TABLE OF CONTENTS:
RULE 1. Coverage and General Provisions	RULE 4. Provisions Common to Liquidation in Insolvency
RULE  2. Liquidation of Insolvent Juridical Debtors	RULE 5. Procedural Remedies

RULE 3

INSOLVENCY OF INDIVIDUAL DEBTORS 

A. SUSPENSION OF PAYMENTS 

SEC. 1. WHO MAY FILE PETITION; VENUE; CONTENTS. – An individual debtor who has assets that exceed his liabilities but foresees the impossibility of paying his debts when they respectively fall due may file a verified petition for suspension of payments in the court having jurisdiction over the province or city where he has resided for six (6) months prior to the filing of the petition. 

The petition shall indicate the names of at least three (3) nominees to the position of commissioner and shall include, as minimum attachments, the following: 

(a) a schedule of debts and liabilities, including a list of creditors with their addresses, amount of claims and collaterals, if any; 

(b) an inventory of all the debtor’s assets, including receivables and claims against third parties; 

(c) a schedule of current income and expenditures within three (3) months prior to the filing of the petition; 

(d)  the income tax return of the debtor for the immediately preceding year; 

(e)  a list of all properties acquired by the debtor in the immediately preceding two (2) years; 

(f)  a list of all properties sold, disposed of, or donated by the debtor in the immediately preceding two (2) years; 

(g)  a schedule of the debtor’s executory contracts and unexpired leases; and 

(h)  a proposed agreement with the creditors. 

All attachments to the petition shall be deemed part and parcel of the verified petition. 

SEC. 2. ACTION ON THE PETITION. – If the Court finds the petition sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue a Suspension of Payments Order: 

(a)  prohibiting creditors from suing or instituting proceedings for collection against the debtor, except: (i) creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred within sixty (60) days immediately prior to the filing of the petition; and (ii) secured creditors; 

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

(c)  directing such creditors to present written evidence of their claims before the scheduled creditors’ meeting; 

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

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

(f)  prohibiting the petitioner from selling, transferring, encumbering or disposing his property, except those used in the ordinary operations of commerce or of industry in which the petitioner is engaged as long as the proceedings are pending; 

 (g)  prohibiting the petitioner from making any payment outside of the necessary or legitimate expenses of his business or industry, as long as the proceedings are pending; and 

(h)  appointing a commissioner to preside over the creditors’ meeting, who may or may not be from among the nominees of the debtor. 

SEC. 3. MOTION TO SUSPEND PENDING EXECUTION. – Upon motion of the petitioner, the court may also issue an order suspending any pending execution against the debtor. Property held as security by secured creditors shall not be subject to such suspension order. 

The order suspending execution shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors or as soon as such proposed agreement is rejected. 

SEC. 4. PERSONS WHO MAY REFRAIN FROM ATTENDING AND VOTING DURING THE CREDITORS’ MEETING. – Secured creditors and creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred within sixty (60) days immediately prior to the filing of the petition may refrain from attending the creditors’ meeting and from voting therein. Such persons shall not be bound by any agreement arrived at in such meeting, unless, being aware of this right, they attend the meeting, participate in the discussions and vote therein. 

SEC. 5. WHO MAY BE APPOINTED COMMISSIONER. – The commissioner, who shall preside over the creditors’ meeting in connection with the proceedings, shall be a natural person who shall have the following minimum qualifications: 

(a) a citizen of the Philippines or a resident thereof for six (6) months immediately preceding his appointment; 

(b) ofgoodmoralcharacterandwithacknowledgedintegrity,impartialityandindependence; 

(c) has the requisite knowledge of insolvency laws, rules and procedures; and 

(d) hasnoconflictofinterest;Provided,thatsuchconflictofinterestmaybewaived,expressly or impliedly, by a party who may be prejudiced thereby. An individual shall be deemed to have a conflict of interest if he is so situated as to be materially influenced in the exercise of his judgment for or against any party to the proceedings. 

The debtor or any creditor may file a written objection to the commissioner appointed by the court on the ground that he does not meet the foregoing minimum requirements. If the court finds merit in the objection, it shall appoint a new commissioner.

