PART IV SECURITIES LAWS

A. Securities Regulation
I. Purpose
Securities Regulation Code, Sec 2. Declaration of State Policy. The State shall
a.
b.
c.
d.
e.
f.
g.

Establish a socially-conscious, free market that regulates itself

Encourage the widest participation of ownership in enterprises
Enhance the democratization of wealth
Promote the development of capital market
Protect investors
Ensure fair and full disclosure about securities and
Minimize if not totally eliminate insider trading and other fraudulent and manipulative devices and
practices which create distortions in the free market.

II. Powers and Functions of the Securities and Exchange Commission

PD 902-A, Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:
(a) To issue preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which it
has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply;
(b) To punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent
provisions of, and penalties prescribed by, the Rules of Court;
(c) To compel the officers of any corporation or association registered by it to call meetings of stockholders
or members thereof under its supervision;
(d) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent
stockholders or members;
(e) To issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases order search and seizure or cause the search and seizure of all
documents, papers, files and records as well as books of accounts of any entity or person under
investigation as may be necessary for the proper disposition of the cases before it;
(f) To impose fines and/or penalties for violation of this Decree or any other laws being implemented by the
Commission, the pertinent rules and regulations, its orders, decisions and/or rulings;
(g) To authorize the establishment and operation of stock exchanges, commodity exchanges and such
other similar organization and to supervise and regulate the same; including the authority to determine
their number, size and location, in the light of national or regional requirements for such activities with the
view to promote, conserve or rationalize investment;
(h) To pass upon, refuse or deny, after consultation with the Board of Investments, Department of Industry,
National Economic and Development Authority or any other appropriate government agency, the
application for registration of any corporation, partnership or association or any form of organization falling
within its jurisdiction, if their establishment, organization or operation will not be consistent with the
declared national economic policies.
(i) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law, including the
following: F S R C F F
[1] Fraud in procuring its certificate of registration;
[2] Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of
or damage to the general public;
[3] Refusal to comply or defiance of any lawful order of the Commission restraining commission of
acts which would amount to a grave violation of its franchise;
[4] Continuous inoperation for a period of at least five (5) years;
[5] Failure to file by-laws within the required period;

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[6] Failure to file required reports in appropriate forms as determined by the Commission within the
prescribed period;
(j) To exercise such other powers as implied, necessary or incidental to the carrying out the express powers
granted to the Commission or to achieve the objectives and purposes of this Decree.
In the exercise of the foregoing authority and jurisdiction of the Commission, hearings shall be conducted
by the Commission or by a Commissioner or by such other bodies, boards, committees and/or any officer
as may be created or designated by the Commission for the purpose. The decision, ruling or order of any
such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission sitting
en banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or order. The
Commission shall promulgate rules of procedures to govern the proceedings, hearings and appeals of
cases falling within its jurisdiction.
The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the
Supreme Court by petition for petition for review in accordance with the pertinent provisions of the Rules of
Court.
CASES:
SEC v CA walang facts kasi hindi ko naintindihan
The SEC has both regulatory and adjudicative functions.
Under its regulatory responsibilities, the SEC may pass upon applications for, or may suspend or
revoke (after due notice and hearing), certificates of registration of corporations, partnerships and
associations (excluding cooperatives, homeowners' associations, and labor unions); compel legal and
regulatory compliances; conduct inspections; and impose fines or other penalties for violations of the
Revised Securities Act, as well as implementing rules and directives of the SEC, such as may be warranted.
Relative to its adjudicative authority, the SEC has original and exclusive jurisdiction to hear and decide
controversies and cases involving
a. Intra-corporate and partnership relations between or among the corporation, officers and
stockholders and partners, including their elections or appointments;
b. State and corporate affairs in relation to the legal existence of corporations, partnerships and
associations or to their franchises; and
c. Investors and corporate affairs, particularly in respect of devices and schemes, such as
fraudulent practices, employed by directors, officers, business associates, and/or other
stockholders, partners, or members of registered firms; as well as
d. Petitions for suspension of payments filed by corporations, partnerships or associations
possessing sufficient property to cover all their debts but which foresee the impossibility of meeting
them when they respectively fall due, or possessing insufficient assets to cover their liabilities and
said entities are upon petition or motu proprio, placed under the management of a Rehabilitation
Receiver or Management Committee.
Pineda v Lantin (1962) Upon complaint of a stockholder, SEC ordered investigation of the corporation.
Upon receipt of subpoena duces tecum, the corp and President & GM sought to quash the SECs entire
proceedings. Denied by SEC. Went to RTC. SEC investigators filed motion to dismiss because trial court has
no jurisdiction to review SEC orders. Trial court deferred motion until trial on merits. Investigators filed
petition w/ prohibition to SC.
SC: This Tribunal holds the view that under the Rules of Court and the law applicable to the case at bar, a
Court of First Instance has no jurisdiction to grant injunctive reliefs against the Securities and Exchange
Commission. That power is lodged exclusively with this Court.

