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a) DEBTOR
Sec. 4 LIQUIDATION ORDER
(v) Liquidation order shall refer to the Order issued by the court under Section 112 of this Act.
(i) Date of liquidation shall refer to the date on which the court issues the Liquidation Order.
Sec. 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.
NOTES:
Declaration of insolvency (or adjudication of insolvency) in the liquidation order is the trigger
event that results in the application of legal provisions that require the status of insolvency.
Upon the issuance of the liquidation order, the benefit of excussion of a guarantor is lost, and
special preferred credits acquire the status of pledges and mortgages.
The legal postulate that a creditor may enforce its right to collect payment from surety
becomes more cogent.
A case against a surety is not affected by an insolvency proceeding instituted. The surety is
also not freed from liability.
Liquidation order should properly result not only in the dissolution of a juridical debtor, but also
in the discharge of an individual debtor.
b) LIQUIDATOR
(1) GENERAL CONCEPTS
Sec. 4
(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 designate 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 solidarily liable for all obligations and responsibilities of the liquidator.
(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 disqualifications 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.
A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.
Sec. 113 (b) 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
executory 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.
liquidation proceedings.
c. CLAIMS
Sec. 4 CLAIMS
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.
NOTES:
The treatment of secured creditors is as follows:
a) Upon the issuance of the liquidation order, a secured creditor is subject to the temporary
stay of foreclosure proceedings for a period of 180 days.
b) The liquidation plan shall ensure that the concurrence and preference of credits as
enumerated in the Civil Code shall be observed, unless a preferred creditor voluntarily waives its
preferred right.
c) During the proceedings, a secured creditor may:
i. Waive its security or lien, prove its claim and share in the distribution of the assets of
the debtor, in which case it will be admitted as an unsecured creditor; or
ii. Maintain its rights under the security or lien, in which case:
o The value of the property may be fixed in a manner agreed upon by the creditor
and the liquidator:
If the value of the property is less than the claim, the creditor will be
admitted as an unsecured creditor for the balance;
If the value of the property is greater than the claim, the liquidator may
convey the property to the creditor, collect the surplus from the creditor,
and waive the debtors right of redemption; or
o The liquidator may sell the property and satisfy the secured creditors entire claim
from the proceeds of the sale; or
o The secured creditor may enforce the lien or foreclose the property pursuant to
applicable laws.
existence of the corporation which are incompatible with a petition for suspension of
payment which seeks to preserve corporate existence.
- RA 8799 transferred to the appropriate RTCs the SECs jurisdiction defined under Sec. 5(d)
of PD 902-A
o The Commission's jurisdiction over all cases enumerated under Sec. 5 of Presidential
Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the
appropriate Regional Trial Court:
o Provided, That the Supreme Court in the exercise of its authority may designate the
Regional Trial Court branches that shall exercise jurisdiction over these cases. The
Commission shall retain jurisdiction over pending cases involving intra- corporate
disputes submitted for final resolution which should be resolved within one (1) year from
the enactment of this Code. The Commission shall retain jurisdiction over pending
suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed. (Emphasis supplied)
- The SEC assumed jurisdiction over CMCs petition for suspension of payment and issued a
suspension order on 2 Apr 1996 after it found CMCs petition to be sufficient in form and substance
o While the petition was pending with the SEC as of 30 Jun 2000, it was finally disposed of
on 29 Nov 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC
and the transfer of the liquidation proceedings before the appropriate TC
o The SEC finally disposed of CMCs petition for suspension of payment when it
determined that CMC could no longer be successfully rehabilitated
- SC: The SECs jurisdiction does not extend to the liquidation of a corporation. While the SEC
has jurisdiction to order the dissolution of a corporation, jurisdiction over the liquidation of the
corporation now pertains to the appropriate RTCs
o This is the reason why the SEC, in its Omnibus Order, directed that the proceedings on
and implementation of the order of liquidation be commenced at the RTC to which this
case shall be transferred.
o This is the correct procedure because the liquidation of a corporation requires the
settlement of claims for and against the corporation, which clearly falls under the
jurisdiction of the regular courts
o The TC is in the best position to convene all the creditors of the corporation, ascertain
their claims, and determine their preferences.
Note: The jurisdiction over the actual liquidation lies with the RTC because it is in a better position to
rule on the claims of the creditors. The SEC exercises its jurisdiction over the case during the
rehabilitation proceedings (until its termination) and loses jurisdiction at the termination. It may
reacquire jurisdiction when the corporation is dissolved and removed from the list of SEC
corporations.
