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CONCEPT OF INSOLVENCY - Coggle Diagram

- - - - SPECIAL PREFERRED CREDITS
        
        PREFERENCE OF CLAIMS OR LIENS WITH REGARD TO SPECIFIC =MOVABLE= PROPERTY OF THE DEBTOR
        Article 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred:
        
        Duties, taxes and fees due thereon to the State or any subdivision thereof;
        
        Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties, on the movables, money or securities obtained by them;
        
        Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally;
        
        Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof;
        
        Credits for the making, repair, safekeeping or preservation of personal property, on the movable thus made, repaired, kept or possessed;
        
        Claims for laborers' wages, on the goods manufactured or the work done;
        
        For expenses of salvage, upon the goods salvaged;
        
        Credits between the landlord and the tenant, arising from the contract of tenancy on shares, on the share of each in the fruits or harvest;
        
        Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their delivery and for thirty days thereafter;
        
        Credits for lodging and supplies usually furnished to travellers by hotel keepers, on the movables belonging to the guest as long as such movables are in the hotel, but not for money loaned to the guests;
        
        Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the fruits harvested;
        
        Credits for rent for one year, upon the personal property of the lessee existing on the immovable leased and on the fruits of the same, but not on money or instruments of credit;
        
        Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited, upon the price of the sale.
        
        In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor may demand them from any possessor, within thirty days from the unlawful seizure. (1922a)
        
        PREFERENCE OF CLAIMS OR LIENS WITH REGARD TO SPECIFIC =IMMOVABLE= PROPERTY OF THE DEBTOR
        Article 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right:
        (1) Taxes due upon the land or building;
        (2) For the unpaid price of real property sold, upon the immovable sold;
        (3) Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the construction, reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works;
        (4) Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works, upon said buildings, canals or other works;
        (5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged;
        (6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or improved;
        (7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to later credits;
        (8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided;
        (9) Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated;
        (10) Credits of insurers, upon the property insured, for the insurance premium for two years. (1923a)
        
        CONSIDERED AS REAL SECURITY
        Article 2243. The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency. Taxes mentioned in No. 1, article 2241, and No. 1, article 2242, shall first be satisfied. (n)
        
        ORDER OF PREFERENCE OF CREDITS
        
        Article 2246. Those credits which enjoy preference with respect to specific movables, exclude all others to the extent of the value of the personal property to which the preference refers.
        
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        ONLY APPLICABLE WHEN THERE IS A CONCERRENCE OF CREDITS
        Article 2242 only finds application when there is a concurrence of credits.
        (J.L. Bernardo v. CA)
        
        "CONCURRENCE OF CREDITS" DEFINED
        [There is a Concurrence of Credits] when the same specific property of the debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors.
        (J.L. Bernardo v. CA)
        
        DUE PROCESS DICTATES THAT STATUTORY LIEN SHOULD ONLY BE ENFORCED WHERE PREFERRED CREDITORS MAY BE BINDINGLY ADJUDICATED, SUCH AS INSOLVENCY PROCEEDINGS
        Fundamental tenets of due process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated, such as insolvency proceedings.
        
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        De Barreto, et al. v. Villanueva, et al. G.R. No. L-14938, January 28, 1961, 1 SCRA 288 J.L.
      - ORDINARY PREFERRED CREDITS
        
        Article 2244. With reference to other property, real and personal, of the debtor, the following claims or credits shall be preferred in the order named:
        (1) Proper funeral expenses for the debtor, or children under his or her parental authority who have no property of their own, when approved by the court;
        (2) Credits for services rendered the insolvent by employees, laborers, or household helpers for one year preceding the commencement of the proceedings in insolvency;
        (3) Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority, if they have no property of their own;
        (4) Compensation due the laborers or their dependents under laws providing for indemnity for damages in cases of labor accident, or illness resulting from the nature of the employment;
        (5) Credits and advancements made to the debtor for support of himself or herself, and family, during the last year preceding the insolvency;
        (6) Support during the insolvency proceedings, and for three months thereafter;
        (7) Fines and civil indemnification arising from a criminal offense;
        (8) Legal expenses, and expenses incurred in the administration of the insolvent's estate for the common interest of the creditors, when properly authorized and approved by the court;
        (9) Taxes and assessments due the national government, other than those mentioned in articles 2241, No. 1, and 2242, No. 1;
        (10) Taxes and assessments due any province, other than those referred to in articles 2241, No. 1, and 2242, No. 1;
        (11) Taxes and assessments due any city or municipality, other than those indicated in articles 2241, No. 1, and 2242, No. 1;
        (12) Damages for death or personal injuries caused by a quasi-delict;
        (13) Gifts due to public and private institutions of charity or beneficence;
        (14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively. (1924a)
        