Under Sec 6, PD 902-A (1976), aggrieved party may appeal order of the Commission sitting en banc
to the SC via a petition for review in accordance w/ the Rules of Court.

PSE v CA
Puerto Azul Land (PALI) sought to offer its share in public & was issued permit to sell by SEC. PALI then
applied w/ PSE (Phil Stock Exchange) an application to list its shares. Ultimately, PSE denied. (Kasi claiming
beneficial ownership ang Marcoses sa PALI properties and nakialam na pati PCGG kaya ang gulo ng kasong

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to.) PALI wrote to SEC regarding PSEs denial. SEC reversed PSE. Umabot sa CA then, SC, then Justice
League.
Issue: Sino ang mas magaling SEC o PSE?
Held: The SEC is the entity with the primary say as to whether or not securities, including shares of stock
of a corporation, may be traded or not in the stock exchange. This is in line with the SECs mission to
ensure proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and
disposition of securities in the country. But notwithstanding the regulatory power of the SEC over the PSE,
and the resultant authority to reverse the PSEs decision in matters of application for listing in the market,
the SEC may exercise such power only if the PSEs judgment is attended by bad faith.
SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for listing in
the PSE of the private respondent PALI, since this is a matter addressed to the sound discretion of the PSE,
a corporate entity, whose business judgments are respected in the absence of bad faith.
The Court finds that the PSE has acted with justified circumspection, discounting, therefore, any imputation
of arbitrariness and whimsical animation on its part. Its action in refusing to allow the listing of PALI in the
stock exchange is justified by the law and by the circumstances attendant to this case.
SEC & CA decisions reversed and set aside. PSE affirmed PALI application denied.
III. Registration of Securities
SRC Code, 3.1. "Securities" are shares, participation or interests in a corporation or in a commercial
enterprise or profit-making venture and evidenced by a certificate, contract, instrument, whether written
or electronic in character. It includes:
a) Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;
b) Investment contracts, certificates of interest or participation in a profit sharing agreement,
certificates of deposit for a future subscription;
c) Fractional undivided interests in oil, gas or other mineral rights;
d) Derivatives like option and warrants;
e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates
or similar instruments;
f) Proprietary or non proprietary membership certificates in corporations; and
g) Other instruments as may in the future be determined by the Commission.
a. Exempt Securities
SRC Code, SEC. 9. Exempt Securities. 9.1. The requirement of registration under Subsection 8.1 shall
not as a general rule apply to any of the following classes of securities:
a) Any security issued or guaranteed by the Government of the Philippines, or by any political
subdivision or agency thereof, or by any person controlled or supervised by, and acting as an
instrumentality of said Government.
b) Any security issued or guaranteed by the government of any country with which the Philippines
maintains diplomatic relations, or by any state, province or political subdivision thereof on the basis
of reciprocity: Provided, That the Commission may require compliance with the form and content of
disclosures the Commission may prescribe.
c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper
adjudicatory body. d) Any security or its derivatives the sale or transfer of which, by law, is under
the supervision and regulation of the Office of the Insurance Commission, Housing and Land Use
Regulatory Board, or the Bureau of Internal Revenue.
e) Any security issued by a bank except its own shares of stock.
9.2. The Commission may, by rule or regulation after public hearing, add to the foregoing any class of
securities if it finds that the enforcement of this Code with respect to such securities is not necessary in
the public interest and for the protection of investors.
SRC Rule 8.1 (IRR) Exempt Securities

