Title XVI.

- PLEDGE, MORTGAGE AND ANTICHRESIS

CHAPTER 1
PROVISIONS COMMON TO PLEDGE AND MORTGAGE

Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:

(1) That they be constituted to secure the fulfillment of a principal obligation;

(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;

(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.

Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property. (1857)

Art. 2086. The provisions of Article 2052 are applicable to a pledge or mortgage. (n)

Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes
due, the things in which the pledge or mortgage consists may be alienated for the payment to the
creditor. (1858)

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void. (1859a)

Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the
successors in interest of the debtor or of the creditor.

Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.

Neither can the creditor's heir who received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of the other heirs who have not been paid.

From these provisions is expected the case in which, there being several things given in mortgage
or pledge, each one of them guarantees only a determinate portion of the credit.

The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the
portion of the debt for which each thing is specially answerable is satisfied. (1860)

Art. 2090. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are
not solidarily liable. (n)

Art. 2091. The contract of pledge or mortgage may secure all kinds of obligations, be they pure or
subject to a suspensive or resolutory condition. (1861)
Art. 2092. A promise to constitute a pledge or mortgage gives rise only to a personal action
between the contracting parties, without prejudice to the criminal responsibility incurred by him
who defrauds another, by offering in pledge or mortgage as unencumbered, things which he knew
were subject to some burden, or by misrepresenting himself to be the owner of the same. (1862)
 CHAPTER 2
PLEDGE

Art. 2093. In addition to the requisites prescribed in Article 2085, it is necessary, in order to
constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor,
or of a third person by common agreement. (1863)

Art. 2094. All movables which are within commerce may be pledged, provided they are susceptible
of possession. (1864)

Art. 2095. Incorporeal rights, evidenced by negotiable instruments, bills of lading, shares of stock,
bonds, warehouse receipts and similar documents may also be pledged. The instrument proving
the right pledged shall be delivered to the creditor, and if negotiable, must be indorsed. (n)

Art. 2096. A pledge shall not take effect against third persons if a description of the thing pledged
and the date of the pledge do not appear in a public instrument. (1865a)

Art. 2097. With the consent of the pledgee, the thing pledged may be alienated by the pledgor or
owner, subject to the pledge. The ownership of the thing pledged is transmitted to the vendee or
transferee as soon as the pledgee consents to the alienation, but the latter shall continue in
possession. (n)

Art. 2098. The contract of pledge gives a right to the creditor to retain the thing in his possession
or in that of a third person to whom it has been delivered, until the debt is paid. (1866a)

Art. 2099. The creditor shall take care of the thing pledged with the diligence of a good father of
a family; he has a right to the reimbursement of the expenses made for its preservation, and is
liable for its loss or deterioration, in conformity with the provisions of this Code. (1867)

Art. 2100. The pledgee cannot deposit the thing pledged with a third person, unless there is a
stipulation authorizing him to do so.

The pledgee is responsible for the acts of his agents or employees with respect to the thing pledged.
(n)

Art. 2101. The pledgor has the same responsibility as a bailor in commodatum in the case under
Article 1951. (n)

Art. 2102. If the pledge earns or produces fruits, income, dividends, or interests, the creditor shall
compensate what he receives with those which are owing him; but if none are owing him, or insofar
as the amount may exceed that which is due, he shall apply it to the principal. Unless there is a
stipulation to the contrary, the pledge shall extend to the interest and earnings of the right pledged.

In case of a pledge of animals, their offspring shall pertain to the pledgor or owner of animals
pledged, but shall be subject to the pledge, if there is no stipulation to the contrary. (1868a)
Art. 2103. Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.

Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged
in order to recover it from, or defend it against a third person. (1869)

Art. 2104. The creditor cannot use the thing pledged, without the authority of the owner, and if he
should do so, or should misuse the thing in any other way, the owner may ask that it be judicially
or extrajudicially deposited. When the preservation of the thing pledged requires its use, it must
be used by the creditor but only for that purpose. (1870a)

Art. 2105. The debtor cannot ask for the return of the thing pledged against the will of the creditor,
unless and until he has paid the debt and its interest, with expenses in a proper case. (1871)

Art. 2106. If through the negligence or wilful act of the pledgee, the thing pledged is in danger of
being lost or impaired, the pledgor may require that it be deposited with a third person. (n)

Art. 2107. If there are reasonable grounds to fear the destruction or impairment of the thing
pledged, without the fault of the pledgee, the pledgor may demand the return of the thing, upon
offering another thing in pledge, provided the latter is of the same kind as the former and not of
inferior quality, and without prejudice to the right of the pledgee under the provisions of the
following article.

The pledgee is bound to advise the pledgor, without delay, of any danger to the thing pledged. (n)

Art. 2108. If, without the fault of the pledgee, there is danger of destruction, impairment, or
diminution in value of the thing pledged, he may cause the same to be sold at a public sale. The
proceeds of the auction shall be a security for the principal obligation in the same manner as the
thing originally pledged. (n)

Art. 2109. If the creditor is deceived on the substance or quality of the thing pledged, he may either
claim another thing in its stead, or demand immediate payment of the principal obligation. (n)

Art. 2110. If the thing pledged is returned by the pledgee to the pledgor or owner, the pledge is
extinguished. Any stipulation to the contrary shall be void.

If subsequent to the perfection of the pledge, the thing is in the possession of the pledgor or owner,
there is a prima facie presumption that the same has been returned by the pledgee. This same
presumption exists if the thing pledged is in the possession of a third person who has received it
from the pledgor or owner after the constitution of the pledge. (n)

Art. 2111. A statement in writing by the pledgee that he renounces or abandons the pledge is
sufficient to extinguish the pledge. For this purpose, neither the acceptance by the pledgor or
owner, nor the return of the thing pledged is necessary, the pledgee becoming a depositary. (n)

Art. 2112. The creditor to whom the credit has not been satisfied in due time, may proceed before
a Notary Public to the sale of the thing pledged. This sale shall be made at a public auction, and
with notification to the debtor and the owner of the thing pledged in a proper case, stating the
amount for which the public sale is to be held. If at the first auction the thing is not sold, a second
one with the same formalities shall be held; and if at the second auction there is no sale either, the
creditor may appropriate the thing pledged. In this case he shall be obliged to give an acquittance
for his entire claim. (1872a)

Art. 2113. At the public auction, the pledgor or owner may bid. He shall, moreover, have a better
right if he should offer the same terms as the highest bidder.

The pledgee may also bid, but his offer shall not be valid if he is the only bidder. (n)

Art. 2114. All bids at the public auction shall offer to pay the purchase price at once. If any other
bid is accepted, the pledgee is deemed to have been received the purchase price, as far as the
pledgor or owner is concerned. (n)

Art. 2115. The sale of the thing pledged shall extinguish the principal obligation, whether or not
the proceeds of the sale are equal to the amount of the principal obligation, interest and expenses
in a proper case. If the price of the sale is more than said amount, the debtor shall not be entitled
to the excess, unless it is otherwise agreed. If the price of the sale is less, neither shall the creditor
be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. (n)

Art. 2116. After the public auction, the pledgee shall promptly advise the pledgor or owner of the
result thereof. (n)

Art. 2117. Any third person who has any right in or to the thing pledged may satisfy the principal
obligation as soon as the latter becomes due and demandable.(n)

Art. 2118. If a credit which has been pledged becomes due before it is redeemed, the pledgee may
collect and receive the amount due. He shall apply the same to the payment of his claim, and
deliver the surplus, should there be any, to the pledgor. (n)

Art. 2119. If two or more things are pledged, the pledgee may choose which he will cause to be
sold, unless there is a stipulation to the contrary. He may demand the sale of only as many of the
things as are necessary for the payment of the debt. (n)

Art. 2120. If a third party secures an obligation by pledging his own movable property under the
provisions of Article 2085 he shall have the same rights as a guarantor under Articles 2066 to
2070, and Articles 2077 to 2081. He is not prejudiced by any waiver of defense by the principal
obligor. (n)

Art. 2121. Pledges created by operation of law, such as those referred to in Articles 546, 1731, and
1994, are governed by the foregoing articles on the possession, care and sale of the thing as well
as on the termination of the pledge. However, after payment of the debt and expenses, the
remainder of the price of the sale shall be delivered to the obligor. (n)
Art. 2122. A thing under a pledge by operation of law may be sold only after demand of the amount
for which the thing is retained. The public auction shall take place within one month after such
demand. If, without just grounds, the creditor does not cause the public sale to be held within such
period, the debtor may require the return of the thing. (n)

Art. 2123. With regard to pawnshops and other establishments, which are engaged in making
loans secured by pledges, the special laws and regulations concerning them shall be observed,
and subsidiarily, the provisions of this Title. (1873a)
 CHAPTER 3
MORTGAGE

Art. 2124. Only the following property may be the object of a contract of mortgage:

(1) Immovables;

(2) Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage. (1874a)

Art. 2125. In addition to the requisites stated in Article 2085, it is indispensable, in order that a
mortgage may be validly constituted, that the document in which it appears be recorded in the
Registry of Property. If the instrument is not recorded, the mortgage is nevertheless binding
between the parties.

The persons in whose favor the law establishes a mortgage have no other right than to demand the
execution and the recording of the document in which the mortgage is formalized. (1875a)

Art. 2126. The mortgage directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was
constituted. (1876)

Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits,
and the rents or income not yet received when the obligation becomes due, and to the amount of
the indemnity granted or owing to the proprietor from the insurers of the property mortgaged, or
in virtue of expropriation for public use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession of the mortgagor, or it passes into
the hands of a third person. (1877)

Art. 2128. The mortgage credit may be alienated or assigned to a third person, in whole or in part,
with the formalities required by law. (1878)

Art. 2129. The creditor may claim from a third person in possession of the mortgaged property,
the payment of the part of the credit secured by the property which said third person possesses, in
the terms and with the formalities which the law establishes. (1879)

Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be
void. (n)

Art. 2131. The form, extent and consequences of a mortgage, both as to its constitution,
modification and extinguishment, and as to other matters not included in this Chapter, shall be
governed by the provisions of the Mortgage Law and of the Land Registration Law. (1880a)
 CHAPTER 4
ANTICHRESIS

Art. 2132. By the contract of antichresis the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing,
and thereafter to the principal of his credit. (1881)

Art. 2133. The actual market value of the fruits at the time of the application thereof to the interest
and principal shall be the measure of such application. (n)

Art. 2134. The amount of the principal and of the interest shall be specified in writing; otherwise,
the contract of antichresis shall be void. (n)

Art. 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes and
charges upon the estate.

He is also bound to bear the expenses necessary for its preservation and repair.

The sums spent for the purposes stated in this article shall be deducted from the fruits. (1882)

Art. 2136. The debtor cannot reacquire the enjoyment of the immovable without first having totally
paid what he owes the creditor.

But the latter, in order to exempt himself from the obligations imposed upon him by the preceding
article, may always compel the debtor to enter again upon the enjoyment of the property, except
when there is a stipulation to the contrary. (1883)

Art. 2137. The creditor does not acquire the ownership of the real estate for non-payment of the
debt within the period agreed upon.

Every stipulation to the contrary shall be void. But the creditor may petition the court for the
payment of the debt or the sale of the real property. In this case, the Rules of Court on the
foreclosure of mortgages shall apply. (1884a)

Art. 2138. The contracting parties may stipulate that the interest upon the debt be compensated
with the fruits of the property which is the object of the antichresis, provided that if the value of
the fruits should exceed the amount of interest allowed by the laws against usury, the excess shall
be applied to the principal. (1885a)

Art. 2139. The last paragraph of Article 2085, and Articles 2089 to 2091 are applicable to this
contract. (1886a)
 CHAPTER 5
CHATTEL MORTGAGE

Art. 2140. By a chattel mortgage, personal property is recorded in the Chattel Mortgage Register
as a security for the performance of an obligation. If the movable, instead of being recorded, is
delivered to the creditor or a third person, the contract is a pledge and not a chattel mortgage. (n)

Art. 2141. The provisions of this Code on pledge, insofar as they are not in conflict with the Chattel
Mortgage Law shall be applicable to chattel mortgages. (n)
 REPUBLIC ACT NO. 6552
REALTY INSTALLMENT BUYER PROTECTION ACT
AN ACT TO PROVIDE PROTECTION TO BUYERS OF
REAL ESTATE ON INSTALLMENT PAYMENTS
Section 1. This Act shall be known as the “Realty Installment Buyer Act.”

Sec. 2. It is hereby declared a public policy to protect buyers of real estate on installment
payments against onerous and oppressive conditions.

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under Republic Act Numbered
Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of installments, the
buyer is entitled to the following rights in case he defaults in the payment of succeeding
installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this right shall be exercised by
the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the total payments
made, and, after five years of installments, an additional five per cent every year but not
to exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation
of the total number of installment payments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give
the buyer a grace period of not less than sixty days from the date the installment became
due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller
may cancel the contract after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act.

Sec. 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign
the same to another person or to reinstate the contract by updating the account during
the grace period and before actual cancellation of the contract. The deed of sale or
assignment shall be done by notarial act.

Sec. 6. The buyer shall have the right to pay in advance any installment or the full unpaid
balance of the purchase price any time without interest and to have such full payment of
the purchase price annotated in the certificate of title covering the property.

Sec. 7. Any stipulation in any contract hereafter entered into contrary to the provisions of
Sections 3, 4, 5 and 6, shall be null and void.

Sec. 8. If any provision of this Act is held invalid or unconstitutional, no other provision
shall be affected thereby.

Sec. 9. This Act shall take effect upon its approval.

 Acts No. 4122 Recto Law

AN ACT TO AMEND THE CIVIL CODE BY INSERTING BETWEEN SECTIONS

FOURTEEN HUNDRED AND FIFTY-FOUR AND FOURTEEN HUNDRED AND FIFTY-
FIVE, THEREOF A NEW SECTION, TO BE KNOWN AS SECTION FOURTEEN
HUNDRED AND FIFTY-FOUR-A.

Be it enacted by the Senate and House of Representatives of the Philippines in

Legislature assembled and by the authority of the same:

SECTION 1. The Civil Code is hereby amended by inserting between sections fourteen
hundred and fifty-four and fourteen hundred and fifty-five thereof a new section, to be
known as section fourteen hundred and fifty-four-A, which shall read as follows:

"SEC. 1454-A. In a contract for the sale of personal property payable in installments,
failure to pay two or more installments shall confer upon the vendor the right to cancel the
sale or foreclose the mortgage if one has been given on the property, without
reimbursement to the purchaser of the installments already paid, if there be an agreement
to this effect.

"However, if the vendor has chosen to foreclose the mortgage he shall have no further
action against the purchaser for the recovery of any unpaid balance owing by the same,
and any agreement to the contrary shall be null and void.

"The same rule shall apply to leases of personal property with option to purchase, when
the lessor has chosen to deprive the lessee of the enjoyment of such personal property."

SEC. 2. This Act shall take effect on its approval.

REPUBLIC ACT No. 10142

AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF

FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

CHAPTER I
GENERAL PROVISIONS

Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and Insolvency Act
(FRIA) of 2010".

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

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

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

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

(a) Administrative expenses shall refer to those reasonable and necessary expenses:

(1) incurred or arising from the filing of a petition under the provisions of
this Act;

(2) arising from, or in connection with, the conduct of the proceedings under
this Act, including those incurred for the rehabilitation or liquidation of the
debtor;
 (3) incurred in the ordinary course of business of the debtor after the
commencement date;

(4) for the payment of new obligations obtained after the commencement
date to finance the rehabilitation of the debtor;

(5) incurred for the fees of the rehabilitation receiver or liquidator and of
the professionals engaged by them; and

(6) that are otherwise authorized or mandated under this Act or such other
expenses as may be allowed by the Supreme Court in its rules.

(b) Affiliate shall refer to a corporation that directly or indirectly, through one or
more intermediaries, is controlled by, or is under the common control of another
corporation.

(c) Claim shall refer to all claims or demands of whatever nature or character
against the debtor or its property, whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed,
including, but not limited to; (1) all claims of the government, whether national or
local, including taxes, tariffs and customs duties; and (2) claims against directors
and officers of the debtor arising from acts done in the discharge of their functions
falling within the scope of their authority: Provided, That, this inclusion does not
prohibit the creditors or third parties from filing cases against the directors and
officers acting in their personal capacities.

(d) Commencement date shall refer to the date on which the court issues the
Commencement Order, which shall be retroactive to the date of filing of the petition
for voluntary or involuntary proceedings.

(e) Commencement Order shall refer to the order issued by the court under Section
16 of this Act.

(f) Control shall refer to the power of a parent corporation to direct or govern the
financial and operating policies of an enterprise so as to obtain benefits from its
activities. Control is presumed to exist when the parent owns, directly or indirectly
through subsidiaries or affiliates, more than one-half (1/2) of the voting power of
an enterprise unless, in exceptional circumstances, it can clearly be demonstrated
that such ownership does not constitute control. Control also exists even when the
parent owns one-half (1/2) or less of the voting power of an enterprise when there
is power:

(1) over more than one-half (1/2) of the voting rights by virtue of an
agreement with investors;
 (2) to direct or govern the financial and operating policies of the enterprise
under a statute or an agreement;

(3) to appoint or remove the majority of the members of the board of

directors or equivalent governing body; or

(4) to cast the majority votes at meetings of the board of directors or

equivalent governing body.

(g) Court shall refer to the court designated by the Supreme Court to hear and
determine, at the first instance, the cases brought under this Act.

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

(i) Date of liquidation shall refer to the date on which the court issues the
Liquidation Order.

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

(k) 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 as defined herein.

(l) Encumbered property shall refer to real or personal property of the debtor upon
which a lien attaches.

(m) General unsecured creditor shall refer to a creditor whose claim or a portion
thereof its neither secured, preferred nor subordinated under this Act.

(n) 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. When the petition
covers a group of debtors, all reference under these rules to debtor shall include and
apply to the group of debtors.

(o) Individual debtor shall refer to a natural person who is a resident and citizen of
the Philippines that has become insolvent as defined herein.

(p) 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.
(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which
includes all the property and assets of the debtor as of commencement date, plus
the property and assets acquired by the rehabilitation receiver or liquidator after
that date, as well as all other property and assets in which the debtor has an
ownership interest, whether or not these property and assets are in the debtor's
possession as of commencement date: Provided, That trust assets and bailment, and
other property and assets of a third party that are in the possession of the debtor as
of commencement date, are excluded therefrom.

(r) Involuntary proceedings shall refer to proceedings initiated by creditors.

(s) Liabilities shall refer to monetary claims against the debtor, including
stockholder's advances that have been recorded in the debtor's audited financial
statements as advances for future subscriptions.

(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or
personal property that legality entities a creditor to resort to said property for
payment of the claim or debt secured by such lien.

(u) Liquidation shall refer to the proceedings under Chapter V of this Act.

