[REPUBLIC ACT NO.

9267]

AN ACT PROVIDING THE REGULATORY FRAMEWORK FOR SECURITIZATION AND GRANTING FOR THE
PURPOSE EXEMPTIONS FROM THE OPERATION OF CERTAIN LAWS

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled.

ARTICLE I

GENERAL PROVISIONS

SECTION. 1. Short Title. — This Act shall be known as “The Securitization Act of 2004.”

SEC. 2. Declaration of Policy. — It is the policy of the State to promote the development of the capital
market by supporting securitization, by providing a legal and regulatory framework for securitization and
by creating a favorable market environment for a range of asset-backed securities. For this purpose, the
State shall rationalize the rules, regulations, and laws that impact upon the securitization process,
particularly on matters of taxation and sale of real estate on installment. Furthermore, the State shall
pursue the development of a secondary market, particularly for residential mortgage-backed securities
and other housing-related financial instruments, as essential to its goal of generating investment and
accelerating the growth of the housing finance sector, especially for socialized and low-income housing.
The State shall likewise pursue the development of a secondary market for other types of asset-backed
securities (ABS).

SEC. 3. Definition of Terms. — For purposes of this Act, the term:

(a) “Securitization” means the process by which assets are sold on a without recourse basis by the Seller
to a Special Purpose Entity (SPE) and the issuance of asset-backed securities (ABS) by the SPE which
depend, for their payment, on the cash flow from the assets so sold and in accordance with the Plan.

(b) “Asset-backed securities (ABS)” refer to the certificates issued by an SPE, the repayment of which
shall be derived from the cash flow of the assets in accordance with the Plan.

(c) “Assets”, whether used alone or in the term “Asset-backed securities,” refer to loans or receivables
or other similar financial assets with an expected cash payment stream. The term “Assets” shall include,
but shall not be limited to, receivables, mortgage loans and other debt instruments: Provided, That
receivables that are to arise in the future and other receivables of similar nature shall be subject to
approval by the Securities and Exchange Commission (SEC) or the Bangko Sentral ng Pilipinas (BSP), as
the case may be: Provided, further, That the term “Assets” shall exclude receivables from future
expectation of revenues by government, national or local, arising from royalties, fees or imposts.

(d) “Asset Pool” means the group of identified, homogeneous assets underlying the ABS.

(e) “Commission” refers to the Securities and Exchange Commission (SEC).

(f) “Credit Enhancement” means any legally enforceable scheme intended to improve the marketability
of the ABS and increase the probability that the holders of the ABS receive payment of amounts due
them under the ABS in accordance with the Plan.
(g) “Originator” means the person or entity which was the original obligee of the Assets, such as a
financial institution that grants a loan or a corporation in the books of which the Assets were created in
accordance with the Plan.

(h) “Plan” means the plan for securitization as approved by the Commission.

(i) “Secondary Mortgage Institution (SMI)” means an entity created for the purpose of enhancing a
secondary market for residential mortgages and housing-related ABS.

(j) “Seller” means the person or entity which conveys to the SPE the Assets forming the Asset Pool in
accordance with the Plan. In most instances, the Seller may itself be the Originator.

(k) “Servicer” refers to the entity designated by the SPE to collect and record payments received on the
assets, to remit such collections to the SPE, and perform such other services as may be specifically
required by the SPE, excluding asset management or administration.

(l) “Special Purpose Entity (SPE)” means either a Special Purpose Corporation (SPC) or a Special Purpose
Trust (SPT).

(m) “Special Purpose Corporation (SPC)” refers to a juridical person created in accordance with the
Corporation Code of the Philippines solely for the purpose of securitization and to which the Seller
makes a true and absolute sale of assets.

(n) “Special Purpose Trust (SPT)” means a trust administered by an entity duly licensed to perform trust
functions under the General Banking Law, and created solely for the purpose of securitization and to
which the Seller makes a true and absolute sale of assets.

SEC. 4. Declaration of Principles. — The Commission shall exercise the powers provided for in this Act in
consonance with the principles of full disclosure, transparency and accountability. The Commission shall
include in its annual report the list of SPEs with the corresponding types and amounts of assets
securitized.

ARTICLE II

SPECIAL PURPOSE ENTITY

SEC. 5. Special Purpose Entity (SPE).  — The SPE in the form of an SPC shall be a stock corporation
established in accordance with the Corporation Code of the Philippines and the rules promulgated by
the Commission solely for the purpose of securitization and registered as such with the Commission. An
SPE constituted as an SPT shall be a trust administered by an entity duly licensed to perform trust
functions under the General Banking Law and need not be registered as such with the Commission. In
any event, the SPE, whether in the form of an SPT or SPC, shall be solely organized and operated for
purposes of securitization in accordance with this Act. The Commission and the BSP shall, from time to
time, determine the required capitalization for the SPCs and SPTs, respectively.

SEC. 6. Approval of the Plan. — After the establishment of an SPE pursuant to Section 5 hereof, the
proposed Plan shall be submitted to the Commission for approval, which shall include the following:

(a) The nature and mechanics of the sale of assets from the Seller to the SPE, including the terms,
conditions and circumstances specified in the Plan, wherein the assets may be reverted to the Seller;
(b) The credit enhancements or liquidity supports for the ABS which may be provided in the following
manner:

(i) standby letter of credit issued by a commercial bank or universal bank other than the trustee bank or
the Originator or Seller or its subsidiary/affiliate, its parent company or the parent company’s
subsidiary/affiliate;

(ii) surety bond issued by any insurance company other than the Originator or Seller or its subsidiary or
affiliate, its parent company or the parent company’s subsidiary or affiliate, or the parent or subsidiary
of the trustee bank;

(iii) guarantee issued by any entity other than the Originator or Seller or its subsidiary/affiliate, its parent
company or the parent company’s subsidiary/affiliate, or the trustee bank or its parent or subsidiary;

(iv) over-collateralization provided by the Seller wherein the assets conveyed to the SPC or SPT exceed
the amount of ABS to be issued;

(v) subordinated securities issued by an SPE to any entity including those issued to the Seller that are
lower ranking, or junior to other obligations, and are paid after claims to holders of senior securities are
satisfied; and

(vi) other credit enhancements as may be approved by the Commission.

(c) The identities and qualifications of the Originator, Seller, Servicer, underwriter and dealer of the ABS,
and description of any compensation the issuer, seller or any underwriter has received or will receive in
the future in connection with the ABS;

(d) The identity, qualifications and compensation of the trustee that will administer the assets conveyed
to the SPE for the benefit of the ABS holders which trustee shall not be related directly or indirectly to
the Originator or Seller;

(e) The aggregate principal amount of the value of ABS to be issued, the principal amount of each class
within the ABS, and the denominations which shall not be lower than Five thousand pesos (₱5,000.00) in
which the ABS will be issued;

(f) The structure of the ABS to be registered, including the structure and payment priorities of each class
of certificate within the ABS, anticipated payments and yields for each class, and the circumstances
under which the ABS may be redeemed or retired;

(g) A full description of the assets contained, or to be contained, in the asset pool supporting the ABS;

(h) The rating agency/agencies for the ABS, the criteria used or to be used to rate the ABS, and any
limitation, qualifications or material risks not addressed by the rating agency/agencies;

(i) A full description of how the issuer will collect and maintain remittances from the assets pending
distribution to holders of the ABS, including the issuer’s investment policies and the identity of the
issuer’s investment advisor, if any;

(j) The plan for the management and administration of the assets, asset pool and the ABS, including the
disposition of the foreclosed properties, if any; and
(k) The manner of disposal of any residual value or asset with the SPE after all obligations to holders of
ABS shall have been settled.

SEC. 7. Registration of Asset-Backed Securities (ABS). — All ABS shall be registered with the Commission
in accordance with Sections 8 and 12 of the Securities Regulation Code and its implementing rules and
regulations: Provided, however, That issuers of ABS falling under Sections 9 and 10 thereof shall be
required to file with the Commission, a notice, with a disclosure statement.

SEC. 8. Approval. — The Commission shall issue to an SPC or SPT the corresponding order and permit to
sell ABS only after compliance with all the registration requirements and the approval of the Plan by the
Commission.

SEC. 9. Originator is a Bank; Special Purpose Trust. — In case the originator of the assets is a bank or any
other financial intermediary which under special laws is subject to the supervision of the BSP, or an
entity directly related to said bank or other financial intermediary, or in the event the SPE is constituted
in the form of an SPT, and endorsement by the BSP of the Plan shall be required before its approval by
the Commission.

SEC. 10. Powers of the SPE. — Each SPE shall have the power to:

(a) Accept the sale or transfer of assets;

(b) Issue and offer the ABS for sale to investors;

(c) Undertake on its own or through contracts with any person, such activities as contained in the
approved Plan;

(d) Create any indebtedness or encumbrances to defray administrative or other necessary expenses as
specified in the Plan; and

(e) Pay out or invest its funds in accordance with the Plan or as approved by the Commission.

SEC. 11. Restriction. — The SPE shall not undertake any activity other than that contained in the
approved Plan except upon a written approval of the Commission and the written consent of the holders
of the ABS representing at least two-thirds (2/3) of the outstanding among of the ABS: Provided, That in
case the originator of the assets is a bank or any other financial intermediary which under special laws is
subject to the supervision of the BSP, or an entity directly or indirectly related to said bank or other
financial intermediary, or in the event the SPE is constituted in the form of an SPT, prior endorsement by
the BSP is necessary.

SEC. 12. Transfer of Assets and Security. — The transfer of the assets from the Originator or Seller to the
SPE shall be deemed to be a “true sale” when it results in the following:

(a) The transferred Assets are legally isolated and put beyond the reach of the Originator or Seller and
its creditors;

(b) The transferee SPE has the right to pledge, mortgage or exchange those transferred Assets;

(c) The transferor relinquishes effective control over the transferred assets;
(d) The transfer shall be effected by either a sale, assignment or exchange, in any event on a without
recourse basis to the Originator or Seller;

(e) The transferee shall have the right to profits and disposition with respect to the assets;

(f) The transferor shall not have the right to recover the assets and the transferee shall not have the
right to reimbursement of the price or other consideration paid for the assets; and

(g) The transferee shall undertake the risks associated with the assets. This shall not, however, prevent
the transferor from giving moral representations or warranties in respect of the assets sold.

SEC. 13. Withdrawal of Registration. — If the Commission finds that the Originator or Seller has
undertaken the securitization so as to seek the benefits of this Act without a true intention to carry it
out, the Commission shall withdraw or cancel the registration of the ABS and the registration of the SPE
as issuer, and cause the dissolution of the SPC or termination of the SPT. The Originator or Seller and as
the case may be, the trustee, shall pay as fine an amount equal to the taxes from which the SPE has
been exempted plus a surcharge of twenty-five percent (25%) of the face value of the ABS issued,
without prejudice to the penalties under this law and the National Internal Revenue Code of 1997.

SEC. 14. Inheritance and Donor’s Tax Evasion. — It shall be unlawful for any person, whether or not in
contemplation of death, to cause directly or indirectly, the issuance, for the benefit of another or others,
of ABS and avail of the tax incentives granted by this Act for the purpose of evading the payment of
donor’s or estate taxes.

SEC. 15. Dissolution of the Special Purpose Entity (SPE). — The SPE shall be dissolved in the following
cases:

(a) It fails to accept the transfer of assets or issue ABS to investors within six (6) months from the date of
approval of the Plan unless extended by the Commission;

(b) Holders of at least two thirds (2/3) of the total amount of its ABS still outstanding have resolved to
dissolve the SPE and the approval of the Commission has been obtained; in case the Originator of the
assets is a bank or any other financial intermediary which under special laws, is subject to the
supervision of the BSP, or an entity directly or indirectly related to said bank or other financial
intermediary, or in the event the SPE is constituted in the form of an SPT, an endorsement by the BSP
shall be required prior to approval of the Commission;

(c) Conditions for dissolution that are specified in the Plan occur; or

(d) The Commission orders dissolution in accordance with Sections 13 and 19.

SEC. 16. Effects of Dissolution of SPE. — The SPE and the registration of the ABS shall be terminated,
cancelled or withdrawn in any of the cases provided for under the last preceding section.

SEC. 17. Appointment of an Interim Representative. — If the Commission finds that an SPE has no
authorized representative to act on its behalf or such persons cannot act for any reason resulting in the
interruption of its activities pursuant to the approved Plan, the Commission shall have the power to
appoint any person or persons to act as interim representative for the SPE. The interim representative
shall have full and exclusive authority to implement the approved Plan.
In the event of an appointment of replacement of an interim representative, the Commission shall post
the notice at the Commission’s office and order its publication in at least two (2) newspapers of national
circulation.

SEC. 18. Delivery of Property and Records to Interim Representative. — Where an interim representative
has been appointed in accordance with Section 17:

(a) The directors, officers, or any employees of the SPE shall take all appropriate steps to safeguard the
property and the benefits of the holders of the ABS of the SPE and shall deliver the property, accounts,
documents, and seals of the SPE to the interim representative; and

(b) Any person who possess property or documents of the SPE shall notify the representative of such
possession.

SEC. 19. Failure to Continue Business. — The Commission shall order the dissolution of an SPE upon a
finding that the SPE cannot continue to undertake its business, and shall proceed to liquidate the SPE in
accordance with the Corporation Code.

SEC. 20. Power of Inspection. — The Commission shall have the power to inspect or order the production
of the records of the SPE.

ARTICLE III

THE SERVICER

SEC. 21. Duties. — The Servicer shall perform its duties pursuant to the terms and conditions of the
servicing agreement and such other written instructions as the SPE, the trustee or its interim
representative may issue on a case-to-case basis. Collections made by the Servicer shall be remitted
promptly to the SPE or as may be agreed upon by the parties in the servicing agreement, but in no case
shall the remittance period be longer than one (1) month.

SEC. 22. Reports. — The Servicer shall prepare periodic reports as may be required by the SPE, the
trustee or its interim representative within thirty (30) days, including reports of any borrower or obligor
which fails to pay its debt or obligation at maturity date or any adverse development that may affect the
collectibility of any loan account or receivable comprising the asset pool.

SEC. 23. Extent of Authority. — The Servicer shall have such authority as is expressly stated in the
servicing agreement and unless otherwise specifically provided therein, such authority shall encompass
the general powers of administration. The Servicer shall have no authority to waive penalties and
charges except with a written authority from the Board of the SPE, the trustee or the interim
representative, should one be appointed.

SEC. 24. Qualifications. — The Servicer shall be a corporation duly incorporated under Philippine law,
with a minimum authorized capitalization of Ten million pesos (₱10,000,000.00) or such higher amount
as the Commission may prescribe. It shall be independent of the SPC or the trustee and shall not share
common ownership, officer, or directors with the SPC or the trustee. The Originator or Seller may act as
the Servicer as may be approved by the Commission or the BSP, as the case may be.

SEC. 25. Standard of Conduct. — The Servicer shall act with utmost good faith and shall perform its
obligations under the servicing agreement with the due diligence of a good father of a family.
SEC. 26. Penalties. — Breach by the Servicer of its obligations arising from the failure to abide by the
standard of conduct set forth in the preceding section shall subject the Servicer to the penalty of
revocation of its corporate registration and a fine of not less than One million pesos (₱1,000,000.00) and
shall subject its officers and employees responsible for such noncompliance with the standard of
conduct referred to above, to a penalty of imprisonment for not more than five (5) years and a fine of
not less than One hundred thousand pesos (₱100,000.00). Breach arising from bad faith or gross
negligence shall subject the Servicer to revocation of its corporate registration and a fine of not less than
Five million pesos (₱5,000,000.00) and shall subject the officers and employees responsible for such
breach to a penalty of imprisonment for not less than six (6) years and one (1) day up to a maximum of
twenty (20) years and a fine of not less than Five hundred thousand pesos (₱500,000.00).

ARTICLE IV

TAX AND OTHER RELATED ISSUES

SEC. 27. Income Taxation of Special Purpose Entity. — The SPE in the form of an SPC shall be subject to
income tax under Section 27(a), Chapter IV of the National Internal Revenue Code of 1997. An SPE
constituted as an SPT shall be subject to income tax in accordance with the provisions of Section 61,
Chapter X of the same Code.

SEC. 28. Transfer of Assets. — The sale or transfer of assets to the SPE, which includes sale or transfer of
any and all security interest thereto, if made in accordance with the Plan shall be exempted from value-
added tax (VAT) and documentary stamp tax (DST), or any other taxes imposed in lieu thereof. Except
for registration fees with the Commission, all applicable registration and annotation fees to be paid,
related or incidental to the transfer of assets, or the security interest thereto, shall be fifty percent (50
percent) of the applicable registration and annotation fees.

The transfer of assets by dation in payment (dacion en pago) by the obligor in favor of an SPE shall not
be subject to capital gains tax as provided under Section 27(d)(5) of the National Internal Revenue Code
of 1997.

SEC. 29. Issuance and Transfer of Securities. — The original issuance of ABS and other securities related
solely to such securitization transaction, such as, but not limited to, seller’s equity, subordinated debt
instruments purchased by the originator, and other related forms of credit enhancement shall be
exempt from VAT, or any other taxes imposed in lieu thereof, but subject to DST. All secondary trades
and subsequent transfers of ABS, including all forms of credit enhancement in such instruments, shall be
exempt from DST and VAT, or any other taxes imposed in lieu thereof.

SEC. 30. Non-Classification of SPE as a Bank, Quasi-Bank or Financial Intermediary. — The SPE, created
pursuant to a Plan, shall not be classified as a bank, quasi-bank or financial intermediary under the
provisions of the New Central Bank Act, the General Banking Law and the National Internal Revenue
Code of 1997, and shall not be subject to the gross receipts tax (GRT) or any other tax imposed in lieu
thereof.

SEC. 31. Securities not to be Categorized as Deposit Substitutes. — The ABS issued by an SPE pursuant to
the Plan approved by the Commission shall not be considered as deposit substitutes under the laws
mentioned in Section 30 hereof: Provided, however, That for purposes of taxation, the yield from the
ABS shall be subject to a twenty percent (20%) final withholding tax, except those held by tax-exempt
investors.

SEC. 32. Re-transfer of Assets. — Where the implementation of the Plan or the provisions of this Act
requires or provides a transfer of the assets and collateral back to the Originator or Seller, then the
provisions of Section 28 shall apply to such transfer.

SEC. 33. Incentives for Securitization. — In order to promote the securitization of the mortgage and
housing-related receivables of the government housing agencies as may be determined by the Housing
and Urban Development Coordinating Council (HUDCC) and the Department of Finance (DOF), the yield
or income of the investor from any low-cost or socialized housing-related ABS shall be exempt from
income tax.

SEC. 34. Waiver of Rights. — For purposes of securitization pursuant to this Act, the buyer of real estate
on installment payments may agree to waive his rights under Republic Act No. 6552, the provision of
Section 7 of the said Act notwithstanding.

ARTICLE V

SECONDARY MORTGAGE INSTITUTION

SEC. 35. Registration of Secondary Mortgage Institution (SMI). — An SMI, which shall be primarily
responsible in providing liquidity mechanism to primary mortgage lenders/holders as well as in
developing a secondary market for mortgage and housing-related ABS, shall also be registered with the
Commission.

SEC. 36. Registration of Business and Operational Plan. — The SMI shall also register its business and
operational plan with the Commission and shall, as a minimum, be subject to the same disclosure
requirements as SPCs.

SEC. 37. Promulgation of Rules. — The Commission, in consultation with the BSP and the Insurance
Commission (IC), shall promulgate rules regarding the ownership, organization, capitalization, and
operation of the SMI.

In promulgating such rules, the Commission shall consider the size of the asset pools to be held by the
SMI, the amount of debt to be issued by it, the extent of its operation and the powers of the SMI
specified under this Act.

SEC. 38. Powers of the SMI. — For purposes of securitization under this Act and pursuant to the Plan
submitted to the Commission, the SMI may perform any or all of the following:

(a) Wholesale purchase of residential mortgages and housing-related contract receivables;

(b) Buy and sell residential mortgage and housing-related ABS;

(c) Provide loans to primary lending institutions against residential mortgages;

(d) Issue housing-related ABS through an SPE, and issue bonds and other debt instruments;

(e) Perform ancillary functions including, but not limited to, title insurance, through a subsidiary, wholly
or partially owned by an SMI, and loan servicing; and
(f) Perform such other functions as the Commission may determine necessary to mobilize and channel
funds from the capital markets to the mortgage and housing finance sector.

SEC. 39. SMI Capitalization and Organizational Requirements. — Any SMI established for the housing
sector shall be a stock corporation and shall have a minimum initial paid-up capital of Two billion pesos
(₱2,000,000,000.00): Provided, That the total obligations of the SMI, including both actual and
contingent obligations, shall not exceed fifteen (15) times its paid-up capital: Provided, further, That the
actual obligations of the SMI shall not exceed ten (10) times its paid-up capital: Provided, furthermore,
That the ratios indicated herein may be adjusted by the Commission with the approval of the DOF and
the BSP upon a showing that the conditions of the secondary and primary markets and the financial
viability of the SMI warrant such adjustments: Provided, finally, That the investment of financial entities
in the SMI shall be subjected to and be made to comply with the rules and regulations of the
appropriate regulatory agency.

Government financial institutions and government-owned or -controlled corporations, may collectively

hold and own up to a maximum of thirty percent (30%) of the SMI’s capital: Provided, That such
investment does not conflict with their existing charters.

A government financial institution may invest up to a maximum of ten percent (10%) of its total
investible funds in housing-related assets or five percent (5%) in non-housing related assets: Provided,
That such investment does not exceed five percent (5%) of the total amount of each ABS issue.

Within ten (10) years of its incorporation, the SMI shall offer and list at least twenty percent (20%) of its
common shares in the stock exchange, which period shall be extendible only upon approval of the
Commission in instances where the lack of financial viability of the SMI warrants such extension.

SEC. 40. Prohibited Activities of the SMI.  — The SMI shall be prohibited from:

(a) Originating or financing individual mortgage loans;

(b) Providing loans to other parties engaged in a business other than that approved in the Plan
submitted to the Commission; and

(c) Providing capital equity to other companies.

SEC. 41. Extension of Benefits to the SMI. — The benefits provided to the transactions entered into by
the SPCs under Sections 28 to 33 of this Act shall also be granted to the same transactions entered into
by the SMIs for purposes of securitization in accordance with the provisions of this Act.

SEC. 42. Dissolution of the SMI. — The Commission shall order the dissolution and liquidation of the SMI
upon a finding that it:

(a) Cannot continue to undertake its business; or

(b) Is not operating actively; or

(c) Is engaging in activities that conflict with its objectives as an SMI; or

(d) Has fulfilled a condition for dissolution specified in its Articles of Incorporation.

ARTICLE VI
RATING SYSTEM

SEC. 43. Rating of ABS. — No ABS shall be issued unless such ABS has been rated by a duly accredited
credit rating agency.

SEC. 44. Credit Rating Agency. — Every credit rating agency which now exists or which may hereafter be
formed shall be subject to the provisions of this Act.

SEC. 45. Accreditation of Credit Rating Agency. — No credit rating agency shall commence rate-making
operations pursuant to this Act until it shall have obtained an accreditation from the Commission under
such rules and regulations as the Commission may deem appropriate.

SEC. 46. Examination of Credit Rating Agencies. — Credit rating agencies shall be subject to examination
by the Commission as the latter may deem warranted: Provided, That the Commission shall conduct an
examination of the credit rating agencies at least once every three (3) years.

SEC. 47. Noncompliance of Accredited Rating Agencies. — The Commission may suspend or revoke the
accreditation given to any credit rating agency which fails to comply with the Commission’s lawful order
within the time limited by such order, or any extension thereof which the Commission may grant.

ARTICLE VII

PENAL PROVISIONS

SEC. 48. Penalties. — Any person who violates any of the provisions of this Act, or the rules and
regulations promulgated by the Commission under authority hereof, or any person who, in a registration
statement, notice, or Plan filed under this Act, makes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the statements therein not
misleading, shall, upon conviction, suffer a fine of not less than Fifty thousand pesos (₱50,000.00) nor
more than Five million pesos (₱5,000,000.00) or imprisonment of not less than six (6) years and one (1)
day nor more than twenty-one (21) years, or both in the discretion of the court. If the offender is a
corporation, partnership or association or other juridical entity, the penalty may in the discretion of the
court be imposed upon such juridical entity and upon the officer or officers of the corporation,
partnership, association or entity responsible for the violation, and if such officer is an alien, he shall in
addition to the penalties prescribed, be deported without further proceedings after service of sentence.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

SEC. 49. Implementing Rules and Regulations (IRR). — The Commission, in coordination with the BSP,
DOF and the IC, shall promulgate the implementing rules and regulations which shall be submitted to
the Congressional Oversight Committee which shall review, revise and approve the same: Provided, That
the Commission, BSP, DOF and the IC may continue to issue separate regulations that will apply
exclusively to the institutions under their respective jurisdiction, consistent with the IRR as approved by
the Congressional Oversight Committee.

SEC. 50. Congressional Oversight Committee. — There is hereby created a Congressional Oversight

Committee composed of seven (7) members from the Senate and seven (7) members from the House of
Representatives. The members from the Senate shall be appointed by the Senate President with at least
two (2) Senators representing the Minority. The members from the House of Representatives shall also
be appointed by the Speaker with at least two (2) members representing the Minority. After the
Oversight Committee has approved the IRR, it shall thereafter become functus officio, and therefore
cease to exist.

SEC. 51. Repealing Clause. — All laws, executive orders, rules and regulations, and parts thereof which
are inconsistent with this Act are hereby repealed or amended accordingly.

SEC. 52. Separability Clause. — If for any reason any article or provision of this Act or any portion thereof
or application of such article, provision, or portion thereof to any person, group, or circumstance is
declared invalid or unconstitutional, the remainder of this Act shall not be affected by such decision.

SEC. 53. Effectivity Clause. — This Act shall take effect fifteen (15) days after its complete publication in
the Official Gazette or in at least two (2) newspapers of general circulation, whichever comes earlier.
[ REPUBLIC ACT NO. 8799, July 19, 2000 ]

THE SECURITIES REGULATION CODE

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

CHAPTER I

TITLE AND DEFINITIONS

SECTION 1. Title.  — This shall be known as "The Securities Regulation Code."

SEC. 2. Declaration of State Policy. — The State shall establish a socially conscious, free market that
regulates itself, encourage the widest participation of ownership in enterprises, enhance the
democratization of wealth, promote the development of the capital market, protect investors, ensure
full and fair disclosure about securities, minimize if not totally eliminate insider trading and other
fraudulent or manipulative devices and practices which create distortions in the free market.

To achieve these ends, this Securities Regulation Code is hereby enacted.

SEC. 3. Definition of Terms.  — 3.1. "Securities" are shares, participation or interests in a corporation or
in a commercial enterprise or profit-making venture and evidenced by a certificate, contract,
instrument, whether written or electronic in character. It includes:

a. Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;

b. Investment contracts, certificates of interest or participation in a profit sharing agreement,

certificates of deposit for a future subscription;

c. Fractional undivided interests in oil, gas or other mineral rights;

d. Derivatives like option and warrants;

e. Certificates of assignments, certificates of participation, trust certificates, voting trust

certificates or similar instruments;

f. Proprietary or nonproprietary membership certificates in corporations; and

Other instruments as may in the future be determined by the Commission.

3.2  "Issuer" is the originator, maker, obligor, or creator of the security.

3.3 "Broker" is a person engaged in the business of buying and selling securities for the account of
others.
3.4 "Dealer" means any person who buys and sells securities for his/her own account in the ordinary
course of business.

3.5 "Associated person of a broker or dealer" is an employee thereof who, directly exercises control of
supervisory authority, but does not include a salesman, or an agent or a person whose functions are
solely clerical or ministerial.

3.6 "Clearing agency" is any person who acts as intermediary in making deliveries upon payment to
effect settlement in securities transactions.

3.7 "Exchange" is an organized marketplace or facility that brings together buyers and sellers and
executes trades of securities and/or commodities.

3.8 "Insider" means: (a) the issuer; (b) a director or officer (or person performing similar functions) of, or
a person controlling the issuer; (c) a person whose relationship or former relationship to the issuer gives
or gave him access to material information about the issuer or the security that is not generally available
to the public; (d) a government employee, or director, or officer of an exchange, clearing agency and/or
self-regulatory organization who has access to material information about an issuer or a security that is
not generally available to the public; or (e) a person who learns such information by a communication
from any of the foregoing insiders.

