SPECPRO_Voluntary Dissolution Until Absentees

8/17/2019 SPECPRO_Voluntary Dissolution Until Absentees

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SPECPRO: Voluntary Dissolution Until Absentees

Corporate Code of the Philippines [Sec. 117-122]

TITLE XIV !ISS"L#TI"$

Sec. 117. %ethods of dissol&tion. ' ( corporation for)ed or or*ani+ed &nder the pro,isions of this

Code )a e dissol,ed ,ol&ntaril or in,ol&ntaril. /n0

Sec. 11. Vol&ntar dissol&tion here no creditors are affected. ' If dissol&tion of a corporation does

not pre3&dice the ri*hts of an creditor ha,in* a clai) a*ainst it4 the dissol&tion )a e effected

)a3orit ,ote of the oard of directors or tr&stees4 and a resol&tion d&l adopted the

affir)ati,e ,ote of the stoc5holders onin* at least to-thirds /260 of the o&tstandin* capital stoc5

or of at least to-thirds /260 of the )e)ers of a )eetin* to e held &pon call of the directors or

tr&stees after p&lication of the notice of ti)e4 place and o3ect of the )eetin* for three /0

consec&ti,e ee5s in a nespaper p&lished in the place here the principal office of said

corporation is located8 and if no nespaper is p&lished in s&ch place4 then in a nespaper of

*eneral circ&lation in the Philippines4 after sendin* s&ch notice to each stoc5holder or )e)er

either re*istered )ail or personal deli,er at least thirt /90 das prior to said )eetin*. ( cop

of the resol&tion a&thori+in* the dissol&tion shall e certified a )a3orit of the oard of directors

or tr&stees and co&ntersi*ned the secretar of the corporation. The Sec&rities and E:chan*e

Co))ission shall there&pon iss&e the certificate of dissol&tion. /;2a0

Sec. 11


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nespaper of *eneral circ&lation in the Philippines4 and a si)ilar cop shall e posted for three /0

consec&ti,e ee5s in three /0 p&lic places in s&ch )&nicipalit or cit.

#pon fi,e /?0 da@s notice4 *i,en after the date on hich the ri*ht to file o3ections as fi:ed in the

order has e:pired4 the Co))ission shall proceed to hear the petition and tr an iss&e )ade the

o3ections filed8 and if no s&ch o3ection is s&fficient4 and the )aterial alle*ations of the petition are

tr&e4 it shall render 3&d*)ent dissol,in* the corporation and directin* s&ch disposition of its assets

as 3&stice reA&ires4 and )a appoint a recei,er to collect s&ch assets and pa the dets of the

corporation. /B&le 194 BCa0

Sec. 129. !issol&tion shortenin* corporate ter). ' ( ,ol&ntar dissol&tion )a e effected

a)endin* the articles of incorporation to shorten the corporate ter) p&rs&ant to the pro,isions of

this Code. ( cop of the a)ended articles of incorporation shall e s&)itted to the Sec&rities and

E:chan*e Co))ission in accordance ith this Code. #pon appro,al of the a)ended articles of

incorporation of the e:piration of the shortened ter)4 as the case )a e4 the corporation shall e

dee)ed dissol,ed itho&t an f&rther proceedin*s4 s&3ect to the pro,isions of this Code on

liA&idation. /n0

Sec. 121. In,ol&ntar dissol&tion. ' ( corporation )a e dissol,ed the Sec&rities and E:chan*e

Co))ission &pon filin* of a ,erified co)plaint and after proper notice and hearin* on the *ro&nds

pro,ided e:istin* las4 r&les and re*&lations. /n0

Sec. 122. Corporate liA&idation. ' E,er corporation hose charter e:pires its on li)itation or is

ann&lled forfeit&re or otherise4 or hose corporate e:istence for other p&rposes is ter)inated in

an other )anner4 shall ne,ertheless e contin&ed as a od corporate for three /0 ears after the

ti)e hen it o&ld ha,e een so dissol,ed4 for the p&rpose of prosec&tin* and defendin* s&its or

a*ainst it and enalin* it to settle and close its affairs4 to dispose of and con,e its propert and to

distri&te its assets4 &t not for the p&rpose of contin&in* the &siness for hich it as estalished.

(t an ti)e d&rin* said three /0 ears4 the corporation is a&thori+ed and e)poered to con,e all of

its propert to tr&stees for the enefit of stoc5holders4 )e)ers4 creditors4 and other persons in

interest. Dro) and after an s&ch con,eance the corporation of its propert in tr&st for the

enefit of its stoc5holders4 )e)ers4 creditors and others in interest4 all interest hich the

corporation had in the propert ter)inates4 the le*al interest ,ests in the tr&stees4 and the eneficial

interest in the stoc5holders4 )e)ers4 creditors or other persons in interest.


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#pon the indin* &p of the corporate affairs4 an asset distri&tale to an creditor or stoc5holder or

)e)er ho is &n5non or cannot e fo&nd shall e escheated to the cit or )&nicipalit here

s&ch assets are located.

E:cept decrease of capital stoc5 and as otherise alloed this Code4 no corporation shall

distri&te an of its assets or propert e:cept &pon laf&l dissol&tion and after pa)ent of all its

dets and liailities. /77a4


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)* arising from, or in connection with, the conduct of the proceedings under this Act,including those incurred for the rehabilitation or liuidation of the debtor

)* incurred in the ordinary course of business of the debtor after the commencementdate

)/* for the payment of new obligations obtained after the commencement date tofinance the rehabilitation of the debtor

)0* incurred for the fees of the rehabilitation receiver or liuidator and of theprofessionals engaged by them and

)1* that are otherwise authori"ed or mandated under this Act or such other e!pensesas may be allowed by the Supreme 'ourt in its rules.

)b* !ffiliate shall refer to a corporation that directly or indirectly, through one or moreintermediaries, 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 thedebtor or its property, whether for money or otherwise, liuidated or unliuidated, fi!ed orcontingent, matured or unmatured, disputed or undisputed, including, but not limited to )+*all claims of the government, whether national or local, including ta!es, tariffs and customsduties and )* claims against directors and officers of the debtor arising from acts done inthe discharge of their functions falling within the scope of their authority( Provided# That, thisinclusion does not prohibit the creditors or third parties from filing cases against the directorsand officers acting in their personal capacities.

)d* Commencement date shall refer to the date on which the court issues the'ommencement 2rder, which shall be retroactive to the date of filing of the petition forvoluntary or involuntary proceedings.

)e* Commencement $rder shall refer to the order issued by the court under Section +1 ofthis Act.

)f* Control shall refer to the power of a parent corporation to direct or govern the financial andoperating policies of an enterprise so as to obtain benefits from its activities. 'ontrol ispresumed to e!ist when the parent owns, directly or indirectly through subsidiaries oraffiliates, more than one-half )+3* of the voting power of an enterprise unless, in e!ceptionalcircumstances, it can clearly be demonstrated that such ownership does not constitutecontrol. 'ontrol also e!ists even when the parent owns one-half )+3* or less of the votingpower of an enterprise when there is power(

)+* over more than one-half )+3* of the voting rights by virtue of an agreement withinvestors

)* to direct or govern the financial and operating policies of the enterprise under astatute or an agreement

)* to appoint or remove the majority of the members of the board of directors oreuivalent governing body or


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)/* to cast the majority votes at meetings of the board of directors or euivalentgoverning body.

)g* Court shall refer to the court designated by the Supreme 'ourt to hear and determine, atthe first instance, the cases brought under this Act.

)h* Creditor shall refer to a natural or juridical person which has a claim against the debtorthat arose on or before the commencement date.

)i* Date of li%uidation shall refer to the date on which the court issues the 4iuidation 2rder.

)j* Days shall refer to calendar days unless otherwise specifically stated in this Act.

)k* Debtor shall refer to, unless specifically e!cluded by a provision of this Act, a soleproprietorship duly registered with the 5epartment of Trade and Industry )5TI*, a partnershipduly registered with the Securities and 6!change 'ommission )S6'*, a corporation dulyorgani"ed and e!isting under &hilippine laws, or an individual debtor who has becomeinsolvent as defined herein.

