SUSPENSION OF PAYMENTS

Insolvency Law

     Postponement  by  court  order  of  the  payment  of  debts  of one who, while possessing
sufficient property to cover his debts,  foresees  the  impossibility  of  meeting  them  when they
respectively fall due
 

PURPOSE AND BASIS OF SUSPENSION OF PAYMENTS

1.   The purpose of a suspension of payments is to suspend or delay  the  payment  of  debts  the 
amount  of  which  isn’t affected although a postponement is declared
2.   The basis is the probability of the debtor’s inability to meet his obligation  when they
respectively fall due,  despite the fact that he has sufficient assets to cover all his liabilities
 

STEPS IN SUSPENSION OF PAYMENTS

1.   Filing of petition by the debtor
2.   Issuance  by  the  court  of  an  order  calling  a  meeting  of creditors
3.   Publication of the order and service of summons
4.   Meeting  of  creditors  for  the  consideration  of  the  debtor’s proposition
5.   Approval of the creditor’s of the debtor’s proposition

6.   Objections,  if  any,  to  the  decision  which  must  be  made within 10 days following the
meeting
7.   Issuance   of   order   by   the   court   directing   that   the agreement be carried  out in case
the decision is declared valid,  or  when  no  objection  to  said  decision  has  been presented
 

REQUISITES OF PETITION FOR SUSPENSION OF

PAYMENTS THE PETITION TO BE FILED BY A DEBTOR—
1.   Possessing sufficient property to cover all debts
2.   Foreseeing  the  impossibility  of  meeting  them  when  they respectively fall due

3.   Petitioning that  he be declared in the state  of  suspension of payments

4.   The petition need not be verified (Verification is when the debtor would affirm all allegations
and statement of facts)
 
DOCUMENTS TO ACCOMPANY PETITION
1.   A verified schedule containing a full and true statement of the debts and liabilities of the
petitioner together with a list of creditors, including the residence, sum due each, nature of
liability, consideration thereof, and any existing pledge, lien or security
2.   A  verified  inventory  containing  a  list  of  creditors,  an accurate description of all the
property, real and personal, of the petitioner including property exempt from execution and a
statement as to the value of each item of property, its location, and encumbrances thereon, if any
3.   A statement of his assets and liabilities
4.   The proposed agreements he requests of his creditors 

EFFECTS OF FILING OF PETITION

1.   No disposition in any manner of his property may be made by  the  petitioner  except  insofar 
as  concerns  the  ordinary operations  of  commerce  or  of  industry  in  which  he  is engaged
2.   No payments may be made by the petitioner except in the ordinary course of business or
industry

3.   Upon request to the  court,  all  pending executions  against the  debtor  shall  be  suspended 
except  execution  against property especially mortgaged
 

CREDITORS AFFECTED BY FILING OF PETITION

     Only creditors included in the schedules filed by the debtor shall be cited to appear and to
take part in the meeting
     Hence  those  who  didn’t  appear  because  they  were  not informed of the proceedings are
unaffected by the same 
 

CREDITORS  NOT  AFFECTED  BY  ORDER  OF 

SUSPENSION  OF PAYMENTS
1.   Persons  having  claims  for  personal  labor,  maintenance, expenses of last illness and
funeral of the wife or children of  the  debtor  incurred  in  60  days  immediately  preceding the
filing of the petition
2.   Persons having legal or contractual mortgages
 
RULE   OF   DOUBLE   MAJORITY   IN   THE   MEANING  
OF CREDITORS
     The majority shall be 2/3 of the creditors voting upon the same proposition, which 2/3
represent at least 3/5 of the total liabilities of the debtor
     Any  creditor,  at  any  stage  of  the  proceedings,  may  be represented by his attorney or
duly authorized agent who shall  be  entitled  to  vote  when  properly  authorized  at  any
creditors’ meeting as and for his principal
 
WHEN  PETITION  FOR  SUSPENSION  OF PAYMENTS DEEMED REJECTED
1.   When the number of creditors representing at least 3/5 of the liabilities don’t attend
2.   When  the  two  majorities  required  are  not  in  favor  of  the proposed agreement
 

