[Note: The Revised Corporation Code (Republic Act No. 11232), provides that “[p]ursuant to Presidential Decree No. 902-A, retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution” (Sec. 179). In other words, intra-corporate disputes and related matters continue to be under the jurisdiction of regular courts, subject to the Interim Rules of Procedure for Intra-Corporate Controversies, the full text of which is reproduced below.]

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A.M. No. 01-2-04-SC

Re: PROPOSED INTERIM RULES OF PROCEDURE GOVERNING INTRA- CORPORATE CONTROVERSIES UNDER R. A. NO. 8799 

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INTERIM RULES OF PROCEDURE FOR INTRA-CORPORATE CONTROVERSIES 

RULE I 

GENERAL PROVISIONS 

SECTION 1. (a) Cases covered.-These Rules shall govern the procedure to be observed in civil cases involving the following: 

(1) Devices or schemes employed by, or any act of, the board of directors, business associates, officers or partners, amounting to fraud or misrepresentation which may be detrimental to the interest of the public and/or of the stockholders, partners, or members of any corporation, partnership, or association; 

(2) Controversies arising out of intra-corporate, partnership, or association relations, between and among stockholders, members, or associates; and between, any or all of them and the corporation, partnership, or association of which they are stockholders, members, or associates, respectively; 

(3) Controversies in the election or appointment of directors, trustees, officers, or managers of corporations, partnerships, or associations; 

(4) Derivative suits; and . 

(5) Inspection of corporate books. 

(b) Prohibition against nuisance and harassment suits. – Nuisance and harassment suits are prohibited. In determining whether a suit is a nuisance or harassment suit, the court shall consider, among others, the following: 

(1) The extent of the shareholding or interest of the initiating stockholder or member; 

(2) Subject matter of the suit; 

(3) Legal and factual basis of the complaint; 

(4) Availability of appraisal rights for the act or acts and complained of; 

(5) Prejudice or damage to the corporation; partnership, or association in relation to the relief sought. 

In case of nuisance or harassment suits, the court may, motu proprio or upon motion, forthwith dismiss the case. 

SEC. 2. Suppletory application of the Rules of Court. – The Rules of Court, in so far as they may be applicable and are not inconsistent with these Rules, are hereby adopted to form an integral part of these Rules. 

SEC. 3. Construction. – These Rules shall be liberally construed in order · to promote their objective of securing a just, summary, speedy and inexpensive determination of every action or proceeding. 

SEC. 4. Executory nature o f decisions and orders. – All decisions and orders issued under these Rules shall immediately be executory. No appeal or , petition taken therefrom shall stay the enforcement or implementation of the· decision or order, unless restrained by an appellate court. Interlocutory orders shall not be subject to appeal. 

SEC. 5. Venue. – All actions covered by these Rules shall be commenced and tried in the Regional Trial Court which has jurisdiction over the principal office of the corporation, partnership, or association concerned. Where the principal office ofthe corporation, partnership or association is registered in the Securities and Exchange Commission as Metro Manila, the action must be filed in the city or municipality where the head office is located. 

SEC. 6. Service of pleadings. – When so authorized by the court, any pleading and/or document required by these Rules may be filed with the court and/or served upon the other parties by facsimile transmission (fax) or electronic mail (e-mail). In such cases, the date of transmission shall be deemed to be prima facie the date of service. 

SEC. 7. Signing of pleadings, motions and other papers. – Every pleading, motion, and other paper of a party represented by an attorney shall be signed by at least one attorney of record in the attorney’s individual name, whose address shall be stated. A party who is not represented by an attorney shall sign the pleading, motion, or other paper and state his address. 

The signature of an attorney or party constitutes a certification by the signer that he has read the pleading, motion, or other paper; that to the best of his knowledge, information, and belief formed after reasonable inquiry, it is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification, or reversal of existing jurisprudence; and that it is not interposed for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. 

If a pleading, motion, or other paper is not signed, it shall be stricken off the record unless it is promptly signed by the pleader. or movant, after he is notified of the omission. 