)l* &ncumbered property shall refer to real or personal property of the debtor upon which alien attaches.

)m* 'eneral unsecured creditor shall refer to a creditor whose claim or a portion thereof itsneither secured, preferred nor subordinated under this Act.

)n* 'roup of debtors shall refer to and can cover only( )+* corporations that are financiallyrelated to one another as parent corporations, subsidiaries or affiliates )* partnerships thatare owned more than fifty percent )078* by the same person and )* single proprietorshipsthat are owned by the same person. #hen the petition covers a group of debtors, allreference under these rules to debtor shall include and apply to the group of debtors.

)o* (ndividual debtor shall refer to a natural person who is a resident and citi"en of the&hilippines that has become insolvent as defined herein.

)p* (nsolvent shall refer to the financial condition of a debtor that is generally unable to pay itsor his liabilities as they fall due in the ordinary course of business or has liabilities that aregreater than its or his assets.

)* (nsolvent debtor)s estate shall refer to the estate of the insolvent debtor, which includesall the property and assets of the debtor as of commencement date, plus the property andassets acuired by the rehabilitation receiver or liuidator after that date, as well as all otherproperty 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 commencementdate( Provided# That trust assets and bailment, and other property and assets of a third partythat are in the possession of the debtor as of commencement date, are e!cluded therefrom.

)r* (nvoluntary proceedings shall refer to proceedings initiated by creditors.

)s* *iabilities shall refer to monetary claims against the debtor, including stockholder$sadvances that have been recorded in the debtor$s audited financial statements as advancesfor future subscriptions.


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)t* *ien shall refer to a statutory or contractual claim or judicial charge on real or personalproperty that legality entities a creditor to resort to said property for payment of the claim ordebt secured by such lien.

)u* *i%uidation shall refer to the proceedings under 'hapter 9 of this Act.

)v* *i%uidation $rder shall refer to the 2rder issued by the court under Section ++ of this Act.

)w* *i%uidator shall refer to the natural person or juridical entity appointed as such by thecourt and entrusted with such powers and duties as set forth in this Act( Provided# That, if theliuidator is a juridical entity, it must designated a natural person who possesses all theualifications and none of the disualifications as its representative, it being understood thatthe juridical entity and the representative are solidarity liable for all obligations andresponsibilities of the liuidator.

)!* $fficer shall refer to a natural person holding a management position described in orcontemplated by a juridical entity$s articles of incorporation, bylaws or euivalent documents,

e!cept for the corporate secretary, the assistant corporate secretary and the e!ternal auditor.

)y* $rdinary course of business shall refer to transactions in the pursuit of the individualdebtor$s or debtor$s business operations prior to rehabilitation or insolvency proceedings andon ordinary business terms.

)"* $+nership interest shall refer to the ownership interest of third parties in property held bythe debtor, including those covered by trust receipts or assignments of receivables.

)aa* Parent shall refer to a corporation which has control over another corporation eitherdirectly 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, asecured creditor, the rehabilitation receiver, liuidator or any other juridical or natural personwho stands to be benefited or injured by the outcome of the proceedings and whose noticeof appearance is accepted by the court.

)cc* Possessory lien shall refer to a lien on property, the possession of which has beentransferred 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 havean ownership interest.

)ff* Publication notice shall refer to notice through publication in a newspaper of generalcirculation in the &hilippines on a business day for two )* consecutive weeks.

)gg* Rehabilitation shall refer to the restoration of the debtor to a condition of successfuloperation and solvency, if it is shown that its continuance of operation is economically


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feasible and its creditors can recover by way of the present value of payments projected inthe plan, more if the debtor continues as a going concern than if it is immediately liuidated.

)hh* Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointedas such by the court pursuant to this Act and which shall be entrusted with such powers andduties as set forth herein.

)ii* Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of aninsolvent debtor can be restored using various means including, but not limited to, debtforgiveness, debt rescheduling, reorgani"ation or uasi-reorgani"ation, dacion en pago,debt-euity 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 1 hereof, or other similar arrangementsas 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 suchsecured creditor.

)mm* Securities mar,et participant shall refer to a broker dealer, underwriter, transfer agentor other juridical persons transacting securities in the capital market.

)nn* Sta,eholder 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 )078* of the voting stockof which is owned or controlled directly or indirectly through one or more intermediaries byanother corporation, which thereby becomes its parent corporation.

)pp* -nsecured claim shall refer to a claim that is not secured by a lien.

)* -nsecured creditor shall refer to a creditor with an unsecured claim.

)rr* oluntary proceedings shall refer to proceedings initiated by the debtor.

)ss* oting creditor shall refer to a creditor that is a member of a class of creditors, theconsent of which is necessary for the approval of a :ehabilitation &lan under this Act.

Sectio ". &"clusions. - The term debtor does not include banks, insurance companies, pre-needcompanies, and national and local government agencies or units.

;or purposes of this section(

)a*


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)b* Insurance company shall refer to those companies that are potentially or actually subjectto insolvency proceedings under the Insurance 'ode )&residential 5ecree =o. +/17* orsuccessor legislation and

)c* &re-need company shall refer to any corporation authori"ed3licensed to sell or offer to sellpre-need plans.

Provided# That government financial institutions other than banks and government-owned orcontrolled corporations shall be covered by this Act, unless their specific charter provides otherwise.

Sectio #. Designation of Courts and Promulgation of Procedural Rules. - The Supreme 'ourt shalldesignate the court or courts that will hear and resolve cases brought under this Act and shallpromulgate the rules of pleading, practice and procedure to govern the proceedings brought underthis Act.

Sectio $. Substantive and Procedural Consolidation. - 6ach juridical entity shall be considered as aseparate entity under the proceedings in this Act. ?nder these proceedings, the assets and liabilitiesof 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#ho+ever# That the commingling or aggregation of assets and liabilities of the debtor with those of arelated enterprise may only be allowed where(

)a* there was commingling in fact of assets and liabilities of the debtor and the relatedenterprise prior to the commencement of the proceedings

)b* the debtor and the related enterprise have common creditors and it will be moreconvenient to treat them together rather than separately

)c* the related enterprise voluntarily accedes to join the debtor as party petitioner and tocommingle its assets and liabilities with the debtor$s and

)d* The consolidation of assets and liabilities of the debtor and the related enterprise isbeneficial to all concerned and promotes the objectives of rehabilitation.

Provided# finally# That nothing in this section shall prevent the court from joining other entitiesaffiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by theSupreme 'ourt.

Sectio %. Decisions of Creditors. - 5ecisions of creditors shall be made according to the relevantprovisions of the 'orporation 'ode in the case of stock or nonstock corporations or the 'ivil 'ode inthe case of partnerships that are not inconsistent with this Act.

Sectio &. Creditors Representatives. - 'reditors may designate representatives to vote orotherwise act on their behalf by filing notice of such representation with the court and serving a copyon the rehabilitation receiver or liuidator.

Sectio 10. *iability of (ndividual Debtor# $+ner of a Sole Proprietorship# Partners in a Partnership#or Directors and $fficers. - Individual debtor, owner of a sole proprietorship, partners in apartnership, or directors and officers of a debtor shall be liable for double the value of the propertysold, embe""led 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


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commencement of the proceedings, or having reason to believe that proceedings are about to becommenced, or in contemplation of the proceedings, willfully commit the following acts(

)a* 5ispose or cause to be disposed of any property of the debtor other than in the ordinarycourse of business or authori"e or approve any transaction in fraud of creditors or in amanner grossly disadvantageous to the debtor and3or creditors or

)b* 'onceal or authori"e or approve the concealment, from the creditors, or embe""les ormisappropriates, any property of the debtor.

The court shall determine the e!tent of the liability of an owner, partner, director or officer under thissection. In this connection, in case of partnerships and corporations, the court shall consider theamount of the shareholding or partnership or euity interest of such partner, director or officer, thedegree of control of such partner, director or officer over the debtor, and the e!tent of theinvolvement of such partner, director or debtor in the actual management of the operations of thedebtor.

