RA No 10142 | Financial Rehabilitation and

Insolvency (FRIA) Act of 2010

July 18, 2010 

REPUBLIC ACT NO. 10142

AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY

DISTRESSED ENTERPRISES AND INDIVIDUALS

CHAPTER I General Provisions

SECTION 1. Title. — This Act shall be known as the "Financial Rehabilitation and Insolvency
Act (FRIA) of 2010".

SECTION 2. Declaration of Policy. — It is the policy of the State to encourage debtors, both
juridical and natural persons, and their creditors to collectively and realistically resolve and
adjust competing claims and property rights. In furtherance thereof, the State shall ensure a
timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. The
rehabilitation or liquidation shall be made with a view to ensure or maintain certainty and
predictability in commercial affairs, preserve and maximize the value of the assets of these
debtors, recognize creditor rights and respect priority of claims, and ensure equitable
treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in
the interest of the State to facilitate a speedy and orderly liquidation of these debtors' assets
and the settlement of their obligations.

SECTION 3. Nature of Proceedings. — The proceedings under this Act shall be  in
rem. Jurisdiction over all persons affected by the proceedings shall be considered as acquired
upon publication of the notice of the commencement of the proceedings in any newspaper of
general circulation in the Philippines in the manner prescribed by the rules of procedure to be
promulgated by the Supreme Court.

The proceedings shall be conducted in a summary and non-adversarial manner consistent

with the declared policies of this Act and in accordance with the rules of procedure that the
Supreme Court may promulgate.

SECTION 4. Definition of Terms. — As used in this Act, the term:

(a) Administrative expenses shall refer to those reasonable and necessary expenses:

(1) incurred or arising from the filing of a petition under the provisions of this Act;

(2) arising from, or in connection with, the conduct of the proceedings under this Act,
including those incurred for the rehabilitation or liquidation of the debtor;
(3) incurred in the ordinary course of business of the debtor after the commencement date;

(4) for the payment of new obligations obtained after the commencement date to finance the
rehabilitation of the debtor;

(5) incurred for the fees of the rehabilitation receiver or liquidator and of the professionals
engaged by them; and

(6) that are otherwise authorized or mandated under this Act or such other expenses as may
be allowed by the Supreme Court in its rules.

(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more

intermediaries, is controlled by, or is under the common control of another corporation.

(c) Claim shall refer to all claims or demands of whatever nature or character against the
debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or undisputed, including, but not limited to: (1)
all claims of the government, whether national or local, including taxes, tariffs and customs
duties; and (2) claims against directors and officers of the debtor arising from acts done in the
discharge of their functions falling within the scope of their authority: Provided, That, this
inclusion does not prohibit the creditors or third parties from filing cases against the directors
and officers acting in their personal capacities.

(d) Commencement date  shall refer to the date on which the court issues the Commencement
Order, which shall be retroactive to the date of filing of the petition for voluntary or
involuntary proceedings.

(e) Commencement Order shall refer to the order issued by the court under Section 16 of this
Act.

(f) Control shall refer to the power of a parent corporation to direct or govern the financial
and operating policies of an enterprise so as to obtain benefits from its activities. Control is
presumed to exist when the parent owns, directly or indirectly through subsidiaries or
affiliates, more than one-half (1/2) of the voting power of an enterprise unless, in exceptional
circumstances, it can clearly be demonstrated that such ownership does not constitute
control. Control also exists even when the parent owns one-half (1/2) or less of the voting
power of an enterprise when there is power:

(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with investors;

(2) to direct or govern the financial and operating policies of the enterprise under a statute or
an agreement;

(3) to appoint or remove the majority of the members of the board of directors or equivalent
governing body; or

(4) to cast the majority votes at meetings of the board of directors or equivalent governing
body.
(g) Court shall refer to the court designated by the Supreme Court to hear and determine, at
the first instance, the cases brought under this Act.

(h) Creditor shall refer to a natural or juridical person which has a claim against the debtor
that arose on or before the commencement date.

(i) Date of liquidation shall refer to the date on which the court issues the Liquidation Order.

(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.

(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole
proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership
duly registered with the Securities and Exchange Commission (SEC), a corporation duly
organized and existing under Philippine laws, or an individual debtor who has become
insolvent as defined herein.

(l) Encumbered property  shall refer to real or personal property of the debtor upon which a
lien attaches.

(m) General unsecured creditor  shall refer to a creditor whose claim or a portion thereof is
neither secured, preferred nor subordinated under this Act.

(n) Group of debtors  shall refer to and can cover only: (1) corporations that are financially
related to one another as parent corporations, subsidiaries or affiliates; (2) partnerships that
are owned more than fifty percent (50%) by the same person; and (3) single proprietorships
that are owned by the same person. When the petition covers a group of debtors, all
reference under these rules to debtor shall include and apply to the group of debtors.

(o) Individual debtor shall refer to a natural person who is a resident and citizen of the
Philippines that has become insolvent as defined herein.

(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its
or his liabilities as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets.

(q) Insolvent debtor's estate  shall refer to the estate of the insolvent debtor, which includes all
the property and assets of the debtor as of commencement date, plus the property and
assets acquired by the rehabilitation receiver or liquidator after that date, as well as all other
property and assets in which the debtor has an ownership interest, whether or not these
property and assets are in the debtor's possession as of commencement date: Provided,That
trust assets and bailment, and other property and assets of a third party that are in the
possession of the debtor as of commencement date, are excluded therefrom.

(r) Involuntary proceedings shall refer to proceedings initiated by creditors.

(s) Liabilities  shall refer to monetary claims against the debtor, including stockholder's
advances that have been recorded in the debtor's audited financial statements as advances
for future subscriptions.
(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or personal
property that legally entitles a creditor to resort to said property for payment of the claim or
debt secured by such lien.

(u) Liquidation shall refer to the proceedings under Chapter V of this Act.

(v) Liquidation Order  shall refer to the Order issued by the court under Section 112 of this Act.

(w) Liquidator  shall refer to the natural person or juridical entity appointed as such by the
court and entrusted with such powers and duties as set forth in this Act: Provided,  That, if the
liquidator is a juridical entity, it must designate a natural person who possesses all the
qualifications and none of the disqualifications as its representative, it being understood that
the juridical entity and the representative are solidarily liable for all obligations and
responsibilities of the liquidator.

(x) Officer  shall refer to a natural person holding a management position described in or

contemplated by a juridical entity's articles of incorporation, bylaws or equivalent
documents, except for the corporate secretary, the assistant corporate secretary and the
external auditor.

(y) Ordinary course of business  shall refer to transactions in the pursuit of the individual
debtor's or debtor's business operations prior to rehabilitation or insolvency proceedings and
on ordinary business terms.

(z) Ownership interest  shall refer to the ownership interest of third parties in property held by
the debtor, including those covered by trust receipts or assignments of receivables.

(aa) Parent  shall refer to a corporation which has control over another corporation either
directly or indirectly through one or more intermediaries.

(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured creditors'
committee, a stakeholder, a party with an ownership interest in property held by the debtor,
a secured creditor, the rehabilitation receiver, liquidator or any other juridical or natural
person who stands to be benefited or injured by the outcome of the proceedings and whose
notice of appearance is accepted by the court.

(cc) Possessory lien shall refer to a lien on property, the possession of which has been
transferred to a creditor or a representative or agent thereof.

(dd) Proceedings shall refer to judicial proceedings commenced by the court's acceptance of

a petition filed under this Act.

(ee) Property of others  shall refer to property held by the debtor in which other persons have
an ownership interest.

(ff) Publication notice shall refer to notice through publication in a newspaper of general

circulation in the Philippines on a business day for two (2) consecutive weeks.

(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful

operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments projected in
the plan, more if the debtor continues as a going concern than if it is immediately liquidated.

(hh) Rehabilitation receiver  shall refer to the person or persons, natural or juridical, appointed
as such by the court pursuant to this Act and which shall be entrusted with such powers and
duties as set forth herein.

(ii) Rehabilitation Plan  shall refer to a plan by which the financial well-being and viability of an
insolvent debtor can be restored using various means including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization,  dacion en pago, debt-
equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of
new business entity as prescribed in Section 62 hereof, or other similar arrangements as may
be approved by the court or creditors.

(jj) Secured claim  shall refer to a claim that is secured by a lien.

(kk) Secured creditor shall refer to a creditor with a secured claim.

(ll) Secured party shall refer to a secured creditor or the agent or representative of such

secured creditor.

(mm) Securities market participant shall refer to a broker, dealer, underwriter, transfer agent

or other juridical persons transacting securities in the capital market.

(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a member of

a nonstock corporation or association or a partner in a partnership.

(oo) Subsidiary  shall refer to a corporation more than fifty percent (50%) of the voting stock of
which is owned or controlled directly or indirectly through one or more intermediaries by
another corporation, which thereby becomes its parent corporation.

(pp) Unsecured claim shall refer to a claim that is not secured by a lien.

(qq) Unsecured creditor  shall refer to a creditor with an unsecured claim.

(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.

(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the

consent of which is necessary for the approval of a Rehabilitation Plan under this Act.

SECTION 5. Exclusions. — The term debtor does not include banks, insurance companies, pre-
need companies, and national and local government agencies or units.

For purposes of this section:

(a) Bank  shall refer to any duly licensed bank or quasi-bank that is potentially or actually
subject to conservatorship, receivership or liquidation proceedings under the New Central
Bank Act (Republic Act No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially or actually subject
to insolvency proceedings under the Insurance Code(Presidential Decree No. 1460) or
successor legislation; and

(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell

pre-need plans.

Provided, That government financial institutions other than banks and government-owned or

-controlled corporations shall be covered by this Act, unless their specific charter provides
otherwise.

SECTION 6. Designation of Courts and Promulgation of Procedural Rules. — The Supreme Court
shall designate the court or courts that will hear and resolve cases brought under this Act and
shall promulgate the rules of pleading, practice and procedure to govern the proceedings
brought under this Act.

SECTION 7. Substantive and Procedural Consolidation. — Each juridical entity shall be

considered as a separate entity under the proceedings in this Act. Under these proceedings,
the assets and liabilities of a debtor may not be commingled or aggregated with those of
another, unless the latter is a related enterprise that is owned or controlled directly or
indirectly by the same interests:  Provided, however, That the commingling or aggregation of
assets and liabilities of the debtor with those of a related enterprise may only be allowed
where:

(a) there was commingling in fact of assets and liabilities of the debtor and the related
enterprise prior to the commencement of the proceedings;

(b) the debtor and the related enterprise have common creditors and it will be more
convenient to treat them together rather than separately;

(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to
commingle its assets and liabilities with the debtor's; and

(d) The consolidation of assets and liabilities of the debtor and the related enterprise is
beneficial to all concerned and promotes the objectives of rehabilitation.

Provided, finally, That nothing in this section shall prevent the court from joining other
entities affiliated with the debtor as parties pursuant to the rules of procedure as may be
promulgated by the Supreme Court.

SECTION 8. Decisions of Creditors. — Decisions of creditors shall be made according to the

relevant provisions of the Corporation Code in the case of stock or nonstock corporations or
the Civil Code in the case of partnerships that are not inconsistent with this Act.

SECTION 9. Creditors' Representatives. — Creditors may designate representatives to vote or

otherwise act on their behalf by filing notice of such representation with the court and serving
a copy on the rehabilitation receiver or liquidator.

SECTION 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a

Partnership, or Directors and Officers. — Individual debtor, owner of a sole proprietorship,
partners in a partnership, or directors and officers of a debtor shall be liable for double the
value of the property sold, embezzled or disposed of or double the amount of the transaction
involved, whichever is higher, to be recovered for the benefit of the debtor and the creditors,
if they, having notice of the commencement of the proceedings, or having reason to believe
that proceedings are about to be commenced, or in contemplation of the proceedings,
willfully commit the following acts:

(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary
course of business or authorize or approve any transaction in fraud of creditors or in a
manner grossly disadvantageous to the debtor and/or creditors; or

(b) Conceal, or authorize or approve the concealment, from the creditors, or embezzles or
misappropriates, any property of the debtor.

The court shall determine the extent of the liability of an owner, partner, director or officer
under this section. In this connection, in case of partnerships and corporations, the court
shall consider the amount of the shareholding or partnership or equity interest of such
partner, director or officer, the degree of control of such partner, director or officer over the
debtor, and the extent of the involvement of such partner, director or debtor in the actual
management of the operations of the debtor.

SECTION 11. Authorization to Exchange Debt for Equity. — Notwithstanding applicable banking

legislation to the contrary, any bank, whether universal or not, may acquire and hold an
equity interest or investment in a debtor or its subsidiaries when conveyed to such bank in
satisfaction of debts pursuant to a Rehabilitation or Liquidation Plan approved by the
court:  Provided, That such ownership shall be subject to the ownership limits applicable to
universal banks for equity investments and:  Provided, further, That any equity investment or
interest acquired or held pursuant to this section shall be disposed by the bank within a
period of five (5) years or as may be prescribed by the Monetary Board.

CHAPTER II Court-Supervised Rehabilitation

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

SECTION 12. Petition to Initiate Voluntary Proceedings by Debtor. — When approved by the

owner in case of a sole proprietorship, or by a majority of the partners in case of a
partnership, or, in case of a corporation, by a majority vote of the board of directors or
trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least
two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the
purpose, an insolvent debtor may initiate voluntary proceedings under this Act by filing a
petition for rehabilitation with the court and on the grounds hereinafter specifically provided.
The petition shall be verified to establish the insolvency of the debtor and the viability of its
rehabilitation, and include, whether as an attachment or as part of the body of the petition,
as a minimum, the following:

(a) Identification of the debtor, its principal activities and its addresses;

(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its
obligations as they become due;

(c) The specific relief sought pursuant to this Act;

(d) The grounds upon which the petition is based;

(e) Other information that may be required under this Act depending on the form of relief
requested;

(f) Schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;

(g) An inventory of all its assets including receivables and claims against third parties;

(h) A Rehabilitation Plan;

(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and

(j) Other documents required to be filed with the petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme Court.

A group of debtors may jointly file a petition for rehabilitation under this Act when one or
more of its members foresee the impossibility of meeting debts when they respectively fall
due, and the financial distress would likely adversely affect the financial condition and/or
operations of the other members of the group and/or the participation of the other members
of the group is essential under the terms and conditions of the proposed Rehabilitation Plan.

(2) Involuntary Proceedings.

SECTION 13. Circumstances Necessary to Initiate Involuntary Proceedings. — Any creditor or

group of creditors with a claim of, or the aggregate of whose claims is, at least One million
pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock
or partners' contributions, whichever is higher, may initiate involuntary proceedings against
the debtor by filing a petition for rehabilitation with the court if:

(a) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due
and demandable payments thereon have not been made for at least sixty (60) days or that the
debtor has failed generally to meet its liabilities as they fall due; or
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the
debtor that will prevent the debtor from paying its debts as they become due or will render it
insolvent.

SECTION 14. Petition to Initiate Involuntary Proceedings. — The creditor/s' petition for

rehabilitation shall be verified to establish the substantial likelihood that the debtor may be
rehabilitated, and include:

(a) identification of the debtor, its principal activities and its address;

(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation

proceedings under Section 13 of this Act;

(c) the specific relief sought under this Act;

(d) a Rehabilitation Plan;

(e) the names of at least three (3) nominees to the position of rehabilitation receiver;

(f) other information that may be required under this Act depending on the form of relief
requested; and

(g) other documents required to be filed with the petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme Court.

(B) Action on the Petition and Commencement of Proceedings.

SECTION 15. Action on the Petition. — If the court finds the petition for rehabilitation to be
sufficient in form and substance, it shall, within five (5) working days from the filing of the
petition, issue a Commencement Order. If, within the same period, the court finds the
petition deficient in form or substance, the court may, in its discretion, give the petitioner/s a
reasonable period of time within which to amend or supplement the petition, or to submit
such documents as may be necessary or proper to put the petition in proper order. In such
case, the five (5) working days provided above for the issuance of the Commencement Order
shall be reckoned from the date of the filing of the amended or supplemental petition or the
submission of such documents.

SECTION 16. Commencement of Proceedings and Issuance of a Commencement Order. — The

rehabilitation proceedings shall commence upon the issuance of the Commencement Order,
which shall:

(a) identify the debtor, its principal business or activity/ies and its principal place of business;

(b) summarize the ground/s for initiating the proceedings;

(c) state the relief sought under this Act and any requirement or procedure particular to the
relief sought;
(d) state the legal effects of the Commencement Order, including those mentioned in Section
17 hereof;

(e) declare that the debtor is under rehabilitation;

(f) direct the publication of the Commencement Order in a newspaper of general circulation
in the Philippines once a week for at least two (2) consecutive weeks, with the first
publication to be made within seven (7) days from the time of its issuance;

(g) if the petitioner is the debtor, direct the service by personal delivery of a copy of the
petition on each creditor holding at least ten percent (10%) of the total liabilities of the
debtor as determined from the schedule attached to the petition within five (5) days; if the
petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition
on the debtor within five (5) days;

(h) appoint a rehabilitation receiver who may or may not be from among the nominees of the
petitioner/s, and who shall exercise such powers and duties defined in this Act as well as the
procedural rules that the Supreme Court will promulgate;

(i) summarize the requirements and deadlines for creditors to establish their claims against
the debtor and direct all creditors to file their claims with the court at least five (5) days
before the initial hearing;

(j) direct the Bureau of Internal Revenue (BIR) to file and serve on the debtor its comment on
or opposition to the petition or its claim/s against the debtor under such procedures as the
Supreme Court may hereafter provide;

(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods
and services in the ordinary course of business for as long as the debtor makes payments for
the services or goods supplied after the issuance of the Commencement Order;

(l) authorize the payment of administrative expenses as they become due;

(m) set the case for initial hearing, which shall not be more than forty (40) days from the date
of filing of the petition for the purpose of determining whether there is substantial likelihood
for the debtor to be rehabilitated;

(n) make available copies of the petition and rehabilitation plan for examination and copying
by any interested party;

(o) indicate the location or locations at which documents regarding the debtor and the
proceedings under this Act may be reviewed and copied;

(p) state that any creditor or debtor, who is not the petitioner, may submit the name or
nominate any other qualified person to the position of rehabilitation receiver at least five (5)
days before the initial hearing;

(q) include a Stay or Suspension Order which shall:

(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims
against the debtor;
(2) suspend all actions to enforce any judgment, attachment or other provisional remedies
against the debtor;

(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner
any of its properties except in the ordinary course of business; and

(4) prohibit the debtor from making any payment of its liabilities outstanding as of the
commencement date except as may be provided herein.

