Vous êtes sur la page 1sur 27

SIGNIFICANT NOTES ON THE LAWS ON INSOLVENCY Act No. 1956, As amended Prepared by Atty. Janet Grace B.

DalisayFabrero ADDU- CPA Board Review Center I. Governing Law Insolvency is governed by special laws insofar as said laws are not inconsistent with the Civil Code (Article 2237). Said provision of the Civil Code provides that Insolvency shall be governed by Special Laws insofar as they are not inconsistent with the Civil Code. The basic special law on Insolvency is Act. No 1956; supplementary to it are the New Central Bank Act ( Republic Act 7653) in case of banks, the Insurance Code as amended by Presidential Decree 1141 , in case of insurance companies, and the Presidential Decree No. 902-A as amended Republic Act No. 8799 on corporation and partnership in suspension of payments. II. Concept Insolvency, in general, is the state of inability of a person to pay his debts at maturity. Under the Philippine law, insolvency and bankruptcy are synonymous terms and used interchangeably. In common law, however, bankruptcy is used for traders and merchants, the law on which may permit a discharge similar to the Philippine Law in insolvency; whereas, the term insolvency refers to non-traders and nonmerchants, the law on which generally will not warrant the exoneration of the insolvent from further liability. Insolvency is a condition of a person who is insolvent; inability to pay ones debts; the term insolvency is broader than bankruptcy and historically bankruptcy was included within its scope. Insolvency has two (2) distinct and welldefined significations. In its general and popular meaning, insolvency denotes the state of one whose entire property and assets, where converted into money without unreasonable haste or sacrifice, are insufficient to pay his debts, or his general inability to pay his debts. However, the turn is frequently used in the more restricted sense to express the inability of the person to pay his debts as they become due in the ordinary course of business and it is generally so used when applied to persons in commercial pursuits. (44 C.J.S. 337-338) II. Purpose and scheme of Law on Insolvency A. Purpose: The main purpose of the insolvency law is to convert assets of the bankrupt into money for distribution among creditors, then to relieve the honest debtor from the weight or oppressive indebtedness and permit him to start anew free from the obligations and responsibilities consequent upon business misfortunes. (Williams v. U.S. & G Co., 236 U.S. 549) The law is aimed at affording the debtor who needs time, the opportunity to settle in full his obligations as and when they fall due, and the creditors the opportunity of getting them together to restructure debt maturities or at bringing about an equitable distribution to them of the assets of an insolvent, as well as

permitting the debtor to start afresh in his economic standing by discharging him from further liability on his previously contracted and imposed obligations. B. Schemes The following methods are employed in order to achieve the basic objectives of the law, viz: 1. Suspension of Payment Suspension of payments 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. ( Sec. 2, paragraph 1) The purpose of a suspension of payments is to suspend or delay the payment of debts the amount of which is not affected although a postponement is declared. The basis is the probability of the debtors inability to meet his obligations when they respectively fall due, despite the fact that he has sufficient assets to cover all his liabilities. SECTION 2. Petition. The debtor who, 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, 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 of the city in which he has resided for six months next preceding the filing of his petition. He shall necessarily annex to his petition a schedule and inventory in the form provided in sections fifteen, sixteen, and seventeen of this Act, in addition to the statement of his assets and liabilities and the proposed agreement he requests of his creditors. SECTION 3. Meeting of Creditors; Injunction. Upon receiving and filing the petition with the schedule and documents mentioned in the next preceding section, the court, or the judge thereof in vacation, shall make an order calling a meeting of creditors to take place in not less than two weeks nor more than eight weeks from the date of such order. Said order shall 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, if there be one, and if there be none, in a newspaper which, in the judgment of the judge, will best give notice to the creditors of the said debtor, and in the newspaper so designated said order shall be published as often as may be prescribed by the court or the judge thereof. Said order shall further contain an absolute injunction forbidding the petitioning debtor from disposing in any manner of his property, except in so far as concerns the ordinary operations of commerce or of industry in which the petitioner is engaged, and,

-1-

furthermore, from making any payments outside of the necessary or legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of payments are pending, and said proceedings for the purposes of this Act shall be considered to have been instituted from the date of the filing of the petition. *** SECTION 5. Creditors cited to appear. Only creditors included in the schedule filed by the debtor shall be cited to appear and take part in the meeting mentioned in section three, and they shall be notified upon delivery or transmission to them of a copy of the order calling the meeting to appear at same with the written evidences of their respective claims, without which they shall not be admitted. SECTION 6. Pending Execution. If any execution be pending against the debtor it shall not be consolidated with this proceeding, but the course thereof shall be suspended before sale of property is made thereunder, provided the debtor makes a request therefor to the court before which the proceeding for suspension of payments is pending, unless the execution be against property especially mortgaged which is hereby exempted from the least the provisions of this section. The suspension ordered by virtue of this section shall lapse when three months shall have passed without the proposed agreement being accepted by the creditors or as soon as it is denied. No creditor and the other than those mentioned in section nine shall sue or institute proceedings to collect his claim from the debtor from the moment that suspension of payments is applied for and while the proceedings are pending. SECTION 7. Creditors may be represented at the meeting by one or more lawyers or by any person authorized by power of attorney, which document shall be presented and be attached to the record. Persons appearing for more than one creditor shall have only one personal vote, but the claims presented by them shall be taken into consideration for the purpose of arriving at the majority of the amount represented. SECTION 8. Creditors necessary to hold a meeting; Meeting; Minutes of the meeting. The presence of the creditors representing at least threefifths the liabilities shall be necessary for holding a meeting. The meeting shall be held on the day and at the hour and place designated, the judge, or commissioner deputized by him when he is absent from the province where the meeting is held, acting as president and the clerk as secretary thereof, subject to the following rules: (a) The clerk shall prepare for insertion in the minutes of the meeting a statement of the persons present and their claims; the judge, or, in default thereof, the commissioner, shall examine the written evidences of the claims and the powers of attorney, if

any. If the persons present who have complied with the foregoing rules represent at least three-fifths of the liabilities, the judge or commissioner shall declare the meeting open for business. (b) The petition of the debtor, the schedule of debts and of property, the statement of assets and liabilities, and the proposed agreement filed therewith shall be read forthwith by the clerk, and the discussion shall be opened. (c) The debtor may modify his proposition or propositions in view of the result of the debate, or insist upon the ones already made, and the judge or commissioner, without further discussion, shall clearly and succinctly place these several propositions before the meeting for a vote thereupon. (d) The vote shall be taken by a call of names and shall be inserted in and the minutes; a majority vote shall rule. (e) To form a majority it is necessary 1. That two-thirds of the creditors voting unite upon the same position. 2. That the claims represented by said majority vote amount to at least threefifths of the total liabilities of the debtor mentioned in the petition. (f) After the result of the voting has been announced, all protests made against the majority vote shall be drawn up, and there shall be inserted therein the proposition or propositions voted upon, which, after having been read and approved, shall be signed by the judge or commissioner together with all persons taking part in the voting; if any such persons shall be unable to write, any person present shall sign, at their request, and the clerk shall certify to all of the above. SECTION 9. Persons who may refrain from voting. Persons having claims for personal labor, maintenance, expenses of last illness and funeral of the wife or children of the debtor, incurred in the sixty days immediately preceding the filing of the petition, and persons having legal or contractual mortgages, may refrain from attending the meeting and from voting therein. Such persons shall not be bound by any agreement determined upon at such meeting, but if they should join in the voting they shall be bound in the same manner as are the other creditors. SECTION 10. Rejection of agreement. The proposed agreement shall be deemed rejected if the number of creditors required for holding a meeting do not attend thereat, or if the two majorities mentioned in rule (e) of section eight are not in favor thereof, even if the negative vote itself does not receive such majorities. SECTION 11. Termination of proceedings without recourse; Court hearing. If the decision of the meeting be negative as regards the proposed agreement or if no decision is had in default of such number or of such majorities, the proceeding shall be terminated without recourse and the parties concerned shall be at liberty to enforce the rights which may

-2-

correspond to them. If the decision is favorable to the debtor it may be objected to within ten days following the date of the meeting by any creditor who attended the meeting and who dissented from and protested against the vote of the majority. The opposition or objection to the decision of the majority favorable to the debtor shall be proceeded with as in any other incidental motion, the debtor and the creditors who shall appear declaring their purpose to sustain the decision of the meeting being the defendants. The court shall hear and pass upon such objection as soon as possible in a summary manner, and in its order, which shall be final, it shall declare whether or not the decision of the meeting is valid. In case that the decision of the meeting is held to be null, the court shall declare the proceeding terminated and the parties concerned at liberty to exercise the rights which may correspond to them; and in case the decision of the meeting is declared valid, or when no opposition or objection to said decision has been presented, the court shall order that the agreement be carried out and the persons concerned shall be bound by the decision of the meeting. The court may also issue all orders which may be proper to enforce the agreement on motion of any of the parties litigant. The order directing the agreement to be made effective shall be binding upon all creditors included in the schedule of the debtor who may have been properly summoned, but not upon creditors mentioned in section nine who failed to attend the meeting or refrained from voting therein, and their rights shall not be affected by the agreement unless they may have expressly or impliedly consented thereto. SECTION 12. The causes for which objection may be made to the decision of the meeting shall be (a) Defects in the call for the meeting, in the holding thereof, and in the deliberations had thereat which prejudice the rights of the creditors; (b) Fraudulent connivance between one or more creditors and in debtor to vote in favor of the proposed agreement; (c) Fraudulent conveyance of claims for the purpose of obtaining a majority. SECTION 13. Failure of debtor to perform agreement. If the 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 debtor before the agreement shall revest in them. In such case the debtor may be made subject to the bankruptcy and insolvency proceedings in the manner established by the following chapters of this Act: a. Procedures and Effects A debtor who has sufficient assets but who may be unable to meet his obligations as and when they fall due, may

petition for suspension of payments, annexing thereto a schedule of his obligations and an inventory of his assets. The debtors proposal, or a modification thereof, will be sustained if it is approved by at least two-thirds (2/3) of the creditors representing at least three-fifths (3/5) of the total liabilities of the debtor stated in the petition. Creditors not affected by order of suspension of payments Persons (a) having claims for personal labor, maintenance expended for the last illness an funeral of the spouse or children of the debtor, incurred within 60 days immediately preceding the filing of the petition, or (b) having legal or contractual mortgages, may opt to exclude themselves, but if they should join the meeting of creditors and vote, they shall be bound by any agreement therein concluded *See Sec. 9, Act 1956). The phrase legal or contractual mortgages would include the preferred creditors under Article 2241 and 2242 of the Civil Code, which by law are considered mortgages or as pledges within the purview of the insolvency laws (Article 2243, Civil Code) Classification of Credits under the Civil Code. ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred: (1) Duties, taxes and fees due thereon to the State or any subdivision thereof; (2) 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; (3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; (5) Credits for the making, repair, safekeeping or preservation of personal property, on the movable thus made, repaired, kept or possessed; (6) Claims for laborers' wages, on the goods manufactured or the work done; (7) For expenses of salvage, upon the goods salvaged; (8) Credits between the landlord and the tenant, arising from the contract of tenancy on shares, on the share of each in the fruits or harvest;

-3-

(9) Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their delivery and for thirty days thereafter; (10) Credits for lodging and supplies usually furnished to travellers by hotel keepers, on the movables belonging to the guest as long as such movables are in the hotel, but not for money loaned to the guests; (11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the fruits harvested; (12) Credits for rent for one year, upon the personal property of the lessee existing on the immovable leased and on the fruits of the same, but not on money or instruments of credit; (13) Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited, upon the price of the sale. In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor may demand them from any possessor, within thirty days from the unlawful seizure. (1922a) cdasia ARTICLE 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right: (1) Taxes due upon the land or building; (2) For the unpaid price of real property sold, upon the immovable sold; (3) Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the construction, reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works; (4) Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works, upon said buildings, canals or other works; (5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged; (6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or improved; (7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to later credits; (8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided; (9) Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated;