Sectio 11. !uthori/ation to &"change Debt for &%uity. - =otwithstanding applicable banking

legislation to the contrary, any bank, whether universal or not, may acuire and hold an euityinterest or investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction ofdebts pursuant to a :ehabilitation or 4iuidation &lan approved by the court( Provided# That suchownership shall be subject to the ownership limits applicable to universal banks for euityinvestments and( Provided# further# That any euity investment or interest acuired or held pursuantto this section shall be disposed by the bank within a period of five )0* years or as may be prescribedby the @onetary


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)d* The grounds upon which the petition is based

)e* 2ther information that may be reuired under this Act depending on the form of reliefreuested

)f* Schedule of the debtor$s debts and liabilities including a list of creditors with theiraddresses, 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 :ehabilitation &lan

)i* The names of at least three )* nominees to the position of rehabilitation receiver and

)j* 2ther documents reuired to be filed with the petition pursuant to this Act and the rules ofprocedure as may be promulgated by the Supreme 'ourt.

A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of itsmembers foresee the impossibility of meeting debts when they respectively fall due, and the financialdistress would likely adversely affect the financial condition and3or operations of the other membersof the group and3or the participation of the other members of the group is essential under the termsand conditions of the proposed :ehabilitation &lan.

(2) Io/t*+ P+ocee,i-.

Sectio 1!. Circumstances ecessary to (nitiate (nvoluntary Proceedings. - Any creditor or group ofcreditors with a claim of, or the aggregate of whose claims is, at least 2ne @illion &esos)&hp+,777,777.77* or at least twenty-five percent )08* of the subscribed capital stock or partners$contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing apetition for rehabilitation with the court if(

)a* there is no genuine issue of fact on law on the claim3s of the petitioner3s, and that the dueand demandable payments thereon have not been made for at least si!ty )17* days or thatthe debtor has failed generally to meet its liabilities as they fall due or

)b* a creditor, other than the petitioner3s, has initiated foreclosure proceedings against thedebtor that will prevent the debtor from paying its debts as they become due or will render itinsolvent.

Sectio 14. Petition to (nitiate (nvoluntary Proceedings. - The creditor3s$ petition for rehabilitationshall be verified to establish the substantial likelihood that the debtor may be rehabilitated, andinclude(

)a* identification of the debtor its principal activities and its address

)b* the circumstances sufficient to support a petition to initiate involuntary rehabilitationproceedings under Section + of this Act

)c* the specific relief sought under this Act


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)d* a :ehabilitation &lan

)e* the names of at least three )* nominees to the position of rehabilitation receiver

)f* other information that may be reuired under this Act depending on the form of reliefreuested and

)g* other documents reuired to be filed with the petition pursuant to this Act and the rules ofprocedure as may be promulgated by the Supreme 'ourt.

(B) Actio o t3e Petitio *, Coeceet o5 P+ocee,i-.

Sectio 1". !ction on the Petition. - If the court finds the petition for rehabilitation to be sufficient inform and substance, it shall, within five )0* working days from the filing of the petition, issue a'ommencement 2rder. If, within the same period, the court finds the petition deficient in form orsubstance, the court may, in its discretion, give the petitioner3s a reasonable period of time withinwhich to amend or supplement the petition, or to submit such documents as may be necessary orproper to put the petition in proper order. In such case, the five )0* working days provided above for

the issuance of the 'ommencement 2rder shall be reckoned from the date of the filing of theamended or supplemental petition or the submission of such documents.

Sectio 1#. Commencement of Proceedings and (ssuance of a Commencement $rder. - Therehabilitation proceedings shall commence upon the issuance of the 'ommencement 2rder, whichshall(

)a* identify the debtor, its principal business or activity3ies and its principal place of business

)b* summari"e the ground3s for initiating the proceedings

)c* state the relief sought under this Act and any reuirement or procedure particular to the

relief sought

)d* state the legal effects of the 'ommencement 2rder, including those mentioned in Section+> hereof

)e* declare that the debtor is under rehabilitation

)f* direct the publication of the 'ommencement 2rder in a newspaper of general circulationin the &hilippines once a week for at least two )* consecutive weeks, with the firstpublication to be made within seven )>* 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 )+78* of the total liabilities of the debtoras determined from the schedule attached to the petition within five )0* days if thepetitioner3s is3are creditor3s, direct the service by personal delivery of a copy of the petitionon the debtor within five )0* days

)h* appoint a rehabilitation receiver who may or not be from among the nominees of thepetitioner3s and who shall e!ercise such powers and duties defined in this Act as well as theprocedural rules that the Supreme 'ourt will promulgate


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)i* summari"e the reuirements and deadlines for creditors to establish their claims againstthe debtor and direct all creditors to their claims with the court at least five )0* days beforethe initial hearing

)j* direct


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)b* prohibit or otherwise serve as the legal basis rendering null and void the results of anye!trajudicial activity or process to sei"e property, sell encumbered property, or otherwiseattempt to collection or enforce a claim against the debtor after commencement date unlessotherwise allowed in this Act, subject to the provisions of Section 07 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 thedebtor$s property after the commencement date and

)e* consolidate the resolution of all legal proceedings by and against the debtor to the court&rovided. owever, That the court may allow the continuation of cases on other courts wherethe debtor had initiated the suit.

Attempts to seek legal of other resource against the debtor outside these proceedings shall besufficient to support a finding of indirect contempt of court.

Sectio 1%. &"ceptions to the Stay or Suspension $rder. - The Stay or Suspension 2rder shall notapply(

)a* to cases already pending appeal in the Supreme 'ourt as of commencementdate Provided# That any final and e!ecutory judgment arising from such appeal shall bereferred to the court for appropriate action

)b* subject to the discretion of the court, to cases pending or filed at a speciali"ed court oruasi-judicial agency which, upon determination by the court is capable of resolving theclaim more uickly, fairly and efficiently than the court( Provided# That any final ande!ecutory judgment of such court or agency shall be referred to the court and shall betreated as a non-disputed claim

)c* to the enforcement of claims against sureties and other persons solidarily liable with thedebtor, 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 forthe rehabilitation of the debtor as determined by the court upon recommendation by therehabilitation receiver

)d* to any form of action of customers or clients of a securities market participant to recoveror otherwise claim moneys and securities entrusted to the latter in the ordinary course of thelatter$s business as well as any action of such securities market participant or the appropriateregulatory agency or self-regulatory organi"ation to pay or settle such claims or liabilities

)e* to the actions of a licensed broker or dealer to sell pledged securities of a debtorpursuant to a securities pledge or margin agreement for the settlement of securitiestransactions in accordance with the provisions of the Securities :egulation 'ode and itsimplementing rules and regulations

)f* the clearing and settlement of financial transactions through the facilities of a clearingagency or similar entities duly authori"ed, registered and3or recogni"ed by the appropriateregulatory agency like the


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form of actions of such agencies or entities to reimburse themselves for any transactionssettled for the debtor and

)g* any criminal action against individual debtor or owner, partner, director or officer of adebtor shall not be affected by any proceeding commend under this Act.

Sectio 1&. 0aiver of ta"es and 1ees Due to the ational 'overnment and to *ocal 'overnment-nits 2*'-s3. - ?pon issuance of the 'ommencement 2rder by the court, and until the approval ofthe :ehabilitation &lan or dismissal of the petition, whichever is earlier, the imposition of all ta!esand fees including penalties, interests and charges thereof due to the national government or to4B?s shall be considered waived, in furtherance of the objectives of rehabilitation.

Sectio 20. !pplication of Stay or Suspension $rder to 'overnment 1inancial (nstitutions. - Theprovisions of this Act concerning the effects of the 'ommencement 2rder and the Stay orSuspension 2rder on the suspension of rights to foreclose or otherwise pursue legal remedies shallapply to government financial institutions, notwithstanding provisions in their charters or other lawsto the contrary.