SECTION 17. Effects of the Commencement Order. — Unless otherwise provided for in this Act,
the court's issuance of a Commencement Order shall, in addition to the effects of a Stay or
Suspension Order described in Section 16 hereof:

(a) vest the rehabilitation receiver with all the powers and functions provided for in this Act,
such as the right to review and obtain all records to which the debtor's management and
directors have access, including bank accounts of whatever nature of the debtor, subject to
the approval by the court of the performance bond filed by the rehabilitation receiver;

(b) prohibit, or otherwise serve as the legal basis for rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise
attempt to collect on or enforce a claim against the debtor after the commencement date
unless otherwise allowed in this Act, subject to the provisions of Section 50 hereof;

(c) serve as the legal basis for rendering null and void any set-off after the commencement
date of any debt owed to the debtor by any of the debtor's creditors;

(d) serve as the legal basis for rendering null and void the perfection of any lien against the
debtor's property after the commencement date; and

(e) consolidate the resolution of all legal proceedings by and against the debtor to the
court:  Provided, however,  That the court may allow the continuation of cases in other courts
where the debtor had initiated the suit.

Attempts to seek legal or other recourse against the debtor outside these proceedings shall
be sufficient to support a finding of indirect contempt of court.

SECTION 18. Exceptions to the Stay or Suspension Order. — The Stay or Suspension Order shall
not apply:

(a) to cases already pending appeal in the Supreme Court as of commencement

date:  Provided, That any final and executory judgment arising from such appeal shall be
referred to the court for appropriate action;

(b) subject to the discretion of the court, to cases pending or filed at a specialized court or
quasi-judicial agency which, upon determination by the court, is capable of resolving the
claim more quickly, fairly and efficiently than the court:  Provided, That any final and
executory judgment of such court or agency shall be referred to the court and shall be treated
as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with the
debtor, and third party or accommodation mortgagors as well as issuers of letters of credit,
unless the property subject of the third party or accommodation mortgage is necessary for
the rehabilitation of the debtor as determined by the court upon recommendation by the
rehabilitation receiver;

(d) to any form of action of customers or clients of a securities market participant to recover
or otherwise claim moneys and securities entrusted to the latter in the ordinary course of the
latter's business as well as any action of such securities market participant or the appropriate
regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;

(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant
to a securities pledge or margin agreement for the settlement of securities transactions in
accordance with the provisions of the Securities Regulation Code and its implementing rules
and regulations;

(f) the clearing and settlement of financial transactions through the facilities of a clearing
agency or similar entities duly authorized, registered and/or recognized by the appropriate
regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form
of actions of such agencies or entities to reimburse themselves for any transactions settled
for the debtor; and

(g) any criminal action against the individual debtor or owner, partner, director or officer of a
debtor shall not be affected by any proceeding commenced under this Act.

SECTION 19. Waiver of Taxes and Fees Due to the National Government and to Local
Government Units (LGUs). — Upon issuance of the Commencement Order by the court, and
until the approval of the Rehabilitation Plan or dismissal of the petition, whichever is earlier,
the imposition of all taxes and fees, including penalties, interests and charges thereof, due to
the national government or to LGUs shall be considered waived, in furtherance of the
objectives of rehabilitation.

SECTION 20. Application of Stay or Suspension Order to Government Financial Institutions. —

The provisions of this Act concerning the effects of the Commencement Order and the Stay or
Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies
shall apply to government financial institutions, notwithstanding provisions in their charters
or other laws to the contrary.

SECTION 21. Effectivity and Duration of Commencement Order. — Unless lifted by the court,
the Commencement Order shall be effective for the duration of the rehabilitation
proceedings for as long as there is a substantial likelihood that the debtor will be successfully
rehabilitated. In determining whether there is substantial likelihood for the debtor to be
successfully rehabilitated, the court shall ensure that the following minimum requirements
are met:

(a) The proposed Rehabilitation Plan submitted complies with the minimum contents
prescribed by this Act;
(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the
protection of creditors;

(c) The debtor has met with its creditors to the extent reasonably possible in attempts to
reach a consensus on the proposed Rehabilitation Plan;

(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that
the underlying assumptions and the financial goals stated in the petitioner's Rehabilitation
Plan are realistic, feasible and reasonable; or, if not, there is, in any case, a substantial
likelihood for the debtor to be successfully rehabilitated because, among others:

(1) there are sufficient assets with which to rehabilitate the debtor;

(2) there is sufficient cash flow to maintain the operations of the debtor;

(3) the debtor's owner/s, partners, stockholders, directors and officers have been acting in
good faith and with due diligence;

(4) the petition is not a sham filing intended only to delay the enforcement of the rights of the
creditor/s or of any group of creditors; and

(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;

(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any
materially false or misleading statement;

(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at
least three-fourths (3/4) of its total obligations to the extent reasonably possible and made a
good faith effort to reach a consensus on the proposed Rehabilitation Plan; if the petitioner/s
is/are a creditor or group of creditors, that the petitioner/s has/have met with the debtor and
made a good faith effort to reach a consensus on the proposed Rehabilitation Plan; and

(g) The debtor has not committed acts of misrepresentation or in fraud of its creditor/s or a
group of creditors.

SECTION 22. Action at the Initial Hearing. — At the initial hearing, the court shall:

(a) determine the creditors who have made timely and proper filing of their notice of claims;

(b) hear and determine any objection to the qualifications or the appointment of the
rehabilitation receiver and, if necessary, appoint a new one in accordance with this Act;

(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit
the same to the court and to the rehabilitation receiver within a period of not more than
twenty (20) days; and

(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to
prepare and submit to the court within forty (40) days from the initial hearing the report
provided in Section 24 hereof.
SECTION 23. Effect of Failure to File Notice of Claim. — A creditor whose claim is not listed in
the schedule of debts and liabilities and who fails to file a notice of claim in accordance with
the Commencement Order but subsequently files a belated claim shall not be entitled to
participate in the rehabilitation proceedings but shall be entitled to receive distributions
arising therefrom.

SECTION 24. Report of the Rehabilitation Receiver. — Within forty (40) days from the initial
hearing, and with or without the comments of the creditors or any of them, the rehabilitation
receiver shall submit a report to the court stating his preliminary findings and
recommendations on whether:

(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or
acts committed by the owner/s of a sole proprietorship, partners of a partnership, or
directors or officers of a corporation in contemplation of the insolvency of the debtor or
which may have contributed to the insolvency of the debtor;

(b) the underlying assumptions, the financial goals and the procedures to accomplish such
goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;

(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(d) the petition should be dismissed; and

(e) the debtor should be dissolved and/or liquidated.

SECTION 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. —

Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in
Section 24 hereof, the court may:

(a) give due course to the petition upon a finding that:

(1) the debtor is insolvent; and

(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(b) dismiss the petition upon a finding that:

(1) debtor is not insolvent;

(2) the petition is a sham filing intended only to delay the enforcement of the rights of the
creditor/s or of any group of creditors;

(3) the petition, the Rehabilitation Plan and the attachments thereto contain any materially
false or misleading statements; or

(4) the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group
of creditors;

(c) convert the proceedings into one for the liquidation of the debtor upon a finding that:

(1) the debtor is insolvent; and

(2) there is no substantial likelihood for the debtor to be successfully rehabilitated as
determined in accordance with the rules to be promulgated by the Supreme Court.

SECTION 26. Petition Given Due Course. — If the petition is given due course, the court shall
direct the rehabilitation receiver to review, revise and/or recommend action on the
Rehabilitation Plan and submit the same or a new one to the court within a period of not
more than ninety (90) days.

The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation
proceedings pending before it to arbitration or other modes of dispute resolution, as
provided for under Republic Act No. 9285, or the Alternative Dispute Resolution Act of 2004,
should it determine that such mode will resolve the dispute more quickly, fairly and
efficiently than the court.

SECTION 27. Dismissal of Petition. — If the petition is dismissed pursuant to paragraph (b) of

Section 25 hereof, then the court may, in its discretion, order the petitioner to pay damages
to any creditor or to the debtor, as the case may be, who may have been injured by the filing
of the petition, to the extent of any such injury.

(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.

SECTION 28. Who May Serve as a Rehabilitation Receiver. — Any qualified natural or juridical
person may serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a
juridical entity, it must designate a natural person/s who possess/es all the qualifications and
none of the disqualifications as its representative, it being understood that the juridical entity
and the representative/s are solidarily liable for all obligations and responsibilities of the
rehabilitation receiver.

SECTION 29. Qualifications of a Rehabilitation Receiver. — The rehabilitation receiver shall

have the following minimum qualifications:

(a) A citizen of the Philippines or a resident of the Philippines in the six (6) months
immediately preceding his nomination;

(b) Of good moral character and with acknowledged integrity, impartiality and
independence;

(c) Has the requisite knowledge of insolvency and other relevant commercial laws, rules and
procedures, as well as the relevant training and/or experience that may be necessary to
enable him to properly discharge the duties and obligations of a rehabilitation receiver; and

(d) Has no conflict of interest: Provided, That such conflict of interest may be waived,

expressly or impliedly, by a party who may be prejudiced thereby.
Other qualifications and disqualifications of the rehabilitation receiver shall be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the
need to protect the interest of all stakeholders concerned.

SECTION 30. Initial Appointment of the Rehabilitation Receiver. — The court shall initially
appoint the rehabilitation receiver, who may or may not be from among the nominees of the
petitioner. However, at the initial hearing of the petition, the creditors and the debtor who
are not petitioners may nominate other persons to the position. The court may retain the
rehabilitation receiver initially appointed or appoint another who may or may not be from
among those nominated.

In case the debtor is a securities market participant, the court shall give priority to the
nominee of the appropriate securities or investor protection fund.

If a qualified natural person or entity is nominated by more than fifty percent (50%) of the
secured creditors and the general unsecured creditors, and satisfactory evidence is
submitted, the court shall appoint the creditors' nominee as rehabilitation receiver.

SECTION 31. Powers, Duties and Responsibilities of the Rehabilitation Receiver. — The

rehabilitation receiver shall be deemed an officer of the court with the principal duty of
preserving and maximizing the value of the assets of the debtor during the rehabilitation
proceedings, determining the viability of the rehabilitation of the debtor, preparing and
recommending a Rehabilitation Plan to the court, and implementing the approved
Rehabilitation Plan. To this end, and without limiting the generality of the foregoing, the
rehabilitation receiver shall have the following powers, duties and responsibilities:

(a) To verify the accuracy of the factual allegations in the petition and its annexes;

(b) To verify and correct, if necessary, the inventory of all of the assets of the debtor, and their
valuation;

(c) To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;

(d) To evaluate the validity, genuineness and true amount of all the claims against the debtor;

(e) To take possession, custody and control, and to preserve the value of all the property of
the debtor;

(f) To sue and recover, with the approval of the court, all amounts owed to, and all properties
pertaining to the debtor;

(g) To have access to all information necessary, proper or relevant to the operations and
business of the debtor and for its rehabilitation;

(h) To sue and recover, with the approval of the court, all property or money of the debtor
paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute
undue preference of creditor/s;

(i) To monitor the operations and the business of the debtor to ensure that no payments or
transfers of property are made other than in the ordinary course of business;
(j) With the court's approval, to engage the services of or to employ persons or entities to
assist him in the discharge of his functions;

(k) To determine the manner by which the debtor may be best rehabilitated, to review, revise
and/or recommend action on the Rehabilitation Plan and submit the same or a new one to
the court for approval;

(l) To implement the Rehabilitation Plan as approved by the court, if so provided under the
Rehabilitation Plan;

(m) To assume and exercise the powers of management of the debtor, if directed by the court
pursuant to Section 36 hereof;

(n) To exercise such other powers as may, from time to time, be conferred upon him by the
court; and

(o) To submit a status report on the rehabilitation proceedings every quarter or as may be
required by the court motu proprio, or upon motion of any creditor, or as may be provided, in
the Rehabilitation Plan.

Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall
not take over the management and control of the debtor but may recommend the
appointment of a management committee over the debtor in the cases provided by this Act.

SECTION 32. Removal of the Rehabilitation Receiver. — The rehabilitation receiver may be

removed at any time by the court, either motu proprio or upon motion by any creditor/s
holding more than fifty percent (50%) of the total obligations of the debtor, on such grounds
as the rules of procedure may provide which shall include, but are not limited to, the
following:

(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper degree
of care in the performance of his duties and powers;

(b) Lack of a particular or specialized competency required by the specific case;

(c) Illegal acts or conduct in the performance of his duties and powers;

(d) Lack of qualification or presence of any disqualification;

(e) Conflict of interest that arises after his appointment; and

(f) Manifest lack of independence that is detrimental to the general body of the stakeholders.

SECTION 33. Compensation and Terms of Service. — The rehabilitation receiver and his direct
employees or independent contractors shall be entitled to compensation for reasonable fees
and expenses from the debtor according to the terms approved by the court after notice and
hearing. Prior to such hearing, the rehabilitation receiver and his direct employees shall be
entitled to reasonable compensation based on quantum meruit. Such costs shall be
considered administrative expenses.
SECTION 34. Oath and Bond of the Rehabilitation Receiver. — Prior to entering upon his
powers, duties and responsibilities, the rehabilitation receiver shall take an oath and file a
bond, in such amount to be fixed by the court, conditioned upon the faithful and proper
discharge of his powers, duties and responsibilities.

SECTION 35. Vacancy. — In case the position of rehabilitation receiver is vacated for any
reason whatsoever, the court shall direct the debtor and the creditors to submit the name/s
of their nominee/s to the position. The court may appoint any of the qualified nominees, or
any other person qualified for the position.

SECTION 36. Displacement of Existing Management by the Rehabilitation Receiver or

Management Committee. — Upon motion of any interested party, the court may appoint and
direct the rehabilitation receiver to assume the powers of management of the debtor, or
appoint a management committee that will undertake the management of the debtor, upon
clear and convincing evidence of any of the following circumstances:

(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor's
assets or other properties;

(b) Paralyzation of the business operations of the debtor; or

(c) Gross mismanagement of the debtor, or fraud or other wrongful conduct on the part of, or
gross or willful violation of this Act by, existing management of the debtor or the owner,
partner, director, officer or representative/s in management of the debtor.

In case the court appoints the rehabilitation receiver to assume the powers of management
of the debtor, the court may:

(1) require the rehabilitation receiver to post an additional bond;

(2) authorize him to engage the services or to employ persons or entities to assist him in the
discharge of his managerial functions; and

(3) authorize a commensurate increase in his compensation.

SECTION 37. Role of the Management Committee. — When appointed pursuant to the

foregoing section, the management committee shall take the place of the management and
the governing body of the debtor and assume their rights and responsibilities.

The specific powers and duties of the management committee, whose members shall be
considered as officers of the court, shall be prescribed by the procedural rules.

SECTION 38. Qualifications of Members of the Management Committee. — The qualifications

and disqualifications of the members of the management committee shall be set forth in the
procedural rules, taking into consideration the nature of the business of the debtor and the
need to protect the interest of all stakeholders concerned.

SECTION 39. Employment of Professionals. — Upon approval of the court, and after notice and
hearing, the rehabilitation receiver or the management committee may employ specialized
professionals and other experts to assist each in the performance of their duties. Such
professionals and other experts shall be considered either employees or independent
contractors of the rehabilitation receiver or the management committee, as the case may be.
The qualifications and disqualifications of the professionals and experts may be set forth in
procedural rules, taking into consideration the nature of the business of the debtor and the
need to protect the interest of all stakeholders concerned.

SECTION 40. Conflict of Interest. — No person may be appointed as a rehabilitation receiver,

member of a management committee, or be employed by the rehabilitation receiver or the
management committee if he has a conflict of interest.

An individual shall be deemed to have a conflict of interest if he is so situated as to be

materially influenced in the exercise of his judgment for or against any party to the
proceedings. Without limiting the generality of the foregoing, an individual shall be deemed
to have a conflict of interest if:

(a) he is a creditor, owner, partner or stockholder of the debtor;

(b) he is engaged in a line of business which competes with that of the debtor;

(c) he is, or was, within five (5) years from the filing of the petition, a director, officer, owner,
partner or employee of the debtor or any of the creditors, or the auditor or accountant of the
debtor;

(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the
outstanding securities of the debtor;

(e) he is related by consanguinity or affinity within the fourth civil degree to any individual
creditor, owner/s of a sole proprietorship-debtor, partners of a partnership-debtor or to any
stockholder, director, officer, employee or underwriter of a corporation-debtor; or

(f) he has any other direct or indirect material interest in the debtor or any of the creditors.

Any rehabilitation receiver, member of the management committee or persons employed or

contracted by them possessing any conflict of interest shall make the appropriate disclosure
either to the court or to the creditors in case of out-of-court rehabilitation proceedings. Any
party to the proceeding adversely affected by the appointment of any person with a conflict
of interest to any of the positions enumerated above may however waive his right to object to
such appointment and, if the waiver is unreasonably withheld, the court may disregard the
conflict of interest, taking into account the general interest of the stakeholders.

SECTION 41. Immunity. — The rehabilitation receiver and all persons employed by him, and
the members of the management committee and all persons employed by it, shall not be
subject to any action, claim or demand in connection with any act done or omitted to be
done by them in good faith in connection with the exercise of their powers and functions
under this Act or other actions duly approved by the court.

SECTION 42. Creditors' Committee. — After the creditors' meeting called pursuant to Section
63 hereof, the creditors belonging to a class may formally organize a committee among
themselves. In addition, the creditors may, as a body, agree to form a creditors' committee
composed of a representative from each class of creditors, such as the following:
(a) Secured creditors;

(b) Unsecured creditors;

(c) Trade creditors and suppliers; and

(d) Employees of the debtor.

In the election of the creditors' representatives, the rehabilitation receiver or his

representative shall attend such meeting and extend the appropriate assistance as may be
defined in the procedural rules.

SECTION 43. Role of Creditors' Committee. — The creditors' committee when constituted

pursuant to Section 42 of this Act shall assist the rehabilitation receiver in communicating
with the creditors and shall be the primary liaison between the rehabilitation receiver and the
creditors. The creditors' committee cannot exercise or waive any right or give any consent on
behalf of any creditor unless specifically authorized in writing by such creditor. The creditors'
committee may be authorized by the court or by the rehabilitation receiver to perform such
other tasks and functions as may be defined by the procedural rules in order to facilitate the
rehabilitation process.