3.9 "Pre-need plans" are contracts which provide for the performance of future services or the payment
of future monetary considerations at the time of actual need, for which plan holders pay in cash or
installment at stated prices, with or without interest or insurance coverage and includes life, pension,
education, interment and other plans which the Commission may from time to time approve.

3.10 "Promoter" is a person who, acting alone or with others, takes initiative in founding and organizing
the business or enterprise of the issuer and receives consideration therefor.

3.11 "Prospectus" is the document made by or on behalf of an issuer, underwriter or dealer to sell or
offer securities for sale to the public through a registration statement filed with the Commission.

3.12  "Registration statement" is the application for the registration of securities required to be filed
with the Commission.

3.13  "Salesman" is a natural person, employed as such or as an agent, by a dealer, issuer or broker to
buy and sell securities.

3.14  "Uncertificated security" is a security evidenced by electronic or similar records.

3.15  "Underwriter" is a person who guarantees on a firm commitment and/or declared best effort basis
the distribution and sale of securities of any kind by another company.
CHAPTER II

SECURITIES AND EXCHANGE COMMISSION

SEC. 4. Administrative Agency. — 4.1. This Code shall be administered by the Securities and Exchange
Commission (hereinafter referred to as the "Commission") as a collegial body, composed of a
Chairperson and four (4) Commissioners, appointed by the President for a term of seven (7) years each
and who shall serve as such until their successor shall have been appointed and qualified. A
Commissioner appointed to fill a vacancy occurring prior to the expiration of the term for which his/her
predecessor was appointed, shall serve only for the unexpired portion of such term. The incumbent
Chairperson and Commissioners at the effectivity of this Code, shall serve the unexpired portion of their
terms under Presidential Decree No. 902-A. Unless the context indicates otherwise, the term
"Commissioner" includes the Chairperson.

4.2   The Commissioners must be natural-born citizens of the Philippines, at least forty (40) years of age
for the Chairperson and at least thirty-five (35) years of age for the Commissioners, of good moral
character, of unquestionable integrity, of known probity and patriotism, and with recognized
competence in social and economic disciplines: Provided, That the majority of Commissioners, including
the Chairperson, shall be members of the Philippine Bar.

4.3.   The Chairperson is chief executive officer of the Commission. The Chairperson shall execute and
administer the policies, decisions, orders and resolutions approved by the Commission and shall have
the general executive direction and supervision of the work and operation of the Commission and of its
members, bodies, boards, offices, personnel and all its administrative business.

4.4.   The salary of the Chairperson and the Commissioners shall be fixed by the President of the
Philippines based on an objective classification system, at a sum comparable to the members of the
Monetary Board and commensurate to the importance and responsibilities attached to the position.

4.5.   The Commission shall hold meetings at least once a week for the conduct of business or as often as
may be necessary upon call of the Chairperson or upon the request of three (3) Commissioners. The
notice of the meeting shall be given to all Commissioners and the presence of three (3) Commissioners
shall constitute a quorum.  In the absence of the Chairperson, the most senior Commissioner shall act as
presiding officer of the meeting.

4.6.   The Commission may, for purposes of efficiency, delegate any of its functions to any department or
office of the Commission, an individual Commissioner or staff member of the Commission except its
review or appellate authority and its power to adopt, alter and supplement any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested party any
action of any department or office, individual Commissioner, or staff member of the Commission.

SEC. 5. Powers and Functions of the Commission.  — 5.1. The Commission shall act with transparency and
shall have the powers and functions provided by this Code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses Law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:

a. Have jurisdiction and supervision over all corporations, partnerships or associations who are the
grantees of primary franchises and/or a license or permit issued by the Government;

b. Formulate policies and recommendations on issues concerning the securities market, advise
Congress and other government agencies on all aspects of the securities market and propose
legislation and amendments thereto;

c. Approve, reject, suspend, revoke or require amendments to registration statements, and

registration and licensing applications;

d. Regulate, investigate or supervise the activities of persons to ensure compliance;

e. Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other
SROs;

f. Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant
thereto;

g. Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulations and orders;

h. Enlist the aid and support of and/or deputize any and all enforcement agencies of the
Government, civil or military as well as any private institution, corporation, firm, association or
person in the implementation of its powers and functions under this Code;

i. Issue cease and desist orders to prevent fraud or injury to the investing public;

j. Punish for contempt of the Commission, both direct and indirect, in accordance with the
pertinent provisions of and penalties prescribed by the Rules of Court;

k. Compel the officers of any registered corporation or association to call meetings of stockholders
or members thereof under its supervision;

l. Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the

Commission and in appropriate cases, order the examination, search and seizure of all
documents, papers, files and records, tax returns, and books of accounts of any entity or person
under investigation as may be necessary for the proper disposition of the cases before it, subject
to the provisions of existing laws;

m. Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law; and

n. Exercise such other powers as may be provided by law as well as those which may be implied
from, or which are necessary or incidental to the carrying out of, the express powers granted
the Commission to achieve the objectives and purposes of these laws.

5.2. The Commission's jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.
902-Ais hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial
Court: Provided,  That the Supreme Court in the exercise of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction
over pending cases involving intra-corporate disputes submitted for final resolution which should be
resolved within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction
over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

SEC. 6.  Indemnification and Responsibilities of Commissioners.  — 6.1. The Commission shall indemnify
each Commissioner and other officials of the Commission, including personnel performing supervision
and examination functions for all costs and expenses reasonably incurred by such persons in connection
with any civil or criminal actions, suits or proceedings to which they may be or made a party by reason
of the performance of their functions or duties, unless they are finally adjudged in such actions or
proceedings to be liable for gross negligence or misconduct.

In the event of settlement or compromise, indemnification shall be provided only in connection with
such matters covered by the settlement as to which the Commission is advised by external counsel that
the persons to be indemnified did not commit any gross negligence or misconduct.

The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be
paid by the Commission in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the Commissioner, officer or employee to repay the amount
advanced should it ultimately be determined by the Commission that he/she is not entitled to be
indemnified as provided in this subsection.

6.2. The Commissioners, officers and employees of the Commission who willfully violate this Code or
who are guilty of negligence, abuse or acts of malfeasance or fail to exercise extraordinary diligence in
the performance of their duties shall be held liable for any loss or injury suffered by the Commission or
other institutions as a result of such violation, negligence, abuse, malfeasance, or failure to exercise
extraordinary diligence.

Similar responsibility shall apply to the Commissioners, officers and employees of the Commission for (1)
the disclosure of any information, discussion or resolution of the Commission of a confidential nature, or
about the confidential operations of the Commission, unless the disclosure is in connection with the
performance of official functions with the Commission or with prior authorization of the Commissioners;
or (2) the use of such information for personal gain or to the detriment of the government, the
Commission or third parties: Provided, however, That any data or information required to be submitted
to the President and/or Congress or its appropriate committee, or to be published under the provisions
of this Code shall not be considered confidential.

SEC. 7. Reorganization. -7.1. To achieve the goals of this Code, consistent with Civil Service laws, the
Commission is hereby authorized to provide for its reorganization, to streamline its structure and
operations, upgrade its human resource component and enable it to more efficiently and effectively
perform its functions and exercise its powers under this Code.

7.2. All positions of the Commission shall be governed by a compensation and position classification
systems and qualification standards approved by the Commission based on a comprehensive job
analysis and audit of actual duties and responsibilities. The compensation plan shall be comparable with
the prevailing compensation plan in the Bangko Sentral ng Pilipinas and other government financial
institutions and shall be subject to periodic review by the Commission no more than once every two (2)
years without prejudice to yearly merit reviews or increases based on productivity and efficiency. The
Commission shall, therefore, be exempt from laws, rules, and regulations on compensation, position
classification and qualification standards. The Commission shall, however, endeavor to make its system
conform as closely as possible with the principles under the Compensation and Position Classification
Act of 1989 (Republic Act No. 6758, as amended).

CHAPTER III

REGISTRATION OF SECURITIES

SEC. 8.  Requirement of Registration of Securities. — 8.1. Securities shall not be sold or offered for sale or
distribution within the Philippines, without a registration statement duly filed with and approved by the
Commission. Prior to such sale, information on the securities, in such form and with such substance as
the Commission may prescribe, shall be made available to each prospective purchaser.

8.2.   The Commission may conditionally approve the registration statement under such terms as it may
deem necessary.

8.3.  The Commission may specify the terms and conditions under which any written communication,
including any summary prospectus, shall be deemed not to constitute an offer for sale under this
Section.

8.4   A record of the registration of securities shall be kept in a Register of Securities in which shall be
recorded orders entered by the Commission with respect to such securities. Such register and all
documents or information with respect to the securities registered therein shall be open to public
inspection at reasonable hours on business days.

8.5.   The Commission may audit the financial statements, assets and other information of a firm
applying for registration of its securities whenever it deems the same necessary to insure full disclosure
or to protect the interest of the investors and the public in general.

SEC. 9.  Exempt Securities. — 9.1. The requirement of registration under Subsection 8.1 shall not as a
general rule apply to any of the following classes of securities:

a. Any security issued or guaranteed by the Government of the Philippines, or by any political
subdivision or agency thereof, or by any person controlled or supervised by, and acting as an
instrumentality of said Government.

b. Any security issued or guaranteed by the government of any country with which the Philippines
maintains diplomatic relations, or by any state, province or political subdivision thereof on the
 basis of reciprocity:  Provided, That the Commission may require compliance with the form and
content of disclosures the Commission may prescribe.

c. Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper

adjudicatory body.

d. Any security or its derivatives the sale or transfer of which, by law, is under the supervision and
regulation of the Office of the Insurance Commission, Housing and Land Use Regulatory Board,
or the Bureau of Internal Revenue.

e. Any security issued by a bank except its own shares of stock.

9.2. The Commission may, by rule or regulation after public hearing, add to the foregoing any class of
securities if it finds that the enforcement of this Code with respect to such securities is not necessary in
the public interest and for the protection of investors.

SEC. 10. Exempt Transactions.  — 10.1. The requirement of registration under Subsection 8.1 shall not
apply to the sale of any security in any of the following transactions:

a. At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in

insolvency or bankruptcy.

b. By or for the account of a pledge holder, or mortgagee or any other similar lien holder selling or
offering for sale or delivery in the ordinary course of business and not for the purpose of
avoiding the provisions of this Code, to liquidate a bona fide debt, a security pledged in good
faith as security for such debt.

c. An isolated transaction in which any security is sold, offered for sale, subscription or delivery by
the owner thereof, or by his representative for the owner's account, such sale or offer for sale,
subscription or delivery not being made in the course of repeated and successive transactions of
a like character by such owner, or on his account by such representative and such owner or
representative not being the underwriter of such security.

d. The distribution by a corporation, actively engaged in the business authorized by its articles of
incorporation, of securities to its stockholders or other security holders as a stock dividend or
other distribution out of surplus.

e. The sale of capital stock of a corporation to its own stockholders exclusively, where no
commission or other remuneration is paid or given directly or indirectly in connection with the
sale of such capital stock.

f. The issuance of bonds or notes secured by mortgage upon real estate or tangible personal
property, where the entire mortgage together with all the bonds or notes secured thereby are
sold to a single purchaser at a single sale.

g. The issue and delivery of any security in exchange for any other security of the same issuer
pursuant to a right of conversion entitling the holder of the security surrendered in exchange to
make such conversion:  Provided, That the security so surrendered has been registered under
this Code or was, when sold, exempt from the provisions of this Code, and that the security
 issued and delivered in exchange, if sold at the conversion price, would at the time of such
conversion fall within the class of securities entitled to registration under this Code. Upon such
conversion, the par value of the security surrendered in such exchange shall be deemed the
price at which the securities issued and delivered in such exchange are sold.

h. Broker's transactions, executed upon customer's orders, on any registered Exchange or other
trading market.

i. Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof
or in pursuance of an increase in its authorized capital stock under the Corporation Code, when
no expense is incurred, or no commission, compensation or remuneration is paid or given in
connection with the sale or disposition of such securities, and only when the purpose for
soliciting, giving or taking of such subscriptions is to comply with the requirements of such law
as to the percentage of the capital stock of a corporation which should be subscribed before it
can be registered and duly incorporated, or its authorized capital increased.

j. The exchange of securities by the issuer with its existing security holders exclusively, where no
commission or other remuneration is paid or given directly or indirectly for soliciting such
exchange.

k. The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during
any twelve-month period.

l. The sale of securities to any number of the following qualified buyers:

i. Bank;

ii. Registered investment house;

iii. Insurance company;

iv. Pension fund or retirement plan maintained by the Government of the Philippines or
any political subdivision thereof or managed by a bank or other persons authorized by
the Bangko Sentral to engage in trust functions;

v. Investment company; or

vi. Such other person as the Commission may by rule determine as qualified buyers, on the
basis of such factors as financial sophistication, net worth, knowledge, and experience in
financial and business matters, or amount of assets under management.

10.2   The Commission may exempt other transactions, if it finds that the requirements of registration
under this Code is not necessary in the public interest or for the protection of the investors such as by
reason of the small amount involved or the limited character of the public offering.

10.3   Any person applying for an exemption under this Section, shall file with the Commission a notice
identifying the exemption relied upon on such form and at such time as the Commission by rule may
prescribe and with such notice shall pay to the Commission a fee equivalent to one-tenth (1/10) of one
percent (1%) of the maximum aggregate price or issued value of the securities.
SEC. 11. Commodity Futures Contracts. — No person shall offer, sell or enter into commodity futures
contracts except in accordance with rules, regulations and orders the Commission may prescribe in the
public interest. The Commission shall promulgate rules and regulations involving commodity futures
contracts to protect investors to ensure the development of a fair and transparent commodities market.

SEC. 12. Procedure for Registration of Securities. — 12.1. All securities required to be registered under
Subsection 8.1 shall be registered through the filing by the issuer in the main office of the Commission,
of a sworn registration statement with respect to such securities, in such form and containing such
information and documents as the Commission shall prescribe. The registration statement shall include
any prospectus required or permitted to be delivered under Subsections 8.2,8.3 and 8.4.

12.2   In promulgating rules governing the content of any registration statement (including any
prospectus made a part thereof or annexed thereto), the Commission may require the registration
statement to contain such information or documents as it may, by rule, prescribe. It may dispense with
any such requirement, or may require additional information or documents, including written
information from an expert, depending on the necessity thereof or their applicability to the class of
securities sought to be registered.

12.3. The information required for the registration of any kind, and all securities, shall include, among
others, the effect of the securities issue on ownership, on the mix of ownership, especially foreign and
local ownership.

12.4. The registration statement shall be signed by the issuer's executive officer, its principal operating
officer, its principal financial officer, its comptroller, its principal accounting officer, its corporate
secretary or persons performing similar functions accompanied by a duly verified resolution of the board
of directors of the issuer corporation. The written consent of the expert named as having certified any
part of the registration statement or any document used in connection therewith shall also be filed.
Where the registration statement includes shares to be sold by selling shareholders, a written
certification by such selling shareholders as to the accuracy of any part of the registration statement
contributed to by such selling shareholders shall also be filed.

12.5. (a) Upon filing of the registration statement, the issuer shall pay to the Commission a fee of not
more than one-tenth (1/10) of one per centum (1%) of the maximum aggregate price at which such
securities are proposed to be offered. The Commission shall prescribe by rule diminishing fees in inverse
proportion the value of the aggregate price of the offering.

(b) Notice of the filing of the registration statement shall be immediately published by the issuer, at its
own expense, in two (2) newspapers of general circulation in the Philippines, once a week for two (2)
consecutive weeks, or in such other manner as the Commission by rule shall prescribe, reciting that a
registration statement for the sale of such security has been filed, and that the aforesaid registration
statement, as well as the papers attached thereto are open to inspection at the Commission during
business hours, and copies thereof, photostatic or otherwise, shall be furnished to interested parties at
such reasonable charge as the Commission may prescribe.
12.6.   Within forty-five (45) days after the date of filing of the registration statement, or by such later
date to which the issuer has consented, the Commission shall declare the registration statement
effective or rejected, unless the applicant is allowed to amend the registration statement as provided in
Section 14 hereof. The Commission shall enter an order declaring the registration statement to be
effective if it finds that the registration statement together with all the other papers and documents
attached thereto, is on its face complete and that the requirements have been complied with. The
Commission may impose such terms and conditions as may be necessary or appropriate for the
protection of the investors.

12.7.   Upon effectivity of the registration statement, the issuer shall state under oath in every
prospectus that all registration requirements have been met and that all information are true and
correct as represented by the issuer or the one making the statement. Any untrue statement of fact or
omission to state a material fact required to be stated therein or necessary to make the statement
therein not misleading shall constitute fraud.

SEC. 13. Rejection and Revocation of Registration of Securities. — 13.1. The Commission may reject a
registration statement and refuse registration of the security thereunder, or revoke the effectivity of a
registration statement and the registration of the security thereunder after due notice and hearing by
issuing an order to such effect, setting forth its findings in respect thereto, if it finds that:

a. The issuer:

i. Has been judicially declared insolvent;

ii. Has violated any of the provisions of this Code, the rules promulgated pursuant thereto,
or any order of the Commission of which the issuer has notice in connection with the
offering for which a registration statement has been filed;

iii. Has been or is engaged or is about to engage in fraudulent transactions;

iv. Has made any false or misleading representation of material facts in any prospectus
concerning the issuer or its securities;

v. Has failed to comply with any requirement that the Commission may impose as a
condition for registration of the security for which the registration statement has been
filed; or

b. The registration statement is on its face incomplete or inaccurate in any material respect or
includes any untrue statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading; or

c. The issuer, any officer, director or controlling person of the issuer, or person performing similar
functions, or any underwriter has been convicted, by a competent judicial or administrative
body, upon plea of guilty, or otherwise, of an offense involving moral turpitude and/or fraud or
is enjoined or restrained by the Commission or other competent judicial or administrative body
for violations of securities, commodities, and other related laws.
For purposes of this subsection, the term "competent judicial or administrative body" shall include a
foreign court of competent jurisdiction as provided for under the Rules of Court.

13.2.   The Commission may compel the production of all the books and papers of such issuer, and may
administer oaths to, and examine the officers of such issuer or any other person connected therewith as
to its business and affairs.

13.3.   If any issuer shall refuse to permit an examination to be made by the Commission, its refusal shall
be ground for the refusal or revocation of the registration of its securities.

13.4.  If the Commission deems it necessary, it may issue an order suspending the offer and sale of the
securities pending any investigation. The order shall state the grounds for taking such action, but such
order of suspension although binding upon the persons notified thereof, shall be deemed confidential,
and shall not be published. Upon the issuance of the suspension order, no further offer or sale of such
security shall be made until the same is lifted or set aside by the Commission. Otherwise, such sale shall
be void.

13.5.   Notice of issuance of such order shall be given to the issuer and every dealer and broker who shall
have notified the Commission of an intention to sell such security.

13.6.   A registration statement may be withdrawn by the issuer only with the consent of the
Commission.

SEC. 14. Amendments to the Registration Statement. — 14.1. If a registration statement is on its face
incomplete or inaccurate in any material respect, the Commission shall issue an order directing the
amendment of the registration statement. Upon compliance with such order, the amended registration
statement shall become effective in accordance with the procedure mentioned in Subsection 12.6
hereof.

14.2.   An amendment filed prior to the effective date of the registration statement shall recommence
the forty-five (45) day period within which the Commission shall act on a registration statement. An
amendment filed after the effective date of the registration statement shall become effective only upon
such date as determined by the Commission.

14.3.   If any change occurs in the facts set forth in a registration statement, the issuer shall file an
amendment thereto setting forth the change.

14.4.   If, at any time, the Commission finds that a registration statement contains any false statement or
omits to state any fact required to be stated therein or necessary to make the statements therein not
misleading, the Commission may conduct an examination, and, after due notice and hearing, issue an
Order suspending the effectivity of the registration statement. If the statement is duly amended, the
suspension order may be lifted.

14.5.   In making such examination the Commission or any officer or officers designated by it may
administer oaths and affirmations and shall have access to, and may demand the production of, any
books, records or documents relevant to the examination. Failure of the issuer, underwriter, or any
other person to cooperate, or his obstruction or refusal to undergo an examination, shall be a ground
for the issuance of a suspension order.

SEC. 15. Suspension of Registration. — 15.1. If, at any time, the information contained in the registration
statement filed is or has become misleading, incorrect, inadequate or incomplete in any material
respect, or the sale or offering for sale of the security registered thereunder may work or tend to work a
fraud, the Commission may require from the issuer such further information as may in its judgment be
necessary to enable the Commission to ascertain whether the registration of such security should be
revoked on any ground specified in this Code. The Commission may also suspend the right to sell and
offer for sale such security pending further investigation, by entering an order specifying the grounds for
such action, and by notifying the issuer, underwriter, dealer or broker known as participating in such
offering.

15.2.  The refusal to furnish information required by the Commission may be a ground for the issuance
of an order of suspension pursuant to Subsection 15.1. Upon the issuance of any such order and
notification to the issuer, underwriter, dealer or broker known as participating in such offering, no
further offer or sale of any such security shall be made until the same is lifted or set aside by the
Commission. Otherwise, such sale shall be void.

15.3.   Upon issuance of an order of suspension, the Commission shall conduct a hearing.   If the
Commission determines that the sale of any security should be revoked, it shall issue an order
prohibiting sale of such security.

Until the issuance of a final order, the suspension of the right to sell, though binding upon the persons
notified thereof, shall be deemed confidential, and shall not be published, unless it shall appear that the
order of suspension has been violated after notice. If, however, the Commission finds that the sale of
the security will neither be fraudulent nor result in fraud, it shall forthwith issue an order revoking the
order of suspension, and such security shall be restored to its status as a registered security as of the
date of such order of suspension.

CHAPTER IV

REGULATION OF PRE-NEED PLANS

SEC. 16. Pre-Need Plans. — No person shall sell or offer for sale to the public any pre-need plan except in
accordance with rules and regulations which the Commission shall prescribe. Such rules shall regulate
the sale of pre-need plans by, among other things, requiring the registration of pre-need plans, licensing
persons involved in the sale of pre-need plans, requiring disclosures to prospective plan holders,
prescribing advertising guidelines, providing for uniform accounting system, reports and record keeping
with respect to such plans, imposing capital, bonding and other financial responsibility, and establishing
trust funds for the payment of benefits under such plans.
CHAPTER V

REPORTORIAL REQUIREMENTS

SEC. 17. Periodic and Other Reports of Issuers.  — 17.1. Every issuer satisfying the requirements in
Subsection 17.2 hereof shall file with the Commission:

a. Within one hundred thirty-five (135) days, after the end of the issuer's fiscal year, or such other
time as the Commission may prescribe, an annual report which shall include, among others, a
balance sheet, profit and loss statement and statement of cash flows, for such last fiscal year,
certified by an independent certified public accountant, and a management discussion and
analysis of results of operations; and

b. Such other periodical reports for interim fiscal periods and current reports on significant
developments of the issuer as the Commission may prescribe as necessary to keep current
information on the operation of the business and financial condition of the issuer.

17.2. The reportorial requirements of Subsection 17.1 shall apply to the following:

a. An issuer which has sold a class of its securities pursuant to a registration under Section 12
hereof: Provided, however, That the obligation of such issuer to file reports shall be suspended
for any fiscal year after the year such registration became effective if such issuer, as of the first
day of any such fiscal year, has less than one hundred (100) holders of such class of securities or
such other number as the Commission shall prescribe and it notifies the Commission of such;

b. An issuer with a class of securities listed for trading on an Exchange; and

c. An issuer with assets of at least Fifty million pesos (P50,000,000) or such other amount as the
Commission shall prescribe, and having two hundred (200) or more holders each holding at least
one hundred (100) shares of a class of its equity securities: Provided, however,  That the
obligation of such issuer to file reports shall be terminated ninety (90) days after notification to
the Commission by the issuer that the number of its holders holding at least one hundred (100)
shares is reduced to less than one hundred (100).

17.3   Every issuer of a security listed for trading on an Exchange shall file with the Exchange a copy of
any report filed with the Commission under Subsection 17.1 hereof.

17.4   All reports (including financial statements) required to be filed with the Commission pursuant to
Subsection 17.1 hereof shall be in such form, contain such information and be filed at such times as the
Commission shall prescribe, and shall be in lieu of any periodical or current reports or financial
statements otherwise required to be filed under the Corporation Code.

17.5   Every issuer which has a class of equity securities satisfying any of the requirements in Subsection
17.2 shall furnish to each holder of such equity security an annual report in such form and containing
such information as the Commission shall prescribe.

17.6   Within such period as the Commission may prescribe preceding the annual meeting of the holders
of any equity security of a class entitled to vote at such meeting, the issuer shall transmit to such holders
an annual report in conformity with Subsection 17.5.

SEC. 18. Reports by Five Per Centum (5%) Holders of Equity Securities. — 18.1. In every case in which an
issuer satisfies the requirements of Subsection 17.2 hereof, any person who acquires directly or
indirectly the beneficial ownership of more than five per centum (5%) of such class or in excess of such
lesser per centum as the Commission by rule may prescribe, shall, within ten (10) days after such
acquisition or such reasonable time as fixed by the Commission, submit to the issuer of the security, to
the Exchange where the security is traded, and to the Commission a sworn statement containing the
following information and such other information as the Commission may require in the public interest
or for the protection of investors:

a. The personal background, identity, residence, and citizenship of, and the nature of such
beneficial ownership by, such person and all other persons by whom or on whose behalf the
purchases are effected; in the event the beneficial owner is a juridical person, the lines of
business of the beneficial owner shall also be reported;

b. If the purpose of the purchases or prospective purchases is to acquire control of the business of
the issuer of the securities, any plans or proposals which such persons may have that will effect
a major change in its business or corporate structure;

c. The number of shares of such security which are beneficially owned, and the number of shares
concerning which there is a right to acquire, directly or indirectly, by: (i) such person, and (ii)
each associate of such person, giving the background, identity, residence, and citizenship of
each such associate; and

d. Information as to any contracts, arrangements, or understanding with any person with respect
to any securities of the issuer including but not limited to transfer, joint ventures, loan or option
arrangements, puts or calls, guarantees or division of losses or profits, or proxies naming the
persons with whom such contracts, arrangements, or understanding have been entered into,
and giving the details thereof.

18.2  If any change occurs in the facts set forth in the statements, an amendment shall be transmitted to
the issuer, the Exchange and the Commission.

18.3  The Commission, may permit any person to file in lieu of the statement required by Subsection
17.1 hereof, a notice stating the name of such person, the shares of any equity securities subject to
Subsection 17.1 which are owned by him, the date of their acquisition and such other information as the
Commission may specify, if it appears to the Commission that such securities were acquired by such
person in the ordinary course of his business and were not acquired for the purpose of and do not have
the effect of changing or influencing the control of the issuer nor in connection with any transaction
having such purpose or effect.

CHAPTER VI

PROTECTION OF SHAREHOLDER INTERESTS

SEC. 19. Tender Offers. — 19.1.

a. Any person or group of persons acting in concert who intends to acquire at least fifteen percent
(15%) of any class of any equity security of a listed corporation or of any class of any equity
security of a corporation with assets of at least Fifty million pesos (P50,000,000) and having two
hundred (200) or more stockholders with at least one hundred (100) shares each or who intends
to acquire at least thirty percent (30%) of such equity over a period of twelve (12) months shall
make a tender offer to stockholders by filing with the Commission a declaration to that effect;
and furnish the issuer, a statement containing such of the information required in Section 17 of
this Code as the Commission may prescribe. Such person or group of persons shall publish all
requests or invitations for tender, or materials making a tender offer or requesting or inviting
letters of such a security. Copies of any additional material soliciting or requesting such tender
offers subsequent to the initial solicitation or request shall contain such information as the
Commission may prescribe, and shall be filed with the Commission and sent to the issuer not
later than the time copies of such materials are first published or sent or given to security
holders.

b. Any solicitation or recommendation to the holders of such a security to accept or reject a tender
offer or request or invitation for tenders shall be made in accordance with such rules and
regulations as the Commission may prescribe.

c. Securities deposited pursuant to a tender offer or request or invitation for tenders may be
withdrawn by or on behalf of the depositor at any time throughout the period that the tender
offer remains open and if the securities deposited have not been previously accepted for
payment, and at any time after sixty (60) days from the date of the original tender offer or
request or invitation, except as the Commission may otherwise prescribe.

d. Where the securities offered exceed that which a person or group of persons is bound or willing
to take up and pay for, the securities that are subject of the tender offer shall be taken up as
nearly as may be pro rata, disregarding fractions, according to the number of securities
deposited by each depositor. The provisions of this subsection shall also apply to securities
deposited within ten (10) days after notice of an increase in the consideration offered to security
holders, as described in paragraph (e) of this subsection, is first published or sent or given to
security holders.

e. Where any person varies the terms of a tender offer or request or invitation for tenders before
the expiration thereof by increasing the consideration offered to holders of such securities, such
person shall pay the increased consideration to each security holder whose securities are taken
up and paid for whether or not such securities have been taken up by such person before the
variation of the tender offer or request or invitation.