(v) Liquidation Order shall refer to the Order issued by the court under Section 112
of this Act.

(w) Liquidator shall refer to the natural person or juridical entity appointed as such
by the court and entrusted with such powers and duties as set forth in this Act:
Provided, That, if the liquidator is a juridical entity, it must designated a natural
person who possesses all the qualifications and none of the disqualifications as its
representative, it being understood that the juridical entity and the representative
are solidarity liable for all obligations and responsibilities of the liquidator.

(x) Officer shall refer to a natural person holding a management position described
in or contemplated by a juridical entity's articles of incorporation, bylaws or
equivalent documents, except for the corporate secretary, the assistant corporate
secretary and the external auditor.

(y) Ordinary course of business shall refer to transactions in the pursuit of the
individual debtor's or debtor's business operations prior to rehabilitation or
insolvency proceedings and on ordinary business terms.

(z) Ownership interest shall refer to the ownership interest of third parties in
property held by the debtor, including those covered by trust receipts or
assignments of receivables.

(aa) Parent shall refer to a corporation which has control over another corporation
either directly or indirectly through one or more intermediaries.
(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured
creditors' committee, a stakeholder, a party with an ownership interest in property
held by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any
other juridical or natural person who stands to be benefited or injured by the
outcome of the proceedings and whose notice of appearance is accepted by the
court.

(cc) Possessory lien shall refer to a lien on property, the possession of which has
been transferred to a creditor or a representative or agent thereof.

(dd) Proceedings shall refer to judicial proceedings commenced by the court's

acceptance of a petition filed under this Act.

(ee) Property of others shall refer to property held by the debtor in which other
persons have an ownership interest.

(ff) Publication notice shall refer to notice through publication in a newspaper of

general circulation in the Philippines on a business day for two (2) consecutive
weeks.

(gg) 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.

(hh) 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.

(ii) 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 hereof, or other similar arrangements as may be approved by the court
or creditors.

(jj) Secured claim shall refer to a claim that is secured by a lien.

(kk) Secured creditor shall refer to a creditor with a secured claim.

(ll) Secured party shall refer to a secured creditor or the agent or representative of
such secured creditor.
 (mm) Securities market participant shall refer to a broker dealer, underwriter,
transfer agent or other juridical persons transacting securities in the capital market.

(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a

member of a nonstock corporation or association or a partner in a partnership.

(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the
voting stock of which is owned or controlled directly or indirectly through one or
more intermediaries by another corporation, which thereby becomes its parent
corporation.

(pp) Unsecured claim shall refer to a claim that is not secured by a lien.

(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.

(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.

(ss) 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 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need
companies, and national and local government agencies or units.

For purposes of this section:

(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or
actually subject to conservatorship, receivership or liquidation proceedings under
the New Central Bank Act (Republic Act No. 7653) or successor legislation;

(b) Insurance company shall refer to those companies that are potentially or actually
subject to insolvency proceedings under the Insurance Code (Presidential Decree
No. 1460) or successor legislation; and

(c) Pre-need company shall refer to any corporation authorized/licensed to sell or

offer to sell pre-need plans.

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

Section 6. Designation of Courts and Promulgation of Procedural Rules. - The Supreme Court
shall designate the court or courts that will hear and resolve cases brought under this Act and shall
promulgate the rules of pleading, practice and procedure to govern the proceedings brought under
this Act.
Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered
as a separate entity under the proceedings in this Act. Under these proceedings, the assets and
liabilities of a debtor may not be commingled or aggregated with those of another, unless the latter
is a related enterprise that is owned or controlled directly or indirectly by the same interests:
Provided, however, That the commingling or aggregation of assets and liabilities of the debtor
with those of a related enterprise may only be allowed where:

(a) there was commingling in fact of assets and liabilities of the debtor and the
related enterprise prior to the commencement of the proceedings;

(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;

(c) the related enterprise voluntarily accedes to join the debtor as party petitioner
and to commingle its assets and liabilities with the debtor's; and

(d) The consolidation of assets and liabilities of the debtor and the related enterprise
is beneficial to all concerned and promotes the objectives of rehabilitation.

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

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

Section 9. Creditors Representatives. - Creditors may designate representatives to vote or

otherwise act on their behalf by filing notice of such representation with the court and serving a
copy on the rehabilitation receiver or liquidator.

Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a

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

(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.

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

CHAPTER II
COURT-SUPERVISED REHABILITATION

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner
in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case
of a corporation, by a majority vote of the board of directors or trustees and authorized by the vote
of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case
of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder's
or member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary
proceedings under this Act by filing a petition for rehabilitation with the court and on the grounds
hereinafter specifically provided. The petition shall be verified to establish the insolvency of the
debtor and the viability of its rehabilitation, and include, whether as an attachment or as part of the
body of the petition, as a minimum the following:

(a) 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.

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 on 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.

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

Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be sufficient
in form and substance, it shall, within five (5) working days from the filing of the petition, issue a
Commencement Order. If, within the same period, the court finds the petition deficient in form or
substance, the court may, in its discretion, give the petitioner/s a reasonable period of time within
which to amend or supplement the petition, or to submit such documents as may be necessary or
proper to put the petition in proper order. In such case, the five (5) working days provided above
for the issuance of the Commencement Order shall be reckoned from the date of the filing of the
amended or supplemental petition or the submission of such documents.

Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The

rehabilitation proceedings shall commence upon the issuance of the Commencement Order, which
shall:

(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 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 their claims with the court at least five
(5) days before the initial hearing;

(j) direct 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 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 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 s 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.

Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the
court's issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension
Order described in Section 16 hereof:

(a) vest the rehabilitation with all the powers and functions provided for this Act,
such as the right to review and obtain records to which the debtor's management
and directors have access, including bank accounts or whatever nature of the debtor
subject to the approval by the court of the performance bond filed by the
rehabilitation receiver;

(b) prohibit or otherwise serve as the legal basis rendering null and void the results
of any extrajudicial activity or process to seize property, sell encumbered property,
or otherwise attempt to collection or enforce a claim against the debtor after
commencement date unless otherwise allowed in this Act, subject to the provisions
of Section 50 hereof;

(c) serve as the legal basis for rendering null and void any setoff after the
commencement date of any debt owed to the debtor by any of the debtor's creditors;

(d) serve as the legal basis for rendering null and void the perfection of any lien
against the debtor's property after the commencement date; and

(e) consolidate the resolution of all legal proceedings by and against the debtor to
the court Provided. However, That the court may allow the continuation of cases
on other courts where the debtor had initiated the suit.

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

Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not
apply:

(a) to cases already pending appeal in the Supreme Court as of commencement date
Provided, That any final and executory judgment arising from such appeal shall be
referred to the court for appropriate action;

(b) subject to the discretion of the court, to cases pending or filed at a specialized
court or quasi-judicial agency which, upon determination by the court is capable of
 resolving the claim more quickly, fairly and efficiently than the court: Provided,
That any final and executory judgment of such court or agency shall be referred to
the court and shall be treated as a non-disputed claim;

(c) to the 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 debtor as determined by the court
upon recommendation by the rehabilitation receiver;

(d) to 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;

(e) to the 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 in accordance with the provisions of the Securities Regulation Code
and its implementing rules and regulations;

(f) the clearing and settlement of financial transactions through the facilities of a
clearing agency or similar entities duly authorized, registered and/or recognized by
the appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and
the SEC as well as any form of actions of such agencies or entities to reimburse
themselves for any transactions settled for the debtor; and

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

Section 19. Waiver of taxes and Fees Due to the National Government and to Local Government
Units (LGUs). - Upon issuance of the Commencement Order by the court, and until the approval
of the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all
taxes and fees including penalties, interests and charges thereof due to the national government or
to LGUs shall be considered waived, in furtherance of the objectives of rehabilitation.

Section 20. Application of Stay or Suspension Order to Government Financial Institutions. - The
provisions of this Act concerning the effects of the Commencement Order and the Stay or
Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies shall
apply to government financial institutions, notwithstanding provisions in their charters or other
laws to the contrary.

Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the
Commencement Order shall be for the effective for the duration of the rehabilitation proceedings
for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In
determining whether there is substantial likelihood for the debtor to be successfully rehabilitated,
the court shall ensure that the following minimum requirements are met:

(a) The proposed Rehabilitation Plan submitted complies with the minimum
contents prescribed by this Act;

(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's

business for the protection of creditors;

(c) The debtor has met with its creditors to the extent reasonably possible in
attempts to reach consensus on the proposed Rehabilitation Plan;

(d) The rehabilitation receiver submits a report, based on preliminary evaluation,

stating that the underlying assumptions and the goals stated in the petitioner's
Rehabilitation Plan are realistic reasonable and reasonable or if not, there is, in any
case, a substantial likelihood for the debtor to be successfully rehabilitated because,
among others:

(1) there are sufficient assets with/which to rehabilitate the debtor;

(2) there is sufficient cash flow to maintain the operations of the debtor;

(3) the debtor's, partners, stockholders, directors and officers have been
acting in good faith and which due diligence;

(4) the petition is not s sham filing intended only to delay the enforcement
of the rights of the creditor's or of any group of creditors; and

(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;

(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain
any materially false or misleading statement;

(f) If the petitioner is the debtor, that the debtor has met with its creditor/s
representing at least three-fourths (3/4) of its total obligations to the extent
reasonably possible and made a good faith effort to reach a consensus on the
proposed Rehabilitation Plan if the petitioner/s is/are a creditor or group of
creditors, that/ the petitioner/s has/have met with the debtor and made a good faith
effort to reach a consensus on the proposed Rehabilitation Plan; and

(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s
or a group of creditors.

Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:
 (a) determine the creditors who have made timely and proper filing of their notice
of claims;

(b) hear and determine any objection to the qualifications of the appointment of the
rehabilitation receiver and, if necessary appoint a new one in accordance with this
Act;

(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and
to submit the same to the court and to the rehabilitation receiver within a period of
not more than twenty (20) days; and

(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor
and to prepare and submit to the court within forty (40) days from initial hearing
the report provided in Section 24 hereof.

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

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

(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular
act or acts committed by the owner/s of a sole proprietorship partners of a
partnership or directors or officers of a corporation in contemplation of the
insolvency of the debtor or which may have contributed to the insolvency of the
debtor;

(b) the underlying assumptions, the financial goals and the procedures to
accomplish such goals as stated in the petitioner's Rehabilitation Plan are realistic,
feasible and reasonable;

(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(d) the petition should be dismissed; and

(e) the debtor should be dissolved and/or liquidated.

Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. - Within
ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section 24
hereof the court may:

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

 (1) the debtor is insolvent; and

(2) there is a substantial likelihood for the debtor to be successfully

rehabilitated;

(b) dismiss the petition upon a finding that:

(1)debtor is not insolvent;

(2) the petition i8 a sham filing intended only to delay the enforcement of
the rights of the creditor/s or of any group of creditors;

(3)the petition, the Rehabilitation Plan and the attachments thereto contain
any materially false or misleading statements; or

(4)the debtor has committed acts of misrepresentation or in fraud of its

creditor/s or a group of creditors;

(c)convert the proceedings into one for the liquidation of the debtor upon a finding
that:

(1)the debtor is insolvent; and

(2)there is no substantial likelihood for the debtor to be successfully

rehabilitated as determined in accordance with the rules to be promulgated
by the Supreme Court.

Section 26.Petition Given Due Course. - If the petition is given due course, the court shall direct
the rehabilitation receiver to review, revise and/or recommend action on the Rehabilitation Plan
and submit the same or a new one to the court within a period of not more than ninety (90) days.

The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation proceedings
pending before it to arbitration or other modes of dispute resolution, as provided for under Republic
Act No. 9285, Or the Alternative Dispute Resolution Act of 2004, should it determine that such
mode will resolve the dispute more quickly, fairly and efficiently than the court.

Section 27.Dismissal of Petition. - If the petition is dismissed pursuant to paragraph (b) of Section
25 hereof, then the court may, in its discretion, order the petitioner to pay damages to any creditor
or to the debtor, as the case may be, who may have been injured by the filing of the petition, to the
extent of any such injury.

(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.

Section 28.Who May Serve as a Rehabilitation Receiver. - Any qualified natural or juridical person
may serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a juridical
entity, it must designate a natural person/s who possess/es all the qualifications and none of the
disqualification’s as its representative, it being understood that the juridical entity and the
representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation
receiver.

Section 29.Qualifications of a Rehabilitation Receiver. - The rehabilitation receiver shall have the
following minimum qualifications:

(a)A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;

(b)Of good moral character and with acknowledged integrity, impartiality and
independence;

(c)Has the requisite knowledge of insolvency and other relevant commercial laws,
rules and procedures, as well as the relevant training and/or experience that may be
necessary to enable him to properly discharge the duties and obligations of a
rehabilitation receiver; and

(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.

Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the need to
protect the interest of all stakeholders concerned.

Section 30.Initial Appointment of the Rehabilitation Receiver. - The court shall initially appoint
the rehabilitation receiver, who mayor may not be from among the nominees of the petitioner,
However, at the initial hearing of the petition, the creditors and the debtor who are not petitioners
may nominate other persons to the position. The court may retain the rehabilitation receiver
initially appointed or appoint another who mayor may not be from among those nominated.

In case the debtor is a securities market participant, the court shall give priority to the nominee of
the appropriate securities or investor protection fund.

If a qualified natural person or entity is nominated by more than fifty percent (50%) of the secured
creditors and the general unsecured creditors, and satisfactory evidence is submitted, the court
shall appoint the creditors' nominee as rehabilitation receiver.

Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The rehabilitation
receiver shall be deemed an officer of the court with the principal duty of preserving and
maximizing the value of the assets of the debtor during the rehabilitation proceedings, determining
the viability of the rehabilitation of the debtor, preparing and recommending a Rehabilitation Plan
to the court, and implementing the approved Rehabilitation Plan, To this end, and without limiting
the generality of the foregoing, the rehabilitation receiver shall have the following powers, duties
and responsibilities:
(a)To verify the accuracy of the factual allegations in the petition and its annexes;

(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor,
and their valuation;

(c)To verify and correct, if necessary, the schedule of debts and liabilities of the
debtor;

(d)To evaluate the validity, genuineness and true amount of all the claims against
the debtor;

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

(f)To sue and recover, with the approval of the court, all amounts owed to, and all
properties pertaining to the debtor;

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

(h) To sue and recover, with the. approval of the court, all property or money of the
debtor paid, transferred or disbursed in fraud of the debtor or its creditors, or which
constitute undue preference of creditor/s;

(i) To monitor the operations and the business of the debtor to ensure that no
payments or transfers of property are made other than in the ordinary course of
business;

(j) With the court's approval, to engage the services of or to employ persons or
entities to assist him in the discharge of his functions;

(k) To determine the manner by which the debtor may be best rehabilitated, to
review) revise and/or recommend action on the Rehabilitation Plan and submit the
same or a new one to the court for approval;

(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided

under the Rehabilitation Plan;

(m) To assume and exercise the powers of management of the debtor, if directed
by the court pursuant to Section 36 hereof;

(n) To exercise such other powers as may, from time to time, be conferred upon
him by the court; and
 To submit a status report on the rehabilitation proceedings every quarter or as may
be required by the court motu proprio. or upon motion of any creditor. or as may
be provided, in the Rehabilitation Plan.

Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation

receiver shall not take over the management and control of the debtor but may
recommend the appointment of a management committee over the debtor in the
cases provided by this Act.

Section 32.Removal of the Rehabilitation Receiver. – The rehabilitation receiver may be removed
at any time by the court either motu proprio or upon motion by any creditor/s holding more than
fifty percent (50%) of the total obligations of the debtor, on such grounds as the rules of procedure
may provide which shall include, but are not limited to, the following:

(a) Incompetence, gross negligence, failure to perform or failure to exercise the

proper degree of care in the performance of his duties and powers;

(b) Lack of a particular or specialized competency required by the specific case;

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

(d) Lack of qualification or presence of any disqualification;

(e) Conflict of interest that arises after his appointment; and

(f) Manifest lack of independence that is detrimental to the general body of the
stakeholders.

Section 33.Compensation and Terms of Service. The rehabilitation receiver and his direct
employees or independent contractors shall be entitled to compensation for reasonable fees and
expenses from the debtor according to the terms approved by the court after notice and hearing.
Prior to such hearing, the rehabilitation receiver and his direct employees shall be entitled to
reasonable compensation based on quantum meruit. Such costs shall be considered administrative
expenses.

Section 34.Oath and Bond of the Rehabilitation Receiver. Prior to entering upon his powers, duties
and responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such amount
to be fixed by the court, conditioned upon the faithful and proper discharge of his powers, duties
and responsibilities.

Section 35.Vacancy. - Incase the position of rehabilitation receiver is vacated for any reason
whatsoever. the court shall direct the debtor and the creditors to submit the name/s of their
nominee/s to the position. The court may appoint any of the qualified nominees. or any other
person qualified for the position.
Section 36.Displacement of Existing Management by the Rehabilitation Receiver or Management
Committee. – Upon motion of any interested party, the court may appoint and direct the
rehabilitation receiver to assume the powers of management of the debtor, or appoint a
management committee that will undertake the management of the debtor. upon clear and
convincing evidence of any of the following circumstances:

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

debtor’s assets or other properties;

(b) Paralyzation of the business operations of the debtor; or

(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct on the
part of, or gross or willful violation of this Act by. existing management of the
debtor Or the owner, partner, director, officer or representative/s in management of
the debtor.

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

(1) require the rehabilitation receiver to post an additional bond;

(2) authorize him to engage the services or to employ persona or entities to assist
him in the discharge of his managerial functions; and

(3) authorize a commensurate increase in his compensation.

Section 37.Role of the Management Committee. – When appointed pursuant to the foregoing
section, the management committee shall take the place of the management and the governing
body of the debtor and assume their rights and responsibilities.

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

Section 38.Qualifications of Members of the Management Committee. - The qualifications and

disqualification’s of the members of the management committee shall be set forth in the procedural
rules, taking into consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.

Section 39.Employment of Professionals. - Upon approval of the court, and after notice and
hearing, the rehabilitation receiver or the management committee may employ specialized
professionals and other experts to assist each in the performance of their duties. Such professionals
and other experts shall be considered either employees or independent contractors of the
rehabilitation receiver or the management committee, as the case may be. The qualifications and
disqualification’s of the professionals and experts may be set forth in procedural rules, taking into
consideration the nature of the business of the debtor and the need to protect the interest of all
stakeholders concerned.
Section 40.Conflict of Interest. - No person may be appointed as a rehabilitation receiver, member
of a_ management committee, or be employed by the rehabilitation receiver or the management
committee if he has a conflict of interest.

