Republic of the Philippines
House of Representatives
Quezon City
Thirteenth Congress

First Regular Session

HOUSE BILL NO. 127

EXPLANATORY NOTE

For better or for worse, the world is becoming a smaller and less safe place for Philippine
businesses. While many businesses will respond to these greater challenges and prosper, some will
find themselves with shrinking markets, increased debt, and difficult choices. The various
stakeholders in a distressed company face tough choices too. While the creditors, workers, and
shareholders want the company to thrive, they also have their own self-interest in mind. Creditors
want their loans repaid. Workers want to maintain workforce levels. Shareholders want to avoid
dilution of ownership

The responsibility for resolving these conflicts while trying to save an ailing business has
fallen on the Securities and Exchange Commission (SEC). The legislative base on which SEC has
adjudicated these cases is the Insolvency Law, which passed in 1909, and the suspension of payments
and rehabilitation provisions in Presidential Decree 902-A. The Insolvency Law is sorely out-dated
and P.D. 902-A is skeletal and confusingly written.

While SEC has recently adopted rules for governing petitions for suspension of payment and
rehabilitation, it nevertheless has remained hampered by this inadequate legislative base

Further, and perhaps of most immediate concern, the recently passed Securities Regulation
Code (Act 8799) will transfer SEC's quasi-judicial jurisdiction over suspension of payments cases to
the Regional Trial Courts. These courts, lacking a set of procedural rules to govern these cases, may
have no choice but to apply the antiquated procedures of the Insolvency Law. This would radically
change the rules of the game for companies that need the relief offered by rehabilitation and
suspension of payments.

In short, the Philippine has long needed to modernize and clarify its rules for rehabilitation and
insolvency. This need has now become urgent with transfer of SEC's quasi-judicial jurisdiction over
suspension payments and rehabilitation cases to the Regional Trial Courts,

The attached bill entitled the Corporate Recovery Act, or the CRA, represents a comprehensive
approach to the complex problems faced by enterprises when they, for whatever reason, can no longer
pay their debts as they come due. It combines the creation substantive rights with relatively detailed



procedural guidelines that move cases through court-supervised proceedings quickly. It emphasizes
the survival of the enterprise while at the same time keeping paramount the rights of creditors with
duly registered liens against the enterprise's assets

The CRA clarifies the rights of debtors and creditors to initiate formal debt relief proceedings.
A financially distressed enterprise may petition the court if it cannot pay its debts as they are coming
due, regardless if it is insolvent. By contrast, PD. 902-A allows SEC to take jurisdiction only when
the distressed enterprise's assets exceed its liabilities. This has often led to time consuming litigation
over whether the debtor is solvent or not at the onset of the proceedings. In the meantime, the debtor
languishes. The CRA avoids this problem by allowing enterprises in the door regardless of their
solvency or insolvency.

Once a case begins, the CRA offers four different means of relief: Pre-Negotiated
Rehabilitation, Fast Track Rehabilitation, Court-Supervised Rehabilitation, and  Dissolution-
Liquidation.

Pre-Negotiated Rehabilitation

In the wake of the Asian crisis, banks have been diligently working with debtors to restructure
loans whose payment terms are no longer practical. Numeraus such agreements have been reached
over the past several years. Two obstacles, however, stand in the way of a successful "work out". The
first could be called the "maverick creditor problem" (where one creditor seeks to lay claim on the
debtor's assets while others negotiate). The other is the "free-riding creditor problem” (where a
creditor réfuses to compromise knowing that the other creditors will). Both problems arise often.
They undermine the trust and patience needed to collectively restructure an enterprise's debts.

Pre-Negotiated Rehabilitation under CRA solves these problems. It allows a debtor that has
worked out a rehabilitation plan with its creditors to go to court for official approval. While the plan
awaits approval (expected time would be several weeks to hear technical objections, etc.), the claims
and lawsuits of creditors, such as that of the maverick creditor mentioned above, are suspended.
When the court approves that plan, all the creditors are bound by it, even the minority creditors who
were trying to free ride on the good faith negotiations of the other creditors

This remedy would be open to any enterprise that can develop a rehabilitation plan that is
supported by a majority of its creditors. The experience of other countries, as well as some limited
experience in the Philippines indicates that it is the most efficient and likely-to-succeed route to
rehabilitation. It is thus one of the mainstays of the proposed legislation.

Fast-Track Rehabilitation

But what happens if the debtor cannot develop a pre-negotiated rehabilitation plan? The usual
result has been for the debtor to petition SEC to initiate suspension of payments or rehabilitation
proceedings. While various SEC cases involving large industrial companies are moving forward, few
would deny that it has been a grueling experience and that success is not necessarily assured

The challenge of the traditional rehabilitation approach is that it tries to do two things at the
same time: (1) to figure out how to fix the debtor's business, and (2) to determine who gets what out
of the proceedings. This one-two combination is the reason why many rehabilitation fail. The parties
to the proceeding, seeking to minimize their losses, have more than the long-term interest of the



enterprise in mind, The result is strategic bargaining, strategic lawsuits, and endless proceedings.
And time, unfortunately, is the number one enemy of a successfull outcome.

Fast-Track Rehabilitation under the proposed legislation stems from the assumption that the
persons with the best incentives to fix an enterprise are owners with long-term outlook, These
individuals will gain or lose depending on the ultimate outcome of the rehabilitation. To get to this
point, Fast-Track Rehabilitation:

© creates anew, debt-free enterprise based on the assets of the debtor;

transfers the shares of the new enterprise to the debtor in exchange for the debtor's assets;
* allows for the auctioning of the shares of the new enterprise with an eye toward
maximizing revenues from the sale;

* gives shareholders and creditors of the debtor various preferred rights in bidding for the
shares of the new enterprise if they so choose:

* allocates the proceeds from the share sales to creditors and shareholders of the debtor
according to pre-established priorities

Fast-Track Rehabilitation keeps the enterprise together (albeit under a new corporate entity)
while significantly reducing its debt in a very short period of time. While there are no guarantees of
success, the enterprise, under new corporate trappings and management, has a far better chance of
rehabilitating itself under these circumstances rather than trying to do it through endless rehabilitation
proceedings. Workers benefit from this. So do the high priority creditors.

The, proposed legislation essentially makes Fast-Track Rehabilitation mandatory if the
enterprise has not already petitioned for Pre-Negotiated Rehabilitation

Court-Supervised Rehabilitation

As experienced in the Philippines and elsewhere teaches, traditional rehabilitation, even under
the most progressive legislation, is drawn out process with few guarantees of success. Nonetheless,
the CRA does provide it as a form of relief It is only available. however, to non-stock corporations,
or in instances where the secured creditors submit a motion to the court to convert the proceedings
from Fast-Track Rehabilitation.

The CRA allows for the drafting of a rehabilitation plan while claims of creditors are
suspended. The creditors then decide to support the plan or not. If the majority ofa particular class of
creditors opposes the plan, the case is converted to liquidation

Court-Supervised Rehabilitation under CRA differs from current practice in several respects.
The CRA puts the onus on the shareholders (through the debtor's board of directors) in drafting and
selling a rehabilitation plan. The shareholders have the most to win or lose depending on whether a
plan is approved. They should be the ones to take the first crack at the plan. Further, while the
shareholders can hire experts to help in formulating the plan, the cost of hiring such experts are borne
by the shareholders rather than the creditors.



This is contrast with current practice where the interim rehabilitation negotiates and balances
the competing demands of the creditors and the shareholders. While some individuals have been able
to rise to this challenge, even they concede it is very difficult to wear several hats at once. It is better
to split the job into two roles: the court-appointed administrator (called the "conservator") conserves
the assets (for the general benefit of all creditors) while the shareholders and their rehabilitation
planner make their pitch for adjusting creditor's claims, minimizing shareholder dilution, and saving
the enterprise.

Dissolution-Liquidation

The proposed legislation makes Dissolution-Liquidation the relief of last resort. It will most
often be used when other forms of relief fail or when a debtor seeks to liquidate itself when it has
insufficient assets to cover its debts.

The liquidation proceedings under the CRA are rather straightforward. They closely resemble
the approach currently adopted by SEC. The major change is the modification of the ranking and
prioritization of creditors currently found in the Civil Code. Several practitioners and commentators
have argued that the Civil Code rankings massively complicate both liquidations and rehabilitations.

Under the CRA, there are far fewer classes of creditors. In order to encourage sound and safe
lending, registered lien holders would have a clear priority

Conclusion

The CRA presents several options to a distressed enterprise. First, it gives it the chance to
negotiate a rehabilitation plan agreed to by the majority of its creditors. Upon court approval, the plan
would bind all creditors, even the dissenting ones

If this effort fails, and an enterprise goes into formal rehabilitation proceedings, the CRA.
focuses on restructuring the claims against the enterprise while getting it out of debt quickly. The task
of improving the enterprise's operations falls upon the new owners.

Traditional Court-Supervised Rehabilitation is available under the CRA, but only under limited
circumstances, due to its inherent delay, cost, and risk. Finally, traditional dissolution and liquidation
available, but only when a debtor voluntarily consents to it or when other rehabilitation approaches
fail.

The CRA thus is both an evolution and an innovation in terms of current practice. It
emphasizes workable solutions and de-emphasizes court-led approaches. Above all, it emphasizes the
preservation of an enterprise while allowing its allowing its ownership to be restructured and its
creditors to be treated fairly. In this sense, the CRA is pro-worker, pro-market, and pro-creditor at the
same time.

From the foregoing, approval of this bill is earnestly sought.