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1. Any evidence of indebtedness issued by a financial institution itself that has been duly licensed by
the Bangko Sentral ng Pilipinas to engage in banking/quasi-banking activity shall be exempt from
registration under Section 8.1 of the Code; provided that the purchase and sale of such security
shall not be considered exempt from the coverage of the provisions of the Code on antifraud,
civil liability or others.
2. The registration requirements shall not likewise apply to any of the following:
A. Evidence of indebtedness issued to the Bangko Sentral ng Pilipinas (BSP) under its open
market and/or rediscounting operations ;
B. Evidence of indebtedness issued to the following primary institutional lenders: banks,
including their trust accounts wherein the bank-trustee is granted discretionary powers in the
investment disposition of the trust funds, investment houses including their trust accounts
wherein the investment house-trustee is granted discretionary powers in the investment
disposition of the trust funds, trust companies, financing companies, inv estment companies,
pre-need companies, non-stock savings and loan associations, building and loan associations,
venture capital corporations, insurance companies, government financial institutions,
pawnshops, pension and retirement funds approved by the BIR, educational assistance funds
established by the national government, and other entities that may be classified as primary
institutional lenders by the BSP, in consultation with the SEC; provided all such evidence of
indebtedness shall only be negotiated or assigned to any of the aforementioned primary
institutional lenders or the Development Bank of the Philippines with respect to private
development banks in relation with their rediscounting privileges; provided further that in
case of non-banks without underwriting licenses, such negotiation or assignment shall be
through banks or non-banks licensed to be an underwriter or a securities dealer; provided
finally, that in no case shall said instrument be negotiated or assigned to non-qualified
investors;
C. Bills of exchange arising from a bona fide sale of goods and services which are distributed
and/or traded by banks or investment houses duly licensed by SEC and BSP through an
organized market properly conventioned and governed by rules approved by the
appropriate regulatory body;
D. Evidence of indebtedness e.g. short or long-term commercial papers, meeting the
following conditions:
Issued to not more than nineteen (19) non-institutional lenders;
Payable to a specific person;
Neither negotiable nor assignable and shall be held on to maturity; and
In an amount not exceeding Fifty Million Pesos (P50,000,000.00) or such higher amount as
the Commission may prescribe by resolution.
b. Exempt Transactions
SRC Code, SEC. 10. Exempt Transactions.
10.1. The requirement of registration under Subsection 8.1 shall not apply to the sale of any security in
any of the following transactions:
a. At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in
insolvency or bankruptcy.
b. By or for the account of a pledge holder, or mortgagee or any other similar lien holder
selling or offering for sale or delivery in the ordinary course of business and not for the
purpose of avoiding the provisions of this Code, to liquidate a bona fide debt, a security pledged
in good faith as security for such debt.
c. An isolated transaction in which any security is sold, offered for sale, subscription or delivery
by the owner thereof, or by his representative for the owners account, such sale or offer for
sale, subscription or delivery not being made in the course of repeated and successive transactions
of a like character by such owner, or on his account by such representative and such owner or
representative not being the underwriter of such security.

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d. The distribution by a corporation, actively engaged in the business authorized by its articles
of incorporation, of securities to its stockholders or other security holders as a stock dividend
or other distribution out of surplus.
e. The sale of capital stock of a corporation to its own stockholders exclusively, where no
commission or other remuneration is paid or given directly or indirectly in connection with the
sale of such capital stock.
f. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal
property, where the entire mortgage together with all the bonds or notes secured thereby are sold
to a single purchaser at a single sale.
g. The issue and delivery of any security in exchange for any other security of the same issuer
pursuant to a right of conversion entitling the holder of the security surrendered in exchange to
make such conversion: Provided, That the security so surrendered has been registered under
this Code or was, when sold, exempt from the provisions of this Code, and that the security issued
and delivered in exchange, if sold at the conversion price, would at the time of such conversion fall
within the class of securities entitled to registration under this Code. Upon such conversion the par
value of the security surrendered in such exchange shall be deemed the price at which the
securities issued and delivered in such exchange are sold.
h. Broker's transactions, executed upon customer's orders, on any registered Exchange or other
trading market.
i. Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof or
in pursuance of an increase in its authorized capital stock under the Corporation Code, when no
expense is incurred, or no commission, compensation or remuneration is paid or given in
connection with the sale or disposition of such securities, and only when the purpose for
soliciting, giving or taking of such subscriptions is to comply with the requirements of such law as
to the percentage of the capital stock of a corporation which should be subscribed before it can
be registered and duly incorporated, or its authorized capital increased.
j. The exchange of securities by the issuer with its existing security holders exclusively, where
no commission or other remuneration is paid or given directly or indirectly for soliciting such
exchange.
k. The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any
twelve-month period.
l. The sale of securities to any number of the following qualified buyers:

Bank;
Registered investment house;
Insurance company;
Pension fund or retirement plan maintained by the Government of the Philippines or any
political subdivision thereof or managed by a bank or other persons authorized by the
Bangko Sentral to engage in trust functions;
Investment company; or
Such other person as the Commission may by rule determine as qualified buyers, on
the basis of such factors as financial sophistication, net worth, knowledge, and
experience in financial and business matters, or amount of assets under management.

10.2 The Commission may exempt other transactions, if it finds that the requirements of registration
under this Code is not necessary in the public interest or for the protection of the investors such as by
reason of the small amount involved or the limited character of the public offering.
10.3 Any person applying for an exemption under this Section, shall file with the Commission a notice
identifying the exemption relied upon on such form and at such time as the Commission by rule may
prescribe and with such notice shall pay to the Commission a fee equivalent to one-tenth (1 /10) of one
percent (1 %) of the maximum aggregate price or issued value of the securities.
c. Requirement and Procedure for Registration
SRC Code, Sec 8. Requirement of Registration of Securities

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8.1 Securities shall not be sold or offered for sale or distribution within the Philippines, without a
registration statement duly filed with and approved by the Commission. Prior to such sale, information on
the securities, in such form and with such substance as the Commission may prescribe, shall be made
available to each prospective purchaser.
8.2 The Commission may conditionally approve the registration statement under such terms as it may
deem necessary.
8.3 The Commission may specify the terms and conditions under which any written communication,
including any summary prospectus, shall be deemed not to constitute an offer for sale under this Section.
8.4 A record of the registration of securities shall be kept in a Register of Securities in which shall be
recorded orders entered by the Commission with respect to such securities. Such register and all
documents or information with respect to the securities registered therein shall be open to public
inspection at reasonable hours on business days.
8.5 The Commission may audit tie financial statements, assets and other information of a firm applying for
registration of its securities whenever it deems the same necessary to insure full disclosure or to protect
the interest of the investors and the public in general.
NOTE: PROSPECTUS (The registration statement shall include any prospectus required or permitted to be
delivered.)
SRC Code, 3.11. "Prospectus" is the document made by or on behalf of an issuer, underwriter or dealer to
sell or offer securities for sale to the public through a registration statement filed with the Commission.
SRC Code, 3.12. "Registration statement" is the application for the registration of securities required to
be filed with the Commission.
*SRC Rule 8.1 (IRR) Requirement to File Registration Statement (RS)*
CASES:
Union Bank v SEC ang facts lang nito, si Union Bank ayaw mag-comply sa Full Material Disclosure Rule
contending that securities issued or guaranteed by banking institutions are exempted from registration
requirements, in effect, hindi na din dapat maga-apply ang Full Material Disclosure Rule sa kanila.
SC: Although exempt securities ang securities issued by banking institutions, they are not exempted
from filing of annual, quarterly, current predecessor and successor reports, proxy statements and forms of
proxy. The Revised Securities Act requires the submission of certain reports to ensure full, fair and accurate
disclosure of information for the protection of the investing public. The mere fact that in regard to its
banking functions, petitioner is already subject to the supervision of the BSP does not exempt the former
from reasonable disclosure regulations issued by the SEC. These regulations are meant to assure full, fair
and accurate disclosure of information for the protection of investors in the stock market. Imposing such
regulations is a function within the jurisdiction of the SEC. Since petitioner opted to trade its shares in the
exchange, then it must abide by the reasonable rules imposed by the SEC.
Nestle Phils v CA
IV. Protection of Shareholder Interests
i.