(D) Determination of Claims.

SECTION 44. Registry of Claims. — Within twenty (20) days from his assumption into office, the
rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation
receiver shall make the registry available for public inspection and provide publication notice
to the debtor, creditors and stakeholders on where and when they may inspect it. All claims
included in the registry of claims must be duly supported by sufficient evidence.

SECTION 45. Opposition or Challenge of Claims. — Within thirty (30) days from the expiration
of the period stated in the immediately preceding section, the debtor, creditors, stakeholders
and other interested parties may submit a challenge to claim/s to the court, serving a
certified copy on the rehabilitation receiver and the creditor holding the challenged claim/s.
Upon the expiration of the thirty (30)-day period, the rehabilitation receiver shall submit to
the court the registry of claims which shall include undisputed claims that have not been
subject to challenge.

SECTION 46. Appeal. — Any decision of the rehabilitation receiver regarding a claim may be
appealed to the court.
(E) Governance.

SECTION 47. Management. — Unless otherwise provided herein, the management of the

juridical debtor shall remain with the existing management subject to the applicable law/s
and agreement/s, if any, on the election or appointment of directors, managers or managing
partner. However, all disbursements, payments or sale, disposal, assignment, transfer or
encumbrance of property, or any other act affecting title or interest in property, shall be
subject to the approval of the rehabilitation receiver and/or the court, as provided in the
following subchapter.

(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after
Commencement Date.

SECTION 48. Use or Disposition of Assets. — Except as otherwise provided herein, no funds or

property of the debtor shall be used or disposed of except in the ordinary course of business
of the debtor, or unless necessary to finance the administrative expenses of the rehabilitation
proceedings.

SECTION 49. Sale of Assets. — The court, upon application of the rehabilitation receiver, may
authorize the sale of unencumbered property of the debtor outside the ordinary course of
business upon a showing that the property, by its nature or because of other circumstance, is
perishable, costly to maintain, susceptible to devaluation or otherwise in jeopardy.

SECTION 50. Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties
Held by Debtor. — The court may authorize the sale, transfer, conveyance or disposal of
encumbered property of the debtor, or property of others held by the debtor where there is a
security interest pertaining to third parties under a financial, credit or other similar
transactions if, upon application of the rehabilitation receiver and with the consent of the
affected owners of the property, or secured creditor/s in the case of encumbered property of
the debtor and, after notice and hearing, the court determines that:

(a) such sale, transfer, conveyance or disposal is necessary for the continued operation of the
debtor's business; and

(b) the debtor has made arrangements to provide a substitute lien or ownership right that
provides an equal level of security for the counter-party's claim or right.

Provided, That properties held by the debtor where the debtor has authority to sell such as
trust receipt or consignment arrangements may be sold or disposed of by the debtor, if such
sale or disposal is necessary for the operation of the debtor's business, and the debtor has
made arrangements to provide a substitute lien or ownership right that provides an equal
level of security for the counter-party's claim or right.
Sale or disposal of property under this section shall not give rise to any criminal liability under
applicable laws.

SECTION 51. Assets of Debtor Held by Third Parties. — In the case of possessory pledges,
mechanic's liens or similar claims, third parties who have in their possession or control
property of the debtor shall not transfer, convey or otherwise dispose of the same to persons
other than the debtor, unless upon prior approval of the rehabilitation receiver. The
rehabilitation receiver may also:

(a) demand the surrender or the transfer of the possession or control of such property to the
rehabilitation receiver or any other person, subject to payment of the claims secured by any
possessory lien/s thereon;

(b) allow said third parties to retain possession or control, if such an arrangement would
more likely preserve or increase the value of the property in question or the total value of the
assets of the debtor; or

(c) undertake any other disposition of the said property as may be beneficial for the
rehabilitation of the debtor, after notice and hearing, and approval of the court.

SECTION 52. Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. — The

court may rescind or declare as null and void any sale, payment, transfer or conveyance of
the debtor's unencumbered property or any encumbering thereof by the debtor or its agents
or representatives after the commencement date which are not in the ordinary course of the
business of the debtor:  Provided, however, That the unencumbered property may be sold,
encumbered or otherwise disposed of upon order of the court after notice and hearing:

(a) if such are in the interest of administering the debtor and facilitating the preparation and
implementation of a Rehabilitation Plan;

(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;

(c) for payments made to meet administrative expenses as they arise;

(d) for payments to victims of quasi delicts  upon a showing that the claim is valid and the
debtor has insurance to reimburse the debtor for the payments made;

(e) for payments made to repurchase property of the debtor that is auctioned off in a judicial
or extrajudicial sale under this Act; or

(f) for payments made to reclaim property of the debtor held pursuant to a possessory lien.

SECTION 53. Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. —

Upon the application of a secured creditor holding a lien against or holder of an ownership
interest in property held by the debtor that is subject to potentially rapid obsolescence,
depreciation or diminution in value, the court shall, after notice and hearing, order the debtor
or rehabilitation receiver to take reasonable steps necessary to prevent the depreciation. If
depreciation cannot be avoided and such depreciation is jeopardizing the security or
property interest of the secured creditor or owner, the court shall:
(a) allow the encumbered property to be foreclosed upon by the secured creditor according
to the relevant agreement between the debtor and the secured creditor, applicable rules of
procedure and relevant legislation: Provided, That the proceeds of the sale will be distributed
in accordance with the order prescribed under the rules of concurrence and preference of
credits; or

(b) upon motion of, or with the consent of the affected secured creditor or interest owner,
order the conveyance of a lien against or ownership interest in substitute property of the
debtor to the secured creditor:  Provided,That other creditors holding liens on such property,
if any, do not object thereto, or, if such property is not available;

(c) order the conveyance to the secured creditor or holder of an ownership interest of a lien
on the residual funds from the sale of encumbered property during the proceedings; or

(d) allow the sale or disposition of the property:  Provided, That the sale or disposition will
maximize the value of the property for the benefit of the secured creditor and the debtor, and
the proceeds of the sale will be distributed in accordance with the order prescribed under the
rules of concurrence and preference of credits.

SECTION 54. Post-commencement Interest. — The rate and term of interest, if any, on secured
and unsecured claims shall be determined and provided for in the approved Rehabilitation
Plan.

SECTION 55. Post-commencement Loans and Obligations. — With the approval of the court
upon the recommendation of the rehabilitation receiver, the debtor, in order to enhance its
rehabilitation, may:

(a) enter into credit arrangements; or

(b) enter into credit arrangements, secured by mortgages of its unencumbered property or
secondary mortgages of encumbered property with the approval of senior secured parties
with regard to the encumbered property; or

(c) incur other obligations as may be essential for its rehabilitation.

The payment of the foregoing obligations shall be considered administrative expenses under
this Act.

SECTION 56. Treatment of Employees, Claims. — Compensation of employees required to

carry on the business shall be considered an administrative expense. Claims of separation
pay for months worked prior to the commencement date shall be considered a pre-
commencement claim. Claims for salary and separation pay for work performed after the
commencement date shall be an administrative expense.

SECTION 57. Treatment of Contracts. — Unless cancelled by virtue of a final judgment of a

court of competent jurisdiction issued prior to the issuance of the Commencement Order, or
at anytime thereafter by the court before which the rehabilitation proceedings are pending,
all valid and subsisting contracts of the debtor with creditors and other third parties as at the
commencement date shall continue in force:  Provided,That within ninety (90) days following
the commencement of proceedings, the debtor, with the consent of the rehabilitation
receiver, shall notify each contractual counter-party of whether it is confirming the particular
contract. Contractual obligations of the debtor arising or performed during this period, and
afterwards for confirmed contracts, shall be considered administrative expenses. Contracts
not confirmed within the required deadline shall be considered terminated. Claims for actual
damages, if any, arising as a result of the election to terminate a contract shall be considered
a pre-commencement claim against the debtor. Nothing contained herein shall prevent the
cancellation or termination of any contract of the debtor for any ground provided by law.

(G) Avoidance Proceedings.

SECTION 58. Rescission or Nullity of Certain Pre-commencement Transactions. — Any

transaction occurring prior to commencement date entered into by the debtor or involving its
funds or assets may be rescinded or declared null and void on the ground that the same was
executed with intent to defraud a creditor or creditors or which constitute undue preference
of creditors. Without limiting the generality of the foregoing, a disputable presumption of
such design shall arise if the transaction:

(a) provides unreasonably inadequate consideration to the debtor and is executed within
ninety (90) days prior to the commencement date;

(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior to
the commencement date;

(c) provides security or additional security executed within ninety (90) days prior to the
commencement date;

(d) involves creditors, where a creditor obtained, or received the benefit of, more than its  pro
rata  share in the assets of the debtor, executed at a time when the debtor was insolvent; or

(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where the
effect of the transaction is to put assets of the debtor beyond the reach of creditors or to
otherwise prejudice the interests of creditors.

Provided, however, That nothing in this section shall prevent the court from rescinding or
declaring as null and void a transaction on other grounds provided by relevant legislation and
jurisprudence:  Provided, further,  That the provisions of the Civil Code on rescission shall in
any case apply to these transactions.

SECTION 59. Actions for Rescission or Nullity. — (a) The rehabilitation receiver or, with his
conformity, any creditor may initiate and prosecute any action to rescind, or declare null and
void any transaction described in Section 58 hereof. If the rehabilitation receiver does not
consent to the filing or prosecution of such action, any creditor may seek leave of the court to
commence said action.
(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign
and transfer to the creditor all rights, title and interest in the chose in action or subject matter
of the proceeding, including any document in support thereof.

(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent of
his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the
surplus, if any, belongs to the estate.

(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or
liquidator) signifies to the court his readiness to institute the proceeding for the benefit of the
creditors, the order shall fix the time within which he shall do so and, in that case, the benefit
derived from the proceeding, if instituted within the time limits so fixed, belongs to the
estate.

(H) Treatment of Secured Creditors.

SECTION 60. No Diminution of Secured Creditor Rights. — The issuance of the Commencement
Order and the Suspension or Stay Order, and any other provision of this Act, shall not be
deemed in any way to diminish or impair the security or lien of a secured creditor, or the
value of his lien or security, except that his right to enforce said security or lien may be
suspended during the term of the Stay Order.

The court, upon motion or recommendation of the rehabilitation receiver, may allow a
secured creditor to enforce his security or lien, or foreclose upon property of the debtor
securing his/its claim, if the said property is not necessary for the rehabilitation of the debtor.
The secured creditor and/or the other lien holders shall be admitted to the rehabilitation
proceedings only for the balance of his claim, if any.

SECTION 61. Lack of Adequate Protection. — The court, on motion or motu proprio, may

terminate, modify or set conditions for the continuance of suspension of payment, or relieve
a claim from the coverage thereof, upon showing that:

(a) a creditor does not have adequate protection over property securing its claim; or

(b) the value of a claim secured by a lien on property which is not necessary for rehabilitation
of the debtor exceeds the fair market value of the said property.

For purposes of this section, a creditor shall be deemed to lack adequate protection if it can
be shown that:

(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the
property insured;

(b) the debtor fails or refuses to take commercially reasonable steps to maintain the property;
or
(c) the property has depreciated to an extent that the creditor is under secured.

Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation
receiver to make arrangements to provide for the insurance or maintenance of the property;
or to make payments or otherwise provide additional or replacement security such that the
obligation is fully secured. If such arrangements are not feasible, the court may modify the
Stay Order to allow the secured creditor lacking adequate protection to enforce its security
claim against the debtor: Provided, however, That the court may deny the creditor the
remedies in this paragraph if the property subject of the enforcement is required for the
rehabilitation of the debtor.

(I) Administration of Proceedings.

SECTION 62. Contents of a Rehabilitation Plan. — The Rehabilitation Plan shall, as a minimum:

(a) specify the underlying assumptions, the financial goals and the procedures proposed to
accomplish such goals;

(b) compare the amounts expected to be received by the creditors under the Rehabilitation
Plan with those that they will receive if liquidation ensues within the next one hundred
twenty (120) days;

(c) contain information sufficient to give the various classes of creditors a reasonable basis for
determining whether supporting the Plan is in their financial interest when compared to the
immediate liquidation of the debtor, including any reduction of principal interest and
penalties payable to the creditors;

(d) establish classes of voting creditors;

(e) establish subclasses of voting creditors if prior approval has been granted by the court;

(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt
forgiveness, debt rescheduling, reorganization or quasi-reorganization,  dacion en pago, debt-
equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of a
new business entity or other similar arrangements as may be necessary to restore the
financial well-being and viability of the insolvent debtor;

(g) specify the treatment of each class or subclass described in subsections (d) and (e);

(h) provide for equal treatment of all claims within the same class or subclass, unless a
particular creditor voluntarily agrees to less favorable treatment;

(i) ensure that the payments made under the plan follow the priority established under the
provisions of the Civil Code on concurrence and preference of credits and other applicable
laws;
(j) maintain the security interest of secured creditors and preserve the liquidation value of the
security unless such has been waived or modified voluntarily;

(k) disclose all payments to creditors for pre-commencement debts made during the
proceedings and the justifications thereof;

(l) describe the disputed claims and the provisioning of funds to account for appropriate
payments should the claim be ruled valid or its amount adjusted;

(m) identify the debtor's role in the implementation of the Plan;

(n) state any rehabilitation covenants of the debtor, the breach of which shall be considered a
material breach of the Plan;

(o) identify those responsible for the future management of the debtor and the supervision
and implementation of the Plan, their affiliation with the debtor and their remuneration;

(p) address the treatment of claims arising after the confirmation of the Rehabilitation Plan;

(q) require the debtor and its counter-parties to adhere to the terms of all contracts that the
debtor has chosen to confirm;

(r) arrange for the payment of all outstanding administrative expenses as a condition to the
Plan's approval unless such condition has been waived in writing by the creditors concerned;

(s) arrange for the payment of all outstanding taxes and assessments, or an adjusted amount
pursuant to a compromise settlement with the BIR or other applicable tax authorities;

(t) include a certified copy of a certificate of tax clearance or evidence of a compromise

settlement with the BIR;

(u) include a valid and binding resolution of a meeting of the debtor's stockholders to
increase the shares by the required amount in cases where the Plan contemplates an
additional issuance of shares by the debtor;

(v) state the compensation and status, if any, of the rehabilitation receiver after the approval
of the Plan; and

(w) contain provisions for conciliation and/or mediation as a prerequisite to court assistance
or intervention in the event of any disagreement in the interpretation or implementation of
the Rehabilitation Plan.

SECTION 63. Consultation with Debtor and Creditors. — If the court gives due course to the
petition, the rehabilitation receiver shall confer with the debtor and all the classes of
creditors, and may consider their views and proposals in the review, revision or preparation
of a new Rehabilitation Plan.

SECTION 64. Creditor Approval of Rehabilitation Plan. — The rehabilitation receiver shall notify
the creditors and stakeholders that the Plan is ready for their examination. Within twenty (20)
days from the said notification, the rehabilitation receiver shall convene the creditors, either
as a whole or per class, for purposes of voting on the approval of the Plan. The Plan shall be
deemed rejected unless approved by all classes of creditors whose rights are adversely
modified or affected by the Plan. For purposes of this section, the Plan is deemed to have
been approved by a class of creditors if members of the said class holding more than fifty
percent (50%) of the total claims of the said class vote in favor of the Plan. The votes of the
creditors shall be based solely on the amount of their respective claims based on the registry
of claims submitted by the rehabilitation receiver pursuant to Section 44 hereof.

Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:

(a) The Rehabilitation Plan complies with the requirements specified in this Act;

(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;

(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling
interest as a result of the Rehabilitation Plan; and

(d) The Rehabilitation Plan would likely provide the objecting class of creditors with
compensation which has a net present value greater than that which they would have
received if the debtor were under liquidation.

SECTION 65. Submission of Rehabilitation Plan to the Court. — If the Rehabilitation Plan is

approved, the rehabilitation receiver shall submit the same to the court for confirmation.
Within five (5) days from receipt of the Rehabilitation Plan, the court shall notify the creditors
that the Rehabilitation Plan has been submitted for confirmation, that any creditor may
obtain copies of the Rehabilitation Plan and that any creditor may file an objection thereto.

SECTION 66. Filing of Objections to Rehabilitation Plan. — A creditor may file an objection to

the Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the
Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan
shall be limited to the following:

(a) The creditors' support was induced by fraud;

(b) The documents or data relied upon in the Rehabilitation Plan are materially false or
misleading; or

(c) The Rehabilitation Plan is in fact not supported by the voting creditors.

SECTION 67. Hearing on the Objections. — If objections have been submitted during the
relevant period, the court shall issue an order setting the time and date for the hearing or
hearings on the objections.

If the court finds merit in the objection, it shall order the rehabilitation receiver or other party
to cure the defect, whenever feasible. If the court determines that the debtor acted in bad
faith, or that it is not feasible to cure the defect, the court shall convert the proceedings into
one for the liquidation of the debtor under Chapter V of this Act.

SECTION 68. Confirmation of the Rehabilitation Plan. — If no objections are filed within the
relevant period or, if objections are filed, the court finds them lacking in merit, or determines
that the basis for the objection has been cured, or determines that the debtor has complied
with an order to cure the objection, the court shall issue an order confirming the
Rehabilitation Plan.

The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over
claims if the Rehabilitation Plan has made adequate provisions for paying such claims.

For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the
court shall have the power to approve or implement the Rehabilitation Plan despite the lack
of approval, or objection from the owners, partners or stockholders of the insolvent
debtor: Provided, That the terms thereof are necessary to restore the financial well-being and
viability of the insolvent debtor.

SECTION 69. Effect of Confirmation of the Rehabilitation Plan. — The confirmation of the

Rehabilitation Plan by the court shall result in the following:

(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons
who may be affected by it, including the creditors, whether or not such persons have
participated in the proceedings or opposed the Rehabilitation Plan or whether or not their
claims have been scheduled;

(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all
actions necessary to carry out the Plan;

(c) Payments shall be made to the creditors in accordance with the provisions of the
Rehabilitation Plan;

(d) Contracts and other arrangements between the debtor and its creditors shall be
interpreted as continuing to apply to the extent that they do not conflict with the provisions
of the Rehabilitation Plan;

(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall
be binding on creditors regardless of whether or not the Plan is successfully implemented;
and

(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not
subject to any Suspension Order.

The Order confirming the Plan shall comply with Rule 36 of the Rules of Court:  Provided,
however, That the court may maintain jurisdiction over the case in order to resolve claims
against the debtor that remain contested and allegations that the debtor has breached the
Plan.