SEC. 8. Prohibited pleadings. – The following pleadings are prohibited: 

(1) Motion to dismiss; 

(2) Motion for a bill of particulars; 

(3) Motion for new· trial, or for reconsideration of judgment or order, or for re-opening of trial; 

(4) Motion for extension of time to file pleadings, affidavits or any other paper, except those filed due to clearly compelling reasons. Such motion must be verified and under oath; and 

(5) Motion for postponement and other motions of similar intent, except those filed due to clearly compelling reasons. Such motion must be verified and under oath. 

SEC. 9. Assignment of cases. – All cases filed under these Rules shall be tried by judges designated by the Supreme Court to hear and decide cases transferred from the Securities and Exchange Commission to the Regional Trial Courts and filed directly with said courts pursuant to Republic Act No. 8799, otherwise known as the Securities and Regulation Code. 

RULE 2 

COMMENCEMENT OF ACTION AND PLEADINGS 

SECTION 1. Commencement of action. – An action under these Rules is commenced by the filing of a verified complaint with the proper Regional Trial Court. 

SEC. 2. Pleadings allowed. – The only pleadings allowed to be filed under these Rules are the complaint, answer, compulsory counterclaims or cross-claims pleaded in the answer, and the answer to the counterclaims or cross-claims. 

SEC. 3. Verification. – The complaint and the answer shall be verified by an affidavit stating that the affiant has read the pleading and the allegations · therein are true and correct based on his own personal knowledge or on authentic records. 

SEC.4. Complaint.-The complaint shall state or contain:

(1) the names, addresses, and other relevant personal or juridical circumstances of the parties; 

(2) all facts material and relevant to the plaintiffs cause or causes of · action, which shall be supported by affidavits of the plaintiff or his witnesses and copies of documentary and other evidence supportive of such cause or causes of action; 

(3) the law, rule, or regulation relied upon, violated, or sought to be enforced; 

(4) a certification that (a) the plaintiff has not theretofore commenced any action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency, and, to the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other action or claim, a complete statement of the present status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to the court; and 

(5) the relief sought. 

SEC. 5. Summons. – The summons and the complaint shall be served together not later than five (5) days from the date of filing of the complaint.

(a) Service upon domestic private juridical entities. – If the defendant is a domestic corporation, service shall be deemed adequate if made upon any of the statutory or corporate officers as fixed by the by-laws or their respective secretaries. If the defendant is a partnership, service shall be deemed adequate if made upon any of the managing or general partners or upon their respective secretaries. If the defendant is an association, service shall be deemed adequate if made upon any of its officers or their respective secretaries. 

(b) Service upon foreign private juridical entity. – When the defendant 1s a foreign private juridical entity which is transacting or has transacted business in the Philippines, service may be made on its resident agent designated in accordance with law for that purpose, or, if there be no such agent, on the government official designated by law to that effect, or on any of its offices or agents within the Philippines. 

SEC. 6. Answer. – The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within fifteen (15) days from service of summons. 

In the answer, the defendant shall: 

(1) Specify each material allegation of fact the truth of which he admits; 

(2) Specify each material allegation of fact the truth of which he does not admit. Where the defendant desires to deny only a part of an averment, he shall specify so much of it as true and material and shall deny only the remainder; 

(3) Specify each material allegation of fact as to which truth he has no knowledge or information sufficient to form a belief, and this shall have the effect of a denial; 

(4) State the defenses, including grounds for a motion to dismiss under the Rules of Court; 

(5) State the law, rule, or regulation relied upon; 

 (6) Address each of the causes of action stated in the complaint; 

(7) State the facts upon which he relies for his defense, including affidavits of witnesses and copies of documentary and other evidence supportive of such cause or causes of action; 

(8) State any compulsory counterclaim/s and cross-claim/s; and 

(9) State the relief sought. 

The answer to counterclaims or cross-claims shall be filed within ten (10) days from service of the answer in which they are pleaded. 