Tender Offer (SRC Rule 19) - means a publicly announced intention by a person acting alone or in
concert with other persons to acquire equity securities of a public company as defined in SRC Rule 3.
Any person making a tender offer shall make an announcement of his intention in a newspaper of
general circulation, prior to the commencement of the offer; Provided, however, that such
announcement shall not be made until the bidder has the resources to implement the offer in full. A
copy of said notice shall be submitted to the Commission on the date of publication thereof.
SRC Code, Sec. 19
19.1. Any person or group of persons acting in concert who intends to acquire at least 15% of any class of
any equity security of a listed corporation or of any class of any equity security of a corporation with assets
of at least fifty million pesos and having two hundred or more stockholders with at least one hundred
shares each or who intends to acquire at least 30% of such equity over a period of 12 months shall make a
tender offer to stockholders by filing with the Commission a declaration to that effect; xxx
SRC Rule 19. Mandatory tender offers:

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a. Any person or group of person acting in concert, who intends to acquire 35% or more of equity
shares in a public company shall disclose such intention and contemporaneously make a tender
offer for the percent sought to all holders of such class subject to paragraph (9)(E) of this Rule.
b. Any person or group of person acting in concert, who intends to acquire 35% or more of equity
shares in a public company in one or more transaction w/in a period of 12 months, shall be required
to make a tender offer to all holders of such class for the number of shares so acquired w/in the
said period.
c. If any acquisition of even less than thirty five percent (35%) would result in ownership of over
fifty one percent (51%) of the total outstanding equity securities of a public company, the
acquirer shall be required to make a tender offer under this Rule for all the outstanding equity
securities to all remaining stockholders of the said company at a price supported by a fairness
opinion provided by an independent financial advisor or equivalent third party. The acquirer in
such a tender offer shall be required to accept any and all securities thus tendered.
d. In any transaction covered by this Rule, the sale of the shares pursuant to the private transaction
shall not be completed prior to the closing and completion of the tender offer. Transactions
with any of the seller/s of significant blocks of shares with whom the acquirers may have been in
private negotiations shall close at the same time and upon the same terms as the tender offer
made to the public under this Rule. For paragraph (2)(B), the last sale meeting the threshold
shall not be consummated until the closing and completion of the tender offer.
Exempt from Mandatory tender offer requirement
A. The mandatory tender offer requirement shall not apply to the following:
i.
any purchase of shares from the unissued capital stock provided that the acquisition will not
result to a fifty percent (50%) or more ownership of shares by the purchaser;
ii.
any purchase of shares from an increase in authorized capital stock;
iii.
purchase in connection with foreclosure proceedings involving a duly constituted pledge or
security arrangement where the acquisition is made by the debtor or creditor;
iv.
purchases in connection with privatization undertaken by the government of the Philippines;
v.
purchases in connection with corporate rehabilitation under court supervision;
vi.
purchases through an open market at the prevailing market price;
vii.
merger or consolidation.
B. Purchasers of shares in the foregoing transactions shall, however, comply with the disclosure
and other obligations under SRC Rule 18.1 and SRC Rule 23.
Dissemination Requirements
A. A bidder or an issuer shall disseminate the tender offer by complying fully with one of the following
methods of dissemination:
i.
Long Form Publication. The bidder shall publish in two (2) newspapers of general circulation
in the Philippines on the date of commencement of the tender offer and for two (2)
consecutive days thereafter the information required by paragraph 7 (A) of this Rule; or
ii.
Summary Publication. The bidder shall publish in two (2) newspapers of general circulation in the
Philippines on the date of commencement of the tender offer and for two (2) consecutive days
thereafter the information required by paragraph 7(A)(i) through (viii) of this Rule, including
appropriate instructions for security holders on how to obtain promptly, at the expense of the
bidder, the information included in SEC Form 19-1, and furnish promptly a copy of such form to
any security holder who requests a copy of such information.
B. If a material change occurs in the information published, sent or given to security holders, the
bidder shall disseminate promptly disclosure of such change in a manner reasonably calculated to
inform security holders of such change.
Violation
If there shall be a violation of this Rule by pursuing a purchase of equity shares of a public company at
threshold amounts without the required tendered offer, the Commission, upon complaint, may nullify the
said purchase and direct the holding of a tender offer. This shall be without prejudice to the imposition of
other sanctions under the Code.
ii.