An individual shall be deemed to have a conflict of interest if he is so situated as to be materially

influenced in the exercise of his judgment for or against any party to the proceedings. Without
limiting the generality of the foregoing, an individual shall be deemed to have a conflict of interest
if:

(a) he is a creditor, owner, partner or stockholder of the debtor;

(b) he is engaged in a line of business which competes with that of the debtor;

(c) he is, or was, within five (5) years from the filing of the petition, a director,
officer, owner, partner or employee of the debtor or any of the creditors, or the
auditor or accountant of the debtor;

(d) he is, or was, within two (2) years from the filing of the petition, an underwriter
of the outstanding securities of the debtor;

(e) he is related by consanguinity or affinity within the fourth civil degree to any
individual creditor, owners of a sale proprietorship-debtor, partners of a
partnership- debtor or to any stockholder, director, officer, employee or underwriter
of a corporation-debtor; or

(f) he has any other direct or indirect material interest in the debtor or any of the
creditors.

Any rehabilitation receiver, member of the management committee or persons employed or

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

Section 41.Immunity. - The rehabilitation receiver and all persons employed by him, and the
members of the management committee and all persons employed by it, shall not be subject to any
action. claim or demand in connection with any act done or omitted to be done by them in good
faith in connection with the exercise of their powers and functions under this Act or other actions
duly approved by the court.1awp++il

Section 42.Creditors' Committee. - After the creditors' meeting called pursuant to Section 63
hereof, the creditors belonging to a class may formally organize a committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors' committee
composed of a representative from each class of creditors, such as the following:

(a) Secured creditors;

(b) Unsecured creditors;

(c) Trade creditors and suppliers; and

(d) Employees of the debtor.

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

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

(D) Determination of Claims.

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

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

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

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

(E) Governance.

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

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

Section 48.Use or Disposition of Assets. - Except as otherwise provided herein, no funds or

property of the debtor shall he used or disposed of except in the ordinary course of business of the
debtor, or unless necessary to finance the administrative expenses of the rehabilitation
proceedings.

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

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

(a) such sale, transfer, conveyance or disposal is necessary for the continued
operation of the debtor's business; and

(b) the debtor has made arrangements to provide a substitute lien or ownership right
that provides an equal level of security for the counter-party's claim or right.

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

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

Section 51.Assets of Debtor Held by Third Parties. – In the case of possessory pledges, mechanic's
liens or similar claims, third parties who have in their possession or control property of the debtor
shall not transfer, conveyor otherwise dispose of the same to persons other than the debtor, unless
upon prior approval of the rehabilitation receiver. The rehabilitation receiver may also:
 (a) demand the surrender or the transfer of the possession or control of such
property to the rehabilitation receiver or any other person, subject to payment of
the claims secured by any possessory Iien/s thereon;

(b) allow said third parties to retain possession or control, if such an arrangement
would more likely preserve or increase the value of the property in question or the
total value of the assets of the debtor; or

(c) undertake any otI1er disposition of the said property as may be beneficial for
the rehabilitation of the debtor, after notice and hearing, and approval of the court.

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

(a) if such are in the interest of administering the debtor and facilitating the
preparation and implementation of a Rehabilitation Plan;

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

(c) for payments made to meet administrative expenses as they arise;

(d) for payments to victims of quasi delicts upon a showing that the claim is valid
and the debtor has insurance to reimburse the debtor for the payments made;

(e) for payments made to repurchase property of the debtor that is auctioned off in
a judicial or extrajudicial sale under. This Act; or

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

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

(a) allow the encumbered property to be foreclosed upon by the secured creditor
according to the relevant agreement between the debtor and the secured creditor,
applicable rules of procedure and relevant legislation: Provided. That the proceeds
 of the sale will be distributed in accordance with the order prescribed under the
rules of concurrence and preference of credits; or

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

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

(d) allow the sale or disposition of the property: Provided. That the sale or
disposition will maximize the value of the property for the benefit of the secured
creditor and the debtor, and the proceeds of the sale will be distributed in
accordance with the order prescribed under the rules of concurrence and preference
of credits.

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

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

rehabilitation. may:

(a) enter into credit arrangements; or

(b) enter into credit arrangements, secured by mortgages of its unencumbered

property or secondary mortgages of encumbered property with the approval of
senior secured parties with regard to the encumbered property; or

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

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

Section 56.Treatment of Employees, Claims. Compensation of employees required to carry on the

business shall be considered an administrative expense. Claims of separation pay for months
worked prior to the commencement date shall be considered a pre- ommencement claim. Claims
for salary and separation pay for work performed after the commencement date shall be an
administrative expense.

Section 57.Treatment of Contracts. - Unless cancelled by virtue of a final judgment of a court of

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

(G) Avoidance Proceedings.

Section 58.Rescission or Nullity of Certain Pre-commencement Transactions. Any transaction

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

(a) provides unreasonably inadequate consideration to the debtor and is executed

within ninety (90) days prior to the commencement date;

(b) involves an accelerated payment of a claim to a creditor within ninety (90) days
prior to the commencement date;

(c) provides security or additional security executed within ninety (90) days prior
to the commencement date;

(d) involves creditors, where a creditor obtained, or received the benefit of, more
than its pro rata share in the assets of the debtor, executed at a time when the debtor
was insolvent; or

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

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

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

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

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

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

(H) Treatment of Secured Creditors.

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

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

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

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

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

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

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

(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to
keep the property insured;
 (b) the debtor fails or refuses to take commercially reasonable steps to maintain the
property; or

(c) the property has depreciated to an extent that the creditor is under secured.

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

(i) Administration of Proceedings.

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

(a) specify the underlying assumptions, the financial goals and the procedures
proposed to accomplish such goals;

(b) compare the amounts expected to be received by the creditors under the
Rehabilitation Plan with those that they will receive if liquidation ensues within the
next one hundred twenty (120) days;

(c) contain information sufficient to give the various classes of creditors a

reasonable basis for determining whether supporting the Plan is in their financial
interest when compared to the immediate liquidation of the debtor, including any
reduction of principal interest and penalties payable to the creditors;

(d) establish classes of voting creditors;

(e) establish subclasses of voting creditors if prior approval has been granted by the
court;

(f) indicate how the insolvent debtor will be rehabilitated 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 a new business entity or other similar arrangements
as may be necessary to restore the financial well-being and visibility of the
insolvent debtor;

(g) specify the treatment of each class or subclass described in subsections (d) and
(e);

(h) provide for equal treatment of all claims within the same class or subclass,
unless a particular creditor voluntarily agrees to less favorable treatment;
(i) ensure that the payments made under the plan follow the priority established
under the provisions of the Civil Code on concurrence and preference of credits and
other applicable laws;

(j) maintain the security interest of secured creditors and preserve the liquidation
value of the security unless such has been waived or modified voluntarily;

(k) disclose all payments to creditors for pre-commencement debts made during the
proceedings and the justifications thereof;

(1) describe the disputed claims and the provisioning of funds to account for
appropriate payments should the claim be ruled valid or its amount adjusted;

(m) identify the debtor's role in the implementation of the Plan;

(n) state any rehabilitation covenants of the debtor, the breach of which shall be
considered a material breach of the Plan;

(o) identify those responsible for the future management of the debtor and the
supervision and implementation of the Plan, their affiliation with the debtor and
their remuneration;

(p) address the treatment of claims arising after the confirmation of the
Rehabilitation Plan;

(q) require the debtor and its counter-parties to adhere to the terms of all contracts
that the debtor has chosen to confirm;

(r) arrange for the payment of all outstanding administrative expenses as a condition
to the Plan's approval unless such condition has been waived in writing by the
creditors concerned;

(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted
amount pursuant to a compromise settlement with the BlR Or other applicable tax
authorities;

(t) include a certified copy of a certificate of tax clearance or evidence of a

compromise settlement with the BIR;

(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders
to increase the shares by the required amount in cases where the Plan contemplates
an additional issuance of shares by the debtor;

(v) state the compensation and status, if any, of the rehabilitation receiver after the
approval of the Plan; and
 (w) contain provisions for conciliation and/or mediation as a prerequisite to court
assistance or intervention in the event of any disagreement in the interpretation or
implementation of the Rehabilitation Plan.

Section 63.Consultation with Debtor and Creditors. – if the court gives due course to the petition,
the rehabilitation receiver shall confer with the debtor and all the classes of creditors, and may
consider their views and proposals ill the review, revision or preparation of a new Rehabilitation
Plan.

Section 64.Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify the
creditors and stakeholders that the Plan is ready for their examination. Within twenty (2Q) days
from the said notification, the rehabilitation receiver shall convene the creditors, either as a whole
or per class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected
unless approved by all classes of creditors w hose rights are adversely modified or affected by the
Plan. For purposes of this section, the Plan is deemed to have been approved by a class of creditors
if members of the said class holding more than fifty percent (50%) of the total claims of the said
class vote in favor of the Plan. The votes of the creditors shall be based solely on the amount of
their respective claims based on the registry of claims submitted by the rehabilitation receiver
pursuant to Section 44 hereof.

Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation
Plan if all of the following circumstances are present:

(a)The Rehabilitation Plan complies with the requirements specified in this Act.

(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation

Plan;

(c) The shareholders, owners or partners of the juridical debtor lose at least their
controlling interest as a result of the Rehabilitation Plan; and

(d) 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.

Section 65.Submission of Rehabilitation Plan to the Court. - 1fthe Rehabilitation Plan is approved,
the rehabilitation receiver shall submit the same to the court for confirmation. Within five (5) days
from receipt of the Rehabilitation Plan, the court shall notify the creditors that the Rehabilitation
Plan has been submitted for confirmation, that any creditor may obtain copies of the Rehabilitation
Plan and that any creditor may file an objection thereto.

Section 66.Filing of Objections to Rehabilitation Plan. – A creditor may file an objection to the
Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the
Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan shall
be limited to the following:
 (a) The creditors' support was induced by fraud;

(b)The documents or data relied upon in the Rehabilitation Plan are materially false
or misleading; or

(c)The Rehabilitation Plan is in fact not supported by the voting creditors.

Section 67.Hearing on the Objections. - If objections have been submitted during the relevant
period, the court shall issue an order setting the time and date for the hearing or hearings on the
objections.

If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to
cure the defect, whenever feasible. If the court determines that the debtor acted in bad faith, or that
it is not feasible to cure the defect, the court shall convert the proceedings into one for the
liquidation of the debtor under Chapter V of this Act.

Section 68.Confirmation of the Rehabilitation Plan. – If no objections are filed within the relevant
period or, if objections are filed, the court finds them lacking in merit, or determines that the basis
for the objection has been cured, or determines that the debtor has complied with an order to cure
the objection, the court shall issue an order confirming the Rehabilitation Plan.

The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims if
the Rehabilitation Plan has made adequate provisions for paying such claims.

For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the court
shall have the power to approve or implement the Rehabilitation Plan despite the lack of approval,
or objection from the owners, partners or stockholders of the insolvent debtor: Provided, That the
terms thereof are necessary to restore the financial well-being and viability of the insolvent debtor.

Section 69.Effect of Confirmation of the Rehabilitation Plan, - The confirmation of the

Rehabilitation Plan by the court shall result in the following:

(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and
all persons who may be affected by . it, including the creditors, whether or not such
persons have participated in the proceedings or opposed the Rehabilitation Plan or
whether or not their claims have been scheduled;

(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall
take all actions necessary to carry out the Plan;

(c) Payments shall be made to the creditors in accordance with the provisions of the
Rehabilitation Plan;

(d) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the
provisions of the Rehabilitation Plan;
 (e) Any compromises on amounts or rescheduling of timing of payments by the
debtor shall be binding on creditors regardless of whether or not the Plan is
successfully implement; and

(f) Claims arising after approval of the Plan that are otherwise not treated by the
Plan are not subject to any Suspension Order.

The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided,
however, That the court may maintain jurisdiction over the case in order to resolve claims against
the debtor that remain contested and allegations that the debtor has breached the Plan.

Section 70. Liability of General Partners of a Partnership for Unpaid Balances Under an
Approved Plan. - The approval of the Plan shall not affect the rights of creditors to pursue actions
against the general partners of a partnership to the extent they are liable under relevant legislation
for the debts thereof.

Section 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. -

Amounts of any indebtedness or obligations reduced or forgiven in connection with a Plan's
approval shall not be subject to any tax in furtherance of the purposes of this Act.

Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum
period of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.

If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or
motu propio, be converted into one for the liquidation of the debtor .

Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the
Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the
court. Unless the Rehabilitation Plan specifically requires and describes the role of the
rehabilitation receiver after the approval of the Rehabilitation Plan, the court shall discharge the
rehabilitation receiver of his duties.

(j) Termination of Proceedings

Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall,
upon motion by any stakeholder or the rehabilitation receiver be terminated by order of the court
either declaring a successful implementation of the Rehabilitation Plan or a failure of
rehabilitation.

There is failure of rehabilitation in the following cases:

(a) Dismissal of the petition by the court;

(b) The debtor fails to submit a Rehabilitation Plan;

 (c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial
likelihood that the debtor can be rehabilitated within a reasonable period;

(d) The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder or
there is a failure to realize the objectives, targets or goals set forth therein, including
the timelines and conditions for the settlement of the obligations due to the creditors
and other claimants;

(e) The commission of fraud in securing the approval of the Rehabilitation Plan or
its amendment; and

(f) Other analogous circumstances as may be defined by the rules of procedure.

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

(1) Issue an order directing that the breach be cured within a specified period of
time, falling which the proceedings may be converted to a liquidation;

(2) Issue an order converting the proceedings to a liquidation;

(3) Allow the debtor or rehabilitation receiver to submit amendments to the

Rehabilitation Plan, the approval of which shall be governed by the same
requirements for the approval of a Rehabilitation Plan under this subchapter;

(4) Issue any other order to remedy the breach consistent with the present
regulation, other applicable law and the best interests of the creditors; or

(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of
execution.

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

(a) The discharge of the rehabilitation receiver subject to his submission of a final
accounting; and

(b) The lifting of the Stay Order and any other court order holding in abeyance any
action for the enforcement of a claim against the debtor.

Provided, however, That if the termination of proceedings is due to failure of rehabilitation or

dismissal of the petition for reasons other than technical grounds, the proceedings shall be
immediately converted to liquidation as provided in Section 92 of this Act.

CHAPTER III
PRE-NEGOTIATED REHABILITATION
Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors,
may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan
which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total
liabilities of the debtor, including secured creditors holding more than fifty percent (50%) of the
total secured claims of the debtor and unsecured creditors holding more than fifty percent (50%)
of the total unsecured claims of the debtor. The petition shall include as a minimum:

(a) a schedule of the debtor's debts and liabilities;

(b) an inventory of the debtor's assets;

(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3)
qualified nominees for rehabilitation receiver; and

(d) a summary of disputed claims against the debtor and a report on the provisioning
of funds to account for appropriate payments should any such claims be ruled valid
or their amounts adjusted.

Section 77. Issuance of Order. - Within five (5) working days, and after determination that the
petition is sufficient in form and substance, the court shall issue an Order which shall;

(a) identify the debtor, its principal business of activity/ies and its principal place
of business;

(b) declare that the debtor is under rehabilitation;

(c) summarize the ground./s for the filling of the petition;

(d) direct the publication of the 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;

(e) direct the service by personal delivery of a copy of the petition on each creditor
who is not a petitioner holding at least ten percent (10%) of the total liabilities of
the debtor, as determined in the schedule attached to the petition, within three (3)
days;

(f) state that copies of the petition and the Rehabilitation Plan are available for
examination and copying by any interested party;

(g) state that creditors and other interested parties opposing the petition or
Rehabilitation Plan may file their objections or comments thereto within a period
of not later than twenty (20) days from the second publication of the Order;

(h) appoint a rehabilitation receiver, if provided for in the Plan; and

 (i) include a Suspension or Stay Order as described in this Act.

Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication
of the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested
party submits an objection to it in accordance with the next succeeding section.

Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or other interested
party may submit to the court a verified objection to the petition or the Rehabilitation Plan not later
than eight (8) days from the date of the second publication of the Order mentioned in Section 77
hereof. The objections shall be limited to the following:

(a) The allegations in the petition or the Rehabilitation Plan or the attachments
thereto are materially false or misleading;

(b) The majority of any class of creditors do not in fact support the Rehabilitation
Plan;

(c) 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

(d) The support of the creditors, or any of them was induced by fraud.

Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the
rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports
the Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the
Rehabilitation Plan.

Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the same
for hearing. The date of the hearing shall be no earlier than twenty (20) days and no later than
thirty (30) days from the date of the second publication of the Order mentioned in Section 77
hereof. If the court finds merit in the objection, it shall direct the debtor, when feasible to cure the
detect within a reasonable period. If the court determines that the debtor or creditors supporting
the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the court may order
the conversion of the proceedings into liquidation. A finding by the court that the objection has no
substantial merit, or that the same has been cured shall be deemed an approval of the Rehabilitation
Plan.

Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period
of one hundred twenty (120) days from the date of the filing of the petition to approve the
Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan shall be
deemed approved.

Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal
effect as confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS

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

out-of-curt or informal restructuring agreement or Rehabilitation Plan that meets the minimum
requirements prescribed in this chapter is hereby recognized as consistent with the objectives of
this Act.

Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and

Rehabilitation Plans. - For an out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan to qualify under this chapter, it must meet the following minimum
requirements:

(a) The debtor must agree to the out-of-court or informal restructuring/workout

agreement or Rehabilitation Plan;

(b) It must be approved by creditors representing at least sixty-seven (67%) of the

secured obligations of the debtor;

(c) It must be approved by creditors representing at least seventy-five percent (75%)

of the unsecured obligations of the debtor; and

(d) It must be approved by creditors holding at least eighty-five percent (85%) of

the total liabilities, secured and unsecured, of the debtor.

Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending
negotiation and finalization of the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan contemplated herein shall be effective and enforceable not only against the
contracting parties but also against the other creditors: Provided, That (a) such agreement is
approved by creditors representing more than fifty percent (50%) of the total liabilities of the
debtor; (b) notice thereof is publishing in a newspaper of general circulation in the Philippines
once a week for two (2) consecutive weeks; and (c) the standstill period does not exceed one
hundred twenty (120) days from the date of effectivity. The notice must invite creditors to
participate in the negotiation for out-of-court rehabilitation or restructuring agreement and notify
them that said agreement will be binding on all creditors if the required majority votes prescribed
in Section 84 of this Act are met.

Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that is
approved pursuant to an informal workout framework referred to in this chapter shall have the
same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the
Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at least
three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The
Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days
from the date of the last publication of the notice thereof.
Section 87. Amendment or Modification. - Any amendment of an out-of-court
restructuring/workout agreement or Rehabilitation Plan must be made in accordance with the terms
of the agreement and with due notice on all creditors.

Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings
arising from, or relating to, the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan shall not stay its implementation, unless the relevant party is able to secure a
temporary restraining order or injunctive relief from the Court of Appeals.

Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court assistance for
the execution or implementation of a Rehabilitation Plan under this Chapter, under such rules of
procedure as may be promulgated by the Supreme Court.

CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS

Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a
petition for liquidation with the court. The petition shall be verified, shall establish the insolvency
of the debtor and shall contain, whether as an attachment or as part of the body of the petition;

(a) a 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;

(b) an inventory of all its assets including receivables and claims against third
parties; and

(c) the names of at least three (3) nominees to the position of liquidator.

At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings,

the debtor may also initiate liquidation proceedings by filing a motion in the same court where the
rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set forth the same matters required in
the preceding paragraph, and state that the debtor is seeking immediate dissolution and termination
of its corporate existence.

If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall
issue a Liquidation Order mentioned in Section 112 hereof.

Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims
is at least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the
subscribed capital stock or partner's contributions of the debtor, whichever is higher, may apply
for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor
with the court. The petition shall show that:

(a) 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 one
 hundred eighty (180) days or that the debtor has failed generally to meet its
liabilities as they fall due; and

(b) there is no substantial likelihood that the debtor may be rehabilitated.

At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated

rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million
pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or partner's
contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing
a motion in the same court where the rehabilitation proceedings are pending to convert the
rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain
or set forth the same matters required in the preceding paragraph, and state that the movants are
seeking the immediate liquidation of the debtor.

If the petition or motion is sufficient in form and substance, the court shall issue an Order:

(1) directing the publication of the petition or motion in a newspaper of general

circulation once a week for two (2) consecutive weeks; and

(2) directing the debtor and all creditors who are not the petitioners to file their
comment on the petition or motion within fifteen (15) days from the date of last
publication.

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

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

Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this
chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree
No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and
heard before it.

CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS

(A) Suspension of Payments.

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

Section 95. Action on the Petition. - If the court finds the petition sufficient in form and substance,
it shall, within five (5) working days from the filing of the petition, issue an Order:

(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;

(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. Provide, That properties
held as security by secured creditors shall not be the subject of such suspension order. The
suspension order shall lapse when three (3) months shall have passed without the proposed
agreement being accepted by the creditors or as soon as such agreement is denied.

No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of
the filing of the petition for suspension of payments and for as long as proceedings remain pending
except:
 (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.

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.

Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the
Suspension Order may refrain from attending the meeting and from voting therein. Such persons
shall not be bound by any agreement determined upon at such meeting, but if they should join in
the voting they shall be bound in the same manner as are the other creditors.

Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed
rejected if the number of creditors required for holding a meeting do not attend thereat, or if the
two (2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances, the
proceeding shall be terminated without recourse and the parties concerned shall be at liberty to
enforce the rights which may correspond to them.

Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof made
during the creditors' meeting, is approved by the majority of creditors in accordance with Section
97 hereof, any creditor who attended the meeting and who dissented from and protested against
the vote of the majority may file an objection with the court within ten (10) days from the date of
the last creditors' meeting. The causes for which objection may be made to the decision made by
the majority during the meeting shall be: (a) defects in the call for the meeting, in the holding
thereof and in the deliberations had thereat which prejudice the rights of the creditors; (b)
fraudulent connivance between one or more creditors and the individual debtor to vote in favor of
the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of obtaining a
majority. The court shall hear and pass upon such objection as soon as possible and in a summary
manner.

In case the decision of the majority of creditors to approve the individual debtor's proposal or any
amendment thereof made during the creditors' meeting is annulled by the court, the court shall
declare the proceedings terminated and the creditors shall be at liberty to exercise the rights which
may correspond to them.

Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the
creditors to approve the proposed agreement or any amendment thereof made during the creditors'
meeting is uphold by the court, or when no opposition or objection to said decision has been
presented, the court shall order that the agreement be carried out and all parties bound thereby to
comply with its terms.

The court may also issue all orders which may be necessary or proper to enforce the agreement on
motion of any affected party. The Order confirming the approval of the proposed agreement or
any amendment thereof made during the creditors' meeting shall be binding upon all creditors
whose claims are included in the schedule of debts and liabilities submitted by the individual
debtor and who were properly summoned, but not upon: (a) those creditors having claims for
personal labor, maintenance, expenses of last illness and funeral of the wife or children of the
debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and (b) secured
creditors who failed to attend the meeting or refrained from voting therein.

Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails,
wholly or in part, to perform the agreement decided upon at the meeting of the creditors, all the
rights which the creditors had against the individual debtor before the agreement shall revest in
them. In such case the individual debtor may be made subject to the insolvency proceedings in the
manner established by this Act.

(B) Voluntary Liquidation.

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

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

(C) In voluntary Liquidation.

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

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

(a) That such person is about to depart or has departed from the Republic of the
Philippines, with intent to defraud his creditors;

(b) That being absent from the Republic of the Philippines, with intent to defraud
his creditors, he remains absent;

(c) 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;

(d) That he conceals, or is removing, any of his property to avoid its being attached
or taken on legal process;

(e) 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;

(f) 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;

(g) 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;

(h) 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;

(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.

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

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

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

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

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

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

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

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

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

(A) The Liquidation Order.

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

(a) declare the debtor insolvent;

(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare
it as dissolved;

(c) order the sheriff to take possession and control of all the property of the debtor,
except those that may be exempt from execution;

(d) order the publication of the petition or motion in a newspaper of general

circulation once a week for two (2) consecutive weeks;

(e) direct payments of any claims and conveyance of any property due the debtor
to the liquidator;

(f) prohibit payments by the debtor and the transfer of any property by the debtor;

(g) direct all creditors to file their claims with the liquidator within the period set
by the rules of procedure;

(h) authorize the payment of administrative expenses as they become due;

(i) state that the debtor and creditors who are not petitioner/s may submit the names
of other nominees to the position of liquidator; and

(j) 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.

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

(a) the juridical debtor shall be deemed dissolved and its corporate or juridical
existence terminated;

(b) legal title to and control of all the assets of the debtor, except those that may be
exempt from execution, shall be deemed vested in the liquidator or, pending his
election or appointment, with the court;

(c) all contracts of the debtor shall be deemed terminated and/or breached, unless
the liquidator, within ninety (90) days from the date of his assumption of office,
declares otherwise and the contracting party agrees;

(d) no separate action for the collection of an unsecured claim shall be allowed.
Such actions already pending will be transferred to the Liquidator for him to accept
and settle or contest. If the liquidator contests or disputes the claim, the court shall
 allow, hear and resolve such contest except when the case is already on appeal. In
such a case, the suit may proceed to judgment, and any final and executor judgment
therein for a claim against the debtor shall be filed and allowed in court; and

(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty
(180) days.

Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a
secured creditor to enforce his lien in accordance with the applicable contract or law. A secured
creditor may:

(a) waive his right under the security or lien, prove his claim in the liquidation
proceedings and share in the distribution of the assets of the debtor; or

(b) maintain his rights under the security or lien:

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

(1) the value of the property may be fixed in a manner agreed upon by the creditor
and the liquidator. When the value of the property is less than the claim it secures,
the liquidator may convey the property to the secured creditor and the latter will be
admitted in the liquidation proceedings as a creditor for the balance. If its value
exceeds the claim secured, the liquidator may convey the property to the creditor
and waive the debtor's right of redemption upon receiving the excess from the
creditor;

(2) the liquidator may sell the property and satisfy the secured creditor's entire claim
from the proceeds of the sale; or

(3) the secure creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.

(B) The Liquidator.

Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period
set by the court, and whose claims are not barred by the statute of limitations, will be allowed to
vote in the election of the liquidator. A secured creditor will not be allowed to vote, unless: (a) he
waives his security or lien; or (b) has the value of the property subject of his security or lien fixed
by agreement with the liquidator, and is admitted for the balance of his claim.

The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the
highest number of votes cast in terms of amount of claims, ad who is qualified pursuant to Section
118 hereof, shall be appointed as the liquidator.

Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:
 (a) on the date set for the election of the liquidator, the creditors do not attend;

(b) the creditors who attend, fail or refuse to elect a liquidator;

(c) after being elected, the liquidator fails to qualify; or

(d) 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.

Provided further, That nothing in this section shall be construed to prevent a rehabilitation
receiver, who was administering the debtor prior to the commencement of the liquidation, from
being appointed as a liquidator.

Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers, duties and
responsibilities, the liquidator shall take an oath and file a bond, In such amount to be fixed by the
court, conditioned upon the proper and faithful discharge of his powers, duties and responsibilities.

Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications
enumerated in Section 29 hereof. He may be removed at any time by the court for cause, either
motu propio or upon motion of any creditor entitled to vote for the election of the liquidator.

Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be
deemed an officer of the court with the principal duly of preserving and maximizing the value and
recovering the assets of the debtor, with the end of liquidating them and discharging to the extent
possible all the claims against the debtor. The powers, duties and responsibilities of the liquidator
shall include, but not limited to:

(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;

(b) to take possession of all the property of the debtor except property exempt by
law from execution;

(c) to sell, with the approval of the court, any property of the debtor which has come
into his possession or control;

(d) to redeem all mortgages and pledges, and so satisfy any judgement which may
be an encumbrance on any property sold by him;

(e) to settle all accounts between the debtor and his creditors, subject to the approval
of the court;

(f) to recover any property or its value, fraudulently conveyed by the debtor;

(g) to recommend to the court the creation of a creditors' committee which will
assist him in the discharge of the functions and which shall have powers as the court
deems just, reasonable and necessary; and
 (h) upon approval of the court, to engage such professional as may be necessary
and reasonable to assist him in the discharge of his duties.

In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right
and duty to take all reasonable steps to manage and dispose of the debtor's assets with a view
towards maximizing the proceedings therefrom, to pay creditors and stockholders, and to terminate
the debtor's legal existence. Other duties of the liquidator in accordance with this section may be
established by procedural rules.

A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation

receiver.

Section 120. Compensation of the Liquidator. - The liquidator and the persons and entities engaged
or employed by him to assist in the discharge of his powers and duties shall be entitled to such
reasonable compensation as may determined by the liquidation court, which shall not exceed the
maximum amount as may be prescribed by the Supreme Court.

Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a record of all
moneys received and all disbursements mad by him or under his authority as liquidator. He shall
render a quarterly report thereof to the court , which report shall be made available to all interested
parties. The liquidator shall also submit such reports as may be required by the court from time to
time as well as a final report at the end of the liquidation proceedings.

Section 122. Discharge of Liquidator. - In preparation for the final settlement of all the claims
against the debtor , the liquidator will notify all the creditors, either by publication in a newspaper
of general circulation or such other mode as the court may direct or allow, that will apply with the
court for the settlement of his account and his discharge from liability as liquidator. The liquidator
will file a final accounting with the court, with proof of notice to all creditors. The accounting will
be set for hearing. If the court finds the same in order, the court will discharge the liquidator.

(C) Determination of Claims

Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the
liquidator shall prepare a preliminary registry of claims of secured and unsecured creditors.
Secured creditors who have waived their security or lien, or have fixed the value of the property
subject of their security or lien by agreement with the liquidator and is admitted as a creditor for
the balance , shall be considered as unsecured creditors. The liquidator shall make the registry
available for public inspection and provide publication notice to creditors, individual debtors
owner/s of the sole proprietorship-debtor, the partners of the partnership-debtor and shareholders
or members of the corporation-debtor, on where and when they may inspect it. All claims must be
duly proven before being paid.

Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each
other one debt shall be set off against the other, and only the balance, if any shall be allowed in the
liquidation proceedings.
Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration
of the period for filing of applications for recognition of claims, creditors, individual debtors,
owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and shareholders or
members of the corporation -debtor and other interested parties may submit a challenge to claim
or claims to the court, serving a certified copy on the liquidator and the creditor holding the
challenged claim. Upon the expiration of the (30) day period, the rehabilitation receiver shall
submit to the court the registry of claims containing the undisputed claims that have not been
subject to challenge. Such claims shall become final upon the filling of the register and may be
subsequently set aside only on grounds or fraud, accident, mistake or inexcusable neglect.

Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims
and submit his findings thereon to the court for final approval. The liquidator may disallow claims.

(D) Avoidance Proceedings.

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

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

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

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

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

(E) The Liquidation Plan.

Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office, the
Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a minimum
enumerate all the assets of the debtor and a schedule of liquidation of the assets and payment of
the claims.

Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition and
after hearing, to exempt and set apart, for the use and benefit of the said insolvent, such real and
personal property as is by law exempt from execution, and also a homestead; but no such petition
shall be heard as aforesaid until it is first proved that notice of the hearing of the application
therefor has been duly given by the clerk, by causing such notice to be posted it at least three (3)
public places in the province or city at least ten (10) days prior to the time of such hearing, which
notice shall set forth the name of the said insolvent debtor, and the time and place appointed for
the hearing of such application, and shall briefly indicate the homestead sought to be exempted or
the property sought to be set aside; and the decree must show that such proof was made to the
satisfaction of the court, and shall be conclusive evidence of that fact.

Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of
the debtor and convert the same into money. The sale shall be made at public auction. However, a
private sale may be allowed with the approval of the court if; (a) the goods to be sold are of a
perishable nature, or are liable to quickly deteriorate in value, or are disproportionately expensive
to keep or maintain; or (b) the private sale is for the best interest of the debtor and his creditors.

With the approval of the court, unencumbered property of the debtor may also be conveyed to a
creditor in satisfaction of his claim or part thereof.

Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the
Liquidation Plan as approved by the court. Payments shall be made to the creditors only in
accordance with the provisions of the Plan.

Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its
Implementation shall ensure that the concurrence and preference of credits as enumerated in the
Civil Code of the Philippines and other relevant laws shall be observed, unless a preferred creditor
voluntarily waives his preferred right. For purposes of this chapter, credits for services rendered
by employees or laborers to the debtor shall enjoy first preference under Article 2244 of the Civil
Code, unless the claims constitute legal liens under Article 2241 and 2242 thereof.

Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities and
Exchange Commission. - Upon determining that the liquidation has been completed according to
this Act and applicable law, the court shall issue an Order approving the report and ordering the
SEC to remove the debtor from the registry of legal entities.

Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor has
been removed from the registry of legal entities at the SEC. The court shall issue an Order
terminating the proceedings.

(F) Liquidation of a Securities Market Participant.

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

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

CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION
PROCEEDINGS

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

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

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

(B) Cross-Border Insolvency Proceedings.

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

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

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

(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;

(b) requiring the surrender property of the foreign entity to the foreign
representative; or

(c) providing other necessary relief.

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

(a) the protection of creditors in the Philippines and the inconvenience in pursuing
their claim in a foreign proceeding;

(b) the just treatment of all creditors through resort to a unified insolvency or
rehabilitation proceedings;

(c) whether other jurisdictions have given recognition to the foreign proceeding;

(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

(e) the extent that the foreign proceeding has recognized and shown deference to
proceedings under this Act and previous legislation.

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

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

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

CHAPTER X
MISCELLANEOUS PROVISIOS

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

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

(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.

