CONTENTS

 Financial Rehabilitation and Insolvency

 Definition of Terms
 Suspension of payments
 Rehabilitation
 Types
 Commencement order
 Stay or suspension order
 Rehabilitation receiver
 Management committee
 Rehabilitation plan
 Cram down effect
CONTENTS

 Liquidation
 Types
 Conversion of rehabilitation to liquidation proceedings
 Liquidation order
 Rights of secured creditors
 Liquidator
 Determination of claims
 Liquidation of Plan
CONTENTS

 Republic Act No. 10142, or otherwise known as the Financial Rehabilitation and Insolvency Act of 2010 (“FRIA”)
DEFINITION OF TERMS

 Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship duly registered
with the Department of Trade and Industry (DTI), a partnership duly registered with the Securities and Exchange
Commission (SEC), a corporation duly organized and existing under Philippine laws, or an individual debtor who
has become insolvent. (Section 4, FRIA)
 The term debtor does not include banks, insurance companies, pre-need companies, and national and local government
agencies or units. (Section 5, FRIA)
 Group of debtors shall refer to and can cover only: (1) corporations that are financially related to one another
as parent corporations, subsidiaries or affiliates; (2) partnerships that are owned more than fifty percent (50%) by
the same person; and (3) single proprietorships that are owned by the same person. (Section 4, FRIA)
 Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as
they fall due in the ordinary course of business or has liabilities that are greater than its or his assets. (Section 4,
FRIA)
DEFINITION OF TERMS

 Creditor shall refer to a natural or juridical person which has a claim against the debtor that arose on or before
the commencement date.
 Secured creditor shall refer to a creditor with a secured claim.
 Secured claim shall refer to a claim that is secured by a lien.
 Unsecured creditor shall refer to a creditor with an unsecured claim.
 Unsecured claim shall refer to a claim that is not secured by a lien.
 Voting creditor shall refer to a creditor that is a member of a class of creditors, the consent of which is
necessary for the approval of a Rehabilitation Plan under this Act. (Section 4, FRIA)
DEFINITION OF TERMS

 Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency, if
it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the
present value of payments projected in the plan, more if the debtor continues as a going concern than if it is
immediately liquidated.
 Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as such by the
court pursuant to this Act and which shall be entrusted with such powers and duties as set forth herein.
 Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an insolvent debtor can
be restored using various means including, but not limited to, debt forgiveness, debt rescheduling, reorganization
or quasi-reorganization, dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a going
concern, or setting-up of new business entity as prescribed in Section 62, or other similar arrangements as may
be approved by the court or creditors. (Section 4, FRIA)
PROCEEDINGS COVERED BY THE FRIA

 Rehabilitation
 Pre-negotiated Rehabilitation
 Out of Court Rehabilitation
 Suspension of payments
 Liquidation
SUSPENSION OF PAYMENTS

 Coverage: Individual Debtors only

 An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the
impossibility of meeting them when they respectively fall due, may file a verified petition that he be declared in the
state of suspension of payments by the court of the province or city in which he has resides for six (6) months
prior to the filing of his petition.
 He shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory of assess; and
(c) a proposed agreement with his creditors. (Section 94, FRIA)
SUSPENSION OF
PAYMENTS
 vs. Rehabilitation

SUSPENSION OF PAYMENTS REHABILITATION

Applies only to individual debtors Applies to business organizations also

Debtor has sufficient assets to cover its liabilities Debtor is insolvent

Secured debtors are not affected Secured debtors are affected by stay order

Filed by the debtor Maybe filed by creditors

No minimum requirement for the amount of claims When creditors file, the claims must be:
1. at least 1M or
2. at least 25% of the subscribed capital stock or
partners’ contribution, whichever is higher
SUSPENSION OF PAYMENTS

 SUSPENSION ORDER: Upon motion filed by the individual debtor, the court may issue an order suspending any
pending execution against the individual debtor.
 As a rule, no creditor shall sue or institute 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 the proceedings remain pending. Exceptions:
 Those creditors having claims for:
 Personal labor
 Maintenance
 Expense of last illness and funeral of the wife or children of the debtor
 If incurred in the 60 days immediately prior to the filing of the petition