JOEWVSARTE SALCEDA


The Corporate Recovery Act
Table of Contents

CHAPTER 1— GENERAL PROVISIONS

SHCA Tile 1

SUC 2 Declaration of Paticy

SEC. 3 Definitions of Tera t

SECA. vohuslons a

SEC. Cour 3

SEC. 6. Power of Court 3

SEC. 7. Procedural Rules 3

SEC Substantive nd Procedural Consolidation 3

SEC 9. Required Service on Parties a

SEC. 10, Collective Decision-Making of Creditors and Slurcholdkas 4
ca editors" Representatives 4

iability of Dievtoes and Officers 4

CHAPTER II ~ INITIATION OF PROCEEDING:

SUB-CHAPTER J. VOLUNTARY PROCEEDINGS, . cn nena . 4
SFC.13.—Patitiono Initiate Voluntary Proceedings 4

SEC. 14 tacts the Petition 4

SEC.1S. Comumancament of Proceedings 3

SUB-CHAPEER 2, INVODINTARY PROCEEDIN 6
SEC.16, ——Cireumdnnces Nevessary to Initiate nvoluntry Proecedings.

SEC.17. Petition to fitiate Ivolinary Proceedings 6

SEC.18, Preliminary Proceudings om the Saliciensy of a Petition 6

SEC.19, asi for Initiating Invohintsry Paoeeedings| 6

CHAPTER III -ADMINISTRATION OF THE PROCEEDING!

Sun-Cirarrer 1, Thr Drntror UNDER PRocErDINGs - 6
SEC.20, fife of Commenccment of Pnceeings 6

SEC.21. Exception to rtubiton of Actions apps the Dabo wih egad toSex ?

SEC.22. Nowe Apliabilisof Suspension Ord to pats ae Specialized ows 7

SEC.21 Appleton of Suspension to Govsernent Financial Isiutione *

SEC 24 Onler Commencing Proceinge *

SEC.25. Property othe Debor unde the Cont we Maragenint of Thid Parties &

SEC.26. —Unenuhored Property Sold or oherwise Transtered dering the Proceed x

SEC 27, Foreclosures on Encumbered Asset ofthe Delior

SEC2R Sale or Disponl of Encumbsted Prop of Proper of hrs in Trt ve Others ns Ay the Peer 9
SLC.29. Treatment of Rapidly Depress >

SHC.30, ——_Rescsson of Pe-Conenencentet Transactions 1

SEC.31. —Pow-Commencenent Interest v0

SEC 32 PostCommensement Codi w

SEC 33. Trsstment of Emplovece "

SECM. Trenton of ansorsandthst Count-Paticein Conerast 11

SECIS. Oppoetnity for CoterPaety in Contac o Cate aller occving Soli of Conant hy the Comservatoy 11
SUB-CHAPTER 2, DETRRAINATION OF CLAIMS 0. sence
SEC M6. Datersnaton of Ta Liahitos "

SEC.37. Fatah of Preliminary Registry of Clans 0

SEC 38 Procedure fr Supplementing the Pstiunary Reais of Cains 12

SPC.39. _Proceae foe Deering Disputed and (ndpted 2

40. Procedure for Adjudheating Disputed. Challenged art Uiligidated Claims 2
SPC. 41 Procedure for Appealing Devisions of Conservator regarding Disputed. Challenges and Uiguidated Claims 19
SEC 42 Estoppel of Secured Creditors Rewarding Overvaluation of thee Enctivabeted Property. 1

SEC.43. Estimation of Claims fr Purposes of Voting or

rvingona Craters Commitee 13



SUB-CHAPTER 3, THE CONSERVATOR AND THE UNSECURED CREDITORS’ COMMITTEE,

44
45
C46
SEC. 47
SEC. AR
SEC. 49,
SEC 30,
SEC. 51
SEC. 32,
SEC. 53,
SEC. 54.
SEC. 83.
SEC. 56.

CHAPTER IV --REMEDIES

SUL-CILAPTER 1, FAST-TRACK REITARIITY

She. $7.
SEC. 5
SEC. 59.
SHC. 60
SEC. 61
SEC. 62
SEC 63
SEC, 64
SEC. 65,
SEC. 66,
SEC. 67,
SEC. 68,
SEC 69,
SEC.70,

Who may serve ws a Conservator 1
Confit of Interest 1

Appointment of a Conservator “4

Rights and Duties ofa Conservator 4

Daily to Report on Steps taken to Protest the Valuc of Encumbered Property and Papert oF Others
niyo act as Serotes Agent for Parties making an Appearance irs

Suspension of Cases in ber Coane s

econo of Poding Pecetngat Papert Regtaton es 1s

Removal of Conservator 1s

Employment of Professionals 1s

‘Compensation ard Terms of Servi 6
‘General Unsecured Creditors Commitise 16
Rights ofthe Gencral Tnsoeured Creditors’ Committee 16

Default Relief 6
Presoutaton and Approval of Plan We

Establishment and Capitalization of a Sbsiiary af the 7
Non-Resuirement of Approval of Sharcholders Ir

lxaiance of Bonds 7

(Offer to Cutrant Shareholders. 17

Aetion of Shae ®

Crditoe Claim Ceri 1%

Transferring Creditor Claim Ceviicates 1X

{Use oF Creditor Claim Cenitietes in idaing 1s

Valuation of Creditor Claim Centiicates sbmsted in Riding 18

Effect of Failure to meet Reserve rice or comtoling lock of Shares 18
Calling of Sharcholders’ Mecting 19

Dissolution of the Debtor 19

SuB-Ciraltrer 2. CouRT-SureRVIskD REHAMILETATION,

‘SHC. TI
SEC. 72
SEC. 73.
SEC. 74.
SEC. 75,
SEC. 16,
SPC. 71.
SEC. 78
SEC 9,
SEC. 80,
SEC. &

SEC. 82.
SEC. Ri
SEC. Ra
SEC. 88
SEC. 86,
SEC 87,

Who is Eligible
Initial Meeting of Debtor and Creditors 19
Preparation of a Rehabilitation Play 6
Compensation ofa Rehabilitation Planner 19
fee of Failure to Submit Plan to Conservator within the Rexired Perind 20)

Minimal Contents oF a Plan »”
Disclosure fo Creditors nd Sharsholders 201
Submission of Plan for Approval 2

Conversion to Figuidation Proceedings upon Rejetis
Minimal Standards for Confirmation

‘Approval of Plan notwithstanding Dispites
Effect of Approcat

Lisl of General Parner of «Pavers fr Cpa Planes ud apron Pan
“Treatment of Income derived from Forgivnese of Delt

fiat of Fature to Apes 2

Revocation of Plan on Grows of Fraud 22

Discharge ofthe Conservator n

tthe Plan a

2

‘SUR-CHAPTER 3. PRE-NEGOTLATED REJLABULTEATION

SEC. RR
SEC. 89.
SEC. 90
SUC. 91.
SEC. 92,
SFC.93,
SPC. 94
SEC. 95

Requiremcmts n
Procedures 23
Exemption from Determination of Claims B
Inspection and Review of Rehahibtation Plan 2B
Approval by the Court 2
Objection 2
Tearing Objet 24
Alfec of Approval 2

SUB-CHAPTER 4, DISSOLUTION AND Liguipation,

SFC. 96
HC. 97,
SEC 98
SEC. 99,
SEC. 100,

Requirements fv tritiation 24

ry

specific Rights and Dutce of 8 Tiuidator 24
Compensation ot the higuidator 2

2

13

19

22

24


Requirements ofa iguidaton Plan as
Hearing and Approval of Pan 26
nition of Encumbered Property held by the Debtor 2%
Role for Pascal of Clams Sscurcd hy Fncuntsted Property 26
ols for Payment of Unscented Claims 27
Priority of Unsected Claim 27
Contingeney for Disputed Claims 2
ubonission ant Review of Final Report af Li
‘Order Remoting the Detoe fhon the List of Register Fits athe Scotts an
‘Tammvination of Proceedings 2

change Commission — 28

CHAPTER V — PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITATION
PROCEEDINGS.

SUB-CHAPTER 5, BANKS AND OTHER FINANCIAL INSTITUTIONS UNDER RECHIVERSHIP PURSUANE'TO A STAT
OR STATE*MAND ATED INSURANCE SYSTEM

SEC.111, Provision of sistance 2
SEC.112. Applicaton of RefevantLegisation 2%
SUB-CHAPTER 6, FORFIGN REGISTERED COoRPOR \TIONS WITH ASSFES INTHE PHILIPPINES, 228
SEC.113, Initiation of Proovedings 2
SEC.114, Provision of Relief 28
SEC. Factors determining Flite to Relic 28

CHAPTER VI
SHC. 116

MISCELANEOUS PROVISIONS .

Ammending Clauss »
19. HRectwe Date »
SEC. 120. Applicaton to Pending insolvency, Suspsnsion of Payments and Rehabil

fiom Cnses 29



Republic of the Philippines
House of Representatives
Quezon City

Thirteenth

gress

First Regular Session

House Bill No. 127

Introduced by Representative JOEY SARTE SALCEDA

AN ACT
PROVIDING FOR THE RECOVERY OF FINANCIALLY DISTRESSED ENTERPRISES
AND THE RESOLUTION OF THEIR INDEBTEDNESS

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

CHAPTER I -- GENERAL PROVISIONS

SECTION 1. Title -- This Act shal! be known as the "Corporate Recovery Act."

SEC. 2. Declaration of Policy —- It shall be the policy of the State to encourage a juridical
debtor and its creditors to collectively and realistically resolve and adjust competing ctaims and
property rights under the supervision and approval of a court when the debtor can no longer pay its
debts as they come due or when the debtor has become insolvent. Such resolutions shall respect the
differing priorities amongst claims, and where possible, attempt to maintain the debtor's operations,
even though it may come under different ownership or a different corporate entity as part of the
resolution. When such resolutions are not feasible, it is in the interest of the State to allow a speedy
liquidation of the juridical debtor's assets and the payoff of its debts to the extent possible

SEC. 3. Definitions of Terms As used in this Act the term

(a) “Administrative expense” shall refer those expenses incurred after commencement of
proceedings that are in the ordinary course of business or that are authorized or mandated under this
Act.