Proxy Solicitations
SRC Rule 20

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Proxy includes every proxy, consent or authorization within the meaning of Section 20 of the Code.
The terms solicit and solicitation shall include:
a. Any request for a proxy or authorization;
b. Any request to execute or not to execute, or to revoke, a proxy or authorization; or
c. The furnishing of a form of proxy or other communication to security holders under a circumstance
reasonably calculated to result in the procurement, withholding or revocation of a proxy.
The terms shall not apply to:
a. the performance by any person of ministerial acts on behalf of a person soliciting a proxy; or
b. any solicitation made otherwise than on behalf of the registrant where the total number of persons
solicited is not more than nineteen (19).
SRC Code, Sec 20. Proxy Solicitations
20.1 Proxies must be issued and proxy solicitation must be made in accordance with rules and regulations
to be issued by the Commission;
20.2 Proxies must be in writing, signed by the stockholder or his duly authorized representative and filed
before the scheduled meeting with the corporate secretary.
20.3 Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended.
No proxy shall be valid and effective for a period longer than five (5) years at one time.
20.4 No broker or dealer shall give any proxy, consent or authorization, in respect of any security carried
for the account of a customer, to a person other than the customer, without the express written
authorization of such customer.
20.5 A broker or dealer who holds or acquires the proxy for at least ten per centum (10%) or such
percentage as the Commission may prescribe of the outstanding share of the issuer, shall submit a report
identifying the beneficial owner within ten (10) days after such acquisition, for its own account or
customer, to the issuer of the security, to the Exchange where the security is traded and to the
Commission.
SRC Rule 20, Requirements as to Form of Proxy and Delivery of Information to Security Holders
The form of proxy shall:
i.
ii.
iii.
iv.
v.
iii.

indicate in bold-face type on whose behalf the solicitation is made;

provide a specifically designated blank space for dating the proxy card;
identify clearly and impartially each separate matter intended to be acted upon;
be in writing, signed by the stockholder or his duly authorized representative; and
be filed with the Corporate Secretary before the scheduled meeting.
Disclosure Rules (Sec 17, SRC Code Reportorial Requirements)

SRC, Sec 17. Periodic and Other Reports of Issuers

17.1 Every issuer satisfying the requirements in Subsection 17.2 hereof shall file with the Commission:
a) Within one hundred thirty-five (135) days, after the end of the issuer's fiscal year, or such other time as
the Commission may prescribe, an annual report which shall include, among others, a balance sheet,
profit and loss statement and statement of cash flows, for such last fiscal year, certified by an independent
certified public accountant, and a management discussion and analysis of results of operations; and 22 b)
Such other periodical reports for interim fiscal periods and current reports on significant developments of
the issuer as the Commission may prescribe as necessary to keep current information on the operation of
the business and financial condition of the issuer.
Public Company means any corporation with a class of equity securities listed on an Exchange or with
assets in excess of Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more holders, at
least two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity
securities.
Reporting company means a corporation which has sold a class of its securities pursuant to a registration
under Section 12 of the SRC, or a public company as defined under subparagraph (M) above.

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V. Prohibitions of Fraud, Manipulation and Insider Trading

i.

Manipulation of Security Prices

SRC Code, Sec 24. Manipulation of Security Prices; Devices and Practices
24.1 It shall be unlawful for any person acting for himself or through a dealer or broker, directly or
indirectly:
a) To create a false or misleading appearance of active trading in any listed security in an Exchange or any
other trading market:
i.
ii.

iii.

By effecting any transaction in such security which involves no change in the beneficial
ownership thereof;
By entering an order or orders for the purchase or sale of such security with the knowledge
that a simultaneous order or orders of substantially the same size, time and price, for the
sale or purchase of any such security, has or will be entered by or for the same or different
parties; or
By performing similar act where there is no change in beneficial ownership.

b. To effect, alone or with others, a series of transactions in securities that:

i.