Section 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation

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

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

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

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

Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two (2) national newspaper of general circulation.
 Republic of the Philippines
Congress of the Philippines
Metro Manila
Sixteenth Congress
Third Regular Session
Begun and held in Metro Manila, on Monday, the twenty-seventh day of July, two thousand
fifteen.
[REPUBLIC ACT NO. 10846]
AN ACT ENHANCING THE RESOLUTION AND LIQUIDATION FRAMEWORK FOR BANKS,
AMENDING FOR THE PURPOSE REPUBLIC ACT NO. 3591, AS AMENDED, AND OTHER
RELATED LAWS
Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:
SECTION 1. Section 1 of Republic Act No. 3591, as amended, is hereby amended to read as
follows:
“THE CREATION OF THE PHILIPPINE
DEPOSIT INSURANCE CORPORATION
“SECTION 1. — There is hereby created a Philippine Deposit Insurance Corporation
hereinafter referred to as the ‘Corporation’ which shall insure as herein provided, the
deposits of all banks which are entitled to the benefits of insurance under this Act, and which
shall have the powers hereinafter granted.
“The Corporation shall, as a basic policy, promote and safeguard the interests of the
depositing public by providing insurance coverage on all insured deposits and helping
maintain a sound and stable banking system.”
SEC. 2. A new section entitled Section 2 of the same Act shall be inserted between Sections 1
and 3 which shall read as follows:
“STATE POLICY
“SEC. 2. — It is hereby declared to be the policy of the State to strengthen the mandatory
deposit insurance coverage system to generate, preserve, maintain faith and confidence in
the country’s banking system, and protect it from illegal schemes and machinations.
“Towards this end, the government must extend all means and mechanisms necessary for
the Corporation to effectively fulfill its vital task of promoting and safeguarding the interests
of the depositing public by way of providing insurance coverage on bank deposits and in
helping develop a sound and stable banking system.
“In view of the crucial role and the nature of its functions and responsibilities, the
Corporation, while being a government instrumentality with corporate powers, shall enjoy
fiscal and administrative autonomy.”
SEC. 3. Section 2 of the same Act is accordingly renumbered as Section 3 and is hereby
amended to read as follows:
“BOARD OF DIRECTORS: COMPOSITION
AND AUTHORITY
“SEC. 3. (a) The powers and functions of the Corporation shall be vested in and exercised by
a Board of Directors which shall be composed of seven (7) members as follows:
“(1) The Secretary of Finance who shall be the ex officio Chairman of the Board without
compensation;
“(2) The Governor of the Bangko Sentral ng Pilipinas who shall be ex officio member of the
Board without compensation;
“(3) The President of the Corporation, who shall be appointed by the President of the
Philippines from a shortlist prepared by the Governance Commission for Government-
Owned or -Controlled Corporations pursuant to Republic Act No. 10149 to serve on a full-
time basis for a term of six (6) years. The President of the Corporation shall also serve as Vice
Chairman of the Board;
“(4) Four (4) members from the private sector to be appointed by the President of the
Philippines from a shortlist prepared by the Governance Commission for Government-
Owned or -Controlled Corporations pursuant to Republic Act No. 10149. The appointive
directors shall serve for a term of six (6) years unless sooner removed for cause and shall be
subject to only one (1) reappointment: Provided, That of those first appointed, the first two
(2) appointees shall serve for a period of three (3) years: Provided, however, That the
appointive director shall continue to hold office until the successor is appointed. An
appointive director may be nominated by the Governance Commission for Government-
Owned or -Controlled Corporations for reappointment by the President only if one obtains a
performance score of above average or its equivalent or higher in the immediately preceding
year of tenure as appointive director based on the performance criteria for appointive
directors of the Corporation.
“Appointment to any vacancy shall be only for the unexpired term of the predecessor
pursuant to Republic Act No. 10149.
“No person shall be appointed as member of the Board unless he or she be of good moral
character, of unquestionable integrity and responsibility, of known probity and patriotism,
and who is of recognized competence in economics, banking and finance, law, management
administration or insurance, and shall be at least thirty-five (35) years of age. For the
duration of their tenure or term of office and for a period of one (1) year thereafter, the
appointive members of the Board shall be disqualified from holding any office, position or
employment in any insured bank.
“The Secretary of Finance and the Governor of the Bangko Sentral ng Pilipinas may each
designate an alternate, who shall be an official with a rank not lower than assistant secretary
or its equivalent with written authority from the Secretary of Finance or the Governor of the
Bangko Sentral ng Pilipinas to attend such meetings and to vote on behalf of their respective
principals. Whenever the Chairman of the Board is unable to attend a meeting of the Board,
or in the event of a vacancy in the office of the Secretary of Finance, and in the absence of the
Vice Chairman, the members of the Board shall designate from among themselves who shall
act as Chairman.
“The President of the Philippines may remove any appointive member of the Board of
Directors for any of the following reasons:
“(i) If the member is physically or mentally incapacitated that he or she cannot properly
discharge his or her duties and responsibilities, and such incapacity has lasted for more than
six (6) months; or
“(ii) If the member is guilty of acts or operations which are of fraudulent or illegal character
or which are manifestly opposed to the aims and interests of the Corporation; or
“(iii) If the member no longer possesses the qualifications specified in this Act; or
“(iv) If the member does not meet the standards for performance based on the evaluation by
the Governance Commission for Government-Owned or -Controlled Corporations under
Republic Act No. 10149.
“The presence of four (4) members shall constitute a quorum. All decisions of the Board of
Directors shall require the concurrence of at least four (4) members.
“The compensation, per diems, allowances, incentives, and other benefits for board members
shall be determined by the Governance Commission for Government-Owned or -Controlled
Corporations.
“In addition to the requirements of Republic Act No. 6713, otherwise known as the ‘Code of
Conduct and Ethical Standards for Public Officials and Employees’, any member of the Board
of Directors with personal or pecuniary interest in any matter in the agenda of the Board of
Directors shall disclose his or her interest to the Board and shall recuse from the meeting
when the matter is taken up. The minutes shall reflect the disclosure made and the recusal
of the member concerned.
“(b) The Board of Directors shall have the authority:
“(1) To approve and issue rules and regulations for banks and the depositing public as it
considers necessary for the effective discharge of its responsibilities;
“(2) To act as the policy-making body of the Corporation and constitute Board committees
to oversee the management, operations and administration of the Corporation;
“(3) To establish a human resource management system which shall govern the selection,
hiring, appointment, transfer, promotion, or dismissal of personnel. Such system shall aim to
establish professionalism and excellence at all levels of the Corporation in accordance with
sound principles of management;
“(4) To approve a compensation structure as an integral component of the Corporation’s
human resource development program based on job evaluation studies and wage surveys,
and revise the same as it may deem necessary: Provided, That all positions in the Corporation
shall be governed by a compensation package, position classification system and
qualification standards approved by the Board based on a comprehensive job analysis and
audit of actual duties and responsibilities. The compensation structure shall be comparable
to that of other financial institutions based on prevailing market standards, and shall provide
for yearly merit reviews or increases based on productivity. The Corporation shall therefore
be exempt from existing laws, rules and regulations on compensation package, position
classification and qualification standards. It shall however endeavor to make its system
conform as closely as possible with the principles under Republic Act No. 6758, as amended;
“(5) To appoint, establish the rank, fix the remuneration, benefits, including health care
services through a Health Maintenance Organization (HMO) and medical benefits other than
those provided for under Republic Act No. 7875, as amended, and remove any officer or
employee of the Corporation, for cause, subject to pertinent civil service laws: Provided, That
the Board of Directors may delegate this authority to the President subject to specific
guidelines: Provided, further, That in no case shall there be any diminution of existing
salaries, benefits and other emoluments;
“(6) To approve policy on local and foreign travel, and the corresponding expenses,
allowances and per diems, of officers, employees, agents of the Corporation, which shall be
comparable with the expenses, allowances and per diems of personnel of other financial
institutions based on prevailing market standards, notwithstanding the provisions of
Presidential Decree No. 1177, Executive Order No. 292, Executive Order No. 248, as
amended, Executive Order No. 298, and similar laws;
“(7) To adopt an annual budget for, and authorize such expenditures by the Corporation, as
are in the interest of the effective administration and operation of the Corporation;
“(8) To approve the target level of the Deposit Insurance Fund (DIF) and the methodology
for determining reserves for insurance and financial assistance losses;
“(9) To review the organizational set-up of the Corporation and adopt a new or revised
organizational structure as it may deem necessary for the Corporation to undertake its
mandate and functions;
“(10) To design, adopt and revise, as it may deem necessary, an early separation plan for
employees of the Corporation to ensure availability of a human resource pool qualified and
capable of implementing the Corporation’s authorities under this Charter in a manner
responsive and attuned to market developments, and to provide incentives for all those who
shall be separated from the service. Notwithstanding any law to the contrary, these
incentives shall be in addition to all gratuities and benefits the employee is entitled to under
existing laws; and
“(11) To promote and sponsor the local or foreign training or study of personnel in the fields
of banking, finance, management, information technology and law. Towards this end, the
Corporation is hereby authorized to defray the costs of such training or study. The Board
shall prescribe rules and regulations to govern the training or study programs of the
Corporation.”
SEC. 4. Section 3 of the same Act is accordingly renumbered as Section 4.
SEC. 5. The first paragraph of Section 4 of the same Act, as renumbered, is hereby amended
to read as follows:
“PRESIDENT OF THE CORPORATION
COMPENSATION, POWERS AND DUTIES
“SEC. 4. The President of the Corporation shall be its Chief Executive Officer and the Vice
Chairman of its Board of Directors and his or her salary shall be fixed by the President of the
Philippines upon the recommendation of the Governance Commission for Government-
Owned or -Controlled Corporations, at a sum commensurate to the importance and
responsibility attached to the position. The sum total of the salary, allowances, benefits and
other emoluments of the President of the Corporation shall be higher than the compensation
package of the next highest ranking executive of the Corporation.”
SEC. 6. Section 4, paragraphs (d), (f) and (h) of the same Act, as renumbered, are hereby
amended to read as follows:
“(d) To represent the Corporation in all dealings with other offices, agencies and
instrumentalities of the government and with all other persons or entities, public or private,
whether domestic, foreign or international;
“(f) To represent the Corporation, either personally or through counsel, including private
counsel, as may be authorized by the PDIC Board, in any legal proceeding or action;
“(h) x x x. The President shall be assisted by a Vice President and other officials whose
appointment and removal for cause shall be approved and whose salary shall be fixed by the
Board of Directors upon recommendation of the President of the Corporation. During the
absence or temporary incapacity of the President, or in case of vacancy or permanent
incapacity and pending appointment of a new President of the Corporation by the President
of the Philippines, the Board of Directors shall designate the officer-in-charge of the
Corporation.”
SEC. 7. Section 4 of the same Act is accordingly renumbered as Section 5, and is hereby
amended to read as follows:
“DEFINITION OF TERMS
“SEC. 5. As used in this Act –
“(a) The term asset refers to movable, immovable, tangible, or intangible resources or
properties over which a bank has an established or equitable interest, including the proceeds
of the sale of its bank and branch licenses subject to the approval of the Bangko Sentral ng
Pilipinas.
“(b) The term asset distribution plan refers to the plan of distribution of the assets of a closed
bank to its creditors, based on its estimated realizable value as of a certain cut-off date,
prepared in accordance with the Rules on Concurrence and Preference of Credits under the
Civil Code or other laws.
“An asset distribution plan may be partial when it pertains to the distribution of a portion or
some of the assets of the closed bank, or final when it pertains to the distribution of all the
assets of the closed bank.
“(c) The term Board of Directors means the Board of Directors of the Corporation.
“(d) The term bank and banking institution shall be synonymous and interchangeable and
shall include banks, commercial banks, savings banks, mortgage banks, rural banks,
development banks, cooperative banks, stock savings and loan associations and branches
and agencies in the Philippines of foreign banks and all other corporations authorized to
perform banking functions in the Philippines.
“(e) The term closed bank refers to a bank placed under liquidation by the Monetary Board.
“(f) The term creditor refers to any individual or entity with a valid claim against the assets
of the closed bank.
“(g) The term deposit means the unpaid balance of money or its equivalent received by a
bank in the usual course of business and for which it has given or is obliged to give credit to
a commercial, checking, savings, time or thrift account, evidenced by a passbook, certificate
of deposit, or other evidence of deposit issued in accordance with Bangko Sentral ng Pilipinas
rules and regulations and other applicable laws, together with such other obligations of a
bank, which, consistent with banking usage and practices, the Board of Directors shall
determine and prescribe by regulations to be deposit liabilities of the bank: Provided, That
any obligation of a bank which is payable at the office of the bank located outside of the
Philippines shall not be a deposit for any of the purposes of this Act or included as part of the
total deposits or of insured deposit: Provided, further, That subject to the approval of the
Board of Directors, any insured bank which is incorporated under the laws of the Philippines
which maintains a branch outside the Philippines may elect to include for insurance its
deposit obligations payable only at such branch.
“The Corporation shall not pay deposit insurance for the following accounts or transactions:
“(1) Investment products such as bonds and securities, trust accounts, and other similar
instruments;
“(2) Deposit accounts or transactions which are fictitious or fraudulent as determined by the
Corporation;
“(3) Deposit accounts or transactions constituting, and/or emanating from, unsafe and
unsound banking practice/s, as determined by the Corporation, in consultation with the
Bangko Sentral ng Pilipinas, after due notice and hearing, and publication of a directive to
cease and desist issued by the Corporation against such deposit accounts, transactions or
practices; and
“(4) Deposits that are determined to be the proceeds of an unlawful activity as defined under
Republic Act No. 9160, as amended.
“The actions of the Corporation taken under Section 5(g) shall be final and executory, and
may only be restrained or set aside by the Court of Appeals, upon appropriate petition for
certiorari on the ground that the action was taken in excess of jurisdiction or with such grave
abuse of discretion as to amount to a lack or excess of jurisdiction. The petition for certiorari
may only be filed within thirty (30) days from notice of denial of claim for deposit insurance.
“(h) The term disputed claim refers to a claim or suit against the assets of a closed bank, or
for specific performance, or breach of contract, or damages, of whatever nature or character,
whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or
current, denied by the receiver.
“(i) The term insured bank means any bank the deposits of which are insured in accordance
with the provisions of this Act.
“(j) The term insured deposit means the amount due to any bonafide depositor for legitimate
deposits in an insured bank as of the date of closure but not to exceed Five hundred thousand
pesos (P500,000.00). Such amount shall be determined according to such regulations as the
Board of Directors may prescribe. In determining such amount due to any depositor, there
shall be added together all deposits in the bank maintained in the same right and capacity
for his or her benefit either in his or her own name or in the name of others. A joint account
regardless of whether the conjunction ‘and’, ‘or’, ‘and/or’ is used, shall be insured separately
from any individually-owned deposit account: Provided, That (1) if the account is held jointly
by two or more natural persons, or by two or more juridical persons or entities, the
maximum insured deposit shall be divided into as many equal shares as there are
individuals, juridical persons or entities, unless a different sharing is stipulated in the
document of deposit, and (2) if the account is held by a juridical person or entity jointly with
one or more natural persons, the maximum insured deposit shall be presumed to belong
entirely to such juridical person or entity: Provided, further, That the aggregate of the interest
of each co-owner over several joint accounts, whether owned by the same or different
combinations of individuals, juridical persons or entities, shall likewise be subject to the
maximum insured deposit of Five hundred thousand pesos (P500,000.00): Provided,
furthermore, That the provisions of any law to the contrary notwithstanding, no
owner/holder of any passbook, certificate of deposit, or other evidence of deposit shall be
recognized as a depositor entitled to the rights provided in this Act unless the passbook,
certificate of deposit, or other evidence of deposit is determined by the Corporation to be an
authentic document or record of the issuing bank: Provided, finally, That in case of a condition
that threatens the monetary and financial stability of the banking system that may have
systemic consequences, as defined in Section 22 hereof, as determined by the Monetary
Board, the maximum deposit insurance cover may be adjusted in such amount, for such a
period, and/or for such deposit products, as may be determined by a unanimous vote of the
Board of Directors in a meeting called for the purpose and chaired by the Secretary of
Finance, subject to the approval of the President of the Philippines.
“(k) The term liquidation refers to the proceedings under Sections 12 to 16 of this Act.
“(1) The term liquidation court refers to the Regional Trial Court (RTC) of general jurisdiction
where the petition for assistance in the liquidation of a closed bank is filed and given due
course.
“(m) The term payout refers to the payment of insured deposits.
“(n) The term petition for assistance in the liquidation of a closed bank refers to the petition
filed by the receiver with the RTC in accordance with Section 16 of this Act.
“(o) The term purchase of assets and assumption of liabilities refers to a transaction where an
insured bank purchases any or all assets and assumes any or all liabilities of another bank
under resolution or liquidation, as provided in this Act.
“(p) The term receiver refers to the Corporation or any of its duly authorized agents acting
as receiver of a closed bank.
“(q) The term records include all documents, titles, papers and electronic data of the closed
bank, including those pertaining to deposit accounts of and with the closed bank, its assets,
transactions and corporate affairs.
“(r) The term residual assets refer to assets, in cash or in kind, to be turned over to the closed
bank’s stockholders of record, in proportion to their interest in the closed bank as of date of
closure, after payment in full of liquidation costs, fees and expenses, and the valid claims and
surplus dividends to all the creditors.
“(s) The term resolution refers to the actions undertaken by the Corporation under Section
11 of this Act to:
“(1) Protect depositors, creditors and the DIF;
“(2) Safeguard the continuity of essential banking services or maintain financial stability;
and
“(3) Prevent deterioration or dissipation of bank assets.
“(t) The term risk-based assessment system pertains to a method for calculating an insured
bank’s assessment on the probability that the DIF will incur a loss with respect to the bank,
and the likely amount of any such loss, based on its risk rating that takes into consideration
the following:
“(1) Quality and concentration of assets;
“(2) Categories and concentration of liabilities, both insured and uninsured, contingent and
noncontingent;
“(3) Capital position;
“(4) Liquidity position;
“(5) Management and governance; and
“(6) Other factors relevant to assessing such probability, as may be determined by the
Corporation:
“(u) The term statement of affairs refers to a report of financial condition of the closed bank
at a given date, showing the: (1) estimated realizable value of assets; (2) classification of
credits; and (3) estimated liabilities to be settled.
“(v) The term surplus dividends refers to the remaining assets of the closed bank after
satisfaction in full of all the liquidation costs, fees and expenses, and valid claims. The surplus
dividends shall be computed at the legal rate of interest from the date of takeover to cut-off
date of the distribution plan, and shall be paid, in cash or in kind, to creditors of the closed
bank in accordance with the Rules on Concurrence and Preference of Credits under the Civil
Code or other laws.
“(w) The term takeover refers to the act of physically taking possession and control of the
premises, assets and affairs of a closed bank for the purpose of liquidating the bank.
“(x) The term transfer deposit means, a deposit in an insured bank made available to a
depositor by the Corporation as payment of insured deposit of such depositor in a closed
bank and assumed by another insured bank.
“(y) The term trust funds means funds held by an insured bank in a fiduciary capacity and
includes without being limited to, funds held as trustee, executor, administrator, guardian or
agent.
“(z) The term valid claim refers to the claim recognized by the receiver or allowed by the
liquidation court.
“(aa) The term winding up period refers to the period provided in Section 16 of this Act.”
SEC. 8. Section 5 of the same Act is accordingly renumbered as Section 6, and is hereby
amended to read as follows:
“DEPOSIT INSURANCE COVERAGE
“SEC. 6. The deposit liabilities of any bank which is engaged in the business of receiving
deposits as herein defined on the effective date of this Act, or which thereafter may engage
in the business of receiving deposits, shall be insured with the Corporation.
“Whenever a bank is determined by the Bangko Sentral ng Pilipinas to be capital deficient,
the Corporation may conduct an insurance risk evaluation on the bank to enable it to assess
the risks to the DIF. Such evaluation may include the determination of: (i) the fair market
value of the assets and liabilities of a bank; or (ii) the risk classification of a bank; or (iii)
possible resolution modes under Section 11 of this Act, subject to such terms and conditions
as the PDIC Board may prescribe.”
SEC. 9. Section 6 of the same Act is accordingly renumbered as Section 7.
SEC. 10. Section 7 paragraph (a) of the same Act, as renumbered, is hereby amended to read
as follows:
“ASSESSMENT OF MEMBER BANKS
“SEC. 7. (a) The assessment rate shall be determined by the Board of Directors: Provided,
That the assessment rate shall not exceed one-fifth (1/5) of one per centum (1%) per annum.
The semi-annual assessment for each insured bank shall be in the amount of the product of
one-half (1/2) the assessment rate multiplied by the assessment base but in no case shall it
be less than Five thousand pesos (P5,000.00). The assessment base shall be the amount of
the liability of the bank for deposits as defined under subsection (g) of Section 5 without any
deduction for indebtedness of depositors.
“In addition, the Board of Directors may establish a risk-based assessment system and
impose a risk-based assessment rate which shall not exceed two-fifth (2/5) of one per
centum (1%) per annum multiplied by the assessment base.
“The semi-annual assessment base for one semi-annual period shall be the average of the
assessment base of the bank as of the close of business on March thirty-one and June thirty
and the semi-annual assessment base for the other semi-annual period shall be the average
of the assessment base of the bank as of the close of business on September thirty and
December thirty-one: Provided, That when any of said days is a nonbusiness day or legal
holiday, either national or provincial, the preceding business day shall be used. The certified
statements required to be filed with the Corporation under subsections (b) and (c) of this
section shall be in such form and set forth such supporting information as the Board of
Directors shall prescribe. The assessment payments required from the insured banks under
subsections (b) and (c) of this section shall be made in such manner and at such time or times
as the Board of Directors shall prescribe.”
SEC. 11. Section 7, paragraphs (d) and (h), of the same Act, as renumbered, are hereby
amended to read as follows:
“(d) All assessment collections and income from operations after expenses and charges shall
be added to the DIF under Section 17 hereof. Such expenses and charges are: (1) the
operating costs and expenses of the Corporation for the calendar year; (2) additions to
reserve to provide for insurance and financial assistance losses, net of recoverable amounts
from applicable assets and collaterals, during the calendar year; and (3) the net insurance
and financial assistance losses sustained in said calendar year.
“(h) Should any insured bank fail or refuse to pay any assessment required to be paid by such
bank under any provision of this Act, and should the bank not correct such failure or refusal
within thirty (30) days after written notice has been given by the Corporation to an officer
of the bank citing this subsection, and stating that the bank has failed or refused to pay as
required by the law, the Corporation may, at its discretion, file a case for collection before
the appropriate court without prejudice to the imposition of administrative sanctions
allowed under the provisions of this law on the bank officials responsible for the
nonpayment of assessment fees.”
SEC. 12. An additional paragraph to Section 7 of the same Act, as renumbered, is hereby
inserted after paragraph (h) which shall read as follows:
“(i) The Corporation shall have the authority to collect a special assessment from any
member bank and prescribe the terms and conditions thereof to maintain the target level of
the DIF set by the Board of Directors in accordance with this Act.”
SEC. 13. Section 7 of the same Act is accordingly renumbered as Section 8, and is hereby
amended to read as follows:
“SANCTIONS AGAINST UNSAFE AND
UNSOUND BANKING PRACTICES
“SEC. 8. (a) Whenever upon examination by the Corporation into the condition of any insured
bank, it shall be disclosed that an insured bank or its directors or agents have committed, are
committing or about to commit unsafe or unsound practices in conducting the business of
the bank, or have violated, are violating or about to violate any provisions of any law or
regulation to which the insured bank is subject, the Board of Directors shall submit the
report of the examination to the Monetary Board to secure corrective action thereon. If no
such corrective action is taken by the Monetary Board within forty-five (45) days from the
submission of the report, the Board of Directors shall, motu proprio, institute corrective
action which it deems necessary. The Board of Directors may thereafter issue a cease and
desist order, and require the bank or its directors or agents concerned to correct the