(b) “Claim” shall refer to a right to payment or a right to an equitable remedy that results in
payment, whether or not such right is the subject of a judgment. or is liquidated, unliquidated, fixed,

contingent, matured, unmatured. disputed or undisputed


() “Commencement of proceedings” shall refer to the date on which the Court issued the
order commencing the proceedings.

(d) “Creditor” shall refer to a juridical entity or physical person holding a claim against the
debtor.

(e) “Debtor” shall refer to a juridical entity organized in the Philippines unless specifically
excluded by a provision in this Act

(8) “Encumbered property” shall refer to property securing the payment of a claim, regardless
of whether the property is classified as movable or immovable or whether the lien against the property

is statutory or consensual

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

(h) “Individual notice to creditor and shareholders” shall refer to notification by the
conservator to creditors and shareholders who have filed a notice of appearance in accordance with
this Act.

(i) “Insider” shall refer to a juridical entity’s director, officer, or other person in control of the
juridical entity; a partner of the juridical entity in cases when the juridical entity is a partnership, a
shareholder of the juridical entity holding more than ten percent of the shares thereof, or those persons
related to these persons by consanguinity or affinity within the fourth civil degree; a partnership in
which the juridical emtity is a general partner, or a juridical entity that is an affiliate of the juridical
entity in question

() “Involuntary proceedings” shall refer to proceedings initiated by creditors

(k) “Proceedings” shall refer to judicial proceedings commenced by the Court's acceptance of
a petition filed under this Act.

(I) “Publication notice” shall refer to notice through publication in a newspaper of general
circulation for two consecutive weeks

(m) “Secured creditor” shall refer to a creditor having a claim for repayment of a debt
secured by a pledge when the creditor continues to possess the property, or secured by a statutory lien
or a mortgage registered with the appropriate registry of property when the property is in the
possession of the debtor.

(n) “Shareholder” shall refer, in addition to a holder of shares of a corporation, to a member of
a non-stock corporation or association, or a partner in a partnership

(0) “Voluntary proceedings” shall refer to proceedings initiated by the debtor.



SEC. 4. Exclusions -- No bank, licensed securities market participant, insurance company, or
national and or government unit may be a debtor under this Act unless a provision herein provides for
such application.

For purposes of this Section:

(a) “Bank” shall refer to any bank or quasi-bank that is potentially or actually subject to
conservatorship, receivership, or liquidation proceedings under the New Central Bank Act or
successor legislation.

(b) “Insurance Company” shall refer to those companies that are potentially or actually subject
to insolvency proceedings under the Insurance Code.

(c) “Licensed securities market participant” shall refer to a licensed exchange, broker, dealer,
underwriter, transfer agent, salesman or other persons transacting securities who is subject to
mandatory investor protection fund regulations.

SEC. 5. Court -- The Court or Courts for hearing and resolving cases brought under this Act
shall be designated by the Supreme Court

SEC. 6. Power of Court — Upon motion of motu proprio the Court may issue any order or
judgment that is necessary to carry out the provisions in this Act. Parties that are granted relief under
such orders shall be entitled to immediate execution thereof unless such orders are restrained or
‘enjoined by the Court of Appeals or the Supreme Court.

SEC. 7. Procedural Rules The Supreme Court may promulgate rules of practice, pleading,
and procedure to substitute for or adopt any provisions in this Act that it determines to be procedural
in nature: Provided, however, That such rules shall not restrict, enlarge, or modify any substantive
rights established by this Act.

SEC. 8. Substantive and Procedural Consolidation -- Each juridical entity shall be considered

in separate cases under the proceedings in this Act, ‘The assets and liabi

ties of a debtor may not be
commingled or aggregated with those of another under these proceedings: Provided, however, That
the Court may allow for procedural consolidation of cases to allow for a more efficient and speedy
disposition of proceedings under this Act

SEC. 9. Required Service on Parties ~- Service of pleadings and any other papers filed with
the Court shall be deemed served on the creditors upon the service of such on the conservator or
liquidator that is appointed pursuant to this Act. Service upon shareholders shall be deemed complete
upon service on the official authorized to accept service for the debtor: Provided, however, That a

party filing a pleading concerning a particular property interest of the debtor or a claim against the



debtor shall serve, in addition to the conservator or liquidator, the parties making the claim or having a
particular ownership or security interest in the property that is the subject of the dispute.

The Court may establish reasonable requirements for distribution of documents in electronic
form or otherwise to the creditors and shareholders through the conservator or liquidator.

SEC. 10. Collective Decision-Making of Creditors and Shareholders — Avy provision in this
‘Act that refers to approval, rejection, or other collective action by the creditors (or to a class or sub-
group of a class thereof) shall refer to the results of a process by which at least half of the creditors (or
a class or a sub-group of a class thereof) have manifested such a decision either through affidavits or
the signed minutes of a meeting. The means of counting creditors for such decisions shall be solely by
amount of claim unless specifically stated otherwise in this Act. Decisions of shareholders shall be
made by majority vote according to the relevant provisions of the Corporation Code or Civil Code
provisions on partnership that are not inconsistent with this Act.

SEC. 11. Creditors’ Represematives -- 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 conservator or liquidator.

SEC. 12. Liability of Directors and Officers » Directors and officers of a debtor that distributes
proceeds from the liquidation of a debtor under proceedings other than those described under this Act

when the debtor’s funds are insuftici

nt to repay all creditors’ claims in full shall be fiable for any

claims of creditors that remain unpaid after the distribution,

CHAPTER II -- INITIATION OF PROCEEDINGS
Sub-Chapter 1. Voluntary Proceedings

SEC. 13. Petition to Initiate Volunt

Proceedings ~ A debtor that foresees the inability of
paying its obligations as they come due, or that believes itself to be insolvent may initiate voluntary
proceedings under this Act by filing a petition with the Court. In order to establish an entitlement to
relief under this Act, the debtor's petition shall

(a) identify the debtor, its principle activities. and its addresses:

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

(c) specifically state the relief sought pursuant to Chapter IV of this Act.

(d) include the attachments required by this Act

SEC. 14. Attachmems to the Petition ~ The folowing documents shall be filed with the
petition:



(a) a verified resolution by the appropriate decision-making body of the debtor authorizing the
filing of the petition and the initiation of the case,

(b) the audited annual financial statements of the debtor from the three years prior to the filing
of the petition;

(©) the interim financial statement as of the end of the month prior to the filing of the petition,

(d) a schedule of liabilities indicating the name and address of each creditor, the amount of
each claim as to principal, interest or penalties due as of the date of filing, and the status of the claim
under the provisions on priorities of claims under this Act;

(©) an inventory of assets stating, with reasonable specificity. the nature of each asset, the
location and condition thereof, the book value or estimated market value thereof, any applicable
ownership registration data, the encumbrances or other claims thereon, and the identities and addresses
of the lien holders or other parties with interests therein. ‘The inventory shall include a schedule of
accounts receivable, indicating the nature and amount of each account, the persons from whom due,
and the dates of maturity;

(f) copies of certificates of title to the debtor's property:

(g) a schedule of payments and dispositions of assets which the debtor executed within a
period of one hundred and eighty (180) days prior to the filing of the petition if the counter-party is an
insider of the debtor and ninety (90) days prior to the filing if the counter-party is not an insider of the
debtor;

(h) a detailed schedule of the cash flow of the debtor for the ninety (90) day period prior to the
filing of the petition;

(i) a detailed projection of cash flows of the debtor for at least ninety (90) days fiom the date
that the petition is filed, taking into account the expenses likely to be incurred in connection with
proceedings under this Act.

()) an affidavit of a responsible officer of the debtor verifying the (ruth of the matters alleged
in the petition and the accuracy of the information contained in the attachments:

(k) other documents that may be required under this Act depending on the form of relief
requested,

SEC. 15. Commencement of Proceedings ~ Proceedings shall commence upon the Court's
issuance of an order finding the petition and attachments to be reasonably sufficient in form and
substance, Such an order shall include the elements set forth in Section 24 of this Act. It shall also,
where applicable, require that the debtor provide documents not included with its petition within a

reasonable time period



Sub-Chapter 2. Involuntary Proceedings

SEC. 16. Circumstances Necessary to Initiate nvolunary Proceedings — A creditor shall be
entitled to initiate involuntary proceedings against a debtor if

(a) he and at least two other creditors of the debtor have undisputed or adjudicated claims, the

required payments on which have remained unpaid for more than sixty (60) days; or

(b) a creditor has initiated foreclosure proceedings against the debtor that will prevent the
debtor from paying its debts as they come due or will render it insolvent
SEC. 17. Petition to Initiate Involuntary Proceedings In order to establish an entitlement to

relief under this Act, the creditor's petition shail:

{a) identify the debtor, its principal activities, and its addres

(b) state the circumstances sufficient to support a petition to initiate involuntary proceedings;

(c) specifically state the relief sought under Chapter IV of this Act:

SEC. 18. Preliminary Proceedings on the Sufficiency of a Petition = The procedures for
service of summons on the debtor as a respondent, pretiminary remedies, responsive pleadings, and
determination of the existence of a viable cause of action under this sub-chapter shall be regulated by
the Rules of Court.