19.2. It shall be unlawful for any person to make any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements made, in the light of the circumstances
under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative
acts or practices, in connection with any tender offer or request or invitation for tenders, or any
solicitation of security holders in opposition to or in favor of any such offer, request, or invitation. The
Commission shall, for the purposes of this subsection, define and prescribe means reasonably designed
to prevent, such acts and practices as are fraudulent, deceptive, or manipulative.

SEC. 20. Proxy Solicitations. — 20.1. Proxies must be issued and proxy solicitation must be made in
accordance with rules and regulations to be issued by the Commission;

20.2 Proxies must be in writing, signed by the stockholder or his duly authorized representative and filed
before the scheduled meeting with the corporate secretary.

20.3 Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is
intended.  No proxy shall be valid and effective for a period longer than five (5) years at one time.

20.4  No broker or dealer shall give any proxy, consent or authorization, in respect of any security
carried for the account of a customer, to a person other than the customer, without the express written
authorization of such customer.

20.5  A broker or dealer who holds or acquires the proxy for at least ten per centum (10%) or such
percentage as the Commission may prescribe of the outstanding share of the issuer, shall submit a
report identifying the beneficial owner within ten (10) days after such acquisition, for its own account or
customer, to the issuer of the security, to the Exchange where the security is traded and to the
Commission.

SEC. 21. Fees for Tender Offers and Certain Proxy Solicitations. — At the time of filing with the
Commission of any statement required under Section 19 for any tender offer or Section 72.2 for issuer
repurchases, or Section 20 for proxy or consent solicitation, the Commission may require that the
person making such filing pay a fee of not more than one-tenth (1/10) of one per centum  (1%) of:

21.1 The proposed aggregate purchase price in the case of a transaction under Sections 20 or 72.2; or

21.2 The proposed payment in cash, and the value of any securities or property to be transferred in the
acquisition, merger or consolidation, or the cash and value of any securities proposed to be received
upon the sale or disposition of such assets in the case of a solicitation under Section 20. The Commission
shall prescribe by rule diminishing fees in inverse proportion to the value of the aggregate price of the
offering.

SEC. 22. Internal Record Keeping and Accounting Controls. — Every issuer which has a class of securities
that satisfies the requirements of Subsection 17.2 shall:

22.1. Make and keep books, records, and accounts which, in reasonable detail accurately and fairly
reflect the transactions and dispositions of assets of the issuer;

22.2. Devise and maintain a system of internal accounting controls sufficient to provide reasonable
assurances that: (a) Transactions and access to assets are pursuant to management authorization; (b)
Financial statements are prepared in conformity with generally accepted accounting principles that are
adopted by the Accounting Standards Council and the rules promulgated by the Commission with regard
to the preparation of financial statements; and (c) Recorded assets are compared with existing assets at
reasonable intervals and differences are reconciled.

SEC. 23. Transactions of Directors, Officers and Principal Stockholders. — 23.1. Every person who is
directly or indirectly the beneficial owner of more than ten per centum (10%) of any class of any equity
security which satisfies the requirements of Subsection 17.2, or who is a director or an officer of the
issuer of such security, shall file, at the time either such requirement is first satisfied or within ten days
after he becomes such a beneficial owner, director, or officer, a statement with the Commission and, if
such security is listed for trading on an Exchange, also with the Exchange, of the amount of all equity
securities of such issuer of which he is the beneficial owner, and within ten (10) days after the close of
each calendar month thereafter, if there has been a change in such ownership during such month, shall
file with the Commission, and if such security is listed for trading on an Exchange, shall also file with the
Exchange, a statement indicating his ownership at the close of the calendar month and such changes in
his ownership as have occurred during such calendar month.

23.2. For the purpose of preventing the unfair use of information which may have been obtained by
such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized
by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer within
any period of less than six (6) months, unless such security was acquired in good faith in connection with
a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any
intention of holding the security purchased or of not repurchasing the security sold for a period
exceeding six (6) months. Suit to recover such profit may be instituted before the Regional Trial Court by
the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the
issuer shall fail or refuse to bring such suit within sixty (60) days after request or shall fail diligently to
prosecute the same thereafter, but no such suit shall be brought more than two (2) years after the date
such profit was realized. This subsection shall not be construed to cover any transaction where such
beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of
the security involved, or any transaction or transactions which the Commission by rules and regulations
may exempt as not comprehended within the purpose of this subsection.

23.3 It shall be unlawful for any such beneficial owner, director, or officer, directly or indirectly, to sell
any equity security of such issuer if the person selling the security or his principal: (a) Does not own the
security sold; or (b) If owning the security, does not deliver it against such sale within twenty (20) days
thereafter, or does not within five (5) days after such sale deposit it in the mails or other usual channels
of transportation; but no person shall be deemed to have violated this subsection if he proves that
notwithstanding the exercise of good faith he was unable to make such delivery or deposit within such
time, or that to do so would cause undue inconvenience or expense.

23.4  The provisions of Subsection 23.2 shall not apply to any purchase and sale, or sale and purchase,
and the provisions of Subsection 23.3 shall not apply to any sale, of an equity security not then or
thereafter held by him in an investment account, by a dealer in the ordinary course of his business and
incident to the establishment or maintenance by him of a primary or secondary market, otherwise than
on an Exchange, for such security. The Commission may, by such rules and regulations as it deems
necessary or appropriate in the public interest, define and prescribe terms and conditions with respect
to securities held in an investment account and transactions made in the ordinary course of business
and incident to the establishment or maintenance of a primary or secondary market.

CHAPTER VII

PROHIBITIONS ON FRAUD, MANIPULATION AND

INSIDER TRADING

SEC. 24. Manipulation of Security Prices; Devices and Practices. — 24.1. It shall be unlawful for any
person acting for himself or through a dealer or broker, directly or indirectly:

a. To create a false or misleading appearance of active trading in any listed security traded in an
Exchange or any other trading market (hereafter referred to purposes of this Chapter as
"Exchange"):

i. By effecting any transaction in such security which involves no change in the beneficial
ownership thereof;

ii. By entering an order or orders for the purchase or sale of such security with the
knowledge that a simultaneous order or orders of substantially the same size, time and
price, for the sale or purchase of any such security, has or will be entered by or for the
same or different parties; or

iii. By performing similar act where there is no change in beneficial ownership.

b. To effect, alone or with others, a series of transactions in securities that: (i) Raises their price to
induce the purchase of a security, whether of the same or a different class of the same issuer or
of a controlling, controlled, or commonly controlled company by others; (ii) Depresses their
price to induce the sale of a security, whether of the same or a different class, of the same issuer
or of a controlling, controlled, or commonly controlled company by others; or (iii) Creates active
trading to induce such a purchase or sale through manipulative devices such as marking the
close, painting the tape, squeezing the float, hype and dump, boiler room operations and such
other similar devices.

c. To circulate or disseminate information that the price of any security listed in an Exchange will
or is likely to rise or fall because of manipulative market operations of anyone or more persons
conducted for the purpose of raising or depressing the price of the security for the purpose of
inducing the purchase or sale of such security.

d. To make false or misleading statement with respect to any material fact, which he knew or had
reasonable ground to believe was so false or misleading, for the purpose of inducing the
purchase or sale of any security listed or traded in an Exchange.

e. To effect, either alone or others, any series of transactions for the purchase and/or sale of any
security traded in an Exchange for the purpose of pegging, fixing or stabilizing the price of such
security, unless otherwise allowed by this Code or by rules of the Commission.
24.2. No person shall use or employ, in connection with the purchase or sale of any security any
manipulative or deceptive device or contrivance. Neither shall any short sale be effected nor any stop-
loss order be executed in connection with the purchase or sale of any security except in accordance with
such rules and regulations as the Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors.

24.3.The foregoing provisions notwithstanding, the Commission, having due regard to the public interest
and the protection of investors, may, by rules and regulations, allow certain acts or transactions that
may otherwise be prohibited under this Section.

SEC. 25. Regulation of Option Trading. — No member of an Exchange shall, directly or indirectly endorse
or guarantee the performance of any put, call, straddle, option or privilege in relation to any security
registered on a securities exchange.

The terms "pull," "call," "straddle," "option," or "privilege" shall not include any registered warrant, right
or convertible security.

SEC. 26. Fraudulent Transactions.  — It shall be unlawful for any person, directly or indirectly, in
connection with the purchase or sale of any securities to:

26.1   Employ any device, scheme, or artifice to defraud;

26.2  Obtain money or property by means of any untrue statement of a material fact of any omission to
state a material fact necessary in order to make the statements made, in the light of the circumstances
under which they were made, not misleading; or

26.3  Engage in any act, transaction, practice or course of business which operates or would operate as a
fraud or deceit upon any person.

SEC. 27. Insider's Duty to Disclose When Trading. — 27.1. It shall be unlawful for an insider to sell or buy
a security of the issuer, while in possession of material information with respect to the issuer or the
security that is not generally available to the public, unless: (a) The insider proves that the information
was not gained from such relationship; or (b) If the other party selling to or buying from the insider (or
his agent) is identified, the insider proves: (i) that he disclosed the information to the other party, or (ii)
that he had reason to believe that the other party otherwise is also in possession of the information. A
purchase or sale of a security of the issuer made by an insider defined in Subsection 3.8, or such insider's
spouse or relatives by affinity or consanguinity within the second degree, legitimate or common-law,
shall be presumed to have been effected while in possession of material nonpublic information if
transacted after such information came into existence but prior to dissemination of such information to
the public and the lapse of a reasonable time for the market to absorb such information: Provided,
however, That this presumption shall be rebutted upon a showing by the purchaser or seller that he was
not aware of the material nonpublic information at the time of the purchase or sale.

27.2. For purposes of this Section, information is "material nonpublic" if: (a) It has not been generally
disclosed to the public and would likely affect the market price of the security after being disseminated
to the public and the lapse of a reasonable time for the market to absorb the information; or (b) would
be considered by a reasonable person important under the circumstances in determining his course of
action whether to buy, sell or hold a security.

27.3   It shall be unlawful for any insider to communicate material nonpublic information about the
issuer or the security to any person who, by virtue of the communication, becomes an insider as defined
in Subsection 3.8, where the insider communicating the information knows or has reason to believe that
such person will likely buy or sell a security of the issuer while in possession of such information.

27.4. (a) It shall be unlawful where a tender offer has commenced or is about to commence for:

i. Any person (other than the tender offeror) who is in possession of material nonpublic
information relating to such tender offer, to buy or sell the securities of the issuer that are
sought or to be sought by such tender offer if such person knows or has reason to believe that
the information is nonpublic and has been acquired directly or indirectly from the tender
offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such
tender offer, or any insider of such issuer; and

ii. Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought
by such tender offer, and any insider of such issuer to communicate material nonpublic
information relating to the tender offer to any other person where such communication is likely
to result in a violation of Subsection 27.4 (a)(i).

(b) For purposes of this subsection the term "securities of the issuer sought or to be sought by such
tender offer" shall include any securities convertible or exchangeable into such securities or any options
or rights in any of the foregoing securities.

CHAPTER VIII

REGULATION OF SECURITIES
MARKET PROFESSIONALS

SEC. 28. Registration of Brokers, Dealers, Salesmen and Associated Persons. — 28.1. No person shall
engage in the business of buying or selling securities in the Philippines as a broker or dealer, or act as a
salesman, or an associated person of any broker or dealer unless registered as such with the
Commission.

28.2  No registered broker or dealer shall employ any salesman or any associated person, and no issuer
shall employ any salesman, who is not registered as such with the Commission.

28.3  The Commission, by rule or order, may conditionally or unconditionally exempt from Subsections
28.1 and 28.2 any broker, salesman, associated person of any broker or dealer, or any class of the
foregoing, as it deems consistent with the public interest and the protection of investors.

28.4  The Commission shall promulgate rules and regulations prescribing the qualifications for
registration of each category of applicant, which shall, among other things, require as a condition for
registration that:

a. If a natural person, the applicant satisfactorily pass a written examination as to his proficiency
and knowledge in the area of activity for which registration is sought;

b. In the case of a broker or dealer, the applicant satisfy a minimum net capital as prescribed by
the Commission, and provide a bond or other security as the Commission may prescribe to
secure compliance with the provisions of this Code; and

c. If located outside of the Philippines, the applicant files a written consent to service of process
upon the Commission pursuant to Section 65 hereof.

28.5  A broker or dealer may apply for registration by filing with the Commission a written application in
such form and containing such information and documents concerning such broker or dealer as the
Commission by rule shall prescribe.

28.6  Registration of a salesman or of an associated person of a registered broker or dealer may be made
upon written application filed with the Commission by such salesman or associated person. The
application shall be separately signed and certified by the registered broker or dealer to which such
salesman or associated person is to become affiliated, or by the issuer in the case of a salesman
employed, appointed or authorized solely by such issuer. The application shall be in such form and
contain such information and documents concerning the salesman or associated person as the
Commission by rule shall prescribe. For purposes of this Section, a salesman shall not include any
employee of an issuer whose compensation is not determined directly or indirectly on sales of securities
of the issuer.

28.7  Applications filed pursuant to Subsections 28.5 and 28.6 shall be accompanied by a registration fee
in such reasonable amount prescribed by the Commission.

28.8  Within thirty (30) days after the filing of any application under this Section, the Commission shall
by order: (a) Grant registration if it determines that the requirements of this Section and the
qualifications for registration set forth in its rules and regulations have been satisfied; or (b) Deny said
registration.

28.9  The names and addresses of all persons approved for registration as brokers, dealers, associated
persons or salesmen and all orders of the Commission with respect thereto shall be recorded in a
Register of Securities Market Professionals kept in the office of the Commission which shall be open to
public inspection.

28.10  Every person registered pursuant to this Section shall file with the Commission, in such form as
the Commission shall prescribe, information necessary to keep the application for registration current
and accurate, including in the case of a broker or dealer changes in salesmen, associated persons and
owners thereof.

28.11  Every person registered pursuant to this Section shall pay to the Commission an annual fee at
such time and in such reasonable amount as the Commission shall prescribe. Upon notice by the
Commission that such annual fee has not been paid as required, the registration of such person shall be
suspended until payment has been made.

28.12. The registration of a salesman or associated person shall be automatically terminated upon the
cessation of his affiliation with said registered broker or dealer, or with an issuer in the case of a
salesman employed, appointed or authorized by such issuer. Promptly following any such cessation of
affiliation, the registered broker or dealer, or issuer, as the case may be, shall file with the Commission a
notice of separation of such salesman or associated person.

SEC. 29. Revocation, Refusal or Suspension of Registration of Brokers, Dealers, Salesmen and Associated
Persons. — 29.1. Registration under Section 28 of this Code may be refused, or any registration granted
thereunder may be revoked, suspended, or limitations placed thereon, by the Commission if, after due
notice and hearing, the Commission determines the applicant or registrant:

a. Has willfully violated any provision of this Code, any rule, regulation or order made hereunder,
or any other law administered by the Commission, or in the case of a registered broker, dealer
or associated person has failed to supervise, with a view to preventing such violation, another
person who commits such violation;

b. Has willfully made or caused to be made a materially false or misleading statement in any
application for registration or report filed with the Commission or a self-regulatory organization,
or has willfully omitted to state any material fact that is required to be stated therein;

c. Has failed to satisfy the qualifications or requirements for registration prescribed under Section
28 and the rules and regulations of the Commission promulgated thereunder;

d. Has been convicted, by a competent judicial or administrative body of an offense involving

moral turpitude, fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery,
bribery, false oath, or perjury, or of a violation of securities, commodities, banking, real estate or
insurance laws;

e. Is enjoined or restrained by a competent judicial or administrative body from engaging in

securities, commodities, banking, real estate or insurance activities or from willfully violating
laws governing such activities;

f. Is subject to an order of a competent judicial or administrative body refusing, revoking or

suspending any registration, license or other permit under this Code, the rules and regulations
promulgated thereunder, any other law administered by the Commission;

g. Is subject to an order of a self-regulatory organization suspending or expelling him from

membership or participation therein or from association with a member or participant thereof;

h. Has been found by a competent judicial or administrative body to have willfully violated any
provisions of securities, commodities, banking, real estate or insurance laws, or has willfully
aided, abetted, counseled, commanded, induced or procured such violation; or

i. Has been judicially declared insolvent.

For purposes of this subsection, the term "competent judicial or administrative body" shall include a
foreign court of competent jurisdiction and a foreign financial regulator.

29.2. (a) In cases of charges against a salesman or associated person, notice thereof shall also be given
the broker, dealer or issuer employing such salesman or associated person.

(b) Pending the hearing, the Commission shall have the power to order the suspension of such broker's,
dealer's, associated person's or salesman's registration: Provided, That such order shall state the cause
for such suspension. Until the entry of a final order, the suspension of such registration, though binding
upon the persons notified thereof, shall be deemed confidential, and shall not be published, unless it
shall appear that the order of suspension has been violated after notice.

29.3  The order of the Commission refusing, revoking, suspending or placing limitations on a registration
as herein above provided, together with its findings, shall be entered in the Register of Securities Market
Professionals. The suspension or revocation of the registration of a dealer or broker shall also
automatically suspend the registration of all salesmen and associated persons affiliated with such broker
or dealer.

29.4  It shall be sufficient cause for refusal, revocation or suspension of a broker's or dealer's
registration, if any associated person thereof or any juridical entity controlled by such associated person
has committed any act or omission or is subject to any disability enumerated in paragraphs (a) through
(i) of Subsection 29.1 hereof.

SEC. 30. Transactions and Responsibility of Brokers and Dealers. — 30.1. No broker or dealer shall deal in
or otherwise buy or sell, for its own account or for the account of customers, securities listed on an
Exchange issued by any corporation where any stockholder, director, associated person or salesman, or
authorized clerk of said broker or dealer and all the relatives of the foregoing within the fourth civil
degree of consanguinity or affinity, is at the time holding office in said issuer corporation as a director,
president, vice president, manager, treasurer, comptroller, secretary or any office of trust and
responsibility, or is a controlling person of the issuer.

30.2. No broker or dealer shall effect any transaction in securities or induce or attempt to induce the
purchase or sale of any security except in compliance with such rules and regulations as the Commission
shall prescribe to ensure fair and honest dealings in securities and provide financial safeguards and
other standards for the operation of brokers and dealers, including the establishment of minimum net
capital requirements, the acceptance of custody and use of securities of customers, and the carrying and
use of deposits and credit balances of customers.

SEC. 31. Development of Securities Market Professionals. — The Commission, in joint undertaking with
self regulatory organizations, organizations and associations of finance professionals as well as private
educational and research institutions shall undertake or facilitate/organize continuing training,
conferences/ seminars, updating programs, research and development as well as technology transfer at
the latest and advanced trends in issuance and trading of securities, derivatives, commodity trades and
other financial instruments, as well as securities markets of other countries.
CHAPTER IX

EXCHANGES AND OTHER SECURITIES TRADING MARKETS

SEC. 32. Prohibition on Use of Unregistered Exchange; Regulation of Over-the-Counter Markets.  — 32.1.

No broker, dealer, salesman, associated person of a broker or dealer, or Exchange, directly or indirectly,
shall make use of any facility of an Exchange in the Philippines to effect any transaction in a security, or
to report such transaction, unless such Exchange is registered as such under Section 33 of this Code.

32.2. (a) No broker, dealer, salesman or associated person of a broker or dealer, singly or in concert with
any other person, shall make, create or operate, or enable another to make, create or operate, any
trading market, otherwise than on a registered Exchange, for the buying and selling of any security,
except in accordance with rules and regulations the Commission may prescribe.

(b) The Commission may promulgate rules and regulations governing transactions by brokers, dealers,
salesmen or associated persons of a broker or dealer, over any facilities of such trading market and may
require such market to be administered by a self-regulatory organization determined by the Commission
as capable of insuring the protection of investors comparable to that provided in the case of a registered
Exchange. Such self-regulatory organization must provide a centralized marketplace for trading and
must satisfy requirements comparable to those prescribed for registration of Exchanges in Section 33 of
this Code.

SEC. 33. Registration of Exchanges. — 33.1. Any Exchange may be registered as such with the
Commission under the terms and conditions hereinafter provided in this Section and Section 40 hereof,
by filing an application for registration in such form and containing such information and supporting
documents as the Commission by rule shall prescribe, including the following:

a. An undertaking to comply and enforce compliance by its members with the provisions of this
Code, its implementing rules or regulations and the rules of the Exchange;

b. The organizational charts of the Exchange, rules of procedure, and a list of its officers and
members;

c. Copies of the rules of the Exchange; and

d. An undertaking that in the event a member firm becomes insolvent or when the Exchange shall
have found that the financial condition of its member firm has so deteriorated that it cannot
readily meet the demands of its customers for the delivery of securities and/or payment of sales
proceeds, the Exchange shall, upon order of the Commission, take over the operation of the
insolvent member firm and immediately proceed to settle the member firm's liabilities to its
customers.

33.2. Registration of an Exchange shall be granted upon compliance with the following provisions:
a. That the applicant is organized as a stock corporation: Provided, That any registered Exchange
existing prior to the effectivity of this Code shall within one (1) year reorganize as a stock
corporation pursuant to a demutualization plan approved by the Commission;

b. That the applicant is engaged solely in the business of operating an exchange:  Provided,
however, That the Commission may adopt rules, regulations or issue an order, upon application,
exempting an Exchange organized as a stock corporation and owned and controlled by another
juridical person from this restriction.

c. Where the Exchange is organized as a stock corporation, that no person may beneficially own or
control, directly or indirectly, more than five percent (5%) of the voting rights of the Exchange
and no industry or business group may beneficially own or control, directly or indirectly, more
than twenty percent (20%) of the voting rights of the Exchange: Provided, however, That the
Commission may adopt rules, regulations or issue an order, upon application, exempting an
applicant from this prohibition where it finds that such ownership or control will not negatively
impact on the exchange's ability to effectively operate in the public interest.

d. The expulsion, suspension, or disciplining of a member and persons associated with a member
for conduct or proceeding inconsistent with just and equitable principles of fair trade, and for
violations of provisions of this Code, or any other Act administered by the Commission, the
rules, regulations and orders thereunder, or the rules of the Exchange;

e. A fair procedure for the disciplining of members and persons associated with members, the
denial of membership to any person seeking to be a member, the barring of any person from
association with a member, and the prohibition or limitation of any person from access to
services offered by the Exchange;

f. That the brokers in the board of the Exchange shall comprise of not more than forty-nine
percent (49%) of such board and shall proportionately represent the Exchange membership in
terms of volume/value of trade and paid up capital, and that any natural person associated with
a juridical entity that is a member shall himself be deemed to be a member for this
purpose: Provided, That any registered Exchange existing prior to the effectivity of this Code
shall immediately comply with this requirement;

g. For the board of the Exchange to include in its composition (i) the president of the Exchange,
and (ii) no less than fifty one percent (51%) of the remaining members of the board to be
comprised of three (3) independent directors and persons who represent the interests of
issuers, investors, and other market participants, who are not associated with any broker or
dealer or member of the Exchange for a period of two (2) years prior to his/ her appointment.
No officer or employee of a member, its subsidiaries or affiliates or related interests shall
become an independent director:  Provided, however, That the Commission may by rule,
regulation, or order upon application, permit the exchange organized as a stock corporation to
use a different governance structure: Provided, further, That the Commission is satisfied that the
Exchange is acting in the public interest and is able to effectively operate as a self-regulatory
organization under this Code: Provided, finally, That any registered exchange existing prior to
the effectivity of this Code shall immediately comply with this requirement.
 h. The president and other management of the Exchange to consist only of persons who are not
members and are not associated in any capacity, directly or indirectly with any broker or dealer
or member or listed company of the Exchange: Provided, That the Exchange may only appoint,
and a person may only serve, as an officer of the exchange if such person has not been a
member or affiliated with any broker, dealer, or member of the Exchange for a period of at least
two (2) years prior to such appointment;

i. The transparency of transactions on the Exchange;

j. The equitable allocation of reasonable dues, fees, and other charges among members and
issuers and other persons using any facility or system which the Exchange operates or controls;

k. Prevention of fraudulent and manipulative acts and practices, promotion of just and equitable
principles of trade, and, in general, protection of investors and the public interest; and

l. The transparent, prompt and accurate clearance and settlement of transactions effected on the
Exchange.

33.3. If the Commission finds that the applicant Exchange is capable of complying and enforcing
compliance by its members, and persons associated with such members, with the provisions of this
Code, its rules and regulations, and the rules of the Exchange, and that the rules of the Exchange are
fair, just and adequate, the Commission shall cause such Exchange to be registered. If, after notice due
and hearing, the Commission finds otherwise, the application shall be denied.

33.4  Within ninety (90) days after the filing of the application the Commission may issue an order either
granting or denying registration as an Exchange, unless the Exchange applying for registration shall
withdraw its application or shall consent to the Commission's deferring action on its application for a
stated longer period after the date of filing. The filing with the Commission of an application for
registration by an Exchange shall be deemed to have taken place upon the receipt thereof Amendments
to an application may be made upon such terms as the Commission may prescribe.

33.5 Upon the registration of an Exchange, it shall pay a fee in such amount and within such period as
the Commission may fix.

33.6  Upon appropriate application in accordance with the rules and regulations of the Commission and
upon such terms as the Commission may deem necessary for the protection of investors, an Exchange
may withdraw its registration or suspend its operations or resume the same.

SEC. 34. Segregation and Limitation of Functions of Members, Brokers and Dealers. - 34.1. It shall be
unlawful for any member-broker of an Exchange to effect any transaction on such Exchange for its own
account, the account of an associated person, or an account with respect to which it or an associated
person thereof exercises investment discretion: Provided, however, That this Section shall not make
unlawful-

a. Any transaction by a member-broker acting in the capacity of a market maker;

b. Any transaction reasonably necessary to carry on an odd-lot transactions;

 c. Any transaction to offset a transaction made in error; and

d. Any other transaction of a similar nature as may be defined by the Commission.

34.2  In all instances where the member-broker effects a transaction on an Exchange for its own account
or the account of an associated person or an account with respect to which it exercises investment
discretion, it shall disclose to such customer at or before the completion of the transaction it is acting for
its own account: Provided, further,  That this fact shall be reflected in the order ticket and the
confirmation slip.

34.3  Any member-broker who violates the provisions of this Section shall be subject to the
administrative sanctions provided in Section 54 of this Code.

SEC. 35. Additional Fees of Exchanges.  — In addition to the registration fee prescribed in Section 33 of
this Code, every Exchange shall pay to the Commission, on a semestral basis on or before the tenth day
of the end of every semester of the calendar year, a fee in such an amount as the Commission shall
prescribe, but not more than one-hundredth of one per centum (1%) of the aggregate amount of the
sales of securities transacted on such Exchange during the preceding calendar year, for the privilege of
doing business, during the preceding calendar year or any part thereof.

SEC. 36. Powers with Respect to Exchanges and Other Trading Market. — 36.1. The Commission is
authorized, if in its opinion such action is necessary or appropriate for the protection of investors and
the public interest so requires, summarily to suspend trading in any listed security on any Exchange or
other trading market for a period not exceeding thirty (30) days or, with the approval of the President of
the Philippines, summarily to suspend all trading on any securities Exchange or other trading market for
a period of more than thirty (30) but not exceeding ninety (90) days: Provided, however,  That the
Commission, promptly following the issuance of the order of suspension, shall notify the affected issuer
of the reasons for such suspension and provide such issuer with an opportunity for hearing to determine
whether the suspension should be lifted.