 Secured creditors
 The suspension order shall lapse when 3 months shall have passed without the proposed agreement being accepted by
the creditors or as soon as such agreement is denied.
SUSPENSION OF PAYMENTS

 PROHIBITED ACTS OF THE DEBTOR: after filing and during pendency, the debtor cannot:
 Sell, transfer, encumber or dispose in any manner his property, except those used in the ordinary operations of commerce or
industry in which the petitioning individual is engaged
 Making any payment outside of the necessary or legitimate expenses of his business or industry
SUSPENSION OF PAYMENTS

 CREDITORS’ MEETING: the debtor shall attach to his petition a proposed agreement with creditors, which shall be
approved in a creditors’ meeting.
 Quorum: presence of creditors holding at least 3/5 of the liabilities of the debtor.
 Approval: double majority is required:
 2/3 of the creditors voting; and
 Claims of the majority vote amount to at least 3/5 of the total liabilities

A creditor whose claim is incurred within 90 days prior to the filing of the petition for suspension is not entitled to
vote.
Creditors not affected by the suspension order may refrain from attending the meeting and voting therein and he shall
not be bound by any agreement determined in the meeting. However, if they should join in the voting they shall be bound in
the same manner as are other creditors.
 Disapproval – the proceedings shall be terminated and the creditors shall be at liberty to enforce their rights.
REHABILITATION

 Types
 Voluntary – initiated by the debtor, upon showing that:
 The debtor is insolvent; and
 The viability of rehabilitation

 Involuntary - initiated by the creditor or group of creditors, if there is no genuine issue of fact or law on the claim/s of the
petitioner/s, and that
 No payments on the due and demandable debts have been made for at least 60 days; or
 That the debtor has failed generally to meet its liabilities as they fall due; or
 A creditor, other than 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.
REHABILITATION

 In voluntary (debtor-initiated) rehabilitation, the verified petition for rehabilitation is filed by:
 owner in case of a single proprietorship;
 majority of the partners in case of a partnership; or
 majority vote of the Board of directors or trustees and authorised by at least two-thirds of the outstanding capital stock or
members;.
 In involuntary (creditor-initiated) rehabilitation, a verified petition is filed by any creditor/s with an aggregate
claim of at least PHP1,000,000.00 or at least 25% of the subscribed capital stock or partners’ contributions,
whichever is higher, if: (a) there is no genuine issue of fact or law on the claim/s, and that due and demandable
payments have not been made for at least 60 days, or that the debtor failed to meet its liabilities due; or (b) a
creditor, other than the petitioner/s, initiated foreclosure proceedings that will prevent the debtor from paying its
debts as they become due or will render it insolvent.
REHABILITATION

 COMMENCEMENT/STAY ORDER: the court shall issue a Commencement Order which shall include a Stay
Order, which shall:
 Suspend all actions or proceedings, in court or otherwise for the enforcement of claims against the debtor;
 Suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor;
 Prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary
course of business; and
 Prohibit the debtor from making any payment of its liabilities outstanding as of commencement date except as may be provided for
by law.
 Commencement Date: the date when the court issues the Commencement Order retroactive to the date of filing of
the petition for voluntary or involuntary proceedings.
 The Commencement Order is issued within 5 days from the filing of the petition.
 Duration: the entire duration of the rehabilitation proceeding but may be lifted if there is no substantial likelihood for
the debtor to be successfully rehabilitated.
REHABILITATION

 EFFECT OF STAY ORDER ON SECURED CREDITS: the preference of creditors is retained, but the
enforcement of such preference is suspended.
 EXCEPTIONS TO THE STAY ORDER:
 Cases already pending appeal in the SC as of commencement date.
 Cases pending or filed at a specialized court or quasi-judicial agency.
 Enforcement of claims against sureties and other persons solidarily liable with the debtor, and third party or
accommodation mortgagors as well as issuers of letters of credit, unless the property subject of the third party or
accommodation mortgage is necessary for the rehabilitation of the debtors.
REHABILITATION