(10) Credits of insurers, upon the property insured, for the insurance premium for two years. (1923a) ARTICLE 2243. The claims or credits enumerated in the two preceding articles shall be considered as mortgages or pledges of real or personal property, or liens within the purview of legal provisions governing insolvency. Taxes mentioned in No. 1, article 2241, and No. 1, article 2242, shall first be satisfied. (n) Creditors of claims, other than those mentioned above, are barred from suing or instituting proceedings thereon from the moment that suspension of payments is applied for and while the proceedings are pending. *See Sec 6 in relation to Sec. 9, Act 1956) b. Injunction The order of the court, or the Securities and Exchange Commission in the case of corporations or partnerships which invoke the insolvency law rather than their rehabilitation as prescribed by Presidential Decree No. 905-A ( now R.A. No 8799), calling a meeting of creditors shall contain an injunction forbidding the petitioning debtor (1) from disposing in any manner his property except in the ordinary course of business, and (2) from making any payment except for necessary and legitimate business expenses (Section 3, 1956). c. Other Effects (1) Execution against the debtor shall be suspended before the sale of the levied property, but not the foreclosure of mortgaged property, upon application therefor with the court where the suspension of payment is pending. The suspension order shall lapse three (3) months if no agreement among the creditors is reached. (2) Other than by the preferred creditors under Section 9 of the law, no suits or proceedings shall be initiated against the debtor after the suspension of payment is applied for and while the proceedings are pending. (3) If the proposed agreement among the creditors fails, the proceeding shall be terminated and the parties may proceed accordingly on their respective claims. If the decision is favorable, the court shall allow objections thereto within 10 days. If the same is held to be null after hearing, the court shall declare the proceedings terminated; otherwise, the agreement shall be carried out. 2. Adjudication of Insolvency Insolvency may be adjudicated by the courts at the instance of the debtor himself (voluntary) or his creditors (involuntary). Voluntary Insolvency SECTION 14. Application. An insolvent debtor, owing debts exceeding in amount the sum of one thousand pesos, may apply to be discharged from his debts and liabilities by petition to the Court of First Instance of province or city in which he has resided for six months next preceding the filing of such petition. In his petition he shall set forth his of residence,

-4-

the period of his residence therein immediately prior to filing said petition, his inability to pay all his debts in full, his willingness to surrender all his property, estate, and effects not exempt from execution for the benefit of his creditors, and an application to be adjudged an insolvent. He shall annex to his petition a schedule and inventory in the form herein-after provided. The filing of such petition shall be an act of insolvency. SECTION 15. Statement of debts and liabilities. Said schedule must contain a full and true statement of all his debts and liabilities, together with a list of all those to whom, to the best of his knowledge and belief, said debts or liabilities are due, the place of residence of his creditors and the sum due each the nature of the indebtedness or liability and whether founded on written security, obligation, contract or otherwise, the true cause and consideration thereof, the time and place when and where such indebtedness or liability accrued, a declaration of any existing pledge, lien, mortgage, judgment, or other security for the payment of the debt or liability, and an outline of the facts giving rise or which might give rise to a cause of action against such insolvent debtor. SECTION 16. Description of real and personal property. Said inventory must contain, besides the creditors, an accurate description of all the real and personal property, estate, and effects of the petitioner, including his homestead, if any, together with a statement of the value of each item of said property, estate, and effects and its location, and a statement of the incumbrances thereon. All property exempt by law from execution 2 shall be set out in said inventory with a statement of its valuation, location, and the incumbrances thereon, if any. The inventory shall contain an outline of the facts giving rise, or which might give rise, to a right of action in favor of the insolvent debtor. SECTION 17. Verification, form of . The petition, schedule, and inventory must be verified by the affidavit of the petitioner, annexed thereto, and shall be in form substantially as follows: "I, _______________., do solemnly swear that the schedule and inventory now delivered by me contain a full, correct, and true discovery of all my debts and liabilities and of all goods, effects, estate, and property of whatever kind or class to me in any way belonging. The inventory also contains a full, true and correct statement of all debts owing or due to me, or to any person or persons in trust for me and of all securities and contracts whereby any money may hereafter become due or payable to me or by or through which any benefit or advantage whatever may accrue to me or to my use, or to any other person or persons in trust for me. The schedule contains a clear outline of the facts giving rise, or which might give rise, to a cause of action against me, and the inventory contains an outline of the facts giving rise, or which might give rise, to any cause of action in my favor. I had no lands, money, stock, or estate, reversion, or expectancy,

or property of any kind, except that set forth in said inventory. I have no instance created or acknowledged a debt for a greater sum than I honestly and truly owe. I have not, directly or indirectly, concealed, fraudulently sold, or otherwise fraudulently disposed of, any part of my real or personal property, estate, effects, or rights of action, and I have not in any way compounded with any of my creditors in order to secure such creditors, or to receive or to accept any profit or advantage therefrom, or to defraud or deceive in any manner any creditor to whom I am indebted. So help me God." SECTION 18. Order of court declaring petitioner insolvent; Publication notice. Upon receiving and filing said petition, schedule, and inventory, the court, or the judge thereof in vacation, shall make an order declaring the petitioner insolvent, and directing the sheriff of the province or city in which the petition is filed to take possession of, and safely keep, until the appointment of a receiver or assignee, all the deeds, vouchers, books of account, papers, notes, bonds, bills, and securities of the debtor, and all his real and personal property, estate, and effects, except such as may be by law exempt from execution. 3 Said order shall further forbid the payment to the debtor of any debts due to him and the delivery to the debtor, or to any person for him, and the transfer of any property by him, and shall further appoint a time and place for a meeting of the creditors to choose an assignee of the estate. Said order shall designate a newspaper of general circulation published in the province or city in which the petition is filed, if there be one, and if there be none, in a newspaper which, in the opinion of the judge, will best give notice to the creditors of the said insolvent, and in the newspaper so designated said order shall be published 4 as often as may be prescribed by the court or the judge The time appointed for the election of an assignee shall not be less than two, nor more than eight, weeks from the date of the order of adjudication. Upon the granting of said order all civil proceedings pending against said insolvent shall be stayed. When a receiver is appointed, or an assignee chosen, as provided in this Act, the sheriff shall thereupon deliver to such receiver or assignee chosen, as provided in this Act, the sheriff shall thereupon deliver to such receiver or assignee, as the case may be, all the property, assets, and belongings of the insolvent which have come into his possession, and he shall be allowed and paid as compensation for his services the same expenses and fees as would by law be collectible if the property had been levied upon and safely kept under attachment. SECTION 19. Publication of order. A copy of said order shall immediately be published 5 by the clerk of said court, in the newspaper designated therein, for the number of times and as prescribed by the court or the judge thereof, and a copy of said order shall be delivered personally or sent by the clerk forthwith by

-5-

registered mail, postage prepaid, to all creditors named in the schedule. There shall be deposited, in addition to twentyfour pesos, which shall be received by the clerk on commencing such proceedings, a sum of money sufficient to defray the expense of the publication ordered by the court, necessary postage, and ten centavos for each copy, to be delivered personally or mailed to the creditors, which last-named sum is hereby constituted the legal fee of the clerk for the personal delivery or mailing required by this section. Involuntary Insolvency SECTION 20. Petition; Acts of insolvency. An adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippine Islands whose credits or demands accrued in the Philippines, and the amount of which credits or demands are in the aggregate not less than one thousand pesos: Provided, That none of said creditors has become a creditor by assignments, however made, within thirty days prior to the filing of said petition. Such petition must be filed in the Court of First Instance of the province or city in which the debtor resides or has his principal place of business, and must be verified by at least three of the petitioners. The following shall be considered acts of insolvency, and the petition for insolvency shall set forth one or more of insolvency such acts: (1) That such person is about to depart or has departed from the Philippine Islands, with intent to defraud his creditors; (2) that being absent from the Philippine Islands, with intent to defraud his creditors, he remains absent; (3) that he conceals himself to avoid the service of legal process for purpose of hindering or delaying or defrauding his creditors; (4) that he conceals, or is removing, any of his property to avoid its being attached or taken on legal process; (5) that he has suffered his property to remain under attachment or legal process for three days for the purpose of hindering or delaying or defrauding his creditors; (6) that 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; (7) that he has willfully suffered judgment to be taken against him by default for the purpose of hindering or delaying or defrauding his creditors; (8) 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, delay, or defraud any one of his creditors; (9) that 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; (10) that he has, in contemplation of insolvency, made any payment, gift, grant, sale conveyance, or transfer of his estate, property, rights, or credits; (11) that being a merchant or tradesman he has generally defaulted in the payment of his current obligations for

a period of thirty days; (12) that for a period of thirty days he has failed, after demand, to pay any moneys deposited with him or received by him in a fiduciary capacity; and (13) 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 petitioners may, from time to time, by leave of the court, amend and or amendments to relate back to and be received as embraced in the original petition. The said petition shall be accompanied by a bond, 6 approved by the court, with at least two sureties, in such penal sum as the court shall direct, conditioned that if the petition in insolvency be 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 alleged in the petition to be insolvent all costs, expenses, and damages occasioned by the proceedings dent, the in insolvency, together with a reasonable counsel fee to be fixed by the court. The court may, upon motion, direct the filing of an additional bond, with different sureties, when deemed necessary.

a. Voluntary and Involuntary Insolvency distinguished. (1) Voluntary insolvency is initiated by the debtor whose debts exceed One Thousand Pesos ( P 1,000) which cannot be settled with his existing assets. The debtor shall annex to his petition a schedule of his obligations and an inventory of his assets. A creditor whose name is omitted in the schedule and who thus fails to participate in the proceedings in unaffected by the adjudication of insolvency (see Mindanao Motor Line, Inc. vs. Alforque, 57 SCRA 98). (2) In voluntary insolvency is initiated by at least three (3) creditors whose aggregate credit is not less than One Thousand Pesos (P1, 000.00). The petitioning creditors must be residents whose credits accrued in the Philippines and none is a creditor by assignment within thirty (30) days prior to the petition. (the number and other particulars required of creditors are immaterial in suspension of payments and voluntary insolvency.) The debtor must be guilty of, in synthesis, any of the following acts of insolvency: a. Absconding or attempting to abscond or absenting himself in fraud of creditors; b. Concealing or removing his property to avoid attachment or suffering his property to avoid attachment or suffering his property to remain under attachment for 30 days to defraud his creditors; c. Conveying or transferring property in fraud of creditors; d. Preferring one or some creditors in fraud of the others; and e. Defaulting as a fiduciary, merchant or trader for

-6-

30 days ; or as a judgment debtor (See Sec. 20, Act 1956) An involuntary petition for the adjudication of insolvency of a debtor would require the existence of an act of insolvency on the part of the latter. The mere fact that a debtor, engaged in business, sells some of his properties would not be enough; the sale could be prompted by the need to replace obsolete equipment or to raise liquid cash in furtherance of his business venture (Jaca vs. Davao Lumber, 113 SCRA 17). In involuntary, unlike in voluntary, insolvency, incapacitated persons may not be declared insolvents against the opposition of the parents or guardians. Being incapacitated, they would be incapable of committing acts of insolvency, which is pre-requisite to a petition for involuntary insolvency (at least one of which must be set forth in the petition; see Section 20, Act 1956), except in the case of an instance, where an act of insolvency was committed by him prior to his incapacity. In this case, however, he must be represented by a guardian. Distinctions between suspension of payments and insolvency. The distinctions are the following: (1) In the former, the purpose is to suspend or delay the payment of debts, while in the latter, to discharge the debtor form the payment of debts; (2) In the former, the debtors has sufficient property to pay his debts, while in the latter, the debtor does not have sufficient property to pay all his debts; (3) In the former, the amount of indebtedness is not affected, while in the latter, the creditors receive less than their credits, and in case preferences are proper, some creditors, may not receive any amount at all; and (4) In the former, the number of creditors is immaterial while in the case of involuntary insolvency, three or more creditors are required. Steps in voluntary insolvency The following steps constitute proceedings for voluntary insolvency: 1. 2. 3. 4. 5. 6. 7. 8. 9. the

10.

Appeal to the Supreme Court in certain cases. (Sec. 62.).

Requisites of petition for voluntary insolvency. The petition, which must be verified (Sec. 17.), is to be filed by: 1. 2. 3. An insolvent debtor, Owing debts exceeding in amount the sum of P1,000.00. In the court of First Instance* of the province or city in which he has resided for six months next preceding the filing of such petition, and Setting forth in his petition the following: a. b. c. d. His place of residence; The period of his residence therein immediately prior to filing said petition; His inability to pay all his debts in full; His willingness to surrender all his property, estate, and effects not exempt from execution for the benefit of his creditors; and An application to be adjudged an insolvent. (Sec. 14.)

4.

e.