SEC. 6. CREDITORS’ MEETING. – The presence of creditors, either in person or through a representative duly authorized in writing, holding claims amounting to at least three-fifths (3/5) of the liabilities of the petitioner, excluding liabilities unaffected by the Suspension of Payments Order listed as exceptions under Section 2 (a) of this Rule, shall be necessary to hold a creditors’ meeting under this Rule. The court-appointed commissioner shall preside over the meeting and the clerk of court shall act as meeting secretary, subject to the following rules: 

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

(b)  The commissioner shall examine the written evidence of the claims. If the creditors present hold at least three-fifths (3/5) of the liabilities of the debtor as above-qualified, he shall declare a quorum; 

(c)  The creditors and the debtor shall discuss the proposed agreement and any amendment thereto, and put it to a vote. No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be allowed to vote; 

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

1)  that two-thirds (2/3) of the creditors voting unite upon the matter on the table; and 

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

(e)  After the announcement of the results, all the protests against the majority vote shall be drawn up, and the commissioner, the debtor and all creditors who took part in the voting shall sign the affirmed propositions. 

The commissioner shall prepare a report of the proceedings that shall include the voting results, the affirmed propositions mentioned in paragraph (e) above, if any, and submit the report to the court not later than three (3) days after the last creditors’ meeting. 

SEC. 7. REJECTION OF THE DEBTOR’S PROPOSAL AND DISMISSAL OF THE PETITION. – If no creditors’ meeting with the required quorum is held within ninety (90) days from the date of the last publication mentioned in Section 2 (d) of this Rule, or, there being such meeting or meetings, the debtor’s proposal is not approved within the said period, the same shall be deemed rejected. In such a case, the court, within five (5) days from the lapse of the ninety (90)-day period, or from receiving the report of the commissioner mentioned in the preceding section that the debtor’s proposal has been rejected, shall issue an order dismissing the petition. 

SEC. 8. OBJECTIONS TO THE APPROVAL OF THE DEBTOR’S PROPOSAL OR ANY AMENDMENT THERETO. – If the proposal of the debtor, or any amendment thereto, made during the creditors’ meeting, is approved by the majority of creditors in accordance with Section 6 of this Rule, any creditor who attended the meeting and who dissented from and protested against the vote of the majority may file an objection with the court within ten (10) days from the date of the meeting on any of the following grounds: 

(a)  defects in the call for the meeting, in the holding thereof, and in the deliberations had thereat which prejudice the rights of the creditors; 

(b)  fraudulent connivance between one or more creditors and the individual debtor to vote in favor of the proposed agreement, or any amendment thereto; or

(c)  fraudulent conveyance of claims for the purpose of obtaining a majority. 

The court shall hear and pass upon such objection in a summary manner, within thirty (30) days from the filing of the objection. If the decision of the majority of creditors to approve the debtor’s proposal, or any amendment thereto, is annulled by the court, the petition shall be dismissed. 

SEC. 9. EFFECTS OF THE APPROVAL OF THE DEBTOR’S PROPOSAL OR ANY AMENDMENT THERETO. – If the decision of the majority of the creditors to approve the proposed agreement, or any amendment thereto, made during the creditors’ meeting is upheld by the court, or when no opposition or objection to said decision has been presented, the court shall issue an order confirming the approval of the proposed agreement, or any amendment thereto, and directing all parties bound thereby to comply with its terms. 

SEC. 10. RESIDUAL POWER OF THE COURT. – The court, upon motion of any affected party, may issue any order which may be necessary or proper to enforce the agreement. If the debtor fails, wholly or in part, to perform his obligations under the agreement, or to comply with any order of the court, the court, upon motion of any creditor, shall declare the agreement terminated, and all the rights which the creditors had against the debtor before the agreement shall revest in them.

B. VOLUNTARYLIQUIDATION 

SEC. 11. WHO MAY FILE PETITION; VENUE; CONTENTS. – An individual debtor whose liabilities exceed his assets and whose debts exceed Five Hundred Thousand Pesos (P500,000.00) may file a verified petition for liquidation in the court having jurisdiction over the province or city where he has resided for six (6) months prior to the filing of the petition. 