        Article 2251. Those credits which do not enjoy any preference with respect to specific property, and those which enjoy preference, as to the amount not paid, shall be satisfied according to the following rules:
        (1) In the order established in article 2244;
        (2) Common credits referred to in article 2245 shall be paid pro rata regardless of dates. (1929a)
        
        Article 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer’s business, his workers shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid. (As amended by Section 1, Republic Act No. 6715, March 21, 1989)
        
        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.
      - COMMON CREDITS
        
        CREDITS THAT ARE NEITHER SPECIAL PREFERRED NOR ORDINARY PREFERRED ENJOY NO PREFERENCE
        Article 2245. Credits of any other kind or class, or by any other right or title not comprised in the four preceding articles, shall enjoy no preference. (1925)
        
        Article 2246. Those credits which enjoy preference with respect to specific movables, exclude all others to the extent of the value of the personal property to which the preference refers.
        
        Article 2247. If there are two or more credits with respect to the same specific movable property, they shall be satisfied pro rata, after the payment of duties, taxes and fees due the State or any subdivision thereof. (1926a)
        
        Article 2248. Those credits which enjoy preference in relation to specific real property or real rights, exclude all others to the extent of the value of the immovable or real right to which the preference refers.
        
        Article 2249. If there are two or more credits with respect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real right. (1927a)
        
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    - - 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.
  - - - SUSPESNION OF PAYMENTS ORDER
        
        SECTION 95. Action on the Petition. — If the court finds the petition sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue an Order:
        (a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not less than fifteen (15) days nor more than forty (40) days from the date of such Order and designating the date, time and place of the meeting;
        (b) directing such creditors to prepare and present written evidence of their claims before the scheduled creditors' meeting;
        (c) directing the publication of the said order in a newspaper of general circulation published in the province or city in which the petition is filed once a week for two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of the issuance of the Order;
        (d) directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage prepaid, to all creditors named in the schedule of debts and liabilities;
        (e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his property, except those used in the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged, so long as the proceedings relative to the suspension of payments are pending; AEcIaH
        (f) prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of payments are pending; and
        (g) appointing a commissioner to preside over the creditors' meeting.
        
        SECTION 96. Actions Suspended. — Upon motion filed by the individual debtor, the court may issue an order suspending any pending execution against the individual debtor: Provided, that properties held as security by secured creditors shall not be the subject of such suspension order. The suspension order shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors or as soon as such agreement is denied.
        No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except:
        (a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and
        (b) secured creditors.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        INJUNCTION AGAINST DEBTOR
        
        AUTOMATIC STAY
      - ORDER SUSPENDING EXECUTION
        
        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: Provided, that properties held as security by secured creditors shall not be the subject of such suspension order. The suspension order shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors or as soon as such agreement is denied.
        No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except:
        (a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and
        (b) secured creditors.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 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 certainty 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 facilitate a speedy and orderly liquidation of these debtors' assets and the settlement of their obligations.||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        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 resided 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 assets; and (c) a proposed agreement with his creditors.||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
      - COMMISSIONER
        
