Insolvency proceedings may refer to voluntary or involuntary proceedings for individual debtors (see Voluntary or involuntary liquidation) or juridical debtors (see Liquidation proceedings). The provisions on the Liquidator are common in all these proceedings, as provided under Republic Act No. 10142, also known as the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010”, and fleshed out in the FLSP Rules. For purposes of these common provisions, the term “debtor” includes individual debtors and other juridical debtors. 

Other common provisions: * The Liquidation Order * Determination of Claims

* Avoidance Proceedings * The Liquidation Plan * Secured creditors

A liquidator may be a natural person or juridical entity. If the liquidator is a juridical entity, it must designate a natural person who possesses all the qualifications and none of the disqualifications as its representative, it being understood that the juridical entity and the representative are solidarily liable for all obligations and responsibilities of the liquidator.

QUALIFICATIONS OF THE LIQUIDATOR

The liquidator shall: 

• (a) be a citizen of the Philippines or a resident thereof for 6 months immediately preceding his nomination; 

• (b) be of good moral character and with acknowledged integrity, impartiality and independence; 

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

• (d) have no conflict of interest. However, any conflict of interest may be waived, 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 influenced in the exercise of his judgment for or against any party to the proceedings. Without limiting the generality of the foregoing, an individual shall be deemed to have a conflict of interest if: 

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

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

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

• (iv)  he is, or was, within 5 years from the filing of the petition or motion for conversion, a director, officer, owner, partner or employee of the debtor or any of the creditors, or acted as legal counsel or auditor or accountant of the debtor or any of the creditors; 

• (v)  he is, or was, within 2 years from the filing of the petition or motion for conversion, an underwriter of the outstanding securities of the debtor; 

• (vi)  he is related by consanguinity or affinity within the fourth civil degree to any individual creditor, owner of a sole proprietorship-debtor, partner in a partnership-debtor or stockholder, director, officer, employee or underwriter of a corporate-debtor; 

• (vii)  he has any other direct or indirect material interest in the debtor or any of the creditors; or 

• (viii) he was the receiver or member of the management committee, the counsel or an employee of either, when there is a showing that the financial distress of the debtor was not arrested or its fiscal condition deteriorated and resulted in its liquidation by reason of his lack of diligence or foresight. 

A nominee or an elected or appointed liquidator and their personnel shall immediately disclose to the court any ground that may give rise to an actual or potential conflict of interest, regardless of his personal assessment of its sufficiency, as soon as he becomes aware of it. 

If the liquidator is a juridical entity, it must designate a natural person who possesses all the qualifications and none of the disqualifications as its representative, it being understood that the juridical entity and the representative are solidarily liable for all obligations and responsibilities of the liquidator. 

ELECTION OF LIQUIDATOR

The creditors entitled to vote will elect the liquidator in open court. To constitute a quorum for the election of the liquidator, creditors representing or holding at least a majority of the total claims entitled to vote must be present either in person or by proxy. 

Only creditors who were included in the schedule of debts and liabilities or registry of claims, or have filed their claims within the period set by the court, and whose claims are not barred by the statute of limitations, are entitled to vote. A secured creditor shall not be entitled to vote, unless: 

• (a) he waives his right under the security or lien; and

• (b) has the value of the property subject of his security or lien fixed and approved by the court, and is admitted for the balance of his claim. 

The nominee receiving the highest number of votes cast in terms of the amount of claim held or represented, and who is qualified, shall be appointed as the liquidator. 

COURT-APPOINTED LIQUIDATOR

The court may appoint the liquidator if: 

• (a) on the date set for the election of the liquidator, there is no quorum; 

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

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

• (d) a vacancy occurs for any reason whatsoever. 

In any of these cases, the court, upon motion or motu proprio, and for good cause shown, may set another date or hearing for the election of the liquidator. Any person appointed by the court to administer the debtor as a rehabilitation receiver prior to the commencement of the liquidation may subsequently be appointed as its liquidator. 

OATH AND BOND OF THE LIQUIDATOR

Prior to assuming his office, the liquidator shall take an oath and file a bond, in such amount to be fixed by the court, conditioned upon the proper and faithful discharge of his powers, duties and responsibilities. 

POWERS, DUTIES AND RESPONSIBILITIES OF THE LIQUIDATOR

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

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

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

• (c)  to sell, with the approval of the court, any property of the debtor under his possession or control; 

• (d)  to redeem all mortgages and pledges, and satisfy any judgment which may constitute an encumbrance on any property sold by him; 

• (e)  to settle all accounts between the debtor and his creditors, subject to the approval of the court; 

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

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

• (h)  upon approval of the court, to engage the services of persons with specialized skills or training as may be necessary and reasonable to assist him in the discharge of his duties. Such persons or professionals shall be deemed employees or independent contractors of the liquidator and shall possess the same qualifications as the liquidator. 

In addition to the rights and duties of a rehabilitation receiver, insofar as they are applicable to liquidation proceedings, the liquidator, shall have the right and duty to take all reasonable steps to manage and dispose of the debtor’s assets with a view towards maximizing the proceeds therefrom, to pay creditors and stockholders, and to terminate the debtor’s legal existence. 

REMOVAL OF THE LIQUIDATOR

The liquidator may be removed at any time by the court either motu proprio or upon motion by the debtor or any creditor or creditors on any of the following grounds: 

• (a)  he did not actually receive the highest number of votes during the election for liquidator; 

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

• (c)  lack of a particular or specialized competency required by the specific case; 

• (d)  illegal acts or conduct in the performance of his duties and powers; 

• (e)  lack of any of the qualifications or presence of any disqualification; 

• (f)  conflict of interest, unless, waived, expressly or impliedly, by a party who may be prejudiced thereby; 

• (g)  partiality or lack of independence; or 

• (h)  any other ground analogous to the foregoing.

COMPENSATION OF THE LIQUIDATOR

The liquidator and the persons engaged or employed by him to assist in the discharge of his powers and duties shall be entitled to such reasonable compensation as may be determined by the court, after consultation with the creditors. 

REPORTING REQUIREMENTS

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

DISCHARGE OF LIQUIDATOR

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

REGISTRY OF CLAIMS

Within 20 days from his assumption into office, the liquidator shall submit to the court a preliminary registry of claims of secured and unsecured creditors indicating, among others, the amount and nature of each claim, the documentary or other basis for each claim, and a description of the nature and location of every security or lien, if any. 

Secured creditors who have waived their rights under their security or lien, or have fixed the value of the property subject of their security or lien by agreement with the liquidator and are admitted as creditors for the balance, shall be considered as unsecured creditors. 

The liquidator shall make the registry available for public inspection, give notice to all the creditors and other interested parties that the registry is available for inspection and copying, and publish said notice in a newspaper of general circulation in the province or city where the debtor’s principal office is located.