
g) if it purports to be or is represented as a food for
which a definition or standard of identity has been
prescribed unless:
1) it conforms to such definition and
standard; and
2) its labels bears the name of the food
specified in the definition or standards,
and insofar as may be required by such
regulations, the common names of
optional ingredients other than spices,
flavoring and coloring, present in such
food.
h) if it purports to be or represented as:
8
 1) a food for which a standard of quality has
been prescribed by regulations as
provided in this Act and its quality fall
below such standard, unless its label
bears in such manner and form as such
regulations specify, a statement that it
falls below such standard; or
2) a food for which a standard or standards
or fill of container have been prescribed
by regulations as provided by this Act
and it falls below the standard of fill of
container applicable thereto, unless its
label bears, in such manner and form as
such regulations specify, a statement
that it falls below such standard.
i) if it is not subject to the provisions of paragraph (g)
of this Article unless its label bears:
1) the common or usual name of the food, if
there be any; and
2) in case it is manufactured or processed
from two or more ingredients, the
common or usual name of such
ingredient; except the spices, flavorings
and colorings other than those sold as
such, may be designated as spices,
flavorings and colorings without naming
each: Provided, That to the extent that
compliance with the requirement of
clause (2) of this paragraph is
impracticable or results in deception or
unfair competition, exemptions shall be
established by regulations promulgated
by the concerned department of health.
j) if it purports to be or is represented for special
dietary uses, unless its label bears such
information concerning its vitamin or mineral or
other dietary properties as the concerned
department determines to be, or by regulations
prescribed as necessary in order fully to inform
purchasers as its value for such uses;
k) if it bears or contains any artificial flavoring,
artificial coloring, or chemical preservative, unless
it bears labeling, stating that fact: Provided, That
to the extent that compliance with the
requirements of this paragraph is impracticable,
exemptions shall be established by regulations
promulgated by the concerned department. The
provisions of this paragraph or paragraphs (g) and
(i) with respect to the artificial coloring shall not
apply in the case of butter, cheese or ice cream.
Article 86. Labeling of Drugs. – The Generics Act shall apply
in the labeling of drugs.
Article 87. Additional Labeling Requirements for
Cosmetics. – The following additional requirements may be
required for cosmetics:
a) expiry or expiration date;
b) whether or not it may be an irritant;
c) precautions or contra-indications; and
d) such other labeling requirements as the
concerned department may deem necessary and
reasonable.
Article 88. Special Labeling Requirements for Cosmetics. –
A cosmetic shall be deemed mislabeled:
a) if its labeling or advertising is false or misleading
in any way;
b) if in package form unless it bears a label
conforming to the requirements of labeling
provided for in this Act or under existing
regulations: Provided, That reasonable variations
shall be permitted, and exemptions as to small
packages shall be established by regulations
prescribed by the concerned department;
c) if any word, statement or other information
required by or under authority of this Act to appear
on the label or labeling is not prominently placed
thereon with such conspicuousness, as compared
with other words, statements, designs or devices
in the labeling, and in such terms as to render it
likely to be read and understood by the ordinary
individual under customary conditions of purchase
and use;
d) if its container is so made, formed or filled as to be
misleading; or
e) if its label does not state the common or usual
name of its ingredients.
Article 89. Mislabeled Drugs and Devices. – A drug or device
shall be deemed to be mislabeled:
a) if its labeling is false or misleading in any way;
b) if its in package form unless it bears a label
conforming to the requirements of this Act or the
regulations promulgated therefor: Provided, that
reasonable variations shall be permitted and
exemptions as to small packages shall be
established by regulations prescribed by the
concerned department.
c) if any word, statement or other information
required by or under authority of this Act to appear
on the principal display panel of the label or
labeling is not prominently placed thereon with
such conspicuousness as compared with other
words, statements, designs or devices in the
labeling and in such terms as to render it likely to
be read and understood by the ordinary individual
under customary conditions of purchase and use;
d) if it is for use by man and contains any quantity of
the narcotic or hypnotic substance alpha-eucaine,
barbituric acid, beta-eucaine, bromal, cannabis,
carbromal, chloral, coca, cocaine, codeine, heroin,
marijuana, morphine, opium, paraldehyde, peyote
or sulfonmethane, or any chemical derivative of
such substance, which derivative has been
designated by the concerned department after
investigation, and by regulations as habit forming;
unless its label bears the name and quantity or
proportion of such substance or derivative and in
9
 juxtaposition therewith the statement "Warning-
May be habit forming"; e) its labeling does not
bear:
1) adequate directions for use; and
2) such adequate warning against use in
those pathological conditions or by
children where its use may be dangerous
to health, or against unsafe dosage or
methods or duration of administration or
application, in such manner and form, as
are necessary for the protection of users:
Provided, That where any requirement of
clause (1) of this paragraph, as applied to
any drug or device, is not necessary for
the protection of the public health, the
concerned department may promulgate
regulations exempting such drug or
device from such requirement;
f) if it purports to be a drug the name of which is
recognized in an official compendium, unless it is
packaged and labeled as prescribed therein:
Provided, That the method of packing may be
modified with the consent of the concerned
department;
g) if it has been found by the concerned department
to be a drug liable to deterioration, unless it is
packaged in such form and manner, and its label
bears a statement of such precautions, as the
concerned department, shall by regulations,
require as necessary for the protection of the
public health;
h) 1) if it is a drug and its container is so made,
formed or filled as to be misleading; or
2) if it is an imitation of another drug; or
3) if it is dangerous to health when used in the
dosage, or with the frequency of duration
prescribed, recommended or suggested in the
labeling thereof;
i) if it is, purports to be or is represented as a drug
composed wholly or partly of insulin or of any kind
of penicillin, streptomycin, chlortetracycline,
chloramphenicol, bacitracin, or any other antibiotic
drug, or any derivative thereof, unless:
1) it is from a batch with respect to which a
certificate of release has been issued
pursuant to regulations of the concerned
department; and
2) such certificate of release is in effect with
respect to such drug: Provided, That this
paragraph shall not apply to any drug or
class of drugs exempted by regulations
promulgated under Authority of this Act.
Article 90. Regulation-making Exemptions. – The concerned
department may promulgate regulations exempting from any
labeling requirements of this Act food, cosmetics, drugs or
devices which are, in accordance with the practice of trade, to
be processed, labeled or repacked in substantial quantities at
establishments other than those where originally processed,
labeled or packed on condition that such food, cosmetics, drugs
or devices are not adulterated or mislabeled under the
provisions of this Act and other applicable laws upon approval
from such processing, labeling and repacking establishments.
Article 91. Mislabeled Hazardous Substances. – Hazardous
substances shall be deemed mislabeled when:
a) having been intended or packaged in a form
suitable for use in households, especially for
children, the packaging or labeling of which is in
violation of the special packaging regulations
issued by the concerned department;
b) such substance fails to bear a label;
1) which states conspicuously:
(i.) the name and the place of business
of the manufacturer, packer,
distributor or seller;
(ii.) the common or usual name or the
chemical name, if there be no
common or usual name, of the
hazardous substance or of each
component which contributes
substantially to the harmfulness of
the substance, unless the
concerned department by
regulation permits or requires the
use of the recognized generic
name;
(iii.) the signal word "danger" on
substances which are extremely
flammable, corrosive or highly
toxic;
(iv.) the signal word "warning" or
"caution" with a bright red or orange
color with a black symbol on all
other hazardous substances;
(v.) a clear statement as to the possible
injury it may cause if used
improperly;
(vi.) precautionary measures describing
the action to be followed or
avoided;
(vii.) instructions when necessary or
appropriate for first-aid treatment;
(viii.) the word" poison" for any
hazardous substance which is
defined as highly toxic;
(ix.) instructions for handling and
storage of packages which require
special care in handling and
storage; and
(x.) the statement "keep out of the
reach of children", or its practical
equivalent, if the article is not
intended for use by children and is
not a banned hazardous
substance, with adequate
directions for the protection of
children from the hazard involved.
10
 The aforementioned signal words,
affirmative statements, description
of precautionary measures,
necessary instructions or other
words or statements may be in
English language or its equivalent
in Filipino; and
2) on which any statement required under
clause 1) of this paragraph is located
prominently in bright red and orange
color with a black symbol in contrast
typography, layout or color with the other
printed matters on the label.
Article 92. Exemptions. – If the concerned department finds
that for good or sufficient reasons, full compliance with the
labeling requirements otherwise applicable under this Act is
impracticable or is not necessary for the adequate protection of
public health and safety, it shall promulgate regulations
exempting such substances from these requirements to the
extent it deems consistent with the objective of adequately
safeguarding public health and safety, and any hazardous
substance which does not bear a label in accordance with such
regulations shall be deemed mislabeled hazardous substance.
Article 93. Grounds for Seizure and Condemnation of
Mislabeled Hazardous Substances.
a) any mislabeled hazardous substance when
introduced into commerce or while held for sale
shall be liable to be proceeded against and
condemned upon order of the concerned
department in accordance with existing procedure
for seizure and condemnation of articles in
commerce: Provided, That this Article shall not
apply to a hazardous substance intended for
export to any foreign country if:
1) it is in a package labeled in accordance
with the specifications of the foreign
purchaser;
2) it is labeled in accordance with the laws
of the foreign country;
3) it is labeled on the outside of the shipping
package to show that it is intended for
export; and
4) it is so exported,
b) any hazardous substance condemned under this
Article shall after entry of order of condemnation
be disposed of by destruction or sale as the
concerned department may direct, and the
proceeds thereof, if sold, less the legal cost and
charges, shall be paid into the treasury of the
Philippines; but such hazardous substance shall
not be sold under any order which is contrary to
the provisions of this Act; Provided, That, after
entry of the order and upon the payment of the
costs of such proceedings and the execution of a
good and sufficient bond conditioned that such
hazardous substance shall not be sold or disposed
of contrary to the provisions of this Act, the
concerned department may direct that such
hazardous substance be delivered to or retained
by the owner thereof for destruction or for
alteration to comply with the provisions of this Act
under the supervision of an officer or employee
duly designated by the concerned department.
The expenses for such supervision shall be paid
by the person obtaining release of the hazardous
substance under bond.
c) all expenses in connection with the destruction
provided for in paragraphs (a) and (b) of this Article
and all expenses in connection with the storage
and labor with respect to such hazardous
substance shall be paid by the owner or
consignee, and default in such payment shall
constitute a lien against any importation by such
owner or consignee.
Article 94. Labeling Requirements of Cigarettes. – All
cigarettes for sale or distribution within the country shall be
contained in a package which shall bear the following statement
or its equivalent in Filipino: "Warning" Cigarette Smoking is
Dangerous to Your Health". Such statement shall be located in
conspicuous place on every cigarette package and shall appear
in conspicuous and legible type in contrast by typography, layout
or color with other printed matter on the package. Any
advertisement of cigarette shall contain the name warning as
indicated in the label.
Article 95. Penalties.
a) Any person who shall violate the provisions of Title
III, Chapter IV of this Act, or its implementing rules
and regulations, except Articles 81 to 83 of the
same Chapter, shall be subject to a fine of not less
than Five hundred pesos (P500.00) but not more
than Twenty thousand pesos (P20,000.00) or
imprisonment of not less than three (3) months but
not more than two (2) years or both, at the
discretion of the court: Provided, That, if the
consumer product is one which is not a food,
cosmetic, drug, device or hazardous substance,
the penalty shall be a fine of not less than Two
hundred pesos (P200.00) but not more than Five
thousand pesos (P5,000.00) or imprisonment of
not less than one (1) month but not more than one
(1) year or both, at the discretion of the court.
b) Any person who violates the provisions of Article
81 to 83 for the first time shall be subject to a fine
of not less than Two hundred pesos (P200.00) but
not more than Five thousand pesos (P5,000.00) or
by imprisonment of not less than one (1) month but
not more than six (6) months or both, at the
discretion of the court. A second conviction under
this paragraph shall also carry with it the penalty
of revocation of business permit and license.
SIXTEENTH CONGRESS FIRST REGULAR SESSION
Begun and held in Metro Manila, on Monday, the twenty-second
day of July, two thousand thirteen.
11
REPUBLIC ACT NO. 10642 AN ACT STRENGTHENING
CONSUMER PROTECTION IN THE PURCHASE OF BRAND
NEW MOTOR VEHICLES
Be it enacted by the Senate and House of Representatives of
the Philippines in Congress assembled:
Section 1. Short Title. – This Act shall be known as the
"Philippine Lemon Law".
Section 2. Declaration of Policy. – It is hereby declared the
policy of the State to promote full protection to the rights of
consumers in the sale of motor vehicles against business and
trade practices which are deceptive, unfair or otherwise inimical
to consumers and the public interest.
The State recognizes that a motor vehicle is a major consumer
purchase or investment. Hence, the rights of consumers should
be clearly defined, including the means for redress for violations
thereof.
Section 3. Definition of Terms. – As used in this Act:
a) Brand new motor vehicle refers to a vehicle
constructed entirely from new parts and covered
by a manufacturer’s express warranty at the time
of purchase that it has never been sold or
registered with the Department of Transportation
and Communications (DOTC) or an appropriate
agency or authority, and has never been operated
on any highway of the Philippines, or in any foreign
state or country;
b) Collateral charges refer to the fees paid’ to the
Land Transportation Office (LTO) for the
registration of a brand new motor vehicle and
other incidental expenses such as, but not limited
to, the cost of insurance pertaining to the vehicle,
chattel mortgage fees and interest expenses if
applicable;
c) Comparable motor vehicle refers to a motor
vehicle that is identical or reasonably equivalent to
the motor vehicle to be replaced, in terms of
specifications and values, subject to availability,
as the motor vehicle existed at the time of
purchase: Provided, That there shall be an
offsetting from this value for reasonable allowance
for its use;
d) Consumer refers to any person, natural or
juridical, who purchases a brand new motor
vehicle either by cash or credit from an authorized
distributor, dealer or retailer in the Philippines;
e) Dealer or retailer refers to any person, natural or
juridical, authorized by the manufacturer or
distributor to sell brand new motor vehicles directly
to the retail buyers and the public;
f) Distributor refers to any person, natural or
juridical, authorized by the manufacturer to sell
brand new motor vehicles to duly authorized
dealers or retailers;
g) Implementing agency refers to the Department
of Trade and Industry (DTI), reorganized under
Title X, Book IV of Executive Order No. 292, series
of 1987, otherwise known as the "Administrative
Code of
1987";
h) Lemon Law rights period refers to the period
ending twelve (12) months after the date of the
original delivery of a brand new motor vehicle to a
consumer or the first twenty thousand (20,000)
kilometers of operation after such delivery,
whichever comes first. This shall be the period
during which the consumer can report any
nonconformity, as defined in paragraph (k) herein,
to the standards and specifications of the
manufacturer, authorized distributor, authorized
dealer or retailer, and pursue any right as provided
for under this Act;
i) Manufacturer refers to any person, natural or
juridical, engaged in the business of
manufacturing or assembling motor vehicles;
j) Motor vehicle refers to any self-propelled, four (4)
wheeled road vehicle designed to carry
passengers including, but not limited to, sedans,
coupes, station wagons, convertibles, pickups,
vans, sports utility vehicles (SUVs) and Asian
Utility Vehicles (AUVs) but excluding motorcycles,
delivery trucks, dump trucks, buses, road rollers,
trolley cars, street sweepers, sprinklers, lawn
mowers and heavy equipment such as, but not
limited to, bulldozers, payloaders, graders,
forklifts, amphibian trucks, cranes, and vehicles
which run only on rails or tracks, and tractors,
trailers and traction engines of all kinds used
exclusively for agricultural purposes. Trailers
having any number of wheels, when propelled or
intended by attachment to a motor vehicle, shall
be classified as separate motor vehicle with no
power rating;
k) Nonconformity refers to any defect or condition
that substantially impairs the use, value or safety
of a brand new motor vehicle which prevents it
from conforming to the manufacturer’s or
distributor’s standards or specifications, which
cannot be repaired, but excluding conditions
resulting from noncompliance by the consumer of
his or her obligations under the warranty,
modifications not authorized by the manufacturer
or distributor, abuse or neglect, and damage due
to accident or force majeure;
l) Purchase price refers to the invoice price or the
amount of money which the dealer or retailer
actually received for the brand new motor vehicle,
in consideration of the sale of such brand new
motor vehicle;
m) Warranty refers to the written assurance, so
labeled, of the manufacturer of a brand new motor
vehicle including any term or condition precedent
to the enforcement of obligations under the
warranty; and
12
 n) Warranty rights period refers to the period
provided for under the contract of sale when the
manufacturer would guarantee the materials used,
the workmanship and the roadworthiness of a
brand new motor vehicle for ordinary use or
reasonable intended purposes.