SEC. 7. Effect of failure to answer. – If the defendant fails to answer within the period above provided, he shall be considered in default. Upon motion or motu proprio, the court shall render judgment either dismissing the complaint or granting the relief prayed for as the records may warrant. In no case shall the court award a relief beyond or different from that prayed for. 

SEC. 8. Affidavits, documentary and other evidence. – Affidavits shall be based on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify on the matters stated therein. The affidavits shall be in question and answer form, and shall comply with the rules on admissibility of evidence. 

Affidavits of witnesses as well as documentary and other evidence shall be attached to the appropriate pleading; Provided, however, that affidavits, documentary and other evidence not so submitted may be attached to the pre- trial brief required under these Rules. Affidavits and other evidence not so submitted shall not be admitted in evidence, except in the following cases: 

(1) Testimony of unwilling, hostile, or adverse party witnesses. A witness is presumed prima facie hostile if he fails or refuses to execute an affidavit after a written request therefor; 

(2) If the failure to submit the evidence is for meritorious and . compelling reasons; and 

(3) Newly discovered evidence. 

In case of (2) and (3) above, the affidavit and evidence must be submitted not later than five (5) days prior to its introduction in evidence. 

RULE 3

MODES OF DISCOVERY 

SECTION 1. In general. – A party can only avail of any of the modes of discovery not later than fifteen (15) days from the joinder of issues. 

SEC. 2. Objections. – Any mode of discovery such as interrogatories, request for admission, production or inspection of documents or things, may be objected to within ten (10) days from receipt of the discovery device and only on the ground that the matter requested is patently incompetent, immaterial, irrelevant or privileged in nature. 

The court shall rule on the objections not later than fifteen (15) days from the filing thereof. 

SEC. 3. Compliance. – Compliance with any mode of discovery shall be made within ten (10) days from receipt of the discovery device, or if there are objections, from receipt of the ruling of the court. 

SEC. 4. Sanctions. – The sanctions prescribed in the Rules of Court for · failure to avail of, or refusal to comply with, the modes of discovery shall apply. In addition, the court may, upon motion, declare a party non-suited or as in default, as the case may be, if the refusal to comply with a mode 9f discovery is patently unjustified. 

RULE 4

PRE-TRIAL 

SECTION 1. Pre-trial conference; mandatory nature. – Within five (5) days after the period for availment of, and compliance with, the modes of discovery prescribed in Rule 3 hereof, whichever comes later, the court shall issue and serve an order immediately setting the case for pre-trial conference and directing the parties to submit their respective pre-trial briefs. The parties shall file with the court and furnish each other copies of their respective pre-trial brief if such manner as to ensure its receipt by the court and the other party at least five (5) days before the date set for the pre-trial. 

The parties shall set forth in their pre-trial briefs, among other matters, the following:

 (1) Brief statement of the nature of the case, which shall summarize .the theory or theories of the party in clear and concise language; 

(2) Allegations expressly admitted by either or both parties; 

(3) Allegations deemed admitted by either or both parties; 

(4) Documents not specifically denied under oath by either or both parties; 

(5) Amendments to the pleadings; 

(6) Statement of the issues, which shall separately summarize the· factual and legal issues involved in the case; 

(7) Names of witnesses to be presented and the summary of their testimony as contained in their affidavits supporting their positions on each of the issues; 

(8) All other pieces of evidence, whether documentary or otherwise and their respective purposes; 

(9) Specific proposals for an amicable settlement; 

(10) Possibility of referral to mediation or other alternative modes of dispute resolution; 

(11) Proposed schedule of hearings; and 

(12) Such other matters as may aid in the just and speedy disposition of the case. 