Documents to accompany the petition. They are the following: 1. A verified schedule which must contain a. A full and true statement of all debts and liabilities of insolvent debtor, and b. An outline of the facts giving rise or which might give rise to a course of action against such insolvent debtor Sec. 15.); and A verified inventory which must contain a. An accurate description of the all the personal and real property of the insolvent exempt or not from execution including a statement as to its value, location and encumbrances thereon. And b. An outline of the facts giving rise or which might give rise to a right of action in favor of the insolvent debt or. (Sec. 16.)

2.

Filing of the petition by the debtor praying for the declaration of insolvency (Sec. 14); Issuance of an order of adjudication declaring the petitioner insolvent; Publication and service of the order (Sec. 19.); Meeting of the creditors to elect the assignee in insolvency (Sec. 30.); Conveyance of the debtors property by the clerk of court to the assignee (Sec. 32.); Liquidation of the debtors assets and payment of his debts (Sec. 33.); Composition, if agreed upon (Sec. 63.); Discharge of the debtor on his application (Sec. 64.), except a corporation (Sec. 52.); Objection, if any, to the discharge (Sec. 66.); and

Effects of court order declaring debtor insolvent. Upon the filing of the petition, the court, as a matter of course, shall issue an order declaring the petitioning debtor insolvent. (Sec. 18.) The effects of such order are the following: 1. All the assets of the debtor not exempt from execution are taken possession of by the sheriff until the appointment of the receiver or assignee (ibid.); The payment to 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

2.

-7-

3.

4.

property by him are forbidden (ibid); All civil proceeding pending against the insolvent debtor shall be stayed (ibid) upon due application of the debtor (Gabatan vs. Fernandez, [C.A.] L-3896); and Mortgages or pledges, attachments or execution on property of the debtor duly recorded and not dissolved are not, however, affected by the order. (Sec 59.) INVOLUNTARY INSOLVENCY

(2)

(3) (4) (5) (6)

(7) Nature of involuntary insolvency proceedings. An involuntary insolvency is not 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 accordingly a proceeding in rem as well as in personam. (Sec. 46) It is in rem in the sense that it determines the status of the insolvent. Who may petition for involuntary insolvency. Persons, who may validly petition for involuntary insolvency, must possess two things, namely; (1) They have the qualifications required by the Insolvency law; and (2) Their credits must be those contemplated by the Insolvency Law. Steps in Involuntary insolvency. The following steps constitute proceedings for involuntary insolvency: the (8) (9)

None of whom has become such creditor by assignment, within 30 days prior to the filing of the petition; Residents of the Philippines; Whose credits accrued in the Philippines, The total amount of which credits is not less than P 1,000.00 and In the Regional Trial Court of the province or city in which the debtor resides or has his principal place of business. Must be verified by at least three (3) of the petitioning creditors, Must set forth one or more acts of insolvency mentioned in the law, and Must be accompanied by a bond, approved by the Court with at least two sureties, in such penal sum as the court shall direct. (Sec. 20)

Acts of insolvency In voluntary insolvency, the filing of a petition for voluntary insolvency is an act of insolvency. (Sec. 14.) In involuntary insolvency, the following are considered acts of insolvency: (1) (2) (3) (4) (1) Filing of the petition by three (3) or more creditors (Sec. 20); (2) Issuance of order requiring the debtor to show cause why he should not be adjudged insolvent (Se. 21); (3) Service of order to show cause (sec. 22) (4) Filing of answer or motion to dismiss (sec. 23) (5) Hearing of the case (sec. 24) (6) Issuance of order or decision adjudging debtor insolvency (ibid) (7) Meeting of creditors for election of an assignee in insolvency; (8) Conveyance of debtors property by clerk of court to the assignee (Sec. 32); (9) Liquidation of assets and payment of debts (Sec. 33) (10) Composition, if agreed upon (Sec. 63) (11) Discharge of the debtor or his application (Sec. 64) except a corporation (Sec. 52); (12) Objection, if any, to the discharge (Sec. 66) and (13) Appeal to the Supreme Court in certain cases (Sec. 62) Requisites pf petition for involuntary insolvency. The petition is to be filed by: (1) Three or more creditors. Any debtor who commits an act of insolvency may be adjudged insolvent. Adjudication of insolvency. (5) (6) (7) (8) Intention to depart or departure from the Philippines to defraud creditors; Absence from the Philippines to defraud creditors; Concealment of debtor to avoid legal process; Concealment or removal of his property to avoid legal process; Allowing his property to be attached for three (3) days in fraud creditors; Confession of judgment in favor of any creditor to defraud other creditors; Allowing default judgment in favor of a creditor to defraud other creditors; Allowing his property to be taken under legal process in preference of a particular creditor to defraud other creditors; Making conveyance, assignment or transfer of his property to defraud his creditors; Making conveyance, assignment or transfer of his property in contemplation of insolvency; Default of a merchant or tradesman to pay his current obligations for a period of thirty (30) days; Failure to pay money on deposit or received in a fiduciary capacity for a period of thirty (30) days after demand; and Insufficiency of property to satisfy an execution issued against him. (Sec. 20.)

(9) (10) (11) (12)

(13)

-8-

If the respondent debtor shall make a default, or it, after trial, the issues are found in favor of the petitioning creditors, the court shall make an order adjudging that said respondent is and was, at the time of the filing of the petition, an insolvent debtor and that the debtor was guilty of the acts and things charged in the petition or such of them as the court may find to be true. (Sec. 24.) The date of adjudication of insolvency retroacts to the date of the filing of the petition for insolvency. Distinctions between voluntary insolvency and involuntary insolvency. They are the following: 1. 2. In the former, one creditor is sufficient, while in the latter, three or more creditors are required; In the former, it is filed by the insolvent debtor, while in the latter, it is filed by three or more creditors who possess the qualifications required by the law; In the former, the debtor must not be guilty of any of the acts of insolvency enumerated in Section 20, while in the latter, the debtor must have committed one or more of such acts of insolvency; In the former, the amount of indebtedness must exceed P1,000.00 while in the latter, it must not be less than P1,000.00; In the former, a bond is not required, while in the latter, the petition must be accompanied by a bond; In the former, an order of adjudication of insolvency may be granted ex-parte, while in the latter, it is granted only after hearing; and In the former, the petition is filed in the Court of First Instance* ( now Regional Trial Court) of the province or city in which the debtor has resided for six months, while in the latter, the length or residence is immaterial. Injunctions.

3.

4.

5. 6.

7.

The adjudication or declaration of insolvency by the court, after hearing or default shall have the following effects: 1. Forbid the payment to the debtor of any debt sue to him and the delivery to him of any property belonging to him; 2. Forbid the transfer of any property by him; and 3. stay of all pending civil proceedings against the insolvent (secs. 18 and 24, Act 1956) SECTION 18. Order of court declaring petitioner insolvent; Publication notice. Upon receiving and filing said petition, schedule, and inventory, the court, or the judge thereof in vacation, shall make an order declaring the petitioner insolvent, and directing the sheriff of the province or city in which the petition is filed to take possession of, and safely keep, until the appointment of a receiver or

assignee, all the deeds, vouchers, books of account, papers, notes, bonds, bills, and securities of the debtor, and all his real and personal property, estate, and effects, except such as may be by law exempt from execution. 3 Said order shall further forbid the payment to the debtor of any debts due to him and the delivery to the debtor, or to any person for him, and the transfer of any property by him, and shall further appoint a time and place for a meeting of the creditors to choose an assignee of the estate. Said order shall designate a newspaper of general circulation published in the province or city in which the petition is filed, if there be one, and if there be none, in a newspaper which, in the opinion of the judge, will best give notice to the creditors of the said insolvent, and in the newspaper so designated said order shall be published 4 as often as may be prescribed by the court or the judge The time appointed for the election of an assignee shall not be less than two, nor more than eight, weeks from the date of the order of adjudication. Upon the granting of said order all civil proceedings pending against said insolvent shall be stayed. When a receiver is appointed, or an assignee chosen, as provided in this Act, the sheriff shall thereupon deliver to such receiver or assignee chosen, as provided in this Act, the sheriff shall thereupon deliver to such receiver or assignee, as the case may be, all the property, assets, and belongings of the insolvent which have come into his possession, and he shall be allowed and paid as compensation for his services the same expenses and fees as would by law be collectible if the property had been levied upon and safely kept under attachment. SECTION 24. Default; Payments to debtor. If the respondent shall make default, or if, after trial, the issues are found in favor of the petitioners, the court shall make an order adjudging that said respondent is and was, at the time of filing the petition, an insolvent debtor and that the debtor was guilty of the acts and things charged in the petition, or such of them as the court may find to be true; and shall require said debtor, within such time as the court may designate, not to exceed three days, to file in court the schedule and inventory provided for in sections fifteen and sixteen of this Act, duly verified as required of a petitioning debtor: 10 Provided, That in the affidavit of the insolvent, touching his property and its disposition, he shall not be required to swear that he has not made any fraudulent preference or committed any other act in conflict

-9-

with the provisions of this Act; but he may do so if he desires. Said order shall further direct the sheriff of the province or city where the insolvency petition is filed, or the receiver, if one has been theretofore appointed, to take possession of and safely keep, until the appointment of an assignee, all the deeds, vouchers, books of account, papers, notes, bills, bonds and securities of the debtor, and all his real and personal property, estate and effects, except such as may be by law exempt from execution. 11 Said order shall further forbid the payment to 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, and shall further appoint a time and place for a meeting of the creditors to choose an assignee of the estate. Said order shall designate a newspaper of general circulation published in the province or city in which the petition is filed, if there be one, and if there be none, in a newspaper which, in the opinion of the judge, will best give notice to the creditors of the said insolvent, and in the newspaper so designated said order shall be published 12 as often as may be prescribed by the court or the judge thereof. The time appointed for the election of an assignee shall not be less than two nor more than eight weeks from the date of the order of adjudication. Upon the granting of said order, all civil proceedings pending against the said insolvent shall be stayed. When an assignee is chosen as provided in this Act, the sheriff or receiver, if there be one, shall thereupon deliver to such assignee all the property, estate, and belongings of the insolvent, which have come into his possession, and he shall be allowed and paid as compensation for his services the same expenses and fees as would by law be collectible if the property had been levied upon and safely kept under attachment. More specifically, in respect to civil suits against the insolvents, the following rules would governs (1) As to unsecured credits or claims ( unsecured under Arts. 2241-2242, Civil Code) (a) Cases already pending prior to the insolvency proceedings shall be stayed, except for purposes of determining the amount of the credit or claim, until an assignee is designated, and no execution can issue while the insolvency proceedings are in progress (OBrien vs Del Rosario, 49 Phils. 657); instead, the demand must be made with the insolvency court. The final judgment on such cases

(b)

filed before the insolvency proceedings are preferred credit under Article 2244 of the Civil Code (Central Bank v. Morfe, 63 SCRA 114). No action may be instituted during the insolvency proceedings, and any such suit either against the insolvency or the assignee should be dismissed; instead, the demand must be made before insolvency court (De Amuzategui v. Macleod, 33 Phil. 80)

(2) As to secure credits or claims under Articles 2241-3342, Civil Code) (a) Cases already pending prior to the insolvency proceedings shall be suspended until the election or appointment of an assignee in order to permit him to properly take charge of the pending case; thereafter, the court in said case may proceed and render final judgment. Foreclosure suits may independently be instituted during the insolvency proceedings, but leave of the insolvency court must be obtained so as to ensure the proper representation of the insolvents estate. ASSIGNEES SECTION 31. Appointment of assignee by court. If, on the day appointed for the meeting, creditors do not attend, or fail or refuse to elect an assignee, or if, after election, the assignee shall fail to qualify within the proper time, or if a vacancy occurs by death or otherwise, the court shall appoint an assignee and fix the amount of his bond. SECTION 32. Transfer of property to assignee. As soon as an assignee is elected or appointed and qualified, the clerk of the court shall, by an instrument under his hand and seal of the court, assign and convey to the assignee all the real and personal property, estate, and effects of the debtor with all his deeds, books, and papers relating thereto, and such assignment shall relate back to the commencement of the proceedings in insolvency, and shall relate back to the acts upon which the adjudication was founded, and by operation of law shall vest the title to all such property, estate, and effects in the assignee, although the same is then attached on mesne process, as the property of the debtor. Such assignment shall operate to vest in the assignee all of the estate of the insolvent debtor not exempt by law from execution. 17 It shall also dissolve any attachment levied within one month next preceding the commencement of the insolvency proceedings and vacate and set aside any judgment