36.2  Wherever two (2) or more Exchanges or other trading markets exist, the Commission may require
and enforce uniformity of trading regulations in and/or between or among said Exchanges or other
trading markets.

36.3  In addition to the existing Philippine Stock Exchange, the Commission shall have the authority to
determine the number, size and location of stock Exchanges, other trading markets and commodity
Exchanges and other similar organizations in the light of national or regional requirements for such
activities with the view to promote, enhance, protect, conserve or rationalize investment.

36.4  The Commission, having due regard to the public interest, the protection of investors, the
safeguarding of securities and funds, and maintenance of fair competition among brokers, dealers,
clearing agencies, and transfer agents, shall promulgate rules and regulations for the prompt and
accurate clearance and settlement of securities transactions.

a. The Commission may establish or facilitate the establishment of trust funds which shall be
contributed by Exchanges, brokers, dealers, underwriters, transfer agents, salesmen and other
 persons transacting in securities, as the Commission may require, for the purpose of
compensating investors for the extraordinary losses or damage they may suffer due to business
failure or fraud or mismanagement of the persons with whom they transact, under such rules
and regulations as the Commission may from time to time prescribe or approve in the public
interest.

b. The Commission may, having due regard to the public interest or the protection of investors,
regulate, supervise, examine, suspend or otherwise discontinue such and other similar funds
under such rules and regulations which the Commission may promulgate, and which may
include taking custody and management of the fund itself as well as investments in and
disbursements from the funds under such forms of control and supervision by the Commission
as it may from time to time require. The authority granted to the Commission under this
subsection shall also apply to all funds established for the protection of investors, whether
established by the Commission or otherwise.

SEC. 37. Registration of Innovative and Other Trading Markets. — The Commission, having due regard
for national economic development, shall encourage competitiveness in the market by promulgating
within six (6) months upon the enactment of this Code, rules for the registration and licensing of
innovative and other trading markets or Exchanges covering, but not limited to, the issuance and trading
of innovative securities, securities of small, medium, growth and venture enterprises, and technology-
based ventures pursuant to Section 33 of this Code.

SEC. 38. Independent Directors.  — Any corporation with a class of equity securities listed for trading on
an Exchange or with assets in excess of Fifty million pesos (P50,000,000) and having two hundred (200)
or more holders, at least of two hundred (200) of which are holding at least one hundred (100) shares of
a class of its equity securities or which has sold a class of equity securities to the public pursuant to an
effective registration statement in compliance with Section 12 hereof shall have at least two (2)
independent directors or such independent directors shall constitute at least twenty percent (20%) of
the members of such board, whichever is the lesser. For this purpose, an "independent director" shall
mean a person other than an officer or employee of the corporation, its parent or subsidiaries, or any
other individual having a relationship with the corporation, which would interfere with the exercise of
independent judgment in carrying out the responsibilities of a director.

CHAPTER X

REGISTRATION, RESPONSIBILITIES AND OVERSIGHT OF

SELF-REGULATORY ORGANIZATIONS

SEC. 39. Associations of Securities Brokers, and Dealers, and Other Securities Related Organizations. —
39.1. The Commission shall have the power to register as a self-regulatory organization, or otherwise
grant licenses, and to regulate, supervise, examine, suspend or otherwise discontinue, as a condition for
the operation of organizations whose operations are related to or connected with the securities market
such as but not limited to associations of brokers and dealers, transfer agents, custodians, fiscal and
paying agents, computer services, news disseminating services, proxy solicitors, statistical agencies,
securities rating agencies, and securities information processors which are engaged in the business of:
(a) Collecting, processing, or preparing for distribution or publication, or assisting, participating in, or
coordinating the distribution or publication of, information with respect to transactions in or quotations
for any security; or (b) Distributing or publishing, whether by means of a ticker tape, a communications
network, a terminal display device, or otherwise, on a current and continuing basis, information with
respect to such transactions or quotations. The Commission may prescribe rules and regulations which
are necessary or appropriate in the public interest or for the protection of investors to govern self-
regulatory organizations and other organizations licensed or regulated pursuant to the authority granted
in Subsection 39.1 including the requirement of cooperation within and among, and electronic
integration of the records of, all participants in the securities market to ensure transparency and
facilitate exchange of information.

39.2  An association of brokers and dealers may be registered as a securities association pursuant to
Subsection 39.3 by filing with the Commission an application for registration in such form as the
Commission, by rule, may prescribe containing the rules of the association and such other information
and documents as the Commission, by rule, may prescribe as necessary or appropriate in the public
interest or for the protection of investors.

39.3  An association of brokers and dealers shall not be registered as a securities association unless the
Commission determines that:

a. The association is so organized and has the capacity to be able to carry out the purposes of this
Code and to comply with, and to enforce compliance by its members and persons associated
with its members, with the provisions of this Code, the rules and regulations thereunder, and
the rules of the assocation.

b. The rules of the association, notwithstanding anything in the Corporation Code to the contrary,
provide that:

i. Any registered broker or dealer may become a member of the association;

ii. There exist a fair representation of its members to serve on the Board of Directors of
the association and in the administration of its affairs, and that any natural person
associated with a juridical entity that is a member shall himself be deemed to be a
member for this purpose;

iii. The Board of Directors of the association includes in its composition: (a) The president
of the association and (b) Persons who represent the interests of issuers and public
investors and are not associated with any broker or dealer or member of the
association; that the president and other management of the association not be a
member or associated with any broker, dealer or member of the association;

iv. For the equitable allocation of reasonable dues, fees, and other charges among
members and issuers and other persons using any facility or system which the
association operates or controls;
 v. For the prevention of fraudulent and manipulative acts and practices, the promotion of
just and equitable principles of trade, and, in general, the protection of investors and
the public interest;

vi. That its members and persons associated with its members shall be appropriately
disciplined for violation of any provision of this Code, the rules or regulations
thereunder, or the rules of the association;

vii. That a fair procedure for the disciplining of members and persons associated with
members, the denial of membership to any person seeking membership therein, the
barring of any person from becoming associated with a member thereof, and the
prohibition or limitation by the association of any person with respect to access to
services offered by the association or a member thereof.

39.4. (a) A registered securities association shall deny membership to any person who is not a registered
broker or dealer.

(b)  A registered securities association may deny membership to, or condition the membership of, a
registered broker or dealer if such broker or dealer:

i. Does not meet the standards of financial responsibility, operational capability, training,
experience, or competence that are prescribed by the rules of the association; or

ii. Has engaged, and there is a reasonable likelihood it will again engage, in acts or practices
inconsistent with just and equitable principles of fair trade.

(c)  A registered securities association may deny membership to a registered broker or dealer not
engaged in a type of business in which the rules of the association require members to be
engaged: Provided, however, That no registered securities association may deny membership to a
registered broker or dealer by reason of the amount of business done by the broker or dealer.

A registered securities association may examine and verify the qualifications of an applicant to become a
member in accordance with procedures established by the rules of the association.

(d)  A registered securities association may bar a salesman or person associated with a broker or dealer
from being employed by a member or set conditions for the employment of a salesman or associated if
such person:

i. Does not meet the standards of training, experience, or competence that are prescribed by the
rules of the association; or

ii. Has engaged, and there is a reasonable likelihood he will again engage, in acts or practices
inconsistent with just and equitable principles of fair trade.

A registered securities association may examine and verify the qualifications of an applicant to become a
salesman or associated person employed by a member in accordance with procedures established by
the rules of the association. A registered association also may require a salesman or associated person
employed by a member to be registered with the association in accordance with procedures prescribed
in the rules of the association.

39.5. In any proceeding by a registered securities association to determine whether a person shall be
denied membership, or barred from association with a member, the association shall provide notice to
the person under review of the specific grounds being considered for denial, afford him an opportunity
to defend against the allegations, and keep a record of the proceedings. A determination by the
association to deny membership shall be supported by a statement setting forth the specific grounds on
which the denial is based.

SEC. 40. Powers with Respect to Self-Regulatory Organizations. — 40.1. Upon the filing of an application
for registration as an Exchange under Section 33, a registered securities association under Section 39, a
registered clearing agency under Section 42, or other self-regulatory organization under this Section, the
Commission shall have ninety (90) days within which to either grant registration or institute a
proceeding to determine whether registration should be denied. In the event proceedings are instituted,
the Commission shall have two hundred seventy (270) days within which to conclude such proceedings
at which time it shall, by order, grant or deny such registration.

40.2  Every self-regulatory organization shall comply with the provisions of this Code, the rules and
regulations thereunder, and its own rules, and enforce compliance therewith, notwithstanding any
provision of the Corporation Code to the contrary, by its members, persons associated with its members
or its participants.

40.3  (a) Each self-regulatory organization shall submit to the Commission for prior approval any
proposed rule or amendment thereto, together with a concise statement of the reason and effect of the
proposed amendment.

(b)  Within sixty (60) days after submission of a proposed amendment, the Commission shall, by order,
approve the proposed amendment. Otherwise, the same may be made effective by the self-regulatory
organization.

(c)  In the event of an emergency requiring action for the protection of investors, the maintenance of
fair and orderly markets, or the safeguarding of securities and funds, a self- regulatory organization may
put a proposed amendment into effect summarily: Provided, however,  That a copy of the same shall be
immediately submitted to the Commission.

40.4. The Commission is further authorized, if after making appropriate request in writing to a self-
regulatory organization that such organization effect on its own behalf specified changes in its rules and
practices and, after due notice and hearing it determines that such changes have not been effected, and
that such changes are necessary, by rule or regulation or by order, may alter, abrogate or supplement
the rules of such self-regulatory organization in so far as necessary or appropriate to effect such changes
in respect of such matters as:

a. Safeguards in respect of the financial responsibility of members and adequate provision against
the evasion of financial responsibility through the use of corporate forms or special
partnerships;
 b. The supervision of trading practices;

c. The listing or striking from listing of any security;

d. Hours of trading;

e. The manner, method, and place of soliciting business;

f. Fictitious accounts;

g. The time and method of making settlements, payments, and deliveries, and of closing accounts;

h. The transparency of securities transactions and prices;

i. The fixing of reasonable rates of fees, interest, listing and other charges, but not rates of
commission;

j. Minimum units of trading;

k. Odd-lot purchases and sales;

l. Minimum deposits on margin accounts; and

m. The supervision, auditing and disciplining of members or participants.

40.5. The Commission, after due notice and hearing, is authorized, in the public interest and to protect
investors:

a. To suspend for a period not exceeding twelve (12) months or to revoke the registration of a self-
regulatory organization, or, to censure or impose limitations on the activities, functions, and
operations of such self-regulatory organization, if the Commission finds that such a self-
regulatory organization has willfully violated or is unable to comply with any provision of this
Code or of the rules and regulations thereunder, or its own rules, or has failed to enforce
compliance therewith by a member of, person associated with a member, or a participant in
such self-regulatory organization;

b. To expel from a self-regulatory organization any member thereof or any participant therein who
is subject to an order of the Commission under Section 29 of this Code or is found to have
willfully violated any provision of this Code or suspend for a period not exceeding twelve (12)
months for violation of any provision of this Code or any other laws administered by the
Commission, or the rules and regulations thereunder, or effected, directly or indirectly, any
transaction for any person who, such member or participant had reason to believe, was violating
in respect of such transaction any of such provisions; and

c. To remove from office or censure any officer or director of a self-regulatory organization if it

finds that such officer or director has violated any provision of this Code, any other law
administered by the Commission, the rules or regulations thereunder, or the rules of such self-
regulatory organization, abused his authority, or without reasonable justification or excuse has
failed to enforce compliance with any of such provisions.
40.6. (a) A self-regulatory organization is authorized to discipline a member of or participant in such self-
regulatory organization, or any person associated with a member, including the suspension or expulsion
of such member or participant, and the suspension or bar from being associated with a member, if such
person has engaged in acts or practices inconsistent with just and equitable principles of fair trade or in
willful violation of any provision of the Code, any other law administered by the Commission, the rules
or regulations thereunder, or the rules of the self-regulatory organization. In any disciplinary proceeding
by a self-regulatory organization (other than a summary proceeding pursuant to paragraph (b) of this
subsection) the self-regulatory organization shall bring specific charges, provide notice to the person
charged, afford the person charged with an opportunity to defend against the charges, and keep a
record of the proceedings. A determination to impose a disciplinary sanction shall be supported by a
written statement of the offense, a summary of the evidence presented and a statement of the sanction
imposed.

(b) A self-regulatory organization may summarily: (i) Suspend a member, participant or person
associated with a member who has been or is expelled or suspended from any other self-regulatory
organization; or (ii) Suspend a member who the self-regulatory organization finds to be in such financial
or operating difficulty that the member or participant cannot be permitted to continue to do business as
a member with safety to investors, creditors, other members, participants or the self-regulatory
organization: Provided, That the self-regulatory organization immediately notifies the Commission of the
action taken. Any person aggrieved by a summary action pursuant to this paragraph shall be promptly
afforded an opportunity for a hearing by the association in accordance with the provisions of paragraph
(a) of this subsection. The Commission, by order, may stay a summary action on its own motion or upon
application by any person aggrieved thereby, if the Commission determines summarily or after due
notice and hearing (which hearing may consist solely of the submission of affidavits or presentation of
oral arguments) that a stay is consistent with the public interest and the protection of investors.

40.7  A self-regulatory organization shall promptly notify the Commission of any disciplinary sanction on
any member thereof or participant therein, any denial of membership or participation in such
organization, or the imposition of any disciplinary sanction on a person associated with a member or a
bar of such person from becoming so associated. Within thirty (30) days after such notice, any aggrieved
person may appeal to the Commission from, or the Commission on its own motion within such period,
may institute review of, the decision of the self- regulatory organization, at the conclusion of which,
after due notice and hearing (which may consist solely of review of the record before the self-regulatory
organization), the Commission shall affirm, modify or set aside the sanction. In such proceeding the
Commission shall determine whether the aggrieved person has engaged or omitted to engage in the acts
and practices as found by the self-regulatory organization, whether such acts and practices constitute
willful violations of this Code, any other law administered by the Commission, the rules or regulations
thereunder, or the rules of the self-regulatory organization as specified by such organization, whether
such provisions were applied in a manner consistent with the purposes of this Code, and whether, with
due regard for the public interest and the protection of investors the sanction is excessive or oppressive.

40.8  The powers of the Commission under this section shall apply to organized exchanges and
registered clearing agencies.
CHAPTER XI

ACQUISITION AND TRANSFER OF SECURITIES AND

SETTLEMENT OF TRANSACTIONS IN SECURITIES

SEC. 41.  Prohibition on Use of Unregistered Clearing Agency.  — It shall be unlawful for any broker,
dealer, salesman, associated person of a broker or dealer, or clearing agency, directly or indirectly, to
make use of any facility of a clearing agency in the Philippines to make deliveries in connection with
transactions in securities or to reduce the number of settlements of securities transactions or to allocate
securities settlement responsibilities or to provide for the central handling of securities so that transfers,
loans and pledges and similar transactions can be made by bookkeeping entry or otherwise to facilitate
the settlement of securities transactions without physical delivery of securities certificates, unless such
clearing agency is registered as such under Section 42 of this Code or is exempted from such registration
upon application by the clearing agency because, in the opinion of the Commission, by reason of the
limited volume of transactions which are settled using the clearing agency, it is not practicable and not
necessary or appropriate in the public interest or for the protection of investors to require such
registration.

SEC. 42.  Registration of Clearing Agencies. — 42.1. Any clearing agency may be registered as such with
the Commission under the terms and conditions hereinafter provided in this Section, by filing an
application for registration in such form and containing such information and supporting documents as
the Commission by rule shall prescribe, including the following:

a. An undertaking to comply and enforce compliance by its participants with the provisions of this
Code, and any amendment thereto, and the implementing rules or regulations made or to be
made thereunder, and the clearing agency's rules;

b. The organizational charts of the Exchange, its rules of procedure, and a list of its officers and
participants;

c. Copies of the clearing agency's rules.

42.2.        No registration of a clearing agency shall be granted unless the rules of the clearing agency
include provision for:

a. The expulsion, suspension, or disciplining of a participant for violations of this Code, or any other
Act administered by the Commission, the rules, regulations, and orders thereunder, or the
clearing agency's rules;

b. A fair procedure for the disciplining of participants, the denial of participation rights to any
person seeking to be a participant, and the prohibition or limitation of any person from access
to services offered by the clearing agency;

c. The equitable allocation of reasonable dues, fees, and other charges among participants;

d. Prevention of fraudulent and manipulative acts and practices, promotion of just and equitable
principles of trade, and, in general, protection of investors and the public interest;
 e. The transparent, prompt and accurate clearance and settlement of transactions in securities
handled by the clearing agency and

f. The establishment and oversight of a fund to guarantee the prompt and accurate clearance and
settlement of transactions executed on an exchange, including a requirement that members
each contribute an amount based on their volume and a relevant percentage of the daily
exposure of the four (4) largest trading brokers which adequately reflects trading risks
undertaken or pursuant to another formula set forth in Commission rules or regulations or
order, upon application: Provided, however, That a clearing agency engaged in the business of a
securities depository shall be exempt from this requirement.

42.3. In the case of an application filed pursuant to this Section, the Commission shall grant registration
if it finds that the requirements of this Code and the rules and regulations thereunder with respect to
the applicant have been satisfied, and shall deny registration if it does not make such finding.

42.4  Upon appropriate application in accordance with the rules and regulations of the Commission and
upon such terms as the Commission may deem necessary for the protection of investors, a clearing
agency may withdraw its registration or suspend its operation or resume the same.

43.5  Section 32 of this Code shall apply to every registered clearing agency.

SEC. 43. Uncertificated Securities. - Notwithstanding Section 63 of the Corporation Code of the

Philippines: 43.1. A corporation whose securities are registered pursuant to this Code or listed on a
securities Exchange may:

a. If so resolved by its Board of Directors and agreed by a shareholder, investor or securities

intermediary, issue shares to, or record the transfer of some or all of its shares into the name of
said shareholders, investors or, securities intermediary in the form of uncertificated securities.
The use of uncertificated securities in these circumstances shall be without prejudice to the
rights of the securities intermediary subsequently to require the corporation to issue a
certificate in respect of any shares recorded in its name; and

b. If so provided in its articles of incorporation and by- laws, issue all of the shares of a particular
class in the form of uncertificated securities and subject to a condition that investors may not
require the corporation to issue a certificate in respect of any shares recorded in their name.

43.2  The Commission by rule may allow other corporations to provide in their articles of incorporation
and by-laws for the use of uncertificated securities.

43.3  Transfers of securities, including an uncertificated securities, may be validly made and
consummated by appropriate book-entries in the securities accounts maintained by securities
intermediaries, or in the stock and transfer book held by the corporation or the stock transfer agent and
such bookkeeping entries shall be binding on the parties to the transfer. A transfer under this subsection
has the effect of the delivery of a security in bearer form or duly indorsed in blank representing the
quantity or amount of security or right transferred, including the unrestricted negotiability of that
security by reason of such delivery. However, transfer of uncertificated shares shall only be valid, so far
as the corporation is concerned, when a transfer is recorded in the books of the corporation so as to
show the names of the parties to the transfer and the number of shares transferred.

However, nothing in this Code shall preclude compliance by banking and other institutions under the
supervision of the Bangko Sentral ng Pilipinas and their stockholders with the applicable ceilings on
shareholdings prescribed under pertinent banking laws and regulations.

SEC. 44. Evidentiary Value of Clearing Agency Record. — The official records and book entries of a
clearing agency shall constitute the best evidence of such transactions between clearing agency and its
participants and members, without prejudice to the right of participants' or members' clients to prove
their rights, title and entitlement with respect to the book-entry security holdings of the participants or
members held on behalf of the clients. However, the corporation shall not be bound by the foregoing
transactions unless the corporate secretary is duly notified in such manner as the Commission may
provide.

SEC. 45. Pledging a Security or Interest Therein. — In addition to other methods recognized by law, a
pledge of, or release of a pledge of, a security, including an uncertificated security, is properly
constituted and the instrument proving the right pledged shall be considered delivered to the creditor
under Articles 2093 and 2095 of the Civil Code if a securities intermediary indicates by book-entry that
such security has been credited to a specially designated pledge account in favor of the pledgee. A
pledge under this subsection has the effect of the delivery of a security in bearer form or duly indorsed
in blank representing the quantity or amount of such security or right pledged. In the case of a
registered clearing agency, the procedures by which, and the exact time at which, such book-entries are
created shall be governed by the registered clearing agency's rules. However, the corporation shall not
be bound by the foregoing transactions unless the corporate secretary is duly notified in such manner as
the Commission may provide.

SEC. 46.  Issuer's Responsibility for Wrongful Transfer to Registered Clearing Agency. — The registration
of a transfer of a security into the name of and by a registered clearing agency or its nominee shall be
final and conclusive unless the clearing agency had notice of an adverse claim before the registration
was made. The above provision shall be without prejudice to any rights which the claimant may have
against the issuer for wrongful registration in such circumstances.

SEC. 47. Power of the Commission With Respect to Securities Ownership. — The Commission is
authorized, having due regard to the public interest and the protection of investors, to promulgate rules
and regulations which:

47.1  Validate the transfer of securities by book-entries rather than the delivery of physical certificates;

47.2  Establish when a person acquires a security or an interest therein and when delivery of a security
to a purchaser occurs;

47.3  Establish which records constitute the best evidence of a person's interests in a security and the
effect of any errors in electronic records of ownership;
47.4  Codify the rights of investors who choose to hold their securities indirectly through a registered
clearing agency and/or other securities intermediaries;

47.5  Codify the duties of securities intermediaries (including clearing agencies) who hold securities on
behalf of investors; and

47.6  Give first priority to any claims of a registered clearing agency against a participant arising from a
failure by the participant to meet its obligations under the clearing agency's rules in respect of the
clearing and settlement of transactions in securities, in a dissolution of the participant, and any such
rules and regulations shall bind the issuers of the securities, investors in the securities, any third parties
with interests in the securities, and the creditors of a participant of a registered clearing agency.

CHAPTER XII

MARGIN AND CREDIT

SEC. 48. Margin Requirements.  — 48.1. For the purpose of preventing the excessive use of credit for the
purchase or carrying of securities, the Commission, in accordance with the credit and monetary policies
that may be promulgated from time to time by the Monetary Board of the Bangko Sentral ng Pilipinas,
shall prescribe rules and regulations with respect to the amount of credit that may be extended on any
security. For the extension of credit, such rules and regulations shall be based upon the following
standard:

An amount not greater than whichever is the higher of-

(a)  Sixty-five per centum (65%) of the current market price of the security, or

(b)  One hundred  per centum  (100%) of the lowest market price of the security during the preceding
thirty-six (36) calendar months, but not more than seventy-five per centum (75%) of the current market
price.

However, the Monetary Board may increase or decrease the above percentages, in order to achieve the
objectives of the Government with due regard for promotion of the economy and prevention of the use
of excessive credit.

Such rules and regulations may make appropriate provision with respect to the carrying of
undermargined accounts for limited periods and under specified conditions; the withdrawal of funds or
securities; the transfer of accounts from one lender to another; special or different margin requirements
for delayed deliveries, short sales, arbitrage transactions, and securities to which letter (b) of the second
paragraph of this subsection does not apply; the bases and the methods to be used in calculating loans,
and margins and market prices; and similar administrative adjustments and details.

48.2. No member of an Exchange or broker or dealer shall, directly or indirectly, extend or maintain
credit or arrange for the extension or maintenance of credit to or for any customer:
(a)  On any security unless such credit is extended and maintained in accordance with the rules and
regulations which the Commission shall prescribe under this Section including rules setting credit in
relation to net capital of such member, broker or dealer; and

(b)  Without collateral or on any collateral other than securities, except (i) to maintain a credit initially
extended in conformity with the rules and regulations of the Commission and (ii) in cases where the
extension or maintenance of credit is not for the purpose of purchasing or carrying securities or of
evading or circumventing the provisions of paragraph (a) of this subsection.

48.3. Any person not subject to Subsection 48.2 hereof shall extend or maintain credit or arrange for the
extension or maintenance of credit for the purpose of purchasing or carrying any security, only in
accordance with such rules and regulations as the Commission shall prescribe to prevent the excessive
use of credit for the purchasing or carrying of or trading in securities in circumvention of the other
provisions of this Section. Such rules and regulations may impose upon all loans made for the purpose of
purchasing or carrying securities limitations similar to those imposed upon members, brokers, or dealers
by Subsection 48.2 and the rules and regulations thereunder. This subsection and the rules and
regulations thereunder shall not apply:

(a) To a credit extension made by a person not in the ordinary course of business; (b) To a loan to a
dealer to aid in the financing of the distribution of securities to customers not through the medium of an
Exchange; or (c) To such other credit extension as the Commission shall exempt from the operation of
this subsection and the rules and regulations thereunder upon specified terms and conditions or for
stated period.

SEC. 49.  Restrictions on Borrowings by Members, Brokers, and Dealers.  — It shall be unlawful for any
registered broker or dealer, or member of an Exchange, directly or indirectly:

49.1  To permit in the ordinary course of business as a broker or dealer his aggregate indebtedness
including customers' credit balances, to exceed such percentage of the net capital (exclusive of fixed
assets and value of Exchange membership) employed in the business, but not exceeding in any case two
thousand per centum (2,000%), as the Commission may by rules and regulations prescribe as necessary
or appropriate in the public interest or for the protection of investors.

49.2  To pledge, mortgage, or otherwise encumber or arrange for the pledge, mortgage or encumbrance
of any security carried for the account of any customer under circumstances: (a) That will permit the
commingling of his securities, without his written consent, with the securities of any customer; (b) That
will permit such securities to be commingled with the securities of any person other than a bona fide
customer; or (c) That will permit such securities to be pledged, mortgaged or encumbered, or subjected
to any lien or claim of the pledgee, for a sum in excess of the aggregate indebtedness of such customers
in respect of such securities. However, the Commission, having due regard to the protection of
investors, may, by rules and regulations, allow certain transactions that may otherwise be prohibited
under this subsection.
49.3  To lend or arrange for the lending of any security carried for the account of any customer without
the written consent of such customer or in contravention of such rules and regulations as the
Commission shall prescribe.

SEC. 50. Enforcement of Margin Requirements and Restrictions on Borrowing. — To prevent indirect

violations of the margin requirements under Section 48, the broker or dealer shall require the customer
in non-margin transactions to pay the price of the security purchased for his account within such period
as the Commission may prescribe, which shall in no case exceed the prescribed settlement date.
Otherwise, the broker shall sell the security purchased starting on the next trading day but not beyond
ten (10) trading days following the last day for the customer to pay such purchase price, unless such sale
cannot be effected within said period for justifiable reasons. The sale shall be without prejudice to the
right of the broker or dealer to recover any deficiency from the customer. To prevent indirect violation
of the restrictions on borrowings under Section 49, the broker shall, unless otherwise directed by the
customer, pay the net sales price of the securities sold for a customer within the same period as above
prescribed by the Commission: Provided,  That the customer shall be required to deliver the instruments
evidencing the securities as a condition for such payment upon demand by the broker.

CHAPTER XIII

GENERAL PROVISIONS

SEC. 51. Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability. — 51.1. Every
person who, by or through stock ownership, agency, or otherwise, or in connection with an agreement
or understanding with one or more other persons, controls any person liable under this Code or the
rules or regulations of the Commission thereunder, shall also be liable jointly and severally with and to
the same extent as such controlled persons to any person to whom such controlled person is liable,
unless the controlling person proves that, despite the exercise of due diligence on his part, he has no
knowledge of the existence of the facts by reason of which the liability of the controlled person is
alleged to exist.

51.2  It shall be unlawful for any person, directly or indirectly, to do any act or thing which it would be
unlawful for such person to do under the provisions of this Code or any rule or regulation thereunder.

51.3  It shall be unlawful for any director or officer of, or any owner of any securities issued by, any
issuer required to file any document, report or other information under this Code or any rule or
regulation of the Commission thereunder, without just cause, to hinder, delay or obstruct the making or
filing of any such document, report, or information.

