Credit Transactions Review Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S.

Sagmit

PART EIGHT: CONCURRENCE AND PREFERENCE OF CREDITS PRINCIPLES Assets of a debtor can be used to satisfy obligations with creditors. However, there are certain properties which are exempted from satisfying liabilities. Note, however, that even if these properties are deemed exempted, these assets shall NOT be exempt from execution issued upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon

Properties belonging to the absolute community or conjugal partnership except insofar as the debt has redounded to the benefit of the family (2238); Property held by debtor as trustee of an express or implied trust (2239) Concurrence vs. Preference Concurrence implies the possession of two or more creditors of equal rights or privileges over the SAME property or all of the property of the debtor Preference right held by creditor to be preferred in the payment of his claim above others out of the debtors assets The provisions on concurrence and preference will only apply if the liabilities of the debtor are more than his assets

Exempted Properties Art. 153 - Family Home generally exempted unless for: o Non-payment of taxes o o o Debts incurred prior to the constitution of family home Debts secured by mortgages on the premise before or after such constitution; and Debts due to laborers, mechanics, architects, builders, material men and others who have rendered service or furnished material for the construction of the building (155)

Do not apply the provisions on concurrence and preference if assets are sufficient to pay liabilities. General Categories of Credit (a) Special Preferred 2241 & 2242 (b) Ordinary Preferred 2244 (c) Common Credits - 2245 (a) SPECIAL PREFERRED Envisions a situation where a particular property which is either movable or immovable is subject to certain obligations These special preferred credits or obligations have to be satisfied using the proceeds from the sale of said property

Art. 205 Right to receive support as well as any money or property obtained as such support shall not be levied upon on attachment or execution

Section 13 Exempted Properties Judgment obligors family home or the homestead in which he resides Ordinary tools and implements personally used by him in his trade, employment or livelihood; 3 horses or 3 cows or 3 carabaos or other beasts of burden necessarily used by him in his ordinary occupation; His necessary clothing and articles for ordinary personal use, EXCLUDING jewelry; Household furnitures and utensils necessary for housekeeping with a value not exceeding P100,000; Provisions for individual or family use sufficient for 4 months Professional libraries of judges, lawyers, physicians, pharmacists, dentists, engineers, surveyors, clergymen, teachers and other professionals not exceeding P300,000 in value; 1 fishing boat and accessories not exceeding the total value of P100,000 owned by a fisherman and by the lawful use of which he earns his livelihood; Salaries, wages, earnings of the debtor for his personal services within the 4 months preceeding the levy necessary to support his family; Lettered gravestones;

Illustration A owns a vehicle. The price of the vehicle is not yet paid. The vehicle is also the subject of a chattel mortgage in favor of the financial institution where A obtained a loan for the price. A also has unpaid repair expenses. IDENTIFY THE OBLIGATIONS WITH RESPECT TO THE CAR: unpaid purchase price, chattel mortgage, unpaid repair expenses Special Preferred Credits on Movables 2241

Duties, taxes and fees due on the movable Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties on the movables, money or securities obtained by them Claims for the unpaid price of movables sold Credits guaranteed with a pledge of the movables Credits for repairs, safekeeping, preservation of the property Claims for laborers wages on the goods manufactured or work done

Moneys, benefits, privileges, or annuities accruing or growing out of life insurance; (except endowment) Right to receive legal support or money or property obtained as such support or any pension or gratuity from the government; Properties especially exempted by law;

Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009) Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)

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Credit Transactions Review Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Expenses of salvage Credits between the landlord and tenant

Envisions a situation where a particular credit is not secured by any particular movable or immovable. HOWEVER, this credit happens to be one of those enumerated as ordinary preferred. Hence, the credit will enjoy preference over properties which are not encumbered, including the free portion of the debtor's

Credits for transportation upon goods carried Credits for lodging and supplies usually furnished to travellers by hotelkeepers on movables belonging to the guests Credits for seeds and expenses for cultivation and harvest Credits for rent for 1 year upon personal property of the lessee Claims in favor of the depositor if depositary has wrongfully sold the thing deposited