(b)

- 10 -

entered in any action commenced within thirty days immediately prior to the commencement of insolvency proceedings and shall vacate and set aside any execution issued thereon and shall vacate and set aside any judgment entered by default or consent of the debtor within thirty days immediately prior to the commencement of the insolvency proceedings. SECTION 33. Recovery and action of assignee. The assignee shall have the right to recover all the state debts, and effects of said insolvent. If, at the time of the commencement of proceedings in insolvency, an action is pending in the name of the debtor, for the recovery of a debtor other thing which might or ought to pass to the assignee by the assignment, the assignee shall be allowed and admitted to prosecute the action, in like manner and with like effect as if it had been originally commenced by him. If there are any rights of action in favor of the insolvent for damages, on any account, for which an action is not pending, the assignee shall have the right to prosecute the same with the same effect as the insolvent might have done himself if no proceedings in insolvency had been instituted. If any action or proceeding in which the insolvent is defendant is pending at the time of the adjudication, the assignee may defend the same in the same manner and with like effect as it might have been defended by the insolvent. In a suit prosecuted or defended by the assignee, a certified copy of the assignment made to him shall be conclusive evidence of his authority to sue or defend. SECTION 34. Registration of assignment to assignee. The assignee shall, within one month after the making of the assignment to him, cause the same to be recorded in every province or city within the Philippine Islands where any real estate owned by the debtor is situated, and the record of such assignment, or a duly certified copy thereof, shall be conclusive evidence thereof in all courts. If the schedule and inventory required by this Act have not been filed by the debtor the assignee shall, within one month after his election, prepare and file such schedule and inventory from the best information he can obtain, and shall thereupon personally deliver notice or send same by registered mail, postage prepaid, to all creditors named in such schedule, whose claims have not been filed, to forthwith prove their demands. SECTION 35. Resignation of assignee. Any assignee may at any time, by writing filed in court, resign his appointment, having first settled his accounts and delivered

up all the deeds, vouchers, books of account, notes, bills, bonds, and securities of the debtor and all his real and personal property, estate, and effects to such successor as the court shall appoint: Provided, That if, in the discretion of the court, the circumstances of the case require it, upon good cause being shown, the court may, at any time before such settlement of account and delivery of the estate shall have been completed, revoke the appointment of such assignee and appoint another in his stead. The liability of the outgoing assignee, or of the sureties on his bond, shall not be in any manner discharged, released, or affected by such appointment of another in his stead. SECTION 36. The said assignee shall have power: 1. To sue and recover all the estate, assets, debts, and claims, belonging to or due to such debtor; and no set-off or counterclaim shall be allowed in any such for debts contracted by the insolvent within thirty days immediately preceding the filing of the petition of insolvency except in case of creditors specified in section fifty of this Act. 2. To take in to his possession all the estate of such debtor except property exempt by law from execution, 18 whether attached or delivered to him, or afterwards discovered, and all books, vouchers, evidence of indebtedness, and securities belonging to the same. 3. In case of a nonresident or absconding or concealed debtor, to demand and receive of every sheriff who shall have attached any of the property of such debtor, or who shall have in his possession any moneys arising from the sale of such property, all such property and moneys, on paying him his lawful costs and charges for attaching and keeping the same. 4. From time to time to sell at public auction after advertisement in the manner provided by subsections (1), (2), and (3) of section four hundred and fifty-four of the Code of Civil Procedure, 19 upon order of the court, any of the estate, real and personal, which has come into his possession, and which is vested in him as such assignee, and on such sales to execute the necessary conveyances and bills of sale. 5. To redeem all valid mortgages and conditional contracts, and all valid pledges of personal property, and to satisfy any judgments which may be an incumbrance on any property sold by him; or to sell such property, subject to such mortgage, contracts, pledges, judgments, or liens.

- 11 -

6. To settle all matters and accounts between such debtor and his creditors subject to the approval of the court. 7. Under the order of the court or judge appointing him, to compound with any person indebted to such debtor, and thereupon discharge all demands against such person. 8. To recover from any person receiving a conveyance, gift transfer, payment, or assignment, made contrary to any provision of this Act, the property thereby transferred or assigned; or in case a redelivery of the property can not be had, to recover the value thereof with damages for the detention. Assignee in insolvency defined. The assignee is the person elected by the creditors or appointed by the court to whom an insolvent debtor makes an assignment for the benefit of his creditors. Nature of office of assignee. The assignee represents the insolvent as well as the creditors in voluntary and involuntary proceedings. (Chartered Bank vs. Imperial, 48 Phil. 931; Asia Banking Corporation vs. Herridge, 45 Phil. 527) Creditors not entitled to vote in the election of assignee They are the following: Those who did not file their claims at least two days prior to the time appointed for such election (Sec. 29.); 2. Those whose claims are barred by the statute of limitations (ibid); 3. Secured creditors unless they surrender their security or lien to the sheriff or receiver or unless they shall first have the value of such security fixed (see Sec. 59.); and 4. Holders of claims for unliquidated damages arising out or pure tort. (Schall vs. Comors, 215 U.S. 239. - ) Effects of assignment They are as follows: 1. The assignee takes the property in the plight and conditions that the insolvent held it (Giberson vs. Jureidini Bros. 44 Phil. 216.); All actions to recover all the estate, debts and effects of the insolvent shall be brought by the assignee and not by the creditors (Sec. 33.) and The assignment shall 1.

c. d.

days immediately prior to the commencement of insolvency proceedings; Vacate and set aside any execution issued thereon; and Vacate and set aside any judgment entered by default or consent of the debtor within 30 days prior to the commencement of insolvency proceedings. (Sec. 32)

Properties of the insolvent that pass to the assignee: a. All real and personal property, estate and effects of the debtor including all deeds, books and papers in relation thereto (Sec. 32) Properties fraudulently conveyed (secs. 33, 36) Right for action for damages to real property; and The undivided share or interest of the insolvent debtor in property held under co-ownership (Arts. 2239, Civil Code)

b. c. d.

Properties of the insolvent that do not pass to the assignee. a. b. c. Property exempt from execution (Sec. 32); Property held in trust (Art 2240, Civil Code); Property of the conjugal partnership or absolute community as long as said partnership or community exists except insofar as the insolvent debtors obligations have redounded to the benefit of the former ( Art. 2238, Civil Code); and Property over which a mortgage or pledge exists unless the creditor surrenders his security or lien (Sec. 59)

d.

Powers of the assignee The assignee in insolvency shall have the power: (1) (2) (3) To sue and recover all the estate, debts and claims belonging to or due to the debtor; To take into his possession all the estate of the debtor except property exempt from execution; In case of a non-resident or absconding or concealed debtor, to demand and receive every sheriff all the property and moneys in his possession belonging to the debtor; To sell, upon order of the court, any estate of the debtor which has come into his possession; To redeem all mortgages and pledges and to satisf6y any judgment which may be an encumbrance on any property sold by him; To settle all accounts between the debtor and his debtors, subject to the approval of the court;

2.

(4) (5)

3.

a.

b.

Dissolve any attachment levied within one month next preceding the commencement of insolvency proceeding; Vacate and set aside any judgment entered in any action commenced within 30

(6)

- 12 -

(7) (8)

To compound, under the order of the court, with any person indebted to such debtor; and To recover any property fraudulently conveyed by the debtor. (Sec. 36)

Duties of the assignee. (1) (2) (3) (4) (5) To register the assignment to him of the real estate of the debtor (sec. 34); To file the schedule and inventory of the property of the debtor (ibid); To convert, as speedily as possible, the estate, real and personal, into money (Sec. 39); To keep a regular account of all moneys received by him as assignee (ibid); To petition the court to allow the private sale of the debtors property if it appears that it is for the best interest of the estate (ibid); To file a just and true accounts of all receipts and payments (Sec. 43); To file accounts upon order of the court on motion of two or more creditors (Sec. 44); To distribute such dividends as he may be required (ibid); and To file his final account within one year from the date of order of adjudication.

(6) (7) (8) (9)

Dividend in insolvency defined. A dividend in insolvency is a parcel of the fund arising from the assets of the estate, rightfully allotted to a creditor entitled to share in the fund, whether in the same proportion with other creditors or in a different proportion. ( In re Baerber 97 ed, 547). It is Paid by the assignee only upon order of the Court (see Secs. 43,44) Effect of debts subsequently proved on right to dividends. Whenever any dividend ahs been duly declared, the distribution of it shall not be stayed or affected by reason of debts being subsequently proved, but any creditor proving such a debt shall be entitled to a dividend equal to those already received by the other creditors before any further dividend is made to the latter, if the failure to prove such claim shall not be resulted from his own neglect. (Sec. 45) CLASSIFICATION AND PREFERENCE OF CREDITORS Classification and Preference of Credits under the Insolvency Law SECTION 48. Property not belonging to insolvent; Dowry; Paraphernal property. Merchandise, effects, and any other kind of property found among the property of the insolvent, the ownership of which has not been conveyed to him by a legal and irrevocable title, shall be considered to be the property of other persons and shall be placed at the disposal of its lawful owners on order of the court made at the hearing

mentioned in section forty-three or at any ordinary hearing, if the assignee or any creditor whose right in the estate of the insolvent has been established shall petition in writing for such hearing and the court in its discretion shall so order, the creditors, however, retaining such rights in said property as belong to the insolvent, and subrogating him whenever they shall have complied with all obligations concerning said property. The following shall be included in this section: 1. Dowry property 21 inestimado and such property estimado which may remain in the possession of the husband where the receipt thereof is a matter of record in a public instrument registered under the provisions of sections twenty-one and twenty-seven of the Code of Commerce in force. 2. Paraphernal property which the wife may have acquired by inheritance, legacy, or donation whether remaining in the form in which it was received or subrogated or invested in other property, provided that such investment or subrogation has been registered in the registro mercantile in accordance with the provisions of the sections of the Code of Commerce mentioned in the next preceding paragraph. 3. Property and effects deposited with the bankrupt, or administered, leased, rented, or held in usufruct by him. 4. Merchandise in the possession of the bankrupt, on commission, for purchase, sale, forwarding, or delivery. 5. Bills of exchange or promissory notes without indorsement or other expression transferring ownership remitted to the insolvent for collection 6. Money remitted to the insolvent, otherwise than on current account, and which is in his possession for delivery to a definite person in the name and for the account of the remitter or for the settlement of claims which are to be met at the insolvents domicile. 7. Amounts due the insolvent for sales of merchandise on commission, and bills of exchange and promissory notes derived therefrom in his possession, even when the same are not made payable to the owner of the merchandise sold, provided it is proven that for the obligation to the insolvent is derived therefrom and that said bills of exchange and promissory notes were in the possession of the insolvent for account of the owner of the merchandise to be cashed and remitted, in due time, to the said owner; all of which shall be a legal presumption when the amount involved in any such sale shall not have been credited on the books of both the owner of the merchandise and of the insolvent. 8. Merchandise bought on credit by the insolvent so long as the actual delivery thereof has not been made to him at his store or at any other place stipulated for such delivery, and merchandise the bills of lading or shipping receipts of which have been

- 13 -

sent him after the same has been loaded by order of the purchaser and for his account and risk. In all cases arising under this paragraph assignees may retain the merchandise so purchased or claim it for the creditors by paying the price thereof to the vendor. 9. Goods or chattels wrongfully taken, converted, or withheld by the insolvent if still existing in his possession or the amount of the value thereof. SECTION 49. Creditors sharing pro rata. All creditors, except those whose claims are mentioned in the next following section, whose debts are duly proved and allowed shall be entitled to share in the property and estate pro rata, after the property belonging to other persons referred to in the last in preceding section has been deducted therefrom, without priority or preference whatever: Provided, That any debt proved by any person liable as bail, surety, guarantor, or otherwise, for the debtor, shall not be paid to the person so proving the same until satisfactory evidence shall be produced of the payment of such debt by such person so liable, and the share to which such debt would be entitled may be paid into court, or otherwise held, for the benefit of the party entitled thereto, as the court may direct. SECTION 50. The following are the preferred claims which shall be paid in the order named: (a) Necessary funeral expenses of the debtor, or of his wife, or children who are under their parental authority and have no property of their own, when approved by the court; (b) Debts due for personal services rendered the insolvent by employees, laborers, or domestic servants immediately preceding the commencement of proceedings in insolvency; (c) Compensation due the laborers or their dependents under the provisions of Act Numbered Thirty-four hundred and twenty-eight, known as the Workmen's Compensation Act, 22 as amended by Act Numbered Thirtyeight hundred and twelve, and under the provisions of Act Numbered Eighteen hundred and seventy-four, known as the Employees' Liability Act 23 and of other laws providing for payment of indemnity for damages in cases of labor accidents; (d) Legal expenses, and expenses incurred in the administration of the insolvent's estate for the common interest of the creditors, when properly authorized and approved by the court; (e) Debts, taxes, and assessments due the Insular Government; 24 (f) Debts, taxes, and assessments due to any province or provinces of the Philippine Islands; (g) Debts, taxes, and assessments due to any municipality or municipalities of the Philippine Islands;