51.4  It shall be unlawful for any person to aid, abet, counsel, command, induce or procure any violation
of this Code, or any rule, regulation or order of the Commission thereunder.

51.5  Every person who substantially assists the act orcf omission of any person primarily liable under
Sections 57, 58,59 and 60 of this Code, with knowledge or in reckless disregard that such act or omission
is wrongful, shall be jointly and severally  liable as an aider and abettor for damages resulting from the
conduct of the person primarily liable: Provided, however, That an aider and abettor shall be liable only
to the extent of his relative contribution in causing such damages in comparison to that of the person
primarily liable, or the extent to which the aider and abettor was unjustly enriched thereby, whichever is
greater.

SEC. 52. Accounts and Records, Reports, Examination of Exchanges, Members, and Others. — 52.1. Every
registered Exchange, broker or dealer, transfer agent, clearing agency, securities association, and other
self-regulatory organization, and every other person required to register under this Code, shall make,
keep and preserve for such periods, records, furnish such copies thereof, and make such reports, as the
Commission by its rules and regulations may prescribe. Such accounts, correspondence, memoranda,
papers, books, and other records shall be subject at any time to such reasonable periodic, special or
other examinations by representatives of the Commission as the Commission may deem necessary or
appropriate in the public interest or for the protection of investors.

52.2  Any broker, dealer or other person extending credit, who is subject to the rules and regulations
prescribed by the Commission pursuant to this Code, shall make such reports to the Commission as may
be necessary or appropriate to enable it to perform the functions conferred upon it by this Code.

52.3  For purposes of this Section, the term "records" refers to accounts, correspondence, memoranda,
tapes, discs, papers, books and other documents or transcribed information of any type, whether
written or electronic in character.

SEC. 53.  Investigations, Injunctions and Prosecution of Offenses.  — 53.1. The Commission may, in its
discretion, make such investigations as it deems necessary to determine whether any person has
violated or is about to violate any provision of this Code, any rule, regulation or order thereunder, or any
rule of an Exchange, registered securities association, clearing agency, other self-regulatory
organization, and may require or permit any person to file with it a statement in writing, under oath or
otherwise, as the Commission shall determine, as to all facts and circumstances concerning the matter
to be investigated. The Commission may publish information concerning any such violations, and to
investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in the
enforcement of the provisions of this Code, in the prescribing of rules and regulations thereunder, or in
securing information to serve as a basis for recommending further legislation concerning the matters to
which this Code relates: Provided, however, That any person requested or subpoenaed to produce
documents or testify in any investigation shall simultaneously be notified in writing of the purpose of
such investigation: Provided, further, That all criminal complaints for violations of this Code, and the
implementing rules and regulations enforced or administered by the Commission shall be referred to
the Department of Justice for preliminary investigation and prosecution before the proper
court: Provided, furthermore, That in instances where the law allows independent civil or criminal
proceedings of violations arising from the same act, the Commission shall take appropriate action to
implement the same:  Provided, finally,  That the investigation, prosecution, and trial of such cases shall
be given priority.

53.2.  For the purpose of any such investigation, or any other proceeding under this Code, the
Commission or any officer designated by it is empowered to administer oaths and affirmations,
subpoena witnesses, compel attendance, take evidence, require the production of any book, paper,
correspondence, memorandum, or other record which the Commission deems relevant or material to
the inquiry, and to perform such other acts necessary in the conduct of such investigation or
proceedings.

53.3  Whenever it shall appear to the Commission that any person has engaged or is about to engage in
any act or practice constituting a violation of any provision of this Code, any rule, regulation or order
thereunder, or any rule of an Exchange, registered securities association, clearing agency or other self-
regulatory organization, it may issue an order to such person to desist from committing such act or
practice: Provided, however, That the Commission shall not charge any person with violation of the rules
of an Exchange or other self-regulatory organization unless it appears to the Commission that such
Exchange or other self-regulatory organization is unable or unwilling to take action against such person.
After finding that such person has engaged in any such act or practice and that there is a reasonable
likelihood of continuing, further or future violations by such person, the Commission may issue ex parte
a cease and desist order for a maximum period often (10) days, enjoining the violation and compelling
compliance with such provision. The Commission may transmit such evidence as may be available
concerning any violation of any provision of this Code, or any rule, regulation or order thereunder, to
the Department of Justice, which may institute the appropriate criminal proceedings under this Code.

53.4  Any person who, within his power but without cause, fails or refuses to comply with any lawful
order, decision or subpoena issued by the Commission under Subsection 53.2 or Subsection 53.3 or
Section 64 of this Code, shall after due notice and hearing, be guilty of contempt of the Commission. 
Such person shall be fined in such reasonable amount as the Commission may determine, or when such
failure or refusal is a clear and open defiance of the Commission's order, decision or subpoena shall be
detained under an arrest order issued by the Commission, until such order, decision or subpoena is
complied with.

SEC. 54. Administrative Sanctions.  — 54.1. If, after due notice and hearing, the Commission finds that:
(a) There is a violation of this Code, its rules, or its orders; (b) Any registered broker or dealer, associated
person thereof has failed reasonably to supervise, with a view to preventing violations, another person
subject to supervision who commits any such violation; (c) Any registrant or other person has, in a
registration statement or in other reports, applications, accounts, records or documents required by law
or rules to be filed with the Commission, made any untrue statement of a material fact, or omitted to
state any material fact required to be stated therein or necessary to make the statements therein not
misleading; or, in the case of an underwriter, has failed to conduct an inquiry with reasonable diligence
to insure that a registration statement is accurate and complete in all material respects; or (d) Any
person has refused to permit any lawful examinations into its affairs, it shall, in its discretion, and
subject only to the limitations hereinafter prescribed, impose any or all of the following sanctions as may
be appropriate in light of the facts and circumstances:

i. Suspension, or revocation of any registration for the offering of securities;

ii. A fine of no less than Ten thousand pesos (P10,000) nor more than One million pesos
(P1,000,000) plus not more than Two thousand pesos (P2,000) for each day of continuing
violation;
 iii. In the case of a violation of Sections 19.2,20,24,26 and 27, disqualification from being an officer,
member of the Board of Directors, or person performing similar functions, of an issuer required
to file reports under Section 17 of this Code or any other act, rule or regulation administered by
the Commission;

iv. In the case of a violation of Section 34, a fine of no more than three (3) times the profit gained
or loss avoided as a result of the purchase, sale or communication proscribed by such Section;
and

v. Other penalties within the power of the Commission to impose.

54.2  The imposition of the foregoing administrative sanctions shall be without prejudice to the filing of
criminal charges against the individuals responsible for the violation.

54.3  The Commission shall have the power to issue writs of execution to enforce the provisions of this
Section and to enforce payment of the fees and other dues collectible under this Code.

SEC. 55. Settlement Offers.  — 55.1. At any time, during an investigation or proceeding under this Code,
parties being investigated and/or charged may propose in writing an offer of settlement with the
Commission.

55.2  Upon receipt of such offer of settlement, the Commission may consider the offer based on timing,
the nature of the investigation or proceeding, and the public interest.

55.3  The Commission may only agree to a settlement offer based on its findings that such settlement is
in the public interest. Any agreement to settle shall have no legal effect until publicly disclosed. Such
decision may be made without a determination of guilt on the part of the person making the offer.

55.5.  The Commission shall adopt rules and procedures governing the filing, review, withdrawal, form of
rejection and acceptance of such offers.

SEC. 56. Civil Liabilities on Account of False Registration Statement. — 56.1. Any person acquiring a
security, the registration statement of which or any part thereof contains on its effectivity an untrue
statement of a material fact or omits to state a material fact required to be stated therein or necessary
to make such statements not misleading, and who suffers damage, may sue and recover damages from
the following enumerated persons, unless it is proved that at the time of such acquisition he knew of
such untrue statement or omission:

a. The issuer and every person who signed the registration statement;

b. Every person who was a director of, or any other person performing similar functions, or a
partner in, the issuer at the time of the filing of the registration statement or any part,
supplement or amendment thereof with respect to which his liability is asserted;

c. Every person who is named in the registration statement as being or about to become a director
of, or a person performing similar functions, or a partner in, the issuer and whose written
consent thereto is filed with the registration statement;
 d. Every auditor or auditing firm named as having certified any financial statements used in
connection with the registration statement or prospectus.

e. Every person who, with his written consent, which shall be filed with the registration statement,
has been named as having prepared or certified any part of the registration statement, or as
having prepared or certified any report or valuation which is used in connection with the
registration statement, with respect to the statement, report, or valuation, which purports to
have been prepared or certified by him.

f. Every selling shareholder who contributed to and certified as to the accuracy of a portion of the
registration statement, with respect to that portion of the registration statement which purports
to have been contributed by him.

g. Every underwriter with respect to such security.

56.2. If the person who acquired the security did so after the issuer has made generally available to its
security holders an income statement covering a period of at least twelve (12) months beginning from
the effective date of the registration statement, then the right of recovery under this subsection shall be
conditioned on proof that such person acquired the security relying upon such untrue statement in the
registration statement or relying upon the registration statement and not knowing of such income
statement, but such reliance may be established without proof of the reading of the registration
statement by such person.

SEC. 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports. — 57.1. Any
person who:

(a) Offers to sell or sells a security in violation of Chapter III, or

(b) Offers to sell or sells a security, whether or not exempted by the provisions of this Code, by the use
of any means or instruments of transportation or communication, by means of a prospectus or other
written or oral communication, which includes an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements, in the light of the circumstances under which
they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall
fail in the burden of proof that he did not know, and in the exercise of reasonable care could not have
known, of such untruth or omission, shall be liable to the person purchasing such security from him,
who may sue to recover the consideration paid for such security with interest thereon, less the amount
of any income received thereon, upon the tender of such security, or for damages if he no longer owns
the security.

57.2. Any person who shall make or cause to be made any statement in any report, or document filed
pursuant to this Code or any rule or regulation thereunder, which statement was at the time and in the
light of the circumstances under which it was made false or misleading with respect to any material fact,
shall be liable to any person who, not knowing that such statement was false or misleading, and relying
upon such statements shall have purchased or sold a security at a price which was affected by such
statement, for damages caused by such reliance, unless the person sued shall prove that he acted in
good faith and had no knowledge that such statement was false or misleading.
SEC. 58. Civil Liability for Fraud in Connection with Securities Transactions.  — Any person who engages in
any act or transaction in violation of Sections 19.2, 20 or 26, or any rule or regulation of the Commission
thereunder, shall be liable to any other person who purchases or sells any security, grants or refuses to
grant any proxy, consent or authorization, or accepts or declines an invitation for tender of a security, as
the case may be, for the damages sustained by such other person as a result of such act or transaction.

SEC. 59. Civil Liability for Manipulation of Security Prices. — Any person who willfully participates in any
act or transaction in violation of Section 24 shall be liable to any person who shall purchase or sell any
security at a price which was affected by such act or transaction, and the person so injured may sue to
recover the damages sustained as a result of such act or transaction.

SEC. 60. Civil Liability with Respect to Commodity Futures Contracts and Pre-need Plans. — 60.1. Any
person who engages in any act or transaction in willful violation of any rule or regulation promulgated
by the Commission under Section 11 or 16, which the Commission denominates at the time of issuance
as intended to prohibit fraud in the offer and sale of pre-need plans or to prohibit fraud, manipulation,
fictitious transactions, undue speculation, or other unfair or abusive practices with respect to
commodity future contracts, shall be liable to any other person sustaining damage as a result of such act
or transaction.

60.2. As to each such rule or regulation so denominated, the Commission by rule shall prescribe the
elements of proof required for recovery and any limitations on the amount of damages that may be
imposed.

SEC. 61. Civil Liability on Account of Insider Trading.  — 61.1. Any insider who violates Subsection 27.1
and any person in the case of a tender offer who violates Subsection 27.4 (a)(i), or any rule or regulation
thereunder, by purchasing or selling a security while in possession of material information not generally
available to the public, shall be liable in a suit brought by any investor who, contemporaneously with the
purchase or sale of securities that is the subject of the violation, purchased or sold securities of the same
class unless such insider, or such person in the case of a tender offer, proves that such investor knew the
information or would have purchased or sold at the same price regardless of disclosure of the
information to him.

61.2. An insider who violates Subsection 27.3 or any person in the case of a tender offer who violates
Subsection 27.4 (a), or any rule or regulation thereunder, by communicating material nonpublic
information, shall be jointly and severally liable under Subsection 61.1 with, and to the same extent as,
the insider, or person in the case of a tender offer, to whom the communication was directed and who is
liable under Subsection 61.1 by reason of his purchase or sale of a security.

SEC. 62. Limitation ofActions. - 62.1. No action shall be maintained to enforce any liability created under
Section 56 or 57 of this Code unless brought within two (2) years after the discovery of the untrue
statement or the omission, or, if the action is to enforce a liability created under Subsection 57.1 (a),
unless brought within two (2) years after the violation upon which it is based. In no event shall any such
action be brought to enforce a liability created under Section 56 or Subsection 57.1 (a) more than five
(5) years after the security was bona fide offered to the public, or under Subsection 57.1 (b) more than
five (5) years after the sale.

62.2. No action shall be maintained to enforce any liability created under any other provision of this
Code unless brought within two (2) years after the discovery of the facts constituting the cause of action
and within five (5) years after such cause of action accrued.

SEC. 63. Amount of Damages to be Awarded. — 63.1. All suits to recover damages pursuant to Sections
56, 57, 58, 59, 60 and 61 shall be brought before the Regional Trial Court, which shall have exclusive
jurisdiction to hear and decide such suits. The Court is hereby authorized to award damages in an
amount not exceeding triple the amount of the transaction plus actual damages.

Exemplary damages may also be awarded in cases of bad faith, fraud, malevolence or wantonness in the
violation of this Code or the rules and regulations promulgated thereunder.

The Court is also authorized to award attorney's fees not exceeding thirty per centum (30%) of the
award.

63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be jointly and severally
liable for the payment of damages. However, any person who becomes liable for the payment of such
damages may recover contribution from any other person who, if sued separately, would have been
liable to make the same payment, unless the former was guilty of fraudulent representation and the
latter was not.

63.3. Notwithstanding any provision of law to the contrary, all persons, including the issuer, held liable
under the provisions of Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to the total liability
adjudged herein. In no case shall the principal stockholders, directors and other officers of the issuer or
persons occupying similar positions therein, recover their contribution to the liability from the issuer.
However, the right of the issuer to recover from the guilty parties the amount it has contributed under
this Section shall not be prejudiced.

SEC. 64. Cease and Desist Order.  — 64.1. The Commission, after proper investigation or
verification, motu proprio, or upon verified complaint by any aggrieved party, may issue a cease and
desist order without the necessity of a prior hearing if in its judgment the act or practice, unless
restrained, will operate as a fraud on investors or is otherwise likely to cause grave or irreparable injury
or prejudice to the investing public.

64.2  Until the Commission issues a cease and desist order, the fact that an investigation has been
initiated or that a complaint has been filed, including the contents of the complaint, shall be
confidential. Upon issuance of a cease and desist order, the Commission shall make public such order
and a copy thereof shall be immediately furnished to each person subject to the order.

64.3  Any person against whom a cease and desist order was issued may, within five (5) days from
receipt of the order, file a formal request for a lifting thereof. Said request shall be set for hearing by the
Commission not later than fifteen (15) days from its filing and the resolution thereof shall be made not
later than ten (10) days from the termination of the hearing. If the Commission fails to resolve the
request within the time herein prescribed, the cease and desist order shall automatically be lifted.

SEC. 65. Substituted Service Upon the Commission. — Service of summons or other process shall be
made upon the Commission in actions or legal proceedings against an issuer or any person liable under
this Code who is not domiciled in the Philippines. Upon receipt by the Commission of such summons,
the Commission shall within ten (10) days thereafter, transmit by registered mail a copy of such
summons and the complaint or other legal process to such issuer or person at his last known address or
principal office. The sending thereof by the Commission, the expenses for which shall be advanced by
the party at whose instance it is made, shall complete such service.

SEC. 66. Revelation of Information Filed with the Commission. — 66.1. All information filed with the
Commission in compliance with the requirements of this Code shall be made available to any member of
the general public, upon request, in the premises and during regular office hours of the Commission,
except as set forth in this Section.

66.2.  Nothing in this Code shall be construed to require, or to authorize the Commission to require, the
revealing of trade secrets or processes in any application, report, or document filed with the
Commission.

66.3.  Any person filing any such application, report or document may make written objection to the
public disclosure of information contained therein, stating the grounds for such objection, and the
Commission may hear objections as it deems necessary. The Commission may, in such cases, make
available to the public the information contained in any such application, report, or document only
when a disclosure of such information is required in the public interest or for the protection of investors;
and copies of information so made available may be furnished to any person having a legitimate interest
therein at such reasonable charge and under such reasonable limitations as the Commission may
prescribe.

66.4.  It shall be unlawful for any member, officer, or employee of the Commission to disclose to any
person other than a member, officer or employee of the Commission or to use for personal benefit, any
information contained in any application, report, or document filed with the Commission which is not
made available to the public pursuant to Subsection 66.3.

66.5.  Notwithstanding anything in Subsection 66.4 to the contrary, on request from a foreign
enforcement authority of any country whose laws grant reciprocal assistance as herein provided, the
Commission may provide assistance in accordance with this subsection, including the disclosure of any
information filed with or transmitted to the Commission, if the requesting authority states that it is
conducting an investigation which it deems necessary to determine whether any person has violated, is
violating, or is about to violate any laws relating to securities or commodities matters that the
requesting authority administers or enforces. Such assistance may be provided without regard to
whether the facts stated in the request would also constitute a violation of law of the Philippines.
SEC. 67. Effect of Action of Commission and Unlawful Representations with Respect Thereto.  - 67.1. No
action or failure to act by the Commission in the administration of this Code shall be construed to mean
that the Commission has in any way passed upon the merits of or given approval to any security or any
transaction or transactions therein, nor shall such action or failure to act with regard to any statement
or report filed with or examined by the Commission pursuant to this Code or the rules and regulations
thereunder to be deemed a finding by the Commission that such statements or report is true and
accurate on its face or that it is not false or misleading. It shall be unlawful to make, or cause to be
made, to any prospective purchaser or seller of a security any representation that any such action or
failure to act by the Commission is to be so construed or has such effect.

67.2. Nothing contained in Subsection 67.1 shall, however, be construed as an exemption from liability
of an employee or officer of the Commission for any nonfeasance, misfeasance or malfeasance in the
discharge of his official duties.

SEC. 68. Special Accounting Rules.  — The Commission shall have the authority to make, amend, and
rescind such accounting rules and regulations as may be necessary to carry out the provisions of this
Code, including rules and regulations governing registration statements and prospectuses for various
classes of securities and issuers, and defining accounting, technical and trade terms used in this Code.
Among other things, the Commission may prescribe the form or forms in which required information
shall be set forth, the items or details to be shown in the balance sheet and income statement, and the
methods to be followed in the preparation of accounts, appraisal or valuation of assets and liabilities,
determination of depreciation and depletion, differentiation of recurring and non-recurring income,
differentiation of investment and operating income, and in the preparation, where the Commission
deems it necessary or desirable, of consolidated balance sheets or income accounts of any person
directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect
common control with, the issuer.

SEC. 69. Effect on Existing Law. — The rights and remedies provided by this Code shall be in addition to
any and all other rights and remedies that may now exist. However, except as provided in Sections 56
and 63 hereof, no person permitted to maintain a suit for damages under the provisions of this Code
shall recover, through satisfaction of judgment in one or more actions, a total amount in excess of his
actual damages on account of the act complained of: Provided,  That exemplary damages may be
awarded in cases of bad faith, fraud, malevolence or wantonness in the violation of this Code or the
rules and regulations promulgated thereunder.

SEC. 70. Judicial Review of Commission Orders. - Any person aggrieved by an order of the Commission
may appeal the order to the Court of Appeals by petition for review in accordance with the pertinent
provisions of the Rules of Court.

SEC. 71.  Validity of Contracts.  — 71.1. Any condition, stipulation, provision binding any person to waive
compliance with any provision of this Code or of any rule or regulation thereunder, or of any rule of an
Exchange required thereby, as well as the waiver itself, shall be void.

71.2. Every contract made in violation of any provision of this Code or of any rule or regulation
thereunder, and every contract, including any contract for listing a security on an Exchange heretofore
or hereafter made, the performance of which involves the violation of, or the continuance of any
relationship or practice in violation of, any provision of this Code, or any rule or regulation thereunder,
shall be void:

a. As regards the rights of any person who, in violation of any such provision, rule or regulation,
shall have made or engaged in the performance of any such contract, and

b. As regards the rights of any person who, not being a party to such contract, shall have acquired
any right thereunder with actual knowledge of the facts by reason of which the making or
performance of such contract was in violation of any such provision, rule or regulation.

71.3. Nothing in this Code shall be construed:

a. To affect the validity of any loan or extension of credit made or of any lien created prior or
subsequent to the effectivity of this Code, unless at the time of the making of such loan or
extension of credit or the creating of such lien, the person making such loan or extension of
credit or acquiring such lien shall have actual knowledge of the facts by reason of which the
making of such loan or extension of credit or the acquisition of such lien is a violation of the
provisions of this Code or any rules or regulations thereunder; or

b. To afford a defense to the collection of any debt, obligation or the enforcement of any lien by
any person who shall have acquired such debt, obligation or lien in good faith, for value and
without actual knowledge of the violation of any provision of this Code or any rule or regulation
thereunder affecting the legality of such debt, obligation or lien.

SEC. 72.  Rules and Regulations; Effectivity.  — 72.1. This Code shall be self-executory. To effect the
provisions and purposes of this Code, the Commission may issue, amend, and rescind such rules and
regulations and orders necessary or appropriate, including rules and regulations defining accounting,
technical, and trade terms used in this Code, and prescribing the form or forms in which information
required in registration statements, applications, and reports to the Commission shall be set forth. For
purposes of its rules or regulations, the Commission may classify persons, securities, and other matters
within its jurisdiction, prescribe different requirements for different classes of persons, securities, or
matters, and by rule or order, conditionally or unconditionally exempt any person, security, or
transaction, or class or classes of persons, securities or transactions, from any or all provisions of this
Code.

Failure on the part of the Commission to issue rules and regulations shall not in any manner affect the
self-executory nature of this Code.

72.2  The Commission shall promulgate rules and regulations providing for reporting, disclosure and the
prevention of fraudulent, deceptive or manipulative practices in connection with the purchase by an
issuer, by tender offer or otherwise, of and equity security of a class issued by it that satisfies the
requirements of Subsection 17.2.  Such rules and regulations may require such issuer to provide holders
of equity securities of such dates with such information relating to the reasons for such purchase, the
source of funds, the number of shares to be purchased, the price to be paid for such securities, the
method of purchase and such additional information as the Commission deems necessary or
appropriate in the public interest or for the protection of investors, or which the Commission deems to
be material to a determination by holders whether such security should be sold.

72.3  For the purpose of Subsection 72.2, a purchase by or for the issuer or any person controlling,
controlled by, or under common control with the issuer, or a purchase subject to the control of the
issuer or any such person, shall be deemed to be a purchased by the issuer. The Commission shall have
the power to make rules and regulations implementing this subsection, including exemptive rules and
regulations covering situations in which the Commission deems it unnecessary or inappropriate that a
purchase of the type described in this subsection shall be deemed to be a purchase by the issuer for the
purpose of some or all of the provisions of Subsection 72.2.

72.4. The rules and regulations promulgated by the Commission shall be published in two (2)
newspapers of general circulation in the Philippines, and unless otherwise prescribed by the
Commission, the same shall be effective fifteen (15) days after the date of the last publication.

SEC. 73. Penalties. — Any person who violates any of the provisions of this Code, or the rules and
regulations promulgated by the Commission under authority thereof, or any person who, in a
registration statement filed under this Code, makes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the statements therein not
misleading, shall, upon conviction, suffer a fine of not less than Fifty thousand pesos (P50,000) nor more
than Five million pesos (P5,000,000) or imprisonment of not less than seven (7) years nor more than
twenty-one (21) years, or both in the discretion of the court. If the offender is a corporation, partnership
or association or other juridical entity, the penalty may in the discretion of the court be imposed upon
such juridical entity and upon the officer or officers of the corporation, partnership, association or entity
responsible for the violation, and if such officer is an alien, he shall in addition to the penalties
prescribed, be deported without further proceedings after service of sentence.

SEC. 74. Transitory Provisions. — The Commission, as organized under existing laws, shall continue to
exist and exercise its powers, functions and duties under such laws and this Code:  Provided, That until
otherwise mandated by a subsequent law, the Commission shall continue to regulate and supervise
commodity futures contracts as provided in Section 11 and pre-need plans and the pre-need industry as
provided in Section 16 of this Code.

All further requirements herein shall be complied with upon approval of this Code: Provided,
however, That compliance may be deferred for such reasonable time as the Commission may determine
but not to exceed one (1) year from approval of this Code: Provided, further,  That securities which are
being offered at the time of effectivity of this Code pursuant to an effective registration and permit, may
continue to be offered and sold in accordance with the provisions of the Revised Securities Act in effect
immediately prior to approval of this Code.

All unexpended funds for the calendar year, properties, equipment and records of the Securities and
Exchange Commission are hereby retained by the Commission as reorganized under this Code and the
amount of Two hundred million pesos (P200,000,000) or such amount necessary to carry out the
reorganization provided in this Code is hereby appropriated.
All employees of the Commission who voluntarily retire or are separated from the service with the
Commission and whose retirement or separation has been approved by the Commission, shall be paid
retirement or separation benefits and other entitlements granted under existing laws.

SEC. 75. Partial Use of Income. — To carry out the purposes of this Code, the Commission is hereby
authorized, in addition to its annual budget, to retain and utilize an amount equal to One hundred
million pesos (P100,000,000) from its income.

The use of such additional amount shall be subject to the auditing requirements, standards and
procedures under existing laws.

SEC. 76.  Repealing Clause. — The Revised Securities Act (Batas Pambansa Blg. 178), as amended, in its
entirety, and Sections 2,4 and 8 of Presidential Decree 902-A, as amended, are hereby repealed. All
other laws, orders, rules and regulations, or parts thereof, inconsistent with any provision of this Code
are hereby repealed or modified accordingly.

SEC. 77. Separability Clause. — If any portion or provision of this Code is declared unconstitutional or
invalid, the other portions or provisions hereof, which are not affected thereby shall continue in full
force and effect.

SEC. 78. Effectivity.  — This Code shall take effect fifteen (15) days after its publication in the Official
Gazette or in two (2) newspapers of general circulation.

Approved, July 19,2000.

[REPUBLIC ACT NO. 8366]

AN ACT LIBERALIZING THE PHILIPPINE INVESTMENT HOUSE INDUSTRY, AMENDING CERTAIN SECTIONS
OF PRESIDENTIAL DECREE NO. 129, AS AMENDED, OTHERWISE KNOWN AS THE INVESTMENT HOUSES
LAW

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Declaration of Policy. – It is the policy of the State to expand and strengthen the capital base
of the economy in order to ensure sustained economic growth and development. Toward this end, the
Philippine investment house industry is hereby liberalized, increasing foreign equity participation and
raising the minimum capitalization of investment houses to enable them to meet the present and future
demands of the market.

SEC. 2. Section 5 of Presidential Decree No. 129, as amended, otherwise known as the Investment
Houses Law, is hereby further amended, to read as follows:

“SEC. 5. Citizenship requirements. – At least forty percent (40%) of the voting stock of any Investment
House shall be owned by citizens of the Philippines. In determining the percentage of foreign-owned
voting stocks in Investment Houses, the basis for the computation shall be the citizenship of each
stockholder, and, if the stockholder is a corporation, the citizenship of the individual stockholders
holding voting shares in that corporation. In approving foreign equity applications in Investment Houses,
the Securities and Exchange Commission shall approve such applications only if the same or similar
rights are enjoyed by Philippine nationals in the applicant’s country.

“Foreign nationals may become members of the board of directors to the extent of the foreign
participation in the equity of said enterprise.”