Special Preferred Credits on a Car o VALUE OF THE VOLVO: P 2M o Liabilities:

property. Ordinary Preferred, 2244: Hierarchical Application Credits for services rendered the insolvent by employees, laborers, household helpers Proper funeral expenses for the debtor, children under his parental authority Expenses during last illness of debtor, spouse and children under his parental authority Compensation due to laborers or dependents under laws providing for indemnity for damages in cases of labor accident or illness arising from nature of employment

Taxes Repairs Pledge Mortgage Safekeeping TOTAL cars value)

P500,000 P500,000 P500,000 P500,000 P500,000 P2,500,000.00 (in excess of the

Taxes must be paid first before others o (2M P500,000) = P1.5M Balance: P1.5 M; Liabilities: P 2 M Get the ratio of each item to the total liabilities = o Repairs = P500,000 .25 P2 M Repairs = .25 x 1.5 Million = P375,000 Only P375,000 of the P500,000 repair cost shall be paid

Ordinary Preferred, 2244 Credits and advancements made to debtor for support of himself and family Support during insolvency proceedings and for 3 months thereafter Fines and civil indemnification arising from criminal offense Legal expenses for administration of insolvents estate Taxes due the national government Taxes due any province Taxes due any city or municipality Damages for death or personal injuries caused by quasidelict Gifts due to private and public institutions of charity Credits without privilege which appear in a public instrument or by final judgment if they have been the subject if litigation

Special Preferred Credits on Immovables, 2242 Taxes due upon the land or building Unpaid price of immovable Claims of laborers, masons and other workmen engaged in construction Claims of furnishers of materials used in construction Mortgage credits recorded in Registry of Property Expenses for preservation, improvement Credits annotated in the Registry of Property Claims of co-heirs for warranty in the partition Claims of donors Credits of insurers upon property insured

(c) COMMON CREDITS 2245

Illustration A is insolvent. The assets of A available for payment consists of his car worth P248,000 and P60,000 in cash. As obligations are: P8,000 for unpaid taxes on his car P160,000 to B for unpaid balance on his car P6,000 to C for cost of car repair

(b) ORDINARY PREFERRED

Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009) Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)

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Credit Transactions Review Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

P80,000 to D for loan secured by chattel mortgage on the car P48,000 to E for funeral expenses for As child P16,000 to F for medicines during last illness of wife P11,200 for unpaid business taxes P32,000 to G for an unsecured loan in 1991 P96,000 to H for an unsecured loan in 1991

Rationale of Preference of credit: A pereference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the debtor. Logically, it becomes material only when the properties and assets of the debtors are insufficient to pay the debts in full. The preferencial right of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established. Preference of Credit Applies only to claims which do not attach to specific properties Lien Creates a charge on a particular property.

STEP 1: Identify the special preferred credits, if any. Car has 4 special preferred credits: Taxes Unpaid balance Repair cost Loan secured by chattel mortgage Since taxes enjoy preference, pay P8,000 first from the value of the car (P248,000)

The right of first preference as regards unpaid wages recognized by article 110 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 in application.

STEP 2: The P248,000 value of the car less than P8,000 taxes leaves P240,000 and there is P256,000 worth more of credits to be paid. The remaining special preferred credits on the car must be paid on a pro rata basis using this formula: (Amount of claim of B) (Remaining value of car) Total preferred credits

CIR vs. NLRC (238 SCRA 42) it is settled that the claim of the govt predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. No merit in the contention of the NLRC that taxes are absolutely preferred claims only with respect to movable or immovable properties on which they due. Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6: "claims for laborer's wages, on the goods manufactured or the work done," or by Article 2242, number 3: "claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals or other works." To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come with the ambit of the category of ordinary preferred credits under Article 2244. Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of the employer. This is clear from the text of the law. Art. 110. Worker preference in case of bankruptcy. In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claims to a share in the assets of the employer.

o o o

B = (P160,000) (P240,000) = P150,000 P256,000 C = (P16,000) P256,000 D = (P80,000) P256,000 (P240,000) = P15,000

(P240,000) = P75,000

NOTE: B, C and Ds credits are not entirely paid, they must join the other common or non-preferred creditors in claiming the balance from the free portion SUMMARY

STEP 1: Special Preferred Credits must be paid from the value of the movable or immovable. Taxes enjoy priority while the rest of the credits are paid proportionally.