SEC, 19, Basis for Initiating Involuntary Proceedings ~

1¢ Court shall initiate involuntary
proceedings upon determining that the debtor is or will be unable to meets its debts as they come due
or has or will imminently become insolvent. Upon establishment of the condition in sub-section (a) of
Section 16 of this Act, there shall be a disputable presumption that the debtor cannot meet its debts as
they come due. The order containing the Court's finding shall also include the elements set forth in
Section 24 of this Act

CHAPTER HI ADMINISTRATION OF THE PROCEEDINGS
Sub-Chapter 1, The Debtor Under Proceedings

SEC. 20. Effect of Commencement of Proceedings -- The Court's issuance of an order

commencing proceedings (cither voluntary or involuntary) shall
(a) vest in the conservator the right to manage and control the debtor and to exercise all rights

of the debtor's board of directors and management to manage the debtor,

vest the conservator with the right to review and obtain all records to which the debtor's management

had access, including bank accounts of the debtor:

6



(b) impose upon the debtor's management and directors the legal obligation to provide the
conservator with access to and possession of all records to which the debtor's management and
directors had access,

(c) suspend all legal proceedings against the debtor in other courts on grounds of lis pendens,

(d) suspend all actions to enforce any judgements against the debtor;

(e) render null and void the results of any extra-judicial activity to seize property, sell
encumbered property, or otherwise attempt to collect on or enforce a claim against the debtor after the
commencement of proceedings unless otherwise allowed in this Act;

(Q) render null and void any setoff after commencement of proceedings of any debt owed to
the debtor by any of the debtor's creditors:

(g) render null and void the perfection of any lien against the debtor's property after the
commencement of proceedings:

(h) 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.

‘The Court may order, through its injunctive and contempt powers, the transfer of documents,
return of property, the annotation of titles and other relevant documents, or provide for other
appropriate relief to address any violations of this Section or to protect the interests of creditors and
shareholders.

Individuals who refuse to accede to requests for documents or property described in this,
Section shail be liable for indirect contempt of Court, as well as all resulting costs and attorneys’ fees.

SEC. 21. Exception to Prohibition of Actions against the Debtor with regard to Securities ~
The prohibition in Section 20 of this Act shall not apply to the actions of a licensed broker or dealer to
sell pledged securities of a debtor pursuant to a securities pledge or margin agreement

SEC. 22. Non-Applicabiliy of Suspension Order to Appeals and Specialized Proceedings —
The suspension order shall not apply to appeals cases filed at the Court of Appeals or the Supreme
Court prior to commencement of proceedings: Provided, That the execution of any judgment resulting
from such appeal or remand for further proceedings shall be directed to the Court

The Court may exclude from its suspension order cases pending or filed at a specialized court

or quasi-judicial agency when it determines that the court or agency is capable of resolving the claim



more quickly, fairly. and efficiently than the Court: Provided, That the execution of any judgment of

such court or agency shall be referred to the Court and shall be treated as a non-disputed claim.
SEC. 23. Application of Suspension to Government Financial Institutions — The provisions in

to government financial institutions as creditors, notwithstanding

the preceding Section shall appl
provisions in their charters to the contrary

SEC. 24. Order Commencing Proceedings — The order commencing proceedings (either
voluntary or involuntary) shall.

(a) identify the debtor, its principle activities, and its address,

(b) state the grounds for initiating the proceedings:

(c) state the relief sought under this Act and any requirements or procedures particular to the
relief sought;

(d) state the legal effects of the commencement of the proceedings;

(e) appoint a conservator, or liquidator when appropriate:

() summarize the requirements and deadlines for creditors to establish their claims against the
debtor;

{g) indicate the location(s) at which documents regarding the debtor and the proceedings under
this Act may be reviewed and copied.

The conservator shall publish the order in a newspaper of general circulation for two
consecutive weeks, the date of the first publication to be no later than five business days after issuance
of the order.

SEC. 25. Property of the Debtor under the Control or Management of Third Parties -- Third
parties possessing or controlling property of the debtor may not sell or otherwise convey it to persons
other than the debtor, unless otherwise specified by the conservator. Upon written request of the
conservator and after payment of any claims secured by possessory pledges or mechanics’ liens, such
third parties shall transfer possession or control of such to the latter: Provided, however, That the
conservator may arrange to have the third party continue to possess, manage, or dispose of property if
such an arrangement would more likely preserve and/or increase the value of the property in question
or the total value of the assets held by the debtor

SEC. 26. Unencumbered Property that may be Sokd or otherwise Transferred during the
Proceedings The Court may rescind any transfers of the debtor's unencumbered property or
encumbrances thereof by the debtor or its agents that occur after the commencement of the
proceedings and are outside the ordinary course of business: Provided, however, That the following
transactions may be implemented upon a decision of the Court. after notice and hearing

8


(a) payments to victims of quasi-delicts upon a showing that the claim of the quasi-delict is
valid and the debtor has insurance to indemnify the debtor for the payments made,

(b) sales of the debtor’s unencumbered property if such is in the interest of administering the
debtor and facilitating the preparation and implementation of a rehabilitation plan,

ute lien under Sections 28 and

(c) mortgages or pledges of property in order to provide a subst
29 of this Act;

(4) payments made to repurchase property of the debtor that is auctioned off in a judicial or
extra-judicial sale under Section 27 of this Act, or

() payments made to reclaim property of the debtor held pursuant to a possessory pledge or
mechanic’s lien.

SEC. 27. Foreclosures on Eencumbered Assets of the Debtor -- The Court, after notice and
hearing, may allow a foreclosure on encumbered property of the debtor and its sale according to
applicable Rules of Court and relevant legislation if such foreclosure is in the best interest of the
creditors and shareholders of the debtor or if such foreclosure is specifically authorized by this Act.

SEC. 28, Sale or Disposal of Encumbered Property or Property. of Others in Trust or
Otherwise held by the Debtor. No provision in this Act shall be read as to create a defense against

estafa or other criminal charges or civil claims against persons responsible for the sale or disposal of

encumbered property or property of others held by the debtor. Provided, however, that the conservator
may sell or dispose of such property if
(a) such sale or disposal is necessary for the continued operation of the debtor's business,

{b) the conservator has made arrangements to provide a substi

ie lien or ownership right that
provides an equal level of security for the counter-party’s claim or right, and

(©) the Court, after notice and hearing, has approved the sale or disposal of such property
according to the criteria in sub-sections (a) and (b) of this Section.

SEC. 29. Treatment of Rapidly Depreciating

cumbered Property. owned by the Debtor
Upon the application of a creditor whose claim is secured by movable property subject to potentially
rapid depreciation, the Court shall, after notice and hearing. order the conservator to either:

(a) allow the property to be foreclosed upon by the secured creditor,

(b) convey to the secured creditor a lien on substitute property of the debtor if such is
acceptable to the creditor and is not opposed by any senior tien halders of such property, or, if such is
not available,

(c) convey to the secured creditor a Jien on the residual finds from the sale of any encumbered
property during the proceedings



SEC. 30. Rescission of Pre-Commencement Transactions ~ Transactions that have occurred
prior to commencement of proceedings may be rescinded by the Court on grounds that they were
executed with an intent to defraud creditors if it finds evidence sufficient to show such a design by the
debtor and the third party. A disputable presumption of such design shall arise if the transaction:

(a) provides unreasonably inadequate consideration to the debtor and is executed one hundred
and eighty (180) days prior to the commencement of proceedings if the third party is an insider of the
debtor, and ninety (90) days prior to the commencement of proceedings if the third party is not an
insider of the debtor;

(b) involves the payment of a dividend to shareholders executed in violation of the Corporation
Code, the provisions in the debtor's corporate charter or by-laws, or other agreements of the debtor;

(c) involves an accelerated payment of a claim to a creditor one hundred and eighty (180) days

prior to the commencement of proceedings if the creditor is an insider of the debtor and ninety (90)
days prior to the commencement of proceeding if the creditor is not an insider of the debtor;

(d) provides security or additional security for a pre-existing debt executed one hundred and
eighty (180) days prior to the commencement of proceedings if the creditor is an insider of the debtor
and ninety (90) days prior to the commencement of proceedings if the creditor is not an insider of the
debtor. .

Provided, however, That nothing in this Section shall prohibit the Court from rescinding a
transaction on other grounds provided by relevant legislation and jurisprudence: and Provided further,
That the provisions of the Civil Code on rescission shall apply to these transactions in a suppletory
manner.

SEC. 31. Past-Commencement Interest -- Interest on claims owed by the debtor as of
commencement of proceedings shall accrue at the pre-default rates established in the debtor's
contracts: Provided, however, That secured creditors may elect instead to freeze their claims as of the
date of the commencement of proceedings and be paid a use charge based on the outstanding balance
or the value of the encumbered property (whichever is less) calculated at a rate equivalent to that paid
on 91-day government securities sold on or around the date of commencement of proceedings. A
failure by secured creditors to notify the conservator of such election within thirty (days) shall be
deemed a waiver of this right.

SEC. 32. Post-Commencement Credit -- With the concurrence of the committee of general
unsecured creditors of the debtor and the approval of the Court, the conservator may

(a) enter into credit arrangements on behalf of the debtor. the payments under which shall be
considered an administrative expense; or

10


(b) enter into credit arrangements on behalf of the debtor, secured by mortgages of its
‘unsecured property.

SEC. 33. Treatment of Employees -- The conservator may dismiss the debtor's employees from
employment. In such cases, there shall be a disputable presumption that the grounds of such
retrenchment shall be to prevent losses. Claims of separation pay for months worked prior to
commencement of proceedings shall be considered a pre-commencement claim and shall be added to

established in Sub-chapter 2 of this Chapter. Claims for salary and separation

the registry of clai

pay for work performed after commencement of proceedings shall be an administrative expense.