SEC. 3. Section 8 of the same Decree is hereby amended to read as follows:

“SEC. 8. Capital requirements. – In the case of newly-organized Investment Houses, the minimum paid-in
capital shall be Three hundred million pesos (P300,000,000). The minimum paid-in capital of the existing
Investment Houses shall be Three hundred million pesos (P300,000,000) to be built up in two (2) years
after the effectivity of this Act in the following manner: Two hundred million pesos (P200,000,000) after
the effectivity of this Act and an additional Fifty million pesos (P50,000,000) for every year thereafter
until the minimum capitalization is attained. The Monetary Board may prescribe a higher minimum
capitalization in order to promote and ensure the stability of the Philippine capital market and the
competitiveness of the investment house industry in line with the national economic goals. The
Monetary Board shall, within six (6) months, prescribe a risk assets to capital ratio and other capital
adequacy ratios in order to provide broader protection to the investing public.”

SEC. 4. This Act shall take effect fifteen (15) days from its publication in a newspaper of general
circulation.
[ REPUBLIC ACT NO. 2629, June 18, 1960 ]

INVESTMENT COMPANY ACT

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Short title.—This Act may be cited as the "Investment Company Act".

SEC. 2. Declaration of policy.—It is hereby declared that the policy and purposes of this Act in
accordance with which the provisions of this Act shall be interpreted, are to mitigate and, so far as is
feasible, to eliminate the following conditions which adversely affect the national public interest and the
interest of investors:

a. When investors purchase, pay for, exchange, receive dividends upon, vote, refrain from voting,
sell, or surrender securities issued by investment companies without adequate, accurate, and
explicit information fairly presented, concerning the character of such securities and the
circumstances, policies, and financial responsibility of such companies and their management;

b. When investment companies are organized, operated, managed, or their portfolio securities are
selected, in the interest of directors, officers, investment advisers, depositors, or other affiliated
persons thereof, in the interest of underwriters, brokers, or dealers, in the interest of special
classes of their security holders, or in the interest of other investment companies or persons
engaged in other lines of business, rather than in the interest of all classes of such companies'
security holders;

c. When investment companies issue securities containing inequitable or discriminatory

provisions, or fail to protect the preferences and privileges of the holders of their outstanding
securities;

d. When the control of investment companies is unduly concentrated through pyramiding or

inequitable methods of control, or is inequitably distributed, or when investment companies are
managed by irresponsible persons;

e. When investment companies, in keeping their accounts, in maintaining reserves, and in

computing their earnings and the asset value of their outstanding securities, employ unsound or
misleading methods, or are not subjected to adequate independent scrutiny;

f. When investment companies are reorganized, become inactive, or change the character of their
business, or when the control or management thereof is transferred, without the consent of
their security holders;

g. When investment companies by excessive borrowing and the issuance of excessive amounts of
senior securities increase unduly the speculative character of their junior; securities; or

h. When investment companies operate without adequate assets or reserves.

SEC. 3. Definitions.—When used in this Act, unless the context otherwise requires—

(a) "Advisory board" means a board, whether elected or appointed, which is distinct from the board of
directors or board of trustees, or an investment company, and which is composed solely of persons who
do not serve such company in any other capacity, whether or not the functions of such board are such
as to render its members "directors" within the definition of that term, which board has advisory
functions as to investments but has no power to determine that any security or other investment shall
be purchased or sold by such company.

(b)"Affiliated company" means a company which is an affiliated person.

(c) "Affiliated person" of another person means (1) any person directly or indirectly owning, controlling
or holding with power to vote, ten per centum or more of the outstanding voting securities of such other
person; (2) any person ten per centum or more of whose outstanding voting securities are directly or
indirectly owned, controlled, or held with power to vote, by such other person; (3) any person directly
or indirectly controlling, controlled by, or under common control with, such other person; (4) any
officer, director, partner, copartner, or employee of such other person; and (5) if such other person is an
investment company, any investment adviser thereof or any member of an advisory board thereof.

(d) "Bank" means (1) a banking institution organized under the laws of the Philippines, (2) any other
banking institution or trust company, doing business under the laws of the Philippines, a substantial
portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to
those permitted to national banks.

(e)"Broker" means any person engaged in the business of effecting transactions in securities for the
account of others, but does not include a bank or any person solely by reason of the fact that such
person is an underwriter for one or more investment companies.

(f) "Commission" means the Securities and Exchange Commission.

(g) "Company" means a corporation, a registered partnership, or an association lawfully transacting

business in the Philippines.

(h) "Control" means the power to exercise a controlling influence over the management or policies of a
company, unless such power is solely the result of an official position with such company.

Any person who owns beneficially, either directly or through one or more controlled companies, more
than thirty per centum of the voting securities of a company shall be presumed to control such
company. Any person who does not so own more than thirty per centum of the voting securities of any
company shall be presumed not to control such company. A natural person shall be presumed not to be
a controlled person within the meaning of this Act. Any such presumption may be rebutted by evidence,
but except as hereinafter provided, shall continue until a determination to the contrary is made by the
Commission by order either on its own motion or on application by an interested person. If an
application filed hereunder is not granted or denied by the Commission within sixty days after filing
thereof, the determination sought by the application shall be deemed to have been temporarily granted
pending final determination of the Commission thereon. The Commission, upon its own motion or upon
application, may by order revoke or modify any order issued under this paragraph whenever it shall find
that the determination embraced in such original order is no longer consistent with the facts.

(i) "Convicted" includes a verdict, judgment, or plea of guilty, if such verdict, judgment or plea has not
been reversed, set aside, or withdrawn, whether or not sentence has been imposed.

(j) "Dealers" means any person regularly engaged in the business of buying and selling securities for his
own account, through a broker or otherwise, but does not include a bank, insurance company, or
investment company, or any person insofar as he is engaged in investing, reinvesting, or trading in
securities, or in owning or holding securities, for his own account, either individually or in some fiduciary
capacity, but not as a part of a regular business.

(k) "Director" means any director of a corporation or any person performing similar functions with
respect to any organization.

(l) "Exchange" means any organization, association, or group of persons which constitutes, maintains, or
provides market place or facilities for bringing together purchasers and sellers of securities or for
otherwise performing with respect to securities the functions commonly performed by a stock exchange
as that term is generally understood, and includes the market place and the market facilities maintained
by such exchange.

(m) "Government security" means any security issued or guaranteed as to principal or interest by the
Republic of the Philippines, or by a person controlled or supervised by and acting as an instrumentality
of the Government of the Republic of the Philippines pursuant to authority granted by the Congress of
the Philippines; or any certificate of deposit for any of the foregoing.

(n) "Insurance company" means a company which is organized as an insurance company, whose primary
and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by
insurance companies, and which is subject to supervision by the Insurance Commissioner; or any
receiver or similar official or any liquidating agent for such a company, in his capacity as such.

(o) "Investment adviser" of an investment company means (1) any person (other than a bona fide
officer, director, trustee, member of an advisory board, or employee of such company as such) who
pursuant to contract with such company regularly furnishes advice to such company with respect to the
desirability of investing in, purchasing or selling securities or other property, or is empowered to
determine what securities or other property shall be purchased or sold by such company, and (2) any
other person who pursuant to contract with a person described in clause (1) of this paragraph regularly
performs substantially all of the duties undertaken by such person described in said clause (1); but does
not include (A) a person whose advice is furnished solely through uniform publications distributed to
subscribers thereto, (B) a person who furnishes only statistical and other factual information, advice
regarding economic factors and trends, or advice as to occasional transactions in specific securities, but
without generally furnishing advice or making recommendations regarding the purchase or sale of
securities, (C) a company furnishing such services at cost to one or more investment companies,
insurance companies, or other financial institutions, (D) any person the character and amount of whose
compensation for such services must be approved by a court or (E) such other persons as the
Commission may by rules and regulations or order determine not to be within the intent of this
definition.

(p) "Investment banker" means any person engaged in the business of underwriting securities issued by
other persons, but does not include an investment company, any person who acts as an underwriter in
isolated transactions, but not as a part of a regular business, or any person solely by reason of the fact
that such person is an underwriter for one or more investment companies.

(q) "Issuer" means every person who issues or proposes to issue any security, or has outstanding any
security which it has issued.

(r) "Lend" includes a purchase coupled with an agreement by the vendor to repurchase; "borrow"
includes a sale coupled with a similar agreement.

(s) "Majority-owned subsidiary" of a person means a company fifty per centum or more of the
outstanding voting securities of which are owned by such person, or by a company which, within the
meaning of this paragraph, is a majority-owned subsidiary of such person.

(t) "Periodic payment plan certificate" means (1) any certificate, investment contract, or other security
providing for a series of periodic payments by the holders, and representing an undivided interest in
certain specified securities or in a unit or fund of securities purchased wholly or partly with the proceeds
of such payments, and (2) any security the issuer of which is also issuing securities of the character
described in clause (1) and the holder of which has substantially the same rights and privileges as those
which holders of securities of the character described in said clause (1) have upon completing the
periodic payments for which such securities provide.

(u) "Person" means a natural person or a company.

(v) "Principal underwriter" of or for any investment company other than a closed-end company, or of
any security issued by such a company, means any underwriter who as principal purchases from such
company, or pursuant to contract has the right (whether absolute or conditional) from time to time to
purchase from such company such security for distribution, or who as agent for such company sells or
has the right to sell any such security to a dealer or to the public or both, but does not include a dealer
who purchases from such company through a principal underwriter acting as agent for such company.
"Principal underwriter" of or for a closed-end company or any issuer which is not an investment
company, or of any security issued by such a company or issuer, means any underwriter who, in
connection with a primary distribution of securities, (1) is in privity of contract with the issuer or an
affiliated person of the issuer; (2) acting alone or in concert with one or more other persons, initiates or
directs the formation of an underwriting syndicate; or (3) is allowed a rate of gross commission, spread,
or other profit greater than the rate allowed another underwriter participating in the distribution.
(w) "Promoter" of a company or a proposed company means a person who, acting alone or in concert
with other persons is initiating or directing, or has within one year initiated or directed, the organization
of such company.

(x) "Redeemable security" means any security, other than short-term paper, under the terms of which
the holder, upon its presentation to the issuer or to a person designated by the issuer, is entitled to
receive approximately his proportionate share of the issuer's current net assets, or the cash equivalent
thereof.

(y) "Reorganization" means (1) a reorganization under the supervision of a court of competent
jurisdiction; (2) a merger or consolidation; (3) a sale of seventy-five per centum or more in value of the
assets of a company; (4) a restatement of the capital of a company, or an exchange of securities issued
by a company for any of its own outstanding securities; (5) a voluntary dissolution or liquidation of a
company; (6) a recapitalization or other procedure or transaction which has for its purpose the
alteration, modification, or elimination of any of the rights, preferences, or privileges of any class of
securities issued by a company, as provided in its charter or other instrument creating or defining such
rights, preferences, and privileges; (7) an exchange of securities issued by another company or
companies, preliminary to and for the purpose of effecting or consummating any of the foregoing; or (8)
any exchange of securities by a company which is not an investment company for securities issued by a
registered investment company.

(z) "Sale", "sell", "offer to sell", or "offer for sale" includes every contract of sale or disposition of,
attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in security, for
value. Any security given or delivered with, or as a bonus on account of, any purchase of securities or
any other thing, shall be conclusively presumed to constitute a part of the subject of such purchase and
to have been sold for value.

(aa) "Sales load" means the difference between the price of a security to the public and that portion of
the proceeds from its sale which is received and invested or held for investment by the issuer, less any
portion of such difference deducted for trustee's or custodian's fees, insurance premiums, issue taxes,
or administrative expenses or fees which are not properly chargeable to sales or promotional activities.
In the case of a periodic payment plan certificate, "sales load" includes the sales load on any investment
company securities in which the payments made on such certificate are invested, as well as the sales
load on the certificate itself.

(bb) "Security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate,
preorganization certificate or subscription, transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral
rights, or, in general, any interest or instrument commonly known as a "security" or any certificate of
interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or
right to subscribe to or purchase, any of the foregoing.

(cc) "Short-term paper" means any note, draft, bill of exchange, or banker's acceptance payable on
demand having a maturity at the time of issuance of not exceeding nine months, exclusive of days of
grace, or any renewal thereof payable on demand or having a maturity likewise limited; and such other
classes of securities, of a commercial rather than an investment character, as the Commission may
designate by rules and regulations.

(dd) "Underwriter" means any person who has purchased from an issuer with a view to, or sells for an
issuer in connection with, the distribution of any security or participates or has a direct or indirect
participation in any such undertaking, or participates or has a participation in the direct or indirect
underwriting of any such undertaking; but such term shall not include a person whose interest is limited
to a commission from an underwriter or dealer not in excess of the usual and customary distributor's or
seller's commission. As used in this paragraph the term "issuer" shall include, in addition to an issuer,
any person directly or indirectly controlling or controlled by the issuer, or any person under direct or
indirect common control with the issuer. When the distribution of the securities in respect of which any
person is an underwriter is completed such person shall cease to be an underwriter in respect of such
securities or the issuer thereof.

(ee) "Value", with respect to assets of registered investment companies, means—

(1) As used in section four, (A) with respect to securities owned at the end of the last preceding fiscal
quarter for which market quotations are readily available, the market value at the end of such quarter;
(B) with respect to other securities and assets owned at the end of the last preceding fiscal quarter, fair
value at the end of such quarter, as determined in good faith by the board of directors; and (C) with
respect to securities and other assets acquired after the end of the last preceding fiscal quarter, the cost
thereof; and

(2) As used elsewhere in this Act, (A) with respect securities for which market quotations are readily
available, the market value of such securities; and (B) with respect to other securities and assets, fair
value as determined in good faith by the board of directors; in each case as of such time or times as
determined pursuant to this Act, and the rules and regulations issued by the Commission thereunder.
Notwithstanding the fact that market quotations for securities issued by controlled companies are
available, the board of directors may in good faith determine the value of such securities: Provided, That
the value so determined is not in excess of the' higher of market value or asset value of such securities
in the case of majority-owned subsidiaries, and is not in excess of market value in the case of other
controlled companies.

The foregoing definition shall not derogate from the authority of the Commission with respect to the
reports, information, and documents to be filed with the Commission by any registered company, or
with respect to the accounting policies and principles to be followed by any such company, as provided
in sections seven, twenty-seven and twenty-eight.

(ff) "Voting security" means any security presently entitling the owner or holder thereof to vote for the
election of directors of a company.

(gg) "Wholly-owned subsidiary" of a person means a company ninety-five per centum or more of the
outstanding voting securities of which are owned by such person, or by a company which, within the
meaning of this paragraph is a wholly-owned subsidiary of such person.

(hh) "Securities Act" means Commonwealth Act Numbered Eighty-three as heretofore or hereafter
amended.

No provision in this Act shall apply to, or be deemed to include, the Philippines or any political
subdivision thereof, or any agency, authority, or instrumentality of any one or more of the foregoing, or
any corporation which is wholly owned directly or indirectly by any one or more of the foregoing, or any
officer, agent, or employee of any of the foregoing acting as such in the course of his official duty, unless
such provision makes specific reference thereto.

SEC. 4. Definition of investment company.—

a. when used in this Act "investment company" means any issuer which is or holds itself out as
being engaged primarily, or proposes to engage primarily, in the business of investing,
reinvesting, or trading in securities;

b. Notwithstanding subsection (a), none of the following persons is an investment company within
the meaning of this Act;

1. Any issuer primarily engaged, directly or through a wholly-owned subsidiary or

subsidiaries, in a business or businesses other than that of investing, reinvesting, or
trading in securities.

2. Any issuer which the Commission, upon application by such issuer, finds and by order
declares to be primarily engaged in a business or businesses other than that of
investing, reinvesting, or trading in securities either directly or (A) through majority-
owned subsidiaries or (B) through controlled companies conducting similar types of
business. The filing of an application under this paragraph by an issuer other than a
registered investment company shall exempt the applicant for a period of sixty days
from all provisions of this Act applicable to investment companies as such. For cause
shown, the Commission by order may extend such period of exemption for an additional
period or periods. Whenever the Commission, upon its own motion or upon application,
finds that the circumstances which gave rise to the issuance of an order granting an
application under this paragraph no longer exist, the Commission shall by order revoke
such order.

3. Any issuer all the outstanding securities of which (other than short-term paper and
directors' qualifying areas) are directly or indirectly owned by a company accepted from
the definition of investment company.

c. Notwithstanding subsection (a), and (b), none of the following persons is an investment
company within the meaning of this Act:
1. Any issuer whose outstanding securities (other than short-term paper) are beneficially
owned by not more than twenty-five persons and which is not making and does not
presently propose to make a public offering of its securities. For the purpose of this
paragraph, beneficial ownership by a company shall be deemed to be beneficial
ownership by one person; except that, if such company owns ten per centum or more of
the outstanding voting securities of the issuer, the beneficial ownership shall be deemed
to be that of the holders of such company's outstanding securities (other than short-
term paper).

2. Any person primarily engaged in the business of underwriting and distributing securities
issued by other persons, selling securities to customers, and acting as broker, or any one
or more of such activities, whose gross income normally is derived principally from such
business and related activities.

3. Any bank or insurance company; any savings and loan association, building and loan
association, cooperative bank, homestead association, or similar institution, or any
receiver, conservator, liquidator, liquidating agent, or similar official or person thereof
or therefor; any common trust fund or similar fund maintained by a bank exclusively for
the collective investment and reinvestment of moneys contributed thereto by the bank
in its capacity as a trustee, executor, administrator, or guardian.

4. Any person substantially all of whose business is confined to industrial banking or similar
business.

5. Any person who is primarily engaged in one or more of the following business: (A)
Purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable,
and other obligations representing part or all of the sales price of merchandise,
insurance, and services; (B) making loans to manufacturers, wholesalers, and retailers
of, and to prospective purchasers of specified merchandise, insurance, and service; and
(C) purchasing or otherwise acquiring mortgages and other liens on and interests in real
estate.

6. Any company primarily engaged, directly or through majority-owned subsidiaries, in one

or more of the businesses described in paragraphs (3), (4) and (5), or in one or more of
such businesses (from which not less than forty per centum of such company's gross
income during its last fiscal year was derived) together with an additional business or
businesses other than investing, reinvesting, owning, holding or trading in securities.

7. Any company ninety per centum or more of the value of whose investment securities
are represented by securities of a single issuer included within a class of persons
enumerated in paragraphs (4), (5), or (6).

8. Any person substantially all of whose business consist of owning or holding oil, gas, or
other mineral royalties or leases, or fractional interests therein, or certificates of
interest or participation in or investment contracts relative to such royalties, leases, or
fractional interests.
 9. Any company organized and operated exclusively for religious, educational, benevolent,
fraternal, charitable, or reformatory purposes, no part of the net earnings of which
inures to the benefit of any private shareholders or individual.

10. Any employees' stock bonus, pension, or profit-sharing trust.

11. Any voting trust the assets of which consist exclusively of securities of a single issuer
which is not an investment company.

12. Any security holders' protective committee or similar issuer having outstanding and
issuing no securities other than certificates of deposit and short-term paper.

SEC. 5. Classification of investment companies.—

a. the purposes of this Act, investment companies are divided into open-end and closed-end
companies, defined as follows:

1. "Open-end company" means an investment company which is offering for sale or has
outstanding any redeemable security of which it is the issuer.

2. "Closed-end company" means any investment company other than an open-end

company.

SEC. 6. Transactions by investment companies.—

a. No investment company organized or otherwise created under the laws of the Philippines and
having a board of directors, unless registered under section seven, shall directly or indirectly—

1. offer for sale, sell, or deliver after sale, within the Philippines, any security or any
interest in a security, whether the issuer of such security is such investment company or
another person;

2. purchase, redeem, retire, or otherwise acquire or attempt to acquire, within the

Philippines, any security, or any interest in a security, whether the issuer of such
security is such investment company or another person;

3. control any investment company which does any of the acts enumerated in paragraphs
(1) and (2).

The provisions of this subsection shall not apply to transactions of an investment

company which are merely incidental to its dissolution.

b. No depositor or trustee of or underwriter for any investment company, organized or otherwise

created under the laws of the Philippines and not having a board of directors, unless such
company is registered under section eight or exempt under section six, shall directly or indirectly
—
 1. offer for sale, sell, or deliver after sale, within the Philippines, any security or any
interest in a security of which such company is the issuer;

2. purchase, redeem, or otherwise acquire or attempt to acquire, within the Philippines,

any security or interest in a security of which such company is the issuer; or

3. sell or purchase for the account of such company, within the Philippines, any security or
interest in a security, by whomsoever issued.

The provisions of this subsection shall not apply to transactions which are merely
incidental to the dissolution of an investment company.

SEC. 7. Registration of investment companies.—

a. Any investment company organized or otherwise created under the laws of the Philippines may
register for the purposes of this Act by filing with the Commission a registration statement, in
such form as the Commission shall by rules and regulations prescribe as necessary or
appropriate in the public interest or for the protection of investors. An investment company
shall be deemed to be registered upon approval by the Commission of such registration
statement and the publication thereof in the Official Gazette for two consecutive weeks and in
two dailies of general circulation for two consecutive days.

b. Every investment company shall file with the Commission an original and such copies of a
registration statement, in such form and containing such of the following information and
documents as the Commission shall, by rules and regulations, prescribe as necessary or
appropriate in the public interest or for the protection of investors:

1. a recital of the policy of the registrant in respect of each of the following types of
activities, such recital consisting in each case of a statement whether the registrant
reserves freedom of action to engage in activities of such type, and if such freedom of
action is reserved, a statement briefly indicating, insofar as is practicable, the extent to
which the registrant intends to engage therein: (A) the classification, as defined in
section five, within which the registrant proposes to operate; (B) borrowing money; (C)
the issuance of senior securities; (D) engaging in the business of underwriting securities
issued by other persons; (E) concentrating investments in a particular industry or group
of industries; (F) the purchase and sale of real estate and commodities, or either of
them; (G) making loans to other persons; and (H) portfolio turn-over (including a
statement showing the aggregate peso amount of purchases and sales of portfolio
securities, other than Government securities, in each of the full fiscal years preceding
the filing of such registration statement);

2. a recital of the policy of the registrant in respect of matters, not enumerated in

paragraph (1), which the registrant deems matters of fundamental policy and elects to
treat as such;

3. the name and address of each affiliated person of the registrant; the name and principal
address of every company, other than the registrant, of which each such person is an
 officer, director or partner; a brief statement of the business experience for the
preceding five years of each officer and director of the registrant; and

4. the information and documents which would be required to be filed in order to register
under the Securities Act all securities (other than short-term paper) which the registrant
has outstanding or proposes to issue.

c. The Commission shall make provision, by permissive rules and regulations or order, for the filing
of the following, or so much of the following as the Commission may designate, in lieu of the
information and documents required pursuant to subsection (b):

1. copies of the most recent registration statement filed by the registrant under the
Securities Act and currently effective under such Act;

2. a report containing reasonably current information regarding the matters included in

copies filed pursuant to paragraph (1), and such further information regarding matters
not included in such copies as the Commission is authorized to require under subsection
(b).

d. Every investment company as defined in this Act, existing" on the date of effectivity hereof shall
register pursuant to the provisions of this section within six months from the approval of this
Act.

e. The Commission, in the exercise of its sound judgment and discretion, shall have power to limit
the registration of investment companies to such number as the investment opportunities then
obtaining would permit, and to allow the registration of new investment companies only when
the conditions warrant it. This provision, however, shall not apply to investment companies
already existing on the date of effectivity of this Act.

f. If it appears to the Commission that a registered investment company has failed to file the
registration statement required by this section or a report required pursuant to section twenty-
seven (a), or (b), or has filed such registration statement or report but omitted there from
material facts required to be stated therein, or has filed such a registration statement or report
in violation of section thirty-one (b), the Commission shall notify such company by registered
mail of the failure to file such registration statement or report, or of the respects in which such
registration statement or report appears to be materially incomplete or misleading, as the case
may be, and shall fix a date (in no event earlier than thirty days after the mailing of such notice)
prior to which such company may file such registration statement or report or correct the same.
If such registration statement or report is not filed or corrected within the time so fixed by the
Commission or any extension thereof, the Commission, after appropriate notice and opportunity
for hearing, and upon such conditions and with such exemptions as it deems appropriate for the
protection of investors, may by order suspend the registration of such company until such
statement or report is filed or corrected, or may by order revoke such registration, if the
evidence establishes—
 1. that such company has failed to file a registration statement required by this section or
a report required pursuant to section twenty-seven (a) or (b), or has filed such a
registration statement or report but omitted therefrom material facts required to be
stated therein, or has filed such a registration statement or report in violation of section
thirty-one (b); and

2. that such suspension or revocation is in the public interest.

g. Whenever the Commission, on its own motion or upon application, finds that a registered
investment company has ceased to be an investment company, it shall so declare by order and
upon the taking effect of such order the registration of such company shall cease to be in effect.
If necessary for the protection of investors, an order under this subsection may be made upon
appropriate conditions. The Commission's denial of any application under this subsection shall
be by order.

SEC. 8. In eligibility of certain affiliated persons and underwriters.—

a. It shall be unlawful for any of the following persons to serve or act in the capacity of officer, or
director, member of an advisory board, investment adviser, or depositor of any registered
investment company, or principal underwriter for any registered open-end company;

1. any person who within ten years has been convicted of any felony or misdemeanor
involving the purchase or sale of any security or arising out of such person's conduct as
an underwriter, broker, dealer, or investment adviser, or as an affiliated person,
salesman, or employee or any investment company, bank, or insurance company;

2. any person who, by reason of any misconduct, is permanently or temporarily enjoined

by order, judgment, or decree of any court of competent jurisdiction from acting as an
underwriter, broker, dealer, or investment adviser, or as an affiliated person, salesman,
or employee of any investment company, bank, or insurance company, or from
engaging in or continuing any conduct or practice in connection with any such activity or
in connection with the purchase or sale of any security; or

3. a company any affiliated person of which is ineligible, by reason of paragraph (1) or (2),
to serve or act in the foregoing capacities.

b. Any person who is ineligible, by reason of subsection (a), to serve or act in the capacities
enumerated in such subsection, may file with the Commission an application for an exemption
from the provisions of such subsection. The Commission shall by order grant such application,
either unconditionally or on an appropriate temporary or other conditional basis, if it is
established that the prohibitions of such subsection, as applied to such person, are unduly or
disproportionately severe or that the conduct of such person has been such as not to make it
against the public interest or protection of investors to grant such application.
SEC. 9. Affiliations of directors, officers and employees.—

a. After one year from the effective date of this Act, no registered investment company shall have
a board of directors more than fifty per centum of the members of which are persons who are
investment advisers of, or officers or employees of, such registered company.

b. After one year from the effective date of this Act, no registered investment company shall—

1. employ as regular broker any director, officer, or employee of such registered company,
or any person of which any such director, officer, or employee is an affiliated person;

2. use a principal underwriter of securities issued by it any director, officer, or employee of

such registered company or any person of which any such director, officer, or employee
is an affiliated person; or

3. have as director, officer, or employee any investment banker, or any affiliated person of
an investment banker. For the purposes of this paragraph, a person shall not be deemed
an affiliated person of an investment banker solely by reason of the fact that he is an
affiliated person of a company (A) all the outstanding securities of which (other than
short-term paper, securities representing bank loans and directors' qualifying shares)
are, or after such acquisition will be, owned by one or more registered investment
companies; and (B) which is primarily engaged in the business of underwriting and
distributing securities issued by other persons, selling securities to customers, or any
one or more of such or related activities, and the gross income of such person normally
is derived principally from such business or related activities.

c. After the effective date of this Act no registered investment company shall have a majority of its
board of directors consisting of persons who are officers or directors of any one
bank: Provided, That, if prior to the effective date of this Act, any registered investment
company shall have had a majority of its directors consisting of persons who are directors,
officers, or employees of any one bank, such registered company may continue to have the
same percentage of its board of directors consisting of persons who are directors, officers, or
employees of such bank.

d. If by reason of the death, disqualification, or bona fide resignation of any director or directors,
the requirements of the foregoing provisions of this section in respect of directors shall not be
met by a registered investment company, the operation of such provision shall be suspended as
to such registered company for a period of thirty days if the vacancy or vacancies may be filled
by action of the board of directors, and for a period of sixty days if a vote of stockholders is
required to fill the vacancy or vacancies, or for such longer period as the Commission may
prescribe, by rules and regulations upon its own motion or by order upon application, as not
inconsistent with the protection of investors.

e. No registered investment company shall knowingly purchase or otherwise acquire, during the
existence of any underwriting or selling syndicate, any security (except a security of which such
 company is the issuer) a principal underwriter of which is an officer, director, member of an
advisory board, investment adviser, or employee of such registered company, or is a person
(other than a company of the character described in paragraphs (A) and (B) of subsection (b) (3)
of which any such officer, director, member of an advisory board, investment adviser, or
employee is an affiliated person, unless in acquiring such security such registered company is
itself acting as a principal underwriter for the issuer. The Commission, by rules and regulations
upon its own motion or by order upon application, may conditionally or unconditionally exempt
any transaction or classes of transactions from any of the provisions of this subsection, if and to
the extent that such exemption is consistent with the protection of investors.

f. In the case of a registered investment company which has an advisory board, such board, as a
distinct entity, shall be subject to the same restrictions as to its membership as are imposed
upon a board of directors by this section.

g. In the case of a registered investment company which does not have a board of directors, the
provisions of this section shall apply as follows:

1. the provisions of subsection (a), as modified by subsection (d), shall apply to the board
of directors of the depositor of such company;

2. the provisions of subsection (b) and (c), as modified by subsection (d), shall apply to the
board of directors of the depositor and of every investment adviser of such company;
and

3. the provisions of subsection (e) shall apply to purchases and other acquisitions for the
account of such company of securities a principal underwriter of which is the depositor
or an investment adviser of such company, or an affiliated person of such depositor or
investment adviser.