Sectio 21. &ffectivity and Duration of Commencement $rder. - ?nless lifted by the court, the'ommencement 2rder shall be for the effective for the duration of the rehabilitation proceedings foras long as there is a substantial likelihood that the debtor will be successfully rehabilitated. Indetermining whether there is substantial likelihood for the debtor to be successfully rehabilitated, thecourt shall ensure that the following minimum reuirements are met(

)a* The proposed :ehabilitation &lan submitted complies with the minimum contentsprescribed by this Act

)b* There is sufficient monitoring by the rehabilitation receiver of the debtor$s business for theprotection of creditors

)c* The debtor has met with its creditors to the e!tent reasonably possible in attempts toreach consensus on the proposed :ehabilitation &lan

)d* The rehabilitation receiver submits a report, based on preliminary evaluation, stating thatthe underlying assumptions and the goals stated in the petitioner$s :ehabilitation &lan arerealistic reasonable and reasonable or if not, there is, in any case, a substantial likelihood for the debtor to be successfully rehabilitated because, among others(

)+* there are sufficient assets with3which to rehabilitate the debtor

)* there is sufficient cash flow to maintain the operations of the debtor

)* the debtor$s, partners, stockholders, directors and officers have been acting ingood faith and which due diligence

)/* the petition is not s sham filing intended only to delay the enforcement of therights of the creditor$s or of any group of creditors and

)0* the debtor would likely be able to pursue a viable :ehabilitation &lan


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)e* The petition, the :ehabilitation &lan and the attachments thereto do not contain anymaterially false or misleading statement

)f* If the petitioner is the debtor, that the debtor has met with its creditor3s representing atleast three-fourths )3/* of its total obligations to the e!tent reasonably possible and made agood faith effort to reach a consensus on the proposed :ehabilitation &lan if the petitioner3s

is3are a creditor or group of creditors, that3 the petitioner3s has3have met with the debtor andmade a good faith effort to reach a consensus on the proposed :ehabilitation &lan and

)g* The debtor has not committed acts misrepresentation or in fraud of its creditor3s or agroup of creditors.

Sectio 22. !ction at the (nitial Hearing. - At the initial hearing, the court shall(

)a* determine the creditors who have made timely and proper filing of their notice of claims

)b* hear and determine any objection to the ualifications of the appointment of therehabilitation receiver and, if necessary appoint a new one in accordance with this Act

)c* direct the creditors to comment on the petition and the :ehabilitation &lan, and to submitthe same to the court and to the rehabilitation receiver within a period of not more thantwenty )7* days and

)d* direct the rehabilitation receiver to evaluate the financial condition of the debtor and toprepare and submit to the court within forty )/7* days from initial hearing the report providedin Section / hereof.

Sectio 2!. &ffect of 1ailure to 1ile otice of Claim. - A creditor whose claim is not listed in theschedule of debts and liabilities and who fails to file a notice of claim in accordance with the'ommencement 2rder but subseuently files a belated claim shall not be entitled to participate in

the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.

Sectio 24. Report of the Rehabilitation Receiver. - #ithin forty )/7* days from the initial hearing andwith or without the comments of the creditors or any of them, the rehabilitation receiver shall submita 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 oracts committed by the owner3s of a sole proprietorship partners of a partnership or directorsor officers of a corporation in contemplation of the insolvency of the debtor or which mayhave 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 :ehabilitation &lan 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 and3or liuidated.


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Sectio 2". 'iving Due Course to or Dismissal of Petition# or Conversion of Proceedings. - #ithinten )+7* days from receipt of the report of the rehabilitation receiver mentioned in Section / hereofthe court may(

)a* give due course to the petition upon a finding that(

)+* the debtor is insolvent and

)* there is a substantial likelihood for the debtor to be successfully rehabilitated

)b* dismiss the petition upon a finding that(

)+*debtor is not insolvent

)* the petition iC a sham filing intended only to delay the enforcement of the rights of the creditor3s or of any group of creditors

)*the petition, the :ehabilitation &lan and the attachments thereto contain anymaterially false or misleading statements or

)/*the debtor has committed acts of misrepresentation or in fraud of its creditor3s or agroup of creditors

)c*convert the proceedings into one for the liuidation of the debtor upon a finding that(

)+*the debtor is insolvent and

)*there is no substantial likelihood for the debtor to be successfully rehabilitated asdetermined in accordance with the rules to be promulgated by the Supreme 'ourt.

Sectio 2#.Petition 'iven Due Course. - If the petition is given due course, the court shall direct therehabilitation receiver to review, revise and3or recommend action on the :ehabilitation &lan andsubmit the same or a new one to the court within a period of not more than ninety )D7* days.

The court may refer any dispute relating to the :ehabilitation &lan or the rehabilitation proceedingspending before it to arbitration or other modes of dispute resolution, as provided for under :epublic

Act =o. DC0, 2r the Alternative 5ispute :esolution Act of 77/, should it determine that such modewill resolve the dispute more uickly, fairly and efficiently than the court.

Sectio 2$.Dismissal of Petition. - If the petition is dismissed pursuant to paragraph )b* of Section0 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 thee!tent of any such injury.

(C) T3e Re3*6i/it*tio Receie+7 8**-eet Coittee *, C+e,ito+9 Coittee.

Sectio 2%.0ho 4ay Serve as a Rehabilitation Receiver. - Any ualified natural or juridical personmay serve as a rehabilitation receiver( Provided# That if the rehabilitation receiver is a juridical entity,it must designate a natural person3s who possess3es all the ualifications and none of thedisualificationEs as its representative, it being understood that the juridical entity and the


17/96


representative3s are solidarily liable for all obligations and responsibilities of the rehabilitationreceiver.

Sectio 2&.5ualifications of a Rehabilitation Receiver. - The rehabilitation receiver shall have thefollowing minimum ualifications(

)a*A citi"en of the &hilippines or a resident of the &hilippines in the si! )1* monthsimmediately preceding his nomination

)b*2f good moral character and with acknowledged integrity, impartiality and independence

)c*as the reuisite knowledge of insolvency and other relevant commercial laws, rules andprocedures, as well as the relevant training and3or e!perience that may be necessary toenable him to properly discharge the duties and obligations of a rehabilitation receiver and

)d*as no conflict of interest( &rovided, That such conflict of interest may be waived,e!pressly or impliedly, by a party who may be prejudiced thereby.

2ther ualifications and disualificationEs of the rehabilitation receiver shall be set forth in proceduralrules, taking into consideration the nature of the business of the debtor and the need to protect theinterest of all stakeholders concerned.

Sectio !0.(nitial !ppointment of the Rehabilitation Receiver. - The court shall initially appoint therehabilitation receiver, who mayor may not be from among the nominees of the petitioner, owever,at the initial hearing of the petition, the creditors and the debtor who are not petitioners maynominate other persons to the position. The court may retain the rehabilitation receiver initiallyappointed 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 theappropriate securities or investor protection fund.

If a ualified natural person or entity is nominated by more than fifty percent )078* of the securedcreditors and the general unsecured creditors, and satisfactory evidence is submitted, the court shallappoint the creditors$ nominee as rehabilitation receiver.

Sectio !1.Po+ers# Duties and Responsibilities of the Rehabilitation Receiver. - The rehabilitationreceiver shall be deemed an officer of the court with the principal duty of preserving and ma!imi"ingthe value of the assets of the debtor during the rehabilitation proceedings, determining the viability of the rehabilitation of the debtor, preparing and recommending a :ehabilitation &lan to the court, andimplementing the approved :ehabilitation &lan, To this end, and without limiting the generality of theforegoing, 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 anne!es

)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


18/96


)e*To take possession, custody and control, and to preserve the value of all the property ofthe debtor

)f*To sue and recover, with the approval of the court, all amounts owed to, and all propertiespertaining to the debtor

)g*To have access to all information necessary, proper or relevant to the operations andbusiness of the debtor and for its rehabilitation

)h* To sue and recover, with the. approval of the court, all property or money of the debtorpaid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute unduepreference of creditor3s

)i* To monitor the operations and the business of the debtor to ensure that no payments ortransfers of property are made other than in the ordinary course of business

)j* #ith the court$s approval, to engage the services of or to employ persons or entities toassist him in the discharge of his functions

)k* To determine the manner by which the debtor may be best rehabilitated, to review* reviseand3or recommend action on the :ehabilitation &lan and submit the same or a new one tothe court for approval

)+* To implement the :ehabilitation &lan as approved by the court, if C7 provided under the:ehabilitation &lan

)m* To assume and e!ercise the powers of management of the debtor, if directed by thecourt pursuant to Section 1 hereof

)n* To e!ercise 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 uarter or as may bereuired by the court motu proprio. or upon motion of any creditor. or as may be provided, inthe :ehabilitation &lan.

