LIQUIDATION
The goal of a Liquidation Proceeding is to wind up the affairs of the entity
and distribute its assets among its creditors. It involves either the filing of a
Petition for Liquidation or the failure or conversion of a Rehabilitation
Proceeding into a Liquidation Proceeding.
If filed by the Debtor (Voluntary Liquidation)
o Debtor must show certificates attesting that resolutions for the
filing of the Petition for Liquidation was approved by at least a majority of
the members of the board of directors present and stockholders holding at
least two-thirds (2/3) of the outstanding capital stock of the stock
corporation.
If filed by the creditors (Involuntary Liquidation)
o Applicants must be made up of three (3) or more creditors
whose aggregate claims are: (1) at least One Million Pesos (Php
1,000,000.00); or (2) At least twenty-five percent (25%) of the subscribed
capital stock.
In both cases, if the Court finds the Petition for Liquidation meritorious, the
Court will issue a Liquidation Order which determines the point when the
debtor is deemed dissolved and its corporate or juridical existence is
terminated.
Since Liquidation Proceedings also involve the regular courts, it may take a
months or years to obtain a Liquidation Order from the Court, most
especially if contested.
Benefits for the Debtor:
1. May allow termination of debtor’s contracts.
2. Prohibits separate actions for the collection of an unsecured claims.
3. Disallows foreclosure proceedings to protect the debtor’s assets prior
to distribution.
Benefits for the Creditor/s:
1. May attribute direct liability to directors or officers of the debtor.
2. The right of secured creditors to enforce its liens are not affected by
the Liquidation Order.
3. More protection to the creditors as the State steps in to equitably
distribute the debtor’s limited resources while its losses are re-allocated.
4. It prevents further devaluation of the business assets.
A.THE LIQUIDATION ORDER SEC. 2. LIQUIDATION ORDER. – The
Liquidation Order shall:
(a) declare the debtor insolvent;
(b) order the of the debtor and, in the case of a juridical debtor,
declare it as dissolved;
(c) order the sheriff to take possession and control of all the property of
the debtor, except those that may be exempt from execution;
(d)order the publication of the Liquidation Order, together with the
petition, or motion to convert the rehabilitation proceedings into
liquidation proceedings, if any, in a newspaper of general circulation in
the Philippines once a week for two (2) consecutive weeks;
(e)direct payments of any claims and conveyance of any property
due the debtor to the liquidator;
(f)prohibit payments and the transfer of any property by the debtor;
(g)direct all creditors to file their claims with the liquidator not later
than five (5) days from the time the liquidator takes his oath of office,
furnishing a copy thereof to the court;
(h)authorize the payment of administrative expenses as they become due;
(i)state that the debtor and creditors who are not petitioner/s may
submit the names of other nominees to the position of liquidator; and
(j)set the case for hearing for the election and appointment of the
liquidator, which date shall not be less than thirty (30) days nor more than
forty-five (45) days from the date of the last publication.
SEC. 3. EFFECTS OF THE LIQUIDATION ORDER. – Upon the
issuance of the Liquidation Order:
(a)the juridical debtor shall be deemed dissolved and its corporate
or juridical existence terminated;
(b) legal title to and control of all the assets of the debtor, except
those that may be exempt from execution, shall be deemed vested
in the liquidator or, pending his election or appointment, with the
court;
(c)all contracts of the debtor shall be deemed terminated and/or
breached, unless the liquidator, within ninety (90) days from the
time he takes his oath of office, declares otherwise and the contract
counter-party agrees;
(d) no separate action for the collection of an unsecured claim shall
be allowed. Actions already pending will be transferred to the liquidator
for him to accept and settle or contest. If the liquidator contests or
disputes the claim, the court shall allow, hear, and resolve such contest,
except when the case is already on appeal. In such a case, the suit may
proceed to judgment, and any final and executory judgment therein for a
claim against the debtor shall be filed and allowed in court; and
(e)no foreclosure proceeding shall be allowed for a period of one
hundred eighty (180) days from the date of the order.
VOLUNTARY DISSOLUTION
WHEN NO CREDITORS ARE AFFECTED
If dissolution of a corporation does not prejudice the rights of any creditor
having a claim against it, the dissolution may be effected by majority vote
of the board of directors or trustees, and by a resolution adopted by the
affirmative vote of the stockholders owning at least majority of
the outstanding capital stock or majority of the members of a meeting to
be held upon the call of the directors or trustees.
At least 20 days prior to the meeting, notice shall be given to each
shareholder or member of record personally, by registered mail, or by any
means authorized under its bylaws whether or not entitled to vote at the
meeting, in the manner provided in Section 50 of the Revised Corporation
Code and shall state that the purpose of the meeting is to vote on the
dissolution of the corporation. Notice of the time, place, and object of the
meeting shall be published once prior to the date of the meeting in a
newspaper published in the place where the principal office of said
corporation is located, or if no newspaper is published in such place, in a
newspaper of general circulation in the Philippines.
A verified request for dissolution shall be filed with the SEC stating:
(a) the reason for the dissolution;
(b) the form, manner, and time when the notices were given;
(c) names of the stockholders and directors or members and trustees
who approved the dissolution;
(d) the date, place, and time of the meeting in which the vote was
made; and
(e) details of publication.
The corporation shall submit the following to the SEC:
(1) a copy of the resolution authorizing the dissolution, certified by a
majority of the board of directors or trustees and countersigned by
the secretary of the corporation;
(2) proof of publication; and
(3) favorable recommendation from the appropriate regulatory
agency, when necessary.