SEC. 10. Offers to exchange securities.—

a. It shall be unlawful for any registered open-end company or any principal underwriter for such a
company to make or cause to be made an offer to the holder of a security of such company or of
any other open-end investment company to exchange his security for a security in the same or
another such company on any basis other than the relative net asset values of the respective
securities to be exchanged, unless the terms of the offer have first been submitted to and
approved by the commission or are in accordance with such rules and regulations as the
Commission may have prescribed in respect of such offers which are in effect at the time such
offer is made. For the purposes of this section, (1) an offer by a principal underwriter means an
offer communicated to holders of securities of a class or series but does not include an offer
made by such principal underwriter to an individual investor in the course of a retail business
conducted by such principal underwriter, and (2) the net asset value means the net asset value
which is in effect for the purpose of determining the price at which the securities, or class or
series of securities involved, are offered for sale to the public either (A) at the time of the receipt
by the offeror of the acceptance of the offer or (B) at such later time as is specified in the offer.
 b. The provisions of this section shall not apply to any offer made pursuant to (1) any plan of
reorganization, which is submitted to and requires the approval of the holders of at least a
majority of the outstanding shares of the class or series to which the security owned by the
offeree belongs; or (2) the right of conversion, at the option of the holder, from one class or
series into another class or series of securities issued by the same company upon such terms as
are specified in the charter, certificate of incorporation, articles of association, by-laws, or trust
indenture subject to which the securities to be converted were issued or are to be issued.

SEC. 11. Functions and activities of investment companies.—

a. It shall be unlawful for any registered investment company, in contravention of such rules and
regulations or orders as the Commission may prescribe a necessary or appropriate in the public
interest or for the protection of investors—

1. to purchase any security on margin, except such short-term credits as are necessary for
the clearance of transactions;

2. to participate on a joint or a joint and several basis in any trading account in securities,
except in connection with an underwriting in which such registered company is a
participant; or

3. to effect a short sale of any security, except in connection with an underwriting in which
such registered company is a participant.

b. It shall be unlawful for any registered open-end company (other than a company complying with
the provisions of section ten) to act as a distributor of securities of which it is the issuer, except
through an underwriter, in contravention of such rules and regulations as the Commission may
prescribe as necessary or appropriate in the public interest or for the protection of investors.

c. It shall be unlawful for any investment company to—

1. Generate funds for promoting the private business or industry of any employee, official,
director, organizer, incorporator or stockholder thereof;

2. Allow any of its employee, official, director, organizer, incorporator or stockholder to

buy real estate, personal property or any other kind of property and sell the same to the
company at a price higher than the procurement cost or sell any property of the
company, or a portion thereof, at a price below the market value thereof to any of the
aforementioned persons.

SEC. 12. Changes in investment policy.—

a. No registered investment company shall, unless authorized by the vote of a majority of its
outstanding voting securities—
 1. borrow money, issue senior securities, underwrite securities issued by other persons,
purchase or sell real estate or commodities or make loans to other persons, except in
each case in accordance with the recitals of policy contained in its registration
statement in respect thereto;

2. deviate from its policy in respect of concentration of investments in any particular

industry or group of industries as recited in its registration statement, or deviate from
any fundamental policy recited in its registration statement pursuant to section seven
(b) (2); or

3. change the nature of its business so as to cease to be an investment company.

b. Where the change will involve an amendment of the organization papers of the investment
company, the pertinent provisions of law on the vote necessary and other requisites to
effectuate the same, shall likewise be complied with.

SEC. 13. Size of investment companies.—No registered investment company organized after the
effective date off this Act, and no principal underwriter for such a company, shall make a public offering
of securities of which such company is the issuer, unless—

1. such company has a paid-up capital of at least five hundred thousand pesos, as certified to by an
independent certified public accountant; or

2. such company has previously made a public offering of its securities, and at the time of such
offering had a paid-up capital of at least five hundred thousand pesos, as certified to by an
independent certified public accountant: Provided, however, That no investment company shall
redeem, directly or indirectly, any security of which such company is the issuer unless the
remaining unimpaired capital shall be at least two hundred fifty thousand pesos or fifty per cent
of its outstanding liabilities to the creditors; of said company, whichever is higher.

SEC. 14. Contracts of advisers and underwriters.—

a. After the effective date of this Act it shall be unlawful for any person to serve or act as
investment adviser of a registered investment company, except pursuant to a written contract,
which contract, whether with such registered company or with an investment adviser of such
registered company, unless in effect prior to the effective date of this Act, has been approved by
the vote of a majority of the outstanding voting securities of such registered company and—

1. precisely describes all compensation to be paid thereunder;

2. shall continue in effect for a period more than two years from the date of its execution,
only so long as such continuance is specifically approved at least annually by the board
of directors or by vote of a majority of the outstanding voting; securities of such
company;
 3. provides, in substance, that it may be terminated at any time, without the payment of
any penalty, by the board of directors of such registered company or by vote of two-
thirds of the outstanding voting securities of such company on not more than sixty days'
written notice to the investment adviser; and

4. provides, in substance, for its automatic termination in the event of its assignment by
the investment adviser.

b. After one year from the effective date of this Act, it shall be unlawful for any principal
underwriter for a registered open-end company to offer for sale, sell, or deliver after sale any
security of which such company is the issuer, except pursuant to a written contract with such
company, which contract, unless in effect prior to the effective date of this Act—

1. shall continue in effect for a period more than two years from the date of its execution,
only so long as such continuance is specifically approved at least annually by the board
of directors or by vote of two-thirds of the outstanding voting securities of such
company; and

2. provides, in substance, for its automatic termination in the event of its assignment by
such underwriter.

c. In addition to the requirements of subsections (a) and (b) it shall be unlawful for any registered
investment company having a board of directors to enter into, renew, or perform any contract
or agreement, written or oral, except a written agreement which was in effect prior to the
effective date of this Act, whereby a person undertakes regularly to serve or act as investment
adviser of or principal underwriter for such company, unless the terms of such contract or
agreement and any renewal thereof have been approved (1) by a majority of the directors who
are not parties to such contract or agreement or affiliated persons of any such party, or (2) by
the vote of a majority of the outstanding voting securities of such company.

d. It shall be unlawful for any person, after the effective date of this Act—

1. to serve or act as investment adviser of a registered investment company, pursuant to a

written contract which was in effect prior to the effective date of this Act; or

2. as principal underwriter for a registered open-end investment company to offer for sale,
sell, or deliver after sale any security of which such company is the issuer, pursuant to a
written contract which was in effect prior to the effective date of this Act, unless such
contract is renewed in such form that it complies with the requirements of subsection
(a) or (b), as the case may be, and is approved in the manner required by this section.

e. Nothing contained in this section shall be deemed to require or contemplate any action by an
advisory board of any registered company or by any of the members of such a board.
SEC. 15. Board of directors; election;term vacancies; and salaries.—No person shall serve as a director of
a registered investment company unless he is a Filipino citizen and elected to that office by the holders
of the outstanding voting securities of such company, at an annual or a special meeting duly called for
that purpose; except that vacancies occurring between such meetings may be filled in any otherwise
legal manner if immediately after filling any such vacancy at least two-thirds of the directors then
holding office shall have been elected to such office by the holders of the outstanding voting securities
of the company at such an annual or special meeting. In the event that at any time less than a majority
of the directors of such company holding office at that time were so elected by the holders of the
outstanding voting securities, the board of directors or proper officer of such company shall forthwith
cause to be held as promptly as possible and in any event within sixty days a meeting of such holders for
the purpose of electing directors to fill any existing vacancies in the board of directors unless the
Commission shall by order extend such period. The foregoing provisions shall not apply to members of
an advisory board.

No member of the Board of Directors or any executive official shall receive any salary or emolument
from the investment company at a rate higher than that fixed by the Commission after taking into
consideration; the experience and qualifications of the official concerned; the amount and nature of
securities issued by the company; the size and standing of the company in the business community; the
volume of business done by the company; the number of years the company has been in business; and
other pertinent conditions and circumstances: Provided, however, That in no case shall the operational
expenses of such company exceed ten per cent of the total investment fund received from the
investors: And provided, finally, That non-compliance with the provisions of this Act shall cause the
cancellation of its registration and the liquidation of its assets for redistribution to investors.

SEC. 16. Transactions of certain affiliated persons and underwriters—

a. It shall be unlawful for any affiliated person or promoter of or principal underwriter for a
registered investment company (other than a company of the character described in section
nine (b) (3) (A) and (B) or any affiliated person of such a person, promoter, or Principal
underwriter, acting as principal—

1. knowingly to sell any security or other property to such registered company or to any
company controlled by such registered company, unless such sale involves solely (A)
securities of which the buyer is the issuer, or (B) securities of which the seller is the
issuer and which are part of a general offering to the holders of a class of its securities;

2. knowingly to purchase from such registered company, or from any company controlled
by such registered company, any security or other property (except securities of which
the seller is the issuer): or

3. to borrow money or other property from such registered company or from any
company controlled by such registered company (unless the borrower is controlled by
the lender) except as permitted in section twenty (b).
b. Notwithstanding subsection (a), any person may file with the Commission an application for an
order exempting a proposed transaction of the applicant from one or more provisions of said
subsection. The Commission shall grant such application and issue such order of exemption if
evidence establishes that —

1. the terms of the proposed transaction, including the consideration to be paid or

received, are reasonable and fair and do not involve overreaching on the part of any
person concerned:

2. the proposed transaction is consistent with the policy of each registered investment
company concerned, as recited in its registration statement and reports filed under this
Act; and

3. the proposed transaction is consistent with the general purposes of this Act.

c. Notwithstanding subsection (a), a person may, in the ordinary course of business, sell to or
purchase from any company merchandise or may enter into a lessor-lessee relationship with any
person and furnish the services incident thereto.

d. It shall be unlawful for any affiliated person of or principal underwriter for a registered
investment company (other than a company of the character described in section nine (b) (3) (A)
and (B), or any affiliated person of such a person or principal underwriter, acting as principal to
effect any transaction in which such registered company, or a company controlled by such
registered company, is a joint or a joint and several participant with such person, principal
underwriter, or affiliated person, in contravention of such rules and regulations as the
Commission may prescribe for the purpose of limiting or preventing participation by such
registered or controlled company on a basis different from or less advantageous than that of
such other participant. Nothing contained in this subsection shall be deemed to preclude any
affiliated person from acting as manager of any underwriting syndicate or other group in which
such registered or controlled company is a participant and receiving compensation therefor.

e. It shall be unlawful for any affiliated person of a registered investment company, or any
affiliated person of such person—

1. acting as agent, to accept from any source any compensation (other than a regular
salary or wages from such registered company) for the purchase or sale of any property
to or for such registered company or any controlled company thereof, except in the
course of such person's business as an underwriter or broker; or

2. acting as broker, in connection with the sale of securities to or by such registered

company or any controlled company thereof, to receive from any source a commission,
fee, or other remuneration for effecting such transaction which exceeds (A) the usual
and customary broker's commission if the sale is effected on a securities exchange, or
(B) two per centum of the sales price if the sale is effected in connection with a
secondary distribution of such securities, or (C) one per centum of the purchase or sale
price of such securities if the sale is otherwise effected unless the Commission shall, by
 rules and regulations or order in the public interest and consistent with the protection
of investors, permit a larger commission.

f. Every registered investment company shall place and maintain its securities and similar
investments in the custody of (1) a duly organized local commercial bank of good repute; or (2) a
company which is a member of a securities exchange as defined in the Securities Act, subject to
such rules and regulations as the Commission may from time to time prescribe for the
protection of investors; or (3) such registered company, but only in accordance with such rules
and regulations or orders as the Commission may from time to time prescribe for the protection
of investors. Rules, regulations, and orders of the Commission under this subsection, among
other things, shall make appropriate provision with respect to such matters as the earmarking,
segregation, and hypothecation of such securities and investments, and shall provide for or
require periodic or other inspections by any or all of the following: independent public
accountants, employees and agents of the Commission, and such other persons as the
Commission may designate. No such member who trades in securities for his own account may
act as custodian except in accordance with rules and regulations prescribed by the Commission
for the protection of investors.

g. The Commission is authorized to require by rules and regulations or orders for the protection of
investors that any officer and employee of a registered investment company who may singly, or
jointly with others, have access to securities or funds of any registered company, either directly
or through authority to draw upon such funds or to direct generally the disposition of such
securities, be bonded by a reputable fidelity insurance company against larceny and
embezzlement in such reasonable minimum amounts as the Commission may prescribe.

h. After the effective date of this Act, neither the charter, certificate of incorporation, articles of
association, nor the bylaws of any registered investment company, nor any other instrument
pursuant to which such a company is organized or administered, shall contain any provision
which protects or purports to protect any director or officer of such company against any
liability to the company or to its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.

In the event that any such instrument does not at the effective date of this Act comply with the
requirements of this subsection and is not amended to comply therewith, such company may
nevertheless continue to be a registered investment company and shall not be deemed to
violate this subsection if each such director or officer shall immediately file with the Commission
a waiver in writing of any protective provision of the instrument to the extent that it does not
comply with this subsection, and each such person subsequently elected or appointed shall
before assuming office file a similar waiver.

i. After one year from the effective date of this Act no contract or agreement under which any
person undertakes to act as investment adviser of, or principal underwriter for, a registered
investment company shall contain any provision which protects or purports to protect such
person against any liability to such company or its security holders to which he would otherwise
 be subject by reason of willful misfeasance, bad faith, or gross negligence, in the performance of
his duties, or by reason of his reckless disregard of his obligations and duties under such
contract or agreement.

In the event that any such contract or agreement does not at the effective date of this Act
comply with the requirements of this subsection and is not amended to comply therewith prior
to the expiration of said one year, this subsection shall not be deemed to have been violated if
prior to said expiration date each such investment adviser as principal underwriter shall have
filed with the Commission a waiver in writing of any protective provisions of the contract or
agreement to the extent that it does not comply with this subsection.

SEC. 17. Capital structure of investment companies.—

a. It shall be unlawful for any registered closed-end company to issue any class of senior security,
or to sell any such security of which it is the issuer, unless—

1. if such class of senior security represents an indebtedness—

A. immediately after such issuance or sale, it will have an asset coverage of at least
three hundred per centum;

B. provision is made to prohibit the declaration of any dividend (except a dividend

payable in stock of the issuer), or the declaration of any other distribution, upon
any class of the capital stock of such investment company, or the purchase of
any such capital stock, unless, in every such case, such class of senior securities
has at the time of the declaration of any such dividend or distribution or at the
time of any such purchase an asset coverage of at least three hundred per
centum after deducting the amount of such dividend, distribution, or purchase
price, as the case may be, except that dividends may be declared upon any
preferred stock if such senior security representing indebtedness has an asset
coverage of at least two hundred per centum at the time of declaration thereof
after deducting the amount of such dividend; and

C. provision is made either—

i. that, if on the last business day of each twelve consecutive calendar

months such class of senior securities shall have an asset coverage of
less than one hundred per centum, the holders of such securities voting
as a class shall be, entitled to elect at least a majority of the members of
the board of directors of such registered company, such voting right to
continue until such class of senior security shall have an asset coverage
of one hundred and ten per centum or more on the last business day of
each of three consecutive calendar months, or

ii. that, if on the last business day of each twenty-four consecutive

calendar months such class of senior securities shall have an asset
 coverage of less than one hundred per centum, an event of default shall
be deemed to have occurred:

2. if such class of senior security is a stock—

A. immediately after the issuance or sale it will have an asset coverage of at least
two hundred per centum;

B. provision is made to prohibit the declaration of any dividend (except a dividend

payable in common stock of the issuer), or the declaration of any other
distribution, upon the common stock of such investment company, or the
purchase of any such common stock, unless in every such case such class of
senior security has at the time of the declaration of any such dividend or
distribution or at the time of any such purchase an asset coverage of at least
two hundred per centum after deducting the amount of such dividend,
distribution or purchase price, as the case may be;

C. provision is made to entitle the holders of such senior securities, voting as a

class, to elect at least two directors at all times, and, subject to the prior rights,
if any of the holders of any other class of senior securities outstanding, to elect a
majority of the directors if at any time dividends on such class of securities shall
be unpaid in an amount equal to two full years' dividends on such securities,
and to continue to be so represented until all dividends in arrears shall have
been paid or otherwise provided for;

D. provision is made requiring approval by the vote of a majority of such securities,

voting as a class, of any plan of reorganization adversely affecting such securities
or of any action requiring a vote of security holders as in section twelve (a)
provides; and

E. such class of stock shall have complete priority over any other class as to
distribution of assets and payment of dividends, which dividends shall be
cumulative.

3. The assets coverage in respect of a senior security provided for in subsection (a) may be
determined on the basis of values calculated as of a time within forty-eight hours (not
including Sundays or holidays) next preceding the time of such determination. The time
of issue or sale shall, in the case of an offering of such securities to existing stockholders
of the issuer, be deemed to be the first date on which such offering is made, and in all
other cases shall be deemed to be the time as of which a firm commitment to issue or
sell and to take or purchase such securities shall be made.

4. Notwithstanding the provisions of subsection (a) it shall be unlawful for any registered
closed-end investment company to issue or sell any senior security representing
indebtedness if immediately thereafter such company will have outstanding more than
 one class of senior security representing indebtedness, or to issue or sell any senior
security which is a stock if immediately thereafter such company will have outstanding
more than one class of senior security which is a stock, except that; (1) any such class of
indebtedness or stock may be issued in one or more series: Provided, That no such
series shall have a preference or priority over any other series upon the distribution of
the assets of such registered closed-end company or in respect of the payment of
interest or dividends, and (2) promisorry notes or other evidence of indebtedness issued
in consideration of any loan, extension, or renewal thereof, made by a bank or other
person and privately arranged, and not intended to be publicly distributed, shall not be
deemed to be a separate class or senior securities representing indebtedness within the
meaning of this subsection.

5. It shall be unlawful for any registered investment company to issue any warrant or right
to subscribe to or purchase a security of which such company is the issuer, except in the
form of warrants or rights to subscribe expiring not later than one hundred and twenty
days after their issuance and issued exclusively and ratably to be a class or classes of
such company's security holders; except that any warrant may be issued in exchange for
outstanding warrants in connection with a plan of reorganization.

6. The provisions of this section shall not apply to any senior security issued or sold by any
registered closed-end company—

1. pursuant to any firm contract to purchase or sell entered into prior to the
effective date of this Act;

2. for the purpose of refunding through payment, purchase, redemption,

retirement, or exchange, any senior security of such registered investment
company except that no senior security representing indebtedness shall be so
issued or sold for the purpose of refunding any senior security which is a stock;
or

3. pursuant to any plan of reorganization (other than for refunding as referred to

in subsection (e) (2), provided—

A. that such senior securities are issued or sold for the purpose of
substituting or exchanging such senior securities for outstanding senior
securities, and if such senior securities represent indebtedness they are
issued or sold for the purpose of substituting or exchanging such senior
securities for outstanding senior securities representing indebtedness,
of any registered investment company which is a party to such plan of
reorganization; or

B. that the total amount of such senior securities so issued or sold

pursuant to such plan does not exceed the total amount of senior
securities of all the companies which are parties to such plan, and the
total amount of senior securities representing indebtedness so issued or
sold pursuant to such plan does not exceed the total amount of senior
 securities representing indebtedness of all such companies, or,
alternatively, the total amount of such senior securities so issued or sold
pursuant to such plan does not have the effect of increasing the ratio of
senior securities representing indebtedness to the securities
representing stock or the ratio of senior securities representing stock to
securities junior thereto when compared with such ratios as they
existed before such reorganization.

7. (1) It shall be unlawful for any registered open-end company to issue any class of senior
security or to sell any senior security of which it is the issuer, except that any such
registered company shall be permitted to borrow from any bank: Provided, That
immediately after any such borrowing there is an asset coverage of at least three
hundred per centum for all borrowings of such registered company: And provided,
further, That in the event that such asset coverage shall at any time fall below three
hundred per centum such registered company shall, within three days thereafter (not
including Sundays and holidays) or such longer period as the Commission may prescribe
by rules and regulations, reduce the amount of its borrowings to an extent that the
asset coverage of such borrowings shall be at least three hundred per centum.
Notwithstanding the provisions of this section, however, a registered open-end
company may guarantee the senior securities of a controlled person: Provided, That
such guarantee is limited to a percentage of the value of the senior securities equivalent
to the percentage of the company's interest in the controlled person: And provided,
further, That such senior securities have an asset coverage by the said controlled person
of at least two hundred per centum.

(2) "Senior security" shall not, in the case of a registered open-end company, include a class or classes or
a number of series of preferred or special stock each of which is preferred over all other classes or series
in respect of assets specifically allocated to that class or series: Provided, (A) That such company has
outstanding no class or series of stock which is not so preferred over all other classes or series; or (B)
that the only other outstanding class of the issuer's stock consist of a common stock upon which no
dividend (other than a liquidating dividend) is permitted to be paid and which in the aggregate
represents not more than one-half of one per centum of the issuer's outstanding voting securities.

8. Unless otherwise provided: "Senior security" means any bond, debenture, note, or
similar obligation or instrument constituting a security and evidencing indebtedness,
and any stock of a class having priority over any other class as to distribution of assets or
payment of dividends; and "senior security representing indebtedness" means any
senior security other than stock.

The term "senior security", when used in subparagraphs (B) and (C) of paragraph (1) of
subsection (a), shall not include any promissory note or other evidence of indebtedness
issued in consideration of any loan, extension, or renewal thereof, made by a bank or
other person and privately arranged, and not intended to be publicly distributed; nor
 shall such term, when used in this section, include any such promissory note or other
evidence of indebtedness in any case where such a loan is for temporary purposes only
and in an amount not exceeding five per centum of the value of the total assets of the
issuer at the time when the loan is made. A loan shall be presumed to be for temporary
purposes if it is repaid within sixty days and is not extended or renewed; otherwise it
shall be presumed not to be for temporary purposes. Any such presumption may be
rebutted by evidence.

9. "Asset coverage" of a class of senior security representing an indebtedness of an issuer

means the ratio which the value of the total assets of such issuer, less all abilities and
indebtedness not represented by senior securities, bears to the aggregate amount of
senior securities representing indebtedness of such issuer. "Asset coverage" of a class of
senior security of an issuer which is a stock means the ratio which the value of the total
assets of such issuer, less all liabilities and indebtedness not represented by senior
securities, bears to the aggregate amount of senior securities representing indebtedness
of such issuer plus the aggregate of the involuntary liquidation preference of such class
of senior security which is a stock. The involuntary liquidation preference of a class of
senior security which is a stock shall be deemed to mean the amount to which such class
of senior security would be entitled on involuntary liquidation of the issuer in
preference to a security junior to it.

10. Except as provided in subsection (a) of this section, or as otherwise required by law,
every share of stock hereafter issued by a registered investment company shall be a
voting stock and have equal voting rights with every other outstanding voting
stock: Provided, That this subsection shall not apply to shares issued pursuant to the
terms of any warrant or subscription right outstanding prior to the effective date of this
Act, or any firm contract entered into before the effective date of this Act to purchase
such securities from such company nor to shares issued in accordance with any rules,
regulations, or orders which the Commission may make permitting such issue.

SEC. 18. Dividends.—It shall be unlawful for any registered investment company to pay any dividend, or
to make any distribution in the nature of a dividend payment; wholly or partly from any source other
than—

1. such company's accumulated undistributed net income, determined in accordance with good
accounting practice and including profits or losses realized upon the sale of securities or other
properties; or

2. such company's earned surplus so determined for the current or preceding fiscal year;

unless such payment is accompanied by a written statement which adequately discloses the source or
sources of such payment. The Commission may prescribe the form of such statement by rules and
regulations or by order in the public interest and for the protection of investors.

It shall likewise be unlawful to advertise such dividends in terms of centavos or pesos per share without
also stating the percentage they bear to the par value per share.

SEC. 19. Proxies; voting trusts.—

a. It shall be unlawful for any person except the duly constituted custodian to solicit or to permit
the use of his name to solicit any proxy or consent or authorization in respect of any security of
which a registered investment company is the issuer in contravention of such rules and
regulations as the Commission may prescribe as necessary or appropriate in the public interest
or for the protection of investors: Provided, however, That no proxies shall be used as a device
to control the management of any investment company.

b. It shall be unlawful for any registered investment company or affiliated person thereof, any
issuer of a voting-trust certificate relating to any security of a registered investment company, or
any underwriter of such a certificate to offer for sale, sell, or deliver after sale, in connection
with a public offering, any such voting-trust certificate. The prohibitions of this subsection shall
not apply to a class of voting-trust certificates, if any certificate of such class was made the
subject of a public offering by the issuer or by or through an underwriter prior to the effective
date of this Act.

SEC. 20. Loans by investment companies.—It shall be unlawful for any registered investment company to
lend money or property to any person, directly or indirectly, if—

a. the investment policies of such registered company, as recited in its registration statement and
reports filed under this Act, do not permit such a loan; or

b. such person controls or is under common control with such registered company; except that the
provision of this paragraph shall not apply to the extension or renewal of any such loan made
prior to the effective date of this Act or to any loan from a registered company to a company
which owns all of the outstanding securities of such registered company, except directors'
qualifying shares.

SEC. 21. Investment Company prohibited to guarantee obligations.—It shall be unlawful for any
investment company to guarantee any obligation of whatever kind or nature.

SEC. 22. Distribution, redemption, and repurchase of securities.—

a. No registered investment company shall sell any redeemable security issued by it to any person
except either to or through a principal underwriter for; distribution or at a current public
offering price described in the prospectus, and, if such class of security is being currently offered
to the public by or through an underwriter, no principal underwriter of such security and no
dealer shall sell any such security to any person except a dealer, a principal underwriter or the
issuer, except at a current public offering price described in the prospectus: Provided,
however, That nothing in this subsection; shall prevent a sale made (i) pursuant to an offer of
exchange permitted by section 10 including any offer made pursuant to clause (1) or (2) of
section ten (b) ; (ii) pursuant to an offer made solely to all registered holders of the securities, or
 of a particular class or series of securities issued by the company proportionate to their holdings
or proportionate to any cash distribution made to them by the company (subject to appropriate
qualification designed solely to avoid issuance of fractional securities); or (iii) in accordance with
rules and regulations of the Commission made pursuant to section eleven (b): Provided,
further, That no investment Company shall sell any security issued by it to any person who is not
a Filipino citizen or any company or entity sixty percent of the capital of which is not owned by
Filipino citizens, when the effect of such sale would be a violation or circumvention of Section
one, Article XIII of the Constitution on the limitation of the disposition, exploitation,
development or utilization of the natural resources of Philippines nor shall said company sell any
such security to any person when the effect of such sale would be a violation or circumvention
of Section thirteen, subparagraph five of the Corporation Law regarding the limitation of
ownership by individuals or corporations to fifteen percent of the capital of corporations
engaged in mining or agriculture.

b. The provisions of the Corporation Law (Act Numbered Fourteen hundred and fifty-nine, as
amended) notwithstanding, no registered investment company shall suspend the right of
redemption or postpone the date of payment or satisfaction upon redemption of any
redeemable security in accordance with its terms as appears in its prospectus, for more than
seven days after the tender of such security to the company or its agent designated for that
purpose for redemption except—

1. for any period (A) during which the Manila Stock Exchange is closed other than
customary weekend and holiday closings or (B) during which trading on the Manila
Stock Exchange is restricted;

2. for any period during which an emergency exists as a result of which (A) disposal by the
company of securities owned by it is not reasonably practicable or (B) it is not
reasonably practicable for such company fairly to determine the value of its net assets;
or

3. for such other periods as the Commission may by order permit for the protection of
security holders of the company.