Raises their price to induce the purchase of a security, whether of the same or a different
class of the same issuer or of a controlling, controlled, or commonly controlled company by
others;
ii.
Depresses their price to induce the sale of a security, whether of the same or a different
class, of the same issuer or of a controlling, controlled, or commonly controlled company by
others; or
iii.
Creates active trading to induce such a purchase or sale through manipulative devices such
as marking the close, painting the tape, squeezing the float, hype and dump, boiler room
operations and such other similar devices.
a. To circulate or disseminate information that the price of any security listed in an Exchange will or is
likely to rise or fall because of manipulative market operations of any one or more persons conducted
for the purpose of raising or depressing the price of the security for the purpose of inducing the
purchase or sale of such security.
b. To make false or misleading statement with respect to any material fact, which he knew or had
reasonable ground to believe was so false or misleading, for the purpose of inducing the purchase or
sale of any security listed or traded in an Exchange.
c. To effect, either alone or others, any series of transactions for the purchase and/or sale of any security
traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless
otherwise allowed by this Code or by rules of the Commission.
ii.
Short Sales
SRC Rule 24.2-2 (a). The term "short sale" shall mean any sale of a security which the seller does not
own or any sale which is consummated by the delivery of a security borrowed by, or for the account of the
seller. A person shall be deemed to own a security if:
(1) he or his agent has title to it;
(2) he has purchased, or has entered into an unconditional contract, binding on both parties
thereto, to purchase it and has not yet received it;
(3) he owns a security convertible into or exchangeable for it and has tendered such security for
conversion or exchange; (4) he has an option to purchase or acquire it and has exercised such
option; or
(5) he has rights or warrants to subscribe to it and has exercised such rights or warrants; provided,
however, that a person shall be deemed to own securities only to the extent he has a net long
position in such securities.
iii.

Fraudulent Transactions

SRC Code, Sec 26. Fraudulent Transactions. It shall be unlawful for any person, directly or indirectly,
in connection with the purchase or sale of any securities to:
26.1. Employ any device, scheme, or artifice to defraud;

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26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to
state a material fact necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; or
26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a
fraud or deceit upon any person.
iv.

Insider Trading

SRC Code, Sec 3.8 "Insider" means: (a) the- issuer; (b) a director or officer (or person performing similar
functions) of, or a person controlling the issuer; (c) a person whose relationship or former relationship to
the issuer gives or gave him access to material information about the issuer or the security that is not
generally available to the public; (d) a government employee, or director, or officer of an exchange,
clearing agency and/or self-regulatory organization who has access to material information about an issuer
or a security that is not generally available to the public; or (e) a person who learns such information by a
communication from any of the foregoing insiders.
SRC Code, Sec 27. Insiders Duty to Disclose when Trading.
27.1 It shall be unlawful for an insider to sell or buy a security of the issuer, while in possession of material
information with respect to the issuer or the security that is not generally available to the public, unless:
(a) The insider proves that the information was not gained from such relationship; or
(b) If the other party selling to or buying from the insider (or his agent) is identified, the insider proves:
i.
ii.

That he disclosed the information to the other party, or

That he had reason to believe that the other party otherwise is also in possession of the
information.

A purchase or sale of a security of the issuer made by an insider defined in Subsection 3.8, or such
insider's spouse or relatives by affinity or consanguinity within the second degree, legitimate or commonlaw, shall be presumed to have been effected while in possession of material non-public information if
transacted after such information came into existence but prior to dissemination of such information to the
public and the lapse of a reasonable time for the market to absorb such information: Provided, however,
That this presumption shall be rebutted upon a showing by the purchaser or seller that he was not aware
of the material non-public information at the time of the purchase or sale.
27.3. It shall be unlawful for any insider to communicate material nonpublic information about the issuer
or the security to any person who, by virtue of the communication, becomes an insider as defined in
Subsection 3.8, where the insider communicating the information knows or has reason to believe that such
person will likely buy or sell a security of the issuer while in possession of such information.
MARKING THE CLOSE buying & selling securities at the close of the market in an effort to alter the closing
price of the security
PAINTING THE TAPE engaging in a series of transaction that are reported publicly to give the impression
of activity of price movement in a security
SQUEEZING THE FLOAT taking advantage of a shortage of securities in the market by controlling demand
side and exploiting market congestion during such shortages in a way as to create artificial prices
HYPE AND DUMP engaging in buying activity at increasingly higher prices and then selling the securities
in the market at higher prices
BOILER ROOM OPERATIONS a well-organized operation where in a room, there would well-trained
salesman operating over several phones and using high-pressure sales talk to get investors to invest in
securities offered
WINDOW DRESSING
VI. Securities Market Professionals and Self-Regulatory Organizations (Sec 28, SRC Code)
VII. Liabilities and Penalties (Chapter XIII, SRC)
Civil Liabilities
1. Civil liabilities on account of False Registration Statement (Sec 56)