All other creditors shall be paid pro rata. Classification of Credits under the Civil Code. ARTICLE 2241. With reference to specific movable property of the debtor, the following claims or liens shall be preferred: (1) Duties, taxes and fees due thereon to the State or any subdivision thereof; (2) 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; (3) Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; (4) Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; (5) Credits for the making, repair, safekeeping or preservation of personal property, on the movable thus made, repaired, kept or possessed; (6) Claims for laborers' wages, on the goods manufactured or the work done; (7) For expenses of salvage, upon the goods salvaged; (8) Credits between the landlord and the tenant, arising from the contract of tenancy on shares, on the share of each in the fruits or harvest; (9) Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their delivery and for thirty days thereafter; (10) Credits for lodging and supplies usually furnished to travellers by hotel keepers, on the movables belonging to the guest as long as such movables are in the hotel, but not for money loaned to the guests; (11) Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the fruits harvested; (12) Credits for rent for one year, upon the personal property of the lessee existing on the immovable leased and on the fruits of the same, but not on money or instruments of credit; (13) Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited, upon the price of the sale. In the foregoing cases, if the movables to which the lien or preference attaches

- 14 -

have been wrongfully taken, the creditor may demand them from any possessor, within thirty days from the unlawful seizure. (1922a) ARTICLE 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right: (1) Taxes due upon the land or building; (2) For the unpaid price of real property sold, upon the immovable sold; (3) Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the construction, reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works; (4) Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works, upon said buildings, canals or other works; (5) Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged; (6) Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or improved; (7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to later credits; (8) Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided; (9) Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated; (10) Credits of insurers, upon the property insured, for the insurance premium for two years. (1923a) Meaning of preference. A preference is what its name implies an exception to the general rule. By it, one person is given a superior right or claim over another. For such reason, the law as to preferences is strictly construed. ( Roman vs. Herridge, 47 Phil. 98) Case of distribution.

Equitable claims under Section 48; (2) Preferred claims with respect to specific movable property and specific immovable property under Articles 2241 and 2242, respectively of the New Civil Code; (3) Preferred claims as to unencumbered property of the debtor which shall be paid in the order named under Articles 2242 of the new Civil Code; and (4) Common or ordinary credits which shall be paid pro rata regardless of dates under Article 2245 of the Civil Code. * see also Article 2241) With reference to specific movable and immovable property of the debtor, the taxes due to the State shall first be satisfied. (see Arts. 2242, 2244), ibid) Equitable claims under the Insolvency Law Under Section 48, any property found among the property of the insolvent, the ownership of which has not been conveyed to him by legal and irrevocable title, shall not be considered to be the property of the insolvent and shall be placed at the disposal of its lawful owners, on order of the Court on petition of the assignee or any creditor whose right to the estate of the insolvent has been established. The following shall be included: (1) (2) Paraphernal property belonging to the wife of the insolvent; Property held by the insolvent on deposit, administration, lease or usufruct; Merchandise held by the debtor on commission; Negotiable instruments for collection or remittance; Money held by the debtor for remittance; Amounts due the insolvent for sales of merchandise on commission; Merchandise bought by the insolvent on credit where no delivery is made or where the right of ownership or possession has been retained by the seller ( see Arts. 1478, 1503, 1523, 1525, 1526, 1527, 1530 Civil Code); and Goods or chattels wrongfully taken by the insolvent or the amount of the value thereof. (Sec. 48).

(1)

(3) (4) (5) (6) (7)

(8) In the distribution of the estate, the priorities fixed by law govern and the claims which are given priority must be paid in full in the order of their priority, before the general creditors receive anything. Creditors claiming preference must sufficiently establish the claim of preference to entitle their credits to such preference. The following is the order in which payment of debts should be made by the assignee:

PARTNERSHIPS AND CORPORATIONS In petition for suspension of payments (but not petition for insolvency) by corporations and partnerships, jurisdiction lies exclusively with the Courts in accordance with Republic Act No. 8799.

- 15 -

5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. A. Partnership under Insolvency Law SECTION 51. Partnerships. A partnership, during the continuation of the partnership business, or after its dissolution and before the final settlement thereof, may be adjudged insolvent, either on the petition of the partners or any one of them, or on the petition of three or more creditors of the partnership, qualified as provided in section twenty of this Act, in either of which cases the court shall issue an order in the manner provided by this Act, upon which all the property of the partnership, and also all the separate property of each of the partners, if they are liable, shall be taken, excepting such parts thereof as may be exempt by law; and all creditors of the partnership, and the separate creditors of each partner, shall be allowed to prove their respective claims; and the assignee shall be chosen by the creditors of the partnership, and shall also keep separate accounts of the property of the partnership, and of the separate estate of each member thereof. The expenses of the proceedings shall be paid from the partnership property and the individual property of the partners in such proportions as the court shall determine. The net proceeds of the partnership property shall be appropriated to the payment of the partnership debts and the net proceeds of the individual estate of each partner to the payment of his individual debts. Should any surplus remain of the property of any partner after paying his individual debts, such surplus shall be added to the partnership assets and be applied to the payment of the partnership debts. Should any surplus of the partnership property remain after paying the partnership debts, such surplus shall be added to the assets of the individual partners in the proportion of their respective interests in the

partnership. Certificate of discharge shall be granted or refused to each partner as the same would or ought to be if the proceedings had been by or against him alone under this Act; and in all other respects the proceedings as to the partners shall be conducted in like manner as if they had been commenced and prosecuted by or against one person alone. If such partners reside in different provinces, the court in which the petition is first filed shall retain exclusive jurisdiction over the case. If the petition to be filed by less than all the partners of a partnership those partners who do not join in the petition shall be ordered to show cause why they, as individuals, and said partnership, should not be adjudged to be insolvent, in the same manner as other debtors are required to show cause upon a creditor's petition, as in this Act provided; and no order of adjudication shall be made in said proceedings until after the hearing of said order to show cause. When partnership may be declared insolvent. A partnership may be adjudged insolvent voluntary or involuntary, during the continuation of the partnership business or after its dissolution but before the final settlement thereof. Who may petition for declaration of insolvency of a partnership. (1) In case of voluntary insolvency- The petition may be filed by all of the partners, or any one of them. (2) In case of involuntary insolvency The petition is filed by one or more of the partners or three or more creditors of the partnership. If the petition be filed by less than all the partners of the partnership, those partners who do not join the petition shall be ordered to show cause why they, as individuals and said partnership, should not be adjudged to be insolvent in the same manner as other creditors are required to show cause upon a creditors petition. Properties included proceedings. in the insolvency

Upon order of the Court, the following property shall be taken: All property of the partnership; and All the separate property of each of the partners except Separate properties of limited partners (See Art. 1843) and Properties which are exempt by law (sec. 51) Effects of filing of petition. (1) When insolvency proceedings are instituted against or by a partnership, the proceedings are deemed to commence against the partners at the same time even if a partner is not

- 16 -

(2)

(3)

(4) (5)

ordered included in the proceedings until after sometime later (Far Eastern surety vs. Yu Guioc Lo, L-44767); Upon order of the court, all the property of the partnership and also all the separate property of each partner, if they are liable, shall be taken (Sec. 51) All creditors of the partnership and the separate creditors of each partner shall be allowed to prove their respective claims; The assignee shall be chosen by the creditors of the partnership; and Pending the insolvency proceedings by or against any partnership (person or corporation), no statute of limitations shall run upon a claim of or against the estate of the debtor (See Sec. 73)

Distribution of the proceeds. If the partnership is adjudged insolvent, the distribution of the net proceeds shall be as follows: (1) The net proceeds of the partnership property shall be appropriated to the payment of partnership debts ( see Art. 1839 (8) Civil Code; The net proceeds of the individual estate of each partner shall be applied to the payment of his individual debts (ibid); Should any surplus remain of the property of any (general) partner after paying his individual debts, so much thereof as corresponds to him as his share in the subsidiary liability for partnership debts (see Art. 1816, ibid, under which the solidary liability of the partner has been abolished) shall be added to the partnership assets and be applied to the payment of such debts (see Art. 1839 (9), ibid); and Should any surplus of the partnership property remain after paying the partnership debts, such surplus shall be added to the assets of the individual partners in the proportion of their respective interests in the partnership. (Sec. 51; see Arts. 1812, 1839 (2), ibid)

provisions of this Act which apply to the debtor, or set forth his duties, examination, and liabilities, or prescribe penalties, or relate to fraudulent conveyances, payments, and assignments, apply to each and every officer of any corporation or sociedad anonima in relation to the same matters concerning the corporation. Whenever any corporation is declared insolvent, its property and assets shall be distributed to the creditors; due at but no discharge shall be granted to any corporation. The provisions of this Act shall not apply to corporations engaged principally in the banking business, 26 or to any other corporation as to which there is any special provision of law for its liquidation in case of insolvency. Who may petition for declaration of insolvency of a corporation. (1) In case of voluntary insolvency.- The petition may be filed by any officer duly authorized by the vote of the board of directors r trustees at a meeting especially called for that purpose, or by the assent in writing of a majority of the directors or trustees, as the case may be (Sec. 52). (2) In case of involuntary insolvency (a) First view - Upon a creditors petition made and presented in the manner provided in respect to debtors (ibid) Second view The petition must be filed by at least three (3) creditors of the corporation of the corporation under circumstances mentioned by law (see Sec. 52)

(2)

(3)

(b)

(4)

When so adjudged, the property and assets of the corporation shall be distributed to the creditors, but no discharge shall be granted to it. The declaration of insolvency of banks and insurance companies is governed by special laws (see the New Central Bank Act and the Insurance Code. PROOF OF DEBTS SECTION 53. Class of debts. All debts due and payable from the debtor at the time of the adjudication of insolvency, and all debts then existing but not payable until a future time, a discount being made if no interest is payable by the terms of the contract, may be proved against against the estate of the debtor. SECTION 54. Commercial paper. If the debtor is bound as indorser, surety, bail, or guarantor, upon any bill, bond, note, or other specialty or contract, or for any debt any person, and his liability shall not have become absolute until after the adjudication of insolvency, the creditor may

Corporation under Insolvency Law SECTION 52. Corporations and sociedades anonimas; Banking. The provisions of this Act shall apply to corporations and sociedades anonimas, and upon the petition of any officer of any corporation or sociedad anonima, duly authorized by the vote of the board of directors or trustees, at a meeting specially called for that purpose, or by the assent in writing of a majority of the directors or trustees as the case may be, or upon a creditor's petition made and presented in the manner provided in respect to debtors, of the like proceedings shall be had and taken as are provided in the case of debtors: Provided, That in case the articles of association or by-laws of any corporation the or sociedad anonima provide a method for such proceedings, such method shall be followed. All the