Section 4. Coverage. – This Act shall cover brand new motor
vehicles purchased in the Philippines reported by a consumer to
be in nonconformity with the vehicle’s manufacturer or
distributor’s standards or specifications within twelve (12)
months from the date of original delivery to the consumer, or up
to twenty thousand (20,000) kilometers of operation after such
delivery, whichever comes first. The following causes of
nonconformity shall be excluded:
a) Noncompliance by the consumer of the obligations
under the warranty;
b) Modifications not authorized by the manufacturer,
distributor, authorized dealer or retailer;
c) Abuse or neglect of the brand new motor vehicle;
and
d) Damage to the vehicle due to accident or force
majeure.
Section 5. Repair Attempts. – At any time within the Lemon
Law rights period, and after at least four (4) separate repair
attempts by the same manufacturer, distributor, authorized
dealer or retailer for the same complaint, and the nonconformity
issue remains unresolved, the consumer may invoke his or her
rights under this Act.
The repair may include replacement of parts components, or
assemblies.
Section 6. Notice of Availment of Lemon Law Rights. –
Before availing of any remedy under this Act and subject to
compliance with the provisions of Section 5 hereof, the
consumer shall, in writing, notify the manufacturer, distributor,
authorized dealer or retailer of the unresolved complaint, and the
consumer’s intention to invoke his or her rights under this Act
within the Lemon Law rights period.
The warranty booklet issued by the manufacturer, distributor,
authorized dealer or retailer shall clearly state the manner and
form of such notice to constitute a valid and legal notice to the
manufacturer, distributor, authorized dealer or retailer. It shall
also clearly state the responsibility of the consumer under this
section.
Section 7. Availment of Lemon Law Rights. – Subsequent to
filing the notice of availment referred to in the preceding section,
the consumer shall bring the vehicle to the manufacturer,
distributor, authorized dealer or retailer from where the vehicle
was purchased for a final attempt to address the complaint of
the consumer to his or her satisfaction.
It shall be the duty of the manufacturer, distributor, authorized
dealer or retailer, upon receipt of the motor vehicle and the
notice of nonconformity required under Section 6 hereof, to
attend to the complaints of the consumer including, as may be
necessary, making the repairs and undertaking such actions to
make the vehicle conform to the standards or specifications of
the manufacturer, distributor, authorized dealer or retailer for
such vehicle.
In case the nonconformity issue remains unresolved despite the
manufacturer, distributor, authorized dealer or retailer’s efforts
to repair the vehicle, pursuant to the consumer’s availment of his
or her Lemon Law rights, the consumer may file a complaint
before the DTI as provided for under this Act: Provided,
however, That if the vehicle is not returned for repair, based on
the same complaint, within thirty (30) calendar days from the
date of notice of release of the motor vehicle to the consumer
following this repair attempt within the Lemon Law rights period,
the repair is deemed successful: Provided, finally, That, in the
event that the nonconformity issue still exists or persists after
the thirty (30)-day period but still within the Lemon Law rights
period, the consumer may be allowed to avail of the same
remedies under Sections 5 and 6 hereof.
To compensate for the non-usage of the vehicle while under
repair and during the period of availment of the Lemon Law
rights, the consumer shall be provided a reasonable daily
transportation allowance, an amount which covers the
transportation of the consumer from his or her residence to his
or her regular workplace or destination and vice versa,
equivalent to air-conditioned taxi fare, as evidenced by official
receipt, or in such amount to be agreed upon by the parties, or
a service vehicle at the option of the manufacturer, distributor,
authorized dealer or retailer. Any disagreement on this matter
shall be resolved by the DTI.
Nothing herein shall be construed to limit or impair the rights and
remedies of a consumer under any other law.
Section 8. Remedies for Dispute Resolution. – The DTI shall
exercise exclusive and original jurisdiction over disputes arising
from the provisions of this Act. All disputes arising from the
provisions of this Act shall be settled by the DTI in accordance
with the following dispute resolution mechanisms:
a) Mediation
1) The principles of negotiation, conciliation
and mediation towards amicable
settlement between the manufacturer,
distributor, authorized dealer or retailer
and the consumer shall be strictly
observed;
2) In the course of its dispute resolution
efforts, the DTI shall endeavor to
independently establish the validity of the
consumer’s outstanding complaint. The
DTI shall likewise retain the services of
other government agencies or qualified
independent private entities in the
ascertainment of the validity of the
consumer’s complaint. Any cost incurred
in establishing the validity of the
consumer’s complaint shall be borne
jointly by the consumer and the
13
 manufacturer, distributor, authorized
dealer or retailer;
3) The complaint shall be deemed valid if it
is independently established that the
motor vehicle does not conform to the
standards or specifications set by the
manufacturer, distributor, authorized
dealer or retailer;
4) Upon failure of the negotiation or
mediation between the manufacturer,
distributor, authorized, dealer or retailer
and the consumer, the parties shall
execute a certificate attesting to such
failure; and
5) At any time during the dispute resolution
period, the manufacturer, distributor,
authorized dealer or retailer and the
consumer shall be encouraged to settle
amicably. All disputes that have been
submitted for mediation shall be settled
not later than ten (10) working days from
the date of filing of the complaint with the
DTI.
b) Arbitration - In the event there is a failure to settle
the complaint during the mediation proceedings,
both parties may voluntarily decide to undertake
arbitration proceedings.
c) Adjudication
1) In the event that both parties do not
undertake arbitration proceedings, at
least one of the parties may commence
adjudication proceedings, administered
by the DTI. The DTI shall rely on the
qualified independent findings as to
conformity to standards and
specifications established herein. In no
case shall adjudication proceedings
exceed twenty (20) working days;
2) In case a finding of nonconformity is
arrived at, the DTI shall rule in favor of
the consumer and direct the
manufacturer, distributor, authorized
dealer or retailer to grant either of the
following remedies to the consumer:
(i.) Replace the motor vehicle with
a similar or comparable motor
vehicle in terms of
specifications and values,
subject to availability; or
(ii.) Accept the return of the motor
vehicle and pay the consumer
the purchase price plus the
collateral charges.
In case the consumer decides to
purchase another vehicle with a higher
value and specifications from the same
manufacturer, distributor, authorized
dealer or retailer, the consumer shall pay
the difference in cost.
In both cases of replacement and
repurchase, the reasonable allowance
for use, as defined in this Act, shall be
deducted in determining the value of the
nonconforming motor vehicle; and
3) In case a nonconformity of the motor
vehicle is not found by the DTI, it shall
rule in favor of the manufacturer,
distributor, authorized dealer or retailer,
and direct the consumer to reimburse the
manufacturer, distributor, authorized
dealer or retailer the costs incurred by the
latter in validating the consumer’s
complaints.
An appeal may be taken from a final
judgment or order of the Adjudication
Officer which completely disposes of the
case within fifteen (15) days from receipt
thereof. The appeal shall be taken by
filing a Memorandum of Appeal with the
Secretary of the DTI, with Notice of
Appeal to the Adjudication Officer, and
with a copy duly furnished the adverse
party or parties on any of the following
grounds:
(i.) Grave abuse of discretion;
(ii.) The decision/order is in excess
of jurisdiction or authority of the
Adjudication Officer; and
(iii.) The decision/order is not
supported by the evidence or
there is serious error in the
findings of facts.
The Secretary of the DTI shall decide on the appeal within thirty
(30) days from receipt thereof. A party seeking further appeal
from the decision of the Secretary of the DTI may file a case for
certiorari to the Court of Appeals under Section 4, Rule 65 of the
Revised Rules of Court.
Section 9. Determination of Reasonable Allowance for Use.
– For purposes of this Act, "reasonable allowance for use" shall
mean twenty percent (20%) per annum deduction from the
purchase price, or the product of the distance traveled in
kilometers and the purchase price divided by one hundred
thousand (100,000) kilometers, whichever is lower.
Section 10. Disclosure on Resale. – Should the returned motor
vehicle be made available for resale, the manufacturer,
distributor, authorized dealer or retailer shall, prior to sale or
transfer, disclose in writing to the next purchaser of the same
vehicle the following information:
a) The motor vehicle was returned to the
manufacturer, distributor, authorized dealer or
retailer;
b) The nature of the nonconformity which caused the
return; and
14
 c) The condition of the motor vehicle at the time of
the transfer to the manufacturer, distributor,
authorized dealer or retailer.
The responsibility of the manufacturer, distributor, authorized
dealer or retailer under this section shall cease upon the sale of
the affected motor vehicle to the first purchaser.
Section 11. Penalty. – The manufacturer, distributor, authorized
dealer or retailer adjudged to have violated the provisions
requiring disclosure as mentioned in the preceding section shall
be liable to pay a minimum amount of One hundred thousand
pesos (P100,000.00) as damages to the aggrieved party without
prejudice to any civil or criminal liability they and/or the
responsible officer may incur under existing laws.
Section 12. Assistance by Other Agencies. – The DOTC and
other agencies, political subdivisions, local government units,
including government-owned and/or controlled corporations,
shall render such assistance as required by the DTI in order to
effectively implement the provisions of this Act.
Section 13. Implementing Rules and Regulations. – The DTI
shall promulgate the necessary implementing rules and
regulations within, ninety (90) days from the effectivity of this
Act.
Section 14. Separability Clause. – If, for any reason, any part
or provision of this Act is declared invalid, such declaration shall
not affect the other provisions of this Act.
Section 15. Repealing Clause. – All laws, decrees, executive
orders, issuances, rules and regulations or parts thereof which
are inconsistent with the provisions of this Act are hereby
deemed repealed, amended or modified accordingly.
Section 16. Effectivity. – This Act shall take effect fifteen (15)
days after its publication in the Official Gazette or in any
newspaper of general circulation.
REPUBLIC ACT No. 10142
AN ACT PROVIDING FOR THE REHABILITATION OR
LIQUIDATION OF FINANCIALLY DISTRESSED
ENTERPRISES AND INDIVIDUALS
Be it enacted by the Senate and House of Representatives of
the Philippine Congress Assembled:
CHAPTER I GENERAL PROVISIONS
Section 1. Title. - This Act shall be known as the "Financial
Rehabilitation and Insolvency Act (FRIA) of 2010"
DEFINITION OF TERMS
Section 4. Definition of Terms. - As used in this Act, the term:
a) Administrative expenses shall refer to those
reasonable and necessary expenses:
1) incurred or arising from the filing of a petition
under the provisions of this Act;
2) arising from, or in connection with, the
conduct of the proceedings under this Act,
including those incurred for the rehabilitation
or liquidation of the debtor;
3) incurred in the ordinary course of business of
the debtor after the commencement date;
4) for the payment of new obligations obtained
after the commencement date to finance the
rehabilitation of the debtor;
5) incurred for the fees of the rehabilitation
receiver or liquidator and of the professionals
engaged by them; and
6) that are otherwise authorized or mandated
under this Act or such other expenses as may
be allowed by the Supreme Court in its rules.
b) Affiliate shall refer to a corporation that directly or
indirectly, through one or more intermediaries, is
controlled by, or is under the common control of
another corporation.
c) Claim shall refer to all claims or demands of whatever
nature or character against the debtor or its property,
whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or
unmatured, disputed or undisputed, including, but not
limited to;
1) all claims of the government, whether national
or local, including taxes, tariffs, and customs
duties; and
2) claims against directors and officers of the
debtor arising from acts done in the discharge
of their functions falling within the scope of
their authority: Provided, That, this inclusion
does not prohibit the creditors or third parties
from filing cases against the directors and
officers acting in their personal capacities.
d) Commencement date shall refer to the date on which
the court issues the Commencement Order, which shall
be retroactive to the date of filing of the petition for
voluntary or involuntary proceedings.
e) Commencement Order shall refer to the order issued
by the court under Section 16 of this Act.
f) Control shall refer to the power of a parent corporation
to direct or govern the financial and operating policies
of an enterprise so as to obtain benefits from its
activities. Control is presumed to exist when the parent
owns, directly or indirectly through subsidiaries or
affiliates, more than one-half (1/2) of the voting power
of an enterprise unless, in exceptional circumstances,
it can clearly be demonstrated that such ownership
does not constitute control. Control also exists even
when the parent owns one-half (1/2) or less of the
voting power of an enterprise when there is power:
1) over more than one-half (1/2) of the voting
rights by virtue of an agreement with
investors;
2) to direct or govern the financial and operating
policies of the enterprise under a statute or an
agreement;
15
 3) to appoint or remove the majority of the
members of the board of directors or
equivalent governing body; or
4) to cast the majority votes at meetings of the
board of directors or equivalent governing
body.
g) Court shall refer to the court designated by the
Supreme Court to hear and determine, at the first
instance, the cases brought under this Act.
h) Creditor shall refer to a natural or juridical person
which has a claim against the debtor that arose on or
before the commencement date.
i) Date of liquidation shall refer to the date on which the
court issues the Liquidation Order.
j) Days shall refer to calendar days unless otherwise
specifically stated in this Act.
k) Debtor shall refer to, unless specifically excluded by a
provision of this Act, a sole proprietorship duly
registered with the Department of Trade and Industry
(DTI), a partnership duly registered with the Securities
and Exchange Commission (SEC), a corporation duly
organized and existing under Philippine laws, or an
individual debtor who has become insolvent as defined
herein.
l) Encumbered property shall refer to real or personal
property of the debtor upon which a lien attaches.
m) General unsecured creditor shall refer to a creditor
whose claim or a portion thereof its neither secured,
preferred nor subordinated under this Act.
n) Group of debtors shall refer to and can cover only: (1)
corporations that are financially related to one another
as parent corporations, subsidiaries or affiliates; (2)
partnerships that are owned more than fifty percent
(50%) by the same person; and (3) single
proprietorships that are owned by the same person.
When the petition covers a group of debtors, all
reference under these rules to debtor shall include and
apply to the group of debtors.
o) Individual debtor shall refer to a natural person who
is a resident and citizen of the Philippines that has
become insolvent as defined herein.
p) Insolvent shall refer to the financial condition of a
debtor that is generally unable to pay its or his liabilities
as they fall due in the ordinary course of business or
has liabilities that are greater than its or his assets.
q) Insolvent debtor's estate shall refer to the estate of
the insolvent debtor, which includes all the property and
assets of the debtor as of commencement date, plus
the property and assets acquired by the rehabilitation
receiver or liquidator after that date, as well as all other
property and assets in which the debtor has an
ownership interest, whether or not these property and
assets are in the debtor's possession as of
commencement date: Provided, That trust assets and
bailment, and other property and assets of a third party
that are in the possession of the debtor as of
commencement date, are excluded therefrom.
r) Involuntary proceedings shall refer to proceedings
initiated by creditors.
s) Liabilities shall refer to monetary claims against the
debtor, including stockholder's advances that have
been recorded in the debtor's audited financial
statements as advances for future subscriptions.
t) Lien shall refer to a statutory or contractual claim or
judicial charge on real or personal property that legality
entities a creditor to resort to said property for payment
of the claim or debt secured by such lien.
u) Liquidation shall refer to the proceedings under
Chapter V of this Act.
v) Liquidation Order shall refer to the Order issued by
the court under Section 112 of this Act.
w) Liquidator shall refer to the natural person or juridical
entity appointed as such by the court and entrusted
with such powers and duties as set forth in this Act:
Provided, That, if the liquidator is a juridical entity, it
must designate a natural person who possesses all the
qualifications and none of the disqualifications as its
representative, it being understood that the juridical
entity and the representative are solidarity liable for all
obligations and responsibilities of the liquidator.
x) Officer shall refer to a natural person holding a
management position described in or contemplated by
a juridical entity's articles of incorporation, bylaws or
equivalent documents, except for the corporate
secretary, the assistant corporate secretary and the
external auditor.
y) Ordinary course of business shall refer to
transactions in the pursuit of the individual debtor's or
debtor's business operations prior to rehabilitation or
insolvency proceedings and on ordinary business
terms.
z) Ownership interest shall refer to the ownership
interest of third parties in property held by the debtor,
including those covered by trust receipts or
assignments of receivables.
aa) Parent shall refer to a corporation which has control
over another corporation either directly or indirectly
through one or more intermediaries.
bb) Party to the proceedings shall refer to the debtor, a
creditor, the unsecured creditors' committee, a
stakeholder, a party with an ownership interest in
property held by the debtor, a secured creditor, the
rehabilitation receiver, liquidator or any other juridical
or natural person who stands to be benefited or injured
by the outcome of the proceedings and whose notice
of appearance is accepted by the court.
cc) Possessory lien shall refer to a lien on property, the
possession of which has been transferred to a creditor
or a representative or agent thereof.
dd) Proceedings shall refer to judicial proceedings
commenced by the court's acceptance of a petition filed
under this Act. ee) Property of others shall refer to
property held by the debtor in which other persons have
an ownership interest.
ff) Publication notice shall refer to notice through
publication in a newspaper of general circulation in the
Philippines on a business day for two (2) consecutive
weeks.