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2. Civil liabilities arising in connection w/ prospectus, communications and reports (untrue, false or
misleading statements) (Sec 57)
3. For fraud in connection with securities transactions (Sec 58)
4. For Manipulation of Security Prices (Sec 59)
5. Civil liability on account of insider trading (Sec 61)
Penalties
I.

Administrative Sanctions
a. Suspension or revocation of any registration for the offering of securities
b. Fine
c. Disqualification from being an officer, member of the Board of Directors
d. Other penalties w/in the power of the Commission to impose
e. Admin sanctions w/o prejudice to the filing of criminal charges
II. Sec 73. Any person who violates any of the provisions of this Code, or the rules and regulations
promulgated by the Commission under authority thereof, or any person who, in registration statement
filed under this Code, makes any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not misleading, shall upon
conviction, suffer a fine of not less that 50 thousand pesos nor more than 5 million pesos or
imprisonment xxx or both in the discretion of the court.
If the offender is a corporation, partnership or association or other juridical entity, the penalty may in
the discretion of the court be imposed upon such juridical entity and upon the officer or officers xxx
responsible for the violation, and if such officer is an alien, he shall in addition to the penalties
prescribed, be deported without further proceedings after service of sentence.

B. Financial Rehabilitation

(RA 10142 - Financial Rehabilitation and Insolvency Act of 2010)

Definitions:
Commencement Order shall refer to the order issued by the court under Section 16 of this Act.
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.
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.
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.
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.
Voluntary proceedings shall refer to proceedings initiated by the debtor.
i.

Nature of Proceedings

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.

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ii.

Court-Supervised Rehabilitation

VOLUNTARY PROCEEDINGS Debtor initiated

Sec 12. 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.
This must be approved by:
a. OWNER in case of a sole proprietorship
b. MAJORITY OF THE PARTNERS if partnership
c. 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 if a corporation
d. VOTE OF AT LEAST 2/3 OF THE MEMBERS IN A STOCKHOLDERS OR MEMBERS MEETING DULY
CALLED FOR THAT PURPOSE if non-stock corporation
Include as attachment or part of the body of the petition:
(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.
INVOLUNTARY PROCEEDINGS Creditor initiated
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;

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(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.
Rehabilitation proceedings shall commence upon the issuance of the Commencement Order (Sec 16).
Stay or Suspension Order (Sec 16):
(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.
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. (Sec 21)
From receipt of report of the rehabilitation receiver, the court may:
o Give due course to the petition
o Dismiss the petition
o Convert the proceedings into one for the liquidation
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
disqualifications 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 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.
Section 30.Initial Appointment of the Rehabilitation Receiver. - The court shall initially appoint the
rehabilitation receiver, who may or 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 may or may not be from among those nominated.

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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: xxx
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.
Creditor Approval of Rehab Plan (Sec 64): 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.
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.
If creditors approve Rehab Plan, receiver shall submit the same to the court for confirmation and court
shall notify the creditors that the Rehab Plan has been submitted for confirmation. (Sec 65)
The rehab proceedings shall xxx be terminated by order of the court either declaring a successful
implementation of the Rehabilitation Plan or a failure of rehabilitation. (Sec 74)
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

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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.
iv.

Out-of-Court Rehabilitation

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.
v.

Liquidation and Insolvency

Insolvency of Individual Debtors

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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.
-Court will act on the petition (Sec 95)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 threefifths (3/5) of the liabilities shall be necessary for holding a meeting. Xxx
xxx
(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 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. INVOLUNTARY LIQUIDATION

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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 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 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

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(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.

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