STEP 2: Ordinary Preferred Credits are then paid in the order of priority as they are enumerated. The assets used to pay ordinary preferred credits are those which are free from encumbrances under 2241 and 2242 and the free portion under 2241 and 2242.

STEP 3: The non-preferred credits are now paid with whatever free portion remains. Example: P 2M value of property. Pay first taxes valued at P 200,000. Then, P 1.8M must be used to pay proportionately those in #2 to #3 in Article 2241. Cases:

DBP vs. NLRC (183 SCRA 328) - Article 110 of the Labor code and section 10 Rule VIII, Book III of the revised rules and regulations implementing the Labor code, interpreted; Declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. Thus, article 110 of the Labor code and its implementing rule cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a liquidation order. RA 6715 expand worker preference to cover not only unpaid wages but also other monetary claims to which even claims of the govt must be deemed subordinate. In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvents property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvents creditors may be given and where the claim of preferred creditors may be bindingly adjudicated.

Ong vs. CA (253 SCRA 105) - If the Monetary Board shall determine and confirm within (sixty days) that the bank is insolvent or cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institution. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board. The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far as lawful and practicable, all claims against the insolvent bank should be filed in the liquidation proceeding.

J.L. BERNARDO CONSTRUCTION vs. CA (324 SCRA 24) - Art.'s 2241 and 2242 of the Civil Code enumerates certain credits which enjoy preference with respect to specific personal or real property of the debtor. Specifically, the contractor's lien claimed by petitioners is granted under the third paragraph of Article 2242 which provides that the claims of contractors engaged in the construction, reconstruction or repair of buildings

Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009) Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)

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Credit Transactions Review Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit or other works shall be preferred with respect to the specific building or other immovable property constructed. However, Article 2242 only finds application when there is a concurrence of credits, when the same specific property of the debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. In such a situation, the question of preference will arise, that is, there will be a need to determine which of the creditors will be paid ahead of the others.

Voluntary Insolvency Debtor files petition for voluntary insolvency with the RTC (debt must be >P1,000) Court issues an order declaring debtor insolvent Order is published Creditors meet to elect the assignee in insolvency Debtors properties are conveyed by the clerk of court to the assignee Debtors assets are liquidated and debts are paid Composition, or an agreement where creditors agree to receive less than the amount due them Discharge of the debtor on his application Objection, if any to the discharge Appeal to the Supreme Court in extreme cases

INSOLVENCY LAW (ACT 1956) Concept Insolvency generally denotes the state of a person whose liabilities are more than his assets. Used interchangeably with bankruptcy. Insolvency law deals with voluntary and involuntary insolvency and suspension of payments.

Suspension of Payments Sec. 2 The debtor who, possessing sufficient property to cover all his debts, be it an individual person, sociedad or corporation foresees the impossibility of meeting them when they respectively fall due, may petition that he be declared in the state of SUSPENSION OF PAYMENTS by the court or the judge thereof in vacation, of the province or city in which he has resided for 6 months next preceeding the filing of his petition.
Individual who has sufficient assets to cover his debts but who foresees impossibility of meeting debts when they fall due shall file petition for suspension of payments in the city or province where he has resided 6 months preceeding filing of petition. Petition must contain proposed AGREEMENT for payment of debts

Insolvent debtor may file a petition to be discharged with the RTC of the city or province where he has been residing at least 6 months preceeding the petition. The petition shall state his inability to pay all his debts in full, his willingness to surrender all his property and an application to be adjudged Insolvent.

The petition must be accompanied by a full and true statement of all his debts And liabilities, list of creditors, sum due, nature of indebtedness. There must also be an inventory which must accurately describe real and personal property.

Court shall make an order calling a meeting of creditors within 28 weeks from date of order with publication of notice in a newspaper of general circulation. Order is accompanied by an injunction to prevent debtor from disposing his properties except in ordinary commerce or from making payments outside of necessary and legitimate expenses of his business or industry while the suspension proceedings are pending.