16
 gg) Rehabilitation shall refer to the restoration of the
debtor to a condition of successful operation and
solvency, if it is shown that its continuance of operation
is economically feasible and its creditors can recover
by way of the present value of payments projected in
the plan, more if the debtor continues as a going
concern than if it is immediately liquidated.
hh) Rehabilitation receiver shall refer to the person or
persons, natural or juridical, appointed as such by the
court pursuant to this Act and which shall be entrusted
with such powers and duties as set forth herein. ii)
Rehabilitation Plan shall refer to a plan by which the
financial well-being and viability of an insolvent debtor
can be restored using various means including, but not
limited to, debt forgiveness, debt rescheduling,
reorganization or quasi-reorganization, dacion en
pago, debt-equity conversion and sale of the business
(or parts of it) as a going concern, or setting up of new
business entity as prescribed in Section 62 hereof, or
other similar arrangements as may be approved by the
court or creditors.
jj) Secured claim shall refer to a claim that is
secured by a lien. kk) Secured creditor shall refer to
a creditor with a secured claim. ll) Secured
party shall refer to a secured creditor or the agent or
representative of such secured creditor.
mm)Securities market participant shall refer to a
broker-dealer underwriter, transfer agent, or other
juridical persons transacting securities in the capital
market. nn) Stakeholder shall refer, in addition to a
holder of shares of a corporation, to a member of a
nonstock corporation or association or a partner in a
partnership.
oo) Subsidiary shall refer to a corporation more than
fifty percent (50%) of the voting stock of which is
owned or controlled directly or indirectly through one
or more intermediaries by another corporation,
which thereby becomes its parent corporation.
pp) Unsecured claim shall refer to a claim that is not
secured by a lien. qq) Unsecured creditor shall
refer to a creditor with an unsecured claim. rr)
Voluntary proceedings shall refer to proceedings
initiated by the debtor. ss) Voting creditor shall
refer to a creditor that is a member of a class of
creditors, the consent of which is necessary for the
approval of a Rehabilitation Plan under this Act.
Section 5. Exclusions. - The term debtor does not include
banks, insurance companies, pre-need companies, and national
and local government agencies or units. For purposes of this
section:
a) Bank shall refer to any duly licensed bank or quasi-
bank that is potentially or actually subject to
conservatorship, receivership or liquidation
proceedings under the New Central Bank Act (Republic
Act No.
7653) or successor legislation;
b) Insurance company shall refer to those companies
that are potentially or actually subject to insolvency
proceedings under the Insurance Code (Presidential
Decree No. 1460) or successor legislation; and
c) Pre-need company shall refer to any corporation
authorized/licensed to sell or offer to sell pre-need
plans. Provided, That government financial institutions
other than banks and government-owned or controlled
corporations shall be covered by this Act, unless their
specific charter provides otherwise.
SUSPENSION OF PAYMENTS
Section 94. Petition. - An individual debtor who, possessing
sufficient property to cover all his debts but foreseeing the
impossibility of meeting them when they respectively fall due,
may file a verified petition that he be declared in the state of
suspension of payments by the court of the province or city in
which he has resides for six (6) months prior to the filing of his
petition. He shall attach to his petition, as a minimum:
a) a schedule of debts and liabilities;
b) an inventory of assess; and
c) a proposed agreement with his creditors.
Section 95. Action on the Petition. - If the court finds the
petition sufficient in form and substance, it shall, within five (5)
working days from the filing of the petition, issue an Order:
a) calling a meeting of all the creditors named in the
schedule of debts and liabilities at such time not less
than fifteen (15) days nor more than forty (40) days
from the date of such Order and designating the date,
time and place of the meeting;
b) directing such creditors to prepare and present written
evidence of their claims before the scheduled creditors'
meeting;
c) directing the publication of the said order in a
newspaper of general circulation published in the
province or city in which the petition is filed once a week
for two (2) consecutive weeks, with the first publication
to be made within seven (7) days from the time of the
issuance of the Order;
d) directing the clerk of court to cause the sending of a
copy of the Order by registered mail, postage prepaid,
to all creditors named in the schedule of debts and
liabilities;
e) forbidding the individual debtor from selling,
transferring, encumbering or disposing in any manner
of his property, except those used in the ordinary
operations of commerce or of industry in which the
petitioning individual debtor is engaged so long as the
proceedings relative to the suspension of payments are
pending;
f) prohibiting the individual debtor from making any
payment outside of the necessary or legitimate
expenses of his business or industry, so long as the
proceedings relative to the suspension of payments are
pending; and
g) appointing a commissioner to preside over the
creditors' meeting.
Section 96. Actions Suspended. - Upon motion filed by the
individual debtor, the court may issue an order suspending any
17
pending execution against the individual debtor. Provide, That
properties held as security by secured creditors shall not be the
subject of such suspension order. The suspension order shall
lapse when three (3) months shall have passed without the
proposed agreement being accepted by the creditors or as soon
as such agreement is denied.
No creditor shall sue or institute proceedings to collect his claim
from the debtor from the time of the filing of the petition for
suspension of payments and for as long as proceedings remain
pending except:
a) those creditors having claims for personal labor,
maintenance, expense of last illness and funeral of the wife
or children of the debtor incurred in the sixty (60) days
immediately prior to the filing of the petition; and b) secured
creditors.
Section 97. Creditors' Meeting. - The presence of creditors
holding claims amounting to at least three-fifths (3/5) of the
liabilities shall be necessary for holding a meeting. The
commissioner appointed by the court shall preside over the
meeting and the clerk of court shall act as the secretary thereof,
subject to the following rules:
a) The clerk shall record the creditors present and amount
of their respective claims;
b) The commissioner shall examine the written evidence
of the claims. If the creditors present hold at least three-
fifths (3/5) of the liabilities of the individual debtor, the
commissioner shall declare the meeting open for
business;
c) The creditors and individual debtor shall discuss the
propositions in the proposed agreement and put them
to a vote;
d) To form a majority, it is necessary:
1) that two-thirds (2/3) of the creditors voting
unite upon the same proposition; and
2) that the claims represented by said majority
vote amount to at least three-fifths (3/5) of the
total liabilities of the debtor mentioned in the
petition; and
e) After the result of the voting has been announced, all
protests made against the majority vote shall be drawn
up, and the commissioner and the individual debtor
together with all creditors taking part in the voting shall
sign the affirmed propositions.
No creditor who incurred his credit within ninety (90) days prior
to the filing of the petition shall be entitled to vote.
Section 98. Persons Who May Refrain From Voting. -
Creditors who are unaffected by the Suspension Order may
refrain from attending the meeting and from voting therein. Such
persons shall not be bound by any agreement determined upon
at such meeting, but if they should join in the voting they shall
be bound in the same manner as are the other creditors.
Section 99. Rejection of the Proposed Agreement. - The
proposed agreement shall be deemed rejected if the number of
creditors required for holding a meeting do not attend thereat, or
if the two (2) majorities mentioned in Section 97 hereof are not
in favor thereof. In such instances, the proceeding shall be
terminated without recourse and the parties concerned shall be
at liberty to enforce the rights which may correspond to them.
Section 100. Objections. - If the proposal of the individual
debtor, or any amendment thereof made during the creditors'
meeting, is approved by the majority of creditors in accordance
with Section 97 hereof, any creditor who attended the meeting
and who dissented from and protested against the vote of the
majority may file an objection with the court within ten (10) days
from the date of the last creditors' meeting. The causes for which
objection may be made to the decision made by the majority
during the meeting shall be:
a) defects in the call for the meeting, in the holding thereof
and in the deliberations had thereat which prejudice the
rights of the creditors;
b) fraudulent connivance between one or more creditors
and the individual debtor to vote in favor of the
proposed agreement; or
c) fraudulent conveyance of claims for the purpose of
obtaining a majority. The court shall hear and pass
upon such objection as soon as possible and in a
summary manner.
In case the decision of the majority of creditors to approve the
individual debtor's proposal or any amendment thereof made
during the creditors' meeting is annulled by the court, the court
shall declare the proceedings terminated and the creditors shall
be at liberty to exercise the rights which may correspond to
them.
Section 101. Effects of Approval of Proposed Agreement. -
If the decision of the majority of the creditors to approve the
proposed agreement or any amendment thereof made during
the creditors' meeting is uphold by the court, or when no
opposition or objection to said decision has been presented, the
court shall order that the agreement be carried out and all
parties bound thereby to comply with its terms.
The court may also issue all orders which may be necessary or
proper to enforce the agreement on motion of any affected party.
The Order confirming the approval of the proposed agreement
or any amendment thereof made during the creditors' meeting
shall be binding upon all creditors whose claims are included in
the schedule of debts and liabilities submitted by the individual
debtor and who were properly summoned, but not upon:
a) those creditors having claims for personal labor,
maintenance, expenses of last illness and funeral of the
wife or children of the debtor incurred in the sixty (60)
days immediately prior to the filing of the petition; and
b) secured creditors who failed to attend the meeting or
refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform
Agreement. - If the individual debtor fails, wholly or in part, to
perform the agreement decided upon at the meeting of the
creditors, all the rights which the creditors had against the
individual debtor before the agreement shall revest in them. In
such case the individual debtor may be made subject to the
insolvency proceedings in the manner established by this Act.
18
REHABILITATION
A. TYPES
1. Voluntary Proceedings.
Section 12. Petition to Initiate Voluntary Proceedings by
Debtor. - When approved by the owner in case of a sole
proprietorship, or by a majority of the partners in case of a
partnership, or in case of a corporation, by a majority vote of the
board of directors or trustees and authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of nonstock corporation, by
the vote of at least two-thirds (2/3) of the members, in a
stockholder's or member's meeting duly called for the purpose,
an insolvent debtor may initiate voluntary proceedings under
this Act by filing a petition for rehabilitation with the court and on
the grounds hereinafter specifically provided. The petition shall
be verified to establish the insolvency of the debtor and the
viability of its rehabilitation, and include, whether as an
attachment or as part of the body of the petition, as a minimum
the following:
a) Identification of the debtor, its principal activities and its
addresses;
b) Statement of the fact of and the cause of the debtor's
insolvency or inability to pay its obligations as they
become due;
c) The specific relief sought pursuant to this Act;
d) The grounds upon which the petition is based;
e) Other information that may be required under this Act
depending on the form of relief requested;
f) Schedule of the debtor's debts and liabilities including
a list of creditors with their addresses, amounts of
claims and collaterals, or securities, if any;
g) An inventory of all its assets including receivables and
claims against third parties;
h) A Rehabilitation Plan;
i) The names of at least three (3) nominees to the
position of rehabilitation receiver; and
j) Other documents required to be filed with the petition
pursuant to this Act and the rules of procedure as may
be promulgated by the Supreme Court.
A group of debtors may jointly file a petition for rehabilitation
under this Act when one or more of its members foresee the
impossibility of meeting debts when they respectively fall due,
and the financial distress would likely adversely affect the
financial condition and/or operations of the other members of
the group and/or the participation of the other members of the
group is essential under the terms and conditions of the
proposed Rehabilitation Plan.
2. Involuntary Proceedings.
Section 13. Circumstances Necessary to Initiate Involuntary
Proceedings. - Any creditor or group of creditors with a claim
of, or the aggregate of whose claims is, at least One Million
Pesos (Php1,000,000.00) or at least twentyfive percent (25%)
of the subscribed capital stock or partners' contributions,
whichever is higher, may initiate involuntary proceedings
against the debtor by filing a petition for rehabilitation with the
court if:
a) there is no genuine issue of fact on law on the claim/s
of the petitioner/s, and that the due and demandable
payments thereon have not been made for at least sixty
(60) days or that the debtor has failed generally to meet
its liabilities as they fall due; or
b) a creditor, other than the petitioner/s, has initiated
foreclosure proceedings against the debtor that will
prevent the debtor from paying its debts as they
become due or will render it insolvent.
Section 14. Petition to Initiate Involuntary Proceedings. -
The creditor/s' petition for rehabilitation shall be verified to
establish the substantial likelihood that the debtor may be
rehabilitated, and include:
a) identification of the debtor its principal activities and its
address;
b) the circumstances sufficient to support a petition to
initiate involuntary rehabilitation proceedings under
Section 13 of this Act;
c) the specific relief sought under this Act;
d) a Rehabilitation Plan;
e) the names of at least three (3) nominees to the position
of rehabilitation receiver;
f) other information that may be required under this Act
depending on the form of relief requested; and
g) other documents required to be filed with the petition
pursuant to this Act and the rules of procedure as may
be promulgated by the Supreme Court.
B. COMMENCEMENT ORDER AND STAY OR SUSPENSION
ORDER
Section 15. Action on the Petition. - If the court finds the
petition for rehabilitation to be sufficient in form and substance,
it shall, within five (5) working days from the filing of the petition,
issue a Commencement Order. If, within the same period, the
court finds the petition deficient in form or substance, the court
may, in its discretion, give the petitioner/s a reasonable period
of time within which to amend or supplement the petition, or to
submit such documents as may be necessary or proper to put
the petition in proper order. In such case, the five (5) working
days provided above for the issuance of the Commencement
Order shall be reckoned from the date of the filing of the
amended or supplemental petition or the submission of such
documents.
Section 16. Commencement of Proceedings and Issuance
of a Commencement Order. - The rehabilitation proceedings
shall commence upon the issuance of the Commencement
Order, which shall:
a) identify the debtor, its principal business or activity/ies
and its principal place of business;
b) summarize the ground/s for initiating the proceedings;
c) state the relief sought under this Act and any
requirement or procedure particular to the relief sought;
19
d) state the legal effects of the Commencement Order,
including those mentioned in Section 17 hereof; e)
declare that the debtor is under rehabilitation;
f) direct the publication of the Commencement Order in a
newspaper of general circulation in the Philippines
once a week for at least two (2) consecutive weeks,
with the first publication to be made within seven (7)
days from the time of its issuance;
g) If the petitioner is the debtor direct the service by
personal delivery of a copy of the petition on each
creditor holding at least ten percent (10%) of the total
liabilities of the debtor as determined from the schedule
attached to the petition within five (5) days; if the
petitioner/s is/are creditor/s, direct the service by
personal delivery of a copy of the petition on the debtor
within five (5) days;
h) appoint a rehabilitation receiver who may or not be from
among the nominees of the petitioner/s and who shall
exercise such powers and duties defined in this Act as
well as the procedural rules that the Supreme
Court will promulgate;
i) summarize the requirements and deadlines for
creditors to establish their claims against the debtor
and direct all creditors to their claims with the court at
least five (5) days before the initial hearing;
j) direct Bureau of internal Revenue (BIR) to file and
serve on the debtor its comment on or opposition to the
petition or its claim/s against the debtor under such
procedures as the Supreme Court provide;
k) prohibit the debtor's suppliers of goods or services from
withholding the supply of goods and services in the
ordinary course of business for as long as the debtor
makes payments for the services or goods supplied
after the issuance of the Commencement Order;
l) authorize the payment of administrative expenses as
they become due;
m) set the case for initial hearing, which shall not be more
than forty (40) days from the date of filing of the petition
for the purpose of determining whether there is
substantial likelihood for the debtor to be rehabilitated;
n) make available copies of the petition and rehabilitation
plan for examination and copying by any interested
party;
o) indicate the location or locations at which documents
regarding the debtor and the proceedings under Act
may be reviewed and copied;
p) state that any creditor or debtor who is not the
petitioner, may submit the name or nominate any other
qualified person to the position of rehabilitation receiver
at least five (5) days before the initial hearing;
q) includes Stay or Suspension Order which shall:
1) suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims
against the debtor;
2) suspend all actions to enforce any judgment,
attachment or other provisional remedies
against the debtor;
3) prohibit the debtor from selling, encumbering,
transferring or disposing in any manner any of
its properties except in the ordinary course of
business; and
4) prohibit the debtor from making any payment
of its liabilities outstanding as of the
commencement date except as may be
provided herein.