2. The foreclosure of the REM is valid.
- CMC: The foreclosure is void because it was undertaken without the knowledge and previous
consent of the liquidator and other lien holders
o The rules on concurrence and preference of credits should apply in foreclosure
proceedings
o Assuming Planters Bank can foreclose, CMC argues that foreclosure is still void because
it was conducted in violation of Sec. 15, Rule 39 of the ROC which states that the sale
should not be earlier than 9 oclock in the morning and not later than 2 oclock in the
afternoon
- Planters Bank: It has the right to foreclose the REM because of non-payment of the loan
obligation
o The rules on concurrence and preference of credits and the rules on insolvency are not
applicable in this case because CMC has not been declared insolvent and there are no
insolvency proceedings against CMC
- In RCBC v. IAC, SC held that if rehabilitation is no longer feasible and the assets of the
corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors,
subject only to the provisions of the CC on concurrence and preference of credits
o Creditors of secured obligations may pursue their security interest or lien, or they may
choose to abandon the preference and prove their credits as ordinary claims
- Art. 2248 CC: Those credits which enjoy preference in relation to specific real property or real
rights, exclude all others to the extent of the value of the immovable or real right to which the
preference refers.
- SC: Planters Bank, as secured creditor, enjoys preference over a specific mortgaged property
and has a right to foreclose the mortgage under Art. 2248 NCC
- Under RA 10142 (the Financial Rehabilitation and Insolvency Act of 2010) the right of a
secured creditor to enforce his lien during liquidation proceedings is retained
o Sec. 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 rights 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 his 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 debtors right of
redemption upon receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditors entire claim from
the proceeds of the sale; or
(3) the secured creditor may enforce the lien or foreclose on the property pursuant to
applicable laws. (Emphasis supplied)
- SC: In this case, PNB elected to maintain its rights under the security or lien; hence, its right
to foreclose the mortgaged properties should be respected, in line with the pronouncement in
Consuelo Metal Corporation
- Yngson: There is a right of first preference as regards unpaid wages.
- SC: In DBP v. NLRC, a distinction should be made between a preference of credit and a lien
o A preference applies only to claims which do not attach to specific properties
o A lien creates a charge on a particular property
o The right of first preference of unpaid wages recognized by Art. 110 of the LC does not
constitute a lien on the property of the insolvent debtor in favor of workers
" It is but a preference of credit in their favor, a preference of application
" It is a method adopted to determine and specify the order in which credits should
debtor
o SC: The right of first preference for unpaid wages may not be invoked in this case to nullify the
foreclosure sales pursuant to PNBs right as a secured creditor to enforce its lien on specific
properties of the debtor, ARCAM
DISPOSITIVE: Petition is DENIED.
Sec. 4
(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.
(pp) Unsecured claim shall refer to a claim that is not secured by a lien.
(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.
d. TREATMENT OF CONTRACTS
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.
e. LIQUIDATION PLAN
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.
NOTES:
Primary goal of liquidation proceedings, liquidator and liquidation plan is to sell the assets of
the insolvent debtor and convert the same into money for payment to the creditors.
f. TERMINATION OF PROCEEDINGS
Sec. 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.
NOTES:
As for the insolvent individual debtor, the liquidation proceeding logically terminates upon a
determination that the liquidation has been completed.
In making payments, follow the Liquidation Plan. First, look at unencumbered assets. Then,
look at unsecured creditors.
5. Ancillary Proceedings
NOTES:
Sec. 136 of FRIA creates a special preference of credit in favor of trade-related claims of
clients or customers upon the trade-related assets, such as cash, securities and trading rights, of a
securities market participant. This special preferred credit enjoys absolute priority over other claims.
NOTES:
Cross-border insolvency occurs when an insolvent debtor has assets in, and creditors from,
several States, giving rise to the possibility that insolvency proceedings may be commenced in
several jurisdictions.
The Model Law on Cross-border Insolvency of the United Nations Commission on International
Trade Law (UNCITRAL), referred to in the FRIA, focuses on the legislative framework needed to
facilitate cooperation and coordination in cross-border insolvency proceedings, specifically
cooperation between the courts and the other competent authorities of the enacting states and
foreign States involved, greater legal certainty for trade and investment, fair and efficient
administration of the proceedings that protects the interests of all creditors and other interested
persons, including the debtor protection and maximization of the value of the debtors assets, and
facilitation of the rescue of financially troubled businesses, thereby protecting investment and
preserving employment.