 EXCEPTIONS TO THE STAY ORDER:

 Any form of action of customers or clients of a securities market participant to recover or otherwise claim moneys and
securities entrusted to the latter in the ordinary course of the latter’s business as well as any action of such securities
market participant or the appropriate regulatory agency or self-regulatory organization to pay or settle such claims or
liabilities.
 Actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin
agreement for the settlement of securities transactions
 The clearing and settlement of financial transactions through facilities of a clearing agency or similar entities, as well as any
form of actions of such agencies or entities to reimburse themselves for any transactions settled for the debtor.
 Any criminal action against individual debtor or owner, partner, director, or officer of a debtor shall not be affected by any
proceeding commenced under the FRIA.
REHABILITATION

 COURT ACTION: Upon filing of the petition for rehabilitation, the court may:
 Give due course to the petition if:
 The debtor is insolvent; and
 There is substantial likelihood for the debtor to be successfully rehabilitated

 Deny the petition, if any of the following are present:

 When the debtor is not insolvent;
 The petition is a sham filing intended only to delay the enforcement of the rights of the creditors
 The petition/rehabilitation plan/and the attachments are materially false or misleading statements; or
 The debtor has committed acts of misrepresentation in fraud of creditors

 Covert the proceedings to liquidation – there is no substantial likelihood for the debtor to be successfully rehabilitated
REHABILITATION

 WHO WILL MANAGE THE BUSINESS OF THE DEBTOR: during the rehabilitation
proceeding, the management shall be done by the:
 Existing Board and/or management; or
 Upon motion, the court may appoint:
 Rehabilitation Receiver; or
 Management Committee
REHABILITATION

 GROUNDS FOR APPOINTMENT OF A REHABLITATION RECEIVER/MANAGEMENT

COMMITTEE:
 Actual or eminent danger of dissipation, loss, wastage or destruction of the debtor’s assets or properties;
 Paralysis of the business operations of the debtor; or
 (a) Gross mismanagement of the debtor, or (b) fraud or (c) other wrongful conduct on the part of, or gross or willful
violation of the FRIA by existing management of the debtor, owner, partner, director, officer of representative/s in the
management of the debtor.
REHABILITATION

 REHABILITATION RECEIVER: appointed by the court with the principal duty of:
 Preserving the value of the assets of the debtor during the rehabilitation proceedings,
 Determining the viability of the rehabilitation of the debtor,
 Preparing and recommending a Rehabilitation Plan to the court, and
 Implementing the approved Rehabilitation Plan.

 Qualifications:
 Citizen of the Philippines
 Resident of the Philippines in the 6 months immediately preceding the nomination
 Has the requisite knowledge of insolvency and commercial laws
 No conflict of interest
REHABILITATION

 MANAGEMENT COMMITTEE: when appointed by the court, shall take the place of the management and the governing
body of the debtor and assume their rights and responsibilities.
 CREDITORS’ COMMITTEE: creditors belonging to a class may formally organize a committee, or as a body create a
committee composed of each class of creditors, such as:
 Secured creditors;
 Unsecured creditors
 Trade creditors and suppliers; and
 Employees of the debtor.
 The ROLE of the creditors’ committee is to assist the rehabilitation receiver in communicating with the creditors and shall be
the primary liaison between the rehabilitation receiver and the creditors
 They cannot exercise or waive any right or give any consent on behalf of any creditor unless specifically authorized in writing by
such creditor.
REHABILITATION

 ACTS OF DEBTORS/OWNERS/PARTNERS/DIRECTORS OR OFFICERS which may subject him/them to liability:

 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
 Conceal or authorize or approve concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.

