Section 4. Definition of Terms.

- As used in this Act, the term: A group of debtors may jointly file a petition for rehabilitation
under this Act when one or more of its members foresee the
(c) Claim shall refer to all claims or demands of impossibility of meeting debts when they respectively fall due,
whatever nature or character against the debtor or its and the financial distress would likely adversely affect the
property, whether for money or otherwise, liquidated or financial condition and/or operations of the other members of
unliquidated, fixed or contingent, matured or the group and/or the participation of the other members of the
unmatured, disputed or undisputed, including, but not group is essential under the terms and conditions of the
limited to; (1) all claims of the government, whether proposed Rehabilitation Plan.
national or local, including taxes, tariffs and customs
duties; and (2) claims against directors and officers of Section 5. Exclusions. - The term debtor does not include
the debtor arising from acts done in the discharge of banks, insurance companies, pre-need companies, and
their functions falling within the scope of their national and local government agencies or units.
authority: Provided, That, this inclusion does not
prohibit the creditors or third parties from filing cases For purposes of this section:
against the directors and officers acting in their
personal capacities. (a) Bank shall refer to any duly licensed bank or quasi-
bank that is potentially or actually subject to
(p) Insolvent shall refer to the financial condition of a conservatorship, receivership or liquidation
debtor that is generally unable to pay its or his liabilities proceedings under the New Central Bank Act (Republic
as they fall due in the ordinary course of business or Act No. 7653) or successor legislation;
has liabilities that are greater than its or his assets.
(b) Insurance company shall refer to those companies
(gg) Rehabilitation shall refer to the restoration of the that are potentially or actually subject to insolvency
debtor to a condition of successful operation and proceedings under the Insurance Code (Presidential
solvency, if it is shown that its continuance of operation Decree No. 1460) or successor legislation; and
is economically feasible and its creditors can recover
by way of the present value of payments projected in (c) Pre-need company shall refer to any corporation
the plan, more if the debtor continues as a going authorized/licensed to sell or offer to sell pre-need
concern than if it is immediately liquidated. plans.

(rr) Voluntary proceedings shall refer to proceedings Provided, That government financial institutions other than
initiated by the debtor. banks and government-owned or controlled corporations shall
be covered by this Act, unless their specific charter provides (b) the circumstances sufficient to support a petition to
otherwise. initiate involuntary rehabilitation proceedings under
Section 13 of this Act;
(2) Involuntary Proceedings.
(c) the specific relief sought under this Act;
Section 13. Circumstances Necessary to Initiate Involuntary
Proceedings. - Any creditor or group of creditors with a claim (d) a Rehabilitation Plan;
of, or the aggregate of whose claims is, at least One Million
Pesos (Php1,000,000.00) or at least twenty-five percent (e) the names of at least three (3) nominees to the
(25%) of the subscribed capital stock or partners' position of rehabilitation receiver;
contributions, whichever is higher, may initiate involuntary
proceedings against the debtor by filing a petition for (f) other information that may be required under this Act
rehabilitation with the court if: depending on the form of relief requested; and