SEC.2. Nature and purpose of pre-trial conference.-During the pre-trial conference, the court shall, with its active participation, ensure that the parties consider in detail all of the following: 

(1) The possibility of an amicable settlement; 

(2) Referral of the dispute to mediation or other forms of dispute resolution; 

(3) Facts that need not be proven, either because they are matters of judicial notice or expressly or deemed admitted; 

(4) Amendments to the pleadings; 

 (5) The possibility of obtaining stipulations and admissions of facts and documents; 

(6) Objections to the admissibility of testimonial, documentary and other evidence; 

(7) Objections to the form or substance of any affidavit, or part thereof; 

(8) Simplification of the issues; 

(9) The possibility of submitting the case for decision on the basis of position papers, affidavits, documentary and real evidence; 

(10) A complete schedule of hearing dates; and 

(11) Such other matters as may aid in the speedy and summary disposition of the case. 

SEC. 3. Termination. – The preliminary conference shall be terminated not later than ten (10) days after its commencement, whether or not the parties have agreed to settle amicably. 

SEC. 4. Judgment before pre-trial. – If, after submission of the pre-trial briefs, the court determines that, upon consideration of the pleadings, the affidavits and other evidence submitted by the parties, a judgment may be rendered, the court may order the parties to file simultaneously their respective memoranda within a non-extendible period of twenty (20) days from receipt of the order. Thereafter, the court shall render judgment, either full or otherwise, not later than ninety (90) days from the expiration of the period to file the memoranda. 

SEC. 5. Pre-trial order; judgment after pre-trial. – The proceedings in the pre-trial shall be recorded. Within ten (10) days. after the termination of the pre-trial, the court shall issue an order which shall recite in detail the matters taken up in the conference, the actions taken thereon, the amendments allowed in the pleadings, and the agreements or admissions made by the parties as to any of the matters considered. The court shall rule on all objections to or comments on the admissibility of any documentary or other evidence, including any affidavit or any part thereof. Should the action proceed to trial, the order shall explicitly define and limit the issues to be tried and shall strictly follow the form set forth in Annex “A” of these Rules. 

The contents of the order shall control the subsequent course of the action, unless modified before trial to prevent manifest injustice. 

After the pre-trial, the court may render judgment, either full or partial, as the evidence presented during the pre-trial may warrant remaining allotted hearing dates. 

RULE 5

TRIAL 

SECTION 1. Witnesses. – If the court deems necessary to hold hearings to determine specific factual matters before rendering judgment, it shall, in the pre- trial order, set the case for trial on the dates agreed upon by the parties. 

Only persons whose affidavits were submitted may be presented as witnesses, except in cases specified in section 8, Rule 2 of these Rules. The affidavits of the witnesses shall serve as their direct testimonies, subject to cross-examination in accordance with existing rules on evidence. 

SEC. 2. Trial schedule. – Unless judgment is rendered pursuant to Rule 4 of these Rules, the initial hearing shall be held not later than thirty (30) days from the date of the pre-trial order. The hearings shall be completed not later than sixty (60) days from the date of the initial hearing, thirty (30) days of which shall be allotted to the plaintiffs and thirty (30) days to the defendants in the manner prescribed in the pre-trial order. The failure of a party to present a witness on a scheduled hearing date shall be deemed a waiver of such hearing date. However, a party may present such witness or witnesses within his remaining allotted remaining hearing dates.

SEC. 3.. Written offer of evidence. – Evidence not otherwise admitted by the parties or ruled upon by the court during the pre-trial conference shall be offered in writing not later than five (5) days from the completion of the presentation of evidence of the party concerned. The opposing party shall have five (5) days from receipt of the offer to file his comments or objections. The court shall make its ruling on the offer within five (5) days from the expiration of the period to file comments or objections. 

SEC. 4. Memoranda. – Immediately after ruling on the last offer of evidence, the court shall order the parties to simultaneously file, within thirty (30) days from receipt of the order, their respective memoranda. The memoranda shall contain the following: 

(1) A “Statement of the Case,” which is a clear and concise statement of the nature of the action and a summary of the proceedings; 

(2) A “Statement of the Facts,” which is a clear and concise statement in narrative form of the established facts, with reference to the testimonial, documentary or other evidence in support thereof; 

(3) A “Statement of the Issues,” which is a clear and concise statement of the issues presented to the court for resolution; 

(4) The “Arguments,” which is a clear and concise presentation of the argument in support of each issue; and 

(5) The “Relief,” which is a specification of the order or judgment which the party seeks to obtain.

