INSOLVENCY AND INSOLVENCY PROCEEDINGS Insolvency – hindi na makabayad, o sobra na ang utang -
Financial condition of a debtor where he is generally unable to pay its or his liabilities as they fall due in the ordinary cause of business (illiquidity) OR has liabilities that are greater than his assets (balance sheet insolvency) (Sec. 4 FRIA)
Insolvency proceedings – pag-usapan natin paano mare solba ang utang mo -
Proceedings by which debtors may obtain financial relief and undergo judicially-supervised reorganization or liquidation of its assets for the benefit of its creditors
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Means by which debtors and creditors can collectively and realistically resolve and adjust competing claims and property rights, while maintain certainty and predictability in commercial affairs, preserving and maximizing the value of the assets of the insolvent debtors, recognizing creditor rights and respecting priority of claims, and
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ensuring equitable treatment of creditors who are similarly situated. In rem and non-adversarial in nature (Sec. 3 FRIA) Three main kinds: suspension of payments, rehabilitation, and liquidation.
SUSPENSION OF PAYMENTS Concept – huwag na muna! Please po!!! -
Insolvency proceeding by which an individual debtor submits, for approval by his creditors, a proposed agreement containing propositions delaying or extending the time of payment of his debts
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Device allowing a distressed debtor to defer payment of his debts by presenting a plan to repay creditors over time
Availability -
Voluntary proceeding, available to individual debtors who are natural persons. (Sec. 4 FRIA)
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Debtor must be illiquid he has sufficient property to cover all his he — — debts but foresees the impossibility of meeting them when they respectively fall due. (Sec. 94 FRIA) o If the debtor is balance sheet insolvent, his course of action is
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liquidation, not suspension. No particular value requirement for the debts due
Procedure A. Petition filed in court of province or city in which he has resided for six months prior to filing of petition. Minimum requirements: schedule of debts and liabilities, inventory of assets, and a proposed agreement with his creditors. (Sec. 94) B. Court makes determination of the sufficiency of petition. (Sec. 95)
a. If it finds the petition sufficient in form and substance, it shall, within five working days from filing, issue an Order: i. Calling a meeting of creditors named in the schedule (15ii. iii.
40d from date of Order, with designated date/time/place) Directing creditors to prepare and present written evidence of their claims before the meeting Directing the publication of the order in a newspaper of general circulation published in the province/city where the petition is filed 1/wk for 2 consecutive weeks; first pub 7 days after issuance of order
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v.
Directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage prepaid, to all creditors named Forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his property, exc. Those used in the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged, so long as the proceedings relative to suspension are pending
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Prohibiting the individual debtor from making any payment outside of the necessary/legit expenses of his business or industry, so long as SOP proceedings are pending
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Appointing a commissioner to preside over the creditors’
meeting b. Within the effects in Sec. 95 are three major orders: i. Automatic stay – no creditor shall sue or institute proceedings to collect its claim from the time of filing and for as long as the proceedings are pending. This is an automatic effect!!! (Sec. 96) 1. Exception: Creditors having claims for personal labor/maintenance/expense of last illness and funeral of the spouse or children of the debtor incurred 60 days prior to filing, Secured creditors ii.
Suspension order – an order issued by the Court upon motion that suspends any pending execution against the individual debtor. The order lapses after 3 months without acceptance
iii.
of the creditor-debtor agreement, or upon denial. Injunction against debtor – Sec. 95 (e) and (f); both take place from the time the order issues the Order in Sec. 95
and while the proceedings are pending. C. Creditors’ meeting takes place. (Sec. 97-100) a. A commissioner will be appointed by the Court, who will preside over the creditors’ meeting.
b. Commissioner’s duties: i. Preside over the meeting, with the Clerk of Court acting as secretary (Sec. 97) ii. Examine the written evidence of the claims. iii.
Sign the affirmed propositions in the meeting.
c. Process of the Creditors’ Meeting:
i. ii. iii.
At least 3/5 of the liabilities should have creditors representing them in order for the meeting to be held. COC records the present creditors and their claims. CMS examines written evidence of the claims; will declare the meeting open for business if the creditors present meet the 3/5 requirement. 1. Failure to meet 3/5: Agreement is deemed rejected. Proceedings will be terminated and the parties concerned are at liberty to enforce the rights which may correspond to them. [Sec. 99]
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Creditors and debtor discuss the propositions in the proposed agreement and put them to a vote. 1. Majority rules – BOTH MUST BE PRESENT!!! a. 2/3 of the creditors unite in the same proposition b. Claims of that majority vote amount to at least 3/5 of the total liabilities of the debtor mentioned in the petition [so in effect, you want all the creditors to come —it’s the only reasonable way this second requirement will be met imo] 2. No creditor who incurred his credit within 90 days prior to filing of the petition shall be entitled to vote. 3. Failure to meet any of the majority rules: same effect as iii.1.
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Protests may be made against the majority vote. Affirmed propisitions are to be signed by the CMS, debtors, and all creditors present in the voting.
D. Dissenters from the creditors’ meeting may file objections with the court within ten days from the last meeting. [Sec. 100] a. They may file an objection if: i.
There were defects in the call for meeting/holding/deliberations, and such defects prejudice the rights of the creditors.
ii. iii.
Fraudulent connivance between 1+ creditors and the debtor to vote in favour of the agreement. Fraudulent conveyance of claims for the purpose of obtaining a majority.
b. Court will handle each objection in a summary manner. c. Court may annul the proceedings based on the grounds for objection. If annulled, apply C.c.iii.1. E. Agreement is carried out. Court may issue all orders necessary/propert to enforce the agreement upon motion of any affected party. This is binding upon all creditors included in the schedule of liabilities and who were properly summoned, except upon [personal labor, etc.] claims and secured creditors who failed to attend the meeting or refrained from voting therein. [Sec. 101]
a. If the individual debtor fails to perform the agreement [wholly or in part], all the rights of the creditors prior to the agreement shall revest. Apply C.c.iii.1. Treatment of Claims -
Certain types of claims are treated differently during the meeting. (Secs. 96, 98, 101) o
Secured creditors – creditors with secured claims [claims secured by liens, which are statutory or contractual claims or judicial charges on real or personal property that legally entitles a creditor to resort to the said property for payment of the claim or debt secured, such as a mortgage/pledge].
Not covered by automatic stay
Not covered by suspension order
Need not attend or vote during the creditors’ meeting
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Exempt claims – creditors for personal labor/maintenance/expenses of last illness and funeral…
Not covered by automatic stay
Need not attend or vote during the creditors’ meeting
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Not bound by proposed agreement UNLESS they vote during the meeting [voting is the act constituting waiver!]
Not bound by proposed agreement UNLESS they vote during the meeting [voting is the act constituting waiver!]
Excluded claims – claims not included in the schedule of debts and liabilities, and creditors not properly summoned
Not bound by proposed agreement