Court shall make an order declaring the petitioner insolvent and directing the sheriff to take possession of and safekeep all deeds, vouchers, books of account, papers and all his real and personal property except those exempt from execution. The Order shall also forbid payment to debtor of any debts due to him and delivery to Debtor of property. The Order shall also set the meeting of creditors which shall also be published.

Order is published and delivered personally or sent by registered mail to the creditors named in the schedule

A receiver shall be elected and all documents and properties under The custody of the sheriff shall be turned over to him

Assets are liquidated and debts are paid Creditors representing at least 3/5 of the liabilities is required before there can be a valid meeting. Creditors will vote on the agreement. At least majority must vote in favor Of the agreement. Majority means: (a) 2/3 of the creditors voting unite upon the same proposition (b) Claims represented by said majority vote amount to at least 3/5 of total liabilities of the debtor Debtor may offer terms of composition which may be approved by creditors representing majority of the amount of claims. Composition is an agreement made for sufficient consideration between an insolvent or embarrassed debtor and his creditors whereby the latter for the sake of immediate or sooner payment agree to accept a dividend less than the whole amount of their claims distributed pro rata, in discharge and satisfaction of the whole debt. Application for discharge by the debtor. Objection by the creditors, if any. If the agreement is approved, a creditor who attended the meeting may object thereto on any of the ff grounds: (a) defects in the call for meeting; (b) Fraudulent connivance between 1 or more creditors and the debtor to vote in favor of the agreement (c) fraudulent conveyance of claims to obtain majority vote

If the concept of majority approval is not achieved, the agreement is deemed disapproved and the proceedings are terminated. Parties can enforce their rights.

Effects of Order Declaring Insolvency All the assets of the debtor not exempt from execution are taken possession by the sheriff or until the appointment of a receiver or assignee Forbids the payment of the debtor of any debts due to him and the delivery to the debtor or to any person for him of any property belonging to him and the transfer of any property by him All civil proceedings pending against the insolvent debtor shall be stayed

Court shall decide on the protest. If the protest is granted, proceedings are terminated and parties may proceeds to act on their rights. If debtor violates the agreement, all the rights of creditors rights shall be revested on them.

Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009) Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)

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Credit Transactions Review Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Mortgages or pledges, attachments or executions on property of the debtor duly recorded and not dissolved are NOT affected by the order

Involuntary Insolvency Initiated by a petition filed by at least 3 creditors whose credits accrue in the Philippines with an aggregate amount of not less than P1,000. The petition must set forth one or more acts of insolvency.
Sheriff will be ordered to take possession of and safely keep until the Appointment of an assignee all the deeds, vouchers, papers, notes, bills and real and personal property of the debtor except those exempted properties

Acts of Insolvency Such person is about to depart or has departed from the country with intent to defraud his creditors; That being absent from the country, he remains absent; That he conceals himself to avoid the service of legal process to delay or defraud creditors; He conceals or is removing any of his property to avoid its being attached or taken on legal process; He has suffered his property to remain under attachment or legal process for 3 days for the purpose of hindering or delaying or defrauding his creditors; He has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or delaying or defrauding any creditor or claimant; He has willfully suffered judgment to be taken against him for default for the purpose of hindering or delaying or defrauding his creditors; He has suffered or procured his property to be taken or legal process with intent to give a preference to one or more of his creditors and thereby hinder, delay or defraud any of his creditors; He has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or credits with intent to delay, defraud or hinder his creditors; He has, in contemplation of insolvency, made any payment, grant, sale, conveyance or transfer of his estate, property, rights or credits with intent to delay, defraud or hinder his creditors; That being a merchant or tradesman he has generally defaulted in the payment of his current obligations for a period of 30 days; That for a period of 30 days he has failed after demand, to pay any moneys deposited with him or received by him in a fiduciary capacity; and An execution having been issued against him on final judgment for money, he was found to be without sufficient property subject to execution to satisfy judgment.

The Court will schedule time and place of meeting of creditors which shall be within 2-8 weeks from date of order to choose an assignee. This Order will be published in a newspaper of general circulation.