The petition shall indicate the names of at least three (3) nominees to the position of liquidator and shall include, as minimum attachments, the following: 

(a) a schedule of debts and liabilities, including a list of creditors with their addresses, amount of claims and collaterals, if any; 

(b) an inventory of all the debtor’s assets, including receivables and claims against third parties; 

(c) a schedule of current income and expenditures within three (3) months prior to the filing of the petition; 

(d) the income tax return of the debtor for the immediately preceding year; 

(e) a list of all properties acquired by the debtor in the immediately preceding two (2) years; 

(f) a list of all properties sold, disposed of, or donated by the debtor in the immediately preceding two (2) years; and 

(g) a schedule of the debtor’s executory contracts and unexpired leases. 

All attachments to the petition shall be deemed part and parcel of the verified petition. 

SEC. 12. ACTION ON THE PETITION. – If the court finds the petition sufficient in form and substance, it shall issue the Liquidation Order mentioned in Section 2, Rule 4 (A) of these Rules. Otherwise, the court shall dismiss the petition. The court may take any action necessary for the foregoing purposes but it shall have a maximum period of ten (10) working days from the date of the filing of the petition to issue the Liquidation Order or dismiss the petition.

C. INVOLUNTARY LIQUIDATION 

SEC. 13. WHO MAY FILE PETITION; VENUE; CONTENTS. – Any creditor or creditors with a claim of, or the aggregate of whose claims is, at least Five Hundred Thousand Pesos (P500,000.00) may file a verified petition for liquidation of an individual debtor with the court of the province 0r city where the debtor resides. 

The petition shall state the particulars of at least one of the following acts of insolvency of the debtor: 

(a) that the debtor is about to depart or has departed from the Philippines, with intent to defraud his creditors; 

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

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

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

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

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

(g)  that the debtor has wilfully allowed judgment to be taken against him by default for the purpose of hindering or delaying the liquidation or of defrauding his creditors; 

(h)  that the debtor has suffered or procured his property to be taken on legal process with intent to give a preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud any one of his creditors; 

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

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

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

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

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

SEC. 14. BOND FOR FILING OF PETITION. – The petitioner/s shall post a bond in an amount at least equal in value to the aggregate of his/their claims, conditioned upon payment to the debtor of all expenses and damages the debtor may incur by reason of the filing of the petition if the petition is later dismissed or withdrawn by the petitioner/s without the consent of the debtor, or if it is finally determined that the debtor is not insolvent. 

SEC. 15. ORDER FOR DEBTOR TO SHOW CAUSE. – If the petition is sufficient in form and substance, the court, within five working (5) days from the filing of the petition, shall issue summons to the debtor requiring him, by way of comment on or opposition to the petition within an inextendible period of fifteen (15) days from service of the summons, to show cause why he should not be declared insolvent. 

SEC. 16. ORDER FOR DEBTOR TO REFRAIN FROM PAYING DEBTS OR TRANSFERRING PROPERTY. – Upon motion of any creditor and after hearing, the court may, upon good cause shown, issue an order prohibiting the debtor from paying any of his debts, or from transferring any property belonging to him, until the court issues a Liquidation Order or dismisses the petition, whichever is earlier. However, nothing contained herein shall affect or impair the rights of a secured creditor to enforce his lien in accordance with its terms. 

SEC. 17. HEARING ON THE PETITION. – After the issues are joined, the court shall set the petition for hearing in order to determine whether the evidence is sufficient to warrant the issuance of a Liquidation Order. 

SEC. 18. ISSUANCE OF THE LIQUIDATION ORDER. – If the debtor on whom summons is properly served fails to file a comment on or opposition to the petition within the period given by the court, or if the evidence given during the hearing mentioned in the preceding section warrant it, the court shall issue the Liquidation Order mentioned in Section 2, Rule 4 (A) of these Rules. 