Section 17. Effects of the Commencement Order. - Unless
otherwise provided for in this Act, the court's issuance of a
Commencement Order shall, in addition to the effects of a Stay
or Suspension Order described in Section 16 hereof:
a) vest the rehabilitation with all the powers and functions
provided for this Act, such as the right to review and
obtain records to which the debtor's management and
directors have access, including bank accounts or
whatever nature of the debtor subject to the approval
by the court of the performance bond filed by the
rehabilitation receiver;
b) prohibit or otherwise serve as the legal basis rendering
null and void the results of any extrajudicial activity or
process to seize property, sell encumbered property, or
otherwise attempt to collection or enforce a claim
against the debtor after commencement date unless
otherwise allowed in this Act, subject to the provisions
of Section 50 hereof;
c) serve as the legal basis for rendering null and void any
setoff after the commencement date of any debt owed
to the debtor by any of the debtor's creditors;
d) serve as the legal basis for rendering null and void the
perfection of any lien against the debtor's property after
the commencement date; and
e) consolidate the resolution of all legal proceedings by
and against the debtor to the court Provided. However,
That the court may allow the continuation of cases on
other courts where the debtor had initiated the suit.
Attempts to seek legal of other resource against the debtor
outside these proceedings shall be sufficient to support a finding
of indirect contempt of court.
Section 18. Exceptions to the Stay or Suspension Order. -
The Stay or Suspension Order shall not apply:
a) to cases already pending appeal in the Supreme Court
as of commencement date Provided, That any final and
executory judgment arising from such appeal shall be
referred to the court for appropriate action;
b) subject to the discretion of the court, to cases pending
or filed at a specialized court or quasi-judicial agency
which, upon determination by the court is capable of
resolving the claim more quickly, fairly and efficiently
than the court: Provided, That any final and executory
judgment of such court or agency shall be referred to
the court and shall be treated as a non-disputed claim;
c) to the enforcement of claims against sureties and other
persons solidarily liable with the debtor, and third party
or accommodation mortgagors as well as issuers of
letters of credit, unless the property subject of the third
party or accommodation mortgage is necessary for the
rehabilitation of the debtor as determined by the court
upon recommendation by the rehabilitation receiver;
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 d) to any form of action of customers or clients of a
securities market participant to recover or otherwise
claim moneys and securities entrusted to the latter in
the ordinary course of the latter's business as well as
any action of such securities market participant or the
appropriate regulatory agency or self-regulatory
organization to pay or settle such claims or liabilities;
e) to the actions of a licensed broker or dealer to sell
pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of
securities transactions in accordance with the
provisions of the Securities Regulation Code and its
implementing rules and regulations;
f) the clearing and settlement of financial transactions
through the facilities of a clearing agency or similar
entities duly authorized, registered and/or recognized
by the appropriate regulatory agency like the Bangko
Sentral ng Pilipinas (BSP) and the SEC as well as any
form of actions of such agencies or entities to
reimburse themselves for any transactions settled for
the debtor; and
g) any criminal action against individual debtor or owner,
partner, director or officer of a debtor shall not be
affected by any proceeding commend under this Act.
Section 19. Waiver of taxes and Fees Due to the National
Government and to Local Government Units (LGUs). - Upon
issuance of the Commencement Order by the court, and until
the approval of the Rehabilitation Plan or dismissal of the
petition, whichever is earlier, the imposition of all taxes and fees
including penalties, interests and charges thereof due to the
national government or to LGUs shall be considered waived, in
furtherance of the objectives of rehabilitation.
Section 20. Application of Stay or Suspension Order to
Government Financial Institutions. - The provisions of this
Act concerning the effects of the Commencement Order and the
Stay or Suspension Order on the suspension of rights to
foreclose or otherwise pursue legal remedies shall apply to
government financial institutions, notwithstanding provisions in
their charters or other laws to the contrary.
Section 21. Effectivity and Duration of Commencement
Order. - Unless lifted by the court, the Commencement Order
shall be for the effective for the duration of the rehabilitation
proceedings for as long as there is a substantial likelihood that
the debtor will be successfully rehabilitated. In determining
whether there is substantial likelihood for the debtor to be
successfully rehabilitated, the court shall ensure that the
following minimum requirements are met:
a) The proposed Rehabilitation Plan submitted complies
with the minimum contents prescribed by this Act;
b) There is sufficient monitoring by the rehabilitation
receiver of the debtor's business for the protection of
creditors;
c) The debtor has met with its creditors to the extent
reasonably possible in attempts to reach consensus on
the proposed Rehabilitation Plan;
d) The rehabilitation receiver submits a report, based on
preliminary evaluation, stating that the underlying
assumptions and the goals stated in the petitioner's
Rehabilitation Plan are realistic reasonable and
reasonable or if not, there is, in any case, a substantial
likelihood for the debtor to be successfully rehabilitated
because, among others:
1) there are sufficient assets with/which to
rehabilitate the debtor;
2) there is sufficient cash flow to maintain the
operations of the debtor;
3) the debtor's, partners, stockholders, directors
and officers have been acting in good faith
and which due diligence;
4) the petition is not s sham filing intended only
to delay the enforcement of the rights of the
creditor's or of any group of creditors; and
5) the debtor would likely be able to pursue a
viable Rehabilitation Plan;
e) The petition, the Rehabilitation Plan and the
attachments thereto do not contain any materially false
or misleading statement;
f) If the petitioner is the debtor, that the debtor has met
with its creditor/s representing at least three-fourths
(3/4) of its total obligations to the extent reasonably
possible and made a good faith effort to reach a
consensus on the proposed Rehabilitation Plan if the
petitioner/s is/are a creditor or group of creditors, that/
the petitioner/s has/have met with the debtor and made
a good faith effort to reach a consensus on the
proposed Rehabilitation Plan; and
g) The debtor has not committed acts misrepresentation
or in fraud of its creditor/s or a group of creditors.
Section 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;
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 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, the court shall direct the rehabilitation receiver to
review, revise and/or recommend action on the Rehabilitation
Plan and submit the same or a new one to the court within a
period of not more than ninety (90) days. The court may refer
any dispute relating to the Rehabilitation Plan or the
rehabilitation proceedings pending before it to arbitration or
other modes of dispute resolution, as provided for under
Republic Act No. 9285, Or the Alternative Dispute Resolution
Act of 2004, should it determine that such mode will resolve the
dispute more quickly, fairly and efficiently than the court.
Section 27. Dismissal of Petition. - If the petition is dismissed
pursuant to paragraph (b) of Section 25 hereof, then the court
may, in its discretion, order the petitioner to pay damages to any
creditor or to the debtor, as the case may be, who may have
been injured by the filing of the petition, to the extent of any such
injury.
C. REHABILITATION RECEIVER & MANAGEMENT
COMMITTEE
Section 28. Who May Serve as a Rehabilitation Receiver. -
Any qualified natural or juridical person may serve as a
rehabilitation receiver: Provided, That if the rehabilitation
receiver is a juridical entity, it must designate a natural person/s
who possess/es all the qualifications and none of the
disqualification’s as its representative, it being understood that
the juridical entity and the representative/s are solidarily liable
for all obligations and responsibilities of the rehabilitation
receiver.
Section 29. Qualifications of a Rehabilitation Receiver. - The
rehabilitation receiver shall have the following minimum
qualifications:
a) A citizen of the Philippines or a resident of the
Philippines in the six (6) months immediately preceding
his nomination;
b) Of good moral character and with acknowledged
integrity, impartiality and independence;
c) Has the requisite knowledge of insolvency and other
relevant commercial laws, rules and procedures, as
well as the relevant training and/or experience that may
be necessary to enable him to properly discharge the
duties and obligations of a rehabilitation receiver; and
d) Has no conflict of interest: Provided, That such conflict
of interest may be waived, expressly or impliedly, by a
party who may be prejudiced thereby.
Other qualifications and disqualification’s of the rehabilitation
receiver shall be set forth in procedural rules, taking into
consideration the nature of the business of the debtor and the
need to protect the interest of all stakeholders concerned.
Section 30. Initial Appointment of the Rehabilitation
Receiver. - The court shall initially appoint the rehabilitation
receiver, who mayor may not be from among the nominees of
the petitioner, However, at the initial hearing of the petition, the
creditors and the debtor who are not petitioners may nominate
other persons to the position. The court may retain the
rehabilitation receiver initially appointed or appoint another who
mayor may not be from among those nominated.
In case the debtor is a securities market participant, the court
shall give priority to the nominee of the appropriate securities or
investor protection fund. If a qualified natural person or entity is
nominated by more than fifty percent (50%) of the secured
creditors and the general unsecured creditors, and satisfactory
evidence is submitted, the court shall appoint the creditors'
nominee as rehabilitation receiver.
Section 31. Powers, Duties and Responsibilities of the
Rehabilitation Receiver. - The rehabilitation receiver shall be
deemed an officer of the court with the principal duty of
preserving and maximizing the value of the assets of the debtor
during the rehabilitation proceedings, determining the viability of
the rehabilitation of the debtor, preparing and recommending a
Rehabilitation Plan to the court, and implementing the approved
Rehabilitation Plan, To this end, and without limiting the
generality of the foregoing, the rehabilitation receiver shall have
the following powers, duties and responsibilities:
a) To verify the accuracy of the factual allegations in the
petition and its annexes;
b) To verify and correct, if necessary, the inventory of all
of the assets of the debtor, and their valuation;
c) To verify and correct, if necessary, the schedule of
debts and liabilities of the debtor;
d) To evaluate the validity, genuineness and true amount
of all the claims against the debtor;
e) To take possession, custody and control, and to
preserve the value of all the property of the debtor;
f) To sue and recover, with the approval of the court, all
amounts owed to, and all properties pertaining to the
debtor;
g) To have access to all information necessary, proper or
relevant to the operations and business of the debtor
and for its rehabilitation;
h) To sue and recover, with the. approval of the court, all
property or money of the debtor paid, transferred or
22
 disbursed in fraud of the debtor or its creditors, or which
constitute undue preference of creditor/s;
i) To monitor the operations and the business of the
debtor to ensure that no payments or transfers of
property are made other than in the ordinary course of
business;
j) With the court's approval, to engage the services of or
to employ persons or entities to assist him in the
discharge of his functions;
k) To determine the manner by which the debtor may be
best rehabilitated, to review) revise and/or recommend
action on the Rehabilitation Plan and submit the same
or a new one to the court for approval;
l) To implement the Rehabilitation Plan as approved by
the court, if 80 provided under the Rehabilitation Plan;
m) To assume and exercise the powers of management of
the debtor, if directed by the court pursuant to
Section 36 hereof;
n) To exercise such other powers as may, from time to
time, be conferred upon him by the court; and
To submit a status report on the rehabilitation proceedings every
quarter or as may be required by the court motu proprio. or upon
motion of any creditor. or as may be provided, in the
Rehabilitation Plan.
Unless appointed by the court, pursuant to Section 36 hereof,
the rehabilitation receiver shall not take over the management
and control of the debtor but may recommend the appointment
of a management committee over the debtor in the cases
provided by this Act.
Section 32. Removal of the Rehabilitation Receiver. – The
rehabilitation receiver may be removed at any time by the court
either motu proprio or upon motion by any creditor/s holding
more than fifty percent (50%) of the total obligations of the
debtor, on such grounds as the rules of procedure may provide
which shall include, but are not limited to, the following:
a) Incompetence, gross negligence, failure to perform or
failure to exercise the proper degree of care in the
performance of his duties and powers;
b) Lack of a particular or specialized competency required
by the specific case;
c) Illegal acts or conduct in the performance of his duties
and powers;
d) Lack of qualification or presence of any disqualification;
e) Conflict of interest that arises after his appointment;
and
f) Manifest lack of independence that is detrimental to the
general body of the stakeholders.
Section 33. Compensation and Terms of Service. – The
rehabilitation receiver and his direct employees or independent
contractors shall be entitled to compensation for reasonable
fees and expenses from the debtor according to the terms
approved by the court after notice and hearing. Prior to such
hearing, the rehabilitation receiver and his direct employees
shall be entitled to reasonable compensation based on quantum
meruit. Such costs shall be considered administrative expenses.
Section 34. Oath and Bond of the Rehabilitation Receiver. –
Prior to entering upon his powers, duties and responsibilities,
the rehabilitation receiver shall take an oath and file a bond, in
such amount to be fixed by the court, conditioned upon the
faithful and proper discharge of his powers, duties and
responsibilities.
Section 35. Vacancy. – Incase the position of rehabilitation
receiver is vacated for any reason whatsoever. the court shall
direct the debtor and the creditors to submit the name/s of their
nominee/s to the position. The court may appoint any of the
qualified nominees. or any other person qualified for the
position.
Section 36. Displacement of Existing Management by the
Rehabilitation Receiver or Management Committee. – Upon
motion of any interested party, the court may appoint and direct
the rehabilitation receiver to assume the powers of management
of the debtor, or appoint a management committee that will
undertake the management of the debtor. upon clear and
convincing evidence of any of the following circumstances:
a) Actual or imminent danger of dissipation, loss, wastage
or destruction of the debtor’s assets or other properties;
b) Paralyzation of the business operations of the debtor;
or
c) Gross mismanagement of the debtor. or fraud or other
wrongful conduct on the part of, or gross or willful
violation of this Act by. existing management of the
debtor Or the owner, partner, director, officer or
representative/s in management of the debtor.
In case the court appoints the rehabilitation receiver to assume
the powers of management of the debtor. the court may:
1) require the rehabilitation receiver to post an additional
bond;
2) authorize him to engage the services or to employ
persona or entities to assist him in the discharge of his
managerial functions; and
3) authorize a commensurate increase in his
compensation.
Section 37. Role of the Management Committee. – When
appointed pursuant to the foregoing section, the management
committee shall take the place of the management and the
governing body of the debtor and assume their rights and
responsibilities. The specific powers and duties of the
management committee, whose members shall be considered
as officers of the court, shall be prescribed by the procedural
rules.
Section 38. Qualifications of Members of the Management
Committee. - The qualifications and disqualification’s of the
members of the management committee shall be set forth in the
procedural rules, taking into consideration the nature of the
business of the debtor and the need to protect the interest of all
stakeholders concerned.
Section 39. Employment of Professionals. - Upon approval of
the court, and after notice and hearing, the rehabilitation
receiver or the management committee may employ specialized
23
professionals and other experts to assist each in the
performance of their duties. Such professionals and other
experts shall be considered either employees or independent
contractors of the rehabilitation receiver or the management
committee, as the case may be. The qualifications and
disqualification’s of the professionals and experts may be set
forth in procedural rules, taking into consideration the nature of
the business of the debtor and the need to protect the interest
of all stakeholders concerned.
Section 40. Conflict of Interest. - No person may be appointed
as a rehabilitation receiver, member of a management
committee, or be employed by the rehabilitation receiver or the
management committee if he has a conflict of interest.