        CREDITORS' MEETING
        
        PROPOSED AGREEMENT
        
        TREATMENT OF CLAIMS
        
        GENERAL CONCEPTS
        
        SECURED CREDITOR CLAIMS
        
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        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: Provided, that properties held as security by secured creditors shall not be the subject of such suspension order. The suspension order shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors or as soon as such agreement is denied.
        No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except:
        (a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and
        (b) secured creditors.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
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        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 resided 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 assets; and (c) a proposed agreement with his creditors.||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        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 upheld 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 on 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 on 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.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        SECTION 97. Creditors' Meeting. — The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner appointed by the court shall preside over the meeting and the clerk of court shall act as the secretary thereof, subject to the following rules:
        (a) The clerk shall record the creditors present and amount of their respective claims;
        (b) The commissioner shall examine the written evidence of the claims. If the creditors present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall declare the meeting open for business;
        (c) The creditors and individual debtor shall discuss the propositions in the proposed agreement and put them to a vote;
        (d) To form a majority, it is necessary:
        (1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
        (2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total liabilities of the debtor mentioned in the petition; and
        (e) After the result of the voting has been announced, all protests made against the majority vote shall be drawn up, and the commissioner and the individual debtor together with all creditors taking part in the voting shall sign the affirmed propositions.
        No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be entitled to vote.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        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. TaDCEc
        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.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        SECTION 95. Action on the Petition. — If the court finds the petition sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue an Order:
        (a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not less than fifteen (15) days nor more than forty (40) days from the date of such Order and designating the date, time and place of the meeting;
        (b) directing such creditors to prepare and present written evidence of their claims before the scheduled creditors' meeting;
        (c) directing the publication of the said order in a newspaper of general circulation published in the province or city in which the petition is filed once a week for two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of the issuance of the Order;
        (d) directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage prepaid, to all creditors named in the schedule of debts and liabilities;
        (e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his property, except those used in the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged, so long as the proceedings relative to the suspension of payments are pending; AEcIaH
        (f) prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of payments are pending; and
        (g) appointing a commissioner to preside over the creditors' meeting.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        SECTION 5. Who May be Appointed Commissioner. — The commissioner, who shall preside over the creditors' meeting in connection with the proceedings, shall be a natural person who shall have the following minimum qualifications:
        (a) a citizen of the Philippines or a resident thereof for six (6) months immediately preceding his appointment;
        (b) of good moral character and with acknowledged integrity, impartiality and independence;
        (c) has the requisite knowledge of insolvency laws, rules and procedures; and cSEDTC
        (d) has no conflict of interest; Provided, that such conflict of interest may be waived, expressly or impliedly, by a party who may be prejudiced thereby. 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.
        The debtor or any creditor may file a written objection to the commissioner appointed by the court on the ground that he does not meet the foregoing minimum requirements. If the court finds merit in the objection, it shall appoint a new commissioner.
        ||| (Financial Liquidation and Suspension of Payments Rules of Procedure for Insolvent Debtors (2015), A.M. No. 15-04-06-SC, [April 21, 2015])
        
        SECTION 97. Creditors' Meeting. — The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner appointed by the court shall preside over the meeting and the clerk of court shall act as the secretary thereof, subject to the following rules:
        (a) The clerk shall record the creditors present and amount of their respective claims;
        (b) The commissioner shall examine the written evidence of the claims. If the creditors present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall declare the meeting open for business;
        (c) The creditors and individual debtor shall discuss the propositions in the proposed agreement and put them to a vote;
        (d) To form a majority, it is necessary:
        (1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and
        (2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total liabilities of the debtor mentioned in the petition; and
        (e) After the result of the voting has been announced, all protests made against the majority vote shall be drawn up, and the commissioner and the individual debtor together with all creditors taking part in the voting shall sign the affirmed propositions.
        No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be entitled to vote.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
    - - LIQUIDATION
        
        GENERAL CONCEPTS
        
        LIQUIDATION OF INSOLVENT INDIVIDUAL DEBTOR
        
        VOLUNTARY LIQUIDATION
        
        INVOLUNTARY LIQUIDATION
        
        ACTS OF INSOLVENCY
        
        SHOW CAUSE ORDER
        
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        LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
        
        GENERAL CONCEPTS
        
        VOLUNTARY LIQUIDATION
        
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        PROVISIONS COMMON TO LIQUIDATION OF INDIVIDUAL AND JURIDICAL DEBTORS
        
