AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS

Fourteenth Congress

Third Regular Session

Begun and held in Metro Manila, on Monday, the twenty-seventh day of July, two thousand nine.

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".

Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights. In furtherance thereof, the State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made with a view to ensure or maintain certainly and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilities a speedy and orderly liquidation of these debtor's assets and the settlement of their obligations.

Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction over all persons affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner prescribed by the rules of procedure to be promulgated by the Supreme Court.

The proceedings shall be conducted in a summary and non-adversarial manner consistent with the declared policies of this Act and in accordance with the rules of procedure that the Supreme Court may promulgate.

Section 4. Definition of Terms. - As used in this Act, the term:

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:

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.

Section 6. Designation of Courts and Promulgation of Procedural Rules. - The Supreme Court shall designate the court or courts that will hear and resolve cases brought under this Act and shall promulgate the rules of pleading, practice and procedure to govern the proceedings brought under this Act.

Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a separate entity under the proceedings in this Act. Under these proceedings, the assets and liabilities of a debtor may not be commingled or aggregated with those of another, unless the latter is a related enterprise that is owned or controlled directly or indirectly by the same interests: Provided, however, That the commingling or aggregation of assets and liabilities of the debtor with those of a related enterprise may only be allowed where:

Provided, finally, That nothing in this section shall prevent the court from joining other entities affiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by the Supreme Court.

Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to the relevant provisions of the Corporation Code in the case of stock or nonstock corporations or the Civil Code in the case of partnerships that are not inconsistent with this Act.

Section 9. Creditors Representatives. - Creditors may designate representatives to vote or otherwise act on their behalf by filing notice of such representation with the court and serving a copy on the rehabilitation receiver or liquidator.

Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or Directors and Officers. - Individual debtor, owner of a sole proprietorship, partners in a partnership, or directors and officers of a debtor shall be liable for double the value of the property sold, embezzled or disposed of or double the amount of the transaction involved, whichever is higher to be recovered for benefit of the debtor and the creditors, if they, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commenced, or in contemplation of the proceedings, willfully commit the following acts:

The court shall determine the extent of the liability of an owner, partner, director or officer under this section. In this connection, in case of partnerships and corporations, the court shall consider the amount of the shareholding or partnership or equity interest of such partner, director or officer, the degree of control of such partner, director or officer over the debtor, and the extent of the involvement of such partner, director or debtor in the actual management of the operations of the debtor.

Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable banking legislation to the contrary, any bank, whether universal or not, may acquire and hold an equity interest or investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction of debts pursuant to a Rehabilitation or Liquidation Plan approved by the court: Provided, That such ownership shall be subject to the ownership limits applicable to universal banks for equity investments and: Provided, further, That any equity investment or interest acquired or held pursuant to this section shall be disposed by the bank within a period of five (5) years or as may be prescribed by the Monetary Board.

CHAPTER II
COURT-SUPERVISED REHABILITATION

(A) Initiation Proceedings.

(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 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 twenty-five percent (25%) of the subscribed capital stock or partners' contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation with the court if:

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:

(B) Action on the Petition and Commencement of Proceedings.

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:

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:

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:

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:

Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:

Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the schedule of debts and liabilities and who fails to file a notice of claim in accordance with the Commencement Order but subsequently files a belated claim shall not be entitled to participate in the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.

Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing and with or without the comments of the creditors or any of them, the rehabilitation receiver shall submit a report to the court stating his preliminary findings and recommendations on whether:

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:

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) The Rehabilitation Receiver, Management Committee and Creditors' 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:

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:

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:

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:

In case the court appoints the rehabilitation receiver to assume the powers of management of the debtor. the court may:

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 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:

Any rehabilitation receiver, member of the management committee or persons employed or contracted by them possessing any conflict of interest shall make the appropriate disclosure either to the court or to the creditors in case of out-of-court rehabilitation proceedings. Any party to the proceeding adversely affected by the appointment of any person with a conflict of interest to any of the positions enumerated above may however waive his right to object to such appointment and, if the waiver is unreasonably withheld, the court may disregard the conflict of interest, taking into account the general interest of the stakeholders.

Section 41.Immunity. - The rehabilitation receiver and all persons employed by him, and the members of the management committee and all persons employed by it, shall not be subject to any action. claim or demand in connection with any act done or omitted to be done by them in good faith in connection with the exercise of their powers and functions under this Act or other actions duly approved by the court.