practices or violations within forty-five (45) days. However, if the practice or violation is
likely to cause insolvency or substantial dissipation of assets or earnings of the bank, or is
likely to seriously weaken the condition of the bank or otherwise seriously prejudice the
interests of its depositors and the Corporation, the period to take corrective action shall not
be more than fifteen (15) days. The order may also include the imposition of fines provided
in Section 26(g) hereof. The Board of Directors shall duly inform the Monetary Board of the
Bangko Sentral ng Pilipinas of action it has taken under this subsection with respect to such
practices or violations.
“(b) The actions and proceedings provided in the preceding subsections may be undertaken
by the Corporation if, in its opinion, an insured bank or its directors or agents have violated,
are violating or about to violate any provision of this Act or any order, rule or instruction
issued by the Corporation or any written condition imposed by the Corporation in
connection with any transaction with or grant by the Corporation.
“(c) The Corporation may terminate the insured status of any bank that fails or refuses to
comply, within thirty (30) days from notice, with any cease-and-desist order issued by the
Corporation, or with any corrective action imposed by the Monetary Board, under this
section pertaining to a deposit-related unsafe and/or unsound banking practice.
“Such termination shall be final and executory, and shall be effective upon publication of the
notice of termination in a newspaper of general circulation.
“The deposits of each depositor in the bank on the effective date of the termination of
insurance coverage, less all subsequent withdrawals, shall continue to be insured up to the
maximum deposit insurance coverage for a period of one hundred eighty (180) days.
Additions to, or renewal of, existing deposits and new deposits in such bank after the
effective date of termination of insured status of the bank shall not be insured by the
Corporation.
“The bank shall not advertise or represent that additions to, or renewal of, existing deposits
and new deposits made after the effective date of termination aye covered by deposit
insurance.”
SEC. 14. Section 8 of the same Act is accordingly renumbered as Section 9.
SEC. 15. Section 9, paragraph Twelfth of the same Act, as renumbered, is hereby amended to
read as follows:
“Twelfth – The provisions of Presidential Decree No. 1445, as amended, Executive Order No.
292, and other similar laws notwithstanding, to compromise, condone or release, in whole
or in part, any claim or settled liability to the Corporation, regardless of the amount involved,
under such terms and conditions as may be imposed by the Board of Directors to protect the
interest of the Corporation, and to write off the Corporation’s receivables and assets which
are no longer recoverable or realizable;”
SEC. 16. Section 9 of the same Act, as renumbered, is further amended by inserting additional
paragraphs after paragraph Twelfth, which shall read as follows:
“Thirteenth – To determine qualified interested acquirers or investors for any of the modes
of resolution or liquidation of banks;
“Fourteenth – To determine the appropriate resolution method and to implement the same
for a bank subject of resolution; and
“Fifteenth – To determine the appropriate mode of liquidation of a closed bank and to
implement the same.”
SEC. 17. Section 9 of the same Act is accordingly renumbered as Section 10.
SEC. 18. Section 10 paragraph (b-1) of the same Act, as renumbered, is hereby amended to
read as follows:
“(b-1) The investigators appointed by the Board of Directors shall have the power on behalf
of the Corporation to conduct investigations on frauds, irregularities and anomalies
committed in banks, based on reports of examination conducted by the Corporation and
Bangko Sentral ng Pilipinas or complaints from depositors or from other government
agency. Each such investigator shall have the power to administer oaths, and to examine and
take and preserve the testimony of any person relating to the subject of investigation. For
this purpose, the Corporation may appoint or hire persons or entities of recognized
competence in forensic and fraud investigations as its agents.”
SEC. 19. Section 10 paragraph (c) of the same Act, as renumbered, is hereby amended to read
as follows:
“(c) Each insured bank shall make to the Corporation reports of condition in such form and
at such times as the Board of Directors may require such reports to be published in such
manner, not inconsistent with any applicable law, as it may direct. Every such bank which
fails to make or publish any such report within such time, as the Board of Directors may
require, shall be subject to a penalty of not more than Ten thousand pesos (P10,000.00) for
each day of such failure recoverable by the Corporation for its use.”
SEC. 20. Section 10 paragraph (d-1) of the same Act, as renumbered, is hereby amended to
read as follows:
“(d-1) Each insured bank shall keep and maintain a true and accurate record or statement of
its daily deposit transactions consistent with the standards set by the Bangko Sentral ng
Pilipinas and the Corporation. Compliance with such standards shall be duly certified by the
president of the bank and the compliance officer: Provided, That refusal or willful failure to
issue the required certification shall constitute a violation of this section and shall subject
such officers of the bank to the sanctions provided for under Section 26(f) of this Act.”
SEC. 21. Section 10 paragraph (f) of the same Act, as renumbered, is hereby amended to read
as follows:
“(f) The Corporation shall underwrite or advance all legal costs and expenses, including legal
fees and other expenses of external counsel, or provide legal assistance to, directors, officers,
employees or agents of the Corporation in connection with any civil, criminal, administrative
or any other action or proceeding, to which such director, officer, employee or agent is made
a party by reason of, or in connection with, the exercise of authority or performance of
functions and duties under this Act: Provided, That such legal protection shall not apply to
any civil, criminal, administrative or any action or proceeding that may be initiated by the
Corporation, in whatever capacity, against such director, officer, employee or agent:
Provided, further, That directors, officers, employees or agents who shall resign, retire,
transfer to another agency or be separated from the service, shall continue to be provided
with such legal protection in connection with any act done or omitted to be done by them in
good faith during their tenure or employment with the Corporation: Provided, finally, That in
the event of a settlement or compromise, indemnification shall be provided only in
connection with such matters covered by the settlement as to which the Corporation is
advised by counsel that the persons to be indemnified did not commit any negligence or
misconduct.”
SEC. 22. The second paragraph of Section 10 paragraph (i) of the same Act, as renumbered,
is hereby amended to read as follows:
“(i) Notwithstanding the provisions of this section and Section 3 of this Act, members of the
Board of Directors and personnel of the Corporation may become directors and officers of
any bank and banking institution and of any entity related to such institution in connection
with financial assistance extended by the Corporation to such institution and when, in the
opinion of the Board, it is appropriate to make such designation to protect the interest of the
Corporation.”
SEC. 23. A new section entitled Section 11 of the same Act is hereby inserted between
Sections 10 and 12 which shall read as follows:
 “BANK RESOLUTION
“SEC. 11. (a) The Corporation, in coordination with the Bangko Sentral ng Pilipinas, may
commence the resolution of a bank under this section upon:
“(1) Failure of prompt corrective action as declared by the Monetary Board; or
“(2) Request by a bank to be placed under resolution.
“The Corporation shall inform the hank of its eligibility for entry into resolution.
“(b) The Bangko Sentral ng Pilipinas shall inform the Corporation of the initiation of prompt
corrective action on any bank and shall be authorized to share with the Corporation all
information, agreements or documents, including any order of the Monetary Board, in
relation to the prompt corrective action. The Corporation shall have the authority to inquire
and monitor the status of banks under prompt corrective action.
“(c) When there is a failure of prompt corrective action as declared by the Monetary Board
due to capital deficiency, the Corporation, its duly authorized officers or employees, may
examine, inquire or look into the deposit records of a bank: Provided, That such authority
may not be exercised when the failure of prompt corrective action is due to grounds other
than capital deficiency. For this purpose, banks, their officers and employees are hereby
mandated to disclose and report to the Corporation or its duly authorized officers and
employees, deposit account information in said bank.
“The Corporation, its duly authorized officers or employees are prohibited from disclosing
information obtained under this section to any person, government official, bureau or office.
Any act done pursuant to this section shall not be deemed as a violation of Republic Act No.
1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other
similar laws protecting or safeguarding the secrecy or confidentiality of bank deposits:
Provided, That any unauthorized disclosure of the information under this section shall be
subject to the same penalty under the foregoing laws protecting the secrecy or
confidentiality of bank deposits.
“(d) The stockholders, directors, officers or employees of the bank shall have the following
obligations:
“(1) Ensure bank compliance with the terms and conditions prescribed by the Corporation
for the resolution of the bank;
“(2) Cause the engagement, with the consent of the Corporation, of an independent appraiser
or auditor for the purpose of determining the valuation of the bank consistent with generally
accepted valuation standards;
“(3) Ensure prudent management and administration of the bank’s assets, liabilities and
records; and
“(4) Cooperate with the Corporation in the conduct or exercise of any or all of its authorities
under this Act and honor in good faith its commitment or undertaking with the Corporation
on the resolution of the bank.
“(e) Within a period of one hundred eighty (180) days from a bank’s entry into resolution,
the Corporation, through the affirmative vote of at least five (5) members of the PDIC Board,
shall determine whether the bank may be resolved through the purchase of all its assets and
assumption of all its liabilities, or merger or consolidation with, or its acquisition, by a
qualified investor.
“For this purpose, the Corporation may:
“(1) Determine a resolution package for the bank;
“(2) Identify and, with the approval of the Monetary Board, pre-qualify possible acquirers or
investors;
“(3) Authorize pre-qualified acquirers or investors to conduct due diligence on the bank, for
purposes of determining the valuation of a bank through an objective and thorough review
and appraisal of its assets and liabilities, and assessment of risks or events that may affect
its valuation; and
“(4) Conduct a bidding to determine the acquirer of the bank.
“(f) In determining the appropriate resolution method for a bank, the Corporation shall
consider the:
“(1) Fair market value of the assets of the bank, its franchise, as well as the amount of its
liabilities;
“(2) Availability of a qualified investor;
“(3) Least cost to the DIF; and
“(4) Interest of the depositing public.
“(g) The Corporation may appoint or hire persons or entities of recognized competence in
banking, finance, asset management or remedial management, as its agents, to perform such
powers and functions of the Corporation in the resolution of a bank, or assist in the
performance thereof.
“(h) The PDIC Board shall prescribe the guidelines or criteria for a bank to be placed under
resolution.
“(i) Upon a determination by the Corporation that the bank may not be resolved, the
Monetary Board may act in accordance with Section 30 of Republic Act No. 7653 or the New
Central Bank Act.
“(j) Bank resolution involving the purchase of all assets and assumption of all liabilities of a
bank shall be exempt from the provisions of Act No. 3952, otherwise known as ‘The Bulk
Sales Law’.
“(k) The provisions of this section are without prejudice to any action that the Monetary
Board may take under existing laws.”
SEC. 24. Sections 10, 11 and 12 of the same Act are hereby deleted.
SEC. 25. A new section entitled Section 12 of the same Act is hereby inserted between
Sections 11 and 13 which shall read as follows:
“LIQUIDATION OF A CLOSED BANK
“SEC. 12. (a) Whenever a bank is ordered closed by the Monetary Board, the Corporation
shall be designated as receiver and it shall proceed with the takeover and liquidation of the
closed bank in accordance with this Act. For this purpose, banks closed by the Monetary
Board shall no longer be rehabilitated.”
SEC. 26. A new section entitled Section 13 of the same Act is hereby inserted between
Sections 12 and 14 which shall read as follows:
“AUTHORITIES OF A RECEIVER AND EFFECTS OF
PLACEMENT OF A BANK UNDER LIQUIDATION
“SEC. 13. (a) The receiver is authorized to adopt and implement, without need of consent of
the stockholders, board of directors, creditors or depositors of the closed bank, any or a
combination of the following modes of liquidation:
“(1) Conventional liquidation; and
“(2) Purchase of assets and/or assumption of liabilities.
“(b) In addition to the powers of a receiver provided under existing laws, the Corporation, as
receiver of a closed bank, is empowered to:
“(1) Represent and act for and on behalf of the closed bank;
“(2) Gather and take charge of all the assets, records and affairs of the closed bank, and
administer the same for the benefit of its creditors;
“(3) Convert the assets of the closed bank to cash or other forms of liquid assets, as far as
practicable;
“(4) Bring suits to enforce liabilities of the directors, officers, employees, agents of the closed
bank and other entities related or connected to the closed bank or to collect, recover, and
preserve all assets, including assets over which the bank has equitable interest;
“(5) Appoint or hire persons or entities of recognized competence in banking, finance, asset
management or remedial management, as its deputies, assistants or agents, to perform such
powers and functions of the Corporation as receiver of the closed bank, or assist in the
performance thereof;
“(6) Appoint or hire persons or entities of recognized competence in forensic and fraud
investigations;
“(7) Pay accrued utilities, rentals and salaries of personnel of the closed bank for a period
not exceeding three (3) months, from available funds of the closed bank;
“(8) Collect loans and other claims of the closed bank and for this purpose, modify,
compromise or restructure the terms and conditions of such loans or claims as may be
deemed advantageous to the interests of the creditors of the closed bank;
“(9) Hire or retain private counsel as may be necessary;
“(10) Borrow or obtain a loan, or mortgage, pledge or encumber any asset of the closed bank,
when necessary to preserve or prevent dissipation of the assets, or to redeem foreclosed
assets of the closed bank, or to minimize losses to its depositors and creditors;
“(11) If the stipulated interest rate on deposits is unusually high compared with prevailing
applicable interest rates, the Corporation as receiver, may exercise such powers which may
include a reduction of the interest rate to a reasonable rate: Provided, That any modifications
or reductions shall apply only to earned and unpaid interest;
“(12) Utilize available funds of the bank, including funds generated by the receiver from the
conversion of assets to pay for reasonable costs and expenses incurred for the preservation
of the assets, and liquidation of, the closed bank, without need for approval of the liquidation
court;
“For banks with insufficient funds, the Corporation is authorized to advance the foregoing
costs and expenses, and collect payment, as and when funds become available.
“(13) Charge reasonable fees for the liquidation of the bank from the assets of the bank:
Provided, That payment of these fees, including any unpaid advances under the immediately
preceding paragraph, shall be subject to approval by the liquidation court;
“(14) Distribute the available assets of the closed bank, in cash or in kind, to its creditors in
accordance with the Rules on Concurrence and Preference of Credits under the Civil Code or
other laws;
“(15) Dispose records of the closed bank that are no longer needed in the liquidation in
accordance with guidelines set by the PDIC Board of Directors, notwithstanding the laws on
archival period and disposal of records; and
“(16) Exercise such other powers as are inherent and necessary for the effective discharge
of the duties of the Corporation as receiver.
“The Board of Directors shall adopt such policies and guidelines as may be necessary for the
performance of the above powers by personnel, deputies, assistants and agents of the
Corporation.
“(c) After the payment of all liabilities and claims against the closed bank, the Corporation
shall pay surplus, if any, dividends at the legal rate of interest from date of takeover to date
of distribution to creditors and claimants of the closed bank in accordance with the Rules on
Concurrence and Preference of Credits under the Civil Code or other laws before distribution
to the shareholders of the closed bank.
“(d) The officers, employees, deputies, assistants and agents of the receiver shall have no
liability and shall not be subject to any action, claim or demand in connection with any act
done or omitted to be done by them in good faith in connection with the exercise of their
powers and functions under this Act and other applicable laws, or other actions duly
approved by the court.
“(e) The placement of a bank under liquidation shall have the following effects:
“(1) On the corporate franchise or existence
“Upon placement by the Monetary Board of a bank under liquidation, it shall continue as a
body corporate until the termination of the winding-up period under Section 16 of this Act.
Such continuation as a body corporate shall only be for the purpose of liquidating, settling
and closing its affairs and for the disposal, conveyance or distribution of its assets pursuant
to this Act. The receiver shall represent the closed bank in all cases by or against the closed
bank and prosecute and defend suits by or against it. In no case shall the bank be reopened
and permitted to resume banking business after being placed under liquidation.
“(2) On the powers and functions of its directors, officers and stockholders
“The powers, voting rights, functions and duties, as well as the allowances, remuneration and
perquisites of the directors, officers, and stockholders of such bank are terminated upon its
closure. Accordingly, the directors, officers, and stockholders shall be barred from
interfering in any way with the assets, records, and affairs of the bank.
“The receiver shall exercise all authorities as may be required to facilitate the liquidation of
the closed bank for the benefit of all its creditors.
“(3) On the assets
“Upon service of notice of closure as provided in Section 14 of this Act, all the assets of the
closed bank shall he deemed in custodia legis in the hands of the receiver, and as such, these
assets may not be subject to attachment, garnishment, execution, levy or any other court
processes. A’ judge, officer of the court or any person who shall issue, order, process or cause
the issuance or implementation of the garnishment order, levy, attachment or execution,
shall be liable under Section 27 of this Act: Provided, however, That collaterals securing the
loans and advances granted by the Bangko Sentral ng Pilipinas shall not be included in the
assets of the closed bank for distribution to other creditors: Provided, further, That the
proceeds in excess of the amount secured shall be returned by the Bangko Sentral ng
Pilipinas to the receiver.
“Any preliminary attachment or garnishment on any of the assets of the closed bank existing
at the time of closure shall not give any preference to the attaching or garnishing party. Upon
motion of the receiver, the preliminary attachment or garnishment shall be lifted and/or
discharged.
“(4) On labor relations
“Notwithstanding the provisions of the Labor Code, the employer-employee relationship
between the closed bank and its employees shall be deemed terminated upon service of the
notice of closure of the bank in accordance with this Act. Payment of separation pay or
benefits provided for by law shall be made from available assets of the bank in accordance
with the Rules on Concurrence and Preference of Credits under the Civil Code or other laws.
‘(5) Contractual obligations
“The receiver may cancel, terminate, rescind or repudiate any contract of the closed bank
that is not necessary for the orderly liquidation of the bank, or is grossly disadvantageous to
the closed bank, or for any ground provided by law.
“(6) On interest payments
“The liability of a bank to pay interest on deposits and all other obligations as of closure shall
cease upon its closure by the Monetary Board without prejudice to the first paragraph of
Section 85 of Republic Act No. 7653 (the New Central Bank Act): Provided, That the receiver
shall have the authority, without need for approval of the liquidation court, to assign, as
payment to secured creditors, the bank assets serving as collaterals to their respective loans
up to the extent of the outstanding obligations, including interest as of date of closure of the
hank, as validated by the receiver. The valuation of the asset shall be based on the prevailing
market value of the collaterals as appraised by an independent appraiser on an ‘as is where
is’ basis.
“(7) Liability for penalties and surcharges for late payment and nonpayment of taxes
“From the time of closure, the closed bank shall not be liable for the payment of penalties
and surcharges arising from the late payment or nonpayment of real property tax, capital
gains tax, transfer tax and similar charges.
“(8) Bank charges and fees on services
“The receiver may impose, on behalf of the closed bank, charges and fees for services
rendered after bank closure, such as, but not limited to, the execution of pertinent deeds and
certifications.
“(9) Actions pending for or against the closed bank
“Except for actions pending before the Supreme Court, actions pending for or against the
closed bank in any court or quasi-judicial body shall, upon motion of the receiver, be
suspended for a period not exceeding one hundred eighty (180) days and referred to
mandatory mediation. Upon termination of the mediation, the case shall be referred back to
the court or quasi-judicial body for further proceedings.
“(10) Final decisions against the closed bank
“The execution and enforcement of a final decision of a court other than the liquidation court
against the assets of a closed bank shall be stayed. The prevailing parly shall file the final
decision as a claim with the liquidation court and settled in accordance with the Rules on
Concurrence and Preference of Credits under the Civil Code or other laws.
“(11) Docket and other court fees
“Payment of docket and other court fees relating to all cases or actions filed by the receiver
with any judicial or quasi-judicial bodies shall be deferred until the action is terminated with
finality. Any such fees shall constitute as a first Hen on any judgment in favor of the closed
bank or in case of unfavorable judgment, such fees shall be paid as liquidation costs and
expenses during the distribution of the assets of the closed bank.
“(12) All assets, records, and documents in the possession of the closed bank at the time of
its closure are presumed held by the bank in the concept of an owner.
“(13) The exercise of authority, functions, and duties by the receiver under this Act shall be
presumed to have been performed in the regular course of business.
“(14) Assets and documents of the closed bank shall retain their private nature even if
administered by the receiver. Matters relating to the exercise by the receiver of the functions
under this Act shall be subject to visitorial audit only by the Commission on Audit.”
SEC. 27. A new section entitled Section 14 of the same Act is hereby inserted between
Sections 13 and 15 which shall read as follows:
“NOTICE OF CLOSURE AND
TAKEOVER ACTIVITIES
“SEC. 14. (a) Upon the designation of the Corporation as receiver of a closed bank, it shall
serve a notice of closure to the highest-ranking officer of the bank present in the bank
premises, or in the absence of such officer, post the notice of closure in the bank premises or
on its main entrance. The closure of the bank shall be deemed effective upon the service of
the notice of closure. Thereafter, the receiver shall takeover the bank and exercise the
powers of the receiver as provided in this Act.
“(b) The receiver shall have authority to use reasonable force, including the authority to
force open the premises of the bank, and exercise such acts necessary to take actual physical
possession and custody of the bank and all its assets, records, documents, and take charge of
its affairs upon the service of the notice of closure.
“(c) Directors, officers, employees or agents of a bank hold money and other assets of the
bank in trust or under administration or management by them for the bank in their fiduciary
capacity.
Upon service of the notice of closure to the bank, all directors, officers, employees or agents
of the closed bank shall have the duty to immediately account for, surrender and turn over
to the receiver, and provide information relative to, the assets, records, and affairs of the
closed bank in their possession, custody, administration or management.
“(d) When the circumstances so warrant, the local government unit and law enforcement
agencies concerned shall, upon request, immediately provide assistance to the receiver
during the service of notice of closure and actual takeover operations to ensure the orderly
conduct thereof and the security and safety of the personnel of the receiver and the
employees of the closed bank.”
SEC. 28. A new section entitled Section 15 of the same Act is hereby inserted between
Sections 14 and 16 which shall read as follows:
“PURCHASE OF ASSETS AND
ASSUMPTION OF LIABILITIES
“SEC. 15. (a) The receiver shall have the authority to facilitate and implement the purchase
of the assets of the closed bank and the assumption of its liabilities by another insured bank,
without need for approval of the liquidation court. The exercise of this authority shall be in
accordance with the Rules on Concurrence and Preference of Credits under the Civil Code or
other laws, subject to such terms and conditions as the Corporation may prescribe. The
disposition of the branch licenses and other bank licenses of the closed bank shall be subject
to the approval of the Bangko Sentral ng Pilipinas.
“(b) Such action of the receiver to determine whether a bank may be the subject of a purchase
of assets and assumption of liabilities transaction shall be final and executory, and may not
be set aside by any court.”
SEC. 29. A new section entitled Section 16 of the same Act is hereby inserted between
Sections 15 and 17 which shall read as follows:
“CONVENTIONAL LIQUIDATION
“A. ASSET MANAGEMENT AND CONVERSION
“SEC. 16. (a) The assets gathered by the receiver shall be evaluated and verified as to their
existence, ownership, condition, and other factors to determine their realizable value. In the
management, preservation and disposition of assets, the receiver shall be guided by cost-
benefit considerations, resources of the closed bank, and potential asset recovery.
“(b) The conversion of the assets of the closed bank shall be carried out in a fair and
transparent manner in accordance with the rules and procedures as may be determined by
the receiver.
“(c) In the management and/or conversion of the assets of the closed bank, the receiver shall
have the authority to:
“(1) Represent the closed bank before the Land Registration Authority (LRA), the Bureau of
Lands, the Register of Deeds, the Land Transportation Office (LTO), the Assessor’s Office or
other appropriate office of the local government unit, the Securities and Exchange
Commission (SEC), or such other similar government agencies or private entities in:
“(i) Verifying the authenticity of ownership documents;
“(ii) Registering the interest of the closed bank on a specific property;
“(iii) Consolidating ownership over an asset of the closed bank;
“(iv) Securing certified true copies of documents held by the foregoing agencies/entities in
relation to an asset of the closed bank;
“(v) Securing the appropriate certification from the foregoing agencies/entities in relation
to an asset of the closed bank; and
“(vi) Performing other related activities;
“(2) Conduct a physical or ocular inspection of the properties owned by, or mortgaged to, the
closed bank, to determine their existence and present condition;
“(3) Determine the disposal price of assets in accordance with generally accepted valuation
principles, standards and practices, subject to such guidelines as the receiver may
determine;
“(4) Dispose real or personal properties of the closed bank through bidding, negotiated sale
or any other mode including lease with option to purchase, whether by piece or by lot, as
may be reasonably determined by the receiver based on cost-benefit considerations and to