(a) there is no genuine issue of fact on law on the (g) other documents required to be filed with the
claim/s of the petitioner/s, and that the due and petition pursuant to this Act and the rules of procedure
demandable payments thereon have not been made as may be promulgated by the Supreme Court.
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 Section 18. Exceptions to the Stay or Suspension Order. -
foreclosure proceedings against the debtor that will The Stay or Suspension Order shall not apply:
prevent the debtor from paying its debts as they
become due or will render it insolvent. (a) to cases already pending appeal in the Supreme
Court as of commencement date Provided, That any
Section 14. Petition to Initiate Involuntary Proceedings. - The final and executory judgment arising from such appeal
creditor/s' petition for rehabilitation shall be verified to shall be referred to the court for appropriate action;
establish the substantial likelihood that the debtor may be
rehabilitated, and include: (b) subject to the discretion of the court, to cases
pending or filed at a specialized court or quasi-judicial
(a) identification of the debtor its principal activities and agency which, upon determination by the court is
its address; capable of resolving the claim more quickly, fairly and
efficiently than the court: Provided, That any final and by the appropriate regulatory agency like the Bangko
executory judgment of such court or agency shall be Sentral ng Pilipinas (BSP) and the SEC as well as any
referred to the court and shall be treated as a non- form of actions of such agencies or entities to
disputed claim; reimburse themselves for any transactions settled for
the debtor; and
(c) to the enforcement of claims against sureties and
other persons solidarily liable with the debtor, and third (g) any criminal action against individual debtor or
party or accommodation mortgagors as well as issuers owner, partner, director or officer of a debtor shall not
of letters of credit, unless the property subject of the be affected by any proceeding commend under this
third party or accommodation mortgage is necessary Act.
for the rehabilitation of the debtor as determined by the
court upon recommendation by the rehabilitation (C) The Rehabilitation Receiver, Management Committee
receiver; and Creditors' Committee.

(d) to any form of action of customers or clients of a Section 28.Who May Serve as a Rehabilitation Receiver. -
securities market participant to recover or otherwise Any qualified natural or juridical person may serve as a
claim moneys and securities entrusted to the latter in rehabilitation receiver: Provided, That if the rehabilitation
the ordinary course of the latter's business as well as receiver is a juridical entity, it must designate a natural
any action of such securities market participant or the person/s who possess/es all the qualifications and none of the
appropriate regulatory agency or self-regulatory disqualification’s as its representative, it being understood that
organization to pay or settle such claims or liabilities; the juridical entity and the representative/s are solidarily liable
for all obligations and responsibilities of the rehabilitation
(e) to the actions of a licensed broker or dealer to sell receiver.
pledged securities of a debtor pursuant to a securities
pledge or margin agreement for the settlement of Section 37.Role of the Management Committee. – When
securities transactions in accordance with the appointed pursuant to the foregoing section, the management
provisions of the Securities Regulation Code and its committee shall take the place of the management and the
implementing rules and regulations; governing body of the debtor and assume their rights and
responsibilities.
(f) the clearing and settlement of financial transactions
through the facilities of a clearing agency or similar
entities duly authorized, registered and/or recognized
The specific powers and duties of the management fifty percent (50%) of the total secured claims of the debtor
committee, whose members shall be considered as officers of and unsecured creditors holding more than fifty percent (50%)
the court, shall be prescribed by the procedural rules. of the total unsecured claims of the debtor. The petition shall
include as a minimum:
Section 42.Creditors' Committee. - After the creditors'
meeting called pursuant to Section 63 hereof, the creditors (a) a schedule of the debtor's debts and liabilities;
belonging to a class may formally organize a committee
among (b) an inventory of the debtor's assets;

themselves. In addition, the creditors may, as a body, agree to (c) the pre-negotiated Rehabilitation Plan, including the
form a creditors' committee composed of a representative names of at least three (3) qualified nominees for
from each class of creditors, such as the following: rehabilitation receiver; and

(a) Secured creditors; (d) a summary of disputed claims against the debtor
(b) Unsecured creditors; and a report on the provisioning of funds to account for
(c) Trade creditors and suppliers; and appropriate payments should any such claims be ruled
(d) Employees of the debtor. valid or their amounts adjusted.