        LIQUIDATION ORDER
        
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      - GENERAL CONCEPTS
        
        COURT-SUPERVISED REHABILITATION
        
        VOLUNTARY SUPERVISED REHABILITATION
        
        SECTION 12. Petition to Initiate Voluntary Proceedings by Debtor. — When approved by the owner in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or, in case of a corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings under this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter specifically provided. The petition shall be verified to establish the insolvency of the debtor and the viability of its rehabilitation, and include, whether as an attachment or as part of the body of the petition, as a minimum, the following:
        (a) Identification of the debtor, its principal activities and its addresses;
        (b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as they become due;
        (c) The specific relief sought pursuant to this Act;
        (d) The grounds upon which the petition is based;
        (e) Other information that may be required under this Act depending on the form of relief requested;
        (f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;
        (g) An inventory of all its assets including receivables and claims against third parties;
        (h) A Rehabilitation Plan;
        (i) The names of at least three (3) nominees to the position of rehabilitation receiver; and
        (j) Other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme Court.
        A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its members foresee the impossibility of meeting debts when they respectively fall due, and the financial distress would likely adversely affect the financial condition and/or operations of the other members of the group and/or the participation of the other members of the group is essential under the terms and conditions of the proposed Rehabilitation Plan.
        (2) Involuntary Proceedings.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        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:
        (a) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least sixty (60) days or that the debtor has failed generally to meet its liabilities as they fall due; or
        (b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent.
        
        SECTION 14. Petition to Initiate Involuntary Proceedings. — The creditor/s' petition for rehabilitation shall be verified to establish the substantial likelihood that the debtor may be rehabilitated, and include:
        (a) identification of the debtor, its principal activities and its address;
        (b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings under Section 13 of this Act;
        (c) the specific relief sought under this Act;
        (d) a Rehabilitation Plan;
        (e) the names of at least three (3) nominees to the position of rehabilitation receiver;
        (f) other information that may be required under this Act depending on the form of relief requested; and
        (g) other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme Court.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        PROVISIONS COMMON TO VOLUNTARY AND INVOLUNTARY REHABILITATION PROCEEDINGS
        
        COMMENCEMENT ORDER
        
        STAY OR SUSPENSION ORDER
        
        GENERAL CONCEPTS
        
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        SUBSEQUENT ACTIONS
        
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        SECTION 15. Action on the Petition. — If the court finds the petition for rehabilitation to be sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue a Commencement Order. If, within the same period, the court finds the petition deficient in form or substance, the court may, in its discretion, give the petitioner/s a reasonable period of time within which to amend or supplement the petition, or to submit such documents as may be necessary or proper to put the petition in proper order. In such case, the five (5) working days provided above for the issuance of the Commencement Order shall be reckoned from the date of the filing of the amended or supplemental petition or the submission of such documents.
        
        SECTION 16. Commencement of Proceedings and Issuance of a Commencement Order. — The rehabilitation proceedings shall commence upon the issuance of the Commencement Order, which shall:
        (a) identify the debtor, its principal business or activity/ies and its principal place of business;
        (b) summarize the ground/s for initiating the proceedings;
        (c) state the relief sought under this Act and any requirement or procedure particular to the relief sought;
        (d) state the legal effects of the Commencement Order, including those mentioned in Section 17 hereof;
        (e) declare that the debtor is under rehabilitation;
        (f) direct the publication of the Commencement Order in a newspaper of general circulation in the Philippines once a week for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of its issuance;
        (g) if the petitioner is the debtor, direct the service by personal delivery of a copy of the petition on each creditor holding at least ten percent (10%) of the total liabilities of the debtor as determined from the schedule attached to the petition within five (5) days; if the petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition on the debtor within five (5) days;
        (h) appoint a rehabilitation receiver who may or may not be from among the nominees of the petitioner/s, and who shall exercise such powers and duties defined in this Act as well as the procedural rules that the Supreme Court will promulgate;
        (i) summarize the requirements and deadlines for creditors to establish their claims against the debtor and direct all creditors to file their claims with the court at least five (5) days before the initial hearing;
        (j) direct the Bureau of Internal Revenue (BIR) to file and serve on the debtor its comment on or opposition to the petition or its claim/s against the debtor under such procedures as the Supreme Court may hereafter provide;
        (k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services or goods supplied after the issuance of the Commencement Order;
        (l) authorize the payment of administrative expenses as they become due;
        (m) set the case for initial hearing, which shall not be more than forty (40) days from the date of filing of the petition for the purpose of determining whether there is substantial likelihood for the debtor to be rehabilitated;
        (n) make available copies of the petition and rehabilitation plan for examination and copying by any interested party;
        (o) indicate the location or locations at which documents regarding the debtor and the proceedings under this Act may be reviewed and copied;
        (p) state that any creditor or debtor, who is not the petitioner, may submit the name or nominate any other qualified person to the position of rehabilitation receiver at least five (5) days before the initial hearing;
        (q) include a Stay or Suspension Order which shall:
        (1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor;
        (2) suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor;
        (3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and
        (4) prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein.
        
