Bank Insolvency and Liquidation Act of 1902

The law directs action through the Treasurer, the Civil Governor, the Attorney-General, and the Court of First Instance.
The Treasurer conducts the bank examination under section three of Act Numbered Fifty-two, as amended.
The Civil Governor determines whether to stop the bank’s operations and order takeover after receiving the Treasurer’s written report.
The Treasurer, acting by the Attorney-General, files the liquidation petition in the Court of First Instance in the bank’s territorial jurisdiction.
The Court of First Instance supervises liquidation and issues decrees governing payments to creditors.

Act No. 556 amends Act Numbered Fifty-two titled “An Act providing for examinations of banking institutions in the Philippine Islands and for reports by their officers.”
Section 1 provides two amendment mechanics: (1) changing section eight to read as section thirteen, and (2) inserting additional sections after section seven.
Section 12 repeals laws or parts of laws inconsistent with Act No. 556, in so far as they are inconsistent.

The law establishes a closure mechanism when a bank is insolvent or when its continuance in business will involve probable loss to depositors.
The law authorizes the Civil Governor to forbid a bank from doing banking business in the Islands when the Civil Governor finds the Treasurer’s statements true.

If the Treasurer’s examination under section three discloses that the bank’s condition is one of insolvency, the Treasurer must proceed under the closure process.
If the Treasurer’s examination discloses that the bank’s continuance in business in receiving deposits will involve probable loss to depositors, the Treasurer must proceed under the closure process.
The Treasurer must forthwith inform the Civil Governor in writing of the facts supporting insolvency or probable loss to depositors.
If the Civil Governor finds the Treasurer’s statements to be true, the Civil Governor must forthwith:
- forbid the bank to do banking business in the Islands; and
- direct the Treasurer to take charge of the bank’s assets and proceed according to law.

Upon receiving the Civil Governor’s order, the Treasurer must, by the Attorney-General, file a petition in the Court of First Instance with territorial jurisdiction over the bank.
The petition must recite the proceedings taken and must pray for assistance and supervision of the court in the bank’s liquidation.
After filing the petition, the Treasurer must reduce the bank’s assets to money under the supervision of the court and with all convenient speed.
After payment of the costs of the proceedings (including reasonable commissions and fees to the Treasurer, allowed by the court), the Treasurer must pay debts under decree of the court.

The law requires the following order after liquidation costs are paid:
- First: All public taxes due.
- Second: Debts due to all other persons in the order of priority, if any, fixed by law.
For debts secured by mortgage of property of the bank:
- The Treasurer must, under direction of the court, sell the mortgaged property and apply proceeds in this order:
  - First: all taxes due.
  - Second: the costs of the sale, including a reasonable commission to the Treasurer and insurance and other expenses.
  - Third: to satisfy the debt of the owner of the mortgage.
  - Fourth: to the payment of other creditors in the order of priority, if any, fixed by law.
For property of the bank pledged for its debts and that must remain in possession of the creditor under the security contract:
- The Treasurer must have the same remedies to effect sale of security, payment of the debt, and return of the balance as the bank would have had.
- In proceedings regarding the Treasurer’s trust, the Treasurer must represent and exercise the rights of the bank and the general creditors.

The Treasurer may carry on administration of the trust by using a deputy designated by the Treasurer.
Costs, fees, and commissions earned by the Treasurer or deputies must be deposited as a special fund with the Insular Treasurer.
The special fund is used to pay salaries of clerks and other employees whose employment becomes necessary for discharging the trust, plus other additional expenses caused thereby.
After payment of all expenses, the balance of commissions, fees, and costs earned must be turned into the Insular Treasury.

Section 11 requires that, except as otherwise provided in the preceding sections, liquidation and payment of creditors proceed in a manner as nearly similar as may be to the liquidation of affairs of a national bank by a receiver under national banking laws of the United States.

Section 12 provides that all laws or parts of laws inconsistent with Act No. 556 are repealed, in so far as they are inconsistent.