In the . election of the creditors' representatives, the CHAPTER IV

rehabilitation receiver or his representative shall attend such OUT-OF-COURT OR INFORMAL RESTRUCTURING
meeting and extend the appropriate assistance as may be AGREEMENTS OR REHABILITATION PLANS
defined in the procedural rules.
Section 84. Minimum Requirements of Out-of-Court or
CHAPTER III Informal Restructuring Agreements and Rehabilitation Plans. -
PRE-NEGOTIATED REHABILITATION For an out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan to qualify under this chapter,
Section 76. Petition by Debtor. - An insolvent debtor, by itself it must meet the following minimum requirements:
or jointly with any of its creditors, may file a verified petition
with the court for the approval of a pre-negotiated (a) The debtor must agree to the out-of-court or
Rehabilitation Plan which has been endorsed or approved by informal restructuring/workout agreement or
creditors holding at least two-thirds (2/3) of the total liabilities Rehabilitation Plan;
of the debtor, including secured creditors holding more than
 (b) It must be approved by creditors representing at CHAPTERV
least sixty-seven (67%) of the secured obligations of LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS
the debtor;
Section 90. Voluntary Liquidation. - An insolvent debtor may
(c) It must be approved by creditors representing at apply for liquidation by filing a petition for liquidation with the
least seventy-five percent (75%) of the unsecured court. The petition shall be verified, shall establish the
obligations of the debtor; and insolvency of the debtor and shall contain, whether as an
attachment or as part of the body of the petition;
(d) It must be approved by creditors holding at least
eighty-five percent (85%) of the total liabilities, secured (a) a schedule of the debtor's debts and liabilities
and unsecured, of the debtor. including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if any;
Section 85. Standstill Period. - A standstill period that may be
agreed upon by the parties pending negotiation and (b) an inventory of all its assets including receivables
finalization of the out-of-court or informal restructuring/workout and claims against third parties; and
agreement or Rehabilitation Plan contemplated herein shall
be effective and enforceable not only against the contracting (c) the names of at least three (3) nominees to the
parties but also against the other creditors: Provided, That (a) position of liquidator.
such agreement is approved by creditors representing more
than fifty percent (50%) of the total liabilities of the debtor; (b) At any time during the pendency of court-supervised or pre-
notice thereof is publishing in a newspaper of general negotiated rehabilitation proceedings, the debtor may also
circulation in the Philippines once a week for two (2) initiate liquidation proceedings by filing a motion in the same
consecutive weeks; and (c) the standstill period does not court where the rehabilitation proceedings are pending to
exceed one hundred twenty (120) days from the date of convert the rehabilitation proceedings into liquidation
effectivity. The notice must invite creditors to participate in the proceedings. The motion shall be verified, shall contain or set
negotiation for out-of-court rehabilitation or restructuring forth the same matters required in the preceding paragraph,
agreement and notify them that said agreement will be and state that the debtor is seeking immediate dissolution and
binding on all creditors if the required majority votes termination of its corporate existence.
prescribed in Section 84 of this Act are met.
If the petition or the motion, as the case may be, is sufficient
in form and substance, the court shall issue a Liquidation
Order mentioned in Section 112 hereof.
Section 91. Involuntary Liquidation. - Three (3) or more If the petition or motion is sufficient in form and substance, the
creditors the aggregate of whose claims is at least either One court shall issue an Order:
million pesos (Php1,000,000,00) or at least twenty-five
percent (25%0 of the subscribed capital stock or partner's (1) directing the publication of the petition or motion in
contributions of the debtor, whichever is higher, may apply for a newspaper of general circulation once a week for two
and seek the liquidation of an insolvent debtor by filing a (2) consecutive weeks; and
petition for liquidation of the debtor with the court. The petition
shall show that: (2) directing the debtor and all creditors who are not the
petitioners to file their comment on the petition or
(a) there is no genuine issue of fact or law on the motion within fifteen (15) days from the date of last
claims/s of the petitioner/s, and that the due and publication.
demandable payments thereon have not been made
for at least one hundred eighty (180) days or that the If, after considering the comments filed, the court determines
debtor has failed generally to meet its liabilities as they that the petition or motion is meritorious, it shall issue the
fall due; and Liquidation Order mentioned in Section 112 hereof.