 Extent of Liability: whichever is higher between:

 Double the value of the property sold, embezzled or disposed; or
 Double the value of the transaction involved
REHABILITATION

 Approval required in a Rehabilitation Plan:

 Creditors representing more than 50% of total claims and the confirmation of the court; or
 The court even without approval of the creditors or even over the objections of the creditors, in the following cases:
 The Rehabilitation Plan complies with the requirements of the FRIA;
 The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
 The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as a result of the Rehabilitation Plan; and
 The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which has a net present value greater than that which they would
have received if the debtor were under liquidation.
REHABILITATION

 Submission of the Rehabilitation Plan: If the Rehabilitation Plan is approved, the rehabilitation receiver shall submit the
same to the court for confirmation. Within 5 days from receipt of the Rehabilitation Plan, the court shall notify the creditors
that the Rehabilitation Plan has been submitted for confirmation, that any creditor may obtain copies of the Rehabilitation Plan
and that any creditor may file an objection thereto.
 Objection of creditors: may be filed within 20 days from receipt of notice from the court that the Rehabilitation Plan has
been submitted for confirmation, on the following grounds:
 The creditors’ support was induced by fraud;
 Documents or data relied upon in the plan are materially false or misleading; or
 The plan is in fact not supported by the voting creditors.
REHABILITATION

 Confirmation of the Rehabilitation Plan: the court shall issue an order confirming the Rehabilitation Plan if:
 No objections are filed within the relevant period or,
 If objections are filed, the court finds them lacking in merit, or
 The court determines that the basis for the objection has been cured, or d
 The court determines that the debtor has complied with an order to cure the objection.
 The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims if the Rehabilitation Plan has made
adequate provisions for paying such claims.
 For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the court shall have the power to approve or
implement the Rehabilitation Plan despite the lack of approval, or objection from the owners, partners or stockholders of the insolvent
debtor: Provided, That the terms thereof are necessary to restore the financial well-being and viability of the insolvent debtor.
 Period of Confirmation: must be within 1 year from the date of filing the petition.
 If no plan is confirmed within the said period, the proceedings may upon motion, or motu propio, be converted into one for the
liquidation of the debtor.
REHABILITATION

 Cram Down Effect: the rehabilitation plan approved by the court shall be binding upon the:
 Debtor and
 All persons who may be affected by it, including creditors, whether or not such persons:
 have participated in the proceedings,
 opposed the plan, or
 whether or not the claims have been scheduled.
REHABILITATION

 Pre-negotiated Rehabilitation
 A pre-negotiated rehabilitation plan may be approved by the court if it is approved or endorsed by: creditors holding at least 2/3 of the total
liabilities, including
 Secured creditors holding at least 50% of the total secured claims; and
 Unsecured creditors holding at least 50% of the total unsecured claims.

 Who may file?

 The debtor by him/itself; or
 The debtor with any of its/his creditors
REHABILITATION

 Issuance of Order: Within five (5) working days, and after determination that the petition is sufficient in form and substance,
the court shall issue an Order
 Approval of the Plan: Within 10 days from the date of the second publication of the Order, the court shall approve the
Rehabilitation Plan unless a creditor or other interested party submits an objection to it.
REHABILITATION

 Grounds for Objection: Any creditor or other interested party may submit to the court a verified objection to the petition
or the Rehabilitation Plan not later than 8 days from the date of the second publication of the Order.
 The objections shall be limited to the following:
 The allegations in the petition or the Rehabilitation Plan or the attachments thereto are materially false or misleading;
 The majority of any class of creditors do not in fact support the Rehabilitation Plan;
 The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim in not categorically declared as a contested
claim; or
 The support of the creditors, or any of them was induced by fraud.

 Hearing on Objections: After receipt of an objection, the court shall set the same for hearing. The date of the hearing shall
be no earlier than 20 days and no later than 30 days from the date of the second publication of the Order.
REHABILITATION

 Court Actions:
 Direct the debtor, when feasible to cure the defect within a reasonable period, if the court finds merit in the objection.
 Convert the proceedings into liquidation, if the court determines that:
 the debtor or creditors supporting the Rehabilitation Plan acted in bad faith, or

 that the objection is non-curable

 Approve the rehabilitation plan if the court finds that

 The objection has no substantial merit, or

 That the same has been cured.