SEC. 34. Treatment of Lessors and other Comuer-Parties in Contract ~ Unless specifically
cancelled by a court decree prior to issuance of the order commencing proceedings, all contracts of the
debtor with creditors and other third parties shall be deemed to continue in force, regardless of pre-
commencement defaults by the debtor provided that the debtor makes payments for such services and
goods that are provided after commencement of proceedings.

Within sixty (60) days following commencement of the proceedings, the conservator shall
notify each contractual counter-party of whether the debtor is confirming or breaching the particular
contract, Contractual obligations of the debtor arising during this period. and afterwards for confirmed
contracts shall be an administrative expense, Contracts not confirmed by the required deadline shall
be considered breached. Obligations of the debtor for damages and other penalties arising as the result
of the conservator’s election to breach shall be considered a pre-commencement claim against the
debtor and shall be added to the registry of claims established in Sub-chapter 2 of this Chapter.

SEC. 35. Opportunity for Coumer-Party in Comract to Cure after receiving Notice of
Confirmation by the Conservator -- Any counter-party in a contract with the debtor shall have a
reasonable period of time to cure any breaches of its obligations to the debtor that occurred subsequent
to commencement of the proceedings upon receiving notice of the conservator’s confirmation of the
contract.

Sub-Chapter 2, Determination of Claims

SEC. 36. Determination of Tax Liabilities -- The debtor shall, as soon as reasonably possible,

fille a tax return for determination of tax liabilities as of commencement of proceedings,

SEC. 37. Establishment of a Preliminary Registry of Clauns — Within twenty days of

appointment, the conservator shall establish a preliminary registry of claims. Such registry shall state
for each claim:

(a) the name and reasonable contact details of the creditors,



(b) the amount of the claim as of the date of commencement of proceedings, if the claim is not
unliquidated;

(c) the extent to which it is secured by a Tien on the debtor's property as of the date of the
commencement of proceedings;

(d) its preference classification among those established by Sub-chapter 4 of Chapter 4 of this

Act;

(e) whether it is undisputed, disputed, contingent or unliquidated,

(f) the basis of the claim and a reference to the underlying documents supporting the claim or
the dispute thereof.

The preliminary registry of claims shall subtotal the disputed, undisputed, and contingent
claims for each preference class, including an estimate of unpaid administrative expenses that will
have accrued by the close of proceedings. Records of the claim kept in the normal course of business
by the debtor shall be prima facie evidence of an undisputed claim and will be the basis for its
inclusion in the preliminary registry of claims. Where appropriate, the conservator shall divide a
claim or claims into secured and unsecured classes depending on the estimated value of the
‘encumbered property.

Upon completion of the registry, the conservator shall make it available for public inspection
and provide publication notice to creditors and shareholders on where and when they may inspect it.

SEC. 38. Procedure for Supplememing the Preliminary Registry of Claims Any person may
file an application to the conservator to recognize a claim against the debtor within twenty days after
the second date of publication notice that the preliminary registry of claims has become available.

SEC. 39. Procedure for Determining Disputed and Undisputed Claims -- Within thirty days
from the expiration date for supplementing the preliminary registry of claims, creditors, shareholders
and other interested parties may submit a challenge of a claim or claims to the Court, serving a
certified copy on the conservator and the challenged creditor. Such challenge shall set forth with
reasonable specificity the basis therefor. Upon the expiration of the thirty-day challenge period, the
conservator 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 excusable neglect.

SEC. 40. Procedure for Adjudicating Disputed, Challenged and Unliquidated Claims —
Decisions of the conservator regarding a claim may be appealed to the Court. In such disputes, the

parties shall be the conservator and the disputing creditor, or the debtor (in cases where a claim is



alleged to be wrongfully allowed): Provided, however, That any creditor or other party who might be
prejudiced by the allowance or disallowance of the claim may intervene in the proceeding

SEC. 41. Procedure for Appealing Decisions of the Conservator regarding Disputed,

ions of the conservator

Challenged and Unliquidated Claims — The procedures for appealing the dec
shall be governed by applicable Rules of Court

SEC. 42. /stoppel_ of Secured Creditors: Regarding Overvalnation of their Encumbered.
Property ~- A secured creditor claiming a full or partial security shall be estopped from claiming as an
unsecured creditor the difference between the claimed and realized value of the encumbered property
if the amount realized from a sale of the encumbered property fails to cover the claimed or attributed
value thereof. Such amount shall be a subordinated claim under Section 106 of this Act.

SEC. 43. L:stimation of Claims for Purposes of Voting or Serving on a Creditors’ Committee ~
Upon request of a creditor or shareholder, the Court shall, after notice and hearing, estimate a
disputed, challenged, or unliquidated claim for determination of the creditor's rights in participating in
collective decision-making of creditors. In such disputes, the parties shall be the conservator and the
disputing creditor: Provided, however, That any creditor who might be prejudiced by the estimation

of the claim may, participate in the proceedings.

Sub-Chapter 3, The Conservator and the Unsecured Creditors’ Committee

SEC. 44, Who may serve as a Conservator -- Any individual with the following qualifications
may serve as a conservator:

(a) expertise and acumen to manage and operate a business similar in size and complexity as
that of the debtor under the circumstances called for depending on the particular relief requested;

(b) knowledge in management, finance and rehabilitation of distressed companies;

(c) general familiarity with the provisions of this Act and the rights and duties of a conservator
thereunder,

(d) absence of any criminal record or evidence of questionable moral character;

(e) willingness and ability to file a bond in such amount as may be determined by the Court.

A group of individuals who combine to meet the above qualifications, or a juridical entity with
employees that combine to meet the above qualifications may serve as a conservatorship committee or
as a conservator, respectively.

SEC. 45. Conflicts. of Interest -- No individual may serve as a conservator, perform
conservatorship functions as an employee of a conservator. or serve on a conservatorship committee if
he has a conflict of interest: Provided, however, That conflicts of interest that might compromise the
conservator’s duty to the debtor may be waived by vote of the debtor's board of directors, and

3



ise the conservator’s duties toward the creditors or

conflicts of interest that might compron
shareholders may be waived by a simple majority decision of the disinterested parties

For purposes of this section, a conservator, a member of a conservatorship committee, or an
employee of a juridical entity serving as a conservator shall have a conttict of interest if:

(a) he is a creditor or stockholder of the debtor:

(b) he is eng

(c) he is, or was within two (2) years prior to the filing of the petition, a director, officer or

wed in a competing line of business as the debtor,

employee of the debtor or any of its present creditors, o
(d) he is, or was within two (2) years prior to the filing of the petition, the auditor or
accountant of the debtor, or a director. officer or employee thereof.
(e) he is, or was within two (2) years prior to the filing of the petition, an underwriter of the
outstanding securities of the debtor. or a director, officer or employee thereof.

(f) he is related by consanguinity or affinity within the fourth civil degree to the individuals

enumerated in this Section; or

(g) he has any other direct or indirect material interest in the debtor or any creditor sufficient to
cause reasonably based concern that that such interest would compromise impartiality or diligence in
performing conservatorship duties.

SEC. 46. Appointment of a Conservator — The conservator shall be appointed by the Court
Provided, however, That the Court shall appoint as conservator any qualified individual whose
nomination is supported by more than fifty (89) percent of the secured creditors and general unsecured
creditors, if evidence of such is submitted with the petition or by a manifestation to the Court prior to
the conservator's appointment

SEC. 47. Rights and Duties of ¢ Conservator - Subject 10 the control of the Court, the
conservator shall administer and preserve the property of the debtor during the pendency of the
proceedings, for purposes of protecting the interests of the creditors and shareholders thereof, taking

into account their rights as determined by this Act. the rule:

of procedure of the Court, and other

applicable laws: Provided, however. That, absent evidence of circumstances justifying more direct
management, the rights and responsibilities of administering and preserving the assets of the debtor
shall be delegated to the debtor's management

‘The conservator shall further be deemed an officer of the Court tasked with facilitating the

resolution of the various rights of the creditors and shareholders.



The conservator shall not be subject to any action, claim or demand in connection with any act
done or omitted to be done by him in good faith in the exercise of his fisnctions and in connection with
the exercise of his powers conferred by this Act or other actions duly approved by the Court.

SEC. 48. Duty to Report on Steps taken to Protect the Value of Encumbered Property and

Property of Others On a monthly basis, or according to a schedule approved by the Court, the

conservator shall report to the Court and interested parties the steps taken to maintain the value of
encumbered property and property of others held by the debtor during the course of the proceedings.

SEC. 49. Duty to act as Service Agen for Parties making an Appearance ~ The conservator
shall serve as the agent for receiving service of all pleadings and other papers filed in connection with
the proceedings under this Act and shall keep a complete and accurate record of all pleadings filed
during the proceedings as well as a summary log describing each pleading, The conservator shall
immediately deliver, by messenger, mail, fax or electronic means, to all parties making an appearance
copies of documents (or notice of their availability for inspection and copying) filed with the Court
and shall file with the Court an affidavit of service to this effect. The conservator may charge a
reasonable fee for this service. the rates for which are to be approved by the Court: Provided,
however, That such notice shall be free of charge if the creditor consents to notice by electronic mail
and submits a valid electronic mail address as part of its notice of appearance

SEC. 50. Suspension of Cases im other Courts The conservator shall have the right and duty
in pending cases against the debtor in other courts to appear on behalf of the debtor and move to have
such cases suspended pending the resolution of the proceedings in the Court

SEC. 51. Recordation of Pending Proceedings at Property Registration Offices ~The
conservator shall take all reasonable steps to preserve the rights of the debtor through submissions to
the applicable land and property registries in accordance with applicable legislation: Provided, That no
such actions shall diminish or otherwise compromise the rights of claimants with valid, prior-
registered liens against such property

s

Court for cause, or, regardless of cause, by a decision supported by at least five of the seven members

52. Removal of a Conservator -- The conservator may be removed by a decision of the

of the general unsecured creditors’ committee

SEC. 53. mplovment of Professionals -- Upon approval of the Court, and after notice and
hearing, the conservator may employ specialized professionals and other experts to assist him in the
performance of his duties, who shall be considered either employees or independent contractors of the
conservator. Such individuals shall enjoy rights of the conservator to the extent such is delegated to
them.