EFFECT OF DISAPPROVAL OF PETITION

     If the decision of the  meeting be  negative as regards the proposed  agreement  or  if  no 
decision  is  had  in  default  of such  number  of  such  majorities,  the  proceedings  shall  be
terminated without recourse
     In  such  case,  the  parties  concerned  shall  be  at  liberty  to enforce the rights which
correspond to them

CAUSES   FOR   WHICH   OBJECTION   MAY   BE   MADE  

TO DECISION OF THE MEETING
     Defects in the call for the meeting, in the holding thereof, and  in  the  deliberation  had 
there  at  which  prejudice  the rights of the creditors
     Fraudulent connivance between one or more creditors and the debtor in favor of the
proposed agreement
     Fraudulent   conveyance  of  claims  for  the   purpose   of obtaining a majority 

SECTION   2.     Petition.   —   The  debtor   who,  possessing sufficient property to cover
all his debts, be it an individual person,   be  it  a  sociedad   or  corporation,  foresees  the
impossibility  of  meeting  them  when  they  respectively  fall due,  may  petition  that  he 
be  declared  in  the  state  of suspension of payments by the court,  or the judge thereof in 
vacation,  of  the  province  or  of  the  city  in  which  he  has resided  for  six  months  next 
preceding  the  filing  of  his petition.
 
He  shall  necessarily  annex  to  his  petition  a  schedule  and inventory in the form 
provided in sections fifteen, sixteen, and  seventeen  of  this  Act,  in  addition  to  the 
statement  of his  assets  and  liabilities  and  the  proposed  agreement  he requests of his
creditors.
 
SECTION  3.     Meeting  of  Creditors;  Injunction.  —  Upon receiving  and  filing  the 
petition  with  the  schedule  and documents  mentioned  in  the  next  preceding  section, 
the
court, or the judge thereof in vacation, shall make an order calling a meeting of creditors to
take place in not less than two weeks nor more than eight weeks from the date of such
order. Said order shall designate the day, hour, and place of meeting of said creditors as
well as a newspaper of general circulation  published  in  the  province  or  city  in  which 
the petition is filed, if there be  one, and if there be none, in  a newspaper  which,  in  the 
judgment  of  the  judge,  will  best give  notice  to  the  creditors  of  the  said  debtor,  and 
in  the newspaper  so  designated  said  order  shall  be  published  as often  as  may  be 
prescribed  by  the  court  or  the  judge thereof.
 
Said  order  shall  further  contain  an  absolute  injunction forbidding  the  petitioning 
debtor  from  disposing  in  any manner  of  his  property,  except  in  so  far  as  concerns 
the
ordinary operations of commerce or of industry in which the petitioner  is  engaged,  and, 
furthermore,  from  making  any payments  outside  of  the  necessary  or  legitimate 
expenses
of  his  business  or  industry,  so  long  as  the  proceedings relative  to  the  suspension  of 
payments  are  pending,  and said  proceedings  for  the  purposes  of  this  Act  shall  be
considered  to  have  been  instituted  from  the  date  of  the filing of
the petition.
 
SECTION  4.     Publication  order;  Deposit.  —  A  copy  of  said order shall immediately
be published 1 by the clerk of said court, in the newspaper designated therein, for the
number
of  times  and  in  the  form  prescribed  by  the  court  or  the judge thereof, and the clerk
of said court shall cause a copy of  said  order  to  be  delivered  personally  or  to  be  sent
forthwith   by   registered   mail,   postage   prepaid,   to   all creditors named in the
schedule. There shall be deposited in addition to the sum of twenty-four Philippine pesos,
which
shall  be  paid  to  the  clerk  for  the  filing  and  registration  of the  petition,  including  all 
proceedings  until  the  expediente is completed, an amount sufficient to defray all expense
of
publication  ordered  by  the  court,  necessary  postage,  and ten  centavos  for  each  copy, 
to  be  delivered  personally  or mailed  to  the  creditors,  which  last-named  sum  is 
hereby
constituted  the  legal  fee  of  the  clerk  for  the  personal delivery      or      mailing     
required      by     this     section.