Section 42.Creditors' Committee. - After the creditors' meeting called pursuant to Section 63 hereof, the creditors belonging to a class may formally organize a committee among

themselves. In addition, the creditors may, as a body, agree to form a creditors' committee composed of a representative from each class of creditors, such as the following:

In the . election of the creditors' representatives, the rehabilitation receiver or his representative shall attend such meeting and extend the appropriate assistance as may be defined in the procedural rules.

Section 43.Role of Creditors' Committee. - The creditors' committee when constituted pursuant to Section 42 of this Act shall assist the rehabilitation receiver in communicating with the creditors and shall be the primary liaison between the rehabilitation receiver and the creditors. The creditors' committee cannot exercise or waive any right or give any consent on behalf of any creditor unless specifically authorized in writing by such creditor. The creditors' committee may be authorized by the court or by the rehabilitation receiver to perform such other tasks and functions as may be defined by the procedural rules in order to facilitate the rehabilitation process.

(D) Determination of Claims.

Section 44.Registry of Claims. - Within twenty (20) days from his assumption into office, the rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation receiver shall make the registry available for public inspection and provide

publication notice to the debtor, creditors and stakeholders on where and when they may inspect it. All claims included in the registry of claims must be duly supported by sufficient evidence.

Section 45.Opposition or Challenge of Claims. – Within thirty (30) days from the expiration of the period stated in the immediately preceding section, the debtor, creditors, stakeholders and other interested parties may submit a challenge to claim/s to the court, serving a certified copy on the rehabilitation receiver and the creditor holding the challenged claim/so Upon the expiration of the thirty (30)-day period, the rehabilitation receiver shall submit to the court the registry of claims which shall include undisputed claims that have not been subject to challenge.

Section 46.Appeal. - Any decision of the rehabilitation receiver regarding a claim may be appealed to the court.

(E) Governance.

Section 47.Management. - Unless otherwise provided herein, the management of the juridical debtor shall remain with the existing management subject to the applicable law/s and agreement/s, if any, on the election or appointment of directors, managers Or managing partner. However, all disbursements, payments or sale, disposal, assignment, transfer or encumbrance of property , or any other act affecting title or interest in property, shall be subject to the approval of the rehabilitation receiver and/or the court, as provided in the following subchapter.

(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after Commencement Date.

Section 48.Use or Disposition of Assets. - Except as otherwise provided herein, no funds or property of the debtor shall he used or disposed of except in the ordinary course of business of the debtor, or unless necessary to finance the administrative expenses of the rehabilitation proceedings.

Section 49.Sale of Assets. - The court, upon application of the rehabilitation receiver, may authorize the sale of unencumbered property of the debtor outside the ordinary course of business upon a showing that the property, by its nature or because of other circumstance, is perishable, costly to maintain, susceptible to devaluation or otherwise injeopardy.

Section 50.Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held by Debtor. The court may authorize the sale, transfer, conveyance or disposal of encumbered property of the debtor, or property of others held by the debtor where there is a security interest pertaining to third parties under a financial, credit or other similar transactions if, upon application of the rehabilitation receiver and with the consent of the affected owners of the property, or secured creditor/s in the case of encumbered property of the debtor and, after notice and hearing, the court determines that:

Provided, That properties held by the debtor where the debtor has authority to sell such as trust receipt or consignment arrangements may be sold or disposed of by the .debtor, if such sale or disposal is necessary for the operation of the debtor's business, and the debtor has made arrangements to provide a substitute lien or ownership right that provides an equal level of security for the counter-party's claim or right.

Sale or disposal of property under this section shall not give rise to any criminal liability under applicable laws.

Section 51.Assets of Debtor Held by Third Parties. – In the case of possessory pledges, mechanic's liens or similar claims, third parties who have in their possession or control property of the debtor shall not transfer, conveyor otherwise dispose of the same to persons other than the debtor, unless upon prior approval of the rehabilitation receiver. The rehabilitation receiver may also:

Section 52.Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. - The court may rescind or declare as null and void any sale, payment, transfer or conveyance of the debtor's unencumbered property or any encumbering thereof by the debtor or its agents or representatives after the commencement date which are not in the ordinary course of the business of the debtor: Provided, however, That the unencumbered property may be sold, encumbered or otherwise disposed of upon order of the court after notice and hearing:

Section 53.Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. - Upon the application of a secured creditor holding a lien against or holder of an ownership interest in property held by the debtor that is subject to potentially rapid obsolescence, depreciation or diminution in value, the court shall, after notice and hearing, order the debtor or rehabilitation receiver to take reasonable steps necessary to prevent the depreciation. If depreciation cannot be avoided and such depreciation is jeopardizing the security or property interest of the secured creditor or owner, the court shall:

Section 54.Post-commencement Interest. - The rate and term of interest, if any, on secured and unsecured claims shall be determined and provided for in the approved Rehabilitation Plan.