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        Bureau of Internal Revenue, et al. v. Lepanto Ceramics Inc., G. R No.
        224764, April 24, 2017
        
        PRE-NEGOTIATED REHABILITATION
        
        OUT-OF-COURT REHABILITATION
        
        GENERAL CONCEPTS
        
        BENEFITS OF OUT-OF-COURT REHABILITATION
        
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        REQUIREMENTS FOR REHABILIATION
        
        Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc.
        
        MODES OF REHABILATION
        
        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 certainty 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 facilitate a speedy and orderly liquidation of these debtors' assets and the settlement of their obligations.||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
- - - - CROSS-BORDER INSOLVENCY PROCEEDINGS
        
        MODEL LAW ON CBI OF THE UNITED NATIONS CENTER FOR INTERNATIONAL TRADE AND DEVELOPMENT ADOPTED
        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.
        
        COURT MAY PROVIDE RELIEF
        Section 141. Provision of Relief. - The court may issue orders:
        
        SUSPEND - (a) suspending any action to enforce claims against the entity or otherwise seize or foreclose on property of the foreign entity located in the Philippines;
        
        SURRENDER- (b) requiring the surrender property of the foreign entity to the foreign representative; or
        
        (CATCH-ALL) OTHER NECESSARY RELIEF- (c) providing other necessary relief.
        
        FACTORS IN GRANTING RELIEF
        Section 142. Factors in Granting Relief. - In determining whether to grant relief under this subchapter, the court shall consider;
        
        PROTECT CREDITORS(a) the protection of creditors in the Philippines and the inconvenience in pursuing their claim in a foreign proceeding;
        
        JUST TREATMENT(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation proceedings;
        
        RECOGNITION OF FOREIGN PRCOEEDING(c) whether other jurisdictions have given recognition to the foreign proceeding;
        
        RECOGNITION OF RIGHTS OF CREDITORS(d) the extent that the foreign proceeding recognizes the rights of creditors and other interested parties in a manner substantially in accordance with the manner prescribed in this Act; and
        
        FOREIGN PROCEEDING RECOGNIZED *DEFERENCE TO PROCEEDINGS UNDER THIS ACT(e) the extent that the foreign proceeding has recognized and shown deference to proceedings under this Act and previous legislation.
      - REQUIREMENTS FOR LIABILITY
        IF
        
        DEBTOR IS
        (a) INDIVIDUAL DEBTOR,
        (b) OWNER OF A SOLE PROPRIETORSHIP,
        (c) ARE PARTNERS IN A PARTNERSHIP, OR
        (d) DIRECTORS AND OFFICERS OF A DEBTOR**
        
        DEBTOR
        (a) HAD NOTICE OF COMMENCEMENT OF PROCEEDINGS OR
        (b) HAS/HAVE REASON TO BELIEVE THAT PROCEEDINGS ARE ABOUT TO BE COMMENCED OR
        (c) IN CONTEMPLATION OF THE PROCEEDINGS**
        
        WILFULLY:
        (a) DISPOSE - Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve any transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
        (b) CONCEAL - Conceal or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.
        
