Question & AnswerQ&A (EXECUTIVE ORDER NO. 73)
Act No. 1956 is known as The Insolvency Law. Its main purpose is to provide for the suspension of payments, relief of insolvent debtors, protection of creditors, and punishment of fraudulent debtors.
Any debtor, whether an individual, sociedad, or corporation, who possesses sufficient property to cover all debts but foresees the impossibility of meeting them when due, may petition to be declared in the state of suspension of payments.
The debtor must annex a schedule and inventory in the prescribed form, including a statement of assets and liabilities and the proposed agreement he requests of his creditors.
The debtor is absolutely enjoined from disposing of property except for ordinary business operations and from making payments outside necessary or legitimate expenses while the suspension of payments proceedings are pending.
Only creditors included in the schedule filed by the debtor who present written evidences of their claims may vote. Creditors for personal labor, maintenance, last illness, funeral expenses incurred within 60 days before the petition, and mortgage holders may not be bound by the agreement if they abstain from voting.
Approval requires two-thirds of the creditors present by number and creditors representing at least three-fifths of the total liabilities to vote in favor of the proposed agreement.
All rights creditors had prior to the agreement are restored, and the debtor may subsequently be subject to bankruptcy and insolvency proceedings.
The debtor must owe debts exceeding one thousand pesos, file a petition stating residence and inability to pay debts in full, express willingness to surrender all non-exempt property for creditors' benefit, and annex a schedule and inventory.
Three or more creditors resident in the Philippines whose credits accrued in the Philippines and whose aggregate claims are at least one thousand pesos may file a verified petition for involuntary insolvency.
Acts include the debtor absconding with intent to defraud creditors; concealing or removing property to avoid attachment; suffering property to remain under attachment to defraud; confessing judgment to delay creditors; fraudulent conveyances; default in current obligations for 30 days; and insufficient property for execution to satisfy judgments.
An assignee can sue to recover debtor's estate and debts, take possession of the estate, sell property at public auction, redeem mortgages, settle accounts, compound debts with court approval, and recover property fraudulently transferred by the debtor.
Such a debtor, upon conviction, may be punished with imprisonment from three months to five years for each offense.
After returning property that belongs to others, creditors share pro rata in the insolvent estate except for preferred claims such as legal expenses, necessary funeral expenses, taxes due to government subdivisions, and debts for personal services rendered within 60 days before insolvency.
Creditors proving their debts are deemed to have waived all actions or suits against the debtor for such debts, and pending suits or judgments are discharged and dismissed upon debtor’s discharge, except that valid liens remain unaffected.
A debtor may apply for discharge between three months and one year after adjudication. Notice is given to creditors, and after hearing objections and evidence, the court may grant discharge if the debtor has complied with duties, not committed fraud, or other grounds for denial do not exist. The debtor must also take an oath declaring no disqualifying acts.
Yes. A creditor who discovers fraud in obtaining discharge may apply within one year after the discharge date to have it set aside and annulled by the court that granted it.
Any attachment, payment, pledge, mortgage, transfer, sale, or conveyance of property made by an insolvent or in contemplation of insolvency within 30 days before filing a petition intending to prefer a creditor or hinder property distribution is void and recoverable by the assignee.
A partnership may be adjudged insolvent, and all partnership and partners' properties are liable to be taken. Separate accounts are kept for partnership and individual estates. Corporations may also be petitioned for insolvency except those principally engaged in banking. No discharge is granted to corporations.
The insolvency proceedings continue and conclude with validity and effect as if the debtor were still alive.