SECTION 70. Liability of General Partners of a Partnership for Unpaid Balances Under an

Approved Plan. — The approval of the Plan shall not affect the rights of creditors to pursue
actions against the general partners of a partnership to the extent they are liable under
relevant legislation for the debts thereof.
SECTION 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. —
Amounts of any indebtedness or obligations reduced or forgiven in connection with a Plan's
approval shall not be subject to any tax, in furtherance of the purposes of this Act.

SECTION 72. Period for Confirmation of the Rehabilitation Plan. — The court shall have a
maximum period of one (1) year from the date of the filing of the petition to confirm a
Rehabilitation Plan.

If no Rehabilitation Plan is confirmed within the said period, the proceedings may, upon
motion or  motu proprio, be converted into one for the liquidation of the debtor.

SECTION 73. Accounting Discharge of Rehabilitation Receiver. — Upon the confirmation of the

Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to
the court. Unless the Rehabilitation Plan specifically requires and describes the role of the
rehabilitation receiver after the approval of the Rehabilitation Plan, the court shall discharge
the rehabilitation receiver of his duties.

(J) Termination of Proceedings.

SECTION 74. Termination of Proceedings. — The rehabilitation proceedings under Chapter II

shall, upon motion by any stakeholder or the rehabilitation receiver, be terminated by order
of the court either declaring a successful implementation of the Rehabilitation Plan or a
failure of rehabilitation.

There is failure of rehabilitation in the following cases:

(a) Dismissal of the petition by the court;

(b) The debtor fails to submit a Rehabilitation Plan;

(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood
that the debtor can be rehabilitated within a reasonable period;

(d) The Rehabilitation Plan or its amendment is approved by the court but in the
implementation thereof, the debtor fails to perform its obligations thereunder, or there is a
failure to realize the objectives, targets or goals set forth therein, including the timelines and
conditions for the settlement of the obligations due to the creditors and other claimants;

(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its
amendment; and

(f) Other analogous circumstances as may be defined by the rules of procedure.

Upon a breach of, or upon a failure of the Rehabilitation Plan, the court, upon motion by an
affected party, may:
(1) issue an order directing that the breach be cured within a specified period of time, failing
which the proceedings may be converted to a liquidation;

(2) issue an order converting the proceedings to a liquidation;

(3) allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation
Plan, the approval of which shall be governed by the same requirements for the approval of a
Rehabilitation Plan under this subchapter;

(4) issue any other order to remedy the breach consistent with the present regulation, other
applicable law and the best interests of the creditors; or

(5) enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.

SECTION 75. Effects of Termination. — Termination of the proceedings shall result in the

following:

(a) The discharge of the rehabilitation receiver, subject to his submission of a final
accounting; and

(b) The lifting of the Stay Order and any other court order holding in abeyance any action for
the enforcement of a claim against the debtor.

Provided, however, That if the termination of proceedings is due to failure of rehabilitation or

dismissal of the petition for reasons other than technical grounds, the proceedings shall be
immediately converted to liquidation as provided in Section 92 of this Act.

CHAPTER III Pre-Negotiated Rehabilitation

SECTION 76. Petition by Debtor. — An insolvent debtor, by itself or jointly with any of its
creditors, may file a verified petition with the court for the approval of a pre-negotiated
Rehabilitation Plan which has been endorsed or approved by creditors holding at least two-
thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than
fifty percent (50%) of the total secured claims of the debtor and unsecured creditors holding
more than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall
include, as a minimum:

(a) a schedule of the debtor's debts and liabilities;

(b) an inventory of the debtor's assets;

(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified
nominees for rehabilitation receiver; and

(d) a summary of disputed claims against the debtor and a report on the provisioning of funds
to account for appropriate payments should any such claims be ruled valid or their amounts
adjusted.
SECTION 77. Issuance of Order. — Within five (5) working days, and after determination that
the petition is sufficient in form and substance, the court shall issue an Order which shall:

(a) identify the debtor, its principal business or activity/ies and its principal place of business;

(b) declare that the debtor is under rehabilitation;

(c) summarize the ground/s for the filing of the petition;

(d) direct the publication of the Order in a newspaper of general circulation in the Philippines
once a week for at least two (2) consecutive weeks, with the first publication to be made
within seven (7) days from the time of its issuance;

(e) direct the service by personal delivery of a copy of the petition on each creditor who is not
a petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as
determined in the schedule attached to the petition, within three (3) days;

(f) state that copies of the petition and the Rehabilitation Plan are available for examination
and copying by any interested party;

(g) state that creditors and other interested parties opposing the petition or Rehabilitation
Plan may file their objections or comments thereto within a period of not later than twenty
(20) days from the second publication of the Order;

(h) appoint a rehabilitation receiver, if provided for in the Plan; and

(i) include a Suspension or Stay Order as described in this Act.

SECTION 78. Approval of the Plan. — Within ten (10) days from the date of the second
publication of the Order, the court shall approve the Rehabilitation Plan unless a creditor or
other interested party submits an objection to it in accordance with the next succeeding
section.

SECTION 79. Objection to the Petition or Rehabilitation Plan. — Any creditor or other interested
party may submit to the court a verified objection to the petition or the Rehabilitation Plan
not later than eight (8) days from the date of the second publication of the Order mentioned
in Section 77 hereof. The objections shall be limited to the following:

(a) The allegations in the petition or the Rehabilitation Plan, or the attachments thereto, are
materially false or misleading;

(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;

(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the
claim is not categorically declared as a contested claim; or

(d) The support of the creditors, or any of them, was induced by fraud.

Copies of any objection to the petition or the Rehabilitation Plan shall be served on the
debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest claim
and who supports the Rehabilitation Plan, and the unsecured creditor with the largest claim
and who supports the Rehabilitation Plan.

SECTION 80. Hearing on the Objections. — After receipt of an objection, the court shall set the
same for hearing. The date of the hearing shall be no earlier than twenty (20) days and no
later than thirty (30) days from the date of the second publication of the Order mentioned in
Section 77 hereof. If the court finds merit in the objection, it shall direct the debtor, when
feasible, to cure the defect within a reasonable period. If the court determines that the debtor
or creditors supporting the Rehabilitation Plan acted in bad faith, or that the objection is non-
curable, the court may order the conversion of the proceedings into liquidation. A finding by
the court that the objection has no substantial merit, or that the same has been cured, shall
be deemed an approval of the Rehabilitation Plan.

SECTION 81. Period for Approval of Rehabilitation Plan. — The court shall have a maximum
period of one hundred twenty (120) days from the date of the filing of the petition to approve
the Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan
shall be deemed approved.

SECTION 82. Effect of Approval. — Approval of a Plan under this chapter shall have the same
legal effect as confirmation of a Plan under Chapter II of this Act.

CHAPTER IV Out-of-Court or Informal Restructuring

Agreements or Rehabilitation Plans
SECTION 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. — An
out-of-court or informal restructuring agreement or Rehabilitation Plan that meets the
minimum requirements prescribed in this chapter is hereby recognized as consistent with the
objectives of this Act.

SECTION 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and

Rehabilitation Plans. — For an out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan to qualify under this chapter, it must meet the following minimum
requirements:

(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement
or Rehabilitation Plan;

(b) It must be approved by creditors representing at least sixty-seven percent (67%) of the
secured obligations of the debtor;

(c) It must be approved by creditors representing at least seventy-five percent (75%) of the
unsecured obligations of the debtor; and

(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total
liabilities, secured and unsecured, of the debtor.
SECTION 85. Standstill Period. — A standstill period that may be agreed upon by the parties
pending negotiation and finalization of the out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan contemplated herein shall be effective and enforceable not
only against the contracting parties but also against the other creditors: Provided,  That (a)
such agreement is approved by creditors representing more than fifty percent (50%) of the
total liabilities of the debtor; (b) notice thereof is published in a newspaper of general
circulation in the Philippines once a week for two (2) consecutive weeks; and (c) the standstill
period does not exceed one hundred twenty (120) days from the date of effectivity. The notice
must invite creditors to participate in the negotiation for out-of-court rehabilitation or
restructuring agreement and notify them that said agreement will be binding on all creditors
if the required majority votes prescribed in Section 84 of this Act are met.

SECTION 86. Cram Down Effect. — A restructuring/workout agreement or Rehabilitation Plan

that is approved pursuant to an informal workout framework referred to in this chapter shall
have the same legal effect as confirmation of a Plan under Section 69 hereof. The notice of
the Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for
at least three (3) consecutive weeks in a newspaper of general circulation in the Philippines.
The Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen
(15) days from the date of the last publication of the notice thereof.

SECTION 87. Amendment or Modification. — Any amendment of an out-of-court

restructuring/workout agreement or Rehabilitation Plan must be made in accordance with
the terms of the agreement and with due notice on all creditors.

SECTION 88. Effect of Court Action or Other Proceedings. — Any court action or other
proceedings arising from, or relating to, the out-of-court or informal restructuring/workout
agreement or Rehabilitation Plan shall not stay its implementation, unless the relevant party
is able to secure a temporary restraining order or injunctive relief from the Court of Appeals.

SECTION 89. Court Assistance. — The insolvent debtor and/or creditor may seek court
assistance for the execution or implementation of a Rehabilitation Plan under this chapter,
under such rules of procedure as may be promulgated by the Supreme Court.

CHAPTER V Liquidation of Insolvent Juridical

Debtors
SECTION 90. Voluntary Liquidation. — An insolvent debtor may apply for liquidation by filing a
petition for liquidation with the court. The petition shall be verified, shall establish the
insolvency of the debtor and shall contain, whether as an attachment or as part of the body of
the petition:

(a) a schedule of the debtor's debts and liabilities including a list of creditors with their
addresses, amounts of claims and collaterals, or securities, if any;

(b) an inventory of all its assets including receivables and claims against third parties; and
(c) the names of at least three (3) nominees to the position of liquidator.

At any time during the pendency of court-supervised or pre-negotiated rehabilitation

proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the
same court where the rehabilitation proceedings are pending to convert the rehabilitation
proceedings into liquidation proceedings. The motion shall be verified, shall contain or set
forth the same matters required in the preceding paragraph, and state that the debtor is
seeking immediate dissolution and termination of its corporate existence.

If the petition or the motion, as the case may be, is sufficient in form and substance, the court
shall issue a Liquidation Order mentioned in Section 112 hereof.

SECTION 91. Involuntary Liquidation. — Three (3) or more creditors the aggregate of whose
claims is at least either One million pesos (Php1,000,000.00) or at least twenty-five percent
(25%) of the subscribed capital stock or partner's contributions of the debtor, whichever is
higher, may apply for and seek the liquidation of an insolvent debtor by filing a petition for
liquidation of the debtor with the court. The petition shall show that:

(a) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due
and demandable payments thereon have not been made for at least one hundred eighty (180)
days or that the debtor has failed generally to meet its liabilities as they fall due; and

(b) there is no substantial likelihood that the debtor may be rehabilitated.

At any time during the pendency of or after a rehabilitation court-supervised or pre-

negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at least
either One million pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the
subscribed capital or partner's contributions of the debtor, whichever is higher, may also
initiate liquidation proceedings by filing a motion in the same court where the rehabilitation
proceedings are pending to convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set forth the same matters
required in the preceding paragraph, and state that the movants are seeking the immediate
liquidation of the debtor.

If the petition or motion is sufficient in form and substance, the court shall issue an Order:

(1) directing the publication of the petition or motion in a newspaper of general circulation
once a week for two (2) consecutive weeks; and

(2) directing the debtor and all creditors who are not the petitioners to file their comment on
the petition or motion within fifteen (15) days from the date of last publication.

If, after considering the comments filed, the court determines that the petition or motion is
meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.

SECTION 92. Conversion by the Court into Liquidation Proceedings. — During the pendency of
court-supervised or pre-negotiated rehabilitation proceedings, the court may order the
conversion of rehabilitation proceedings to liquidation proceedings pursuant to: (a) Section
25 (c) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of
this Act; or at any other time upon the recommendation of the rehabilitation receiver that the
rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation
Order mentioned in Section 112 hereof.

SECTION 93. Powers of the Securities and Exchange Commission (SEC).— The provisions of this
chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential
Decree No. 902-A, as amended, with respect to any dissolution and liquidation proceeding
initiated and heard before it.

CHAPTER VI Insolvency of Individual Debtors

(A) Suspension of Payments.

SECTION 94. Petition. — An individual debtor who, possessing sufficient property to cover all
his debts but foreseeing the impossibility of meeting them when they respectively fall due,
may file a verified petition that he be declared in the state of suspension of payments by the
court of the province or city in which he has resided for six (6) months prior to the filing of his
petition. He shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities;
(b) an inventory of assets; and (c) a proposed agreement with his creditors.

SECTION 95. Action on the Petition. — If the court finds the petition sufficient in form and
substance, it shall, within five (5) working days from the filing of the petition, issue an Order:

(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such
time not less than fifteen (15) days nor more than forty (40) days from the date of such Order
and designating the date, time and place of the meeting;

(b) directing such creditors to prepare and present written evidence of their claims before the
scheduled creditors' meeting;

(c) directing the publication of the said order in a newspaper of general circulation published
in the province or city in which the petition is filed once a week for two (2) consecutive weeks,
with the first publication to be made within seven (7) days from the time of the issuance of
the Order;

(d) directing the clerk of court to cause the sending of a copy of the Order by registered mail,
postage prepaid, to all creditors named in the schedule of debts and liabilities;

(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in
any manner of his property, except those used in the ordinary operations of commerce or of
industry in which the petitioning individual debtor is engaged, so long as the proceedings
relative to the suspension of payments are pending;
(f) prohibiting the individual debtor from making any payment 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

(g) appointing a commissioner to preside over the creditors' meeting.

SECTION 96. Actions Suspended. — Upon motion filed by the individual debtor, the court may
issue an order suspending any pending execution against the individual
debtor: Provided, that properties held as security by secured creditors shall not be the subject
of such suspension order. The suspension order shall lapse when three (3) months shall have
passed without the proposed agreement being accepted by the creditors or as soon as such
agreement is denied.

No creditor shall sue or institute proceedings to collect his claim from the debtor from the
time of the filing of the petition for suspension of payments and for as long as proceedings
remain pending except:

(a) those creditors having claims for personal labor, maintenance, expense of last illness and
funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior
to the filing of the petition; and

(b) secured creditors.

SECTION 97. Creditors' Meeting. — The presence of creditors holding claims amounting to at

least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The
commissioner appointed by the court shall preside over the meeting and the clerk of court
shall act as the secretary thereof, subject to the following rules:

(a) The clerk shall record the creditors present and amount of their respective claims;

(b) The commissioner shall examine the written evidence of the claims. If the creditors
present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the
commissioner shall declare the meeting open for business;

(c) The creditors and individual debtor shall discuss the propositions in the proposed
agreement and put them to a vote;

(d) To form a majority, it is necessary:

(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and

(2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of
the total liabilities of the debtor mentioned in the petition; and

(e) After the result of the voting has been announced, all protests made against the majority
vote shall be drawn up, and the commissioner and the individual debtor together with all
creditors taking part in the voting shall sign the affirmed propositions.

No creditor who incurred his credit within ninety (90) days prior to the filing of the petition
shall be entitled to vote.
SECTION 98. Persons Who May Refrain from Voting. — Creditors who are unaffected by the
Suspension Order 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 99. Rejection of the Proposed 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 (2) majorities mentioned in Section 97 hereof are not in favor thereof. In
such instances, the proceeding shall be terminated without recourse and the parties
concerned shall be at liberty to enforce the rights which may correspond to them.

SECTION 100. Objections. — If the proposal of the individual debtor, or any amendment

thereof made during the creditors' meeting, is approved by the majority of creditors in
accordance with Section 97 hereof, any creditor who attended the meeting and who
dissented from and protested against the vote of the majority may file an objection with the
court within ten (10) days from the date of the last creditors' meeting. The causes for which
objection may be made to the decision made by the majority during 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 the individual debtor to vote in favor of the proposed agreement; or (c)
fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear
and pass upon such objection as soon as possible and in a summary manner.

In case the decision of the majority of creditors to approve the individual debtor's proposal or
any amendment thereof made during the creditors' meeting is annulled by the court, the
court shall declare the proceedings terminated and the creditors shall be at liberty to exercise
the rights which may correspond to them.

SECTION 101. Effects of Approval of Proposed Agreement. — If the decision of the majority of

the creditors to approve the proposed agreement or any amendment thereof made during
the creditors' meeting is upheld by the court, or when no opposition or objection to said
decision has been presented, the court shall order that the agreement be carried out and all
parties bound thereby to comply with its terms.

The court may also issue all orders which may be necessary or proper to enforce the
agreement on motion of any affected party. The Order confirming the approval of the
proposed agreement on any amendment thereof made during the creditors' meeting shall be
binding upon all creditors whose claims are included in the schedule of debts and liabilities
submitted by the individual debtor and who were properly summoned, but not upon: (a)
those creditors having claims for personal labor, maintenance, expenses of last illness and
funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior
to the filing of the petition, and (b) secured creditors who failed to attend the meeting on
refrained from voting therein.

SECTION 102. Failure of Individual Debtor to Perform Agreement. — If the individual debtor

fails, wholly or in part, to perform the agreement decided upon at the meeting of the
creditors, all the rights which the creditors had against the individual debtor before the
agreement shall revest in them. In such case the individual debtor may be made subject to
the insolvency proceedings in the manner established by this Act.
(B) Voluntary Liquidation.

SECTION 103. Application. — An individual debtor whose properties are not sufficient to cover
his liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may
apply to be discharged from his debts and liabilities by filing a verified petition with the court
of the province or city in which he has resided for six (6) months prior to the filing of such
petition. He shall attach to his petition a schedule of debts and liabilities and an inventory of
assets. The filing of such petition shall be an act of insolvency.

SECTION 104. Liquidation Order. — If the court finds the petition sufficient in form and
substance, it shall, within five (5) working days, issue the Liquidation Order mentioned in
Section 112 hereof.

(C) Involuntary Liquidation.

SECTION 105. Petition; Acts of Insolvency. — Any creditor or group of creditors with a claim of,
or with claims aggregating, at least Five hundred thousand pesos (Php500,000.00) may file a
verified petition for liquidation with the court of the province or city in which the individual
debtor resides.

