INSOLVENCY LAW (Act No.
1956) When a debtor is in the state of insolvency, he may
INSOLVENCY DEFINED
Under the Insolvency Law, a person is
insolvent when his liabilities are more than his
assets.
Under the Civil Code, a person is insolvent
when even though he possesses sufficient
assets to cover his liabilities, he is unable to
regularly pay said obligations as they fall due.
In general terms, it is the state wherein a
debtor, possessing sufficient property to cover
all his debts, be it an individual person, be it a
sociedad or corporation, foresees the
impossibility of meeting them when they
respectively fall due.
PHILOSOPHY BEHIND THE INSOLVENCY LAW
There are times when a person wants to pay his
debts but cannot pay them despite his efforts
and desire to do so.
The philosophy behind the Insolvency Law is to
allow such debtor to turn over all his assets,
except those exempt from execution, for
distribution among his creditors and, thereafter,
to turn a new leaf in his economic life. Then he
can start anew without being bothered by his
old creditors.
SUSPENSION OF PAYMENTS (SOP)
is the postponement by court order of the
payment of debts of one who, while possessing
sufficient property to cover his debts, foresees
the impossibility of meeting them when they
respectively fall due.
PURPOSE & BASIS OF SOP
-The purpose of a suspension of payments is
to suspend or delay the payment of debts the
amount of which isnt affected although a
postponement is declared
The basis is the probability of the debtors
inability to meet his obligation when they
respectively fall due, despite the fact that he
has sufficient assets to cover all his liabilities.
STEPS IN SUSPENSION OF PAYMENTS
1. Filing of petition by the debtor
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 of the city in which he has
resided for six months next preceding the filing of his
petition.
The petition must have an attached schedule and
inventory of:
a. Statement of debts and liabilities
b. Description of real and personal property
c. Verification
d. Proposed agreement requested with Creditors
2. Issuance by the court of an order calling a meeting of
creditors
The meeting must take place in not less than 2
weeks nor more than 8 weeks from the calling
of such order
The order must designate the day, hour, and
place of meeting of said creditors as well as a
newspaper of general circulation published in
the province or city in which the petition is filed
Said order shall further contain an absolute
injunction forbidding the petitioning debtor from
disposing in any manner of his property, or
making payments for expense, except those in
the ordinary course of the business.
3. Publication of the order and service of summons
A copy of said order shall immediately be
published 1 by the clerk of said court.
Copies of orders must also be sent to all the
creditors declared in the attachments to the
petition.
4. Meeting of creditors for the consideration of the
debtors proposition
- The presence of the creditors representing at least
three-fifths of the liabilities shall be necessary for
holding a meeting.
5. Approval of the creditors of the debtors proposition

6. Objections, if any, to the decision which must be
made within 10 days following the meeting
GROUNDS FOR OBJECTION TO DECISION:
a. Defects in the call for the meeting, in the holding
thereof, and in and the deliberations had thereat which
prejudice the rights of the creditors
b. Fraudulent connivance between one or more
creditors and in debtor to vote in favor of the proposed
agreement
c. Fraudulent conveyance of claims for the purpose of
obtaining a majority.
7. Issuance of order by the court directing that the
agreement be carried out in case the decision is
declared valid, or when no objection to said decision
has been presented.
KINDS OF INSOLVENCY
1) VOLUNTARY INSOLVENCY - an insolvent
debtor owing debts exceeding in amount in the
sum of P1000, may apply to be discharged from
his debts and liabilities by petition to the RTC of
the province or city in which he has resided for
6 months next preceding the filing of the
petition.
STEPS IN VOLUNTARY INSOLVENCY
a. Filing of the petition by the debtor praying for the
declaration of insolvency
b. Issuance of order of adjudication declaring the
petitioner insolvent
c. Publication and service of the order
d. Meeting of the creditors to elect the assignee in
insolvency
e. Conveyance of the debtors property by the clerk of
court to the assignee
f. Liquidation of the debtors assets and payment of his
debts
g. Composition, if agreed upon
h. Discharge of the debtor on his application, except a
corporation
i. Objection, if any, to the discharge
j. Appeal to the SC in certain cases
In voluntary insolvency, a debtor is deemed insolvent
upon filing of the petition. The filing of such petition on
the part of the debtor is considered an admission of
insolvency on his part.