18



SEC. $4. Compensation and Terms of Ser

ice —~ The conservator and his direct employees or
independent contractors shall be entitled to compensation for reasonable fees and expenses from the
debtor according to terms approved by the Court afler notice and hearing. Prior to such hearing, the
conservator and his direct employees shall be entitled to reasonable compensation on the grounds of
quantum meruit. Such costs shall be an administrative expense

SEC. 55. General Unsecured Creditors’ Committee Untes

otherwise provided for in this
Act, the Court shall appoint a committee of seven general unsecured creditors that have the largest
such claims against the debtor and that are willing to serve in such capacity

SEC. 56. Rights of the General Unsecured Creditors” Conmitice The unsecured creditors’
committee shall have the right to

(a) object to petitions for post-commencement financing requested by the conservator,

(b) review the conservator’s records in connection with the administration of the debtor;

(c) remove the conservator from his position in accordance with the procedures in this Act;

(d) prepare a rehabilitation plan if so required under this Act, and

(e) appoint one attorney to represent the legal interests of the general unsecured creditors, the

reasonable costs of which shall be reimbursable from the debtor as an admini:

ative expense

CHAPTER IV -- REMEL

Sub-Chapter 1. Fast-Track Rehabilitation
SEC. 57. Default Relief The debtor and creditors shal! be limited to relief under ¢

sub-
chapter unless:

(a) the debtor has initiated voluntary proceedings under this Act seeking relief under Sub-
chapter 3 of this Chapter,

(b) the debtor is a non-stock corporation or a partnership, or

(c) more than half of the secured creditors request conversion to relief under Sub-chapter 2 of
this Chapter within thirty days of notice of commencement of proceedings

SEC. 58. Presentation and Approval of Plan -- Within thirty days of commencement of
proceedings, the conservator shall submit a time bound plan for implementing the relief allowed under
this sub-chapter, serving individual notice on creditors and shareholders that a plan is available to
them for review and comment.

The Court shail set a hearing on the plan no later than thirty days from the date of notice of its

submission. The plan shall be approved by the Court no later than ten (10) days after the hearing

lo



unless the plan fails to provide sufficient detail as to how it will be implemented or if it violates the
provisions of this Act.

SEC. 59. :stablishment and Capitalization of a Subsidiary of the Debtor ~~ The conservator
shall establish a subsidiary corporation whose shares shall be issued to the debtor in the form of a
single class of common stock: Provided, however, That five of the issued shares may be issued to
nominee holders/incorporators, one of whom shall be the conservator. The number of shares issued
shall equal the amount of indebtedness of the debtor represented by its disputed and undisputed claims
reflected in the registry of claims. The par value of each share shall be one peso: Provided, however,
‘That the debtor may issue no par value shares if the amount of the indebtedness excceds the estimated
value of the debtor's assets.

The consideration for the shares shall be the property of the debtor. including its non-rejected
leasehold and contractual rights and obligations. Contractual provisions prohibiting such transfers or
assignments shall be deemed null and void: Provided, That encumbered property shall be transferred
to the subsidiary corporation subject to existing liens.

SEC. 60. Non-Requiremem of Approval of Shareholders Notwithstanding the provisions in
the Corporate Code, the debtor, through, the conservator, may transfer all or substantially all of the
assets of the debtor to the subsidiary corporation without the approval of the debtor's shareholders

SEC. 61. /ssuance of Bonds ~ The conservator may also arrange for the issuance of bonds by
the subsidiary corporation to the debtor: Provided. That the total nominal value of such bonds shall not
exceed twenty percent of the debt of the debtor and the monthly payments on which shall not exceed

of the debtor at the time of commencement of the

twenty percent of the monthly payment obligations
proceedings: Such bonds may be secured by liens on property of the subsidiary corporation.
Notwithstanding any contractual prohibitions or regulations to the contrary, the conservator may

establish and register liens on encumbered property of the subsidiary corporation: Provided, That such

liens are junior to pre-existing liens

SEC. 62. Offer to Currem Shareholders -- In cases where the debtor had initiated voluntary
proceedings, the shareholders of the debtor shall have the option of purchasing up to twenty (20)
percent of the shares of the subsidiary corporation, prior to their public sale. The purchase price of the
shares shall be equal to twenty (20) percent of the total disputed and undisputed claims. ‘The
expiration date for receiving offers shall be no later than sixty days from approval of the plan. Each
purchase offer shall be combined with the offer to tender at least twenty percent of the shares of the
debtor, In cases where more than one offer is tendered, the winner of the tender shall be the offer or
submitting the greatest number of the debtor's shares. The funds tendered by the purchaser shall be

7



held in escrow until the auction of the remaining shares. Shares that are submitted in a winning bid
shall obtain the status of treasury shares of the debtor.

SEC. 63. Auction of Shares The shares and bonds of the subsidiary corporation shall be
offered to the public in a manner designed to maximize the price paid: Provided, however, That the
reserve price for the shares and bonds shall be equal to the amount of the secured claims against the
debtor plus estimated outstanding administrative costs of the proceeding, less the amount raised from
any initial offering to shareholders.

SEC. 64. Creditor Claim Certificates — \n order to facilitate the liquidity of claims and increase
demand for the shares of the subsidiary corporation, the conservator or his agent, with the approval of
the Court, may issue up to five creditor claim certificates for each claim, to be denoted series A-E.
Each such certificate shall indicate on its face the amount of the claim and its priority status under
Sub-chapter 4 of this Chapter. At the request of the creditor, and for a reasonable fee, the conservator
or his agent shall issue certificates in smaller amounts

SEC. 65. Transferring Creditor Claim Certificates -- \dividuals may purchase creditor claim
certificates of any series from creditors or other holders, the consideration for which may be cash or a
promise of shares in the subsidiary corporation, Such certificates may be transferred by delivery or
through a registry administered by the conservator or a transfer agent designated by the conservator.
A creditor may transfer differing series of Creditor Claim Certificates to various potential bidders

SEC. 66. Use of Creditor Claim Certificates in Bidding ~ The auction organizer shall accept
creditor claim certificates in lieu of cash or in a combination therewith, taking into account the
valuation calculated under Section 67 of this Act. The inclusion of a creditor claim certificate in a
winning bid shall be deemed a complete waiver of the right represented by the certificate to participate
in the distribution of cash proceeds from the sale

SEC. 67. Valuation of Creditor Claim Certificates submited in Bidding -- The value ascribed
to a creditor claim certificate of any particular class submitted in a bid shall be proportional to the
extent that cash generated from the offering of shares is available to pay non-submitted claim
certificates of that particular class

SEC. 68. Hffect of Failure fo meet Reserve Price for controlling Block of Shares ~ A failure of
the auction to garner an amount of cash and secured creditor claim certificates, which, when added to
the amount raised by the offer to current shareholders, equals the amount of the secured claims and
estimated administrative costs shall result in a conversion to liquidation procedures under this Act. In

such case the money in escrow from any shareholder offer and from the bidders shall be returned, the



contracts transferring the property of the debtor to the subsidiary corporation shall be rescinded, and

any liens created to secure bonds of the subsidiary corporation shall be cancelled
SEC, 69. Calling of Shareholders’ Meeting ~ The conservator shall call an extraordinary
shareholders’ meeting no later than thirty days after the finalization of the sale of the shares of the

subs

idiary corporation. The meeting shalt call for, among other things. the clection of new members

of the board of directors of the subsidiary corporation

SEC. 70. Dissolution of the Debtor After distribution of the proceeds fiom the sale of the

shares of the subsidiary corporation, the conservator shall assume the rights and duties of a fiquidator
of the debtor and the finalize its dissolution according to procedures described in Sub-chapter 4 of this
Chapter.
Sub-Chapter 2. Court-Supervised Rehabilitation

SEC. 71. Who ts Eligible Relief under this Sub-chapter is available to the following debtors:

(a) stock corporations, the majority of the secured creditors of which have sought relief under
this Sub-chapter, either through a motion submitted to the Court, or in a affidavit attached to the
petition; or

(b) non-stock corporations, partnerships and associations.

SEC. 72. Initial Meeting of Debtor and Creditors -- Within thirty days of commencement of

proceedings, the conservator shall hold a meeting of creditors. the time and place of which shall be
established in the order. The debtor shall be required to send a representative to answer questions
under oath concerning matters of concern to the creditors

SEC. 73. Preparation of « Rehabilitation Plan ~The debtor, through its board of directors,
shall prepare a plan for initial submission to the conservator and the Court for distribution to the
creditors and shareholders by no later than ninety (90) days afler commencement of proceedings. The
board of directors of the debtor may act on behalf of the sharcholders to hire an individual or group of

financial and legal experts to act as a rehabilitation planner Provided, however, That the debtor may

waive its right to submitting a plan if it states so in its petition, in which case the committee of general
unsecured creditors may prepare a plan for initial submission to the creditors and shareholders no later

than one-hundred and twenty (120) days after commencement of proceedings The committee of

general unsecured creditors may hire an individual or group of financial and legal experts to act as a
rehabilitation planner.
SEC. 74. Compensation of a Rehabilitation Plamer — The compensation of a rehabilitation

planner shall not be considered an administrative expense.