After the assignee is appointed, sheriff turns over to him all properties of debtor. Assets are liquidated and debts are paid

Debtor may offer terms of composition which may be approved by creditors representing majority of the amount of claims. Composition is an agreement made for sufficient consideration between an insolvent or embarrassed debtor and his creditors whereby the latter for the sake of immediate or sooner payment agree to accept a dividend less than the whole amount of their claims distributed pro rata, in discharge and satisfaction of the whole debt.

Application for discharge by the debtor.

Objection by the creditors, if any.

Voluntary Insolvency vs. Involuntary Insolvency One creditor is sufficient At least 3 creditors must file the petition Insolvent debtor files the petition Debtor must not be guilty of any act of insolvency Debt must be > P 1,000 Bond is not required An adjudication of insolvency may be granted ex parte Petition is filed with RTC of province or city where debtor had resided for 6 months Declaration of insolvency is made upon filing of voluntary insolvency Three or more creditors who meet the requirements file the petition Debtor must be guilty of any act of insolvency Debt must be P 1,000 or above Bond is required Adjudication of insolvency granted only after hearing Length of residence is immaterial Declaration of insolvency is made after hearing

Filing of petition by at least three creditors whose credits are in the country and whose credits have an aggregate amount of at least P1,000. Creditor must NOT be a creditor by assignment within 30 days preceeding the petition. Petition must set forth any of the acts of insolvency and accompanied by a bond Court shall issue an order for debtor to show cause during a hearing why he should not be adjuged an insolvent debtor and upon good cause, the court may also order forbidding the payment of any debt and the delivery of property belonging to such debtor to him or to any other person for his use or benefit or the transfer of any property by him.

Classification and Preference of Creditors in case of Insolvency 1. Equitable claims under Section 48 of the Insolvency Law 2. 3. Preferred claims with respect to specific movable and immovable properties under 2241 and 2242 Preferred claims as to unencumbered property of the debtor under 2244 Common or ordinary credits which shall be paid pro rata regardless of dates under 2245.

A copy of the petition and the order shall be served on the debtor at least 5 days before the hearing

4.

During the hearing the debtor may either answer the petition or file a Demurrer. rules incourt rules in favor of the debtor, the petition If the Court If the favor of petitioners, the Court issues an order shall be dismissed. As insolventPrepared by:the debtor A. guilty of & Jazzie M. Sarona (4-Manresa 2008-2009) adjudging debtor debtor and Mariblithe is Cartujano Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit) acts of insolvency. The court will then order the debtor to submit not later than 3 days from the order a SCHEDULE and INVENTORY of creditors and credits.

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Credit Transactions Review Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Equitable Claims under Sec. 48 Paraphernal property belonging to the wife of insolvent Property held by insolvent on deposit, administration, lease or usufruct Merchandise held by debtor on commission Negotiable instruments for collection or remittance Amounts due the insolvent for sale or merchandise on commission Merchandise bought by the insolvent on credit where delivery is made or where the right of ownership or possession has been retained by the seller Goods or chattels wrongfully taken by the insolvent or the amount or value thereof.

any natural or judicial, provided it is a resident corporation. Neither can the Court accept the theory that the omission by the banks in their petition for involuntary insolvency of an explicit and categorical statement that they are "residents of the Philippine Islands," is fatal to their cause. In truth, in light of the concept of resident foreign corporations just expounded, when they alleged in that petition that they are foreign banking corporations, licensed to do business in the Philippines, and actually doing business in this Country through branch offices or agencies, they were in effect stating that they are resident foreign corporations in the Philippines. There is, of course, as petitioners argue, no substantive law explicitly granting foreign banks the power to petition for the adjudication of a Philippine corporation as a bankrupt. This is inconsequential, for neither is there any legal provision expressly giving domestic banks the same power, although their capacity to petition for insolvency can scarcely be disputed and is not in truth disputed by petitioners. The law plainly grants to a juridical person, whether it be a bank or not or it be a foreign or domestic corporation, as to natural persons as well, such a power to petition for the adjudication of bankruptcy of any person, natural or juridical, provided that it is a resident corporation and joins at least two other residents in presenting the petition to the Bankruptcy Court.