 Period for Approval of Rehabilitation Plan: The court shall have a maximum period of 120 days from the date of the filing
of the petition to approve the Rehabilitation Plan.
 If the court fails to act within the said period, the Rehabilitation Plan shall be deemed approved.
REHABILITATION

 Out-of-court Rehabilitation
 Minimum requirements:
 The debtor must agree to the out-of-court or informal restructuring/workout agreement or rehabilitation plan;
 Approved by creditors:
 Representing at least 67% of the secured obligations;
 Representing at least 75% of the unsecured obligations; and
 Holding at least 85% of the total liabilities, secured and unsecured
REHABILITATION

 STANDSTILL PERIOD: A standstill period that may be agreed upon by the parties pending negotiation and finalization of
the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan and it shall be effective and enforceable
not only against the contracting parties but also against the other creditors, if:
 Such agreement is approved by creditors representing more than fifty percent (50%) of the total liabilities of the debtor;
 Notice thereof is publishing in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; and
 The standstill period does not exceed one hundred twenty (120) days from the date of effectivity.

 The notice must invite creditors to participate in the negotiation for out-of-court rehabilitation or restructuring agreement and
notify them that said agreement will be binding on all creditors if the required majority votes are met.
REHABILITATION

 CRAM DOWN EFFECT: A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant
to an informal workout framework shall have the same legal effect as confirmation of a Plan as earlier
discussed.
 Publication requirement: The notice of the Rehabilitation Plan or restructuring agreement or Plan shall be
published once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the
Philippines.
 Effectivity: The Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days
from the date of the last publication of the notice thereof.
LIQUIDATION

 Liquidation is the proceeding where:

 Claims are filed; and
 The assets of the insolvent debtor are disposed; and the
 Proceeds are divided among the creditors.
LIQUIDATION

 LIQUDATOR: is one appointed by the court who will facilitate the liquidation proceedings. He may likewise be
appointed by the creditors who have filed their claims within the period set by court.
LIQUIDATION
 vs. Suspension of Payments

SUSPENSION OF PAYMENTS LIQUIDATION

Debtor has sufficient assets to cover liabilities Debtor is already insolvent
Payment of obligations is stayed Obligations are discharged
Applies only to individual debtors Also applies to business organizations
Filed by the debtor May be initiated by the creditors
No minimum amount of liabilities Debt of the individual must be at least P500,000
in voluntary liquidation and more than P500,000
in involuntary liquidation
Rules on concurrence and preference of credits Applicable
DO NOT apply
LIQUIDATION
 Voluntary vs. Involuntary Liquidation For Individual Debtors

VOLUNTARY INVOLUNTARY
Acts of insolvency need not be alleged and proved Creditors must prove acts of insolvency*
The individual debtor files the petition A creditor or group of creditors files the petition
The debtor is not absent as he is the one who files the Apples even in the case of an absent debtor (one who
petition resides or has departed from the Philippines, cannot
be found or conceals himself)
Posting of bond by creditors not required Posting of bond by creditors is required
Liquidation order issued without trial Liquidation order issued only after trial

Amount of debt by the individual debtor is more than Amount of debt by the individual debtor is at least
P500,000 P500,000
LIQUIDATION

 ACTS OF INSOLVENCY:
 That such person is about to depart or has departed from the Republic of the Philippines, with intent to defraud his
creditors;
 That being absent from the Republic of the Philippines, with intent to defraud his creditors, he remains absent;
 That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying the liquidation or of
defrauding his creditors;
 That he conceals, or is removing, any of his property to avoid its being attached or taken on legal process;
 That he has suffered his property to remain under attachment or legal process for three (3) days for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;
 That he has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or
delaying the liquidation or of defrauding any creditors or claimant;
LIQUIDATION

 ACTS OF INSOLVENCY:
 That he has willfully suffered judgment to be taken against him by default for the purpose of hindering or delaying the liquidation or of
defrauding his creditors;
 That he has suffered or procured his property to be taken on legal process with intent to give a preference to one or more of his creditors
and thereby hinder or delay the liquidation or defraud any one of his creditors;
 That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or credits with intent to hinder or delay the
liquidation or defraud his creditors;
 That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or transfer of his estate, property, rights or credits;
 That being a merchant or tradesman, he has generally defaulted in the payment of his current obligations for a period of thirty (30) days;
 That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited with him or received by him in a fiduciary; and
 That an execution having been issued against him on final judgment for money, he shall have been found to be without sufficient property
subject to execution to satisfy the judgment.
LIQUIDATION