19



si

Court shall convert the proceedings to liquidation under Sub-chapter 4 of this Chapter if a plan i

*. 78. Affect of Failure to Submit Plan to Conservator within the Required Period — The

not

submitted to the conservator within the required period. Provided, That the Court may allow an

extension of time if approved by a majority of the secured creditors and general unsecured creditors

SEC. 76. Minimal Contes of a Plan ~ \n order to be approved by the Court, the plan shall
(a) contain information sufficient to give the various classes of creditors and shareholders a
the plan is in their financial interest when

reasonable basis for determining whether supporti

compared to the liquidation of the debtor,
(b) establish classes of creditors and shareholders based on, at a minimum, the classes of

priority claims established in sub-chapter 4 of this Chapter.

(c) specify the treatment of each class described in sub-section (b):

(d) provide for equal treatment of all unpaid claims within a class unless the particular creditor

voluntarily agrees to less favorable treatment,
{e) disclose all payments of pre-petition debts made during the proceedings and the
justifications thereof:

(f) describe the claims against the debtor still subject to dispute and the provisioning of funds

to account for appropriate payments should the

int be ruted valid or its amount adjusted:
(g) require the debtor and its counter-parties to adhere to the terms of all contracts that the
conservator has chosen to confirm.

(h) arrange for the payment of all outstanding administrative expenses as a condition of the

fic creditor;

plan’s approval unless such condition has been waived in writing by a speci

(contain a valid and bindin,

resolution of a meeting of the debtor's shareholders to increase
the shares by the required amount in cases where the plan contemplates an additional issuance of
shares by the debtor;

@ include opinion letters of attorneys of the rehabilitation planner certifying that the
transactions and arrangements of the plan are consistent with the law

SEC. 77. Disclosure to Creditors and Shareholders ~ Upon its completion, the plan shall be
submitted to the conservator and Court. The conservator shall make copies of the plan available to the
creditors and shareholders for review and copying and shall within five days of receipt, notify each

creditor and shareholder who has made an appearance of such availability. Such notice shall inform

the creditors and shareholders that they have the right to submit to the conservator a manifestation of |

their opposition to the plan within forty-tive days of receipt of notice that the plan is available for
review.

20



SEC. 78. Submission of Plan for Approval —\f the majority of a creditor or shareholder class
has not submitted a manifestation of opposition to the plan after forty-five days from the time it was
distributed to the creditors and shareholders, the conservator shall submit the plan to the Court for
approval along with a manifestation of no opposition. If a majority of a class of creditors or
shareholders opposes the plan, the conservator shall submit a manifestation of such to the Court
instead of a plan for approval.

SEC. 79. Conversion fo Liqnidation Proceedings upon Rejection of the Plan ~ Upon receipt of
a manifestation by the conservator that a majority of a creditor or shareholder class has rejected the
plan, the Court shall convert the proceedings to those under Sub-chapter 4 of this Chapter.

SEC. 80. Minimal Standards for Confirmation — The Court shall approve a plan only if the
following requirements are met

(a) the plan conforms to the requirements of Section 76 of this Act,

(b) the plan maintains the security interest of secured creditors unless such has been waived or
modified voluntarily:

(©) the plan has been disclosed to creditors and shareholders according to the provisions in
Section 77 of this Act; and

(d) the plan is not rejected by the majority of any class of creditors or shareholders established
in the plan.

If the Court determines that the plan fails to meet the minimal requirements established in this
Sub-chapter, it shall order the return of the plan to its authors for correction and resubmission to the
creditors or shareholders for review. if it determines that such non-conformity was not in bad faith and
is reasonably curable.

SEC. 81. Approval of Plan notwithstanding Disputes over Claims The Court may approve a
plan notwithstanding unresolved disputes over claims so long as the required support of the plan is
maintained regardless of the outcome of the disputes and the plan can accommodate payment of the
claims regardless of the outcome of the disputes

SEC. 82. liffect of Approval — Approval of the plan shall discharge the financial payment

obligations of the debtor unless otherwise allowed to the extent called for by the plan. Contracts and
other arrangements between the debtor and its creditors shall be deemed to continue to apply to the
extent that they do not conflict with the payment provisions of the plan. Any compromises on
amounts payable by the debtor shall be binding on all creditors regardless of whether the plan is
successfully implemented, unless the plan is revoked on grounds of fraud. Claims arising after
approval of the plan that are otherwise not treated by the plan are not subject to any suspension order.

21 :



Unless an arrangement otherwise is specifically called for in the rehabilitation plan, the order
shall revert full controt of the debtor back to the debtor's management

The order approving 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

SEC. 83. Liability of General Partners of a Partnerstup for Unpaid Balances under an
Approved Plan The approval of the plan shail 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,

SEC. 84. Treatment of Income derived from Forgaveness of Debt -- Income imputed upon the
debtor by any indebtedness reduced in connection with a plan’s approval shall be considered income
eared prior to commencement of proceedings under this Act

SEC. 85. lffect of Failure to Approve — & failure to approve the plan by the Court shall result
in a conversion of proceedings under this Sub-chapter to those under Sub-chapter 4 of this Chapter

SEC. 86. Revocation of Plan on Grounds of Fraud = Within ninety (90) days from the

approval of the rehabilitation plan, and after notice and hearin

the Court may revoke the approval
thereof on the grounds of fraudulent inducement In such case, the debtor shall come under the
proceedings described in Sub-chapter 4 of this Chapter
SEC. 87. Discharge of the Conservator Upon issuance of approval of the rehabilitation plan,
the conservator shall provide a final report and accounting to the Court, ‘The Court shall then
discharge the conservator of his duties
Sub-Chapter 3. Pre-Negotiated Rehabilitation

SEC. 88. Requirements -- Any debtor as defined under this Act may file a petition seeking pre-

negotiated rehabilitation as a form of relief. The petition, in addition to the requirements under Sub-
chapter 2 of this Chapter shall include:

(a) five copies of a rehabilitation plan prepared in accordance with the requirements
established in Sub-chapter 2 of this Chapter;

(b) a judicial compromise agreement under Title XIV’ of the Civil Code evidencing consent by
creditors and shareholders sufficient to allow an approval under Sub-chapter 2 of this Act:

(c) 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;
(d) the name of a qualified candidate for conservator, supported by more than half of the
secured creditors and general unsecured creditors,



EC. 89. Procedures -- Upon receipt of a petition seeking pre-negotiated rehabilitation, the

Court shall issue an order in accordance with Sub-chapter 1 of Chapter 3 of this Act, supplemented

with information sufficient to inform interested parties as to the deadlines and procedures established

in this Sul
SEC. 90. Exemption from Di

hapter

jermination of Claims ~ The requirements of Sub-chapter 3 of

Chapter 3 shall not apply to proceedings under this Sub-chapter
SEC. 91. Inspection and Review of Rehabilitation Plan — Upon commencement of the
proceedings, the conservator shail make available for review and copying the rehabilitation plan by
any interested party.
SEC. 92. Approval by the Court ~ Within fifty (S0) days from the date of the second
publication notice that proceedings have commenced, the Court shall approve the plan unless a
creditor submits an objection to it in accordance with this Sub-chapter

SEC. 93, Objection - Any creditor or shareholder, within forty-five (45) days from the second

date of publication notice of commencement of proceedings may submit to the Court an objection to a
plan filed under this Sub-chapter. Objections to a rehabilitation plan shall be limited to the following:

(a) the plan fails to include the information or attachments required by Sub-chapter 2 of this,
Chapter,

(b) the documents filed by the debtor are materially fatse or misleadin;

(c) a majority of any class of creditors does not support the plan,

(d) the plan fails to accurately account for a claim against the debtor, or

(e) the creditors’ support was induced by fraud

Copies of any objection to the plan shall be served on the debtor. the conservator, and the
largest seven secured creditors and largest seven general unsecured creditors who support the plan

SEC. 94. Hearing on Objection ~ Upon receipt of an objection, the Court shall issue an order

setting the time and date of the hearing on the objection. The date of such hearing shall be no earlier

venty (70) days after the second date of publication notice of
ible,

the debtor to cure the petition or plan within a reasonable period. If the Court determines that the

than sixty (60) and no later than s

commencement of proceedings. If the Court finds the objection valid, it shall order, when po

debtor and / or creditors acted in bad faith. or that the bases for objection are non-curable, the Court
shall order the conversion of these proceedings to those under Sub-chapter 4 of this Chapter. A
finding by the Court that the objection lacks merit shall issue an order approving the plan in

accordance with Sub-chapter 2 of this Chapter



SEC. 95. Affect of Approval ~ Approval of the plan under this Chapter shall have the same

chapter 2 of this Chapter

legal effect as approval of a plan under Sub:
Sub

SEC. 96. Requirements for Initiation Dissolution and liquidation proceedings shall

apter 4. Dissolution and Liquidation

commence either:

(a) upon a finding that a petition to initiate vohmtary proceedings seeking such relief is

sufficient in form and substance

on

(b) upon issuance of an order converting the proceedings under other forms of relief to those
under this Sub-chapter- Provided, That such order shall contain the relevant information required
under Section 24 of this Act

SEC. 97. Appoinment of a Liquidator -- The order commencing liquidation proceedings shall

name a liquidator, who may be the conservator administering the debtor prior to the commencement of

the liquidation portion of the proceeding

SEC. 98. Consequences of Initiating Liquidation Proceedings ~ ‘The commencement of
liquidation proceedings shall either initiate or continue the administration of the debtor in accordance
with Chapter IIT of this Act subject to the particular provisions under this Sub-chapter: Provided,

the debtor shall be declared dissolved and

however, That upon an initiation of liquidation proceeding

all contracts and agreements of the debtor shall be deemed breached as of the date of commencement
of proceedings.
SEC. 99. Specific Rights and Duties of ot 1 iquicetor

In addition to the rights and duties of a
conservator, the liquidator shalt have the following rights and duties

(a) to file a notice with the Securities and Fxchange Commission that the dissolution of the
debtor has commenced:

(b) in cases when the there has been an the order converting the proceedings from other
proceedings in this Chapter. to publish the order in a newspaper of general circulation for two
consecutive weeks, the date of the first publication to be no tater than five business days afler issuance
of the order:

(c) to discontinue the business operations of the debtor except for those operations necessary
to maintain the value of the properties of the debtor prior to their sale.