?nless appointed by the court, pursuant to Section 1 hereof, the rehabilitation receiver shallnot take over the management and control of the debtor but may recommend theappointment of a management committee over the debtor in the cases provided by this Act.

Sectio !2.Removal of the Rehabilitation Receiver. F The rehabilitation receiver may be removed atany time by the court either motu proprio or upon motion by any creditor3s holding more than fifty

percent )078* of the total obligations of the debtor, on such grounds as the rules of procedure mayprovide which shall include, but are not limited to, the following(

)a* Incompetence, gross negligence, failure to perform or failure to e!ercise the properdegree of care in the performance of his duties and powers

)b* 4ack of a particular or speciali"ed competency reuired by the specific case

)c* Illegal acts or conduct in the performance of his duties and powers


19/96


)d* 4ack of ualification or presence of any disualification

)e* 'onflict of interest that arises after his appointment and

)f* @anifest lack of independence that is detrimental to the general body of the stakeholders.

Sectio !!.Compensation and Terms of Service. The rehabilitation receiver and his directemployees or independent contractors shall be entitled to compensation for reasonable fees ande!penses from the debtor according to the terms approved by the court after notice and hearing.&rior to such hearing, the rehabilitation receiver and his direct employees shall be entitled toreasonable compensation based on %uantum meruit. Such costs shall be considered administrativee!penses.

Sectio !4.$ath and Bond of the Rehabilitation Receiver. &rior to entering upon his powers, dutiesand responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such amount tobe fi!ed by the court, conditioned upon the faithful and proper discharge of his powers, duties andresponsibilities.

Sectio !".acancy. - Incase the position of rehabilitation receiver is vacated for any reasonwhatsoever. the court shall direct the debtor and the creditors to submit the name3s of theirnominee3s to the position. The court may appoint any of the ualified nominees. or any other personualified for the position.

Sectio !#.Displacement of &"isting 4anagement by the Rehabilitation Receiver or 4anagementCommittee. F ?pon motion of any interested party, the court may appoint and direct the rehabilitationreceiver to assume the powers of management of the debtor, or appoint a management committeethat will undertake the management of the debtor. upon clear and convincing evidence of any of thefollowing circumstances(

)a* Actual or imminent danger of dissipation, loss, wastage or destruction of the debtorEs

assets or other properties

)b* &araly"ation of the business operations of the debtor or

)c* Bross mismanagement of the debtor. or fraud or other wrongful conduct on the part of, orgross or willful violation of this Act by. e!isting management of the debtor 2r the owner,partner, director, officer or representative3s in management of the debtor.

In case the court appoints the rehabilitation receiver to assume the powers of management of thedebtor. the court may(

)+* reuire the rehabilitation receiver to post an additional bond

)* authori"e him to engage the services or to employ persona or entities to assist him in thedischarge of his managerial functions and

)* authori"e a commensurate increase in his compensation.

Sectio !$.Role of the 4anagement Committee. F #hen appointed pursuant to the foregoingsection, the management committee shall take the place of the management and the governingbody of the debtor and assume their rights and responsibilities.


20/96


The specific powers and duties of the management committee, whose members shall be consideredas officers of the court, shall be prescribed by the procedural rules.

Sectio !%.5ualifications of 4embers of the 4anagement Committee. - The ualifications anddisualificationEs of the members of the management committee shall be set forth in the proceduralrules, taking into consideration the nature of the business of the debtor and the need to protect the

interest of all stakeholders concerned.

Sectio !&.&mployment of Professionals. - ?pon approval of the court, and after notice and hearing,the rehabilitation receiver or the management committee may employ speciali"ed professionals andother e!perts to assist each in the performance of their duties. Such professionals and other e!pertsshall be considered either employees or independent contractors of the rehabilitation receiver or themanagement committee, as the case may be. The ualifications and disualificationEs of theprofessionals and e!perts may be set forth in procedural rules, taking into consideration the natureof the business of the debtor and the need to protect the interest of all stakeholders concerned.

Sectio 40.Conflict of (nterest. - =o person may be appointed as a rehabilitation receiver, memberof aG 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 materiallyinfluenced in the e!ercise of his judgment for or against any party to the proceedings. #ithoutlimiting 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 )0* 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 )* years from the filing of the petition, an underwriter of theoutstanding securities of the debtor

)e* he is related by consanguinity or affinity within the fourth civil degree to any individualcreditor, owners of a sale proprietorship-debtor, partners of a partnership- debtor or to anystockholder, 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 tothe court or to the creditors in case of out-of-court rehabilitation proceedings. Any party to theproceeding adversely affected by the appointment of any person with a conflict of interest to any ofthe positions enumerated above may however waive his right to object to such appointment and, ifthe waiver is unreasonably withheld, the court may disregard the conflict of interest, taking intoaccount the general interest of the stakeholders.

Sectio 41.(mmunity. - The rehabilitation receiver and all persons employed by him, and themembers of the management committee and all persons employed by it, shall not be subject to any


21/96


action. claim or demand in connection with any act done or omitted to be done by them in good faithin connection with the e!ercise of their powers and functions under this Act or other actions dulyapproved by the court. 6a+p77il

Sectio 42.Creditors) Committee. - After the creditors$ meeting called pursuant to Section 1 hereof,the creditors belonging to a class may formally organi"e a committee among

themselves. In addition, the creditors may, as a body, agree to form a creditors$ committeecomposed of a representative from each class of creditors, such as the following(

)a* Secured creditors

)b* ?nsecured creditors

)c* Trade creditors and suppliers and

)d* 6mployees of the debtor.

In the . election of the creditors$ representatives, the rehabilitation receiver or his representative shallattend such meeting and e!tend the appropriate assistance as may be defined in the proceduralrules.

Sectio 4!.Role of Creditors) Committee. - The creditors$ committee when constituted pursuant toSection / of this Act shall assist the rehabilitation receiver in communicating with the creditors andshall be the primary liaison between the rehabilitation receiver and the creditors. The creditors$committee cannot e!ercise or waive any right or give any consent on behalf of any creditor unlessspecifically authori"ed in writing by such creditor. The creditors$ committee may be authori"ed by thecourt or by the rehabilitation receiver to perform such other tasks and functions as may be definedby the procedural rules in order to facilitate the rehabilitation process.

(D) Dete+i*tio o5 C/*i.

Sectio 44.Registry of Claims. - #ithin twenty )7* days from his assumption into office, therehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation receiver shallmake 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.

Sectio 4".$pposition or Challenge of Claims. F #ithin thirty )7* days from the e!piration of theperiod stated in the immediately preceding section, the debtor, creditors, stakeholders and otherinterested parties may submit a challenge to claim3s to the court, serving a certified copy on the

rehabilitation receiver and the creditor holding the challenged claim3so ?pon the e!piration of thethirty )7*-day period, the rehabilitation receiver shall submit to the court the registry of claims whichshall include undisputed claims that have not been subject to challenge.

Sectio 4#. !ppeal. - Any decision of the rehabilitation receiver regarding a claim may be appealedto the court.

(E) Goe+*ce.


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Sectio 4$.4anagement. - ?nless otherwise provided herein, the management of the juridicaldebtor shall remain with the e!isting management subject to the applicable law3s and agreement3s, if any, on the election or appointment of directors, managers 2r managing partner. owever, alldisbursements, payments or sale, disposal, assignment, transfer or encumbrance of property , orany other act affecting title or interest in property, shall be subject to the approval of the rehabilitationreceiver and3or the court, as provided in the following subchapter.