 CONVERSION BY THE COURT INTO LIQUIDATION PROCEEDINGS: During the pendency of court-supervised
or pre-negotiated rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation
proceedings, in the following cases:
 When a petition for rehabilitation is filed and it is established that the debtor is indeed insolvent but there is no substantial likelihood for the
debtor to be successfully rehabilitated.
 If no rehabilitation plan is confirmed within a period of 1 year from the filing of the petition for rehabilitation.
 Failure of rehabilitation or dismissal of the petition for rehabilitation on technical grounds; or
 Upon filing of the verified motion of the debtor during the pendency of the court-supervised or pre-negotiated rehabilitation proceedings.
LIQUIDATION

LIQUIDATION OF JURIDICAL PERSONS:

 Voluntary Liquidation – is one initiated by the debtor by filing a verified petition with the court.
 Involuntary Liquidation – is one initiated by 3 or more creditors the aggregate of whose claims is the higher between:
 At least P1,000,000; or
 At least 25% of the subscribed capital stock or partners’ contributions

 Requirements for Involuntary liquidation:

1. There is no genuine issue of fact or law on the claims/s of the petitioner/s, and that
 the due and demandable payments thereon have not been made for at least 180 days or
 that the debtor has failed generally to meet its liabilities as they fall due; and

2. There is no substantial likelihood that the debtor may be rehabilitated.

LIQUIDATION

 LIQUIDATION ORDER: includes, among others:

 declare the debtor insolvent;
 order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
 order the sheriff to take possession and control of all the property of the debtor, except those that may be exempt from execution;
 order the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks;
 direct payments of any claims and conveyance of any property due the debtor to the liquidator;
 prohibit payments by the debtor and the transfer of any property by the debtor;
 direct all creditors to file their claims with the liquidator within the period set by the rules of procedure;
 authorize the payment of administrative expenses as they become due;
 state that the debtor and creditors who are not petitioner/s may submit the names of other nominees to the position of liquidator; and
 set the case for hearing for the election and appointment of the liquidator, which date shall not be less than thirty (30) days nor more than
forty-five (45) days from the date of the last publication.
LIQUIDATION

 RIGHTS OF SECURED CREDITORS: the liquidation order will not affect the right of a secured creditor to enforce his lien in
accordance with the applicable contract or law. He may:
 waive his right under the security or lien, prove his claim in the liquidation proceedings and share in the distribution of assets of the debtor; or
 Maintain his rights under the security or lien. In which case: c. The value of the property may be fixed in a manner agreed upon by the creditor and the
liquidator.
 Value is less than the claim – the liquidator may convey the property to the creditor and the latter will be admitted in the liquidation proceedings as a creditor for the balance
 Value exceeds the claim – the liquidator may convey the property to the creditor and waive the debtor’s right of redemption upon receiving the excess from the creditor. d.
The liquidator may sell the property and satisfy the secured creditor’s entire claim from the proceeds of the sale; or
 The secured creditor may enforce the lien and foreclose on the property pursuant to applicable laws.
LIQUIDATION

 LIQUIDATOR:
 Election of Liquidator: Only creditors who have filed their claims within the period set by the court, and whose claims are not barred
by the statute of limitations, will be allowed to vote in the election of the liquidator.
 A secured creditor will not be allowed to vote, unless:
1. he waives his security or lien; or
2. has the value of the property subject of his security or lien fixed by agreement with the liquidator, and is admitted for the balance of his claim.

 The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the highest number of votes cast in terms of
amount of claims, and who is qualified shall be appointed as the liquidator.
LIQUIDATION

 Court-Appointed Liquidator: The court may appoint the liquidator if:

 A rehabilitation receiver, who was administering the debtor prior to the commencement of the liquidation, may also be appointed as a
liquidator.
 on the date set for the election of the liquidator, the creditors do not attend;

 the creditors who attend, fail or refuse to elect a liquidator;

 after being elected, the liquidator fails to qualify; or
 a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court may instead set another hearing of the election of the
liquidator.