Suspension of Payment vs. Insolvency Purpose is to suspend or delay Purpose is to discharge debtor payment in debts from payment of debts Debtor has sufficient property to pay his debts Amount of indebtedness is not affected Debtor does not have sufficient property to pay his debts Creditors receive less than their credits OR may not receive anything at all in case of preferred credits In voluntary: 1 creditor In involuntary: 3 or more creditors

DBP vs. NLRC (242 SCRA 59) Article 110 of the Labor law should be applied in conjunction with the pertinent provisions of the Civil Code and the Insolvency Law to the extent that piecemeal distribution of the assets of the debtor is avoided. Declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. The rationale is that to hold Art. 110 to be applicable also to extrajudicial proceedings would be putting the worker in a better position than the State which could only assert its own prior preference in case of a judicial proceeding. The amendment expanded the concept of "worker preference" to cover not only unpaid wages but also other monetary claims to which even claims of the Government must be deemed subordinate.

Number of immaterial

creditors

is

BAR 2007 An assignee in a proceeding under the Insolvency Law does not have the duty to: (a) suing to recover the properties of the estate of the insolvent debtor (b) selling the property of the insolvent debtor (c) ensuring that a debtor corporation operates the business effectively and efficiently while proceedings are pending (a) collecting and discharging debts owed to the insolvent debtor ANSWER: C BAR 2007 In order to obtain approval of the proposed settlement of the debtor in an insolvency proceeding: (a) the court must initiate the proposal (b) 2/3 of the number of creditors must agree to the proposal (c) 3/5 of the number of creditors must agree to the settlement (d) 1/3 of the total debts must be representative of the approving creditors (e) letters a and b ANSWER: B Note: The 2/3 creditors who agree to the proposal must represent at least 3/5 of the liabilities of the debtor. Cases:

RUBBERWORLD vs. NLRC (305 SCRA 721) - It is plain from the foregoing provisions of law that "upon the appointment [by the SEC] of a management committee or a rehabilitation receiver," all actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be suspended. The justification for the automatic stay of all pending actions for claims "is to enable the management committee or the rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial interference that might unduly hinder or prevent the "rescue" of the debtor company. To allow such other actions to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation. The law is clear: upon the creation of a management committee or the appointment of a rehabilitation receiver, all claims for actions "shall be suspended accordingly." No exception in favor of labor claims is mentioned in the law. Since the law makes no distinction or exemptions, neither should this Court. Ubi lex non distinguit nec nos distinguere debemos. Allowing labor cases to proceed clearly defeats the purpose of the automatic stays and severally encumbers the management committee's and resources. The said committee would need to defend against these suits, to the detriment of its primary and urgent duty to work towards rehabilitating the corporation and making it viable again. The rule otherwise would open the floodgates to other similarly situated claimants and forestall if not defeat the rescue efforts. Besides, even if the NLRC awards the claims of private respondents, as it did, its ruling could not be enforced as long as the petitioner is under the management committee. The preferential right of workers and employees under Article 110 of the Labor code may be invoked only upon the institution of insolvency or judicial liquidation proceeding. Indeed, it is well-settled that "a declaration of bankruptcy or a judicial liquidation must be present before preferences over various money claims may be enforced." But debtors resort to preference of credit giving preferred creditors the rights to have their claims paid ahead of those of other claimants only when their assets are insufficient to pay their debts fully. The purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims

REPUBLIC vs. PERALTA (150 SCRA 37)

STATE INVESTMENT HOUSE INC. vs. CITIBANK (203 SCRA 9) The law grants to a juridical person as well as to natural persons the power to petition for the adjudication of bankruptcy of

Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009) Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)

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Credit Transactions Review Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit from its earnings. In insolvency proceedings, on the other hand, the company stops operating, and the claims of creditors are satisfied from the assets of the insolvent corporation.

Little drops of water, little grains of sand, make the mighty ocean and the pleasant land; so the little minutes humble though they be, make the mighty ages of eternity.
Mrs. Julia Fletcher Carney

Prepared by: Mariblithe A. Cartujano & Jazzie M. Sarona (4-Manresa 2008-2009) Updated by: Joecabs (Included cases of Atty. Angos and added notes of Atty. Sagmit)

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