Within 15 days from receipt of the verified request for dissolution, and in
the absence of any withdrawal within said period, the SEC shall approve
the request and issue the certificate of dissolution. The dissolution shall
take effect only upon the issuance by the SEC of a certificate of
dissolution.
No application for dissolution of banks, banking and quasi-banking
institutions, preneed, insurance and trust companies, NSSLAs, pawnshops,
and other financial intermediaries shall be approved by the SEC unless
accompanied by a favorable recommendation of the appropriate
government agency.
VOLUNTARY DISSOLUTION
WHERE CREDITORS ARE AFFECTED
Where the dissolution of a corporation may prejudice the rights of any
creditor, a verified petition for dissolution shall be filed with the SEC.
The verified petition shall be signed by a majority of the corporation’s
board of directors or trustees, verified by its president or secretary or one
of its directors or trustees, and shall set forth:
(a) all claims and demands against it;
(b) the reason for the dissolution;
(c) that its dissolution was resolved upon by the affirmative vote of
the stockholders representing at least 2/3 of the outstanding capital
stock or at least 2/3 of the members at a meeting of its stockholders
or members called for that purpose;
(d) the form, manner, and time when the notices were given; and
(e) the date, place, and time of the meeting in which the vote was
made.
The corporation shall submit to the SEC the following:
(1) a copy of the resolution authorizing the dissolution, certified by a
majority of the board of directors or trustees and countersigned by
the secretary of the corporation; and
(2) a list of all its creditors.
If the petition is sufficient in form and substance, the SEC shall, by an
order reciting the purpose of the petition, fix a deadline for filing objections
to the petition which date shall not be less than 30 days nor more than 60
days after the entry of the order.
Before such date, a copy of the order shall be published at least once a
week for 3 consecutive weeks in a newspaper of general circulation
published in the municipality or city where the principal office of the
corporation is situated, or if there be no such newspaper, then in a
newspaper of general circulation in the Philippines, and a similar copy shall
be posted for 3 consecutive weeks in 3 public places in such municipality or
city.
Upon 5 days’ notice, given after the date on which the right to file
objections as fixed in the order has expired, the SEC shall proceed to hear
the petition and try any issue raised in the objections filed; and if no such
objection is sufficient, and the material allegations of the petition are true,
it shall render judgment dissolving the corporation and directing such
disposition of its assets as justice requires, and may appoint a receiver to
collect such assets and pay the debts of the corporation.
The dissolution shall take effect only upon the issuance by the SEC of
a certificate of dissolution.
Dissolution
By Shortening of Corporate Term
A voluntary dissolution may be effected by amending the articles of
incorporation to shorten the corporate term pursuant to the provisions of
the Revised Corporation Code. A copy of the amended articles of
incorporation shall be submitted to the SEC.
Upon the expiration of the shortened term, as stated in the approved
amended articles of incorporation, the corporation shall be deemed
dissolved without any further proceedings, subject to the provisions of
the Revised Corporation Code on liquidation, below.
In the case of expiration of corporate term, dissolution shall automatically
take effect on the day following the last day of the corporate term stated in
the articles of incorporation, without the need for the issuance by the SEC
of a certificate of dissolution.
Rehabilitation
Corporate rehabilitation is a remedy for corporations, partnerships and
associations which foresee the impossibility of meeting their debts when
they respectively fall due with an end view to restore and reinstate them to
their former position of successful operation and solvency. The debtor is
given a “fresh start” or “a new lease on life [to] thereby allow creditors to
be paid their claims from the debtor’s earnings.”
Under the FRIA, court-supervised rehabilitation can be voluntary or
involuntary.
A voluntary court-supervised rehabilitation may be initiated by the insolvent
debtor through a verified petition, accompanied by: the approval of the
owner in case of sole proprietorship; an approval by majority vote of the
partners in case of partnership; or an approval by a majority vote of the
board of directors or trustees, with authority from the stockholders or
members representing at least two-thirds (2/3) of the outstanding capital
stock or the members, in a meeting duly called for the purpose. A group of
insolvent debtors may also jointly file a petition for rehabilitation in cases
where one or more of its members foresee the impossibility of meeting
debts as they fall due; when the financial distress would likely adversely
affect the financial condition and/or operations of the other members;
and/or the participation of the other group members is essential under the
terms and conditions of the proposed Rehabilitation Plan.
Benefits for the Debtor:
1. Actions to enforce claims against the debtor may be suspended or
prohibited.
2. Waiver of taxes and fees, including penalties, interest and charges, to
the government.
3. Measures that allow the debtor to maintain its assets instead of being
liquidated.
4. All proceedings against the debtor may be consolidated with the
Court making it easier for the debtor to answer all claims.
5. Any compromises of amounts or rescheduling of payments by the
debtor shall be binding on creditors regardless of whether the
Rehabilitation Plan is implemented.
6. It gives the debtor a chance to re-engage the market, hopefully with
more vigor and enlightened services, having learned from a painful
experience.
Benefits for the Creditor/s:
1. Measures that preserve the assets of the debtor and directs the same
towards efforts to rehabilitate the debtor.
2. Consolidation of all proceedings against the debtor prevents a
scenario of several courts issuing various writs over the same assets.
3. Creditors are to be paid equitably.
4. The Court shall not impair the security or lien of secured creditors.
5. Secured creditors are given more defined leverage.
6. Assured creditors’ participation.
7. More protection to the creditors to equitably and fairly address their
concerns.
8. Allows for present value recovery for creditors.