        THEN
        THEY ARE LIABLE FOR DOUBLE THE VALUE OF THE PROPERTY OR DOUBLE THE TRANSACTION, WHICHEVER IS HIGHER
        
        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:
        (a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve any transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or
        (b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.
        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.
        
        PENALTY
        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;
        (a) if he shall, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commented, or in contemplation of the proceedings hide or conceal, or destroy or cause to be destroyed or hidden any property belonging to the debtor or if he shall hide, destroy, after mutilate or falsify, or cause to be hidden, destroyed, altered, mutilated or falsified, any book, deed, document or writing relating thereto; if he shall, with intent to defraud the creditors of the debtor, make any payment sale, assignment, transfer or conveyance of any property belongings to the debtor
        (b) if he shall, having knowledge belief of any person having proved a false or fictitious claim against the debtor, fail to disclose the same to the rehabilitation receiver of liquidator within one (1) month after coming to said knowledge or belief; or if he shall attempt to account for any of the debtors property by fictitious losses or expense; or
        (c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation established by this Act.
        
        COURT DETERMINES LIABILITY
        The court shall determine the extent of the liability of an owner, partner, director or officer under this section.
        
        IN CASE OF PARTNERSHIPS & CORPORATIONS = COURT CONSIDERS EQUITY INTEREST + DEGREE OF CONTROL + EXTENT OF INVOLVEMENT IN ACTUAL MANAGEMENT OF OPERATIONS OF DEBTOR
        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.
    - - SPECIAL COURTS (Sec. 6)
        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.
        
        JURIDICAL ENTITES SHALL BE SEPARATE ENTITIES (Sec. 7)
        Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a separate entity under the proceedings in this Act.
        
        DEBTORS CANNOT COMMINGLE OR AGGREGATE ASSETS & LIABLILITES
        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:
        
        RELATED = COMMINGLING ALLOWED
        [If]] the other debtor is a related enterprise that is owned or controlled directly or by the same interests, [then their assets & liabilities may commingle]
        
        PRIOR COMMINGLING
        (a) there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to the commencement of the proceedings;
        
        COMMON CREDITORS + CONVENIENT
        (b) the debtor and the related enterprise have common creditors and it will be more convenient to treat them together rather than separately;
        
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        COURT MAY JOIN OTHER ENTITIES AFFILIATED WITH DEBTOR AS PARTIES
        AS PER RULES OF PROCEDURE
        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.
        
        What are those courts?
      - PUBLICATION ACQUIRES JURISDICTION OVER THE PERSON (Sec. 3)
        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.
        
        PROCEEDINGS = SUMMARY, NON-ADVERSARIAL, AND CONSISTENT WITH POLICY OF THE ACT
        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.
        
        POLICY: TO COLLECTIVELY & REALISTICALLY RESOLVE & ADJUST COMPETING CLAIMS AND PROPERTY RIGHTS
        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 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 the 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.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        SECTION 147. Application to Pending Contracts. — This Act shall apply to all contracts of the debtor regardless of the date of perfection.
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        SECTION 148. Repealing 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. TaIHEA
        ||| (Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18, 2010])
        
        FR Rules, Rule 1, Sec. 5(c) Asset is anything of value which may be either tangible or intangible. Tangible assets can be current assets or fixed assets. Current assets may include cash on hand, money in banks or inventory, while fixed assets may include plant, building, property and equipment. Intangible assets may include intellectual property (such as copyrights, patents, and trademarks) and financial assets (such as accounts receivable, subscription receivables, and bonds and stocks).
        The value of these assets must appear in the latest audited financial statements immediately preceding the filing of the petition. In case the debtor is less than three (3) years in operation, it is sufficient that the book value is based on the audited financial statement/s for the two (2) years or year immediately preceding the filing of the petition, as the case may be.
        FR Rules, Rule 1, Sec. 5(c)
        ||| (Financial Rehabilitation Rules of Procedure (2013), A.M. No. 12-12-11-SC, [August 27, 2013])