- 17 -

prove the same after such liability shall have become fixed, and before the final dividend shall have been declared. SECTION 55. Contingent debts. In all cases of contingent debts and contingent liabilities, contracted by the debtor, and not herein otherwise provided for, the creditor may make claim therefor and have his claim allowed, with the right to share in the dividends, if the contingency shall happen before the order of the final dividend; or he may, at any time, apply to the court to have the present value of the debt or liability ascertained and liquidated, which shall be done in such manner as the court shall order, and it shall be allowed for the amount so ascertained. SECTION 56. Bail, surety, etc., for the debtor. Any person liable as bail, surety, or guarantor, or otherwise, for the debtor, who shall have paid the debt, or any part thereof, in discharge of the whole, shall be entitled to prove such debt, or to stand in the place of the creditor, if he shall have proved the same, although such payments shall have been made after the proceedings in insolvency were commenced; and any person so liable for the debtor, and who has not paid the whole of said debt, but is still liable for the same, or any part thereof, may, if the creditor shall fail or omit to prove such debt, prove the same in the name of the creditor. SECTION 57. Rents and periodical payments. Where the debtor is liable to pay rent, or other debt falling due at fixed and stated periods, the creditor may prove, for a proportionate part thereof up to the time of the insolvency, as if the same became due from day to day, and not at such fixed and stated periods. SECTION 58. Mutual debts and credits. In all cases of mutual debts and mutual credits between the parties, the account between them shall be stated, and one debt set off against the other, and the balance only shall be allowed of a claim in its nature not provable against the estate: Provided, That no set-off or counterclaim shall be allowed in favor of any debtor to the insolvent of a claim purchased by or transferred to such debtor within thirty days immediately preceding the filing, or after the filing of the petition by or against the insolvent. SECTION 59. Mortgages, pledges, liens, etc.; Release or sale by assignee. When a creditor has a mortgage, or pledge of real or personal property of the debtor, or a lien thereon, for securing the payment of a debt owing to him from the debtor, or an attachment or execution on property of the debt or duly recorded and not dissolved under this Act, he shall be admitted as a creditor for the balance of the debt only, after deducting the value of such property, such value to be ascertained by agreement between him and the receiver, if any, and if no receiver, then upon such sum as the court or a judge thereof may decide to be fair and reasonable, before the election of an assignee, or by a sale thereof, to be made in such manner as the court or judge thereof shall direct; or the creditor may release or convey his claim to the receiver, if any, or if no receiver then to the sheriff, before the election of an assignee, or to the assignee if an assignee has been elected,

upon such property, and be admitted to prove his whole debt. If the value of the property exceeds the sum for which it is so held as security, the assignee may release to the creditor the debtor's right of redemption thereon on receiving such excess; or he may sell the property, subject to the claim of the creditor thereon, and in either case the assignee and creditor, respectively, shall execute all deeds and writings necessary or proper to consummate the transaction. If the property is not sold or released, and delivered up, or its value fixed, the creditor shall not be allowed to prove any part of his debt, but the assignee shall deliver to the creditor all such property upon which the creditor holds a mortgage, pledge, or lien, or upon which he has an attachment or execution. SECTION 60. Creditors proving claims cannot use; Stay of action. No creditor, proving his debt or claim, shall be allowed to maintain any suit therefor against the debtor, but shall be deemed to have waived all right of action and suit against him, and all proceedings already commenced, or any unsatisfied judgment already obtained thereon, shall be deemed to be discharged and surrendered thereby; and after the debtor's discharge, upon proper application and proof to the court having jurisdiction, all such proceedings shall be, dismissed, and such unsatisfied judgments satisfied of record: Provided, That no valid lien existing in good faith thereunder shall be thereby affected. A creditor proving his debt or claim shall not be held to have waived his right of action or suit against the debtor when a discharge has have been refused or the proceedings have been determined to the without a discharge. No creditor whose debt is provable under this Act shall be allowed, after the commencement of proceedings in insolvency, to prosecute to final judgment any action therefor against the debtor until the question of the debtor's discharge shall have been determined, and any such suit proceeding shall, upon the application of the debtor or of any creditor, or the assignee, be stayed to await the determination of the court on the question of discharge: Provided, That if the amount due the creditor is in dispute, the suit, by leave of the court in insolvency, may proceed to judgment for purpose of ascertaining the amount due, which amount, when adjudged, may be allowed in the insolvency proceedings, but execution shall be stayed aforesaid. SECTION 61. Preferences knowingly accepted contrary to this Act. Any person who shall have accepted any preference, having reasonable cause to believe that the same was made or given by the debtor contrary to any provision of this Act, shall not be allowed to prove the debt or claim on account of which the preference was made or given, nor shall he receive any dividend thereon, until he shall have surrendered to the assignee all property, money, benefit, or advantage received by him under such preference. SECTION 62. Examinations under oath by court. The court may, upon the application of the assignee, or of any creditor, or without any application, before or after adjudication in insolvency, examine

- 18 -

upon oath the debtor in relation to his property and his estate and may examine any other person tending or making proof of claims, and may subpoena witnesses to give evidence relating to such matters. All examinations of witnesses shall be had and depositions shall be taken in accordance with and in the same manner as is provided by the Code of Civil Procedure. 27 CHAPTER IX Compositions SECTION 63. When confirmation filed. An insolvent may offer terms of composition to his creditors after, but not before, he has filed in court a schedule of his property and list of his creditors as provided in this Act. An application for the confirmation of a composition may be filed in the insolvency court after, but not before, it has been accepted in writing by a majority in number of all creditors whose claims have been allowed, which number must represent a majority in amount of such claims and after the consideration to be paid by the insolvent to his creditors and the money necessary to pay all debts which have priority and the costs of proceedings have been deposited in such place as shall be designated by and subject to the order of the court. A time shall be fixed by the court for the hearing upon an application for the confirmation of a composition, and for the hearing of such objections as may be made to its confirmation. The court shall confirm a composition if satisfied that (1) it is for the best interest of the creditors; (2) that the insolvent has not been guilty of any of the acts, or of a failure to perform any of the duties, which would create a bar to his discharge; and (3) that the offer and its acceptance are in good faith, and have not been made or procured except as herein provided, or by any means, promises, or acts herein forbidden. Upon the confirmation of a composition the consideration shall be distributed as the judge shall direct, and the case dismissed, and the title to the insolvent's property shall revest in him. Whenever a composition is not confirmed, the estate in insolvency shall be administered as herein provided. The court may, upon application of a party in interest, filed at any time within six months after the composition has been confirmed, set the same aside, and reinstate the case if it shall be made to appear upon a trial that fraud was practiced in the procuring of such composition, and that the knowledge thereof has come to the petitioner since the confirmation of such composition. Debts that may be proved. The debts which may be proved against the estate of the debtor in insolvency proceedings are the following: All debts due and payable from the debtor at the time of the adjudication of insolvency (Sec. 53); All debts existing at the time of the adjudication of insolvency but not payable until a future time, a discount being made if no interest is payable by the terms of the contract (ibid);

Any debt of the insolvent arising from his liability as indorser, surety, bail or guarantor, where such liability became absolute after the adjudication of insolvency but before the final dividend shall have been declared (sec. 54); Other contingent debts and contingent liabilities contracted by the insolvent if the contingency shall happen before the order of the final dividend (Sec. 55); and Any debt of the insolvent arising from his liability to any person liable as bail, surety or guarantor or otherwise for the insolvent, who shall have paid the debt in full or in part (Sec. 56) Contingent claim it is defined as a claim in which liability depends on some future event that may or may not happen and which makes it uncertain whether there will be any liability. The expression is used in contradiction to an absolute claim, which is subject to contingency and may be proved and allowed. The most common example of a contingent claim is that which arises when a person is bound as surety or guarantor for a principal who is insolvent or dead. Under the ordinary contract of suretyship, the surety has no claim whatever against his principal until he himself pays something by way of satisfaction upon the obligation which is secured. (E. Gaskell & Co., vs. Tan Sit, 43 Phil. 810) Debts that may not be proved. The following debts are not provable or allowed in insolvency proceedings: (1) (2) Claims barred by statute of limitations ( Sec. 29, see 73) Claims of secured creditors with a mortgage or pledge in their favor unless they surrender their security (Sec. 59); Claims of creditors who hold an attachment or execution on the property of the debtor duly recorded and not dissolved ( ibid, see Sec. 32, last sentence); and Claims on account of which a fraudulent preference was made or given. (Sec. 61)

(3)

(4)

Alternative rights of secured creditor. (1) To maintain his rights under his security or lien and ignore the insolvency proceedings, in which case it is the duty of the assignee to surrender to him the property encumbered; or To waive his right under the security or lien and thereby share in the distribution of the assets of the debtor; or To have the value of the encumbered property appraised and then share in the distribution of the assets of the debtor with respect to the balance of his credit (see Sec. 59) COMPOSITION

(2)

(3)

- 19 -

SECTION 63. When confirmation filed. An insolvent may offer terms of composition to his creditors after, but not before, he has filed in court a schedule of his property and list of his creditors as provided in this Act. An application for the confirmation of a composition may be filed in the insolvency court after, but not before, it has been accepted in writing by a majority in number of all creditors whose claims have been allowed, which number must represent a majority in amount of such claims and after the consideration to be paid by the insolvent to his creditors and the money necessary to pay all debts which have priority and the costs of proceedings have been deposited in such place as shall be designated by and subject to the order of the court. A time shall be fixed by the court for the hearing upon an application for the confirmation of a composition, and for the hearing of such objections as may be made to its confirmation. The court shall confirm a composition if satisfied that (1) it is for the best interest of the creditors; (2) that the insolvent has not been guilty of any of the acts, or of a failure to perform any of the duties, which would create a bar to his discharge; and (3) that the offer and its acceptance are in good faith, and have not been made or procured except as herein provided, or by any means, promises, or acts herein forbidden. Upon the confirmation of a composition the consideration shall be distributed as the judge shall direct, and the case dismissed, and the title to the insolvent's property shall revest in him. Whenever a composition is not confirmed, the estate in insolvency shall be administered as herein provided. The court may, upon application of a party in interest, filed at any time within six months after the composition has been confirmed, set the same aside, and reinstate the case if it shall be made to appear upon a trial that fraud was practiced in the procuring of such composition, and that the knowledge thereof has come to the petitioner since the confirmation of such composition. Composition is a proceeding voluntary on both sides, by which the debtor, of his own motion, offers to pay his creditors a certain percentage of their claims in exchange for a release from his liability. Requirements for a valid offer of composition (1) The offer of the terms of composition must be made after the filing in court of the schedule of property and submission of list of creditors; The offer must be accepted in writing by majority of the creditors representing a majority of the claims which have been allowed; It must be made after depositing in such place designated by the court the consideration to be paid and the costs of the proceedings; and The terms of the composition must be approved or confirmed by the court. (Sec 63)

(1) (2)

(3)

It is for the best interest of the creditors; The debtor has not been guilty of any of the acts or of a failure to perform any of the duties which would create a bar to his discharge; and The offer and its acceptance are in good faith and have not been made or procured in a manner forbidden by the Act. DISCHARGE*

(2)

(3)

(4)

When court may confirm composition.

SECTION 64. Discharge. At any time after the expiration of three months from the adjudication of insolvency, but not later than one year from such adjudication, unless the property of the insolvent has not been converted unto money, the debtor may apply to the court for a discharge from his debts, and the court shall thereupon order notice to be given to all creditors who have proved their debts to appear on a day appointed for that purpose and show cause why a discharge should not be granted to the debtor; said notice shall be given by registered mail and by publication 28 at least once a week, for six weeks, in a newspaper published in the province or city, or, if there be none, in a newspaper which, in the opinion of the judge, will best give notice to the creditors of the said insolvent: Provided, That if no debts have been proven, such notice shall not be required. SECTION 65. Invalid discharge. No discharge shall be granted, or if granted shall be valid, (1) if the debtor shall have sworn falsely in his affidavit annexed to his petition, schedule, or inventory, or upon any examination in the course of the proceedings in insolvency, in relation to any material fact concerning his estate or his debts or to any other material fact; or (2) if he has concealed any part of his estate or effects, or any books or writing relating thereto; or (3) if he has been guilty of fraud or willful neglect in the care or custody of his property or in the delivery to the assignee of the property belonging to him at the time of the presentation of his petition and inventory, excepting such property as he is permitted to retain under the provisions of this Act; or (4) if, within one month before the commencement of such proceedings, he has procured his real estate, goods, moneys, or chattels to be attached or seized on execution; or (5) if he has destroyed, mutilated, altered, or falsified any of his books, documents, papers, writings, or securities, or has made, or been privy to the making of, any false or fraudulent entry in any book of account or other document with intent to defraud his creditors; or (6) if he has given any fraudulent preference, contrary to the provisions of this Act, or has made any fraudulent payment, gift, transfer, conveyance, or assignment of any part of his property, or has admitted a false or fictitious debt against his estate; or (7) if, having knowledge that any person has proven such false or fictitious debt, he has not disclosed the same to his assignee within one month after such knowledge; or (8) if, being a merchant or tradesman, he has not kept proper books of account in Arabic numerals and in accordance with the provisions of the Code of Commerce; or (9) if he, or any other