(F) Ue7 P+ee+*tio *, Di:o*/ o5 Aet *, T+e*tet o5 Aet *, C/*i *5te+Coeceet D*te.

Sectio 4%.-se or Disposition of !ssets. - 6!cept as otherwise provided herein, no funds or propertyof the debtor shall he used or disposed of e!cept in the ordinary course of business of the debtor, orunless necessary to finance the administrative e!penses of the rehabilitation proceedings.

Sectio 4&.Sale of !ssets. - The court, upon application of the rehabilitation receiver, may authori"ethe sale of unencumbered property of the debtor outside the ordinary course of business upon ashowing that the property, by its nature or because of other circumstance, is perishable, costly tomaintain, susceptible to devaluation or otherwise injeopardy.

Sectio "0.Sale or Disposal of &ncumbered Property of the Debtor and !ssets of Third Parties Held by Debtor.The court may authori"e the sale, transfer, conveyance or disposal of encumberedproperty of the debtor, or property of others held by the debtor where there is a security interestpertaining to third parties under a financial, credit or other similar transactions if, upon application ofthe rehabilitation receiver and with the consent of the affected owners of the property, or securedcreditor3s in the case of encumbered property of the debtor and, after notice and hearing, the courtdetermines that(

)a* such sale, transfer, conveyance or disposal is necessary for the continued operation ofthe debtor$s business and

)b* the debtor has made arrangements to provide a substitute lien or ownership right thatprovides an eual level of security for the counter-party$s claim or right.

Provided# That properties held by the debtor where the debtor has authority to sell such as trustreceipt or consignment arrangements may be sold or disposed of by the .debtor, if such sale ordisposal is necessary for the operation of the debtor$s business, and the debtor has madearrangements to provide a substitute lien or ownership right that provides an eual level of securityfor the counter-party$s claim or right.

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

Sectio "1. !ssets of Debtor Held by Third Parties. F In the case of possessory pledges, mechanic$sliens or similar claims, third parties who have in their possession or control property of the debtorshall not transfer, conveyor otherwise dispose of the same to persons other than the debtor, unlessupon prior approval of the rehabilitation receiver. The rehabilitation receiver may also(

)a* demand the surrender or the transfer of the possession or control of such property to therehabilitation receiver or any other person, subject to payment of the claims secured by anypossessory Iien3s thereon


23/96


)b* allow said third parties to retain possession or control, if such an arrangement wouldmore likely preserve or increase the value of the property in uestion or the total value of theassets of the debtor or

)c* undertake any otI+er disposition of the said property as may be beneficial for therehabilitation of the debtor, after notice and hearing, and approval of the court.

Sectio "2.Rescission or ullity of Sale# Payment# Transfer or Conveyance of !ssets. - The courtmay rescind or declare as null and void any sale, payment, transfer or conveyance of the debtor$sunencumbered property or any encumbering thereof by the debtor or its agents or representativesafter the commencement date which are not in the ordinary course of the business of thedebtor( Provided# ho+ever# That the unencumbered property may be sold, encumbered or otherwisedisposed of upon order of the court after notice and hearing(

)a* if such are in the interest of administering the debtor and facilitating the preparation andimplementation of a :ehabilitation &lan

)b* in order to provide a substitute lien, mortgage or pledge of property under this Act

)c* for payments made to meet administrative e!penses as they arise

)d* for payments to victims of uasi delicts upon a showing that the claim is valid and thedebtor has insurance to reimburse the debtor for the payments made

)e* for payments made to repurchase property of the debtor that is auctioned off in a judicialor e!trajudicial sale under. This Act or

)f* for payments made to reclaim property of the debtor held pursuant to a possessory lien.

Sectio "!. !ssets Sub8ect to Rapid $bsolescence# Depreciation and Diminution of alue. - ?pon

the application of a secured creditor holding a lien against or holder of an ownership interest inproperty held by the debtor that is subject to potentially rapid obsolescence, depreciation ordiminution in value, the court shall, after notice and hearing, order the debtor or rehabilitationreceiver to take reasonable steps necessary to prevent the depreciation. If depreciation cannot beavoided and such depreciation is jeopardi"ing the security or property interest of the secured creditor or owner, the court shall(

)a* allow the encumbered property to be foreclosed upon by the secured creditor accordingto the relevant agreement between the debtor and the secured creditor, applicable rules ofprocedure and relevant legislation( Provided. That the proceeds of the sale will be distributedin accordance with the order prescribed under the rules of concurrence and preference ofcredits or

)b* upon motion of, or with the consent of the affected secured creditor or interest owner.order the conveyance of a lien against or ownership interest in substitute property of thedebtor to the secured creditor( Provided. That other creditors holding liens on such property,if any, do not object thereto, or, if such property is not available

)c* order the conveyance to the secured creditor or holder . of an ownership interest of a lienon the residual funds from the sale of encumbered property during the proceedings or


24/96


)d* allow the sale or disposition of the property( Provided. That the sale or disposition willma!imi"e the value of the property for the benefit of the secured creditor and the debtor, andthe proceeds of the sale will be distributed in accordance with the order prescribed under therules of concurrence and preference of credits.

Sectio "4.Post9commencement (nterest. - The rate and term of interest, if any, on secured and

unsecured claims shall be determined and provided for in the approved :ehabilitation &lan.

Sectio "".Post9commencement *oans and $bligations. - #ith the approval of the court upon therecommendation of the rehabilitation receiver, the debtor, in order to enhance its

rehabilitation. may(

)a* enter into credit arrangements or

)b* enter into credit arrangements, secured by mortgages of its unencumbered property orsecondary mortgages of encumbered property with the approval of senior secured partieswith regard to the encumbered property or

)c* incur other obligations as may be essential for its rehabilitation.

The payment of the foregoing obligations shall be considered administrative e!penses under this Act.

Sectio "#.Treatment of &mployees# Claims. 'ompensation of employees reuired to carry on thebusiness shall be considered an administrative e!pense. 'laims of separation pay for monthsworked prior to the commencement date shall be considered a pre- ommencement claim. 'laims forsalary and separation pay for work performed after the commencement date shall be anadministrative e!pense.

Sectio "$.Treatment of Contracts. - ?nless cancelled by virtue of a final judgment of a court ofcompetent jurisdiction issued prior to the issuance of the 'ommencement 2rder, or at anytimethereafter by the court before which the rehabilitation proceedings are pending, all valid andsubbsisting contracts of the debtor with creditors and other third parties as at the commencementdate shall continue in force( Provided# That +ithin ninety 2;3days following the commencement ofproceedings, the debtor, with the consent of the rehabilitation receiver, shall notify each contractualcounter-party of whether it is confirming the particular contract. 'ontractual obligations of the debtorarising or performed during this period, and afterwards for confirmed contracts, shall be consideredadministrative e!penses. 'ontracts not confirmed within the reuired deadline shall be consideredterminated. 'laims for actual damages, if any, arising as a result of the election to terminate acontract shall be considered a pre-commencement claim against the debtor. =othing containedherein shall prevent the cancellation or termination of any contract of the debtor for any ground

provided by law.

(G) Aoi,*ce P+ocee,i-.

Sectio "%.Rescission or ullity of Certain &re-commencement Transactions. Any transactionoccurring prior to commencement date entered into by the debtor or involving its funds or assetsmay be rescinded or declared null and void on the ground that the same was e!ecuted with intent todefraud a creditor or creditors or which constitute undue preference of creditors. #ithout limiting thegenerality of the foregoing, a disputable presumption of such design shall arise if the transaction(


25/96


)a* provides unreasonably inadeuate consideration to the debtor and is e!ecuted withinninety )D7* days prior to the commencement date

)b* involves an accelerated payment of a claim to a creditor within ninety )D7* days prior tothe commencement date

)c* provides security or additional security e!ecuted within ninety )D7* days prior to thecommencement date

)d* involves creditors, where a creditor obtained, or received the benefit of, more than its prorata share in the assets of the debtor, e!ecuted at a time when the debtor was insolvent or

)e* is intended to defeat, delay or hinder the ability of the creditors to collect claims where theeffect of the transaction is to put assets of the debtor beyond the reach of creditors or tootherwise prejudice the interests of creditors.