In simple terms, it is called voluntary insolvency
because the debtor admits that he cannot pay his
obligations as they come due. He is declared insolvent
from the time he admits such (i.e. submission of
petition).
ASSIGNEE IN INSOLVENCY
role is in a nature of a receiver.
gathers all the assets of the debtor, and
proceeds to make the inventory. If he discovers
some properties of the debtor to be in the
possession of third parties, he must take action
to recover them. His main function is to
preserve the property and convert the assets
into cash to await the order of the court for the
payment of approved claims.
2) INVOLUNTARY INSOLVENCY - an
adjudication of insolvency may be made by the
petition of 3 or more creditors, residents of the
Philippines, whose credits or demands accrued
in the Philippines, for the amount of which
credits or demands are in the aggregate of not
less than P1000.
NATURE OF INVOLUNTARY INSOLVENCY
PROCEEDINGS
- An involuntary insolvency isnt a mere personal action
against the insolvent for the collection of debts; but its
purpose is to impound all of his non-exempt
property, to distribute it equitably among his creditors
and to release him from further liability. It is an action in
rem and action in persona.
STEPS IN INVOLUNTARY INSOLVENCY
Filing of the petition by three or more creditors
b. Issuance of order requiring the debtor to show cause
why he shouldnt be adjudged insolvent
c. Service of order to show cause
d. Filing of answer or motion to dismiss
e. Hearing of the case
f. Issuance of order or decision adjudging debtor
insolvent
g. Publication and service of order
h. Meeting of creditors for election of an assignee in
insolvency
i. Conveyance of debtors property by clerk of court (a) appointing a Rehabilitation Receiver and
j. Liquidation of assets and payments of debts fixing his bond;
k. Composition, if agreed upon (b) staying enforcement of all claims
l. Discharge of the debtor on his application, except a (c) prohibiting the debtor from selling,
corporation encumbering, transferring, or disposing in any manner
m. Objection if any to the discharge any of its properties except in the ordinary course of
n. Appeal to the SC in certain cases business;
CORPORATE REHABILITATION (d) prohibiting the debtor from making any
payment of its liabilities outstanding as at the date of
(A.M. NO. 00-8-10-SC)
filing of the petition;
DEFINITION OF TERMS
(e) prohibiting the debtor's suppliers of goods or
"Administrative expenses" shall refer to those
services from withholding supply of goods and services
expenses incurred in the ordinary course of business of
in the ordinary course of business for as long as the
the debtor after the issuance of the stay order,
debtor makes payments for the services and goods
excluding interest payable to creditors.
supplied after the issuance of the stay order;
"Affidavit of General Financial Condition" shall refer
(f) directing the payment in full of all
to a verified statement on the general financial
administrative expenses incurred after the issuance of
condition of the debtor required in Section 2, Rule 4 of
the stay order;
these Rules.
(g) fixing the initial hearing on the petition not
"Board of Directors" shall include the executive
earlier than forty five (45) days but not later than sixty
committee or the management of a partnership or
(60) days from the filing thereof;
association.
(h) directing the petitioner to publish the Order
"Claim" shall include all claims or demands of
in a newspaper of general of general circulation in the
whatever nature or character against a debtor or its
Philippines once a week for two (2) consecutive weeks;
property, whether for money or otherwise.
(i) directing all creditors and all interested
"Creditor" shall mean any holder of a Claim.
parties (including the SEC) to file and serve on the
"Court" shall refer to the proper Regional Trial Court
debtor a verified comment on or opposition to the
designated to hear and decide the cases contemplated
petition, with supporting affidavits and documents, not
under these Rules.
later than ten (10) days before the date of the initial
"Debtor" shall mean any corporation, partnership, or
hearing and putting them on notice that their failure to
association, whether supervised or regulated by the
do so will bar them from participating in the
Securities and Exchange Commission or other
proceedings; and
government agencies, on whose behalf a petition for
(j) directing the creditors and interested parties
rehabilitation has been filed under these Rules.
to secure from the court copies of the petition and its
"Stockholder" shall include a member of a non-stock
annexes within such time as to enable themselves to
corporation or association, in a partnership.
file their comment on or opposition to the petition and to
STAY ORDER prepare for the initial hearing of the petition.