- 20 -

person on his account, or in his behalf, has influenced the action of any creditor, at any stage of the proceedings, by any pecuniary consideration or obligation; or (10) if he has, in contemplation of becoming insolvent, made any pledge, payment, transfer, assignment, or conveyance of any part of his property, directly or indirectly, absolutely or conditionally, for the purpose of preferring any creditor or person having a claim against him, or who is, or may be, under liability for him, or for the purpose of preventing the property from coming into the hands of the assignee, or of being distributed under this Act in satisfaction of his debts; or (11) if he has been convicted of any misdemeanor under this Act, or has been guilty of fraud contrary to the true intent of this Act; or (12) in case of voluntary insolvency, has received the benefit of this or any other Act of insolvency or bankruptcy within six years next preceding his application for discharge; or (13) if insolvency proceedings in which he could have applied for a discharge are pending by or against him in the Court of First Instance of any other province or city in the Philippine Islands. Before any discharge is granted, the debtor shall take and subscribe an oath to the effect that he has not done, suffered, or been privy to any act, matter, or thing specified in this Act as grounds for withholding such discharge or as invalidating such discharge, if granted. SECTION 66. Any creditor opposing the discharge of a debtor shall file his objections thereto, specifying the grounds of his opposition, and after the debtor has filed and served his answer thereto which pleadings shall be verified, the court shall try the issue or issues raised, according to the practice provided by law in civil actions. SECTION 67. Discharge of debtor by court. If it shall appear to the court that the debtor has in all things conformed to his duty under this Act, and that he is entitled under the provisions thereof to receive a discharge, the court shall grant him a discharge from all his debts, except as hereinafter provided, and shall give him a certificate thereof, under the seal of the court, in substance as follows: "In the Court of First Instance of the _____________, Philippine Islands. Whereas, ______________, has been duly adjudged an insolvent under the Insolvency Law of the Philippine Islands, and appears to have conformed to all the requirements of law in that behalf, it is therefore ordered by the court that said _______________ be forever discharged from all debts and claims, which by said Insolvency Law are made provable against his estate, and which existed on the _______ day of _________, on which the petition of adjudication was filed by (or against) him, excepting such debts, if any, as are by said Insolvency Law excepted from the operation of a discharge in insolvency. Given under my hand, and the seal of the court, this ____ day of ______________, anno Domini ______________ Attest: ____________, clerk. (Seal) _____________, judge." SECTION 68. Debts not released under this Act No tax or assessment due the Insular Government 29 or any provincial or municipal government, whether proved or not as provided for in this Act, shall be discharged. Nor shall any debt created by the fraud or embezzlement of the debtor, or by his defalcation as a public officer or while

acting in a fiduciary capacity, be discharged under this Act, but the debt may be proved, and the dividend thereon shall be a payment on account of said debt. No discharge solvent granted under this Act shall release, discharge, or affect any person liable for the same debt, for or with the debtor, either as partner, joint contractor, indorser, surety, or otherwise. 30 SECTION 69. Effect of discharge under this Act A discharge, duly granted under this Act, shall, with the exceptions aforesaid, release the debtor from all claims, debts, liabilities, and demands set forth in his schedule, or which were or might have been proved against his estate in insolvency, and may be pleaded by a simple averment that on the day of its date such discharge was granted to him, setting forth the same in full, and the same shall be a complete bar to all suits brought on any such debts, claims, liabilities, or demands, and the certificate shall be prima facie evidence in favor of such fact and of the regularity of such discharge: Provided, however, That any creditor whose debt was proved or provable against the estate in insolvency who shall see fit to contest the validity of such discharge on the ground that it was fraudulently obtained and who has discovered the facts constituting the fraud subsequent to the discharge, may, at any time within one year after the date thereof, apply to the court which granted it to set it aside and annul the same. Discharge, under the insolvency law, is the formal and judicial release of an insolvent debtor from his debts with the exception of those expressly reserved by law. When an discharge. insolvent debtor may apply for

A debtor may apply to the court for the discharge at any time after the expiration of three months from the adjudication of insolvency, but not later than one year from such adjudication of insolvency, but not later than one year from such adjudication unless the property of the insolvent has not been converted into money (Sec. 64) without his fault thereby delaying the distribution of dividends among the creditors in which case the court may extend the period. Acts of debtors or grounds which will prevent a discharge. They are the following: (1) (2) (3) (4) False swearing; Concealment of any part of his estate or effects; Fraud or willful neglect in the care of his property or in the delivery thereof to the assignee; Procuring his properties to be attached or seized on execution within one month before the commencement of insolvency proceedings; Destruction, mutilation, alteration or falsification of his books, documents and papers; Giving fraudulent preference to a creditor; Non-disclosure to the assignee of a proven false or fictitious debt within one after acquiring knowledge;

(5) (6) (7)

- 21 -

(8) (9) (10) (11) (12)

(13)

Being a merchant, failure to keep proper books of accounts; Influencing the action of any creditor, at any stage of the proceedings, by any pecuniary consideration; Effecting any transfer, conveyance or mortgage in contemplation of insolvency; Conviction of any misdemeanor under the Insolvency law; In case of voluntary insolvency, he has received the benefit of insolvency within six years preceding his application for discharge; and If insolvency proceedings in which he could have applied for a discharge are pending by or against him in the Regional Trial Court of any other province or city (Sec. 65)

(2)

(3)

provable debts are not affected whether or not they were properly scheduled; It is a special defense which may be pleaded and be a complete bar to all suits brought on any such debts, claims, liabilities or demands (Sec. 69); and The certificate of discharge is prima facie evidence of the fact of release, and the regularity of such discharge. (ibid)

When discharge may be revoked. A discharge in insolvency may be revoked by the Court which granted it on petition of any creditor (1) Whose debt was proved or provable against the estate in insolvency, on the ground that the discharge was fraudulently obtained; and Who has discovered facts constituting the fraud subsequent to the discharge provided. The petition is filed within one year after the date of discharge. (ibid)

Debts released by discharge. The following debts are released by discharge under the Insolvency Law; (1) (2) All claims, debts and liabilities, and demands set forth in the schedule; and All claims, debts, liabilities and demands which were or might have been proved against the estate in insolvency. (sec. 69) (2) (3)

FRAUDULENT PREFERENCES AND TRANSFERS SECTION 70. If any debtor, being insolvent, or in contemplation of insolvency, within thirty days before the filing of a petition by or against him, with a view to giving a preference to any creditor or person having a claim against him or who is under any liability for him, procures any part of his property to be attached, sequestered, or seized on execution, or makes any payment, pledge, mortgage, assignment, transfer, sale, or conveyance of any part of his property, either directly or indirectly, absolutely or conditionally, to anyone, the person receiving such payment, pledge, mortgage, assignment, transfer, sale, or conveyance, or to be benefited thereby, or by such attachment or seizure, having reasonable cause to believe that such debtor is insolvent, and that such attachment, sequestration, seizure, payment, pledge, mortgage, conveyance, transfer, sale, or assignment is made with a view to prevent his property from coming to his assignee in insolvency, or to prevent the same from being distributed ratably among his creditors, or to defeat the object of, or in any way hinder, impede, or delay the operation of or to evade any of the provisions of this Act, such attachment, sequestration, seizure, payment, pledge, mortgage, transfer, sale, assignment, or conveyance is void, and the assignee, or the receiver, may recover the property, or the value thereof, as assets of such insolvent debtor. If such payment, pledge, mortgage, conveyance, sale, assignment, or transfer is not made in the usual and ordinary course of business of the debtor, or if such seizure is made under a judgment which the debtor has confessed or offered to allow, that fact shall be prima facie evidence of fraud. Any payment, pledge, mortgage, conveyance, sale, assignment, or transfer of property of whatever character made by the

Debts not released by discharge. The following debts are not released by discharge under the Insolvency Law: (1) (2) (3) (4) Taxes or assessments due the government, whether national or local; Any debt created by the fraud or embezzlement of the debtor; Any debt created by the defalcation of the debtor as a public officer or while acting in a fiduciary capacity; Debts of any person liable for the same debt, for or with the insolvent debtor, either as partner, joint contractor, indorser, surety or otherwise (Sec. 68) Debts of a corporation because a corporation is not granted a discharge; Claims for support otherwise it will make the law a means of avoiding the enforcement of the obligation, moral and legal, devolving upon the husband to support his family (Wetmore vs. Markol, 196 U.S. 68); Claims for unliquidated damages arising out of pure tort ( Schall vs. Camors, 251 U.S. 239); and Claims of secured creditors. (See Sec. 59)

(5) (6)

(7) (8)

When discharge takes effect. A discharge, when granted, takes effect not from its date but from the commencement of the proceedings in insolvency. Legal effects of discharge: (1) It releases the debtor from all claims, debts liabilities and demands set forth in the schedule or which were or might have been proved against his estate in insolvency (Sec. 69). Hence, non-

- 22 -

insolvent within one month before the filing of a petition in insolvency by or against him, except for a valuable pecuniary consideration made in good faith, shall be void. All assignments, transfers, conveyances, mortgages, or incumbrances of real estate shall be deemed, under this section, to have been made at the time the instrument conveying or affecting such realty was filed for record in the office of the register of deeds of the province or city where the same is situated. Meaning of transfer In insolvency law, it includes the sale and every other and different modes of disposing of or parting with property, or the possession of property, absolutely or conditionally as payment, pledge, mortgage, gift or security. A deposit of money is not a transfer. When preferential transfer exists. To constitute a preferential transfer, within the meaning of the Insolvency Law, there must be a parting with the insolvents property for the benefit of the creditor and a consequent diminution of the insolvents estate with the result that such creditor receives a greater proportion of his claim than the other creditors of the same class. Hence, a deposit of money to ones credit in a bank does not create any preference. When fraudulent preference exists. Under the Insolvency law, a fraudulent preference is committed when the debtor procures any part of his property to be attached, sequestered or seized on execution or makes any payment, pledge, mortgage, assignment, transfer, sale or conveyance of any part of his property, whether directly or indirectly, absolutely or conditionally, to any one under the following circumstances: (1) (2) (3) (4) The debtor is insolvent or in contemplation of insolvency; The transaction in question is made within thirty days before the filing of a petition by or against the debtor; It is made with a view to giving preference to any creditor or person having a claim against him; and The person receiving a benefit thereby has reasonable cause to believe (a) That the debtor is insolvent; and (b) That the transfer is made with a view to prevent his property from coming to his assignee in insolvency, or to prevent the same from being distributed ratably among his creditors, or to defeat the object of or in any way hinder the operation of or evade the provisions of the Insolvency Law. (Sec. 70)

sale and purchase of general merchandise and that the pledge he made to the creditor covered all of his stock, is strong evidence that the creditor knew or had reason to believe that he was insolvent. Equal exchange not preference. An exchange of securities within the thirty day period is not a fraudulent preference under the law even when both parties know that the debtor is insolvent, if the security given up is a valid one at the time the exchange is made and of equal value with the one received in exchange. The reason is that the exchange takes nothing away from the other creditor. When fraudulent transfer exists. A fraudulent transfer is any payment, pledge, mortgage, conveyance, sale, assignment or transfer of property of whatever character made by the insolvent within one month before the filing of a petition in insolvency by or against him, except for a valuable pecuniary consideration in good faith. Such a transfer is void. In case of real estate, the assignment, transfers, conveyances, mortgages or encumbrances shall be deemed to have been made at the time the instrument conveying or affecting such realty was filed for record in the office of the registry of deeds of the province or city where the same is located. (sec. 70) Effect of fraudulent transfer. As against the creditors of the insolvent, any conveyance or assignment fraudulently made us void. Hence, no title is acquired by the transferee. PENAL PROVISIONS SECTION 71. Acts of debtors punishable under this Act. From and after the taking effect of this Act, a debtor who commits any one of the following acts shall, upon conviction thereof, be punished by imprisonment for not less than three months nor more than five years for each offense: 1. If he shall, after the commencement of proceedings in insolvency, secrete or conceal any property belonging to his estate or part with, conceal, destroy, alter, mutilate, or falsify or cause to be concealed, destroyed, altered, mutilated, or falsified, any book, deed, document, or writing relating thereto, or remove, or cause to be removed, the same or any part thereof, with the intent to prevent it from coming into the possession of the assignee in insolvency, or to hinder, impede, or delay his assignee in recovering or receiving the same, or if he shall make any payment, gift, sale, assignment, transfer, or conveyance of any property belonging to his estate, with like intent, or shall spend any part thereof in gaming; or if he shall, with intent to defraud wilfully and fraudulently conceal from his assignee, or fraudulently or designedly omit from his schedule any property or effects whatsoever; or if, in any case of any person having, to his knowledge or belief, proved a false or fictitious debt against his estate he shall fail to disclose the same to his assignee within one month after coming to the knowledge or belief thereof; or if he shall attempt to account for any of his property by fictitious losses or expenses;