The following shall be considered acts of insolvency, and the petition for liquidation shall set
forth or allege at least one of such acts:

(a) That such person is about to depart or has departed from the Republic of the Philippines,
with intent to defraud his creditors;

(b) That being absent from the Republic of the Philippines, with intent to defraud his
creditors, he remains absent;

(c) That he conceals himself to avoid the service of legal process for the purpose of hindering
or delaying the liquidation or of defrauding his creditors;

(d) That he conceals, or is removing, any of his property to avoid its being attached or taken
on legal process;

(e) That he has suffered his property to remain under attachment or legal process for three (3)
days for the purpose of hindering or delaying the liquidation or of defrauding his creditors;

(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for
the purpose of hindering or delaying the liquidation or of defrauding any creditor or claimant;

(g) That he has willfully suffered judgment to be taken against him by default for the purpose
of hindering or delaying the liquidation or of defrauding his creditors;
(h) That he has suffered or procured his property to be taken on legal process with intent to
give a preference to one or more of his creditors and thereby hinder or delay the liquidation
or defraud any one of his creditors;

(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property,
rights or credits with intent to hinder or delay the liquidation or defraud his creditors;

(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale,
conveyance or transfer of his estate, property, rights or credits;

(k) That being a merchant or tradesman, he has generally defaulted in the payment of his
current obligations for a period of thirty (30) days;

(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys
deposited with him or received by him in a fiduciary capacity; and

(m) That an execution having been issued against him on final judgment for money, he shall
have been found to be without sufficient property subject to execution to satisfy the
judgment.

The petitioning creditor/s shall post a bond in such sum as the court shall direct, conditioned
that if the petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or
if the debtor shall not be declared an insolvent, the petitioners will pay to the debtor all costs,
expenses, damages occasioned by the proceedings, and attorney's fees.

SECTION 106. Order to Individual Debtor to Show Cause. — Upon the filing of such creditors'
petition, the court shall issue an Order requiring the individual debtor to show cause, at a
time and place to be fixed by the said court, why he should not be adjudged an insolvent.
Upon good cause shown, the court may issue an Order forbidding the individual debtor from
making payments of any of his debts, and transferring any property belonging to him.
However, nothing contained herein shall affect or impair the rights of a secured creditor to
enforce his lien in accordance with its terms.

SECTION 107. Default. — If the individual debtor shall default or if, after trial, the issues are
found in favor of the petitioning creditors, the court shall issue the Liquidation Order
mentioned in Section 112 hereof.

SECTION 108. Absent Individual Debtor. — In all cases where the individual debtor resides out
of the Republic of the Philippines; or has departed therefrom; or cannot, after due diligence,
be found therein; or conceals himself to avoid service of the Order to show cause, or any
other preliminary process or orders in the matter, then the petitioning creditors, upon
submitting the affidavits requisite to procure an Order of publication, and presenting a bond
in double the amount of the aggregate sum of their claims against the individual debtor, shall
be entitled to an Order of the court directing the sheriff of the province or city in which the
matter is pending to take into his custody a sufficient amount of property of the individual
debtor to satisfy the demands of the petitioning creditors and the costs of the proceedings.
Upon receiving such Order of the court to take into custody property of the individual debtor,
it shall be the duty of the sheriff to take possession of the property and effects of the
individual debtor, not exempt from execution, to an extent sufficient to cover the amount
provided for, and to prepare, within three (3) days from the time of taking such possession, a
complete inventory of all the property so taken, and to return it to the court as soon as
completed. The time for taking the inventory and making return thereof may be extended for
good cause shown to the court. The sheriff shall also prepare a schedule of the names and
residences of the creditors, and the amount due each, from the books of the debtor, or from
such other papers or data of the individual debtor available as may come to his possession,
and shall file such schedule or list of creditors and inventory with the clerk of court.

SECTION 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exceptions to
Sureties. — In all cases where property is taken into custody by the sheriff, if it does not
embrace all the property and effects of the debtor not exempt from execution, any other
creditor or creditors of the individual debtor, upon giving bond to be approved by the court in
double the amount of their claims, singly or jointly, shall be entitled to similar orders and to
like action, by the sheriff, until all claims be provided for, if there be sufficient property or
effects. All property taken into custody by the sheriff by virtue of the giving of any such bonds
shall be held by him for the benefit of all creditors of the individual debtor whose claims shall
be duly proved as provided in this Act. The bonds provided for in this section and the
preceding section to procure the order for custody of the property and effects of the
individual debtor shall be conditioned that if, upon final hearing of the petition in insolvency,
the court shall find in favor of the petitioners, such bonds and all of them shall be void; if the
decision be in favor of the individual debtor, the proceedings shall be dismissed, and the
individual debtor, his heirs, administrators, executors or assigns shall be entitled to recover
such sum of money as shall be sufficient to cover the damages sustained by him, not to
exceed the amount of the respective bonds. Such damages shall be fixed and allowed by the
court. If either the petitioners or the debtor shall appeal from the decision of the court, upon
final hearing of the petition, the appellant shall be required to give bond to the successful
party in a sum double the amount of the value of the property in controversy, and for the
costs of the proceedings.

Any person interested in the estate may take exception to the sufficiency of the sureties on
such bond or bonds. When excepted to, the petitioner's sureties, upon notice to the person
excepting of not less than two (2) nor more than five (5) days, must justify as to their
sufficiency; and upon failure to justify, or if others in their place fail to justify at the time and
place appointed, the judge shall issue an Order vacating the order to take the property of the
individual debtor into the custody of the sheriff, or denying the appeal, as the case may be.

SECTION 110. Sale Under Execution. — If, in any case, proper affidavits and bonds are
presented to the court or a judge thereof, asking for and obtaining an Order of publication
and an Order for the custody of the property of the individual debtor and thereafter the
petitioners shall make it appear satisfactorily to the court or a judge thereof that the interest
of the parties to the proceedings will be subserved by a sale thereof, the court may order such
property to be sold in the same manner as property is sold under execution, the proceeds to
be deposited in the court to abide by the result of the proceedings.
 CHAPTER VII Provisions Common to Liquidation in
Insolvency of Individual and Juridical Debtors
SECTION 111. Use of Term Debtor. — For purposes of this chapter, the term debtor shall
include both individual debtor as defined in Section 4 (o) and debtor as defined in Section 4
(k) of this Act.

(A) The Liquidation Order.

SECTION 112. Liquidation Order. — The Liquidation Order shall:

(a) declare the debtor insolvent;

(b) order the liquidation 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 petition or motion in a newspaper of general circulation 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 by the debtor and the transfer of any property by the debtor;

(g) direct all creditors to file their claims with the liquidator within the period set by the rules
of procedure;

(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.

SECTION 113. 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 date of his assumption of office, declares
otherwise and the contracting party agrees;

(d) no separate action for the collection of an unsecured claim shall be allowed. Such 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.

SECTION 114. Rights of Secured Creditors. — The Liquidation Order shall not affect the right of
a secured creditor to enforce his lien in accordance with the applicable contract or law. A
secured creditor may:

(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings
and share in the distribution of the assets of the debtor; or

(b) maintain his rights under his security or lien.

If the secured creditor maintains his rights under the security or lien:

(1) the value of the property may be fixed in a manner agreed upon by the creditor and the
liquidator. When the value of the property is less than the claim it secures, the liquidator may
convey the property to the secured creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance; if its value exceeds the claim secured, the liquidator
may convey the property to the creditor and waive the debtor's right of redemption upon
receiving the excess from the creditor;

(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the
proceeds of the sale; or

(3) the secured creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.

(B) The Liquidator.

SECTION 115. Election of Liquidator. — Only creditors who have filed their claims within the
period set by the court, and whose claims are not barred by the statute of limitations, will be
allowed to vote in the election of the liquidator. A secured creditor will not be allowed to
vote, unless: (a) he waives his security or lien; or (b) has the value of the property subject of
his security or lien fixed by agreement with the liquidator, and is admitted for the balance of
his claim.

The creditors entitled to vote will elect the liquidator in open court. The nominee receiving
the highest number of votes cast in terms of amount of claims, and who is qualified pursuant
to Section 118 hereof, shall be appointed as the liquidator.

SECTION 116. Court-Appointed Liquidator. — The court may appoint the liquidator if:

(a) on the date set for the election of the liquidator, the creditors do not attend;

(b) the creditors who attend, fail or refuse to elect a liquidator;

(c) after being elected, the liquidator fails to qualify; or

(d) a vacancy occurs for any reason whatsoever. In any of the cases provided herein, the court
may instead set another hearing for the election of the liquidator.

Provided, further, That nothing in this section shall be construed to prevent a rehabilitation

receiver, who was administering the debtor prior to the commencement of the liquidation,
from being appointed as a liquidator.

SECTION 117. Oath and Bond of the Liquidator. — Prior to entering upon his powers, duties
and responsibilities, the liquidator shall take an oath and file a bond, in such amount to be
fixed by the court, conditioned upon the proper and faithful discharge of his powers, duties
and responsibilities.

SECTION 118. Qualifications of the Liquidator. — The liquidator shall have the qualifications
enumerated in Section 29 hereof. He may be removed at any time by the court for cause,
either  motu proprio  or upon motion of any creditor entitled to vote for the election of the
liquidator.

SECTION 119. Powers, Duties and Responsibilities of the Liquidator. — The liquidator shall be
deemed an officer of the court with the principal duty of preserving and maximizing the value
and recovering the assets of the debtor, with the end of liquidating them and discharging to
the extent possible all the claims against the debtor. The powers, duties and responsibilities
of the liquidator shall include, but not be limited to:

(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;

(b) to take possession of all the property of the debtor except property exempt by law from
execution;

(c) to sell, with the approval of the court, any property of the debtor which has come into his
possession or control;

(d) to redeem all mortgages and pledges, and to satisfy any judgment which may be an
encumbrance on any property sold by him;
(e) to settle all accounts between the debtor and his creditors, subject to the approval of the
court;

(f) to recover any property or its value, fraudulently conveyed by the debtor;

(g) to recommend to the court the creation of a creditors' committee which will assist him in
the discharge of his functions and which shall have powers as the court deems just,
reasonable and necessary; and

(h) upon approval of the court, to engage such professionals as may be necessary and
reasonable to assist him in the discharge of his duties.

In addition to the rights and duties of a rehabilitation receiver, the liquidator shall have the
right and duty to take all reasonable steps to manage and dispose of the debtor's assets with
a view towards maximizing the proceedings therefrom, to pay creditors and stockholders,
and to terminate the debtor's legal existence. Other duties of the liquidator in accordance
with this section may be established by procedural rules.

A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation

receiver.

SECTION 120. Compensation of the Liquidator. — The liquidator and the persons and entities
engaged or employed by him to assist in the discharge of his powers and duties shall be
entitled to such reasonable compensation as may be determined by the liquidation court,
which shall not exceed the maximum amount as may be prescribed by the Supreme Court.

SECTION 121. Reporting Requirements. — The liquidator shall make and keep a record of all
moneys received and all disbursements made by him or under his authority as liquidator. He
shall render a quarterly report thereof to the court, which report shall be made available to all
interested parties. The liquidator shall also submit such reports as may be required by the
court from time to time as well as a final report at the end of the liquidation proceedings.

SECTION 122. Discharge of Liquidator. — In preparation for the final settlement of all the
claims against the debtor, the liquidator will notify all the creditors, either by publication in a
newspaper of general circulation or such other mode as the court may direct or allow, that he
will apply with the court for the settlement of his account and his discharge from liability as
liquidator. The liquidator will file a final accounting with the court, with proof of notice to all
creditors. The accounting will be set for hearing. If the court finds the same in order, the court
will discharge the liquidator.

(C) Determination of Claims.

SECTION 123. Registry of Claims. — Within twenty (20) days from his assumption into office,
the liquidator shall prepare a preliminary registry of claims of secured and unsecured
creditors. Secured creditors who have waived their security or lien, or have fixed the value of
the property subject of their security or lien by agreement with the liquidator and is admitted
as a creditor for the balance, shall be considered as unsecured creditors. The liquidator shall
make the registry available for public inspection and provide publication notice to creditors,
individual debtors, owner/s of the sole proprietorship-debtor, the partners of the
partnership-debtor and shareholders or members of the corporation-debtor, on where and
when they may inspect it. All claims must be duly proven before being paid.

SECTION 124. Right of Set-off. — If the debtor and a creditor are mutually debtor and creditor
of each other, one debt shall be set off against the other, and only the balance, if any, shall be
allowed in the liquidation proceedings.

SECTION 125. Opposition or Challenge to Claims. — Within thirty (30) days from the expiration
of the period for filing of applications for recognition of claims, creditors, individual debtors,
owner/s of the sole proprietorship-debtor, partners of the partnership-debtor and
shareholders or members of the corporation-debtor and other interested parties may submit
a challenge to a claim or claims to the court, serving a certified copy on the liquidator and the
creditor holding the challenged claim. Upon the expiration of the thirty (30)-day period, the
rehabilitation receiver shall submit to the court the registry of claims containing the
undisputed claims that have not been subject to challenge. Such claims shall become final
upon the filing of the register and may be subsequently set aside only on grounds of fraud,
accident, mistake or inexcusable neglect.

SECTION 126. Submission of Disputed Claims to Court. — The liquidator shall resolve disputed
claims and submit his findings thereon to the court for final approval. The liquidator may
disallow claims.

(D) Avoidance Proceedings.

SECTION 127. Rescission or Nullity of Certain Transactions. — Any transaction occurring prior

to the issuance of the Liquidation Order or, in case of the conversion of the rehabilitation
proceedings to liquidation proceedings prior to the commencement date, entered into by the
debtor or involving its assets, may be rescinded or declared null and void on the ground that
the same was executed with intent to defraud a creditor or creditors or which constitute
undue preference of creditors. The presumptions set forth in Section 58 hereof shall apply.

SECTION 128. Actions for Rescission or Nullity. — (a) The liquidator or, with his conformity, a
creditor may initiate and prosecute any action to rescind, or declare null and void any
transaction described in the immediately preceding paragraph. If the liquidator does not
consent to the filing or prosecution of such action, any creditor may seek leave of the court to
commence said action.

(b) If leave of court is granted under subsection (a) hereof, the liquidator shall assign and
transfer to the creditor all rights, title and interest in the chose in action or subject matter of
the proceeding, including any document in support thereof.
(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the
extent of his claim and the costs, belongs exclusively to the creditor instituting the
proceeding, and the surplus, if any, belongs to the estate.

(d) Where, before an order is made under subsection (a) hereof, the liquidator signifies to the
court his readiness to institute the proceeding for the benefit of the creditors, the order shall
fix the time within which he shall do so and, in that case, the benefit derived from the
proceedings, if instituted within the time limits so fixed, belongs to the estate.

(E) The Liquidation Plan.

SECTION 129. The Liquidation Plan. — Within three (3) months from his assumption into
office, the Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall,
as a minimum, enumerate all the assets of the debtor, all the claims against the debtor and a
schedule of liquidation of the assets and payment of the claims.

SECTION 130. Exempt Property to be Set Apart. — It shall be the duty of the court, upon
petition and after hearing, to exempt and set apart, for the use and benefit of the said
insolvent, such real and personal property as is by law exempt from execution, and also a
homestead; 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 (3) public places in the province or city at least ten (10)
days prior to the time of such hearing, which notice shall set forth the name of the 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 131. Sale of Assets in Liquidation. — The liquidator may sell the unencumbered
assets of the debtor and convert the same into money. The sale shall be made at public
auction. However, a private sale may be allowed with the approval of the court if: (a) the
goods to be sold are of a perishable nature, or are liable to quickly deteriorate in value, or are
disproportionately expensive to keep or maintain; or (b) the private sale is for the best
interest of the debtor and his creditors.

With the approval of the court, unencumbered property of the debtor may also be conveyed
to a creditor in satisfaction of his claim or part thereof.

SECTION 132. Manner of Implementing the Liquidation Plan. — The liquidator shall implement
the Liquidation Plan as approved by the court. Payments shall be made to the creditors only
in accordance with the provisions of the Plan.

SECTION 133. Concurrence and Preference of Credits. — The Liquidation Plan and its
implementation shall ensure that the concurrence and preference of credits as enumerated
in the Civil Code of the Philippines and other relevant laws shall be observed, unless a
preferred creditor voluntarily waives his preferred right. For purposes of this chapter, credits
for services rendered by employees or laborers to the debtor shall enjoy first preference
under Article 2244 of the Civil Code, unless the claims constitute legal liens under Articles
2241 and 2242 thereof.

SECTION 134. Order Removing the Debtor from the List of Registered Entities at the Securities
and Exchange Commission. — Upon determining that the liquidation has been completed
according to this Act and applicable law, the court shall issue an Order approving the report
and ordering the SEC to remove the debtor from the registry of legal entities.

SECTION 135. Termination of Proceedings. — Upon receipt of evidence showing that the

debtor has been removed from the registry of legal entities at the SEC, the court shall issue an
Order terminating the proceedings.

(F) Liquidation of a Securities Market Participant.

SECTION 136. Liquidation of a Securities Market Participant. — The foregoing provisions of this

chapter shall be without prejudice to the power of a regulatory agency or self-regulatory
organization to liquidate trade-related claims of clients or customers of a securities market
participant which, for purposes of investor protection, are hereby deemed to have absolute
priority over all other claims of whatever nature or kind insofar as trade-related assets are
concerned.

For purposes of this section, trade-related assets include cash, securities, trading right and
other assets owned and used by the securities market participant in the ordinary course of its
business.

CHAPTER VIII Proceedings Ancillary to Other

Insolvency or Rehabilitation Proceedings

(A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant
to a State-funded or State-mandated Insurance System.

SECTION 137. Provision of Assistance. — The court shall issue orders, adjudicate claims and
provide for other relief necessary to assist in the liquidation of a financial institution under
rehabilitation receivership established by a state-funded or state-mandated insurance
system.
SECTION 138. Application of Relevant Legislation. — The liquidation of banks, financial
institutions, insurance companies and pre-need companies shall be determined by relevant
legislation. The provisions in this Act shall apply in a suppletory manner.

(B) Cross-Border Insolvency Proceedings.

SECTION 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. — Subject to the

provision of Section 136 hereof and the rules of procedure that may be adopted by the
Supreme Court, the Model Law on Cross-Border Insolvency of the United Nations Center for
International Trade and Development is hereby adopted as part of this Act.

SECTION 140. Initiation of Proceedings. — The court shall set a hearing in connection with an
insolvency or rehabilitation proceeding taking place in a foreign jurisdiction, upon the
submission of a petition by the representative of the foreign entity that is the subject of the
foreign proceeding.