Section 55.Post-commencement Loans and Obligations. - With the approval of the court upon the recommendation of the rehabilitation receiver, the debtor, in order to enhance its

rehabilitation. may:

The payment of the foregoing obligations shall be considered administrative expenses under this Act.

Section 56.Treatment of Employees, Claims. Compensation of employees required to carry on the business shall be considered an administrative expense. Claims of separation pay for months worked prior to the commencement date shall be considered a pre- ommencement claim. Claims for salary and separation pay for work performed after the commencement date shall be an administrative expense.

Section 57.Treatment of Contracts. - Unless cancelled by virtue of a final judgment of a court of competent jurisdiction issued prior to the issuance of the Commencement Order, or at anytime thereafter by the court before which the rehabilitation proceedings are pending, all valid and subbsisting contracts of the debtor with creditors and other third parties as at the commencement date shall continue in force: Provided, That within ninety (90) days following the commencement of proceedings, the debtor, with the consent of the rehabilitation receiver, shall notify each contractual counter-party of whether it is confirming the particular contract. Contractual obligations of the debtor arising or performed during this period, and afterwards for confirmed contracts, shall be considered administrative expenses. Contracts not confirmed within the required deadline shall be considered terminated. Claims for actual damages, if any, arising as a result of the election to terminate a contract shall be considered a pre-commencement claim against the debtor. Nothing contained herein shall prevent the cancellation or termination of any contract of the debtor for any ground provided by law.

(G) Avoidance Proceedings.

Section 58.Rescission or Nullity of Certain Pre-commencement Transactions. Any transaction occurring prior to commencement date entered into by the debtor or involving its funds or assets may be rescinded or declared null and void on the ground that the same was executed with intent to defraud a creditor or creditors or which constitute undue preference of creditors. Without limiting the generality of the foregoing, a disputable presumption of such design shall arise if the transaction:

Provided, however, That nothing in this section shall prevent the court from rescinding or declaring as null and void a transaction on other grounds provided by relevant legislation and jurisprudence: Provided, further, That the provisions of the Civil Code on rescission shall in any case apply to these transactions.

Section 59.Actions for Rescission or Nullity. - (a) The rehabilitation receiver or, with his conformity, any creditor may initiate and prosecute any action to rescind, or declare null and void any transaction described in Section 58 hereof. If the rehabilitation receiver does not consent to the filing or prosecution of such action,

(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign and transfer to the creditor all rights, title and interest in the chose in action or subject matter of the proceeding, including any document in support thereof.

(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.

(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or liquidator) signifies to the court his readiness to institute the proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so and, m that case, the benefit derived from the proceeding, if instituted within the time limits so fixed, belongs to the estate.

(H) Treatment of Secured Creditors.

Section 60.No Diminution of Secured Creditor Rights. The issuance of the Commencement Order and the Suspension or Stay Order, and any other provision of this Act, shall not be

deemed in any way to diminish or impair the security or lien of a secured creditor, or the value of his lien or security, except that his right to enforce said security or lien may be suspended during the term of the Stay Order.

The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured creditor to enforce his security or lien, or foreclose upon property of the debtor

securing his/its claim, if the said property is not necessary for the rehabilitation of the debtor. The secured creditor and/or the other lien holders shall be admitted to the rehabilitation proceedings only for the balance of his claim, if any.

Section 61.Lack of Adequate Protection. - The court, on motion or motu proprio, may terminate, modify or set conditions for the continuance of suspension of payment, or relieve a claim from the coverage thereof, upon showing that: (a) a creditor does not have adequate protection over property securing its claim; or

(b) the value of a claim secured by a lien on property which is not necessary for rehabilitation of the debtor exceeds the fair market value of the said property.

For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be shown that:

Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation receiver to make arrangements to provide for the insurance or maintenance of the property; or to make payments or otherwise provide additional or replacement security such that the obligation is fully secured. If such arrangements are not feasible, the court may modify the Stay Order to allow the secured creditor lacking adequate protection to enforce its security claim against the debtor: Provided, however, That the court may deny the creditor the remedies in this paragraph if the property subject of the enforcement is required for the rehabilitation of the debtor.

(i) Administration of Proceedings.