 Qualifications of the Liquidator: The liquidator shall have the qualifications enumerated above for rehabilitation receivers.
 Removal: He may be removed at any time by the court for cause, either motu propio or upon motion of any creditor entitled to vote
for the election of the liquidator.
LIQUIDATION

 DETERMINATION OF CLAIMS
 Registry of Claims: Within twenty (20) days from his assumption into office the liquidator shall prepare a preliminary registry of
claims of secured and unsecured creditors.
 Secured creditors who have waived their security or lien, or have fixed the value of the property subject of their security or lien by
agreement with the liquidator and is admitted as a creditor for the balance, shall be considered as unsecured creditors.
 The liquidator shall make the registry available for public inspection and provide publication notice to creditors, individual debtors
owner/s of the sole proprietorship-debtor, the partners of the partnership-debtor and shareholders or members of the corporation-
debtor, on where and when they may inspect it. All claims must be duly proven before being paid.
 Right of Set-off: If the debtor and creditor are mutually debtor and creditor of each other one debt shall be set off against the other,
and only the balance, if any shall be allowed in the liquidation proceedings.
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 Opposition or Challenge to Claims: Within thirty (30) days from the expiration of the period for filing of applications for
recognition of claims, creditors, individual debtors, owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and
shareholders or members of the corporation -debtor and other interested parties may submit a challenge to claim or claims to the
court, serving a certified copy on the liquidator and the creditor holding the challenged claim. Upon the expiration of the (30) day
period, the rehabilitation receiver shall submit to the court the registry of claims containing the undisputed claims that have not been
subject to challenge. Such claims shall become final upon the filling of the register and may be subsequently set aside only on grounds or
fraud, accident, mistake or inexcusable neglect.
 Submission of Disputed Claims to the Court: The liquidator shall resolve disputed claims and submit his findings thereon to the
court for final approval. The liquidator may disallow claims.
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 THE LIQUIDATION PLAN: Within three (3) months from his assumption into office, the Liquidator shall submit a Liquidation Plan
to the court. The Liquidation Plan shall, as a minimum enumerate:
 All the assets of the debtor
 A schedule of liquidation of the assets and
 Payment of the claims.

 Exempt Property to be Set Apart: It shall be the duty of the court, upon petition and after hearing, to exempt and set apart, for the
use and benefit of the said insolvent, such real and personal property as is by law exempt from execution, and also a homestead; but no
such petition shall be heard as aforesaid until it is first proved that notice of the hearing of the application therefor has been duly given
by the clerk, by causing such notice to be posted it at least three (3) public places in the province or city at least ten (10) days prior to
the time of such hearing, which notice shall set forth the name of the said insolvent debtor, and the time and place appointed for the
hearing of such application, and shall briefly indicate the homestead sought to be exempted or the property sought to be set aside; and
the decree must show that such proof was made to the satisfaction of the court, and shall be conclusive evidence of that fact.
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 Sale of Assets in Liquidation: The liquidator may sell the unencumbered assets of the debtor and convert the same into money.
 General Rule: The sale shall be made at public auction.
 Exceptions: A private sale may be allowed with the approval of the court if;
1. the goods to be sold are of a perishable nature, or are liable to quickly deteriorate in value, or are disproportionately expensive to keep or maintain; or
2. the private sale is for the best interest of the debtor and his creditors.

 With the approval of the court, unencumbered property of the debtor may also be conveyed to a creditor in satisfaction of his claim or
part thereof.
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 Order Removing the Debtor from the List of Registered Entitles at the Securities and Exchange Commission: Upon
determining that the liquidation has been completed, the court shall issue an Order approving the report and ordering the SEC to
remove the debtor from the registry of legal entities.
 Termination of Proceedings: Upon receipt of evidence showing that the debtor has been removed from the registry of legal entities
at the SEC. The court shall issue an Order terminating the proceedings.