Provided# ho+ever# That nothing in this section shall prevent the court from rescinding or declaringas null and void a transaction on other grounds provided by relevant legislation and

jurisprudence( Provided# further# That the provisions of the 'ivil 'ode on rescission shall in any caseapply to these transactions.

Sectio "&. !ctions for Rescission or ullity. - )a* The rehabilitation receiver or, with his conformity,any creditor may initiate and prosecute any action to rescind, or declare null and void anytransaction described in Section 0C hereof. If the rehabilitation receiver does not consent to the filingor prosecution of such action,

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

)c* Any benefit derived from a proceeding taken pursuant to subsection )a*, to the e!tent of his claimand the costs, belongs e!clusively to the creditor instituting the proceeding, and the surplus, if any,belongs to the estate.

)d* #here, before an order is made under subsection )a*, the rehabilitation receiver )or liuidator*signifies to the court his readiness to institute the proceeding for the benefit of the creditors, theorder shall fi! the time within which he shall do so and, m that case, the benefit derived from theproceeding, if instituted within the time limits so fi!ed, belongs to the estate.

(H) T+e*tet o5 Sec+e, C+e,ito+.

Sectio #0.o Diminution of Secured Creditor Rights. The issuance of the 'ommencement 2rder

and the Suspension or Stay 2rder, 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 hislien or security, e!cept that his right to enforce said security or lien may be suspended during theterm of the Stay 2rder.

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


26/96


securing his3its claim, if the said property is not necessary for the rehabilitation of the debtor. Thesecured creditor and3or the other lien holders shall be admitted to the rehabilitation proceedings onlyfor the balance of his claim, if any.

Sectio #1.*ac, of !de%uate 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 adeuate protection over propertysecuring its claim or

)b* the value of a claim secured by a lien on property which is not necessary for rehabilitation of thedebtor e!ceeds the fair market value of the said property.

;or purposes of this section, a creditor shall be deemed to lack adeuate protection if it can beshown that(

)a* the debtor fails or refuses to honor a pre-e!isting agreement with the creditor to keep theproperty insured

)b* the debtor fails or refuses to take commercially reasonable steps to maintain theproperty or

)c* the property has depreciated to an e!tent that the creditor is under secured.

?pon showing of a lack of protection, the court shall order the debtor or the rehabilitation receiver tomake arrangements to provide for the insurance or maintenance of the property or to makepayments or otherwise provide additional or replacement security such that the obligation is fullysecured. If such arrangements are not feasible, the court may modify the Stay 2rder to allow thesecured creditor lacking adeuate protection to enforce its security claim against thedebtor( Provided# ho+ever# That the court may deny the creditor the remedies in this paragraph if theproperty subject of the enforcement is reuired for the rehabilitation of the debtor.

(i) A,iit+*tio o5 P+ocee,i-.

Sectio #2.Contents of a Rehabilitation Plan. F The :ehabilitation &lan shall, as a minimum(

)a* specify the underlying assumptions, the financial goals and the procedures proposed toaccomplish such goals

)b* compare the amounts e!pected to be received by the creditors under the :ehabilitation&lan with those that they will receive if liuidation ensues within the ne!t one hundred twenty)+7* days

)c* contain information sufficient to give the various classes of creditors a reasonable basisfor determining whether supporting the &lan is in their financial interest when compared tothe immediate liuidation of the debtor, including any reduction of principal interest andpenalties 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


27/96


)f* indicate how the insolvent debtor will be rehabilitated including, but not limited to, debtforgiveness, debt rescheduling, reorgani"ation or uasi-reorgani"ation. dacion en

pago# debt-euity conversion and sale of the business )or parts of it* as a going concern, orsetting-up of a new business entity or other similar arrangements as may be necessary torestore 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 eual treatment of all claims within the same class or subclass, unless aparticular creditor voluntarily agrees to less favorable treatment

)i* ensure that the payments made under the plan follow the priority established under theprovisions of the 'ivil 'ode on concurrence and preference of credits and other applicablelaws

)j* maintain the security interest of secured creditors and preserve the liuidation value of thesecurity unless such has been waived or modified voluntarily

)k* disclose all payments to creditors for pre-commencement debts made during theproceedings and the justifications thereof

)+* describe the disputed claims and the provisioning of funds to account for appropriatepayments should the claim be ruled valid or its amount adjusted

)m* identify the debtor$s role in the implementation of the &lan

)n* state any rehabilitation covenants of the debtor, the breach of which shall be considereda material breach of the &lan

)o* identify those responsible for the future management of the debtor and the supervision

and implementation of the &lan, their affiliation with the debtor and their remuneration

)p* address the treatment of claims arising after the confirmation of the :ehabilitation &lan

)* reuire the debtor and its counter-parties to adhere to the terms of all contracts that thedebtor has chosen to confirm

)r* arrange for the payment of all outstanding administrative e!penses as a condition to the&lan$s approval unless such condition has been waived in writing by the creditors concerned

)s* arrange for the paymentH of all outstanding ta!es and assessments, or an adjustedamount pursuant to a compromise settlement with the


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)v* state the compensation and status, if any, of the rehabilitation receiver after the approvalof the &lan and

)w* contain provisions for conciliation and3or mediation as a prereuisite to court assistanceor intervention in the event of any disagreement in the interpretation or implementation of the:ehabilitation &lan.

Sectio #!.Consultation +ith Debtor and Creditors. F if the court gives due course to the petition,the rehabilitation receiver shall confer with the debtor and all the classes of creditors, and mayconsider their views and proposals ill the review, revision or preparation of a new :ehabilitation &lan.

Sectio #4.Creditor !pproval of Rehabilitation Plan. F The rehabilitation receiver shall notify thecreditors and stakeholders that the &lan is ready for their e!amination. #ithin twenty )* days fromthe said notification, the rehabilitation receiver shall convene the creditors, either as a whole or perclass, for purposes of voting on the approval of the &lan. The &lan shall be deemed rejected unlessapproved by all classes of creditors w hose rights are adversely modified or affected by the &lan. ;or purposes of this section, the &lan is deemed to have been approved by a class of creditors ifmembers of the said class holding more than fifty percent )078* of the total claims of the said class

vote in favor of the &lan. The votes of the creditors shall be based solely on the amount of theirrespective claims based on the registry of claims submitted by the rehabilitation receiver pursuant toSection // hereof.

=otwithstanding the rejection of the :ehabilitation &lan, the court may confirm the :ehabilitation&lan if all of the following circumstances are present(

)a*The :ehabilitation &lan complies with the reuirements specified in this Act.

)b* The rehabilitation receiver recommends the confirmation of the :ehabilitation &lan

)c* The shareholders, owners or partners of the juridical debtor lose at least their controlling

interest as a result of the :ehabilitation &lan and

)d* The :ehabilitation &lan would likely provide the objecting class of creditors withcompensation which has a net present value greater than that which they would havereceived if the debtor were under liuidation.

Sectio #".Submission of Rehabilitation Plan to the Court. - +fthe :ehabilitation &lan is approved,the rehabilitation receiver shall submit the same to the court for confirmation. #ithin five )0* daysfrom receipt of the :ehabilitation &lan, the court shall notify the creditors that the :ehabilitation &lanhas been submitted for confirmation, that any creditor may obtain copies of the :ehabilitation &lanand that any creditor may file an objection thereto.

Sectio ##.1iling of $b8ections to Rehabilitation Plan. F A creditor may file an objection to the:ehabilitation &lan within twenty )7* days from receipt of notice from the court that the:ehabilitation &lan has been submitted for confirmation. 2bjections to a :ehabilitation &lan shall belimited to the following(

)a* The creditors$ support was induced by fraud

)b*The documents or data relied upon in the :ehabilitation &lan are materially false ormisleading or


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)c*The :ehabilitation &lan is in fact not supported by the voting creditors.