Section 62.Contents of a Rehabilitation Plan. – The Rehabilitation Plan shall, as a minimum:

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 w hose 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:

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:

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:

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:

Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an affected party may:

Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:

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.

CHAPTER III
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 holding more than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall include as a minimum:

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;

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:

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.

CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION PLANS

Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-of-curt 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:

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.

CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS

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;

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%0 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:

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:

If, after considering the comments filed, the court determines that the petition or motion is meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.

Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.

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.

CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS

(A) 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:

Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue an order suspending any 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:

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:

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.

(B) Voluntary Liquidation.

Section 103. Application. - An individual debtor whose properties are not sufficient to cover his liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to be discharged from his debts and liabilities by filing a verified petition with the court of the province or city in which he has resided for six (6) months prior to the filing of such petition. He shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing of such petition shall be an act of insolvency.

Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance it shall, within five (5) working days issue the Liquidation Order mentioned in Section 112 hereof.

(C) In voluntary Liquidation.

Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or with claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides.

The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or allege at least one of such acts:

The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall not be declared an insolvent the petitioners will pay to the debtor all costs, expenses, damages occasioned by the proceedings and attorney's fees.

Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors' petition, the court shall issue an Order requiring the individual debtor to show cause, at a time and place to be fixed by the said court, why he should not be adjudged an insolvent. Upon good cause shown, the court may issue an Order forbidding the individual debtor from making payments of any of his debts, and transferring any property belonging to him. However, nothing contained herein shall affect or impair the rights of a secured creditor to enforce his lien in accordance with its terms.

Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in favor of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112 hereof.

Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of the Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be found therein; or conceals himself to avoid service of the Order to show cause, or any other preliminary process or orders in the matter, then the petitioning creditors, upon submitting the affidavits requisite to procedure an Order of publication, and presenting a bond in double the amount of the aggregate sum of their claims against the individual debtor, shall be entitled to an Order of the court directing the sheriff of the province or city in which the matter is pending to take into his custody a sufficient amount of property of the individual debtor to satisfy the demands of the petitioning creditors and the costs of the proceedings. Upon receiving such Order of the court to take into custody of the property of the individual debtor, it shall be the duty of the sheriff to take possession of the property and effects of the individual debtor, not exempt from execution, to an extent sufficient to cover the amount provided for and to prepare within three (3) days from the time of taking such possession, a complete inventory of all the property so taken, and to return it to the court as soon as completed. The time for taking the inventory and making return thereof may be extended for good cause shown to the court. The sheriff shall also prepare a schedule of the names and residences of the creditors, and the amount due each, from the books of the debtor, or from such other papers or data of the individual debtor available as may come to his possession, and shall file such schedule or list of creditors and inventory with the clerk of court.

Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to Sureties. - In all cases where property is taken into custody by the sheriff, if it does not embrace all the property and effects of the debtor not exempt from execution, any other creditor or creditors of the individual debtor, upon giving bond to be approved by the court in double the amount of their claims, singly or jointly, shall be entitled to similar orders and to like action, by the sheriff; until all claims be provided for, if there be sufficient property or effects. All property taken into custody by the sheriff by virtue of the giving of any such bonds shall be held by him for the benefit of all creditors of the individual debtor whose claims shall be duly proved as provided in this Act. The bonds provided for in this section and the preceding section to procure the order for custody of the property and effects of the individual debtor shall be conditioned that if, upon final hearing of the petition in insolvency, the court shall find in favor of the petitioners, such bonds and all of them shall be void; if the decision be in favor of the individual debtor, the proceedings shall be dismissed, and the individual debtor, his heirs, administrators, executors or assigns shall be entitled to recover such sum of money as shall be sufficient to cover the damages sustained by him, not to exceed the amount of the respective bonds. Such damages shall be fixed and allowed by the court. If either the petitioners or the debtor shall appeal from the decision of the court, upon final hearing of the petition, the appellant shall be required to give bond to the successful party in a sum double the amount of the value of the property in controversy, and for the costs of the proceedings.

Any person interested in the estate may take exception to the sufficiency of the sureties on such bond or bonds. When excepted to the petitioner's sureties, upon notice to the person excepting of not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure to justify, or of others in their place fail to justify at the time and place appointed the judge shall issue an Order vacating the order to take the property of the individual debtor into the custody of the sheriff, or denying the appeal, as the case may be.

Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to the court or a judge thereof, asking for and obtaining an Order of publication and an Order for the custody of the property of the individual debtor and thereafter the petitioners shall make it appear satisfactorily to the court or a judge thereof that the interest of the parties to the proceedings will be subserved by a sale thereof, the court may order such property to be sold in the same manner as property is sold under execution, the proceeds to de deposited in the court to abide by the result of the proceedings.

CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND JURIDICAL DEBTORS

Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall include both individual debtor as defined in Section 4(o) and debtor as defined in Section 4(k) of this Act.

(A) The Liquidation Order.

Section 112. Liquidation Order. - The Liquidation Order shall:

Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:

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:

If the secured creditor maintains his rights under the security or lien:

(B) The 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:

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:

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 Requiremen5ts. - 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.

(C) 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 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 corporation-debtor, 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.

(D) Avoidance Proceedings.

Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to the issuance of the Liquidation Order or, in case of the conversion of the rehabilitation proceedings prior to the commencement date, entered into by the debtor or involving its assets, may be rescinded or declared null and void on the ground that the same was executed with intent to defraud a creditor or creditors or which constitute undue preference of creditors. The presumptions set forth in Section 58 hereof shall apply.

Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a creditor may initiate and prosecute any action to rescind, or declare null and void any transaction described in the immediately preceding paragraph. If the liquidator does not consent to the filling or prosecution of such action, any creditor may seek leave of the court to commence said action.

(E) The 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.

(F) Liquidation of a Securities Market Participant.

Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this chapter shall be without prejudice to the power of a regulatory agency or self- regulatory organization to liquidate trade-related claims of clients or customers of a securities market participant which, for purposes of investor protection, are hereby deemed to have absolute priority over other claims of whatever nature or kind insofar as trade-related assets are concerned.

For purposes of this section, trade -related assets include cash, securities, trading right and other owned and used by the securities market participant in the ordinary course of this business.

CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION PROCEEDINGS

(A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant to a State-funded or State-mandated Insurance System.

Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims and provide other relief necessary to assist in the liquidation of a financial under rehabilitation receivership established by a state-funded or state-mandated insurance system.

Section 138. Application of Relevant Legislation. - The liquidation of bank, financial institutions, insurance companies and pre-need companies shall be determined by relevant legislation. The provisions in this Act shall apply in a suppletory manner.

(B) Cross-Border Insolvency Proceedings.

Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the provision of Section 136 hereof and the rules of procedure that may be adopted by the Supreme Court, the Model Law on Cross-Border Insolvency of the United Nations Center for International Trade and Development is hereby adopted as part of this Act.

Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the submission of a petition by the representative of the foreign entity that is the subject of the foreign proceeding.

Section 141. Provision of Relief. - The court may issue orders:

Section 142. Factors in Granting Relief. - In determining whether to grant relief under this subchapter, the court shall consider;

CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS

Section 143. Funds for Rehabilitation of Government -owned and Controlled Corporations. - Public funds for the rehabilitation of government-owned and controlled corporations shall be released only pursuant to an appropriation by Congress and shall be supported by funds actually available as certified by the National Treasurer.

The Department of Finance, in collaboration with the Department of Budget and Management, shall promulgate the rules for the use and release of said funds.

CHAPTER X
MISCELLANEOUS PROVISIOS

Section 144. Applicability of Provisions. - The provisions in Chapter II, insofar as they are applicable, shall likewise apply to proceedings in Chapters II and IV.

Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor who commits any one of the following acts shall, upon conviction thereof, be punished by a fine of not more than One million pesos (Php 1, 000,000.00) and imprisonment for not less than three(3) months nor more than five (5) years for each offense;

Section 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. - This Act shall govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension of payments and rehabilitation cases then pending, except to the extent that in opinion of the court their application would not be feasible or would work injustice, in which event the procedures set forth in prior laws and regulations shall apply.

Section 147. Application to Pending Contracts. - This Act shall apply to all contracts of the debtor regardless of the date of perfection.

Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As amended is hereby repealed. All other laws, orders, rules and regulations or parts thereof inconsistent with any provision of this Act are hereby repealed or modified accordingly.

Section 149. Separability Clause. - If any provision of this Act shall be held invalid, the remainder of this Act not otherwise affected shall remain in full force effect

Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its complete publication in the Official Gazette or in at least two (2) national newspaper of general circulation.

Approved,

This Act which is a consolidation of House Bill No. 7090 and Senate Bill No. 61 was finally passed by the House of Representatives and the Senate on February 1. 2010 and February 2, 2010, respectively.

(Sgd.) GLORIA MACAPAGAL-ARROYO
President of the Philippines