No reply memorandum shall be allowed. 

SEC. 5. Decision after trial. – The court shall render a decision not later than (90) days from the lapse of the period to file the memoranda, with or without said pleading having been filed. 

RULE 6 

ELECTION CONTESTS 

SECTION 1. Cases covered. – The provisions of this rule shall apply to election contests in stock and non-stock corporations. 

SEC. 2. Definition. – An election contest refers to any controversy or dispute involving title or claim to any elective office in a stock or non-stock corporation, the validation of proxies, the manner and validity of elections, and the qualifications of candidates, including the proclamation of winners, to the office of director, trustee or other officer directly elected by the stockholders in a close corporation or by members of a non-stock corporation where the articles of incorporation or by-laws so provide. 

SEC. 3. Complaint. – In addition to the requirements in section 4, Rule 2 of these Rules, the complaint in an election contest must state the following: 

(1) The case was filed within fifteen (15) days from the date of the election if the by-laws of the corporation do not provide for a procedure for resolution of the controversy, or within fifteen (15) days from the resolution of the controversy by the corporation as provided in its by-laws; and

(2) The plaintiff has exhausted all intra-corporate remedies in election cases as provided for in the by-laws of the corporation.

SEC. 4. Duty of the court upon the filing of the complaint. – Within two (2) days from the filing of the complaint, the court, upon a consideration of the allegations thereof, may dismiss the complaint outright if it is not sufficient in form and substance, or, if it is sufficient, order the issuance of summons which shall be served, together with a copy of the complaint, on the defendant within two (2) days from its issuance. 

SEC. 5. Answer. – The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within ten (10) days from service of summons and the complaint. The answer shall contain the matters required in section 6, Rule 2 of these Rules. 

SEC. 6. Affidavits, documentary and other evidence. – The parties shall attach to the complaint and answer the affidavits of witnesses, documentary and other evidence in support thereof, if any. 

SEC. 7. Effect of failure to answer. – If the defendant fails to file an answer within the period above provided, the court shall, within ten (10) days from the lapse of said period, motu proprio or on motion, render judgment as may be warranted by the allegations of the complaint, as well as the affidavits, documentary and other evidence on record. In no case shall the court award a relief beyond or different from that prayed for. 

SEC. 8. Trial. – If the court deems it necessary to hold a hearing to clarify specific factual matters before rendering judgment, it shall, within ten (10) days from the filing of the last pleading, issue an order setting the case for hearing for the purpose. The order shall, in clear and concise terms, specify the factual matters the court desires to be clarified and the witnesses, whose affidavits have been submitted, who will give the necessary clarification. 

The hearing shall be set on a date not later than ten (10) days from the date of the order, and shall be completed not later than fifteen (15)days from the date of the first hearing. The affidavit of a witness who fails to appear for clarificatory questions of the court shall be ordered stricken off the record. 

SEC. 9. Decision. – The Court shall render a decision within fifteen (15) days from receipt of the last pleading, or from the date of the last hearing as the case may be. The decision shall be based on the pleadings, affidavits, documentary and other evidence attached thereto and the answers of the witnesses to the clarificatory questions of the court given during the hearings. 

RULE 7

INSPECTION OF CORPORATE BOOKS AND RECORDS 

SECTION 1. Cases covered. – The provisions of this Rule shall apply to disputes exclusively involving the rights of stockholders or members to inspect the books and records and/or to be furnished with the financial statements of a corporation, under sections 74 and 75 of Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines. 