SECTION 141. Provision of Relief. — The court may issue orders:

(a) suspending any action to enforce claims against the entity or otherwise seize or foreclose
on property of the foreign entity located in the Philippines;

(b) requiring the surrender of property of the foreign entity to the foreign representative; or

(c) providing other necessary relief.

SECTION 142. Factors in Granting Relief. — In determining whether to grant relief under this
subchapter, the court shall consider:

(a) the protection of creditors in the Philippines and the inconvenience in pursuing their
claims in a foreign proceeding;

(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation
proceeding;

(c) whether other jurisdictions have given recognition to the foreign proceeding;

(d) the extent that the foreign proceeding recognizes the rights of creditors and other
interested parties in a manner substantially in accordance with the manner prescribed in this
Act; and

(e) the extent that the foreign proceeding has recognized and shown deference to
proceedings under this Act and previous legislation.
 CHAPTER IX Funds for Rehabilitation of
Government-Owned and -Controlled Corporations
SECTION 143. Funds for Rehabilitation of Government-owned and -Controlled Corporations. —
Public funds for the rehabilitation of government-owned and -controlled corporations shall
be released only pursuant to an appropriation by Congress and shall be supported by funds
actually available as certified by the National Treasurer.

The Department of Finance, in collaboration with the Department of Budget and

Management, shall promulgate the rules for the use and release of said funds.

CHAPTER X Miscellaneous Provisions

SECTION 144. Applicability of Provisions. — The provisions in Chapter II, insofar as they are
applicable, shall likewise apply to proceedings in Chapters III and IV.

SECTION 145. Penalties. — An owner, partner, director, officer or other employee of the

debtor who commits any one of the following acts shall, upon conviction thereof, be
punished by a fine of not more than One million pesos (Php1,000,000.00) and imprisonment
for not less than three (3) months nor more than five (5) years for each offense:

(a) if he shall, having notice of the commencement of the proceedings, or having reason to
believe that proceedings are about to be commenced, or in contemplation of the
proceedings, hide or conceal, or destroy or cause to be destroyed or hidden any property
belonging to the debtor; or if he shall hide, destroy, alter, mutilate or falsify, or cause to be
hidden, destroyed, altered, mutilated or falsified, any book, deed, document or writing
relating thereto; or if he shall, with intent to defraud the creditors of the debtor, make any
payment, sale, assignment, transfer or conveyance of any property belonging to the debtor;

(b) if he shall, having knowledge or belief of any person having proved a false or fictitious
claim against the debtor, fail to disclose the same to the rehabilitation receiver or liquidator
within one (1) month after coming to said knowledge or belief; or if he shall attempt to
account for any of the debtor's property by fictitious losses or expenses; or

(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation

established by this Act.

SECTION 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation

Cases. — This Act shall govern all petitions filed after it has taken effect. All further
proceedings in insolvency, suspension of payments and rehabilitation cases then pending,
except to the extent that in the opinion of the court their application would not be feasible or
would work injustice, in which event the procedures set forth in prior laws and regulations
shall apply.
SECTION 147. Application to Pending Contracts. — This Act shall apply to all contracts of the
debtor regardless of the date of perfection.

SECTION 148. Repealing Clause. — The Insolvency Law (Act No. 1956), as amended, is hereby

repealed. All other laws, orders, rules and regulations or parts thereof inconsistent with any
provision of this Act are hereby repealed or modified accordingly.

SECTION 149. Separability Clause. — If any provision of this Act shall be held invalid, the
remainder of this Act not otherwise affected shall remain in full force and effect.

SECTION 150. Effectivity Clause. — This Act shall take effect fifteen (15) days after its complete
publication in the Official Gazette or in at least two (2) national newspapers of general
circulation.

(Financial Rehabilitation and Insolvency Act (FRIA) of 2010, Republic Act No. 10142, [July 18,
2010])

RA No 10667 | Philippine Competition Act

AN ACT PROVIDING FOR A NATIONAL COMPETITION POLICY PROHIBITING ANTI-
COMPETITIVE AGREEMENTS, ABUSE OF DOMINANT POSITION AND ANTI-COMPETITIVE
MERGERS AND ACQUISITIONS, ESTABLISHING THE PHILIPPINE COMPETITION
COMMISSION AND APPROPRIATING FUNDS THEREFOR

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled:

CHAPTER I GENERAL PROVISIONS

Section 1. Short Title. – This Act shall be known as the "Philippine Competition Act".

Section 2. Declaration of Policy. – The efficiency of market competition as a mechanism for

allocating goods and services is a generally accepted precept. The State recognizes that past
measures undertaken to liberalize key sectors in the economy need to be reinforced by
measures that safeguard competitive conditions. The State also recognizes that the provision
of equal opportunities to all promotes entrepreneurial spirit, encourages private
investments, facilitates technology development and transfer and enhances resource
productivity. Unencumbered market competition also serves the interest of consumers by
allowing them to exercise their right of choice over goods and services offered in the market.
Pursuant to the constitutional goals for the national economy to attain a more equitable
distribution of opportunities, income, and wealth; a sustained increase in the amount of
goods and services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the underprivileged and
the constitutional mandate that the State shall regulate or prohibit monopolies when the
public interest so requires and that no combinations in restraint of trade or unfair
competition shall be allowed, the State shall:

(a) Enhance economic efficiency and promote free and fair competition in trade, industry and
all commercial economic activities, as well as establish a National Competition Policy to be
implemented by the Government of the Republic of the Philippines and all of its political
agencies as a whole;

(b) Prevent economic concentration which will control the production, distribution, trade, or
industry that will unduly stifle competition, lessen, manipulate or constrict the discipline of
free markets; and

(c) Penalize all forms of anti-competitive agreements, abuse of dominant position and anti-
competitive mergers and acquisitions, with the objective of protecting consumer welfare and
advancing domestic and international trade and economic development.

Section 3. Scope and Application. — This Act shall be enforceable against any person or entity
engaged in any trade, industry and commerce in the Republic of the Philippines. It shall
likewise be applicable to international trade having direct, substantial, and reasonably
foreseeable effects in trade, industry, or commerce in the Republic of the Philippines,
including those that result from acts done outside the Republic of the Philippines.

This Act shall not apply to the combinations or activities of workers or employees nor to
agreements or arrangements with their employers when such combinations, activities,
agreements, or arrangements are designed solely to facilitate collective bargaining in respect
of conditions of employment.

Section 4. Definition of Terms. – As used in this Act:

(a)  Acquisition refers to the purchase of securities or assets, through contract or other means,
for the purpose of obtaining control by:

(1) One (1) entity of the whole or part of another;

(2) Two (2) or more entities over another; or

(3) One (1) or more entities over one (1) or more entities;

(b) Agreement refers to any type or form of contract, arrangement, understanding, collective

recommendation, or concerted action, whether formal or informal, explicit or tacit, written or
oral;

(c) Conduct refers to any type or form of undertaking, collective recommendation,

independent or concerted action or practice, whether formal or informal;
(d) Commission refers to the Philippine Competition Commission created under this Act;

(e) Confidential business information refers to information which concerns or relates to the

operations, production, sales, shipments, purchases, transfers, identification of customers,
inventories, or amount or source of any income, profits, losses, expenditures;

(f) Control refers to the ability to substantially influence or direct the actions or decisions of an

entity, whether by contract, agency or otherwise;

(g) Dominant position refers to a position of economic strength that an entity or entities hold

which makes it capable of controlling the relevant market independently from any or a
combination of the following: competitors, customers, suppliers, or consumers;

(h) Entity refers to any person, natural or juridical, sole proprietorship, partnership,

combination or association in any form, whether incorporated or not, domestic or foreign,
including those owned or controlled by the government, engaged directly or indirectly in any
economic activity;

(i) Market refers to the group of goods or services that are sufficiently interchangeable or

substitutable and the object of competition, and the geographic area where said goods or
services are offered;

(j) Merger refers to the joining of two (2) or more entities into an existing entity or to form a
new entity;

(k) Relevant market refers to the market in which a particular good or service is sold and
which is a combination of the relevant product market and the relevant geographic market,
defined as follows:

(1) A relevant product market comprises all those goods and/or services which are regarded
as interchangeable or substitutable by the consumer or the customer, by reason of the goods
and/or services’ characteristics, their prices and their intended use; and

(2) The relevant geographic market comprises the area in which the entity concerned is
involved in the supply and demand of goods and services, in which the conditions of
competition are sufficiently homogenous and which can be distinguished from neighboring
areas because the conditions of competition are different in those areas.

CHAPTER II PHILIPPINE COMPETITION

COMMISSION
Section 5. Philippine Competition Commission. – To implement the national competition
policy and attain the objectives and purposes of this Act, an independent quasi-judicial body
is hereby created, which shall be known as the Philippine Competition Commission (PCC),
hereinafter referred to as the Commission, and which shall be organized within sixty (60) days
after the effectivity of this Act. Upon establishment of the Commission, Executive Order No. 45
designating the Department of Justice as the Competition Authority is hereby amended. The
Office for Competition (OFC) under the Office of the Secretary of Justice shall however be
retained, with its powers and functions modified pursuant to Section 13 of this Chapter.

The Commission shall be an attached agency to the Office of the President.

Section 6. Composition of the Commission. – The Commission shall be composed of a

Chairperson and four (4) Commissioners. The Chairperson and the Commissioners shall be
citizens and residents of the Philippines, of good moral character, of recognized probity and
independence and must have distinguished themselves professionally in public, civic or
academic service in any of the following fields: economics, law, finance, commerce or
engineering. They must have been in the active practice of their professions for at least ten
(10) years, and must not have been candidates for any elective national or local office in the
immediately preceding elections, whether regular or special: Provided, That at least one (1)
shall be a member of the Philippine Bar with at least ten (10) years of experience in the active
practice of law, and at least one (1) shall be an economist. The Chairperson and the
Commissioners who shall have the rank equivalent of cabinet secretary and undersecretary,
respectively, shall be appointed by the President.

Section 7. Term of Office. – The term of office of the Chairperson and the Commissioners shall
be seven (7) years without reappointment. Of the first set of appointees, the Chairperson shall
hold office for seven (7) years and of the first four (4) Commissioners, two (2) shall hold office
for a term of seven (7) years and two (2) for a term of five (5) years. In case a vacancy occurs
before the expiration of the term of office, the appointment to such vacancy shall only be for
the unexpired term of the predecessor.

The Chairperson and the Commissioners shall enjoy security of tenure and shall not be
suspended or removed from office except for just cause as provided by law.

Section 8. Prohibitions and Disqualifications. – The Commissioners shall not, during their
tenure, hold any other office or employment. They shall not, during their tenure, directly or
indirectly practice any profession, except in a teaching capacity, participate in any business,
or be financially interested in any contract with, or any franchise, or special privileges granted
by the government or any subdivision, agency, or instrumentality thereof, including
government-owned and -controlled corporations or their subsidiaries. They shall strictly
avoid conflict of interest in the conduct of their office. They shall not be qualified to run for
any office in the election immediately succeeding their cessation from office: Provided, That
the election mentioned hereof is not a Barangay election or a Sangguniang Kabataan
election. Provided, they shall not be allowed to personally appear or practice as counsel or
agent on any matter pending before the Commission for two (2) years following their
cessation from office.

No spouse or relative by consanguinity or affinity within the fourth civil degree of any of the
Commissioners, the Chairperson and the Executive Director of the Commission may appear
as counsel nor agent on any matter pending before the Commission or transact business
directly or indirectly therein during incumbency and within two (2) years from cessation of
office.
Section 9. Compensation and Other Emoluments for Members and Personnel of the
Commission.—  The compensation and other emoluments for the members and personnel of
the Commission shall be exempted from the coverage of Republic Act No. 6758, otherwise
known as the "Salary Standardization Act". For this purpose, the salaries and other
emoluments of the Chairperson, the Commissioners, and personnel of the Commission shall
be set based on an objective classification system, taking into consideration the importance
and responsibilities attached to the respective positions, and shall be submitted to the
President of the Philippines for his approval.

Section 10. Quorum. – Three (3) members of the Commission shall constitute a quorum and
the affirmative vote of three (3) members shall be necessary for the adoption of any rule,
ruling, order, resolution, decision or other acts of the Commission.

Section 11. Staff. – The Commission shall appoint, fix the compensation, and determine the
status, qualifications, and duties of an adequate staff, which shall include an Executive
Director of the Commission. The Executive Director shall be appointed by the Commission
and shall have relevant experience in any of the fields of law, economics, commerce,
management, finance or engineering for at least ten (10) years. The members of the technical
staff, except those performing purely clerical functions, shall possess at least a Bachelor’s
Degree in any of the following lines of specialization: economics, law, finance, commerce,
engineering, accounting, or management.

Section 12. Powers and Functions. — The Commission shall have original and primary
jurisdiction over the enforcement and implementation of the provisions of this Act, and its
implementing rules and regulations. The Commission shall exercise the following powers and
functions:

(a) Conduct inquiry, investigate, and hear and decide on cases involving any violation of this
Act and other existing competition laws motu proprio or upon receipt of a verified complaint
from an interested party or upon referral by the concerned regulatory agency, and institute
the appropriate civil or criminal proceedings;

(b) Review proposed mergers and acquisitions, determine thresholds for notification,
determine the requirements and procedures for notification, and upon exercise of its powers
to review, prohibit mergers and acquisitions that will substantially prevent, restrict, or lessen
competition in the relevant market;

(c) Monitor and undertake consultation with stakeholders and affected agencies for the
purpose of understanding market behavior;

(d) Upon finding, based on substantial evidence, that an entity has entered into an anti-
competitive agreement or has abused its dominant position after due notice and hearing,
stop or redress the same, by applying remedies, such as, but not limited to, issuance of
injunctions, requirement of divestment, and disgorgement of excess profits under such
reasonable parameters that shall be prescribed by the rules and regulations implementing
this Act;
(e) Conduct administrative proceedings, impose sanctions, fines or penalties for any
noncompliance with or breach of this Act and its implementing rules and regulations (IRR)
and punish for contempt;

(f) Issue subpoena duces tecum and subpoena ad testificandum to require the production of

books, records, or other documents or data which relate to any matter relevant to the
investigation and personal appearance before the Commission, summon witnesses,
administer oaths, and issue interim orders such as show cause orders and cease and desist
orders after due notice and hearing in accordance with the rules and regulations
implementing this Act;

(g) Upon order of the court, undertake inspections of business premises and other offices,
land and vehicles, as used by the entity, where it reasonably suspects that relevant books, tax
records, or other documents which relate to any matter relevant to the investigation are kept,
in order to prevent the removal, concealment, tampering with, or destruction of the books,
records, or other documents;

(h) Issue adjustment or divestiture orders including orders for corporate reorganization or
divestment in the manner and under such terms and conditions as may be prescribed in the
rules and regulations implementing this Act. Adjustment or divestiture orders, which are
structural remedies, should only be imposed:

(1) Where there is no equally effective behavioral remedy; or

(2) Where any equally effective behavioral remedy would be more burdensome for the
enterprise concerned than the structural remedy. Changes to the structure of an enterprise as
it existed before the infringement was committed would only be proportionate to the
substantial risk of a lasting or repeated infringement that derives from the very structure of
the enterprise;

(i) Deputize any and all enforcement agencies of the government or enlist the aid and support
of any private institution, corporation, entity or association, in the implementation of its
powers and functions;

(j) Monitor compliance by the person or entities concerned with the cease and desist order or
consent judgment;

(k) Issue advisory opinions and guidelines on competition matters for the effective
enforcement of this Act and submit annual and special reports to Congress, including
proposed legislation for the regulation of commerce, trade, or industry;

(l) Monitor and analyze the practice of competition in markets that affect the Philippine
economy; implement and oversee measures to promote transparency and accountability;
and ensure that prohibitions and requirements of competition laws are adhered to;

(m) Conduct, publish, and disseminate studies and reports on anti-competitive conduct and
agreements to inform and guide the industry and consumers;

(n) Intervene or participate in administrative and regulatory proceedings requiring

consideration of the provisions of this Act that are initiated by government agencies such as
the Securities and Exchange Commission, the Energy Regulatory Commission and the
National Telecommunications Commission;

(o) Assist the National Economic and Development Authority, in consultation with relevant
agencies and sectors, in the preparation and formulation of a national competition policy;

(p) Act as the official representative of the Philippine government in international

competition matters;

(q) Promote capacity building and the sharing of best practices with other competition-
related bodies;

(r) Advocate pro-competitive policies of the government by:

(1) Reviewing economic and administrative regulations, motu proprio or upon request, as to

whether or not they adversely affect relevant market competition, and advising the
concerned agencies against such regulations; and

(2) Advising the Executive Branch on the competitive implications of government actions,
policies and programs; and

(s) Charging reasonable fees to defray the administrative cost of the services rendered.

Section 13. Office for Competition (OFC), Powers and Functions. — The OFC under the
Department of Justice (DOJ-OFC) shall only conduct preliminary investigation and undertake
prosecution of all criminal offenses arising under this Act and other competition-related laws
in accordance with Section 31 of Chapter VI of this Act. The OFC shall be reorganized and
allocated resources as may be required therefor to effectively pursue such mandate.

CHAPTER III PROHIBITED ACTS

Section 14. Anti-Competitive Agreements. –

(a) The following agreements, between or among competitors, are per se prohibited:

(1) Restricting competition as to price, or components thereof, or other terms of trade;

(2) Fixing price at an auction or in any form of bidding including cover bidding, bid
suppression, bid rotation and market allocation and other analogous practices of bid
manipulation;

(b) The following agreements, between or among competitors which have the object or effect
of substantially preventing, restricting or lessening competition shall be prohibited:

(1) Setting, Kmiting, or controlling production, markets, technical development, or

investment;
(2) Dividing or sharing the market, whether by volume of sales or purchases, territory, type of
goods or services, buyers or sellers or any other means;

(c) Agreements other than those specified in (a) and (b) of this section which have the object
or effect of substantially preventing, restricting or lessening competition shall also be
prohibited: Provided, Those which contribute to improving the production or distribution of
goods and services or to promoting technical or economic progress, while allowing
consumers a fair share of the resulting benefits, may not necessarily be deemed a violation of
this Act.

An entity that controls, is controlled by, or is under common control with another entity or
entities, have common economic interests, and are not otherwise able to decide or act
independently of each other, shall not be considered competitors for purposes of this section.