(b) there is no substantial likelihood that the debtor may Section 92. Conversion by the Court into Liquidation
be rehabilitated. Proceedings. - During the pendency of court-supervised or
pre-negotiated rehabilitation proceedings, the court may order
At any time during the pendency of or after a rehabilitation the conversion of rehabilitation proceedings to liquidation
court-supervised or pre-negotiated rehabilitation proceedings, proceedings pursuant to (a) Section 25(c) of this Act; or (b)
three (3) or more creditors whose claims is at least either One Section 72 of this Act; or (c) Section 75 of this Act; or (d)
million pesos (Php1,000,000.00) or at least twenty-five Section 90 of this Act; or at any other time upon the
percent (25%) of the subscribed capital or partner's recommendation of the rehabilitation receiver that the
contributions of the debtor, whichever is higher, may also rehabilitation of the debtor is not feasible. Thereupon, the
initiate liquidation proceedings by filing a motion in the same court shall issue the Liquidation Order mentioned in Section
court where the rehabilitation proceedings are pending to 112 hereof.
convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set
forth the same matters required in the preceding paragraph,
and state that the movants are seeking the immediate
liquidation of the debtor.
 CHAPTER VI file a verified petition for liquidation with the court of the
INSOLVENCY OF INDIVIDUAL DEBTORS province or city in which the individual debtor resides.

(A) Suspension of Payments. The following shall be considered acts of insolvency, and the
petition for liquidation shall set forth or allege at least one of
Section 94. Petition. - An individual debtor who, possessing such acts:
sufficient property to cover all his debts but foreseeing the
impossibility of meeting them when they respectively fall due, (a) That such person is about to depart or has departed
may file a verified petition that he be declared in the state of from the Republic of the Philippines, with intent to
suspension of payments by the court of the province or city in defraud his creditors;
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 (b) That being absent from the Republic of the
schedule of debts and liabilities; (b) an inventory of assess; Philippines, with intent to defraud his creditors, he
and (c) a proposed agreement with his creditors. remains absent;

(B) Voluntary Liquidation. (c) That he conceals himself to avoid the service of
legal process for the purpose of hindering or delaying
Section 103. Application. - An individual debtor whose the liquidation or of defrauding his creditors;
properties are not sufficient to cover his liabilities, and owing
debts exceeding Five hundred thousand pesos (d) That he conceals, or is removing, any of his
(Php500,000.00), may apply to be discharged from his debts property to avoid its being attached or taken on legal
and liabilities by filing a verified petition with the court of the process;
province or city in which he has resided for six (6) months
prior to the filing of such petition. He shall attach to his petition (e) That he has suffered his property to remain under
a schedule of debts and liabilities and an inventory of assets. attachment or legal process for three (3) days for the
The filing of such petition shall be an act of insolvency. purpose of hindering or delaying the liquidation or of
defrauding his creditors;
(C) In voluntary Liquidation.
(f) That he has confessed or offered to allow judgment
Section 105. Petition; Acts of Insolvency. - Any creditor or in favor of any creditor or claimant for the purpose of
group of creditors with a claim of, or with claims aggregating hindering or delaying the liquidation or of defrauding
at least Five hundred thousand pesos (Php500, 000.00) may any creditors or claimant;
(g) That he has willfully suffered judgment to be taken The petitioning creditor/s shall post a bond in such as the
against him by default for the purpose of hindering or court shall direct, conditioned that if the petition for liquidation
delaying the liquidation or of defrauding his creditors; is dismissed by the court, or withdrawn by the petitioner, or if
the debtor shall not be declared an insolvent the petitioners
(h) That he has suffered or procured his property to be will pay to the debtor all costs, expenses, damages
taken on legal process with intent to give a preference occasioned by the proceedings and attorney's fees.
to one or more of his creditors and thereby hinder or
delay the liquidation or defraud any one of his creditors;

(i) 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;

(j) That he has, in contemplation of insolvency, made

any payment, gift, grant, sale, conveyance or transfer
of his estate, property, rights or credits;

(k) That being a merchant or tradesman, he has

generally defaulted in the payment of his current
obligations for a period of thirty (30) days;

(l) 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

(m) 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.