Article 41p. 41

SPECIAL RULES OF PROCEDURE SUPPLEMENT TO THE RULES OF COURT

they exceed twenty (20) in number, in which case,

service shall be made on at least the first twenty (20)

largest known creditors of the debtor in terms of credits

held. However, if there are more than twenty (20)

known creditors (who are not petitioners) and one or

more of them acquired their credit/s within the six

(6)-month period immediately preceding the filing of

the petition, the number of creditors to be served

copies of the petition shall be increased by the same

number.

SECTION 8. Hearing on the Petition or Motion . — The

court shall conduct a hearing if the petition or motion,

as well as the comments thereto raise issues of facts.

On

the

basis

of

the

pleadings

and

the

hearing

conducted, if any, the court shall determine whether

the evidence is sufficient to warrant the issuance of a

Liquidation Order mentioned in Section 2, Rule 4 (A) of

these Rules. Otherwise, the court shall dismiss the

petition or deny the motion.

SECTION 9. Conversion by the Court of Rehabilitation

Proceedings

into

Liquidation Proceedings . — After

notice and hearing, the court where rehabilitation

proceedings are pending may also order the conversion

of

rehabilitation

proceedings

into

liquidation

proceedings in those cases authorized by law, or at any

other

time

upon

the

recommendation

of

the

rehabilitation receiver or management committee that

the rehabilitation of the debtor is no longer feasible. In

such case, the FLSP Rules shall apply.

RULE 3 Insolvency of Individual Debtors

A. Suspension of Payments

SECTION 1. Who May File Petition; Venue; Contents . —

An individual debtor who has assets that exceed his

liabilities but foresees the impossibility of paying his

debts when they respectively fall due may file a verified

petition for suspension of payments in the court having

jurisdiction over the province or city where he has

resided for six (6) months prior to the filing of the

petition.

The petition shall indicate the names of at least three

(3) nominees to the position of commissioner and shall

include, as minimum attachments, the following:

(a) a schedule of debts and liabilities, including a list of

creditors with their addresses, amount of claims and

collaterals, if any;

(b) an inventory of all the debtor's assets, including

receivables and claims against third parties;

(c) a schedule of current income and expenditures

within three (3) months prior to the filing of the

petition;

(d)

the

income

tax

return

of

the debtor for the

immediately preceding year;

(e) a list of all properties acquired by the debtor in the

immediately preceding two (2) years;

(f) a list of all properties sold, disposed of, or donated by

the debtor in the immediately preceding two (2) years;

(g) a schedule of the debtor's executory contracts and

unexpired leases; and

(h) a proposed agreement with the creditors.

All attachments to the petition shall be deemed part

and parcel of the verified petition.

SECTION 2. Action on the Petition . — If the Court finds

the petition sufficient in form and substance, it shall,

within five (5) working days from the filing of the

petition, issue a Suspension of Payments Order:

(a)

prohibiting

creditors

from

suing

or

instituting

proceedings for collection against the debtor, except: (i)

creditors having claims for personal labor, maintenance,

expense of last illness and funeral of the wife or children

of

the

debtor

incurred

within

sixty

(60)

days

immediately prior to the filing of the petition; and (ii)

secured creditors;

(b) calling a meeting of all the creditors named in the

schedule of debts and liabilities at a time not less than

fifteen (15) days nor more than forty (40) days from the

date of such order and designating the date, time, and

place of the meeting;

(c) directing such creditors to present written evidence

of their claims before the scheduled creditors' meeting;

(d) directing the publication of the said order in a

newspaper of general circulation in the Philippines

once a week for two (2) consecutive weeks, with the

first publication to be made within seven (7) days from

the time of the issuance of the order;

(e) directing the clerk of court to send or cause the

sending of a copy of the order by registered mail,

postage prepaid, to all creditors named in the schedule

of debts and liabilities;

(f) prohibiting the petitioner from selling, transferring,

encumbering or disposing his property, except those

used in the ordinary operations of commerce or of

industry in which the petitioner is engaged as long as

the proceedings are pending;

(g)

prohibiting

the

petitioner

from

making

any

payment

outside

of

the

necessary

or

legitimate

expenses of his business or industry, as long as the

proceedings are pending; and

(h) appointing a commissioner to preside over the

creditors' meeting, who may or may not be from

among the nominees of the debtor.

SECTION 3. Motion to Suspend Pending Execution . —

Upon motion of the petitioner, the court may also issue

an order suspending any pending execution against

the

debtor.

Property

held

as

security

by

secured

creditors shall not be subject to such suspension order.

The order suspending execution shall lapse when three

(3) months shall have passed without the proposed

agreement being accepted by the creditors or as soon

as such proposed agreement is rejected.

SECTION 4. Persons Who May Refrain from Attending

and Voting during the Creditors' Meeting . — Secured

creditors and creditors having claims for personal labor,

maintenance, expense of last illness and funeral of the

wife or children of the debtor incurred within sixty (60)

days immediately prior to the filing of the petition may

refrain from attending the creditors' meeting and from

voting therein. Such persons shall not be bound by any

agreement arrived at in such meeting, unless, being

aware of this right, they attend the meeting, participate

in the discussions and vote therein.

SECTION 5. Who May be Appointed Commissioner . —

The commissioner, who shall preside over the creditors'

meeting in connection with the proceedings, shall be a

natural person who shall have the following minimum

qualifications:

(a) a citizen of the Philippines or a resident thereof for

six (6) months immediately preceding his appointment;

(b) of good moral character and with acknowledged

integrity, impartiality and independence;

(c) has the requisite knowledge of insolvency laws, rules

and procedures; and

(d) has no conflict of interest; Provided, that such

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 materially influenced

in the exercise of his judgment for or against any party

to the proceedings.

The debtor or any creditor may file a written objection

to the commissioner appointed by the court on the

ground that he does not meet the foregoing minimum

© Compiled By RGL

41 of 98