Section 15. Abuse of Dominant Position. – It shall be prohibited for one or more entities to
abuse their dominant position by engaging in conduct that would substantially prevent,
restrict or lessen competition:

(a) Selling goods or services below cost with the object of driving competition out of the
relevant market: Provided, That in the Commission’s evaluation of this fact, it shall consider
whether the entity or entities have no such object and the price established was in good faith
to meet or compete with the lower price of a competitor in the same market selling the same
or comparable product or service of like quality;

(b) Imposing barriers to entry or committing acts that prevent competitors from growing
within the market in an anti-competitive manner except those that develop in the market as a
result of or arising from a superior product or process, business acumen, or legal rights or
laws;

(c) Making a transaction subject to acceptance by the other parties of other obligations
which, by their nature or according to commercial usage, have no connection with the
transaction;

(d) Setting prices or other terms or conditions that discriminate unreasonably between
customers or sellers of the same goods or services, where such customers or sellers are
contemporaneously trading on similar terms and conditions, where the effect may be to
lessen competition substantially: Provided, That the following shall be considered
permissible price differentials:

(1) Socialized pricing for the less fortunate sector of the economy;

(2) Price differential which reasonably or approximately reflect differences in the cost of
manufacture, sale, or delivery resulting from differing methods, technical conditions, or
quantities in which the goods or services are sold or delivered to the buyers or sellers;

(3) Price differential or terms of sale offered in response to the competitive price of payments,
services or changes in the facilities furnished by a competitor; and

(4) Price changes in response to changing market conditions, marketability of goods or

services, or volume;
(e) Imposing restrictions on the lease or contract for sale or trade of goods or services
concerning where, to whom, or in what forms goods or services may be sold or traded, such
as fixing prices, giving preferential discounts or rebate upon such price, or imposing
conditions not to deal with competing entities, where the object or effect of the restrictions is
to prevent, restrict or lessen competition substantially: Provided, That nothing contained in
this Act shall prohibit or render unlawful:

(1) Permissible franchising, licensing, exclusive merchandising or exclusive distributorship

agreements such as those which give each party the right to unilaterally terminate the
agreement; or

(2) Agreements protecting intellectual property rights, confidential information, or trade

secrets;

(f) Making supply of particular goods or services dependent upon the purchase of other goods
or services from the supplier which have no direct connection with the main goods or services
to be supplied;

(g) Directly or indirectly imposing unfairly low purchase prices for the goods or services of,
among others, marginalized agricultural producers, fisherfolk, micro-, small-, medium-scale
enterprises, and other marginalized service providers and producers;

(h) Directly or indirectly imposing unfair purchase or selling price on their competitors,
customers, suppliers or consumers, provided that prices that develop in the market as a
result of or due to a superior product or process, business acumen or legal rights or laws shall
not be considered unfair prices; and

(i) Limiting production, markets or technical development to the prejudice of consumers,

provided that limitations that develop in the market as a result of or due to a superior
product or process, business acumen or legal rights or laws shall not be a violation of this Act:

Provided, That nothing in this Act shall be construed or interpreted as a prohibition on having

a dominant position in a relevant market or on acquiring, maintaining and increasing market
share through legitimate means that do not substantially prevent, restrict or lessen
competition:

Provided, further, That any conduct which contributes to improving production or distribution

of goods or services within the relevant market, or promoting technical and economic
progress while allowing consumers a fair share of the resulting benefit may not necessarily be
considered an abuse of dominant position:

Provided, finally, That the foregoing shall not constrain the Commission or the relevant
regulator from pursuing measures that would promote fair competition or more competition
as provided in this Act.

CHAPTER IV MERGERS AND ACQUISITIONS

Section 16. Review of Mergers and Acquisitions. — The Commission shall have the power to
review mergers and acquisitions based on factors deemed relevant by the Commission.

Section 17. Compulsory Notification. – Parties to the merger or acquisition agreement

referred to in the preceding section wherein the value of the transaction exceeds one billion
pesos (P1,000,000,000.00) are prohibited from consummating their agreement until thirty (30)
days after providing notification to the Commission in the form and containing the
information specified in the regulations issued by the Commission: Provided, That the
Commission shall promulgate other criteria, such as increased market share in the relevant
market in excess of minimum thresholds, that may be applied specifically to a sector, or
across some or all sectors, in determining whether parties to a merger or acquisition shall
notify the Commission under this Chapter.

An agreement consummated in violation of this requirement to notify the Commission shall

be considered void and subject the parties to an administrative fine of one percent (1%) to
five percent (5%) of the value of the transaction.

Should the Commission deem it necessary, it may request further information that are
reasonably necessary and directly relevant to the prohibition under Section 20 hereof from
the parties to the agreement before the expiration of the thirty (30)-day period referred. The
issuance of such a request has the effect of extending the period within which the agreement
may not be consummated for an additional sixty (60) days, beginning on the day after the
request for information is received by the parties: Provided, That, in no case shall the total
period for review by the Commission of the subject agreement exceed ninety (90) days from
initial notification by the parties.

When the above periods have expired and no decision has been promulgated for whatever
reason, the merger or acquisition shall be deemed approved and the parties may proceed to
implement or consummate it. All notices, documents and information provided to or
emanating from the Commission under this section shall be subject to confidentiality rule
under Section 34 of this Act except when the release of information contained therein is with
the consent of the notifying entity or is mandatorily required to be disclosed by law or by a
valid order of a court of competent jurisdiction, or of a government or regulatory agency,
including an exchange.

In the case of the merger or acquisition of banks, banking institutions, building and loan
associations, trust companies, insurance companies, public utilities, educational institutions
and other special corporations governed by special laws, a favorable or no-objection ruling
by the Commission shall not be construed as dispensing of the requirement for a favorable
recommendation by the appropriate government agency under Section 79 of the Corporation
Code of the Philippines.

A favorable recommendation by a governmental agency with a competition mandate shall

give rise to a disputable presumption that the proposed merger or acquisition is not violative
of this Act.

Section 18. Effect of Notification. — If within the relevant periods stipulated in the preceding
section, the Commission determines that such agreement is prohibited under Section 20 and
does not qualify for exemption under Section 21 of this Chapter, the Commission may:
(a) Prohibit the implementation of the agreement;

(b) Prohibit the implementation of the agreement unless and until it is modified by changes
specified by the Commission.

(c) Prohibit the implementation of the agreement unless and until the pertinent party or
parties enter into legally enforceable agreements specified by the Commission.

Section 19. Notification Threshold. – The Commission shall, from time to time, adopt and
publish regulations stipulating:

(a) The transaction value threshold and such other criteria subject to the notification
requirement of Section 17 of this Act;

(b) The information that must be supplied for notified merger or acquisition;

(c) Exceptions or exemptions from the notification requirement; and

(d) Other rules relating to the notification procedures.

Section 20. Prohibited. Mergers and Acquisitions. – Merger or acquisition agreements that

substantially prevent, restrict or lessen competition in the relevant market or in the market
for goods or services as may be determined by the Commission shall be prohibited.

Section 21. Exemptions from Prohibited. Mergers and Acquisitions. – Merger or acquisition

agreement prohibited under Section 20 of this Chapter may, nonetheless, be exempt from
prohibition by the Commission when the parties establish either of the following:

(a) The concentration has brought about or is likely to bring about gains in efficiencies that
are greater than the effects of any limitation on competition that result or likely to result from
the merger or acquisition agreement; or

(b) A party to the merger or acquisition agreement is faced with actual or imminent financial
failure, and the agreement represents the least anti-competitive arrangement among the
known alternative uses for the failing entity’s assets:

Provided, That an entity shall not be prohibited from continuing to own and hold the stock or
other share capital or assets of another corporation which it acquired prior to the approval of
this Act or acquiring or maintaining its market share in a relevant market through such means
without violating the provisions of this Act:

Provided, further, That the acquisition of the stock or other share capital of one or more
corporations solely for investment and not used for voting or exercising control and not to
otherwise bring about, or attempt to bring about the prevention, restriction, or lessening of
competition in the relevant market shall not be prohibited.

Section 22. Burden of Proof. – The burden of proof under Section 21 lies with the parties
seeking the exemption. A party seeking to rely on the exemption specified in Section 21(a)
must demonstrate that if the agreement were not implemented, significant efficiency gains
would not be realized.
Section 23. Finality of Ridings on Mergers and Acquisitions. – Merger or acquisition
agreements that have received a favorable ruling from the Commission, except when such
ruling was obtained on the basis of fraud or false material information, may not be
challenged under this Act.

CHAPTER V DISPOSITION OF CASES

Section 24. Relevant Market. – For purposes of determining the relevant market, the
following factors, among others, affecting the substitutability among goods or services
constituting such market and the geographic area delineating the boundaries of the market
shall be considered:

(a) The possibilities of substituting the goods or services in question, with others of domestic
or foreign origin, considering the technological possibilities, extent to which substitutes are
available to consumers and time required for such substitution;

(b) The cost of distribution of the good or service, its raw materials, its supplements and
substitutes from other areas and abroad, considering freight, insurance, import duties and
non-tariff restrictions; the restrictions imposed by economic agents or by their associations;
and the time required to supply the market from those areas;

(c) The cost and probability of users or consumers seeking other markets; and

(d) National, local or international restrictions which limit access by users or consumers to
alternate sources of supply or the access of suppliers to alternate consumers.

Section 25. Control of an Entity. – In determining the control of an entity, the Commission

may consider the following:

Control is presumed to exist when the parent owns directly or indirectly, through
subsidiaries, more than one half (1/2) of the voting power of an entity, unless in exceptional
circumstances, it can clearly be demonstrated that such ownership does not constitute
control. Control also exists even when an entity owns one half (1/2) or less of the voting
power of another entity when:

(a) There is power over more than one half (1/2) of the voting rights by virtue of an agreement
with investors;

(b) There is power to direct or govern the financial and operating policies of the entity under a
statute or agreement;

(c) There is power to appoint or remove the majority of the members of the board of directors
or equivalent governing body;

(d) There is power to cast the majority votes at meetings of the board of directors or
equivalent governing body;
(e) There exists ownership over or the right to use all or a significant part of the assets of the
entity;

(f) There exist rights or contracts which confer decisive influence on the decisions of the
entity.

Section 26. Determination of Anti-Competitive Agreement or Conduct. – In determining

whether anti-competitive agreement or conduct has been committed, the Commission shall:

(a) Define the relevant market allegedly affected by the anti-competitive agreement or
conduct, following the principles laid out in Section 24 of this Chapter;

(b) Determine if there is actual or potential adverse impact on competition in the relevant
market caused by the alleged agreement or conduct, and if such impact is substantial and
outweighs the actual or potential efficiency gains that result from the agreement or conduct;

(c) Adopt a broad and forward-looking perspective, recognizing future market developments,
any overriding need to make the goods or services available to consumers, the requirements
of large investments in infrastructure, the requirements of law, and the need of our economy
to respond to international competition, but also taking account of past behavior of the
parties involved and prevailing market conditions;

(d) Balance the need to ensure that competition is not prevented or substantially restricted
and the risk that competition efficiency, productivity, innovation, or development of priority
areas or industries in the general interest of the country may be deterred by overzealous or
undue intervention; and

(e) Assess the totality of evidence on whether it is more likely than not that the entity has
engaged in anti-competitive agreement or conduct including whether the entity’s conduct
was done with a reasonable commercial purpose such as but not limited to phasing out of a
product or closure of a business, or as a reasonable commercial response to the market entry
or conduct of a competitor.

Section 27. Market Dominant Position. – In determining whether an entity has market

dominant position for purposes of this Act, the Commission shall consider the following:

(a) The share of the entity in the relevant market and whether it is able to fix prices
unilaterally or to restrict supply in the relevant market;

(b) The existence of barriers to entry and the elements which could foreseeably alter both
said barriers and the supply from competitors;

(c) The existence and power of its competitors;

(d) The possibility of access by its competitors or other entities to its sources of inputs;

(e) The power of its customers to switch to other goods or services;

(f) Its recent conducts; and

(g) Other criteria established by the regulations of this Act.

There shall be a rebuttable presumption of market dominant position if the market share of
an entity in the relevant market is at least fifty percent (50%), unless a new market share
threshold is determined by the Commission for that particular sector.

The Commission shall from time to time determine and publish the threshold for dominant
position or minimum level of share in the relevant market that could give rise to a
presumption of dominant position. In such determination, the Commission would consider
the structure of the relevant market, degree of integration, access to end-users, technology
and financial resources, and other factors affecting the control of a market, as provided in
subsections (a) to (g) of this section.

The Commission shall not consider the acquiring, maintaining and increasing of market share
through legitimate means not substantially preventing, restricting, or lessening competition
in the market such as but not limited to having superior skills, rendering superior service,
producing or distributing quality products, having business acumen, and the enjoyment and
use of protected intellectual property rights as violative of this Act.

Section 28. Forbearance. – The Commission may forbear from applying the provisions of this
Act, for a limited time, in whole or in part, in all or specific cases, on an entity or group of
entities, if in its determination:

(a) Enforcement is not necessary to the attainment of the policy objectives of this Act;

(b) Forbearance will neither impede competition in the market where the entity or group of
entities seeking exemption operates nor in related markets; and

(c) Forbearance is consistent with public interest and the benefit and welfare of the
consumers.

A public hearing shall be held to assist the Commission in making this determination.

The Commission’s order exempting the relevant entity or group of entities under this section
shall be made public. Conditions may be attached to the forbearance if the Commission
deems it appropriate to ensure the long-term interest of consumers.

In the event that the basis for the issuance of the exemption order ceases to be valid, the
order may be withdrawn by the Commission.

CHAPTER VI FINES AND PENALTIES

Section 29. Administrative Penalties. –

(a) Administrative Fines. – In any investigation under Chapter III, Sections 14 and 15, and
Chapter IV, Sections 17 and 20 of this Act, after due notice and hearing, the Commission may
impose the following schedule of administrative fines on any entity found to have violated
the said sections:
First offense: Fine of up to one hundred million pesos (P100,000,000.00);

Second offense: Fine of not less than one hundred million pesos (P100,000,000.00) but not
more than two hundred fifty million pesos (P250,000,000.00).

In fixing the amount of the fine, the Commission shall have regard to both the gravity and the
duration of the violation.

(b) Failure to Comply With an Order of the Commission. – An entity which fails or refuses to
comply with a ruling, order or decision issued by the Commission shall pay a penalty of not
less than fifty thousand pesos (P50,000.00) up to two million pesos (P2,000,000.00) for each
violation and a similar amount of penalty for each day thereafter until the said entity fully
complies. Provided that these fines shall only accrue daily beginning forty-five (45) days from
the time that the said decision, order or ruling was received.

(c) Supply of Incorrect or Misleading Information. – The Commission may likewise impose
upon any entity fines of up to one million pesos (PI,000,000.00) where, intentionally or
negligently, they supply incorrect or misleading information in any document, application or
other paper filed with or submitted to the Commission or supply incorrect or misleading
information in an application for a binding ruling, a proposal for a consent judgment,
proceedings relating to a show cause order, or application for modification of the
Commission’s ruling, order or approval, as the case may be.

(d) Any other violations not specifically penalized under the relevant provisions of this Act
shall be penalized by a fine of not less than fifty thousand pesos (P50,000.00) up to two
million pesos (P2,000,000.00).

Provided that the schedule of fines indicated in this section shall be increased by the
Commission every five (5) years to maintain their real value from the time it was set.

Section 30. Criminal Penalties. – An entity that enters into any anti-competitive agreement as
covered by Chapter III, Section 14(a) and 14(b) under this Act shall, for each and every
violation, be penalized by imprisonment from two (2) to seven (7) years, and a fine of not less
than fifty million pesos (P50,000,000.00) but not more than two hundred fifty million pesos
(P250,000,000.00). The penalty of imprisonment shall be imposed upon the responsible
officers, and directors of the entity.

When the entities involved are juridical persons, the penalty of. imprisonment shall be
imposed on its officers, directors, or employees holding managerial positions, who are
knowingly and willfully responsible for such violation.

CHAPTER VII ENFORCEMENT

Section 31. Fact Finding; Preliminary Inquiry. – The Commission, motu proprio, or upon the
filing of a verified complaint by an interested party or upon referral by a regulatory agency,
shall have the sole and exclusive authority to initiate and conduct a fact-finding or
preliminary inquiry for the enforcement of this Act based on reasonable grounds.

The Commission, after considering the statements made, or documents or articles produced
in the course of the fact-finding or preliminary inquiry, shall terminate the same by:

(a) Issuing a resolution ordering its closure if no violation or infringement of this Act is found;
or

(b) Issuing a resolution to proceed, on the basis of reasonable grounds, to the conduct of a
full administrative investigation.

The Commission, after due notice and hearing, and on the basis of facts and evidence
presented, may issue an order for the temporary cessation or desistance from the
performance of certain acts by the respondent entity, the continued performance of which
would result in a material and adverse effect on consumers or competition in the relevant
market.

If the evidence so warrants, the Commission may file before the DOJ criminal complaints for
violations of this Act or relevant laws for preliminary investigation and prosecution before the
proper court. The DOJ shall conduct such preliminary investigation in accordance with the
Revised Rules of Criminal Procedure.

The preliminary inquiry shall, in all cases, be completed by the Commission within ninety (90)
days from submission of the verified complaint, referral, or date of initiation by the
Commission, motu proprio, of the same.

Except as provided in Section 12(i) of Chapter II of this Act, no law enforcement agency shall
conduct any kind of fact-finding, inquiry or investigation into any competition-related
matters.

Section 32. Relationship With Sector Regulators. – The Commission shall have original and
primary jurisdiction in the enforcement and regulation of all competition-related issues.

The Commission shall still have jurisdiction if the issue involves both competition and
noncompetition issues, but the concerned sector regulator shall be consulted and afforded
reasonable opportunity to submit its own opinion and recommendation on the matter before
the Commission makes a decision on any case.

Where appropriate, the Commission and the sector regulators shall work together to issue
rules and regulations to promote competition, protect consumers, and prevent abuse of
market power by dominant players within their respective sectors.