An individual shall be deemed to have a conflict of interest if he
is so situated as to be materially influenced in the exercise of his
judgment for or against any party to the proceedings. Without
limiting the generality of the foregoing, an individual shall be
deemed to have a conflict of interest if:
a) he is a creditor, owner, partner or stockholder of the
debtor;
b) he is engaged in a line of business which competes
with that of the debtor;
c) he is, or was, within five (5) years from the filing of the
petition, a director, officer, owner, partner or employee
of the debtor or any of the creditors, or the auditor or
accountant of the debtor;
d) he is, or was, within two (2) years from the filing of the
petition, an underwriter of the outstanding securities of
the debtor;
e) he is related by consanguinity or affinity within the
fourth civil degree to any individual creditor, owners of
a sale proprietorship-debtor, partners of a partnership-
debtor or to any stockholder, director, officer, employee
or underwriter of a corporation-debtor; or
f) he has any other direct or indirect material interest in
the debtor or any of the creditors.
Any rehabilitation receiver, member of the management
committee or persons employed or contracted by them
possessing any conflict of interest shall make the appropriate
disclosure either to the court or to the creditors in case of out-
of-court rehabilitation proceedings. Any party to the proceeding
adversely affected by the appointment of any person with a
conflict of interest to any of the positions enumerated above may
however waive his right to object to such appointment and, if the
waiver is unreasonably withheld, the court may disregard the
conflict of interest, taking into account the general interest of the
stakeholders.
Section 41. Immunity. - The rehabilitation receiver and all
persons employed by him, and the members of the
management committee and all persons employed by it, shall
not be subject to any action. claim or demand in connection with
any act done or omitted to be done by them in good faith in
connection with the exercise of their powers and functions under
this Act or other actions duly approved by the court.
D. REHABILITATION PLAN
Section 62. Contents of a Rehabilitation Plan. – The
Rehabilitation Plan shall, as a minimum:
a) specify the underlying assumptions, the financial goals
and the procedures proposed to accomplish such
goals;
b) compare the amounts expected to be received by the
creditors under the Rehabilitation Plan with those that
they will receive if liquidation ensues within the next
one hundred twenty (120) days;
c) contain information sufficient to give the various
classes of creditors a reasonable basis for determining
whether supporting the Plan is in their financial interest
when compared to the immediate liquidation of the
debtor, including any reduction of principal interest and
penalties payable to the creditors; d) establish classes
of voting creditors;
e) establish subclasses of voting creditors if prior approval
has been granted by the court;
f) indicate how the insolvent debtor will be rehabilitated
including, but not limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-reorganization.
dacion en pago, debt-equity conversion and sale of the
business (or parts of it) as a going concern, or setting-
up of a new business entity or other similar
arrangements as may be necessary to restore the
financial well-being and visibility of the insolvent debtor;
g) specify the treatment of each class or subclass
described in subsections (d) and (e);
h) provide for equal treatment of all claims within the same
class or subclass, unless a particular creditor
voluntarily agrees to less favorable treatment;
i) ensure that the payments made under the plan follow
the priority established under the provisions of the
Civil Code on concurrence and preference of credits
and other applicable laws;
j) maintain the security interest of secured creditors and
preserve the liquidation value of the security unless
such has been waived or modified voluntarily;
k) disclose all payments to creditors for pre-
commencement debts made during the proceedings
and the justifications thereof;
l) describe the disputed claims and the provisioning of
funds to account for appropriate payments should the
claim be ruled valid or its amount adjusted;
m) identify the debtor's role in the implementation of the
Plan;
n) state any rehabilitation covenants of the debtor, the
breach of which shall be considered a material breach
of the Plan;
o) identify those responsible for the future management of
the debtor and the supervision and implementation of
the Plan, their affiliation with the debtor and their
remuneration;
p) address the treatment of claims arising after the
confirmation of the Rehabilitation Plan;
q) require the debtor and its counter-parties to adhere to
the terms of all contracts that the debtor has chosen to
confirm;
24
 r) arrange for the payment of all outstanding
administrative expenses as a condition to the Plan's
approval unless such condition has been waived in
writing by the creditors concerned;
s) arrange for the payment" of all outstanding taxes and
assessments, or an adjusted amount pursuant to a
compromise settlement with the BlR Or other
applicable tax authorities;
t) include a certified copy of a certificate of tax clearance
or evidence of a compromise settlement with the BIR;
u) include a valid and binding (solution of a meeting of the
debtor's stockholders to increase the shares by the
required amount in cases where the Plan contemplates
an additional issuance of shares by the debtor;
v) state the compensation and status, if any, of the
rehabilitation receiver after the approval of the Plan;
and
w) contain provisions for conciliation and/or mediation as
a prerequisite to court assistance or intervention in the
event of any disagreement in the interpretation or
implementation of the Rehabilitation Plan.
Section 63. Consultation with Debtor and Creditors. – if the
court gives due course to the petition, the rehabilitation receiver
shall confer with the debtor and all the classes of creditors, and
may consider their views and proposals ill the review, revision
or preparation of a new Rehabilitation Plan.
Section 64. Creditor Approval of Rehabilitation Plan. – The
rehabilitation receiver shall notify the creditors and stakeholders
that the Plan is ready for their examination. Within twenty (2Q)
days from the said notification, the rehabilitation receiver shall
convene the creditors, either as a whole or per class, for
purposes of voting on the approval of the Plan. The Plan shall
be deemed rejected unless approved by all classes of creditors
whose rights are adversely modified or affected by the Plan. For
purposes of this section, the Plan is deemed to have been
approved by a class of creditors if members of the said class
holding more than fifty percent (50%) of the total claims of the
said class vote in favor of the Plan. The votes of the creditors
shall be based solely on the amount of their respective claims
based on the registry of claims submitted by the rehabilitation
receiver pursuant to Section 44 hereof.
Notwithstanding the rejection of the Rehabilitation Plan, the
court may confirm the Rehabilitation Plan if all of the following
circumstances are present:
a) The Rehabilitation Plan complies with the requirements
specified in this Act.
b) The rehabilitation receiver recommends the
confirmation of the Rehabilitation Plan;
c) The shareholders, owners or partners of the juridical
debtor lose at least their controlling interest as a result
of the Rehabilitation Plan; and
d) The Rehabilitation Plan would likely provide the
objecting class of creditors with compensation which
has a net present value greater than that which they
would have received if the debtor were under
liquidation.
Section 65. Submission of Rehabilitation Plan to the Court.
- 1fthe Rehabilitation Plan is approved, the rehabilitation
receiver shall submit the same to the court for confirmation.
Within five (5) days from receipt of the Rehabilitation Plan, the
court shall notify the creditors that the Rehabilitation Plan has
been submitted for confirmation, that any creditor may obtain
copies of the Rehabilitation Plan and that any creditor may file
an objection thereto.
Section 66. Filing of Objections to Rehabilitation Plan. – A
creditor may file an objection to the Rehabilitation Plan within
twenty (20) days from receipt of notice from the court that the
Rehabilitation Plan has been submitted for confirmation.
Objections to a Rehabilitation Plan shall be limited to the
following:
a) The creditors' support was induced by fraud;
b) The documents or data relied upon in the Rehabilitation
Plan are materially false or misleading; or
c) The Rehabilitation Plan is in fact not supported by the
voting creditors.
Section 67. Hearing on the Objections. - If objections have
been submitted during the relevant period, the court shall issue
an order setting the time and date for the hearing or hearings on
the objections.
If the court finds merit in the objection, it shall order the
rehabilitation receiver or other party to cure the defect,
whenever feasible. If the court determines that the debtor acted
in bad faith, or that it is not feasible to cure the defect, the court
shall convert the proceedings into one for the liquidation of the
debtor under Chapter V of this Act.
Section 68. Confirmation of the Rehabilitation Plan. – If no
objections are filed within the relevant period or, if objections are
filed, the court finds them lacking in merit, or determines that the
basis for the objection has been cured, or determines that the
debtor has complied with an order to cure the objection, the
court shall issue an order confirming the Rehabilitation Plan.
The court may confirm the Rehabilitation Plan notwithstanding
unresolved disputes over claims if the Rehabilitation Plan has
made adequate provisions for paying such claims.
For the avoidance of doubt, the provisions of other laws to the
contrary notwithstanding, the court shall have the power to
approve or implement the Rehabilitation Plan despite the lack of
approval, or objection from the owners, partners or stockholders
of the insolvent debtor: Provided, That the terms thereof are
necessary to restore the financial well-being and viability of the
insolvent debtor.
Section 69. Effect of Confirmation of the Rehabilitation
Plan. - The confirmation of the Rehabilitation Plan by the court
shall result in the following:
a) The Rehabilitation Plan and its provisions shall be
binding upon the debtor and all persons who may be
affected by it, including the creditors, whether or not
such persons have participated in the proceedings or
25
 opposed the Rehabilitation Plan or whether or not their
claims have been scheduled;
b) The debtor shall comply with the provisions of the
Rehabilitation Plan and shall take all actions necessary
to carry out the Plan;
c) Payments shall be made to the creditors in accordance
with the provisions of the Rehabilitation Plan;
d) Contracts and other arrangements between the debtor
and its creditors shall be interpreted as continuing to
apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan;
e) Any compromises on amounts or rescheduling of
timing of payments by the debtor shall be binding on
creditors regardless of whether or not the Plan is
successfully implemented; and
f) Claims arising after approval of the Plan that are
otherwise not treated by the Plan are not subject to any
Suspension Order.
The Order confirming the Plan shall comply with Rules 36 of the
Rules of Court: Provided, however, That the court may maintain
jurisdiction over the case in order to resolve claims against the
debtor that remain contested and allegations that the debtor has
breached the Plan.
Section 70. Liability of General Partners of a Partnership for
Unpaid Balances Under an Approved Plan. - The approval of
the Plan shall not affect the rights of creditors to pursue actions
against the general partners of a partnership to the extent they
are liable under relevant legislation for the debts thereof.
Section 71. Treatment of Amounts of Indebtedness or
Obligations Forgiven or Reduced. - Amounts of any
indebtedness or obligations reduced or forgiven in connection
with a Plan's approval shall not be subject to any tax in
furtherance of the purposes of this Act.
Section 72. Period for Confirmation of the Rehabilitation
Plan. - The court shall have a maximum period of one (1) year
from the date of the filing of the petition to confirm a
Rehabilitation Plan.
If no Rehabilitation Plan is confirmed within the said period, the
proceedings may upon motion or motu propio, be converted into
one for the liquidation of the debtor .
Section 73. Accounting Discharge of Rehabilitation
Receiver. - Upon the confirmation of the Rehabilitation Plan, the
rehabilitation receiver shall provide a final report and accounting
to the court. Unless the Rehabilitation Plan specifically requires
and describes the role of the rehabilitation receiver after the
approval of the Rehabilitation Plan, the court shall discharge the
rehabilitation receiver of his duties.
Section 74. Termination of Proceedings. - The rehabilitation
proceedings under Chapter II shall, upon motion by any
stakeholder or the rehabilitation receiver be terminated by order
of the court either declaring a successful implementation of the
Rehabilitation Plan or a failure of rehabilitation.
There is failure of rehabilitation in the following cases:
a) Dismissal of the petition by the court;
b) The debtor fails to submit a Rehabilitation Plan;
c) Under the Rehabilitation Plan submitted by the debtor,
there is no substantial likelihood that the debtor can be
rehabilitated within a reasonable period;
d) The Rehabilitation Plan or its amendment is approved
by the court but in the implementation thereof, the
debtor fails to perform its obligations thereunder or
there is a failure to realize the objectives, targets or
goals set forth therein, including the timelines and
conditions for the settlement of the obligations due to
the creditors and other claimants;
e) The commission of fraud in securing the approval of the
Rehabilitation Plan or its amendment; and
f) Other analogous circumstances as may be defined by
the rules of procedure.
Upon a breach of, or upon a failure of the Rehabilitation Plan the
court, upon motion by an affected party may:
1) Issue an order directing that the breach be cured within
a specified period of time, falling which the proceedings
may be converted to a liquidation;
2) Issue an order converting the proceedings to a
liquidation;
3) Allow the debtor or rehabilitation receiver to submit
amendments to the Rehabilitation Plan, the approval of
which shall be governed by the same requirements for
the approval of a Rehabilitation Plan under this
subchapter;
4) Issue any other order to remedy the breach consistent
with the present regulation, other applicable law and
the best interests of the creditors; or
5) Enforce the applicable provisions of the Rehabilitation
Plan through a writ of execution.
Section 75. Effects of Termination. - Termination of the
proceedings shall result in the following:
a) The discharge of the rehabilitation receiver subject to
his submission of a final accounting; and
b) The lifting of the Stay Order and any other court order
holding in abeyance any action for the enforcement of
a claim against the debtor. Provided, however, That if
the termination of proceedings is due to failure of
rehabilitation or dismissal of the petition for reasons
other than technical grounds, the proceedings shall be
immediately converted to liquidation as provided in
Section 92 of this Act.
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself
or jointly with any of its creditors, may file a verified petition with
the court for the approval of a pre-negotiated Rehabilitation Plan
which has been endorsed or approved by creditors holding at
least two-thirds (2/3) of the total liabilities of the debtor, including
secured creditors holding more than fifty percent (50%) of the
total secured claims of the debtor and unsecured creditors
26
holding more than fifty percent (50%) of the total unsecured
claims of the debtor. The petition shall include as a minimum:
a) a schedule of the debtor's debts and liabilities;
b) an inventory of the debtor's assets;
c) the pre-negotiated Rehabilitation Plan, including the
names of at least three (3) qualified nominees for
rehabilitation receiver; and
d) a summary of disputed claims against the debtor and a
report on the provisioning of funds to account for
appropriate payments should any such claims be ruled
valid or their amounts adjusted.
Section 77. Issuance of Order. - Within five (5) working days,
and after determination that the petition is sufficient in form and
substance, the court shall issue an Order which shall;
a) identify the debtor, its principal business of activity/es
and its principal place of business;
b) declare that the debtor is under rehabilitation;
c) summarize the ground/s for the filling of the petition;
d) direct the publication of the Order in a newspaper of
general circulation in the Philippines once a week for at
least two (2) consecutive weeks, with the first
publication to be made within seven (7) days from the
time of its issuance;
e) direct the service by personal delivery of a copy of the
petition on each creditor who is not a petitioner holding
at least ten percent (10%) of the total liabilities of the
debtor, as determined in the schedule attached to the
petition, within three (3) days;
f) state that copies of the petition and the Rehabilitation
Plan are available for examination and copying by any
interested party;
g) state that creditors and other interested parties
opposing the petition or Rehabilitation Plan may file
their objections or comments thereto within a period of
not later than twenty (20) days from the second
publication of the Order;
h) appoint a rehabilitation receiver, if provided for in the
Plan; and
i) include a Suspension or Stay Order as described in this
Act.
Section 78. Approval of the Plan. - Within ten (10) days from
the date of the second publication of the Order, the court shall
approve the Rehabilitation Plan unless a creditor or other
interested party submits an objection to it in accordance with the
next succeeding section.
Section 79. Objection to the Petition or Rehabilitation Plan.
- Any creditor or other interested party may submit to the court
a verified objection to the petition or the Rehabilitation Plan not
later than eight (8) days from the date of the second publication
of the Order mentioned in Section 77 hereof. The objections
shall be limited to the following:
a) The allegations in the petition or the Rehabilitation Plan
or the attachments thereto are materially false or
misleading;
b) The majority of any class of creditors do not in fact
support the Rehabilitation Plan;
c) The Rehabilitation Plan fails to accurately account for
a claim against the debtor and the claim in not
categorically declared as a contested claim; or
d) The support of the creditors, or any of them was
induced by fraud.
Copies of any objection to the petition of the Rehabilitation Plan
shall be served on the debtor, the rehabilitation receiver (if
applicable), the secured creditor with the largest claim and who
supports the Rehabilitation Plan, and the unsecured creditor
with the largest claim and who supports the Rehabilitation Plan.