(d) to dismiss the debtor's management and work force to the extent that they are not needed to

maintain the value of the properties of the debtor prior to their sale,


(e) to transfer possession of all properties held in trust or other custodial arrangement by the

debtor to the beneficiaries or to a successor trustee. taki

into account the requirements of any
applicable trust arrangement,

(f) to return or surrender all properties of third parties used by the debtor under lease:
Provided, That the liquidator may postpone such transfer if such properties are needed to maintain the
value of the properties of the debtor prior to their sale,

(g) to submit to the Court within forty-five (45) days from his qualification an inventory of all
the assets of the debtor describing with sufficient particularity the nature, condition and value thereof,

(h) to submit to the Court a liquidation plan in accordance with the requirements of this Act
not later than sixty (60) days from the commencement of proceedings:

(i) to sell assets of the debtor prior to the approval of the liquidation plan if such assets are

subject to rapid depreciation in value, or such sales are necessary to raise funds to preserve the assets
of the debtor: Provided, however, That the sale of the assets shall be made under commercially
reasonable conditions in a manner reasonably designed to mayimize the revenues gained from the sale;

Gj) to keep the funds of the debtor that are not needed for immediate disbursement in bank
accounts insured by the Philippine Deposit Insurance Corporation, ot in bills and other evidences of
indebtedness of the Republic of the Phifippines or the Bangko Sentral ng Pilipinas:

(k) to perform such other duties and functions as the Court may from time to time impose on.
him.

SEC. 100. Compensation of the Liqnidstor - The compensation scheme for the liquidator
shall be established with a view towards providing the liquidator with reasonable incentives to
maximize the amount of money paid out to creditors and shareholders for legitimate claims.

SEC. 101. Requirements of a Liquidation Plan -- The liquidation plan shall

(a) describe with reasonable detail the assets of the debtor including any readily ascertainable
values;

(b) disclose the details of any sales, abandonment. or other dispositions of the debtor's assets
by the liquidator prior to the submission of the plan:

(c) describe the manner for selling the debtor's assets and how this manner is superior to other
methods in terms of the likelihood of obtaining the greatest recovery for the creditors and
shareholders:

(d) specifically describe the treatment of encumbered assets of the debtor (abandonment,

dacion en pago, sales bundled with other assets),



(e) specifically describe the treatment of causes of action, receivable and other claims held by

the debtor (action by the liquidator, or assignment

(f) state the amount of undisputed indebtedness of the debtor for each preference class,

(g) describe the amount of disputed or contingent liabilities and their likelihood of maturity
and impact on the undisputed creditors and shareholders,

SEC. 102. Hearing and Approval of Plan ~ Upon receipt of the liquidation plan, the Court
shall issue an order setting a hearing thereon, informing the creditors that the Plan has been submitted

and is available for examination and copying. and directing all creditors of record to submit their

comment or opposition thereto not later than fifteen (15) days before the date of the hearing

SEC. 103. Disposition of Encumbered Property held by the Debtor — The liquidator may
arrange to dispose of encumbered property of the debtor through any means allowed by law in order to.
maximize the liquidation dividend for the creditors and shareholders: Provided, however, That the
liquidator may not sell encumbered property bundled with other property if the amount offered or bid
is not sufficient to cover the amount of the claims of the creditors holding liens on the property offered
for sale: Provided further. That the restrictions on the rights of secured creditors to foreclose on and
sell encumbered immovable property shall not extend beyond sixty (60) days from the date of the
approval of the liquidation plan and thirty (30) days from such date with regard to all other

‘encumbered property

SEC. 104. Rules for Payment of Claims Secured by Encumbered Property The liquidator

shall distribute the proceeds of the sale of encumbered property. after paying reasonable costs of sale,

relevant property taxes, and the expenses necessary to extinguish any possessory liens, according to a
priority established by the date of their registration in the appropriate registry. No. subsequently
registered lien holder shall receive payment unless all lien holders senior thereto are paid in full
Proceeds remaining afer payment of claims secured by revistered liens shall be applied to claims
secured by statutory non-possessory liens on the property not registered with the appropriate registry:
Provided, That portions of claims arising from imposition of a fine, penalty. forfeiture, or exemplary
or punitive damages that are not compensatory for pecuniary loss suffered by the creditor shall be paid
according to Section 106 of this Act

Where proceeds are insufficient to pay in full a claim secured by a registered lien, the portion
remaining unpaid shall be paid according to Section 106 of this Act. Where proceeds are insufficient
to pay in full all claims secured by unregistered statutory liens, the proceeds from the sale shall be
applied to such claims on a pro-rata basis, Portions of such claims not covered by the proceeds from
the sale shall be paid according to Section 106 of this Act
20



SEC. 105, Rules for Payment of Unsecured Claims -~ The liquidator shall pay the undisputed

unsecured claims of the debtor according to the order set forth in Section 106 of this Act. The
Figuidator shall not pay the claims of any particular class unless and until the creditors of the more
senior classes have been paid in full. Where assets are available only to pay a portion of a class, the
liquidator shall make payment on a pro-rata basis.

SEC. 106. Priority of Unsecured Claims ‘The liquidator shall distribute the proceeds from the
sale of unencumbered property and shall distribute surpluses from the sale of encumbered property
according to the following order in accordance with the procedures established in Section 105 of this
Act:

{a) administrative expenses;

(b) unpaid labor wages, other mandated compensation. and corresponding withholding tax on
laborers;

(c) claims of the Government for taxes and other mandatory contributions to federal and local
budgetary agencies not otherwise treated in this Sub-chapter arising through the day before
‘commencement of proceedings;

(d) all claims not otherwise specified in this Section;

(¢) portions of claims arising from imposition of a fine, penalty, forfeiture, or exemplary or
punitive damages that are not compensation for pecuniary loss suffered by the creditor;

(f) claims which have been subordinated by either consent of the creditor or by a provision in
this Act or other legislation

Proceeds remaining after payment to the creditors listed in this Section shall be paid to
shareholders of the debtor according to the priorities established in relevant legislation.

SEC. 107. Contingency for Disputed Claims — ‘The liquidator shall set aside funds for paying
all disputed claims. In the event that claims are denied and appeals on such decisions are exhausted,
the liquidator shall distribute the funds to unpaid undisputed creditors and shareholders according to
the order of priority in Sections 104 and 106 of this Act.

SEC. 108. Submission and Review of lnaLReport of Liquidator — Upon distribution of the
proceeds, the liquidator shall submit a report to the Court which shall describe the methods and results
of the sale of debtor’s assets and the distribution of proceeds to the creditors. The liquidator shall also
send copies of the report to the creditors and shareholders or notify them that the report is available for
review and copying. Upon receipt of the report, the Court shall schedule a hearing, notice of which
shall be sent to the creditors and shareholders by the liquidator. At the hearing, the liquidator shall

27



answer any questions of the Court or the creditors or shareholders concerning the liquidation of the
debtor.

SEC. 109. 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
Securities and Exchange Commission to remove the debtor from the registry of legal entities.

SEC. 110. Termination of Proceedings Upon receipt of evidence showing that the debtor has
been removed from the registry of legal entities at the Securities and Exchange Commission, it shall
issue an order terminating the proceedings.

. CHAPTER V -- PROCEEDINGS ANGHLLARY FO OTHER INSOLVENCY OR
REHABILITATION PROCEEDINGS

Sub-Chapter 5. Banks and other Fin: Institutions under Receivership pursuant
to a State-Funded or State-Mandated Insurance System

SEC. 111. 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
receivership established by a state-funded or state-mandated insurance system.

SEC. 112. Application of Relevant Legislation -- The liquidation of financial institutions shall
be determined by the relevant legislation. The provisions in this Act shall apply in a suppletory
manner

Sub-Chapter 6. Foreign Registered Corporations with Assets in the Philippines
SEC. 113. Initiation of Proceedings

- The Court shall set @ hearing in connection with an
insolvency or rehabilitation proceeding 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.

SEC. 114. Provision of Relief - The Court may issue orders:

(a) suspending any actions 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;

(c) providing other necessary relief.

SEC. 115. Factors determining Entitlemen to Relief--\n determining whether to grant relief
under this Sub-chapter, the Court shall consider

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

28



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

(c) whether other jurisdictions have given reeagnition 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 proscribed 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 VI — MISCELANEOUS PROVISIONS

SEC. 116. Separability Provisions ~ \f any provision of this Act shall be held invalid, the
remainder of this Act not otherwise affected shall remain in full force and effect

SEC. 117. Repealing Clause The specified sections of the following Acts are hereby deemed
repealed

(a) the Insolvency Law, Sections SI and 52;

(b) Presidential Decree No. 902-A. Section 5(d), and

-(c) the Corporation Code, Section 119.

SEC. 118. Amending Clause Article 2237 of the Civil Code is hereby amended to read as
follows: “Insolvency and rehabilitation of juridical entities shall be governed by special laws; the
provisions of this Code shall apply in a suppletory manner. Insolvency of physical persons shall be
governed by special laws insofar as they are not inconsistent with this Code.”

SEC. 119. Effective Date This Act will take effect immediately upon approval.

SEC. 120. Application to Pending Insolvency. Suspension of Payments and Rehabilitation
Cases -- This Act shall govern all petitions filed after it takes effect, and also 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

Approved,

29