Section 33. Power to Investigate and Enforce Orders and Resolutions. – The Commission shall
conduct inquiries by administering oaths, issuing subpoena duces tecum and summoning
witnesses, and commissioning consultants or experts. It shall determine if any provision of
this Act has been violated, enforce its orders and carry out its resolutions by making use of
any available means, provisional or otherwise, under existing laws and procedures including
the power to punish for contempt and to impose fines.
Section 34. Confidentiality of Information. – Confidential business information submitted by
entities, relevant to any inquiry or investigation being conducted pursuant to this Act as well
as any deliberation in relation thereto, shall not, in any manner, be directly or indirectly
disclosed, published, transferred, copied, or disseminated. Likewise, the Commission shall, to
the extent possible, subject such information to the confidentiality rule provided under this
section when it issues notices, bulletins, rulings and other documents: Provided., That the
confidentiality rule shall not apply if the notifying entity consents to the disclosure, or the
document or information is mandatorily required to be disclosed by law or by a valid order of
a court of competent jurisdiction or of a government or regulatory agency, including an
exchange. The identity of the persons who provide information to the Commission under
condition of anonymity, shall remain confidential, unless such confidentiality is expressly
waived by these persons.

Any violation of this provision shall be imposed a fine of not less than one million pesos
(PI,000,000.00) but not more than five million pesos (P5,000,000.00).

Section 35. Leniency Program. – The Commission shall develop a Leniency Program to be

granted to any entity in the form of immunity from suit or reduction of any fine which would
otherwise be imposed on a participant in an anti-competitive agreement as provided in
Section 14(a) and 14(b) of this Act in exchange for the voluntary disclosure of information
regarding such an agreement which satisfies specific criteria prior to or during the fact-
finding or preliminary inquiry stage of the case.

Immunity from suit will be granted to an entity reporting illegal anti-competitive activity
before a fact-finding or preliminary inquiry has begun if the following conditions are met:

(a) At the time the entity comes forward, the Commission has not received information about
the activity from any other source;

(b) Upon the entity’s discovery of illegal activity, it took prompt and effective action to
terminate its participation therein;

(c) The entity reports the wrongdoing with candor and completeness and provides full,
continuing, and complete cooperation throughout the investigation; and

(d) The entity did not coerce another party to participate in the activity and clearly was not
the leader in, or the originator of, the activity.

Even after the Commission has received information about the illegal activity after a fact-
finding or preliminary inquiry has commenced, the reporting entity will be granted leniency,
provided preceding conditions (b) and (c) and the following additional requirements are
complied with:

(1) The entity is the first to come forward and qualify for leniency;

(2) At the time the entity comes forward, the Commission does not have evidence against the
entity that is likely to result in a sustainable conviction; and

(3) The Commission determines that granting leniency would not be unfair to others.
Such program shall include the immunity from any suit or charge of affected parties and third
parties, exemption, waiver, or gradation of fines and/or penalties giving precedence to the
entity submitting such evidence. An entity cooperating or furnishing information, document
or data to the Commission in connection to an investigation being conducted shall not be
subjected to any form of reprisal or discrimination. Such reprisal or discrimination shall be
considered a violation of this Act subject to the sanctions provided in this Act.

Nothing in this section shall preclude prosecution for entities that report to the Commission
false, misleading, or malicious information, data or documents damaging to the business or
integrity of the entities under inquiry as a violation of said section. An entity found to have
reported false, misleading or malicious information, data, or document may be penalized by
a fine not less than the penalty imposed in the section reported to have been violated by the
entity complained of.

The DOJ-OFC may likewise grant leniency or immunity as provided in this section in the event
that there is already a preliminary investigation pending before it.

Section 36. Nolo Contendere. – An entity charged in a criminal proceeding pursuant to

Section 14(a) and 14(b) of this Act may enter a plea of Nolo Contendere, in which he does not
accept nor deny responsibility for the charges but agrees to accept punishment as if he had
pleaded guilty. The plea cannot be used against the defendant entity to prove liability in a
civil suit arising from the criminal action nor in another cause of action: Provided, That a plea
of Nolo Contendere  may be entered only up to arraignment and subsequently, only with the
permission of the court which shall accept it only after weighing its effect on the parties, the
public and the administration of justice.

Section 37. Non-Adversarial Remedies. — As an implementing and enforcement policy, the

Commission shall, under such rules and regulations it may prescribe, encourage voluntary
compliance with this Act and other competition laws by making available to the parties
concerned the following and other analogous non-adversarial administrative remedies,
before the institution of administrative, civil or criminal action:

(a) Binding Ruling. — Where no prior complaint or investigation has been initiated, any entity
that is in doubt as to whether a contemplated act, course of conduct, agreement, or decision,
is in compliance with, is exempt from, or is in violation of any of the provisions of this Act,
other competition laws, or implementing rules and regulations thereof, may request the
Commission, in writing, to render a binding ruling thereon: Provided,That the ruling is for a
specified period, subject to extension as may be determined by the Commission, and based
on substantial evidence.

In the event of an adverse binding ruling on an act, course or conduct, agreement, or

decision, the applicant shall be provided with a reasonable period, which in no case shall be
more than ninety (90) days, to abide by the ruling of the Commission and shall not be subject
to administrative, civil, or criminal action unless the applicant fails to comply with the
provisions of this Act;

(b) Show Cause Order. — Upon preliminary findings motu proprio or on written complaint
under oath by an interested party that any entity is conducting its business, in whole or in
part in a manner that may not be in accord with the provisions of this Act or other
competition laws, and it finds that the issuance of a show cause order would be in the interest
of the public, the Commission shall issue and serve upon such entity or entities a written
description of its business conduct complained of, a statement of the facts, data, and
information together with a summary of the evidence thereof, with an order requiring the
said entity or entities to show cause, within the period therein fixed, why no order shall issue
requiring such person or persons to cease and desist from continuing with its identified
business conduct, or pay the administrative fine therein specified, or readjust its business
conduct or practices;

(c) Consent Order. – At any time prior to the conclusion by the Commission of its inquiry, any
entity under inquiry may, without in any manner admitting a violation of this Act or any other
competition laws, submit to the Commission a written proposal for the entry of a consent
order, specifying therein the terms and conditions of the proposed consent order which shall
include among others the following:

(1) The payment of an amount within the range of fines provided for under this Act;

(2) The required compliance report as well as an entity to submit regular compliance reports;

(3) Payment of damages to any private party/parties who may have suffered injury; and

(4) Other terms and conditions that the Commission deems appropriate and necessary for the
effective enforcement of this Act or other Competition Laws:

Provided, That a consent order shall not bar any inquiry for the same or similar acts if
continued or repeated;

(d) Monitoring of Compliance. – The Commission shall monitor the compliance by the entity
or entities concerned, their officers, and employees, with the final and executory binding
ruling, cease and desist order, or approval of a consent judgment. Upon motion of an
interested party/parties, the Commission shall issue a certification or resolution to the effect
that the entity or entities concerned have, or have not, as the case may be, complied with a
final and executory ruling, order, or approval.

(e) Inadmissibility of Evidence in Criminal Proceedings. – The request for a binding ruling, the
show cause order, or the proposal for consent order; the facts, data, and information therein
contained or subsequently supplied by the entity or entities concerned; admissions, oral or
written, made by them against their interest; all other documents filed by them, including
their evidence presented in the proceedings before the Commission; and the judgment or
order rendered thereon; shall not be admissible as evidence in any criminal proceedings
arising from the same act subject of the binding ruling, show cause order or consent order
against such entity or entities, their officers, employees, and agents.

Section 38. Contempt. — The Commission may summarily punish for contempt by

imprisonment not exceeding thirty (30) days or by a fine not exceeding one hundred
thousand pesos (P 100,000.00), or both, any entity guilty of such misconduct in the presence
of the Commission in its vicinity as to seriously interrupt any hearing, session or any
proceeding before it, including cases in which an entity willfully fails or refuses, without just
cause, to comply with a summons, subpoena or subpoena duces tecum legally issued by the
Commission being present at a hearing, proceeding, session or investigation, refused to be
sworn as a witness or to answer questions or to furnish information when lawfully required to
do so.

Section 39. Appeals of the Decisions of the Commission.  – Decisions of the Commission shall
be appealable to the Court of Appeals in accordance with the Rules of Court. The appeal shall
not stay the order, ruling or decision sought to be reviewed, unless the Court of Appeals shall
direct otherwise upon such terms and conditions it may deem just. In the appeal, the
Commission shall be included as a party respondent to the case.

Section 40. ‘Writ of Execution. – Upon the finality of its binding ruling, order, resolution,
decision, judgment, or rule or regulation, collectively, the Commission may issue a writ of
execution to enforce its decision and the payment of the administrative fines provided in the
preceding sections.

Section 41. Basic Necessities and Prime Commodities. – If the violation involves the trade or
movement of basic necessities and prime commodities as defined by Republic Act No. 7581,
as amended, the fine imposed by the Commission or the courts, as the case may be, shall be
tripled.

Section 42. Immunity from Suit. – The Chairperson,the Commissioners, officers, employees

and agents of the Commission shall not be subject to any action, claim or demand in
connection with any act done or omitted by them in the performance of their duties and
exercise of their powers except for those actions and omissions done in evident bad faith or
gross negligence.

Section 43. Indemnity. – Unless the actions of the Commission or its Chairperson, any of its
Commissioners, officers, employees and agents are found to be in willful violation of this Act,
performed with evident bad faith or gross negligence, the Commission, its Chairperson,
Commissioners, officers, employees and agents are held free and harmless to the fullest
extent permitted by law from any liability, and they shall be indemnified for any and all
liabilities, losses, claims, demands, damages, deficiencies, costs and expenses of whatsoever
kind and nature that may arise in connection with the exercise of their powers and
performance of their duties and functions.

The Commission shall underwrite or advance litigation costs and expenses, including legal
fees and other expenses of external counsel, or provide legal assistance to its Chairperson,
Commissioners, officers, employees, or agents in connection with any civil, criminal,
administrative or any other action or proceeding, to which they are made a party by reason
of, or in connection with, the exercise of authority or performance of duties and functions
under this Act: Provided, That such legal protection shall not apply to any civil, criminal,
administrative, or any action or proceeding that may be initiated by the Commission, against
such Chairperson, Commissioners, officers, employees, or agents: Provided, further, That the
Chairperson, Commissioners, officers, employees, or agents, who shall resign, retire, transfer
to another agency or be separated from the service, shall continue to be provided with such
legal protection in connection with any act done or omitted to be done by them in good faith
during their tenure or employment with the Commission: Provided, finally, That in the event
of a settlement or compromise, indemnification shall be provided only in connection with
such matters covered by the settlement as to which the Commission is advised by counsel
that the persons to be indemnified did not commit any negligence or misconduct.

The costs and expenses incurred in defending the aforementioned action, suit or proceeding
may be paid by the Commission in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the Chairperson, Commissioner,
officer, employee, or agent to repay the amount advanced should it ultimately be determined
by the Commission that one is not entitled to be indemnified as provided in this section.

Section 44. Jurisdiction of the Regional Trial Court. – The Regional Trial Court of the city or
province where the entity or any of the entities whose business act or conduct Constitutes the
subject matter of a case, conducts its principal place of business, shall have original and
exclusive jurisdiction, regardless of the penalties and fines herein imposed, of all criminal and
civil cases involving violations of this Act and other competition-related laws. If the defendant
or anyone is charged in the capacity of a director, officer, shareholder, employee, or agent of
a corporation or other juridical entity who knowingly and willfully authorized the commission
of the offense charged, the Regional Trial Court of the city or province where such
corporation or juridical entity conducts its principal place of business, shall have jurisdiction.

Section 45. Private Action. – Any person who suffers direct injury by reason of any violation of
this Act may institute a separate and independent civil action after the Commission has
completed the preliminary inquiry provided under Section 31.

CHAPTER VIII OTHER PROVISIONS

Section 46. Statute of Limitations. — Any action arising from a violation of any provision of
this Act shall be forever barred unless commenced within five (5) years from:
 For criminal actions, the time the violation is discovered by the offended party, the
authorities, or their agents; and
 For administrative and civil actions, the time the cause of action accrues.

Section 47. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary

Injunctions and Preliminary Mandatory Injunctions. — Except for the Court of Appeals and the
Supreme Court, no other court shall issue any temporary restraining order, preliminary
injunction or preliminary mandatory injunction against the Commission in the exercise of its
duties or functions: Provided, That, this prohibition shall apply in all cases, disputes or
controversies instituted by a private party, including, but not limited to, cases filed by entities
or those claiming to have rights through such entities: Provided, however,  That, this
prohibition shall not apply when the matter is of extreme urgency involving a constitutional
issue, such that the non-issuance of a temporary restraining order will result in grave injustice
and irreparable injury to the public: Provided, further, That, the applicant shall file a bond, in
an amount to be fixed by the Court, but in no case shall it exceed twenty percent (20%) of the
imposable fines provided for under Chapter VI, Section 29 of this Act: Provided, finally, That in
the event that the court finally decides that the applicant was not entitled to the relief applied
for, the bond shall accrue in favor of the Commission.
Any temporary restraining order, preliminary injunction or preliminary mandatory injunction
issued in violation of this section is void and of no force and effect. Any judge who violates
this section shall be penalized by suspension of at least one (1) year without pay in addition
to other criminal, civil or administrative penalties.

Section 48. Trade Associations. – Nothing contained in this Act shall be construed to prohibit
the existence and operation of trade associations organized to promote quality standards
and safety issues: Provided, That, these associations shall not in any way be used to justify
any violation of this Act: Provided, however, That it shall not be illegal to use the association
as a forum to discuss or promote quality standards, efficiency, safety, security, productivity,
competitiveness and other matters of common interest involving the industry: Provided,
further, That such is done without any anti-competitive intent or effect.

Section 49. Congressional Oversight Committee. – To oversee the implementation of this Act,

there shall be created a Congressional Oversight Committee on Competition (COCC) to be
composed of the Chairpersons of the Senate Committees on Trade and Commerce, Economic
Affairs, and Finance, the Chairpersons of the House of Representatives Committees on
Economic Affairs, Trade and Industry, and Appropriations and two (2) members each from the
Senate and the House of Representatives who shall be designated by the Senate President
and the Speaker of the House of Representatives: Provided, That one (1) of the two (2)
Senators and one (1) of the two (2) House Members shall be nominated by the respective
Minority Leaders of the Senate and the House of Representatives. The Congressional
Oversight Committee shall be jointly chaired by the Chairpersons of the Senate Committee on
Trade and Commerce and the House of Representatives Committee on Economic Affairs. The
Vice Chairperson of the Congressional Oversight Committee shall be jointly held by the
Chairpersons of the Senate Committee on Economic Affairs and the House of Representatives
Committee on Trade and Industry.

The Secretariat of the COCC shall be drawn from the existing personnel of the Senate and
House of Representatives committees comprising the Congressional Oversight Committee.

CHAPTER IX FINAL PROVISIONS

Section 50. Implementing Rules and Regulations. — Within one hundred eighty (180) days
from the effectivity of this Act, the Commission, in consultation with the DOJ-OFC and
concerned sector regulators shall promulgate the necessary implementing rules and
regulations for the implementation of this Act: Provided, That, the Commission may revise
such implementing rules and regulations as it deems necessary: Provided, however,  That such
revised implementing rules and regulations shall only take effect fifteen (15) days following
its publication in two (2) newspapers of general circulation.

Section 51. Appropriations and Use of Fees, Charges and Penalties. – The initial budgetary
requirements of the Commission of three hundred million pesos (P300,000,000.00) is hereby
appropriated.
All fees, fines, penalties collected by the Commission shall not be retained by the
Commission, but will be remitted to the National Treasury and shall accrue to the general
funds.

Such funds necessary for the continuous and effective operation of the Commission shall be
included in the annual General Appropriations Act.

Section 52. Transparency Clause. — Final decisions, orders and rulings of the Commission
shall be published on the official website subject to Section 34 of this Act.

Records of public proceedings shall be made available to the public subject to Section 34 of
this Act.

Section 53. Transitional Clause. — In order to allow affected parties time to renegotiate

agreements or restructure their business to comply with the provisions of this Act, an existing
business structure, conduct, practice or any act that may be in violation of this Act shall be
subject to the administrative, civil and criminal penalties prescribed herein only if it is not
cured or is continuing upon the expiration of two (2) years after the effectivity of this
Act: Provided, That this section shall not apply to administrative, civil and criminal
proceedings against anti-competitive agreement or conduct, abuse of dominant position,
and anti-competitive mergers and acquisitions, initiated prior to the entry into force of this
Act: Provided, further, That during the said two (2)-year period, the government shall
undertake an advocacy program to inform the general public of the provisions of this Act.

Section 54. Separability Clause. – If any clause, sentence, section or part of this Act shall be
adjudged by a court of competent jurisdiction to be invalid, such judgment shall not affect,
impair or invalidate the remainder of this Act, but shall be confined in its operation to the
clause, sentence, paragraph, section, or part thereof directly involved in the controversy.

Section 55. Repealing Clause. – The following laws, and all other laws, decrees, executive
orders and regulations, or part or parts thereof inconsistent with any provision of this Act, are
hereby repealed, amended or otherwise modified accordingly:

(a) Article 186 of Act No. 3815, otherwise known as the Revised Penal Code: Provided, That
violations of Article 186 of the Revised Penal Code committed before the effectivity of this Act
may continue to be prosecuted unless the same have been barred by prescription, and
subject to the procedure under Section 31 of this Act;

(b) Section 4 of Commonwealth Act No. 138;

(c) Section 43(u) on Functions of the ERC of Republic Act No. 9136, entitled "An Act Ordaining
Reforms in the Electric Power Industry, Amending for the Purpose Certain Laws and for Other
Purposes", otherwise known as the "Electric Power Industry Reform Act of 2001", insofar as
the provision thereof is inconsistent with this Act;

(d) Section 24 on Illegal Acts of Price Manipulation and Section 25 on Penalty for Illegal Acts of
Price Manipulation of Republic Act No. 9502, entitled "An Act Providing for Cheaper and
Quality Medicines, Amending for the Purpose Republic Act No. 8293 or the Intellectual
Property Code, Republic Act No. 6675 or the Generics Act of 1988, and Republic Act No. 5921
or the Pharmacy Law, and for Other Purposes", otherwise known as the "Universally
Accessible Cheaper and Quality Medicines Act of 2008". insofar as the provisions thereof are
inconsistent with this Act; and

(e) Executive Order No. 45, Series of 2011, Designating the Department of Justice as the
Competition Authority, Department of Justice Circular 005 Series of 2015, and other related
issuances, insofar as they are inconsistent with the provisions of this Act.

Section 56. Effectivity Clause. – This Act shall take effect fifteen (15) days following its
publication in the Official Gazette or at least two (2) national newspapers of general
circulation. Notwithstanding any provision herein, this Act shall have no retroactive effect.