Section 80. Hearing on the Objections. - After receipt of an
objection, the court shall set the same for hearing. The date of
the hearing shall be no earlier than twenty (20) days and no later
than thirty (30) days from the date of the second publication of
the Order mentioned in Section 77 hereof. If the court finds merit
in the objection, it shall direct the debtor, when feasible to cure
the detect within a reasonable period. If the court determines
that the debtor or creditors supporting the Rehabilitation Plan
acted in bad faith, or that the objection is non-curable, the court
may order the conversion of the proceedings into liquidation. A
finding by the court that the objection has no substantial merit,
or that the same has been cured shall be deemed an approval
of the Rehabilitation Plan.
Section 81. Period for Approval of Rehabilitation Plan. - The
court shall have a maximum period of one hundred twenty (120)
days from the date of the filing of the petition to approve the
Rehabilitation Plan. If the court fails to act within the said period,
the Rehabilitation Plan shall be deemed approved.
Section 82. Effect of Approval. - Approval of a Plan under this
chapter shall have the same legal effect as confirmation of a
Plan under Chapter II of this Act.
E. INFROMAL RESTRUCTURING AGREEMENTS AND
CRAM DOWN EFFECT
Section 83. Out-of-Court or Informal Restructuring
Agreements and Rehabilitation Plans. - An out-of-court or
informal restructuring agreement or Rehabilitation Plan that
meets the minimum requirements prescribed in this chapter is
hereby recognized as consistent with the objectives of this Act.
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;
27
 c) It must be approved by creditors representing at least
seventy-five percent (75%) of the unsecured
obligations of the debtor; and
d) It must be approved by creditors holding at least eighty-
five percent (85%) of the total liabilities, secured and
unsecured, of the debtor.
Section 85. Standstill Period. - A standstill period that may be
agreed upon by the parties pending negotiation and finalization
of the out-of-court or informal restructuring/workout agreement
or Rehabilitation Plan contemplated herein shall be effective
and enforceable not only against the contracting parties but also
against the other creditors:
Provided, That:
a) such agreement is approved by creditors representing
more than fifty percent (50%) of the total liabilities of the
debtor;
b) notice thereof is publishing in a newspaper of general
circulation in the Philippines once a week for two (2)
consecutive weeks; and (c) the standstill period does
not exceed one hundred twenty (120) days from the
date of effectivity. The notice must invite creditors to
participate in the negotiation for out-of-court
rehabilitation or restructuring agreement and notify
them that said agreement will be binding on all creditors
if the required majority votes prescribed in Section 84
of this Act are met.
Section 86. Cram Down Effect. - A restructuring/workout
agreement or Rehabilitation Plan that is approved pursuant to
an informal workout framework referred to in this chapter shall
have the same legal effect as confirmation of a Plan under
Section 69 hereof. The notice of the Rehabilitation Plan or
restructuring agreement or Plan shall be published once a week
for at least three (3) consecutive weeks in a newspaper of
general circulation in the Philippines. The Rehabilitation Plan or
restructuring agreement shall take effect upon the lapse of
fifteen (15) days from the date of the last publication of the notice
thereof.
Section 87. Amendment or Modification. - Any amendment of
an out-of-court restructuring/workout agreement or
Rehabilitation Plan must be made in accordance with the terms
of the agreement and with due notice on all creditors.
Section 88. Effect of Court Action or Other Proceedings. -
Any court action or other proceedings arising from, or relating
to, the out-of-court or informal restructuring/workout agreement
or Rehabilitation Plan shall not stay its implementation, unless
the relevant party is able to secure a temporary restraining order
or injunctive relief from the Court of Appeals.
Section 89. Court Assistance. - The insolvent debtor and/or
creditor may seek court assistance for the execution or
implementation of a Rehabilitation Plan under this Chapter,
under such rules of procedure as may be promulgated by the
Supreme Court.
LIQUIDATION
A. TYPES
Section 90. Voluntary Liquidation. - An insolvent debtor may
apply for liquidation by filing a petition for liquidation with the
court. The petition shall be verified, shall establish the
insolvency of the debtor and shall contain, whether as an
attachment or as part of the body of the petition;
a) a schedule of the debtor's debts and liabilities including
a list of creditors with their addresses, amounts of
claims and collaterals, or securities, if any;
b) an inventory of all its assets including receivables and
claims against third parties; and
c) the names of at least three (3) nominees to the position
of liquidator.
At any time during the pendency of court-supervised or pre-
negotiated rehabilitation proceedings, the debtor may also
initiate liquidation proceedings by filing a motion in the same
court where the rehabilitation proceedings are pending to
convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set
forth the same matters required in the preceding paragraph, and
state that the debtor is seeking immediate dissolution and
termination of its corporate existence.
If the petition or the motion, as the case may be, is sufficient in
form and substance, the court shall issue a Liquidation Order
mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more
creditors the aggregate of whose claims is at least either One
million pesos (Php1,000,000,00) or at least twenty-five percent
(25%) of the subscribed capital stock or partner's contributions
of the debtor, whichever is higher, may apply for and seek the
liquidation of an insolvent debtor by filing a petition for liquidation
of the debtor with the court. The petition shall show that:
a) there is no genuine issue of fact or law on the claims/s
of the petitioner/s, and that the due and demandable
payments thereon have not been made for at least one
hundred eighty (180) days or that the debtor has failed
generally to meet its liabilities as they fall due; and
b) there is no substantial likelihood that the debtor may be
rehabilitated.
At any time during the pendency of or after a rehabilitation court-
supervised or pre-negotiated rehabilitation proceedings, three
(3) or more creditors whose claims is at least either One million
pesos (Php1,000,000.00) or at least twenty-five percent (25%)
of the subscribed capital or partner's contributions of the debtor,
whichever is higher, may also initiate liquidation proceedings by
filing a motion in the same court where the rehabilitation
proceedings are pending to convert the rehabilitation
proceedings into liquidation proceedings. The motion shall be
verified, shall contain or set forth the same matters required in
the preceding paragraph, and state that the movants are
seeking the immediate liquidation of the debtor.
If the petition or motion is sufficient in form and substance, the
court shall issue an Order:
28
 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.
B. CONVERSION OF REHABILITATION TO LIQUIDATION
PROCEEDINGS
Section 92. Conversion by the Court into Liquidation
Proceedings. - During the pendency of court supervised or pre-
negotiated rehabilitation proceedings, the court may order the
conversion of rehabilitation proceedings to liquidation
proceedings pursuant to (a) Section 25(c) of this Act; or (b)
Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section
90 of this Act; or at any other time upon the recommendation of
the rehabilitation receiver that the rehabilitation of the debtor is
not feasible. Thereupon, the court shall issue the Liquidation
Order mentioned in Section 112 hereof.
Section 93. Powers of the Securities and Exchange
Commission (SEC). - The provisions of this chapter shall not
affect the regulatory powers of the SEC under Section 6 of
Presidential Decree No. 902-A, as amended, with respect to any
dissolution and liquidation proceeding initiated and heard before
it.
C. LIQUIDATION ORDER
Section 112. Liquidation Order. - The Liquidation Order shall:
a) declare the debtor insolvent;
b) order the liquidation of the debtor and, in the case of a
juridical debtor, declare it as dissolved;
c) order the sheriff to take possession and control of all
the property of the debtor, except those that may be
exempt from execution;
d) order the publication of the petition or motion in a
newspaper of general circulation once a week for two
(2) consecutive weeks;
e) direct payments of any claims and conveyance of any
property due the debtor to the liquidator;
f) prohibit payments by the debtor and the transfer of any
property by the debtor;
g) direct all creditors to file their claims with the liquidator
within the period set by the rules of procedure;
h) authorize the payment of administrative expenses as
they become due;
i) state that the debtor and creditors who are not
petitioner/s may submit the names of other nominees
to the position of liquidator; and
j) set the case for hearing for the election and
appointment of the liquidator, which date shall not be
less than thirty (30) days nor more than forty-five (45)
days from the date of the last publication.
Section 113. Effects of the Liquidation Order. - Upon the
issuance of the Liquidation Order:
a) the juridical debtor shall be deemed dissolved and its
corporate or juridical existence terminated;
b) legal title to and control of all the assets of the debtor,
except those that may be exempt from execution, shall
be deemed vested in the liquidator or, pending his
election or appointment, with the court;
c) all contracts of the debtor shall be deemed terminated
and/or breached, unless the liquidator, within ninety
(90) days from the date of his assumption of office,
declares otherwise and the contracting party agrees;
d) no separate action for the collection of an unsecured
claim shall be allowed. Such actions already pending
will be transferred to the Liquidator for him to accept
and settle or contest. If the liquidator contests or
disputes the claim, the court shall allow, hear and
resolve such contest except when the case is already
on appeal. In such a case, the suit may proceed to
judgment, and any final and executor judgment therein
for a claim against the debtor shall be filed and allowed
in court; and
e) no foreclosure proceeding shall be allowed for a period
of one hundred eighty (180) days.
D. RIGHTS OF SECURED CREDITORS
Section 114. Rights of Secured Creditors. - The Liquidation
Order shall not affect the right of a secured creditor to enforce
his lien in accordance with the applicable contract or law. A
secured creditor may:
a) waive his right under the security or lien, prove his claim
in the liquidation proceedings and share in the
distribution of the assets of the debtor; or (b) maintain
his rights under the security or lien:
If the secured creditor maintains his rights under the security or
lien:
1) the value of the property may be fixed in a manner
agreed upon by the creditor and the liquidator. When
the value of the property is less than the claim it
secures, the liquidator may convey the property to the
secured creditor and the latter will be admitted in the
liquidation proceedings as a creditor for the balance. If
its value exceeds the claim secured, the liquidator may
convey the property to the creditor and waive the
debtor's right of redemption upon receiving the excess
from the creditor;
2) the liquidator may sell the property and satisfy the
secured creditor's entire claim from the proceeds of the
sale; or
3) the secure creditor may enforce the lien or foreclose on
the property pursuant to applicable laws.
29
E. LIQUIDATOR
Section 115. Election of Liquidator. - Only creditors who have
filed their claims within the period set by the court, and whose
claims are not barred by the statute of limitations, will be allowed
to vote in the election of the liquidator. A secured creditor will
not be allowed to vote, unless:
a) he waives his security or lien; or
b) has the value of the property subject of his security or
lien fixed by agreement with the liquidator, and is
admitted for the balance of his claim.
The creditors entitled to vote will elect the liquidator in open
court. The nominee receiving the highest number of votes cast
in terms of amount of claims, ad who is qualified pursuant to
Section 118 hereof, shall be appointed as the liquidator.
Section 116. Court-Appointed Liquidator. - The court may
appoint the liquidator if:
a) on the date set for the election of the liquidator, the
creditors do not attend;
b) the creditors who attend, fail or refuse to elect a
liquidator;
c) after being elected, the liquidator fails to qualify; or
d) a vacancy occurs for any reason whatsoever, In any of
the cases provided herein, the court may instead set
another hearing of the election of the liquidator.
Provided further, That nothing in this section shall be
construed to prevent a rehabilitation receiver, who was
administering the debtor prior to the commencement of
the liquidation, from being appointed as a liquidator.
Section 117. Oath and Bond of the Liquidator. -Prior to
entering upon his powers, duties and responsibilities, the
liquidator shall take an oath and file a bond, In such amount to
be fixed by the court, conditioned upon the proper and faithful
discharge of his powers, duties and responsibilities.
Section 118. Qualifications of the Liquidator. - The liquidator
shall have the qualifications enumerated in Section 29 hereof.
He may be removed at any time by the court for cause, either
motu propio or upon motion of any creditor entitled to vote for
the election of the liquidator.
Section 119. Powers, Duties and Responsibilities of the
Liquidator. - The liquidator shall be deemed an officer of the
court with the principal duly of preserving and maximizing the
value and recovering the assets of the debtor, with the end of
liquidating them and discharging to the extent possible all the
claims against the debtor. The powers, duties and
responsibilities of the liquidator shall include, but not limited to:
a) to sue and recover all the assets, debts and claims,
belonging or due to the debtor;
b) to take possession of all the property of the debtor
except property exempt by law from execution;
c) to sell, with the approval of the court, any property of
the debtor which has come into his possession or
control;
d) to redeem all mortgages and pledges, and so satisfy
any judgement which may be an encumbrance on any
property sold by him;
e) to settle all accounts between the debtor and his
creditors, subject to the approval of the court;
f) to recover any property or its value, fraudulently
conveyed by the debtor;
g) to recommend to the court the creation of a creditors'
committee which will assist him in the discharge of the
functions and which shall have powers as the court
deems just, reasonable and necessary; and
h) upon approval of the court, to engage such
professional as may be necessary and reasonable to
assist him in the discharge of his duties.
In addition to the rights and duties of a rehabilitation receiver,
the liquidator, shall have the right and duty to take all reasonable
steps to manage and dispose of the debtor's assets with a view
towards maximizing the proceedings therefrom, to pay creditors
and stockholders, and to terminate the debtor's legal existence.
Other duties of the liquidator in accordance with this section may
be established by procedural rules.
A liquidator shall be subject to removal pursuant to procedures
for removing a rehabilitation receiver.
Section 120. Compensation of the Liquidator. - The liquidator
and the persons and entities engaged or employed by him to
assist in the discharge of his powers and duties shall be entitled
to such reasonable compensation as may determined by the
liquidation court, which shall not exceed the maximum amount
as may be prescribed by the Supreme Court.
Section 121. Reporting Requirements. - The liquidator shall
make and keep a record of all moneys received and all
disbursements mad by him or under his authority as liquidator.
He shall render a quarterly report thereof to the court, which
report shall be made available to all interested parties. The
liquidator shall also submit such reports as may be required by
the court from time to time as well as a final report at the end of
the liquidation proceedings.
Section 122. Discharge of Liquidator. - In preparation for the
final settlement of all the claims against the debtor, the liquidator
will notify all the creditors, either by publication in a newspaper
of general circulation or such other mode as the court may direct
or allow, that will apply with the court for the settlement of his
account and his discharge from liability as liquidator. The
liquidator will file a final accounting with the court, with proof of
notice to all creditors. The accounting will be set for hearing. If
the court finds the same in order, the court will discharge the
liquidator.
F. DETERMINATION OF CLAIMS
Section 123. Registry of Claims. - Within twenty (20) days
from his assumption into office the liquidator shall prepare a
preliminary registry of claims of secured and unsecured
creditors. Secured creditors who have waived their security or
lien, or have fixed the value of the property subject of their
30
security or lien by agreement with the liquidator and is admitted
as a creditor for the balance, shall be considered as unsecured
creditors. The liquidator shall make the registry available for
public inspection and provide publication notice to creditors,
individual debtors owner/s of the sole proprietorship-debtor, the
partners of the partnership-debtor and shareholders or
members of the corporationdebtor, on where and when they
may inspect it. All claims must be duly proven before being paid.
Section 124. Right of Set-off. - If the debtor and creditor are
mutually debtor and creditor of each other one debt shall be set
off against the other, and only the balance, if any shall be
allowed in the liquidation proceedings.
Section 125. Opposition or Challenge to Claims. - Within
thirty (30) days from the expiration of the period for filing of
applications for recognition of claims, creditors, individual
debtors, owner/s of the sole proprietorship-debtor, partners of
the partnership-debtor and shareholders or members of the
corporation -debtor and other interested parties may submit a
challenge to claim or claims to the court, serving a certified copy
on the liquidator and the creditor holding the challenged claim.
Upon the expiration of the (30) day period, the rehabilitation
receiver shall submit to the court the registry of claims
containing the undisputed claims that have not been subject to
challenge. Such claims shall become final upon the filling of the
register and may be subsequently set aside only on grounds or
fraud, accident, mistake or inexcusable neglect.
Section 126. Submission of Disputed to the Court. - The
liquidator shall resolve disputed claims and submit his findings
thereon to the court for final approval. The liquidator may
disallow claims.
G. LIQUIDATION PLAN
Section 129. The Liquidation Plan. - Within three (3) months
from his assumption into office, the Liquidator shall submit a
Liquidation Plan to the court. The Liquidation Plan shall, as a
minimum enumerate all the assets of the debtor and a schedule
of liquidation of the assets and payment of the claims.