A stay order is sometimes essential to the survival of a
distressed company. A stay order keeps at bay the The petitioner shall immediately serve a copy of the
pack of unhappy and understandably impatient stay order on the Rehabilitation Receiver appointed by
creditors and prevents them from tearing apart and the court, who shall manifest his acceptance or non-
bringing about the certain death of the helpless acceptance of his appointment not later than ten (10)
company. days from receipt of the order.
If the court finds the petition to be sufficient in form and
substance, it shall, not later than five (5) days from the
filing of the petition, issue a Stay Order:
Period of the Stay Order. - The stay order shall be
effective from the date of its issuance until the
dismissal of the petition or the termination of the
rehabilitation proceedings.
The petition shall be dismissal if no rehabilitation plan is
approved by the court upon the lapse of one hundred
eighty (180) days from the date of the initial hearing.
The court may grant an extension beyond this period
only if it appears by convincing and compelling
evidence that the debtor may successfully be
rehabilitated. In no instance, however, shall the period
for approving or disapproving a rehabilitation plan
exceed eighteen (18) months from the date of filing of
the petition.
REHABILITATION RECEIVER
The Rehabilitation Receiver shall not take over the
management and control of the debtor but shall closely
oversee and monitor the operations of the debtor
during the pendency of the proceedings, and for this
purpose shall have the powers, duties and functions of
a receiver under Presidential Decree No. 902-A, as
amended, and the Rules of Court.
The Rehabilitation Receiver shall be considered as an
officer of the court. He shall be primarily tasked to study
the best way to rehabilitate the debtor and to ensure
that the value of the debtor's property is reasonably
maintained pending the determination of whether or not
the debtor should be rehabilitated, as well as
implement the rehabilitation plan after its approval.
REHABILITATION PLAN
The rehabilitation plan shall include
1. the desired business targets or goals and the
duration and coverage of the rehabilitation;
2. the terms and conditions of such rehabilitation
3. the material financial commitments to support the
rehabilitation plan;
4. the means for the execution of the rehabilitation plan
5. a liquidation analysis
6. such other relevant information
A petition for rehabilitation may be made by any debtor
who foresees the impossibility of meeting its debts
when they respectively fall due, or any creditor or
creditors holding at least twenty-five percent (25%) of
the debtor's total liabilities, may petition the proper
Regional Trial Court to have the debtor placed under
rehabilitation.
CONTENTS OF PETITION
The petition filed (5 copies) by the debtor must be
verified and must set forth with sufficient particularly all
the following material facts:
(a) the name and business of the debtor;
(b) the nature of the business of the debtor;
(c) the history of the debtor;
(d) the cause of its inability to pay its debts;
(e) all the pending actions or proceedings known to the
debtor and the courts or tribunals where they are
pending;
(f) threats or demands to enforce claims or liens
against the debtor; and
(g) the manner by which the debtor may be
rehabilitated and how such rehabilitation may benefit
the general body of creditors, employees, and
stockholders.
The petition shall be accompanied by the following
documents:
a. An audited financial statement of the debtor at the
end of its last fiscal year;
b. Interim financial statements as of the end of the
month prior to the filing of the petition;
c. Schedule of Debts and Liabilities
d. Any Inventory of Assets
e. A rehabilitation plan
f. A Schedule of Payments and disposition of assets
g. A Schedule of the Cash Flow
h. A Statement of Possible Claims by or against the
debtor
i. An Affidavit of General Financial Condition
j. At least three (3) nominees for the position of
Rehabilitation Receiver
k. A Certificate attesting, under oath, that the
- filing of the petition has been duly authorized; and
- the directors and stockholders have irrevocably
approved such petition
END
BOUNCING CHECKS LAW (BP 22)
Checks without sufficient funds
Any person who makes or draws and issues any check to apply on account or for value,
knowing at the time of issue that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of funds or credit or would
have been dishonored for the same reason had not the drawer, without any valid reason,
ordered the bank to stop payment, shall be punished by:

- * imprisonment of not less than thirty days but not more than one (1) year or
-* by a fine of not less than but not more than double the amount of the check which fine shall in
no case exceed Two Hundred Thousand Pesos,
- * or both such fine and imprisonment at the discretion of the court.
The same penalty shall be imposed upon any Person who, having sufficient funds in or credit
with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient
funds or to maintain a credit to cover the full amount of the check if presented within a
period of ninety (90) days from the date appearing thereon, for which reason it is dishonored
by the drawee bank.