SEC. 19. ABSENT DEBTOR. – When the debtor resides out of the Philippines, or when his residence is unknown, or he has departed from the Philippines with intent to defraud his creditors, or cannot, after due diligence, be found therein, or conceals himself to avoid service of summons, or any other related preliminary process or orders, then the court, upon motion of the petitioning creditors duly supported by an affidavit or affidavit/s narrating and substantiating any of the foregoing allegations and a bond approved by the court in double the amount of the aggregate sum of their claims against the debtor, shall issue an order directing: 

(a)  the sheriff of the province or city in which the matter is pending to take into custody, within thirty (30) days from the date of the order, a sufficient amount of property of the debtor, not exempt from execution and not subject of a secured creditor’s lien, to satisfy the claims of the petitioning creditors and the costs of the proceedings; 

(b)  the publication of the summons and the said order in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; 

(c)  the mailing of the petition, the summons and the order to the debtor’s last known address; 

(d)  the sending of an electronic mail to the debtor’s last known electronic mail address, if any, attaching thereto copies of the petition, the summons and the order; and 

 (e) the posting of copies of the petition and the summons on at least three (3) conspicuous places on any real property owned by the debtor. 

If the debtor fails to file a comment, opposition or other responsive pleading to the petition or order within fifteen (15) days after the last publication of the summons and order, or within any other period given by the court, then the court shall issue a Liquidation Order mentioned in Section 2, Rule 4 (A) of these Rules. 

SEC. 20. DUTY OF SHERIFF. – Upon receiving the order for him to take into custody property of the debtor, the sheriff shall take custody of such property of the debtor not exempt from execution and not subject of any secured creditor’s lien sufficient to cover the amount provided for. He shall make a return to the court within two (2) days every time he takes property of the debtor pursuant to the order, and as soon as he has taken sufficient amount of the debtor’s property to cover the amount provided for in the order, he shall make a return to the court of an inventory of all the property taken within three (3) days from the time of the last taking. Upon motion and for good cause shown, the time for making an inventory, or any return may be extended. The sheriff shall also prepare a schedule of the names and residences of the creditors, and the amount due each, from the books of the debtor, or from such other papers or data of the individual debtor available as may come to his possession, and shall file such schedule or list of creditors and inventory with the clerk of court. 

SEC. 21. ALL PROPERTY TAKEN TO BE HELD FOR ALL CREDITORS; APPEAL BONDS; EXEMPTIONS TO SURETIES. – If after the taking mentioned in the preceding section, there still remains property of the debtor not exempt from execution and not subject of a secured creditor’s lien, any other creditor or creditors, upon giving bond approved by the court in double the amount of his/their claim/s, singly or jointly, shall be entitled to similar orders and to like action, by the sheriff, until all claims are provided for, and as long as the debtor has sufficient property. All such property taken into custody by the sheriff shall be held by him for the benefit of all creditors whose claims shall be duly established in the proceedings. 

SEC. 22. BONDS FOR CUSTODY OF PROPERTY AND APPEAL. – The bonds provided for in Sections 19 and 21 of this Rule to procure the order for custody of the property and effects of the debtor shall be conditioned upon payment to the debtor, his heirs, administrators, executors or assigns of all damages he may sustain by reason of the order for which the bonds were procured if, after hearing of the petition, the court shall find in favor of the debtor and the petition is dismissed. Such damages, which shall not exceed the amount of the bond, shall be determined and fixed by the court. If either the petitioners or the debtor shall appeal from the decision of the court, upon final hearing of the petition, the appellant shall be required to give bond to the successful party in a sum double the amount of the value of the property in controversy, and for the costs of the proceedings. 

Any person interested in the estate may object to the sufficiency of the surety or sureties on such bond or bonds. The court shall direct the surety or sureties to justify their sufficiency. If the court finds that the sureties or any of them are insufficient, the court shall issue an order dismissing the petition or vacating the order to take into the custody of the sheriff the property of the individual debtor, or denying the appeal, as the case may be. 

SEC. 23. SALE OF DEBTOR’S PROPERTY UNDER SHERIFF’S CUSTODY. – If the property of the debtor taken into custody by the sheriff under Sections 19, 20 and 21 of this Rule is perishable, costly to maintain, subject to or in danger of rapid obsolescence, depreciation, or diminution in value, or when the interests of the debtor and the creditors will be better served by the sale thereof, the court, upon motion of any creditor, duly supported by affidavit/s narrating facts supporting the application and a bond equivalent to the estimated value of the property approved by the court, shall issue an order directing: (a) the sale of the property in the same manner as property is sold under execution, the proceeds to be deposited in the court to abide by the result of the proceedings; and (b) the publication of the order once a week for two consecutive weeks in a newspaper of general circulation in the city or province where the court exercises jurisdiction.