SEC. 2. Complaint. – In addition to the requirements in section 4, Rule 2 of these Rules, the complaint must state the following: 

(1) The case is for the enforcement of plaintiffs right of inspection of corporate orders or records and/or to be furnished with financial statements under sections 74 and 75 of the Corporation Code of the Philippines; 

(2) A demand for inspection and copying of books and records and/or to be furnished with financial statements made by the plaintiff upon defendant; 

(3) The refusal of defendant to grant the demands of the plaintiff and the reasons given for such refusal, if any; and 

(4) The reasons why the refusal of defendant to grant the demands of the plaintiff is unjustified and illegal, stating the law and jurisprudence in support thereof. 

SEC. 3. Duty of the court upon the filing of the complaint. – Within two (2) days from the filing of the complaint, the court, upon a consideration of the allegations thereof, may dismiss the complaint outright if it is not sufficient in      form and substance, or, if it is sufficient, order the issuance of summons which shall be served, together with a copy of the complaint, on the defendant within (2) days from its issuance. 

SEC. 4. Answer. – The defendant shall file his answer to the complaint, serving a copy thereof on the plaintiff, within ten (10) days from service of summons and the complaint. In addition to the requirements in section 6, Rule 2 of these Rules, the answer must state the following: 

(1) The grounds for the refusal of defendant to grant the demands of the plaintiff, stating the law and jurisprudence in support thereof; 

(2) The conditions or limitations on the exercise of the right to inspect which should be imposed by the court; and 

(3) The cost of inspection, including manpower and photocopying expenses, if the right to inspect is granted. 

SEC. 5. Affidavits, documentary and other evidence. – The parties shall attach to the complaint and answer the affidavits of witnesses, documentary and other evidence in support thereof, if any. 

SEC. 6. Effect of failure to answer. – If the defendant fails to file an answer within the period above provided, the court; within ten (IO) days from the lapse of the said period, motu proprio or upon motion, shall render judgment as warranted by the allegations of the complaint, as well as the affidavits, documentary and other evidence on record. In no case shall the court award a relief beyond or different from that prayed for. 

SEC. 7. Decision. – The court shall render a decision based on the pleadings, affidavits and documentary and other evidence attached thereto within fifteen (15) days from receipt of the last pleading. A decision ordering defendants to allow the inspection of books and records and/or to furnish copies thereof shall also order the plaintiff to deposit the estimated cost of the manpower necessary to produce the books and records and the cost of copying, and state, in clear and categorical terms, the limitations and conditions to the exercise of the right allowed or enforced. 

RULE 8

RULES DERIVATIVE SUITS 

SECTION 1. Derivative action.-A stockholder or member may bring an action in the name of a corporation or association, as the case may be, provided, that: 

(1) He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed; 

(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the articles o f incorporation, by-laws, laws or rules governing the corporation or partnership to obtain the relief he desires;

(3) No appraisal rights are available for the act or acts complained of; and 

(4) The suit is not a nuisance or harassment suit. 

In case of nuisance or harassment suit, the court shall forthwith_ dismiss the case. 

SEC. 2. Discontinuance. – A derivative action shall not be discontinued, compromised or settled without approval of the court. During the pendency of the action, any sale of shares of the complaining stockholder shall be approved by the court. If the court determines that the interest of the stockholders or· members will be substantially affected by the discontinuance, compromise or settlement, the court may direct that notice, by publication or otherwise, be given to the stockholders or members whose interests it determines will be so affected. 

RULE 9 

MANAGEMENT COMMITTEE 

SECTION 1. Creation of a management committee. – As an incident to any of the cases filed under these Rules or the Interim Rules on Corporate Rehabilitation, a party may apply for the appointment of a management committee for the corporation, partnership or association, when there is imminent danger of: 

(1) Dissipation, loss, wastage or destruction of assets or other properties; and 

(2) Paralyzation of its business operations which may be prejudicial to the interest of the minority stockholders, parties-litigants or the general public. 