When presumption of fraud exists. If such payment, pledge, mortgage, conveyance, sale, assignment or transfer is not made in the usual and ordinary course of business of the debtor, or if such seizure us made under a judgment which the debtor has confessed or offered to allow, that fact shall be prima facie evidence of fraud. (ibid) Thus, the fact the debtor was a merchant engaged in the

- 23 -

2. If he shall, within three months before commencement of proceedings in insolvency under the false pretense of carrying on business and dealing in the ordinary course of trade, obtain on credit from any person any goods or chattels or shall pawn, pledge, or dispose of, otherwise than by bona fide transactions in the ordinary course of his trade, any of his goods and chattels which have been obtained on credit and remain unpaid for, or shall have suffered loss in any kind of gaming when such loss is one of the causes determining the commencement of proceedings, in insolvency, or shall have sold at a loss or for less than the current price any goods bought on credit and still unpaid for, or shall have advanced payments to the prejudice of his creditors. 31 3. If he shall, from and after the taking effect of this Act, during the proceedings for the suspension of payments, secrete or conceal, or destroy or cause to be destroyed or secreted any property belonging to his estate; or if he shall secrete, destroy, alter, mutilate, or falsify, or cause to be secreted, destroyed, altered, mutilated, or falsified, any book, deed, document, or writing relating thereto, or if he shall, with intent to defraud his creditors, make any payment, sale, assignment, transfer, or conveyance of any property belonging to his estate; or if he shall spend any part thereof in gaming; or if he shall falsely swear to the schedule and inventory exacted by paragraph two of section two as required by sections fifteen, sixteen and seventeen of this Act, with intent to defraud his creditors; or if he shall violate or break in any manner whatsoever the injunction issued by the court under section three of this Act. Acts criminally punishable under the Act. A debtor who commits any one of the following acts shall upon conviction thereof, be punished by imprisonment for not less than three months nor more than five years for each offense: (1) After commencement of insolvency proceedings: (a) Concealing any part of his estate; (b) Destroying, altering, mutilating or falsifying any book, deed, document, or writing relating thereto; (c) Removing the same with intent to prevent or delay its recovery by the assignee; (d) Making any payment, gift, sale, assignment, transfer or conveyance of property belonging to his estate with like intent; (e) Spending any part thereof in gaming; (f) Concealing from his assignee or omitting from the schedule any part of his property with intent to defraud; (g) Failing to disclose to his assignee the fact that a person has proved a false or fictitious claim against his estate within one month after coming the knowledge or belief thereof; or

(h) Attempting to account for any of his property by fictitious losses or expenses. (2) Within three months before commencement of insolvency proceedings: a. Obtaining on credit from any person, any goods or chattels, with intent to defraud, under the false pretense of carrying an ordinary course of business; Making any pledge or disposition of, otherwise then by bona fide transaction in the ordinary course of his trade, with intent to defraud, any of his goods or chattels which have been obtained on credit and remain unpaid for; Suffering loss in any kind of gaming when such loss is one of the causes determining the commencement of insolvency proceedings; Selling at a loss or for less than the current price any goods bought on credit and still unpaid for; or Advancing payment to the prejudice of his creditors.

b.

c.

d.

e.

(3) During proceedings for suspension of payments: a. b. Concealing or destroying any property belonging to his estate; Destroying, altering, mutilating, or falsifying any book, deed, document, or writing relating thereto; Making any payment, sale assignment, transfer, or conveyance of any property belonging to his estate; Spending any part thereof in gaming; Falsely swearing to the schedule and inventory exacted by paragraph 2 of Section 2 as required by Sections 15,16 and 14 with intent to defraud his creditors (supra.); Violating in any manner whatsoever the injunction issued by the court under Section 3. (Sec. 71.)

c.

d. e.

f.

MISCELLANEOUS PROVISIONS SECTION 72. If any debtor shall die after the order of adjudication, the proceedings shall be continued and concluded in like manner and with like validity and effect as if he had lived. SECTION 73. Pending insolvency proceedings by or against any person, partnership, corporation, or sociedad anonima, no statute of limitations shall run upon a claim of or against the estate of the debtor. SECTION 74. Any creditor, at any stage of the proceedings, may be represented by his attorney or duly authorized agent, and the attorney or

- 24 -

agent, properly authorized, shall be entitled to vote at any creditors' meeting as and for his principal. SECTION 75. Exempt property to be set apart. It shall be the duty of the court having jurisdiction of the proceedings, upon petition and after hearing, to exempt and set apart, for the use and benefit of said insolvent, such real and personal property as is by law exempt from execution, and also a homestead, as provided in section four hundred and fifty-two of the Code of Civil Procedure; 32 but no such petition shall be heard as aforesaid until it is first proved that notice of the hearing of the application therefor has been duly given by the clerk, by causing such notice to be posted in at least three public places in the province or city at least ten days prior to the time of such hearing, which notice shall set forth the name of said insolvent debtor, and the time and place appointed for the hearing of such application, and shall briefly indicate the homestead sought to be exempted or the property sought to be set aside; and the decree must show that such proof was made to the satisfaction of the court, and shall be conclusive evidence of that fact. SECTION 76. Proceedings, how commenced. The filing of a petition by or against a debtor upon which, or upon an amendment of which, an order of adjudication in insolvency may be made, shall be deemed to be the commencement of the proceedings in insolvency under this Act. SECTION 77. Words used in this Act in the singular include the plural, and in the plural, the singular, and the word "debtor" includes partnerships, corporations and sociedades anonimas. SECTION 78. Appointment of receiver; Election and qualification of assignee. Upon the filing of either a voluntary or involuntary petition in insolvency, a receiver may be appointed by the court in which the proceeding is pending, or by a judge thereof, at any time before the election of an assignee, when it appears by the verified petition of a creditor that the assets of the insolvent, or a considerable portion thereof, have been pledged, mortgaged, transferred, assigned, conveyed, or seized, on legal process, in contravention or violation of the provisions of section seventy of this Act, and that it is necessary to commence an action to recover the same. The appointment, oath, undertaking, and powers of such receiver shall in all respects be regulated by the general laws of the Philippine Islands applicable to receivers. When an assignee is chosen, and has qualified, the receiver shall forthwith return to court an account of the assets and property which have come into his possession, and of his disbursements, and a report of all actions or proceedings commenced by him for the recovery of any property belonging to the estate, and the court shall thereupon summarily hear and settle the receiver's account, and shall

allow him a just compensation for his services and his expenses, including a reasonable attorney's fee, whereupon the receiver shall deliver all property, assets, or effects remaining in his hands, to the assignee who shall be substituted for the receiver in all pending actions or proceedings. SECTION 79. Attachments. When an attachment has been made and is not dissolved before the commencement of proceedings in insolvency, or is dissolved by an undertaking given by the defendant, if the claim upon which the attachment suit was commenced is proved against the estate of the debtor, the plaintiff may prove the legal costs and disbursements of the suit, and of the keeping of the property, and the amount thereof shall be a preferred debt. SECTION 80. Costs. In all contested matters in insolvency the court may, in its discretion, award costs to either party to be paid by the other, or to either or both parties to be paid out of the estate, as justice and equity may require. In awarding costs, the court may issue execution therefor. In all involuntary cases under this Act, the court shall allow the petitioning creditors out of the estate of the debtor, if any adjudication of insolvency be made, as a preferred claim, all legal costs and disbursements incurred by them in that behalf. SECTION 81. Dismissal or discontinuance. If no creditor files written objections, the court may, upon the application of the debtor, if it be voluntary petition, or of the petitioning creditors, if a creditor's petition, dismiss the petition and the discontinue the proceedings at any time before the appointment of an assignee, upon giving not less than two nor more than eight weeks' notice to the creditors, in the same manner that notice of the time and place of election of an assignee is given: Provided, however, That by written consent of all creditors filed in the court the proceedings may be dismissed at any time. After the appointment of an assignee, no dismissal shall be made without the consent of all parties interested in or affected thereby. SECTION 82. Law governing appeal. An appeal may be taken to the Supreme Court in the following cases: 33 1. From an order granting or refusing an adjudication of insolvency and, in the latter case, from the order fixing the amount of costs, expenses, damages, and attorney's fees allowed the debtor. 2. From an order made at the hearing of any account of an assignee, allowing or rejecting a creditor's claim, in whole or in part, when the amount in dispute exceeds three hundred pesos. 3. From an order allowing or denying a claim for property not belonging to the insolvent, presented under section forty-eight of this Act.

- 25 -

4. From an order settling an account of an assignee. 5. From an order against or in favor of setting apart homestead or other property claimed as exempt from execution. 6. From an order granting or refusing a discharge to the debtor. Chapter forty-two of the Code of Civil Procedure, 34 so far as applicable, shall govern appeals under this Act, except that when an assignee has given an official undertaking and appeals from a judgment or order of insolvency, his official undertaking stands in the place of an undertaking on appeal, and the sureties thereon are liable on such undertaking: Provided, however, That an interlocutory appeal shall not stay proceedings unless written be entered into on the part of the appellant, with at least two sureties, in such an amount as the court, or a judge thereof, may direct, but not less than double the value of the property involved, to the effect that if the order appealed from be affirmed, or the appeal dismissed, appellant will pay all costs and damages which the adverse party may sustain by reason of the appeal and the stay of proceedings. SECTION 83. All Acts and parts of Acts inconsistent with the provisions of this Act are hereby repealed. Effect of death of insolvent debtor in insolvency proceedings. It depends(1) if the debtor shall die after the order of adjudication, the proceedings shall be continued and concluded in like manner and with like validity and effect as if he had lived. (sec. 72) If the death occurs before the order of adjudication, the proceedings shall be discontinued. The claims must be filed in the proper estate or intestate proceedings as provided for in the Rules of Court on the settlement of decedents estate.

When receiver may be appointed. Upon the filing of either a voluntary or an involuntary petition in insolvency, a receiver may be appointed by the court in which the proceedings is pending, at any time before the election of an assignee, when it appears by the verified petition of a creditor: (1) That the assets of the insolvent or considerable portion thereof have been pledged, mortgaged, transferred, assigned, conveyed or seized, on legal process in violation of Section 79; and That it is necessary to commence an action to recover the same

(2)

The receiver shall deliver all the property, assets or effects remaining in his hands to the assignee who shall be substituted for him in all pending actions or proceedings. (Sec. 78) When petition may be dismissed. The court, upon giving due notice, may dismiss the petition and discontinue the proceedings at any time before the appointment of an assignee: If it be a voluntary petition. upon the application of the debtor, if no creditor files written objections; If a creditors petition. upon the application of the petitioning creditors; or By written consent of all creditors filed in court, in which case, the proceedings may be dismissed at any time.

After the appointment of an assignee, dismissal is not allowed without the consent of all parties interested or affected thereby. (sec. 81) When appeal may be taken to the Supreme Court. An appeal may be taken to the Supreme Court in the following cases: (1) From an order granting or refusing an adjudication in insolvency and in the latter case, from the order fixing the amount of costs (see Secs. 79, 80), expenses, damages and attorneys fees allowed the debtor; From an order allowing or rejecting a creditors claim when the amount in dispute exceeds P 300,000.00; From an order allowing or denying a claim for property not belonging to the insolvent, presented under Section 48 (supra); From an order settling an account of an assignee; From an order against or in favor of setting apart homesteads or other property claimed as exempt from execution; and From an order granting or refusing a discharge to the debtor (Sec. 82)

(2)

(2) (3)

Duty of court where property exempt from execution. It shall be the duty of the court having jurisdiction of proceedings upon petition and after hearing held upon due notice, to exempt and set apart, for the use and benefit of the insolvent, such real and personal property as is by law exempt from execution. (Sec. 75) When insolvency commence. proceedings deemed to

(4) (5)

(6) Effectivity

The filing of a petition by or against a debtor upon which or upon an amendment of which, an order of adjudication in insolvency may be made shall be deemed to be the commencement of proceedings in insolvency under the Act (Sec. 76).

The insolvency law took effect on its passage. It was enacted on May 20, 1909.

- 26 -

- 27 -