Section 130. Exempt Property to be Set Apart. - It shall be
the duty of the court, upon petition and after hearing, to exempt
and set apart, for the use and benefit of the said insolvent, such
real and personal property as is by law exempt from execution,
and also a homestead; but no such petition shall be heard as
aforesaid until it is first proved that notice of the hearing of the
application therefor has been duly given by the clerk, by causing
such notice to be posted it at least three (3) public places in the
province or city at least ten (10) days prior to the time of such
hearing, which notice shall set forth the name of the said
insolvent debtor, and the time and place appointed for the
hearing of such application, and shall briefly indicate the
homestead sought to be exempted or the property sought to be
set aside; and the decree must show that such proof was made
to the satisfaction of the court, and shall be conclusive evidence
of that fact.
Section 131. Sale of Assets in Liquidation. - The liquidator
may sell the unencumbered assets of the debtor and convert the
same into money. The sale shall be made at public auction.
However, a private sale may be allowed with the approval of the
court if; (a) the goods to be sold are of a perishable nature, or
are liable to quickly deteriorate in value, or are
disproportionately expensive to keep or maintain; or (b) the
private sale is for the best interest of the debtor and his creditors.
With the approval of the court, unencumbered property of the
debtor may also be conveyed to a creditor in satisfaction of his
claim or part thereof.
Section 132. Manner of Implementing the Liquidation Plan.
- The Liquidator shall implement the Liquidation Plan as
approved by the court. Payments shall be made to the creditors
only in accordance with the provisions of the Plan.
Section 133. Concurrence and Preference of Credits. - The
Liquidation Plan and its Implementation shall ensure that the
concurrence and preference of credits as enumerated in the
Civil Code of the Philippines and other relevant laws shall be
observed, unless a preferred creditor voluntarily waives his
preferred right. For purposes of this chapter, credits for services
rendered by employees or laborers to the debtor shall enjoy first
preference under Article 2244 of the Civil Code, unless the
claims constitute legal liens under Article 2241 and 2242
thereof.
Section 134. Order Removing the Debtor from the List of
Registered Entitles at the Securities and Exchange
Commission. - Upon determining that the liquidation has been
completed according to this Act and applicable law, the court
shall issue an Order approving the report and ordering the SEC
to remove the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of
evidence showing that the debtor has been removed from the
registry of legal entities at the SEC. The court shall issue an
Order terminating the proceedings.
NOTES ON RA 10667 - THE PHILIPPINE COMPETITION
ACT
I. SCOPE AND APPLICATION OF THE PHILIPPINE
COMPETITION ACT WHAT IS THE PHILIPPINE
COMPETITION ACT?
The PCA is the primary law in the Philippines enacted to
promote and protect market competition. The law defines,
prohibits, and penalizes anti-competitive practices, with the aim
of enhancing economic efficiency and promoting free and fair
competition in trade, industry, and all commercial economic
activities. Its key prohibitions include entering into anti-
competitive agreements, abusing a dominant market position,
and forming anti-competitive mergers and acquisitions (M&As).
For the declaration of policy, see PCA Chapter 1, Section 2.
For the definition of terms used in the law, see Section 4
WHO AND WHAT ARE COVERED BY THE PHILIPPINE
COMPETITION ACT?
The PCA covers any person or entity engaged in trade, industry,
and commerce in the Philippines. The law also applies to
31
international trade that may impact trade, industry, and
commerce in the country. The law, however, does not apply to
collective bargaining agreements or arrangements between
workers and employers and activities to facilitate collective
bargaining agreements in respect of conditions of employment.
For more information, see PCA Chapter 1, Section 3 and
Chapter 8, Section 48
II. POWERS AND FUNCTIONS OF THE PCC
WHAT IS THE PHILIPPINE COMPETITION COMMISSION
(PCC)?
The PCC is an independent quasi-judicial government agency
mandated to implement the national competition policy and
enforce the PCA. It has original and primary jurisdiction over
the enforcement and implementation of the PCA and its IRR.
The OFC (Office for Competition) under the Department of
Justice (DOJ-OFC) shall only conduct preliminary investigation
and undertake prosecution of all criminal offenses arising under
the PCA and other competition-related laws.
For more information, see PCA Chapter 2, Sections 5 & 13 and Chapter
7, Section 31
WHAT ARE THE POWERS AND FUNCTIONS OF THE PCC?
As the Philippines’ antitrust authority, the PCC is mandated to
exercise the following powers and functions, among others:
(a) Conduct inquiry, investigate, and hear and decide on
cases involving any violation of this Act and other existing
competition laws:
a. motu proprio
b. upon receipt of a verified complaint from an interested
party
c. upon referral by the concerned regulatory agency, and
institute the appropriate civil or criminal proceedings;
(b) Review proposed mergers and acquisitions,
determine thresholds for notification, determine the
requirements and procedures for notification, and upon
exercise of its powers to review, prohibit mergers and
acquisitions that will substantially prevent, restrict, or lessen
competition in the relevant market;
(c) Monitor and undertake consultation with stakeholders
and affected agencies for the purpose of understanding market
behavior;
(d) Upon finding, based on substantial evidence, that an
entity has entered into an anticompetitive agreement or has
abused its dominant position after due notice and hearing, stop
or redress the same, by applying remedies, such as, but not
limited to, issuance of injunctions, requirement of divestment,
and disgorgement of excess profits under such reasonable
parameters that shall be prescribed by the rules and
regulations implementing this Act;
(e) Conduct administrative proceedings, impose
sanctions, fines or penalties for any noncompliance with or
breach of this Act and its implementing rules and regulations
(IRR) and punish for contempt;
(f) Issue subpoena duces tecum and subpoena ad
testificandum to require the production of books, records, or
other documents or data which relate to any matter relevant to
the investigation and personal appearance before the
Commission, summon witnesses, administer oaths, and issue
interim orders such as show cause orders and cease and desist
orders after due notice and hearing in accordance with the rules
and regulations implementing this Act;
(g) Upon order of the court, undertake inspections of
business premises and other offices, land and vehicles, as
used by the entity, where it reasonably suspects that relevant
books, tax records, or other documents which relate to any
matter relevant to the investigation are kept, in order to prevent
the removal, concealment, tampering with, or destruction of the
books, records, or other documents;
(h) Issue adjustment or divestiture orders including orders
for corporate reorganization or divestment in the manner and
under such terms and conditions as may be prescribed in the
rules and regulations implementing this Act. Adjustment or
divestiture orders, which are structural remedies, should only
be imposed:
(1) Where there is no equally effective behavioral remedy; or
(2) Where any equally effective behavioral remedy would be
more burdensome for the enterprise concerned than the
structural remedy. Changes to the structure of an
enterprise as it existed before the infringement was
committed would only be proportionate to the substantial
risk of a lasting or repeated infringement that derives from
the very structure of the enterprise;
(i)Deputize any and all enforcement agencies of the
government or enlist the aid and
support of any private institution, corporation, entity or
association, in the implementation of its powers and functions;
(j) Monitor compliance by the person or entities concerned
with the cease and desist order or consent judgment;
(k) Issue advisory opinions and guidelines on competition
matters for the effective enforcement of this Act and submit
annual and special reports to Congress, including proposed
legislation for the regulation of commerce, trade, or
industry;
(l) Monitor and analyze the practice of competition in markets
that affect the Philippine
economy; implement and oversee measures to promote
transparency and accountability; and ensure that prohibitions
and requirements of competition laws are adhered to;
(m) Conduct, publish, and disseminate studies and reports
on anti-competitive conduct and agreements to inform and
guide the industry and consumers;
(n) Intervene or participate in administrative and regulatory
proceedings requiring consideration of the provisions of this
Act that are initiated by government agencies such as the
Securities and Exchange Commission, the Energy
Regulatory Commission and the National
Telecommunications Commission;
(o) Assist the National Economic and Development Authority,
in consultation with relevant agencies and sectors, in the
preparation and formulation of a national competition
policy;
(p) Act as the official representative of the Philippine
government in international competition matters;
(q) Promote capacity building and the sharing of best practices
with other competitionrelated bodies;
(r) Advocate pro-competitive policies of the government by:
(1) Reviewing economic and administrative regulations,
motu proprio or upon request, as to whether or not they
adversely affect relevant market competition, and advising the
concerned agencies against such regulations; and
32
(2) Advising the Executive Branch on the competitive BID RIGGING
implications of government actions, policies and programs; and Bid-rigging involves fixing prices at an auction or any form of
(s) Charging reasonable fees to defray the administrative cost bidding, including cover bidding, bid suppression, bid rotation,
of the services rendered. and market allocation, among others. Bid-rigging usually occurs
While it has original and primary jurisdiction in the enforcement when parties participating in a tender coordinate their bids
and regulation of all competition-related issues, the PCC works rather than submit independent proposals.
with relevant sector regulators on matters where their expertise Illustrative case:
and knowledge on the sector are critical. In 2013, the Ontario Superior Court of Justice fined a Japanese
For more information, see PCA Chapter 2, Section 12 and automobile parts company CAD5 million for conspiring with
Chapter 7, Section 32 other suppliers to rig the bids for the supply of parts to the 2001
and 2006 Honda Civic models fabricated in Canada. Furukawa
Electric Co., Ltd., a supplier of electrical boxes (i.e., fuse boxes,
III. PROHIBITED ACTS: ANTI – COMPETITIVE
relay boxes, and junction blocks) used in motor vehicles, was
AFREEMENTS
among the pre-qualified suppliers of Honda Canada. When
WHAT ARE ANTI-COMPETITIVE AGREEMENTS?
Honda called for supplier quotes, Furukawa coordinated with its
Anti-competitive agreements include agreements between or
Japan-based competitors regarding their price quotations or
among competitors that substantially prevent, restrict or lessen
bids. These meetings resulted in an arrangement whereby
competition. Such agreements may be in the form of a contract,
Furukawa would earn the contract for the tender. Consequently,
arrangement, understanding, collective recommendation, or
Furukuwa was awarded the contract to supply the automobile
concerted action, whether formal or informal, explicit or tacit,
parts of the 2001 and 2006 models of the Honda Civic. From
written or oral.
2000 to 2005, the estimated sales amounted to CAD16.5
Also known as cartels, anti-competitive agreements between or
million. The Competition Bureau learned of the international bid-
among competitors involve collusive conduct to fix prices, rig
rigging conspiracy through its Leniency Program, where
bids, limit output, or allocate the market.
Furukawa offered to help the Bureau in the investigation of the
Under the PCA, there are anti-competitive agreements that are
case, which started in 2009.
per se prohibited (Section 14[a]) and there are agreements that
For more information, see Canada’s Competition Bureau. April
are prohibited for having an anticompetitive object or effect
4, 2013. CAD 5 million Fine for a Japanese Supplier of Motor
(Section 14[b] and [c]).
Vehicle Components. Court File No. 13086
For more information, see PCA Chapter 3, Section 14 WHAT ARE NOT PER SE VIOLATIONS?
WHAT ARE PER SE VIOLATIONS? Not per se violations are other anti-competitive agreements
These anti-competitive agreements that are inherently illegal prohibited by the law which have the object or effect of
and require no further inquiry into their actual effect on the
substantially preventing, restricting, or lessening competition.
market or the intentions of the parties who engaged in the illegal
act or agreement. The Philippine Competition Act classifies Since these agreements are not per se illegal, the PCC needs
price fixing and bid rigging as per se violations. to conduct inquiries to determine whether they restrict
See PCA Chapter 3, Section 14 (a) competition and violate the PCA. See PCA Chapter 3, Section
PRICE FIXING 14 (b) and (c)
Price fixing involves restricting competition as to price, or
SUPPLY RESTRICTION
components thereof, or other terms of trade. This happens
Supply restriction is an agreement by two or more competitors
when competitors agree on the price of goods or services,
which sets or limits production levels and create an artificial
rather than independently setting their respective prices.
supply shortage, thereby raising prices. Similar forms of anti-
Illustrative case:
competitive agreements include restrictions in markets,
In 2007, the European Commission fined three Dutch brewers
technical development, or investment.
for price-fixing of beer in the Netherlands. Heineken, Grolsch,
Illustrative case:
and Bavaria paid a total of 273.7 million Euros while a fourth
In 2010, the Builders’ Association of India filed a complaint
brewer, InBev, did not receive a fine as it participated in the
against the Cement Manufacturers’ Association (CMA) and the
Commission’s leniency program.
cement manufacturing companies involved for engaging in a
The Commission found that between 1996 and 1999 at least,
cartel arrangement. Competitors were alleged to have
the four brewers held numerous unofficial meetings, during
discussed various confidential business information through the
which they coordinated prices and price increases of beer in the
CMA, such as prices and quantity of production, which led to an
Netherlands. Evidence adduced, including handwritten notes,
agreement of controlling the supply of cement products in the
confirmed the dates and places of these unofficial meetings. The
region. After investigation, ten cement manufacturing
companies were determined to have coordinated prices for both
companies were found guilty of artificially restricting their output
“on-trade” (consumption on the premises, such as bars and
which led to price hikes of cement products across India. The
pubs) and “off-trade” (sale through supermarkets and the like)
Competition Commission of India found the parties guilty of
segments of the beer market in the Netherlands. They also
breaching the 2002 Competition Act of India and imposed
coordinated occasionally on non-pricing aspects, such as
penalties amounting to INR63.17 billion.
conditions offered to individual customers in the on-trade
For more information, see Competition Commission of India.
segment. The Commission further found evidence that the
August 31, 2016. CCI imposes penalties upon cement
brewers were aware that their actions were illegal, as they tried
companies for cartelization. Case No. 29/2010.
to conceal their activity through the use of code names and
MARKET SHARING
hotels/restaurants as venues for their meetings.
Market sharing is a collusive agreement by two or more
For more information, see Case COMP/B/37.766 — Dutch beer
competitors which divides or allocates the market. Market
market
sharing not only includes territories, but also customers, volume
33
of sales or purchases, and type of goods or services, among
other considerations.
Illustrative case:
In 2011, two pharmaceutical companies admitted to dividing the
market between them in providing prescription medicines to
care homes in England. From May to November 2011, Tomms
Pharmacy, a trading company under the subsidiaries of
Hamsard 3149, and Lloyds Pharmacy Limited, agreed to
distribute medical products in their pre-assigned markets only,
resulting in limited choices of prescription medicines for
consumers. The Office of Fair Trading (OFT) found that the
arrangement breached the 1998 Competition Act of England.
The OFT fined Hamsard the amount of GBP387,856; however,
under its Leniency Program, OFT granted 100 percent reduction
to Lloyds for disclosing the agreement.
For more information, see Decision of the Office of Fair Trading.
Market sharing agreement and/or concerted practice in relation
to the supply of prescription medicines to care homes in
England. March 20, 2014. Case CE/9627/12.
WHAT ARE THE EXCEPTIONS TO THE COVERAGE OF
ANTI-COMPETITIVE AGREEMENTS?
Agreements not falling under Section 14(a) and 14(b) of the
PCA that have an anticompetitive object or effect, but
nevertheless contribute to improving production or distribution
of goods or services within the relevant market, or promoting
technical and economic progress while allowing consumers a
fair share of the resulting benefit may not necessarily be
considered anti-competitive. (Note: This only applies to Section
14 (c) of the PCA).
For more information, see PCA Chapter 2, Section 14
IV. PROHIBITED ACTS: ABUSE OF DOMINANT
POSITION
It is not illegal to have a dominant position in the market;
however, it is illegal to abuse one’s dominance.
HOW TO DETERMINE CONTROL OR DOMINANCE OF
MARKET?
In determining the control of an entity, the Commission may
consider the following:
Control is presumed to exist when the parent owns directly or
indirectly, through subsidiaries, more than one half (1/2) of the
voting power of an entity, unless in exceptional circumstances,
it can clearly be demonstrated that such ownership does not
constitute control. Control also exists even when an entity owns
one half (1/2) or less of the voting power of another entity when:
(a) There is power over more than one half (1/2) of the
voting rights by virtue of an agreement with investors;
(b) There is power to direct or govern the financial and
operating policies of the entity under a statute or agreement;
(c) There is power to appoint or remove the majority of
the members of the board of directors or equivalent governing
body;
(d) There is power to cast the majority votes at meetings
of the board of directors or equivalent governing body;
(e) There exists ownership over or the right to use all or a
significant part of the assets of the entity;
(f) There exist rights or contracts which confer decisive
influence on the decisions of the entity
For more information, see PCA Chapter 4, Section 25
WHEN CAN A BUSINESS BE CONSIDERED DOMINANT IN
THE MARKET?