SEC. 2. Receiver. – In the event the court finds the application to be sufficient in form and substance, the court shall issue an order: (a) appointing a receiver of known probity, integrity and competence and without any conflict of interest as hereunder defined to immediately take over the corporation, partnership or association, specifying such powers as it may deem appropriate under the circumstances, including any of the powers specified in section 5 of this Rule; (b) fixing the bond of the receiver; (c) directing the receiver to make a report as to the affairs of the entity under receivership and on other relevant · matters within sixty (60) days from the time he assumes office; (d) prohibiting the incumbent management of the company, partnership or association from 

selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and (e) directing the payment in full of all administrative expenses incurred after the issuance of the order. 

SEC. 3. Receiver and management committee as officers of the court. – The receiver and the members of the management committee in the exercise of their powers and performance of their duties are considered officers of the court and shall be under its control and supervision.

SEC. 4. Composition of the management committee. – After due notice and hearing, the court may appoint a management committee composed of three (3) members chosen by the court. In the appointment of the members of the management committee, the following qualifications shall be taken into consideration by the court:

(1) Expertise and acumen to manage and operate a business similar in size and complexity as that of the corporation, association or partnership sought to be put under management committee; 

(2) Knowledge in management and finance; 

(3) Good moral character, independence and integrity; 

(4) A lack of a conflict of interest as defined in these Rules; and 

(5) Willingness and ability to file a bond in such amount as may be determined by the court. 

Without limiting the generality of the following, a member of a management committee may be deemed to have a conflict of interest if: 

(1) He is engaged in a line of business which competes with the corporation, association or partnership sought to be placed under management; 

(2) He is a director, officer or stockholder charged with mismanagement, dissipation or wastage of the properties of the entity under management; or 

(3) He is related by consanguinity or affinity within the fourth civil degree to any director, officer or stockholder charged with mismanagement, dissipation or wastage of the properties of the entity under management. 

SEC. 5. Powers and functions of the management committee. – Upon assumption to office of the management committee, the receiver shall immediately render a report and turn over the management and control of the entity under his receivership to the management committee. 

The management committee shall have the power to take custody of and control all assets and properties owned or possessed by the· entity under management. It shall take the place of the management and board of directors of the entity under management, assume their rights and responsibilities, and preserve the entity’s assets and properties in its possession. 

Without limiting the generality of the foregoing, the management committee shall exercise the following powers and functions: 

(1) To investigate the acts, conduct, properties, liabilities, and financial condition of the corporation, association or partnership under management; 

(2) To examine under oath the directors and officers of the entity and· any other witnesses that it may deem appropriate; 

(3) To report to the court any fact ascertained by it pertaining to the causes of the problems, fraud, misconduct, mismanagement and irregularities committed by the stockholders, directors, management or any other person; 

(4) To employ such person or persons such as lawyers, accountants, auditors, appraisers and staff as are necessary in performing its functions and duties as management committee; 

(5) To report to the court any material adverse change in the business of the corporation, association or partnership under management; 

(6) To evaluate the existing assets and liabilities, earnings and operations of the corporation, association or partnership under management; 

(7) To determine and recommend to the court the best way to salvage and protect the interest of the creditors, stockholders and the general public, including the rehabilitation of the corporation, association or partnership under management; 

(8) To prohibit and report to the court any encumbrance,. transfer, or disposition of the debtor’s property outside of the ordinary course of business or what is allowed by the court; 

(9) To prohibit and report to the court any payments made outside· of the ordinary course of business; 

(10) To have unlimited access to the employees, premises, books; records and financial documents during business hours; 

(11) To inspect, copy, photocopy or photograph any document, paper, book, account or letter, whether in the possession of the corporation, association or partnership or other persons; 

(12) To gain entry into any property for the purposes of inspecting, measuring, surveying, or photographing it or any designated relevant object or operation thereon; 

(13) To bring to the attention of the court any material change affecting the entity’s ability to meet its obligations; 

(14) To revoke resolutions passed by the Executive Committee or Board of Directors/Trustees or any governing body of the entity under management and pass resolution in substitution of the same to enable it to more effectively exercise its powers and functions; 

(15) To modify, nullify or revoke transactions coming to its knowledge. which it deems detrimental or prejudicial to the interest of the entity under management; 

(16) To recommend the termination of the proceedings and the dissolution of the entity if it determines that the continuance in business of such entity is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties- litigants, creditors or the general public; 

(17) To apply to the court for any order or directive that it may deem necessary or desirable to aid it in the exercise of its powers and performance of its duties and functions; and 

(18) To exercise such other powers as may, from time to time, be conferred upon it by the court. 