allow efficient distribution of assets to creditors; and
“(5) Engage third parties to assist in the liquidation, manage and/or dispose the assets,
handle cases filed against or by the closed bank, subject to such guidelines as determined by
the receiver.
“(d) Notwithstanding any provision of law to the contrary, the following rules shall apply to
the management and/or conversion by the receiver of the assets of the closed bank:
“(1) Upon notification of the closure of a bank, the LRA, the Bureau of Lands, the Register of
Deeds, the LTO, the assessor’s office or other appropriate office of the local government unit,
or such other similar government agencies shall not allow any transaction affecting the
assets of the closed bank without the consent of the receiver.
“(2) Upon issuance by the Monetary Board of the resolution ordering the closure of a bank,
any person or entity in custody or possession of assets or records of the closed bank,
including, but not limited to, the closed bank’s deposit accounts, titles to real property,
collaterals, promissory notes, evidence of indebtedness or investments shall immediately
turn over custody of said assets and records to the receiver. Such obligation shall cover
evidences of deposit such as passbooks or certificates of deposit issued by the bank to its
depositors. Pending turnover, all persons or entities in custody or possession of any asset or
record of the closed bank shall hold the said assets or records in trust for the receiver.
“(3) The persons or entities in custody or possession of such asset shall not allow, authorize
or cause the withdrawal, transfer, disposition, removal, conversion, concealment, or other
transaction involving or relating to the subject asset, unless otherwise directed by the
receiver.
“(e) The receiver shall have the authority to invest funds received from the conversion of the
assets of the closed bank in government securities, other government-guaranteed
marketable securities or investment-grade debt instruments.
“(f) The proceeds of the sale of the bank and branch licenses shall be for the benefit of the
creditors of the closed bank which shall be distributed in accordance with this Act and the
Rules on Concurrence and Preference of Credits under the Civil Code or other laws.
“B. PETITION FOR ASSISTANCE IN THE
LIQUIDATION OF A CLOSED BANK
“(g) A petition for assistance in the liquidation is a special proceeding for the liquidation of a
closed bank, and includes the declaration of the concomitant right of its creditors and the
order of payment of their valid claims in the disposition of its assets.
“Any proceeding initiated under this section shall be considered in rem. Jurisdiction over all
persons affected by the proceeding shall be considered as acquired upon publication of the
order setting the case for initial hearing in any newspaper of general circulation in the
Philippines.
“(h) The liquidation court shall have exclusive jurisdiction to adjudicate disputed claims
against the closed banks, assist in the enforcement of individual liabilities of the
stockholders, directors and officers and decide on all other issues as may be material to
implement the distribution plan adopted by the Corporation for general application to all
closed banks.
“(i) The provisions of Republic Act No. 8799, otherwise known as ‘The Securities Regulation
Code’, and Supreme Court Administrative Matter No. 00-8-10-SC, entitled, ‘The Rules of
Procedure on Corporate Rehabilitation’, shall not be applicable to the petition for assistance
in the liquidation of the closed bank.
“(j) The petition shall be filed in the RTC which has jurisdiction over the principal office of
the closed bank or the principal office of the receiver, at the option of the latter.
“(k) The petition shall be filed ex parte within a reasonable period from receipt of the
Monetary Board Resolution placing the bank under liquidation.
“(1) All persons or entities with claims against the assets of the closed bank shall file their
claims with the receiver within sixty (60) days from the date of publication of the notice of
closure. Claims filed outside the foregoing prescribed period shall be disallowed.
“Claims denied by the receiver shall be filed with the liquidation court within sixty (60) days
from receipt of the final notice of denial of claim.
“(m) A claim whose validity has not yet been determined with finality at the time of the
submission of the final asset distribution plan, either by reason of a pending suit or for
whatever reason, shall be considered as contingent claim and shall not be paid under the
proposed final asset distribution plan.
“(n) Upon finality of the order approving the final asset distribution plan, the petition for
assistance in the liquidation of a closed bank shall henceforth be, for all intents and purposes,
considered closed and terminated and the receiver, its officers, employees or agents, are
forever discharged from any and all claims and/or liability arising from or in connection with
the liquidation of the closed bank.
“(o) The receiver shall submit a final report on the implementation of the approved final
asset distribution plan to the Monetary Board and the SEC after the expiration of the
winding-up period provided in this Act.
“(p) The Supreme Court shall promulgate the appropriate procedural rules to implement this
section.
“C. WINDING-UP
“(q) The creditors shall have a period of six (6) months from the date of publication of notice
of the approval by the court of the final asset distribution plan of the closed bank within
which to claim payment of the principal obligations and surplus dividends. During this six-
month period, the receiver shall hold as trustee the assets allocated in the final asset
distribution plan for said creditors.
“Failure by the creditor to comply with the documentary requirements within the prescribed
period and/or refusal to accept the asset as payment shall be deemed as abandonment or
waiver of his or her right to payment.
“(r) The individual stockholders of record or their duly-authorized representative or the
court-appointed stockholders’ representative shall have a period of six (6) months from
publication of notice of the approval by the court of the final asset distribution plan of the
closed bank within which to claim the residual assets. During this six-month period, the
receiver shall hold as trustee the assets allocated in the final asset distribution plan for said
stockholders of record.
“Failure by the individual stockholders of record or their duly-authorized representative or
the court-appointed stockholders’ representative to comply with the documentary
requirements within the prescribed period and/or refusal to accept the residual assets in
kind shall be deemed as abandonment or waiver of right to receive the residual assets.
“(s) After the lapse of the six-month period provided in paragraphs (q) and (r) of this section,
all assets which remain unclaimed by the creditors and/or stockholders of record shall be
turned over to the Bureau of Treasury.
“(t) The receiver shall continue to keep all the pertinent records of the closed bank for a
period of six (6) months from the date of publication of the approval of the final asset
distribution plan.
After the lapse of this period, the receiver is authorized to dispose of the same in accordance
with the rules and regulations to be prescribed by the receiver.”
SEC. 30. Section 13 of the same Act is hereby renumbered as Section 17.
SEC. 31. A new section entitled Section 18 of the same Act is hereby inserted between
Sections 17 and 19 which shall read as follows:
“DIVIDEND DECLARATION
“SEC. 18. Consistent with the policy of the State to generate, preserve, maintain faith and
confidence in the country’s banking system, the Corporation shall build up and maintain the
DIF at the target level set by the PDIC Board of Directors. Such target level shall be subject to
periodic review and may be adjusted as necessary.
“The Corporation is exempt from Republic Act No. 7656; instead, the Corporation shall remit
dividends to the national government only if the target DIF level for the applicable year has
been reached. For purposes of computing the amount of dividends to be declared and
remitted to the national government, all assessment collections shall not be considered as
income. The dividend rate shall be at least fifty percent (50%) of the income from other
sources only.”
SEC. 32. Section 14 of the same Act is accordingly renumbered as Section 19 and is hereby
amended to read as follows:
“PAYMENT OF INSURED DEPOSITS
“SEC. 19. Whenever an insured bank shall have been closed by the Monetary Board pursuant
to Section 30 of Republic Act No. 7653, or upon expiration or revocation of a bank’s corporate
term, payment of the insured deposits on such closed bank shall be made by the Corporation
as soon as possible either (1) by cash or (2) by making available to each depositor a
transferred deposit in another insured bank in an amount equal to insured deposit of such
depositor: Provided, however, That the Corporation, in its discretion, may require proof of
claims to be filed before paying the insured deposits, and that in any case where the
Corporation is not satisfied as to the validity of a claim for an insured deposit, it may require
final determination of a court of competent jurisdiction before paying such claim: Provided,
further, That failure to settle the claim, within six (6) months from the date of filing of claim
for insured deposit, where such failure was due to grave abuse of discretion, gross
negligence, bad faith, or malice, shall, upon conviction, subject the directors, officers or
employees of the Corporation responsible for the delay, to imprisonment from six (6)
months to one (1) year: Provided, furthermore, That the period shall not apply if the validity
of the claim requires the resolution of issues of facts and or law by another office, body or
agency including the case mentioned in the first proviso or by the Corporation together with
such other office, body or agency.”
SEC. 33. Section 15 of the same Act is accordingly renumbered as Section 20 and is hereby
amended to read as follows:
“SEC. 20. The Corporation, upon payment of any depositor as provided for in Section 19 of
this Act, shall be subrogated to all rights of the depositor against the closed bank to the extent
of such payment. Such subrogation shall include the right on the part of the Corporation to
receive the same dividends and payments from the proceeds of the assets of such closed
bank and recoveries on account of stockholders’ liability as would have been payable to the
depositor on a claim for the insured deposits: Provided, That such depositor shall retain his
or her claim for any uninsured portion of his or her deposit, which legal preference shall be
the same as that of the subrogated claim of the Corporation for its payment of insured
deposits. All payments by the Corporation of insured deposits in closed banks partake of the
nature of public funds, and as such, must be considered a preferred credit in the order of
preference under Article 2244 (9) of the New Civil Code.”
SEC. 34. Section 16 of the same Act is accordingly renumbered as Section 21 and paragraph
(c) thereof is hereby amended to read as follows:
“(c) Except as otherwise prescribed by the Board of Directors, neither the Corporation nor
such other insured bank shall be required to recognize as the owner of any portion of a
deposit evidenced by a passbook, certificate of deposit or other evidence of deposit
determined by the Corporation to be an authentic document or record of the closed bank
under a name other than that of the claimant, any person whose name or interest as such
owner is not disclosed on the passbook, certificate of deposit or other evidence of deposit of
such closed bank as part owner of said deposit, if such recognition would increase the
aggregate amount of the insured deposits in such closed bank.”
SEC. 35. Section 17 of the same Act is accordingly renumbered as Section 22.
SEC. 36. Section 22 paragraph (a) of the same Act, as renumbered, is hereby amended to read
as follows:
“CORPORATE FUNDS AND ASSETS
“SEC. 22. (a) Subject to guidelines and limits as approved by the Board of Directors, money
of the Corporation denominated in the local currency, not otherwise employed, shall be
invested in obligations of the Republic of the Philippines or in obligations guaranteed as to
principal and interest by the Republic of the Philippines.
“The Corporation may also invest in debt instruments denominated in foreign currencies
issued or guaranteed by the Republic of the Philippines, or debt instruments denominated
in freely convertible foreign currencies issued by supranationals, multilateral agencies, or
foreign governments with at least an investment grade credit rating.
“The Corporation shall likewise be authorized to buy and/or sell debt instruments and
foreign currencies from any government securities eligible dealers or any counterparties or
brokers, accredited by the PDIC Board.
“For this purpose, the Corporation shall be authorized to open securities custodianship and
settlement accounts.”
SEC. 37. Section 22 paragraph (b) of the same Act, as renumbered, is hereby amended to read
as follows:
“(b) The banking or checking accounts of the Corporation shall be kept with the Bangko
Sentral ng Pilipinas, or with any other bank designated as depository or fiscal agent of the
Philippine government.”
SEC. 38. An additional paragraph to Section 22 of the same Act, as renumbered, is hereby
inserted after paragraph (c) which shall read as follows:
“(d) Assets of the Corporation shall be exempt from attachment, garnishment or any other
order or process of any court, agency or any other administrative body.”
SEC. 39. Section 17 paragraph (d) of the same Act is accordingly renumbered as Section 22
paragraph (e) and is hereby amended to read as follows:
“FINANCIAL ASSISTANCE
“(e) In the exercise of its authorities under Section 11 of this Act, the Corporation is
authorized to make loans to, or purchase the assets of, or assume liabilities of, or make
deposits in:
“(1) A bank in danger of closing, upon its acquisition by a qualified investor; or
“(2) A qualified investor, upon its purchase of all assets and assumption of all liabilities of a
bank in danger of closing; or
“(3) A surviving or consolidated institution that has merged or consolidated with a bank in
danger of closing; upon such terms and conditions as the Board of Directors may prescribe,
when in the opinion of the Board of Directors, such acquisition, purchase of assets,
assumption of liabilities, merger or consolidation, is essential to provide adequate banking
service in the community or maintain financial stability in the economy.
“The Corporation, prior to the exercise of the powers under this section, shall determine that
actual payoff and liquidation thereof will be more expensive than the exercise of this power:
Provided, That when the Monetary Board has determined that there are systemic
consequences of a probable failure or closure of an insured bank, the Corporation may grant
financial assistance to such insured bank in such amount as may be necessary to prevent its
failure or closure and/or restore the insured bank to viable operations, under such terms
and conditions as may be deemed necessary by the Board of Directors, subject to
concurrence by the Monetary Board and without additional cost to the DIF.
“A systemic risk refers to the possibility that failure of one bank to settle net transactions
with other banks will trigger a chain reaction, depriving other banks of funds leading to a
general shutdown of normal clearing and settlement activity. Systemic risk also means the
likelihood of a sudden, unexpected collapse of confidence in a significant portion of the
banking or financial system with potentially large real economic effects. Finally, the
Corporation may not use its authority under this subsection to purchase the voting or
common stock of an insured bank but it can enter into and enforce agreements that it
determines to be necessary to protect its financial interests: Provided, That the financial
assistance may take the form of equity or quasi-equity of the insured bank as may be deemed
necessary by the Board of Directors with concurrence by the Monetary Board: Provided,
further, That the Corporation shall dispose of such equity as soon as practicable.”
SEC. 40. Section 18 of the same Act is accordingly renumbered as Section 23 and is hereby
amended to read as follows:
“AUTHORITY TO BORROW
“SEC. 23. The Corporation is authorized to borrow from the Bangko Sentral ng Pilipinas and
the Bangko Sentral ng Pilipinas is authorized to lend to the Corporation on such terms as
may be agreed upon by the Corporation and the Bangko Sentral ng Pilipinas, such funds as
in the judgment of the Board of Directors of the Corporation are from time to time required
for insurance purposes and financial assistance provided for in Section 22(e) of this Act:
Provided, That any such loan as may be granted by the Bangko Sentral ng Pilipinas shall be
consistent with monetary policy: Provided, further, That the rate of interest thereon shall be
fixed by the Monetary Board.
“When in the judgment of the Board of Directors the funds of the Corporation are not
sufficient to provide for an emergency or urgent need to attain the purposes of this Act, the
Corporation is likewise authorized to borrow money, obtain loans or arrange credit lines or
other credit accommodations from any bank: Provided, That such loan shall be of short-term
duration: Provided, further, That no prior Monetary Board opinion shall be required for the
Corporation and its counterparties on individual drawdowns or borrowings within an
approved borrowing program where prior Monetary Board opinion has already been
obtained, pursuant to Section 123 of Republic Act No. 7653.”
SEC. 41. Section 19 of the same Act is accordingly renumbered as Section 24 and is hereby
amended to read as follows:
“ISSUANCE OF BONDS, DEBENTURES
AND OTHER OBLIGATIONS
“SEC. 24. With the approval of the President of the Philippines, upon the recommendation of
the Department of Finance, the Corporation is authorized to issue bonds, debentures, and
other obligations, both local or foreign, as may be necessary for purposes of providing
liquidity for settlement of insured deposits in closed banks, to facilitate the implementation
of bank resolution under Section 11 of this Act, as well as for financial assistance as provided
herein: Provided, That the Board of Directors shall determine the interest rates, maturity and
other requirements of said obligations: Provided, further, That the Corporation may provide
for appropriate reserves for the redemption or retirement of said obligation.
“All notes, debentures, bonds, or such obligations issued by the Corporation shall be exempt
from taxation both as to principal and interest, and shall be fully guaranteed by the
Government of the Republic of the Philippines. Such guarantee, which in no case shall exceed
two times the DIF as of date of the debt issuance, shall be expressed on the face thereof.
“The Corporation may issue notes, debentures, bonds, or other debt instruments without the
approval of the President of the Philippines, as long as these shall not be guaranteed by the
national government.
“The Board of Directors shall have the power to prescribe the terms and conditions, rules
and regulations for the issuance, reissuance, servicing, placement and redemption of the
bonds herein authorized to be issued as well as the registration of such bonds at the request
of the holders thereof.”
SEC. 42. Section 20 of the same Act is accordingly renumbered as Section 25.
SEC. 43. Section 21 of the same Act is accordingly renumbered as Section 26.
SEC. 44. Section 26 paragraph (f) of the same Act, as renumbered, is hereby amended to read
as follows:
“(f) The penalty of imprisonment of not less than six (6) years but not more than twelve (12)
years or a fine of not less than Fifty thousand pesos (P50,000.00) but not more than Ten
million pesos (P10,000,000.00), or both, at the discretion of the court, shall be imposed upon:
“(1) Any director, officer, employee or agent of a bank for:
“(a) Any willful refusal to submit reports as required by law, rules and regulations;
“(b) Any unjustified refusal to permit examination and audit of the deposit records or the
affairs of the institution;
“(c) Any willful making of a false statement or entry in any bank report or document required
by the Corporation;
“(d) Submission of false material information in connection with or in relation to any
financial assistance of the Corporation extended to the bank;
“(e) Splitting of deposits or creation of fictitious or fraudulent loans or deposit accounts.
“Splitting of deposits occurs whenever a deposit account with an outstanding balance of
more than the statutory maximum amount of insured deposit maintained under the name of
natural or juridical persons is broken down and transferred into two (2) or more accounts
in the name/s of natural or juridical persons or entities who have no beneficial ownership
on transferred deposits in their names within one hundred twenty (120) days immediately
preceding or during a bank-declared bank holiday, or immediately preceding a closure order
issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the purpose of availing
of the maximum deposit insurance coverage;
“(f) Refusal to receive the notice of closure as provided under Section 14 of this Act;
“(g) Refusal to allow the Corporation to take over a closed bank or obstructing such action
of the Corporation;
“(h) Refusal to turn over or destroying or tampering bank records;
“(i) Fraudulent disposal, transfer or concealment of any asset, property or liability of the
closed bank;
“(j) Violation of, or causing any person to violate, the exemption from garnishment, levy,
attachment or execution provided under this Act and the New Central Bank Act;
“(k) Any willful failure or refusal to comply with, or violation of any provision of this Act, or
commission of any other irregularities, and/or conducting business in an unsafe or unsound
manner as may be determined by the Board of Directors in relation to Section 56 of Republic
Act No. 8791, or ‘The General Banking Law of 2000’.
“Notwithstanding any law to the contrary, the foregoing acts of directors, officers, employees
or agents of the bank shall be considered as additional grounds for disqualification under the
fit and proper rules of the Bangko Sentral ng Pilipinas.
“(1) Other acts inimical to the interest of the bank or the Corporation, such as, but not limited
to, conflict of interest, disloyalty, authorizing related party transactions with terms
detrimental to the bank and its stakeholders, and unauthorized disclosure of confidential
information, as may be determined by the Corporation.
“(2) Any person for:
“(a) Refusal to disclose information, records or data pertaining to the bank accounts of a
closed bank to the receiver;
“(b) Refusal to turn over possession or custody of the asset and record of the closed bank to
the receiver, notwithstanding any agreement to the contrary;
“(c) Refusal or delaying the:
“(i) Verification of authenticity of the ownership documents;
“(ii) Registration of interest of the closed bank on a specific property;
“(iii) Consolidation of ownership over an asset of the closed bank;
“(iv) Act of securing certified true copies of documents in relation to an asset of the closed
bank;
“(v) Act of securing the appropriate certification from the agencies or entities stated in
Section 16 of this Act in relation to an asset of the closed bank;
“(vi) Conduct of a physical or ocular inspection of the properties owned by, or mortgaged to,
the closed bank, to determine their existence and present condition; or
“(vii) Other related activities of the receiver; or
“(d) Allowing the withdrawal from deposits or disposition of any asset of the closed bank
other than by the receiver;
“(e) Willfully violating any provision of this Act;
“(f) Conspiring or willfully participating in any of the offenses enumerated in Paragraph 1 of
this section;
“(3) Any law enforcement officer or local government official who refuses or fails to assist
the receiver in the service of the notice of closure, as provided under Section 14 of this Act.”
SEC. 45. Additional paragraphs to Section 26 of the same Act, as renumbered, are hereby
inserted after paragraph (g) which shall read as follows:
“(h) The penalty of imprisonment of not less than ten (10) years but not more than twelve
(12) years, or a fine of not less than Five hundred thousand pesos (P500,000.00) but not
more than Ten million pesos (P 10,000,000.00), or both, at the discretion of the court, shall
be imposed upon:
“(1) Any depositor who files a fictitious and/or fraudulent claim for deposit insurance; and
“(2) Any bank officer who certifies to the validity of the deposit liabilities which is
subsequently verified to be fictitious and/or fraudulent.
“(i) The penalty of imprisonment of not less than twelve (12) years but not more than
fourteen (14) years shall be imposed upon any person who participates, or attempts to
participate, in a scheme to defraud a bank.
“If the offense shall have been committed by a director or officer of the bank, the penalty of
imprisonment of not less than fifteen (15) years, but not more than seventeen (17) years
shall be imposed.
“If the offense shall have resulted in systemic consequences, as determined by the Bangko
Sentral ng Pilipinas, the penalty of imprisonment of not less than eighteen (18) years but not
more than twenty (20) years shall be imposed.”
SEC. 46. Section 22 of the same Act is accordingly renumbered as Section 27.
SEC. 47. Section 23 of the same Act is hereby renumbered as Section 28 and amended to read
as follows:
“SEC. 28. Exempting Clause. – The Corporation shall be exempt from Presidential Decree No.
985, Presidential Decree No. 1597, Republic Act No. 6758, as amended, Joint Resolution No.
4 (2009) and other laws on salary standardization, Presidential Decree No. 1177, Executive
Order No. 248, as amended, Executive Order No. 298 and the provisions of Republic Act No.
10149 with regard to position classification, qualification standards, and the compensation
package of the employees of the Corporation: Provided, That the PDIC shall be subject to all
other policies under Republic Act No. 10149, including, but not limited to, performance
evaluation by the Governance Commission for Government-Owned or -Controlled
Corporations, selection and nomination of appointive directors, and limitations on the
creation of subsidiaries and the acquisition of affiliates except in the case of acquisition of
shares in the grant of financial assistance under this Act.”
SEC. 48. Section 24 of the same Act is deleted and a new Section 29 is added to read as
follows:
“SEC. 29. Transitory Provisions. — (a) The incumbent President of the Corporation and
private sector members of the Board of Directors shall continue to exercise their respective
duties and functions until replaced by the President of the Philippines: Provided, That such
new appointees shall be subject to the term of office provided under Section 3 of this Act, as
amended.
“(b) Payment of surplus dividends under Section 13(c) of this Act, as amended, shall be
applicable to banks without a court-approved final asset distribution plan at the time of the
effectivity of this Act.
“(c) The preference indicated under Section 15 of this Act, as amended, shall be likewise
effective upon liquidation proceedings already commenced and pending as of the effectivity
of this Act, where no distribution of assets has been made.
“(d) The provisions in Section 10 of this Act, as amended, on legal assistance, protection and
indemnification shall apply to all cases pending before the effectivity of this Act.”
SEC. 49. Section 25 of the same Act is accordingly renumbered as Section 30.
SEC. 50. The Corporation may be reorganized by its Board of Directors by adopting if it so
desires, an entirely new staffing pattern or organizational structure to suit the operations of
the Corporation under this Act. No preferential or priority right shall be given to or enjoyed
by any personnel for appointment to any position in the new staffing pattern nor shah any
personnel be considered as having prior or vested rights with respect to retention in the
Corporation or in any position which may be created in the new staffing pattern, even if he
or she should be the incumbent of a similar position prior to reorganization. The
reorganization shall be completed within six (6) months after the effectivity of this Act.
Personnel who are not retained are deemed separated horn the service.
SEC. 51. The Board of Directors is hereby authorized to provide separation incentives, and
all those who shall retire or be separated from the service on account of reorganization
under the preceding section shall be entitled to such incentives which may be in addition to
all gratuities and benefits to which they may be entitled under existing laws.
SEC. 52. Separability Clause. – If any provision or section of this Act or the application thereof
to any person or circumstances is held invalid, the other provisions or sections of this Act, in
the application of such provision or section to other persons or circumstances, shall not be
affected thereby.
SEC. 53. Repealing Clause. – All acts or parts of acts and executive orders, administrative
orders, or parts thereof which are inconsistent with the provisions of this Act are hereby
repealed.
SEC. 54. Effectivity Clause. – This Act shall take effect fifteen (15) days following the
completion of its publication in the Official Gazette or in two (2) newspapers of general
circulation.
Approved,
 ACT NO. 1508