A dominant position refers to a position of economic strength
that an entity or entities hold which makes it capable of
controlling the relevant market independently from any or a
combination of the following: competitors, customers, suppliers,
or consumers.
For more information, see PCA Chapter 1, Section 4
Dominance can exist either on the part of one firm (single
dominance) or of two or more firms (collective dominance). In
determining whether a business has a market dominant
position, the Commission will consider the following factors:
• The share of the entity in the relevant market and
whether it can fix prices on its own or restrict supply in
the relevant market;
• The competitors’ shares in the relevant market;
• Existence of barriers to entry and the elements which
could change both the barriers and the supply from
competitors;
• Existence and power of competitors;
• Credible threat of future expansion by competitors or
entry by potential competitors;
• Market exit of competitors;
• Bargaining strength of customers;
• Possibility of access by competitors or other
enterprises to its sources of inputs;
• Power of its customers to switch to other goods or
services;
• Recent market behavior;
• Ownership, possession, or control of infrastructure
which are not easily duplicated;
• Technological advantages or superiority, compared to
other competitors;
• Access to capital markets or financial resources;
• Economies of scale and scope;
• Vertical integration; and
• Existence of a highly developed distribution and sales
network.
For more information, see PCA Chapter 1, Section 4(g); PCA
Chapter 5, Section
27; and PCA Implementing Rules and Regulations, Rule 8
WHEN CAN A BUSINESS BE HELD LIABLE FOR ABUSING
ITS MARKET DOMINANCE?
The PCA prohibits entities from abusing their dominant position
in the relevant market by engaging in conduct that would
substantially prevent, restrict, or lessen competition.
Examples of conduct constituting abuse of dominant position:
• Selling goods or services below cost to drive
competition out of the market;
• Imposing barriers to entry or committing acts that
prevent competitors from growing within the market;
• Making a transaction subject to acceptance by other
parties who have no connection to the transaction;
• Setting prices or other terms or conditions that
discriminate unreasonably between customers or
sellers of the same goods or services;
• Imposing restrictions on the lease or contract for sale
or trade of goods or services concerning where, to
whom, or in what form a good or service may be sold
or traded;
• Making supply of particular goods or services
dependent upon the purchase of other goods or
services from the supplier;
• Imposing unfairly low purchase prices for the goods or
services of marginalized service providers and
producers, such as farmers, fisherfolk, and micro,
small, and medium enterprises (MSMEs);
34
 • Imposing unfair purchase or selling price on
competitors, customers, suppliers or consumers; and
• Limiting production, markets or technical development
to the prejudice of consumers.
For more information, see PCA Chapter 3, Section 15
Illustrative case:
In a Statement of Objections filed in March 2019, the PCC
Enforcement Office charged Urban Deca Homes (UDH) Manila
Condominium Corporation and 8990 Holdings, Inc. with abuse
of dominance. This was due to UDH’s imposition of a sole
internet service provider (ISP) on its residents, preventing them
from availing themselves of alternative fixed-line ISPs. The
Enforcement Office, the PCC’s investigative and prosecutorial
arm, found that UDH’s exclusive partnership with Itech Rar
Solutions prevented the entry and access of other providers in
UDH Manila. It also found that UDH Manila’s property manager
blocked other ISPs from installing fixed-line internet on units and
from marketing their services to interested residents. The probe
was triggered by numerous complaints posted by unit owners
and tenants of UDH Manila in PCC’s Facebook account. The
complainants claimed they were prevented from getting other
ISPs even if the in-house Fiber to Deca Homes service was
slow, expensive, and unreliable.
For more information, see PCC breaks condo-internet
exclusivity deal
WHAT ARE THE EXCEPTIONS TO THE COVERAGE OF
ABUSE OF DOMINANCE?
Any conduct which contributes to improving production or
distribution of goods or services within the relevant market, or
promoting technical and economic progress while allowing
consumers a fair share of the resulting benefit may not
necessarily be considered an abuse of dominant position.
Additionally, the acquisition, maintenance, and increase of
market share does not violate the PCA if:
• It is acquired through legitimate means, such as
having superior skills, rendering superior service,
producing or distributing better-quality products,
having business acumen, and using and enjoying
intellectual property rights; and
• It does not substantially prevent, restrict, or lessen
competition in the market.
For more information, see PCA Chapter 3, Section 15 (a), (d),
(e) and (i)
V. PROHIBITED ACTS: ANTI- COMPETITIVE
MERGERS AND ACQUISITIONS
WHAT ARE PROHIBITED MERGERS AND ACQUISITIONS?
Anti-competitive mergers and acquisitions (M&As) refer to
transactions that substantially lessen, restrict, or prevent
competition in the relevant market as determined by the PCC
in the exercise of its power to review such transactions.
See PCA Chapter 4, Section 20
Illustrative case:
The PCC blocked the merger of two sugar millers in Southern
Luzon—Universal Robina
Corporation (URC) and Central Azucarera Don Pedro, Inc.
(CADPI)-Roxas Holdings, Inc. (RHI). In a Commission decision
issued in January 2019, the PCC found that URC’s buyout of its
only competitor in the sugarcane milling services market leads
to a monopoly in Southern Luzon. The PCC’s Mergers and
Acquisitions Office earlier raised competition concerns on
URC’s proposed acquisition of CADPI and RHI assets. In
response, the merging parties submitted their proposed
voluntary commitments, but failed to sufficiently address
competition concerns raised by PCC. URC’s sugar mill is in
Balayan while CADPI-RHI’s milling facilities are in Nasugbu.
While both mill operators are in Batangas, the monopoly to be
created by the merger will substantially lessen competition in
the sugar milling services market not only in Batangas, but also
in Cavite, Laguna, and Quezon. The PCC’s market
investigation earlier showed that farmers stand to lose the
benefits of competition due to the merger, especially in terms of
planters’ cut in sharing agreements, sugar recovery rates, and
incentives.
For more information, see Sugar milling merger-to-monopoly
deal blocked
WHAT ARE THE EXCEPTIONS TO THE PROHIBITION OF
ANTI-COMPETITIVE M&AS?
M&A agreements which substantially prevent, restrict, or lessen
competition may be allowed if the parties are able to prove that
(a) the concentration has brought about or is likely to bring
about gains in efficiencies that are greater than the effects of
any limitation on competition that result or are likely to result
from the merger or acquisition agreement; or (b) a party is faced
with actual or imminent financial failure and the agreement
represents the least anti-competitive arrangement among the
known alternative uses of its assets.
For more information, see PCA Chapter 4, Sections 21-22
Illustrative case:
In 2017, Alipay Singapore Holding Pte. (Alipay) proposed to
acquire Globe Fintech Innovations, Inc. (Mynt). After its Phase
1 review, the PCC flagged a potential competition concern in
the non-bank electronic money market. However, following a
Phase 2 review, Mynt was found to have no incentive to block
entry or expansion of other players in the market. Also, other
payment options (e.g., cash) limit the market power which Mynt
may exercise. Alipay is owned by Ant Financial Group, which
provides a digital platform for financial services. Mynt operates
G-Xchange Inc., which handles the “G-cash,” a micropayment
service making the mobile phone into a virtual wallet; and Fuse
Lending Inc, which is a tech-based lending company.
For more information, see Efficiency gains of digital finance
acquisition
VI. COVERED TRANSACTIONS
WHAT ARE THE THRESHOLDS FOR COMPULSORY
NOTIFICATION OF MERGERS AND ACQUISITIONS?
Parties to a merger or acquisition agreement where the size of
transaction and size of person/party exceed the thresholds set
annually by the PCC are required to notify the Commission of
such agreement before consummating the transaction. The
annual adjustment of thresholds for compulsory notification is
based on the Philippine Statistics Authority’s official estimate of
the nominal gross domestic product (GDP) of the previous year.
In September 2020, the values of the size-of-party and size-of-
transaction thresholds, which were then set at PHP 6 billion and
PHP 2.4 billion, respectively, were further adjusted pursuant to
Republic Act No. 11494 or the Bayanihan to Recover as
One Act. Section 4(eee) of the said law exempts mergers or
acquisitions from compulsory notification with transaction
values below PHP 50 billion if entered into within two (2)
years from the effectivity of the law on 15 September 2020.
The said section was enacted as part of the government’s
economic recovery measures, and for the stated purpose of
“promoting business continuity and capacity building.”
For more information, see PCA Chapter 4, Sections 17 and 19
(a); PCC Rules of
Merger Procedure; PCC Memorandum Circular No 18-001; and
PCC Commission Resolution No. 02-2020
35
WHO IS/ARE THE NOTIFYING ENTITY/ENTITIES?
Under the Implementing Rules and Regulations of the PCA
(IRR), the notifying entity/entities refer to the following parties:
• The acquiring and acquired parties to the notifiable
M&A and their ultimate parent entities.
• In the formation of a joint venture (other than in
connection with a merger or consolidation), the
contributing entities shall be deemed acquiring
entities, and the joint venture shall be deemed the
acquired entity.
See PCA Implementing Rules and Regulations, Rule 4, Section
2
IF A TRANSACTION IS NOT SUBJECT TO COMPULSORY
NOTIFICATION, CAN THE PCC STILL REVIEW IT?
The PCC has the authority to review or investigate, motu
proprio or on its own initiative, any transaction that may result
in substantial lessening or restriction of competition in a market.
Motu proprio means that, even without notification, the PCC
may commence a review of the proposed transaction.
Additionally, an agreement consummated in violation of
compulsory notification requirement shall be considered void
and subject the parties to an administrative fine of one percent
(1%) to five percent (5%) of the value of the transaction.
See PCA Chapter 2, Section 12 (a) and Chapter 4, Section 17
Illustrative case:
In April 2018, the PCC began a motu proprio review of the
acquisition by ride-hailing service provider Grab Holdings, Inc.
(GHI) and MyTaxi.PH, Inc. (MTPH) of its competitor, Uber B.V.
(UBV) and Uber Systems, Inc. (USI). The PCC’s Mergers and
Acquisitions Office issued a Statement of Concerns (SOC) in
May. The competition concerns flagged by the SOC included
price increases and service deterioration arising from the
merger of the country’s two biggest ride-hailing apps. Amid the
review, Grab offered to address the competition concerns, which
was the basis of the PCC’s subsequent decision clearing the
merger subject to conditions.
For more information, see Merger of dominant ride-hailing firms
WHAT IS THE RECOURSE IF A PROPOSED M&A IS FOUND
TO BE ANTICOMPETITIVE??
WHAT ARE THE EXCEPTIONS TO COMPULSORY
NOTIFICATION?
Joint ventures of private entities formed for both solicited and
unsolicited public-private partnership (PPP) projects may be
exempted from compulsory notification. The PCC however can
modify or rescind, among others, the transaction value
threshold and other criteria subject to compulsory notification
and the exceptions or exemptions from the notification
requirement.
For more information, see PCA Chapter 4, Section 19, PCC
Memorandum Circular No.
19-001and PCC Memorandum Circular No. 20-002
Coverage of Compulsory Notification in Land Acquisition:
A land acquisition not for the purpose of obtaining control by one
(1) or more entities through contract or other means is not
subject to the compulsory notification requirement under the
PCA and its IRR. A land acquisition is not for the purpose of
obtaining control when the following requisites are present:
1. The acquiring entity will not obtain control over an
acquired entity as a result of the acquisition; or
2. The acquiring entity will not obtain control over a part
of an acquired entity as a result of the acquisition:
(i) The land to be acquired does not contain
improvements that constitute an operating segment as defined
under Section 6 that will result in a horizontal or vertical
relationship between the Notifying Group of the acquiring and
acquired entities; and
(ii) The land to be acquired does not contain
improvements that may be considered as an essential facility,
as defined under Section 7.
For more information, see PCC Clarificatory Note No. 19-001
Coverage of Compulsory Notification in Consolidation of
Ownership:
A merger or acquisition involving several entities controlled by the same
covered by compulsory notification if there is no change in control, post-t
If there are other shareholders who own or control shares in the
holding company which will have the ability to control the
combined entities after the consummation of the transaction, the
transaction will be covered by the compulsory notification
requirement. For more information, see PCC Clarificatory Note
No. 18-001
VII. DETERMINING THE RELEVANT MARKET
WHAT IS A RELEVANT MARKET?
The relevant market refers to the market in which a particular
good or service is sold and which comprises two dimensions:
the relevant product market and the relevant geographic
market. Each aspect is defined as follows:
(1) A relevant product market comprises all those goods
and/or services which are regarded as interchangeable or
substitutable by the consumer or the customer, by reason of
the goods and/or services’ characteristics, their prices and their
intended use; and
(2) The relevant geographic market comprises the area in
which the entity concerned is involved in the supply and
demand of goods and services, in which the conditions of
competition are sufficiently homogenous and which can be
distinguished from neighboring areas because the conditions
of competition are different in those areas.
The following factors help determine the relevant market:
• Possibilities of substituting goods and services with
other domestic or foreign products, considering
technological possibilities, availability of substitute
products to consumers, and the time required for such
substitution;
• Cost of distribution of goods and services, along with
its raw materials, and supplements and substitutes
from other areas and abroad, considering freight,
insurance, import duties, and non-tariff restrictions; the
restrictions imposed by economic agents or by their
associations; and the time required to supply the
market from those areas;
• Cost and probability of users or consumers seeking
other markets; and
• National, local or international restrictions which limit
the access by users or consumers to alternate
suppliers, or the access by suppliers to alternate
consumers.
See PCA Chapter 1, Section 4; Chapter 5, Section 24; and PCA
Implementing Rules and Regulations, Rule 5
VII. DETERMINING EXISTENCE OF ANTI –
COMPETITIVE CONDUCT
HOW DOES THE PCC DETERMINE IF A BUSINESS
CONDUCT IS ANTICOMPETITIVE?
36
In determining whether an anti-competitive agreement or
conduct exists or has been committed, the PCC shall:
• Define the relevant market allegedly affected by the
anti-competitive agreement or conduct, following the
principles laid out in Section 24 of the PCA;
• Determine if there is actual or potential adverse impact
on competition in the relevant market caused by the
alleged agreement or conduct, and if such impact is
substantial and outweighs the actual or potential
efficiency gains that result from the agreement or
conduct;
• Adopt a broad and forward-looking perspective,
recognizing future market developments, any
overriding need to make the goods or services
available to consumers, the requirements of large
investments in infrastructure, the requirements of law,
and the need of the Philippine economy to respond to
international competition, but also taking account of
past behavior of the parties involved and prevailing
market conditions;
• Balance the need to ensure that competition is not
prevented or substantially restricted and the risk that
competition efficiency, productivity, innovation, or
development of priority areas or industries in the
general interest of the country may be deterred by
overzealous or undue intervention; and
• Assess the totality of evidence on whether it is more
likely than not that the entity has engaged in an anti-
competitive agreement or conduct, including whether
the entity’s conduct was done with a reasonable
commercial purpose such as but not limited to phasing
out of a product or closure of a business, or as a
reasonable commercial response to the market entry
or conduct of a competitor.
For more information, see PCA Chapter 5, Section 26 and PCA
Implementing Rules and Regulations, Rule 7
VIII. FORBEARANCE (the act of delaying from
enforcing a right, obligation or debt)

WHEN CAN THE PCC EXERCISE FORBEARANCE?

The Commission, motu proprio or upon application, prior to its
initiation of an inquiry, may forbear from applying the provisions
of the PCA and its IRR, for a limited time, in whole or in part, in
all or specific cases, on an entity or group of entities, if in its
determination:
• Enforcement is not necessary to the attainment of the
policy objectives of the PCA;
• Forbearance will neither impede competition in the
market where the entity or group of entities seeking
exemption operates nor in related markets;
• Forbearance is consistent with public interest and the
benefit and welfare of the consumers; and
• Forbearance is justified in economic terms.
Provided, that forbearance will be granted for a maximum
period of one year. Any extension to the period will have to be
expressly approved by the Commission. Any extension of the
duration of an exemption shall not be longer than one year.

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