SEC. 6. Action by management committee. – A majority of its members shall be necessary for the management committee to act or make a decision. The chairman of the management committee shall be chosen by the members from among themselves. The committee may delegate its management functions as may be necessary to operate the business of the ·entity under management and preserve its assets. 

SEC. 7. Transactions deemed to be in bad faith. – All transactions made by the previous management and directors shall be deemed fraudulent and are rescissible if made within thirty (30) days prior to the appointment of the receiver or management committee or during their incumbency as receiver or management committee. 

SEC. 8. Fees and expenses. – The receiver or the management committee . and the persons hired by it shall be entitled to reasonable professional fees and reimbursement of expenses which shall be considered as administrative expenses. 

SEC. 9. Immunity from suit. – The receiver and members of the management committee and the persons employed by them shall not be subject to any action, claim or demand in connection with any act done or omitted by them in good faith in the exercise of their functions and powers. All official acts and transactions of the receiver or management committee duly approved or ratified by the court shall render them immune from any suit in connection with such act or transaction. 

SEC. 10. Reports. – Within a period of sixty (60) days from the appointment of its members, the management committee shall make a report to the court on the state of the corporation, partnership or association under management. Thereafter, the management committee shall report every three (3) months to the court or as often as the court may require on the general condition of the entity under· management. 

SEC. 11. Removal and replacement o f a member of the management committee. – A member of the management committee is deemed removed upon ·appointment by the court of his replacement chosen in accordance with section 4 of this Rule. 

SEC. 12. Discharge of the management committee. – The management committee shall be discharged and dissolved under the following circumstances: 

(1) Whenever the court, on motion or motu proprio, has determined that the necessity for the management committee no longer exists; 

(2) By agreement of the parties; and

(3) Upon termination of the proceedings. 

Upon its discharge and dissolution, the management committee shall submit its final report and render an accounting of its management within such reasonable time as the court may allow. 

RULE 10

PROVISIONAL REMEDIES 

SECTION 1. Provisional remedies. – A party may apply for any of the provisional remedies provided in the Rules of Court as may be available for the purposes. However, no temporary restraining order or status quo order shall be issued save in exceptional cases and only after hearing the parties and the posting of a bond. 

RULE 11 

SANCTIONS 

SECTION 1. Sanctions on the parties or counsel. – In any of the following cases, the court may, upon motion or motu proprio, impose appropriate sanctions: 

(1) In case the court determines in the course o(the proceeding that the action is a nuisance or harassment suit; 

(2) In case a pleading, motion or other paper is filed in violation of section 7, Rule 1 of these Rules; 

(3) In case a party omits or violates the certification required under section 4, Rule 2 of these Rules;· 

(4) In case of unwarranted denials in the answer to the complaint; 

(S) In case of willful concealment or non-disclosure of material facts or evidence; 

The sanctions may include an order to pay the other party or parties the amount of the reasonable expenses incurred because of the act complained of, including reasonable attorney’s fees. 

SEC. 2. Disciplinary sanctions on the judge. – The presiding judge may, ‘ upon a verified complaint filed with the Office of the Court Administrator, be subject to disciplinary action under any of the following cases: 

(1) Failure to observe the special summary procedures prescribed in these Rules; or 

(2) Failure to issue a pre-trial order in the form prescribed in these Rules. 

RULE 12 

FINAL PROVISIONS 

SECTION 1. Severability. – If any provision or section of these Rules is held invalid, the remaining provisions or sections shall not be affected thereby. 

SEC. 2. Effectivity. – These Rules shall take effect on 1 April 2001 following its publication in two (2) newspapers of general circulation in the Philippines.