ACT NO. 1508 - AN ACT PROVIDING FOR THE MORTGAGING OF

PERSON AL PROPERTY AND FOR THE REGISTRATION OF THE
MORTGAGES SO EXECUTED

Section 1. The short title of this Act shall be "The Chattel Mortgage Law."

Sec. 2. All personal property shall be subject to mortgage, agreeably to the

provisions of this Act, and a mortgage executed in pursuance thereof shall
be termed chattel mortgage.

Sec. 3. Chattel mortgage defined. – A chattel mortgage is a conditional sale

of personal property as security for the payment of a debt, or the
performance of some other obligation specified therein, the condition being
that the sale shall be void upon the seller paying to the purchaser a sum of
money or doing some other act named. If the condition is performed
according to its terms the mortgage and sale immediately become void, and
the mortgagee is thereby divested of his title.

Sec. 4. Validity. – A chattel mortgage shall not be valid against any person
except the mortgagor, his executors or administrators, unless the possession
of the property is delivered to and retained by the mortgagee or unless the
mortgage is recorded in the office of the register of deeds of the province in
which the mortgagor resides at the time of making the same, or, if he resides
without the Philippine Islands, in the province in which the property is
situated: Provided, however, That if the property is situated in a different
province from that in which the mortgagor resides, the mortgage shall be
recorded in the office of the register of deeds of both the province in which
the mortgagor resides and that in which the property is situated, and for the
purposes of this Act the city of Manila shall be deemed to be a province.

Sec. 5. Form. – A chattel mortgage shall be deemed to be sufficient when

made substantially in accordance with the following form, and shall be signed
by the person or persons executing the same, in the presence of two
witnesses, who shall sign the mortgage as witnesses to the execution thereof,
and each mortgagor and mortgagee, or, in the absence of the mortgagee,
his agent or attorney, shall make and subscribe an affidavit in substance as
hereinafter set forth, which affidavit, signed by the parties to the mortgage
as above stated, and the certificate of the oath signed by the authority
administering the same, shall be appended to such mortgage and recorded
therewith.
Sec. 6. Corporations. – When a corporation is a party to such mortgage the
affidavit required may be made and subscribed by a director, trustee, cashier,
treasurer, or manager thereof, or by a person authorized on the part of such
corporation to make or to receive such mortgage. When a partnership is a
party to the mortgage the affidavit may be made and subscribed by one
member thereof.

Sec. 7. Descriptions of property. – The description of the mortgaged property

shall be such as to enable the parties to the mortgage, or any other person,
after reasonable inquiry and investigation, to identify the same.

If the property mortgaged be large cattle," as defined by section one of Act

Numbered Eleven and forty-seven, 2 and the amendments thereof, the
description of said property in the mortgage shall contain the brands, class,
sex, age, knots of radiated hair commonly known as remolinos, or cowlicks,
and other marks of ownership as described and set forth in the certificate of
ownership of said animal or animals, together with the number and place of
issue of such certificates of ownership.

If growing crops be mortgaged the mortgage may contain an agreement

stipulating that the mortgagor binds himself properly to tend, care for and
protect the crop while growing, and faithfully and without delay to harvest
the same, and that in default of the performance of such duties the mortgage
may enter upon the premises, take all the necessary measures for the
protection of said crop, and retain possession thereof and sell the same, and
from the proceeds of such sale pay all expenses incurred in caring for,
harvesting, and selling the crop and the amount of the indebtedness or
obligation secured by the mortgage, and the surplus thereof, if any shall be
paid to the mortgagor or those entitled to the same.

A chattel mortgage shall be deemed to cover only the property described

therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary notwithstanding.

Sec. 8. Failure of mortgagee to discharge the mortgage. – If the mortgagee,

assign, administrator, executor, or either of them, after performance of the
condition before or after the breach thereof, or after tender of the
performance of the condition, at or after the time fixed for the performance,
does not within ten days after being requested thereto by any person entitled
to redeem, discharge the mortgage in the manner provided by law, the
person entitled to redeem may recover of the person whose duty it is to
discharge the same twenty pesos for his neglect and all damages occasioned
thereby in an action in any court having jurisdiction of the subject-matter
thereof.

Sec. 9-12. (inclusive) 3

Sec. 13. When the condition of a chattel mortgage is broken, a mortgagor or

person holding a subsequent mortgage, or a subsequent attaching creditor
may redeem the same by paying or delivering to the mortgagee the amount
due on such mortgage and the reasonable costs and expenses incurred by
such breach of condition before the sale thereof. An attaching creditor who
so redeems shall be subrogated to the rights of the mortgagee and entitled
to foreclose the mortgage in the same manner that the mortgagee could
foreclose it by the terms of this Act.

Sec. 14. Sale of property at public auction; Officer's return; Fees; Disposition
of proceeds. – The mortgagee, his executor, administrator, or assign, may,
after thirty days from the time of condition broken, cause the mortgaged
property, or any part thereof, to be sold at public auction by a public officer
at a public place in the municipality where the mortgagor resides, or where
the property is situated, provided at least ten days' notice of the time, place,
and purpose of such sale has been posted at two or more public places in
such municipality, and the mortgagee, his executor, administrator, or assign,
shall notify the mortgagor or person holding under him and the persons
holding subsequent mortgages of the time and place of sale, either by notice
in writing directed to him or left at his abode, if within the municipality, or
sent by mail if he does not reside in such municipality, at least ten days
previous to the sale.

The officer making the sale shall, within thirty days thereafter, make in
writing a return of his doings and file the same in the office of the register of
deeds where the mortgage is recorded, and the register of deeds shall record
the same. The fees of the officer for selling the property shall be the same
as in the case of sale on execution as provided in Act Numbered One hundred
and ninety, 4 and the amendments thereto, and the fees of the register
of deeds for registering the officer's return shall be taxed as a part of the
costs of sale, which the officer shall pay to the register of deeds. The return
shall particularly describe the articles sold, and state the amount received for
each article, and shall operate as a discharge of the lien thereon created by
the mortgage. The proceeds of such sale shall be applied to the payment,
first, of the costs and expenses of keeping and sale, and then to the payment
of the demand or obligation secured by such mortgage, and the residue shall
be paid to persons holding subsequent mortgages in their order, and the
balance, after paying the mortgages, shall be paid to the mortgagor or person
holding under him on demand.
If the sale includes any "large cattle," a certificate of transfer as required by
section sixteen of Act Numbered Eleven hundred and forty-seven 5 shall be
issued by the treasurer of the municipality where the sale was held to the
purchaser thereof.

Sec. 15. 6, 6a

Sec. 16. This Act shall take effect on August first, nineteen hundred and six.