Sectio #$.Hearing on the $b8ections. - If objections have been submitted during the relevantperiod, the court shall issue an order setting the time and date for the hearing or hearings on theobjections.

If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to curethe defect, whenever feasible. If the court determines that the debtor acted in bad faith, or that it isnot feasible to cure the defect, the court shall convert the proceedings into one for the liuidation ofthe debtor under 'hapter 9 of this Act.

Sectio #%.Confirmation of the Rehabilitation Plan. F If no objections are filed within the relevantperiod or, if objections are filed, the court finds them lacking in merit, or determines that the basis forthe objection has been cured, or determines that the debtor has complied with an order to cure theobjection, the court shall issue an order confirming the :ehabilitation &lan.

The court may confirm the :ehabilitation &lan notwithstanding unresolved disputes over claims if the:ehabilitation &lan has made adeuate provisions for paying such claims.

;or the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the courtshall have the power to approve or implement the :ehabilitation &lan despite the lack of approval, or objection from the owners, partners or stockholders of the insolvent debtor( Provided# That the termsthereof are necessary to restore the financial well-being and viability of the insolvent debtor.

Sectio #&.&ffect of Confirmation of the Rehabilitation Plan# - The confirmation of the :ehabilitation&lan by the court shall result in the following(

)a* The :ehabilitation &lan and its provisions shall be binding upon the debtor and allpersons who may be affected by . it, including the creditors, whether or not such personshave participated in the proceedings or opposed the :ehabilitation &lan or whether or not

their claims have been scheduled

)b* The debtor shall comply with the provisions of the :ehabilitation &lan and shall take allactions necessary to carry out the &lan

)c* &ayments shall be made to the creditors in accordance with the provisions of the:ehabilitation &lan

)d* 'ontracts and other arrangements between the debtor and its creditors shall beinterpreted as continuing to apply to the e!tent that they do not conflict with the provisions ofthe :ehabilitation &lan

)e* Any compromises on amounts or rescheduling of timing of payments by the debtor shallbe binding on creditors regardless of whether or not the &lan is successfully implement and

)f* 'laims arising after approval of the &lan that are otherwise not treated by the &lan are notsubject to any Suspension 2rder.

The 2rder confirming the &lan shall comply with :ules 1 of the :ules of 'ourt( Provided#ho+ever# That the court may maintain jurisdiction over the case in order to resolve claims against thedebtor that remain contested and allegations that the debtor has breached the &lan.


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Sectio $0. *iability of 'eneral Partners of a Partnership for -npaid Balances -nder an !pprovedPlan. - The approval of the &lan shall not affect the rights of creditors to pursue actions against thegeneral partners of a partnership to the e!tent they are liable under relevant legislation for the debtsthereof.

Sectio $1. Treatment of !mounts of (ndebtedness or $bligations 1orgiven or Reduced. - Amounts

of any indebtedness or obligations reduced or forgiven in connection with a &lan$s approval shall notbe subject to any ta! in furtherance of the purposes of this Act.

Sectio $2. Period for Confirmation of the Rehabilitation Plan. - The court shall have a ma!imumperiod of one )+* year from the date of the filing of the petition to confirm a :ehabilitation &lan.

If no :ehabilitation &lan is confirmed within the said period, the proceedings may upon motionor motu propio, be converted into one for the liuidation of the debtor .

Sectio $!. !ccounting Discharge of Rehabilitation Receiver. - ?pon the confirmation of the:ehabilitation &lan, the rehabilitation receiver shall provide a final report and accounting to the court.?nless the :ehabilitation &lan specifically reuires and describes the role of the rehabilitation

receiver after the approval of the :ehabilitation &lan, the court shall discharge the rehabilitationreceiver of his duties.

)j* Termination of &roceedings

Sectio $4. Termination of Proceedings. - The rehabilitation proceedings under 'hapter II shall,upon motion by any stakeholder or the rehabilitation receiver be terminated by order of the courteither declaring a successful implementation of the :ehabilitation &lan or a failure of rehabilitation.

There is failure of rehabilitation in the following cases(

)a* 5ismissal of the petition by the court

)b* The debtor fails to submit a :ehabilitation &lan

)c* ?nder the :ehabilitation &lan submitted by the debtor, there is no substantial likelihoodthat the debtor can be rehabilitated within a reasonable period

)d* The :ehabilitation &lan or its amendment is approved by the court but in theimplementation thereof, the debtor fails to perform its obligations thereunder or there is afailure to reali"e the objectives, targets or goals set forth therein, including the timelines andconditions for the settlement of the obligations due to the creditors and other claimants

)e* The commission of fraud in securing the approval of the :ehabilitation &lan or its

amendment and

)f* 2ther analogous circumstances as may be defined by the rules of procedure.

?pon a breach of, or upon a failure of the :ehabilitation &lan the court, upon motion by an affectedparty may(

)+* Issue an order directing that the breach be cured within a specified period of time, fallingwhich the proceedings may be converted to a liuidation


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)* Issue an order converting the proceedings to a liuidation

)* Allow the debtor or rehabilitation receiver to submit amendments to the :ehabilitation&lan, the approval of which shall be governed by the same reuirements for the approval ofa :ehabilitation &lan under this subchapter

)/* Issue any other order to remedy the breach consistent with the present regulation, otherapplicable law and the best interests of the creditors or

)0* 6nforce the applicable provisions of the :ehabilitation &lan through a writ of e!ecution.

Sectio $". &ffects of Termination. - Termination of the proceedings shall result in the following(

)a* The discharge of the rehabilitation receiver subject to his submission of a finalaccounting and

)b* The lifting of the Stay 2rder and any other court order holding in abeyance any action forthe enforcement of a claim against the debtor.

Provided# ho+ever# That if the termination of proceedings is due to failure of rehabilitation ordismissal of the petition for reasons other than technical grounds, the proceedings shall beimmediately converted to liuidation as provided in Section D of this Act.

CHAPTER IIIPRE'NEGOTIATED REHABILITATION

Sectio $#. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors, mayfile a verified petition with the court for the approval of a pre-negotiated :ehabilitation &lan whichhas been endorsed or approved by creditors holding at least two-thirds )3* of the total liabilities ofthe debtor, including secured creditors holding more than fifty percent )078* of the total secured

claims of the debtor and unsecured creditors holding more than fifty percent )078* of the totalunsecured 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 :ehabilitation &lan, including the names of at least three )* ualifiednominees for rehabilitation receiver and

)d* a summary of disputed claims against the debtor and a report on the provisioning offunds to account for appropriate payments should any such claims be ruled valid or their

amounts adjusted.

Sectio $$. (ssuance of $rder. - #ithin five )0* working days, and after determination that thepetition is sufficient in form and substance, the court shall issue an 2rder which shall

)a* identify the debtor, its principal business of activity3ies and its principal place of business

)b* declare that the debtor is under rehabilitation


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)c* summari"e the ground.3s for the filling of the petition

)d* direct the publication of the 2rder in a newspaper of general circulation in the &hilippinesonce a week for at least two )* consecutive weeks, with the first publication to be madewithin seven )>* 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 nota petitioner holding at least ten percent )+78* of the total liabilities of the debtor, asdetermined in the schedule attached to the petition, within three )* days

)f* state that copies of the petition and the :ehabilitation &lan are available for e!aminationand copying by any interested party

)g* state that creditors and other interested parties opposing the petition or :ehabilitation&lan may file their objections or comments thereto within a period of not later than twenty)7* days from the second publication of the 2rder

)h* appoint a rehabilitation receiver, if provided for in the &lan and

)i* include a Suspension or Stay 2rder as described in this Act.

Sectio $%. !pproval of the Plan. - #ithin ten )+7* days from the date of the second publication ofthe 2rder, the court shall approve the :ehabilitation &lan unless a creditor or other interested partysubmits an

SPECPRO_Voluntary Dissolution Until Absentees

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