The Commission shall by rules and regulations determine the conditions under which (i) trading shall be
deemed to be restricted and (ii) an emergency shall be deemed to exist within the meaning of this
subsection. Any company which, prior to the effective date of this Act, as required by provision of its
charter, certificate of corporation, articles of association, or trust indenture, or of a by-law or regulation
duly adopted thereunder, to postpone the date of payment or satisfaction upon redemption of
redeemable securities issued by it, shall be exempt from the requirements of this subsection; but such
exemption shall terminate upon the expiration of one year from the effective date of this Act, or upon
the repeal or amendment of such provision, or upon the sale by such company after the effective date
of this Act of any security (other than short-term paper) of which it is the issuer, whichever first occurs.

c. No registered open-end company shall restrict the transferability or negotiability of any security
of which it is the issuer except in conformity with the statements with respect thereto contained
 in its registration statement nor in contravention of such rules and regulations as the
Commission may prescribe in the interests of the holders of all of the outstanding securities of
such investment company.

d. No registered open-end company shall issue any of its securities (1) for services; or (2) for
property other, than cash or securities (including securities of which such registered company is
the issuer), except as a dividend or distribution to its security holders or in connection with a
reorganization.

e. The pertinent provisions of section seventeen of the Corporation Law (Act Numbered Fourteen
hundred and fifty-nine, as amended) or any other provision of the said law in conflict with this
section, shall not apply to a registered open-end company.

SEC. 23. Distribution and repurchase of securities;closed end companies.—

a. No registered closed-end compare ft shall issue any of its securities (1) for services; or (2) for
property other than cash or securities (including securities of which such registered company is
the issuer), except as a dividend or distribution to its security holders or in connection with a
reorganization.

b. No registered closed-end company shall sell and common stock of which it is the issuer at a
price below the current net asset value of such stock, exclusive of) any distributing commission
or discount (which net asset value shall be determined as of a time within forty-eight hours,
excluding Sundays and holidays, next preceding the time of such determination), except (1) in
connection with an offering to the holders of one or more classes of its capital stock; (2) with the
consent of a majority of its common stockholders; (3) upon conversion of a convertible security
in accordance with its terms; (4) upon the exercise of any warrant outstanding prior to the
effective date of this Act or issued in accordance with the provisions of section eighteen (d) ; or
(5) under such other circumstances as the Commission may permit by rules and regulations or
orders for the protection of investors.

c. No registered closed-end company shall purchase any securities of any class of which it is the
issuer except—

1. on a securities exchange or such other open market as the Commission may designate
by rules and regulations or orders: Provided, That if such securities are stock, such
registered company shall, within the preceding six months, have informed stockholders
of its intention to purchase stock of such class by letter or report addressed to
stockholders of such class; or

2. pursuant to tenders, after reasonable opportunity to submit tenders given to all holders
of securities of the class to be purchased; or

3. under such other circumstances as the Commission may permit by rules and regulations
or orders for the protection of investors in order to insure that such purchases are made
in a manner or on a basis which does not unfairly discriminate against any holders of the
class or classes of securities to be purchased.
SEC. 24. Registration of securities under the Securities Act.—

a. In registering under the Securities Act any security of which it is the issuer, a registered
investment company, in lieu of furnishing a registration statement containing the information
and documents specified a section seven of the said Act, may file a registration statement
containing the following information and documents:

1. such copies of the registration statement filed by such company under this Act and of
such reports filed by such company pursuant to section twenty-seven or such copies of
portions of such registration statement and reports, as the Commission shall designate,
by rules and regulations; and

2. such additional information and documents (including a prospectus) as the Commission

shall prescribe by rules and regulations as necessary or appropriate in the public interest
or for the protection of investors.

b. Where the registration statement which an investment company filed under this Act includes a
description of its securities and the requirements for the registration and/or licensing thereof
under the Securities Act have already been complied with, no separate registration of such
securities under the latter Act shall be necessary.

c. It shall be unlawful for any registered open-end company or for any underwriter for such a
company in connection with a public offering of any security which such company is the issuer,
to transmit any advertisement, pamphlet, circular, form letter, or other sales literature
addressed to or intended for distribution prospective investors unless three copies of the full
thereof have been filed with the Commission or are filed with the Commission within ten days
thereafter.

d. The Commission is authorized to require, by rules and regulations or order, that the information
contained in any prospectus relating to any periodic payment plan certificate registered under
the Securities Act on or after the effective date of this Act be presented in such form and order
of items, and such prospectus contain such summaries of any portion of such information, as are
necessary or appropriate in the public interest or for the protection of investors.

e. The exemption provided by section five of the Securities Act shall not apply to any security of
which investment company is the issuer, except that periodic payment plan certificates issued
by a registered investment company or its agent, sub-agent, or underwriter or by a dealer
pursuant to a contract with said company, or its agent, sub-agent, or underwriter, the proceeds
of the payments under which are invested wholly in securities of which the registered
investment company is the issuer, need not be registered under the Securities
Act: Provided, That (1) the said securities purchased with the proceeds of the payments under
the periodic payment plan certificates shall be issued in the name of the holder of the said
certificates and (2) the said securities of the issuer investment company are registered under the
Securities Act: And provided, That an exemption from such registration is secured from the
Commission.
SEC. 25. Reorganization plans, reports by Commission.—

a. Any person who solicits or permits the use of his name to solicit any proxy, consent,
authorization, power of attorney, ratification, deposit, or dissent in respect of any plan of
reorganization of any registered investment company shall file with, or mail to, the Commission
for its information, within twenty-four hours after the commencement of any such solicitation, a
copy of such plan and any deposit agreement relating thereto and of any proxy, consent,
authorization, power of attorney, ratification, instrument of deposit, or instrument of dissent in
respect thereto, if or to the extent that such documents shall not already have been filed with
the Commission.

b. No plan for the reorganization of a registered investment company shall be carried out without
the Prior approval of the Commission.

SEC. 26. Periodic payment plans.—

a. It shall be unlawful for any registered investment company issuing periodic payment plan
certificates, or for any underwriter for such company, to sell any such certificates, if—

1. the sales load on such certificates exceeds eight per centum of the total payments to be
made thereon;

2. more than one-half of any of the first twelve monthly payments thereon, or their
equivalent, is deducted for sales load;

3. the amount of sales load deducted from any one of such first payments exceeds
proportionately the amount deducted from any other such payment, or the amount
deducted from any subsequent payment exceeds proportionately the amount deducted
from any other subsequent payment;

4. the first payment on such certificate is less than ten pesos or any subsequent payment is
less than ten pesos.

SEC. 27. Reports and financial statements of investment companies and affiliated persons.—

a. Every registered investment company shall file with the Commission—

1. such information and documents including financial statements as the Commission may
require, on a semiannual or quarterly basis, to keep reasonably current the information
and documents contained in the registration statement of such company filed under this
Act; and

2. copies of every periodic or interim report or similar communication containing financial

statements and transmitted to any class of such company's security holders, such copies
to be filed not later than ten days after such transmission.

Any information or documents contained in a report on other communication to

 security holders filed pursuant to paragraph (2) may be incorporated by reference in any
report subsequently or concurrently filed pursuant to a paragraph (1).

b. The Commission shall issue rules and regulation permitting the filing with the Commission or
copies on periodic reports, or of extracts therefrom, filed by any registered investment company
pursuant to subsection (a).

c. Every registered investment company shall transmit to its stockholders, at least semiannually,
reports containing such of the following information and financial statements or their
equivalent, as of a reasonably current date, as the Commission may prescribe by rules, and
regulations for the protection of investors, which reports shall not be misleading in any material
respect in the light of the reports required to be filed pursuant to subsection (a):

1. a balance sheet accompanied by a statement of the aggregate value of investments on

the date of such balance sheet;

2. a list showing the amounts and values of securities owned on the date of such balance
sheet;

3. a statement of income, for the period covered by the report, which shall be itemized at
least with respect to each category of income and expense representing more than
five per centum of total income or expense;

4. a statement of surplus, which shall be itemized at least with respect to each charge or
credit to the surplus account which represents more than five per centum of the total
charges or credits during the report covered by the report;

5. a statement of the aggregate remuneration paid by the company during the period
covered by the report (A) to all directors and to all members of any advisory board for
regular compensation; (B) to each director and to each member of an advisory board for
special compensation; (C) to all officers; and (D) to each person of whom any officer or
director of the company is an affiliated person; and

6. a statement of the aggregate peso amounts of purchases and sales of investment

securities, other than Government securities, made during the period covered by the
report: Provided, That if in the judgment of the Commission any item required under
this subsection is inapplicable or inappropriate to any specified type or types of
investment company, the Commission may by rules and regulations permit in lieu
thereof the inclusion of such item of a comparable character as it may deem applicable
or appropriate to such type or types of investment company.

d. Financial statements contained in annual reports required pursuant to subsections (a) and (c), if
required by the rules and regulations of the Commission, shall be accompanied by a certificate
of independent public accountants. The certificate of such independent public accountants shall
be based upon an audit not less in scope or procedures followed than that which independent
 public accountants would ordinarily make for the purpose of presenting comprehensive and
dependable financial statements, and shall contain such information as the Commission may
prescribe, by rules and regulations in the public interest or for the protection of investors, as to
the nature and scope of the audit and the findings and opinion of the accountants. Each such
report shall state that such independent public accountants have verified securities owned,
either by actual examination, or by receipt of a certificate from the custodian, as the
Commission may prescribe by rules and regulations.

e. Every person who is directly or indirectly the beneficial owner of more than ten per centum of
any class of outstanding securities (other than short-term paper) of which a registered closed-
end company is the issuer or who is an officer, director, member of an advisory board,
investment advisor, or affiliated person of an investment adviser of such a company shall in
respect of his transactions in any securities of such company (other than short-term paper) be
subject to the same duties and liabilities as those imposed by section twenty-six (a) of the
Securities Act upon certain beneficial owners, directors, and officers in respect of their
transactions in certain equity securities.

SEC. 28. Accounts and records.—

a. Every registered investment company, and every underwriter, broker, dealers or investment
adviser which is a majority-owned subsidiary of such a company, shall maintain and preserve for
such period or periods as the Commission may prescribe by rules and regulations, such
accounts, books, and other documents as constituting the record forming the basis for financial
statements required to be filed pursuant to section twenty-seven of this Act, and of the
auditor's certificates relating thereto. Every investment adviser not a majority-owned subsidiary
of, and every depositor of any registered investment company, and every principal underwriter
for any registered investment company other than a closed-end company, shall maintain and
preserve for such period or periods as the Commission shall prescribe by rules and regulations,
such accounts, books, and other documents as are necessary or appropriate to record such
person's transactions with such registered company.

b. All accounts, books, and other records, required to be maintained and preserved by any person
pursuant to subsection (a), shall be subject at any time and from time to time to such
reasonable periodic, special and other examinations by the Commission, or any member or
representative thereof, as the Commission may prescribe. Any such person shall furnish to the
Commission, within such reasonable time as the Commission may prescribe, copies of or
extracts from such records which may be prepared without undue effort, expense, or delay, as
the Commission may by order require.

c. The Commission may, in the public interest or for the protection of investors, issue rules and
regulations providing for a reasonable degree of uniformity in the accounting policies and
principles to be followed by registered investment companies in maintaining their accounting
records and in preparing financial statements required pursuant to this Act.

d. The Commission, upon application made by any registered investment company, may by order
exempt a specific transaction or transactions from the provisions of any rule or regulation made
 pursuant to subsection (c), if the Commission finds that such rule or regulation should not
reasonably be applied to such transaction.

SEC. 29. Accountants and auditors.—

a. After one year from the effective date of this Act, it shall be unlawful for any registered
investment company to file with the Commission any financial statement signed or certified by
an independent certified public accountant, unless—

1. such accountant shall have been selected at a meeting held within thirty days before or
after the beginning of the fiscal year or before the annual meeting of stockholders in
that year by a majority of those members of the board of directors who are not
investment advisers of, or affiliated persons of an investment adviser of, or officers or
employees of, such registered company;

2. such selection shall have been submitted for ratification or rejection at the next
succeeding annual meeting of stockholders if such meeting be held, except that any
vacancy occurring between annual meetings, due to the death or resignation of the
accountant, may be filled by the board of directors;

3. the employment of such accountant shall have been conditioned upon the right of the
company by vote of a majority of the outstanding voting securities at any meeting called
for the purpose to terminate such employment forthwith without any penalty; and

4. such certificate or report of such accountant shall be addressed both to the board of
directors of such registered company and to the security holders thereof:

Provided, That if the selection of an accountant has been, rejected pursuant to paragraph (2) or his
employment terminated pursuant to paragraph (3) the vacancy so occurring may be filled by a vote of a
majority of the outstanding voting securities, either at the meeting at which the rejection or termination
occurred or if not so filled then at a subsequent meeting which shall be called for the purpose.

b. No registered investment company shall file with the Commission any financial statement in the
preparation of which the controller or other principal accounting officer or employee of such
company participated, unless such controller, officer or employee was selected, either by vote
of the holders of such company's voting securities at the last annual meeting of such security
holders, or by the board of directors of such company.

c. The Commission is authorized, by rules and regulations or order in the public interest or for the
protection of investors, to require accountants and auditors to keep reports, work sheets, and
other documents and papers relating to registered investment companies for such period or
periods as the Commission may prescribe, and to make the same available for inspection by the
Commission or any member or representative thereof.

SEC. 30. Report of settlement of civil actions.—

 a. Every registered investment company which is a party and every affiliated person of such
company who is a party defendant to any action or claim by a registered investment company or
a security holder thereof in a derivative capacity against an officer, director, investment adviser,
trustee, or depositor of such company for an alleged breach of official duty, which such action or
claim is commenced or asserted after the effective date of this Act, shall transmit, unless already
transmitted to the Commission, the documents specified in subsection (b) if—

1. such action has been compromised or settled and such settlement or compromise has
had the approval of a court having jurisdiction to approve such settlement or
compromise; or

2. a final judgment has been entered on the merits in such action.

b. Within thirty days after such settlement or compromise or final judgment, copies of all pleadings
and any written record made in such action, together with a statement of the terms of
settlement or compromise, if such terms be not included in the record, shall be transmitted to
the Commission; and any information contained in any such documents may be used by the
Commission in connection with any report or study which may be made by the Commission of
lawsuits whether of investment companies or companies generally: Provided, That the names of
persons involved shall not be disclosed.

SEC. 31. Destruction and falsification of reports and records.—

a. It shall be unlawful for any person, except as permitted by rule, regulation, or order of the
Commission, willfully to destroy, mutilate, or alter any account, book, or other document the
preservation of which has been required pursuant to section twenty-eight (a) or twenty-nine (c).

b. It shall be unlawful for any person to make any untrue statement of a material fact in any
registration statement, application, report, account, record, or other document filed or
transmitted pursuant to this Act or the keeping of which is required pursuant to section twenty-
eight (a). It shall be unlawful for any person so filing, transmitting, or keeping any such
document to omit to state therein any fact necessary in order to prevent the statements made
therein, in the light of the circumstances under which they were made, from being materially
misleading. For the purposes of this subsection, any part of any such document which is signed
or certified by an accountant or auditor in his capacity as such shall be deemed to be made,
filed, transmitted, or kept by such accountant or auditor, as well as by the person filing,
transmitting, or keeping the complete document.

SEC. 32. Unlawful representations and names.—

a. It shall be unlawful for any person, in issuing or selling any security of which a registered
investment company is the issuer, to represent or imply in any manner whatsoever that such
security or company has been guaranteed, sponsored, recommended, or approved by the
Republic of the Philippines or any agency or officer thereof.
 b. It shall be unlawful for any person registered under any section of this Act to represent or imply
in any manner whatsoever that such person has been sponsored, recommended, or approved,
or that his abilities or qualifications have in any respect been passed upon by the Republic of the
Philippines or any agency or officer thereof.

c. No provision of subsection (a) or (b) shall be construed to prohibit a statement that a person or
security is registered under this Act or the Securities Act if such statement is true in fact and if
the effect of such registration is not misrepresented.

d. It shall be unlawful for any registered investment company hereafter to adopt as a part of the
name or title of such company, or of any security of which it is the issuer, any word or words
which the Commission finds and by order declares to be deceptive or misleading. The
Commission is authorized to deny the registration of an investment company using such name
or title.

SEC. 33. Injunctions against gross misconduct and abuse of trust.—The Commission is authorized to
require a registered investment company to remove or suspend a person serving or acting in one or
more of the following capacities who has been found guilty, after proper investigation and hearing by
said Commission, of gross misconduct or gross abuse of trust in respect of any such investment company
for which such person so serves or acts:

1. as officer, director, member of an advisory board, investment adviser, or depositor; or

2. as principal underwriter, if such registered company is an open-end company.

The suspension shall be for such period of time as the Commission, in its discretion, shall deem
appropriate.

SEC. 34. Theft and estafa.—Whoever steals, unlawfully abstracts, unlawfully and wilfully converts to his
own use or to the use of another, or embezzles any of the moneys, funds, securities, credits, property,
or assets of any registered investment company shall be deemed guilty of a crime, and upon conviction
thereof shall be subject to the Penalties provided in section forty of the Securities Act.

SEC. 35. Rules, regulations, and orders; general powers Commission.—

a. The Commission shall have authority from time to time to make, issue, amend, and rescind rules
and regulations and such orders as are necessary or appropriate to the exercise of the powers
conferred upon the Commission elsewhere in this Act, including rules and regulations defining
accounting, technical, and trade terms used in this Act, and prescribing the form or forms in
which information required in registration statements applications, and reports to the
Commission shall be set forth. For the purposes of its rules or regulations the Commission may
classify, persons, securities, and other matters within its jurisdiction and prescribe different
requirements for different classes of persons, securities, or matters.

b. The Commission, by such rules and regulations or order as it deems necessary or appropriate in
the public interest or for the protection of investors, may suspend the operation of the stocks of
 companies registered in the stock exchange the quotations for which are greatly in excess of the
book value of the shares of stocks and may authorize the filing of any information or documents
required to be filed with the Commission under this Act by incorporating by reference
documents heretofore or concurrently filed with the Commission under this Act.

c. No provision of this Act imposing any liability shall apply to any act done or omitted in good faith
in conformity with any rule, regulation, or order of the Commission, notwithstanding that such
rule, regulation, or order may, after such act or omission, be amended or rescinded or be
determined by judicial or other authority to be invalid for any reason.

SEC. 36. Rules and regulations; procedure for issuance.—The rules and regulations of the Commission
under this Act, and amendments thereof, shall be effective upon publication in the manner which the
Commission shall prescribe, or upon such later date as may be provided in such rules and regulations.

SEC. 37. Orders; procedure for issuance.—

a. Orders of the Commission under this Act shall be issued only after appropriate notice and
opportunity for hearing. Notice to the parties on a proceeding before the Commission shall be
given by personal service upon each party or by registered mail or confirmed telegraphic notice
to the party's last known business address. Notice to interested persons, if any, other than
parties may be given in the same manner.

b. The Commission may provide, by appropriate rules or regulations, that an application verified
under oath may be admissible in evidence in a proceeding before the Commission and that the
record in such a proceeding may consist, in whole or in part, of such application.

c. In any proceeding before the Commission, the Commission, in accordance with such rules and
regulations as it may prescribe, shall admit as a party any interested Government agency, and
may admit as a party any representative of interested security holders, or any other person
whose participation in the proceeding may be in the public interest or for the protection of
investors.

SEC. 38. Hearings by Commission.—Hearings may be public and may be held before the Commission or
any officer or officers of the Commission designated by it, and appropriate records thereof shall be kept.

SEC. 39. Enforcement of this Act.—

a. The Commission may make such investigations as it deems necessary to determine whether any
person has violated or is about to violate any provision of this Act or of any rule, regulation, or
order thereunder, or to determine whether any action in any court or any proceeding before the
Commission shall be instituted under this Act against a particular person or persons, or with
respect to a particular transaction or transactions. The Commission shall permit any person to
file with it a statement in writing, under oath or otherwise as the Commission shall determine,
as to all the facts and circumstances concerning the matter to be investigated.
b. For the purpose of any investigation or any other proceeding under this Act, the Commission, or
any officer thereof designated by it, empowered to administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and require the production of any books,
papers, correspondence, memoranda, contracts, agreements, or other records which are
relevant or material to the inquiry.

c. In case of contumacy by, or refusal to obey a subpoena issued to, any person, the Commission
may avail itself of its powers under Republic Act Numbered Eleven hundred forty-three or, if the
same is ineffective, may invoke the aid of any Court of First Instance within the jurisdiction of
which such investigation or proceeding is carried on, or where such person resides or carries on
business, in requiring the attendance and testimony of witnesses and the production of books,
papers, correspondence, memoranda, contracts, agreements, and other records. And such court
may issue an order requiring such person to appear before the Commission or officer designated
by the Commission, there to produce records, if so ordered, or to give testimony touching the
matter under investigation or in question; any failure to obey such order of the court may be
punished by such court as a contempt thereof. Any person who without just cause shall fail or
refuse to attend and testify or to answer any lawful inquiry or to produce books, papers,
correspondence, memoranda, contracts, agreements, or other records, if in his or its power so
to do, in obedience to the subpoena of the Commission, shall upon convictions, be subject to a
fine of not more than two thousand pesos or to imprisonment for a term of not more than one
year, or both.

d. No person shall be excused from attending and testifying or from producing books, papers,
correspondence, memoranda, contracts, agreements, or other records and documents before
the Commission, or in obedience to the subpoena of the Commission or any officer designated
by it, or in any cause or proceeding instituted by the Commission, on the ground that the
testimony or evidence, documentary or otherwise, required of him may tend to incriminate him
or subject him to a penalty or forfeiture; but no individual shall be prosecuted or subject to any
penalty or forfeiture for or on account of any transaction, matter, or thing concerning which he
is compelled to testify or produce evidence, documentary or otherwise, after having claimed his
privilege against self-incrimination, except that such individual so testifying shall not be exempt
from prosecution and punishment for perjury committed in so testifying.

e. Whenever it shall appear to the Commission that any person has engaged or is about to engage
in any or practice constituting a violation of any provision of this Act or of any rule, regulation, or
order thereunder it may, after proper investigation and hearing, order such person to desist
from committing such act or practice and enforce the same in accordance with its powers under
Republic Act Numbered Eleven hundred forty-three. The Commission, in its discretion, may also
bring an action in the Court of First Instance of Manila to enjoin such acts or practices and to
enforce compliance with this Act or any rule, regulation, or order thereunder. Upon a showing
that such person has engaged or is about to engage in any such act or practice, a permanent or
temporary injunction or decree or restraining order shall be granted without bond: Provided,
however, That no such certificate of authority shall be issued by the Securities and Exchange
Commissioner unless the applicant for agent, sub-agent or investment solicitor shall have
passed a written examination given for the purpose by the Securities and Exchange Commission
or the said applicant possesses a college degree. In any proceeding under this subsection to
 enforce compliance with section seven, the court as a court of equity may, to the extent it
deems necessary or appropriate, take exclusive jurisdiction and possession of the investment
company or companies involved and the books, records, and assets thereof, wherever located;
and the court shall have jurisdiction to appoint a trustee, who with the approval of the court
shall have power to dispose any or all of such assets, subject to such terms and conditions as the
court may prescribe. The Commission may transmit such evidence as may be available
concerning any violation of the provisions of this Act or of any rule, regulation, or order
thereunder to the Secretary of Justice, who, in his discretion, may institute the appropriate
criminal proceedings under this Act.

SEC. 40. Agents and Investment Solicitors.—No investment company doing business within the
Philippines or agent thereof shall pay any commission or other compensation to any person for services
in obtaining investments in an investment company unless such person, after passing mental and moral
test, holds a certificate of authority issued by the Securities and Exchange Commissioner to act as an
agent or investment solicitor of such company hereafter provided. No person shall act as an agent, sub-
agent, or investment solicitor in the solicitation or procurement of investment or application for
investment in an investment company or receive for services for obtaining such investments any
commission or other compensation from any investment company doing business in the Philippines or
from the agent or underwriter thereof, without first getting a certificate of authority so to act from the
Securities and Exchange Commissioner, which must be renewed annually in the first day of January and
not later than the fifteenth day of March. Such certificate shall be issued by the Securities and Exchange
Commissioner only upon the written application of the person desiring such authority, such application
being approved and countersigned by the investment company or its agent or underwriter, and shall be
upon a form approved by the Securities and Exchange Commissioner. The Securities and Exchange
Commissioner shall have the right to refuse to issue or renew and to revoke any such certificate in his
discretion. No such certificate shall be valid, however, in any event after the fifteenth day of March of
the year following the issuance of said certificate. A renewal certificate may be issued upon application
of the company, its agent or underwriter represented by such agent or investment solicitor.

Any person who for compensation solicits or obtains investments on behalf of any investment company
or its agent or underwriter or transmits for a person other than himself an investment or application for
investment in an investment company or offers or assumes to act as an agent or investment solicitor of
an investment company, shall be an investment agent or investment solicitor within the intent of this
section and shall thereby become liable to all the duties, requirements, liabilities, and penalties to which
such a person is subject.

Any person or company violating the provisions of this section shall upon conviction, be subject to a fine
of five hundred pesos. Upon the conviction of any person acting as agent, sub-agent, investment
solicitor, or broker for the commission of any offense connected with the business of an investment
company, the Securities and Exchange Commissioner shall immediately revoke the certificate of
authority issued to him and no such certificates shall thereafter be issued to such convicted person.

The Securities and Exchange Commissioner shall issue such rules and regulations as he may deem
necessary for the enforcement and implementation of the provisions of this section.
SEC. 41. Court review of orders.—Any person or party aggrieved by an order issued by the Commission
under this Act may obtain a review of such order in accordance with the provisions of section thirty-five
of the Securities Act, as amended.

SEC. 42. Disclosure of information filed with Commission; copies.—

a. The information contained in any registration statement, application, report, or other document
filed with the Commission pursuant to any provision of this Act or of any rule or regulation
thereunder (as distinguished from any information or document transmitted to the Commission)
shall be made available to the public, unless and except insofar as the Commission, by rules and
regulations upon its own motion, or by order upon application, finds that public disclosure is
neither necessary nor appropriate in the public interest or for the protection of investors. It shall
be unlawful for any officer or employee of the Commission to use for personal benefit, or to
disclose to any person other than an official or employee of the Philippine Government, for
official use, or for any such official or employee to use for personal benefit, any information
contained in any document so filed or transmitted, if such information is not available to the
public.

b. Photostatic or other copies of information contained in documents filed with the Commission
under this Act and made available to the public shall be furnished any person at such reasonable
charge and under such reasonable limitation as the Commission shall prescribe.

SEC. 43. Reports by Commission.—The Commission shall submit from time to time, a report to the
Congress covering the work of the Commission under this Act, with such information, data, and
recommendations for further legislation in connection therewith as it may find advisable.

SEC. 44. Fees; additional personnel; Commissioner's Compensation.—

a. The Commission is authorized to charge and collect the following fees:

1. For registering an investment company—One hundred pesos. If the securities of the

company are likewise registered, the schedule of fees prescribed in the Securities Act
shall instead be applied.

2. For every examination of the financial condition of an investment company—One

hundred pesos. The Commission is authorized to conduct such examination as often as
may be necessary in the public interest or for the protection of investors.

3. For each exemption—Thirty pesos.

4. For every determination granting a right on privilege—thirty pesos.

5. For each certificate of authority issued to an agent or investment solicitor—Ten pesos.

6. For each instrument, document, or paper not required to be filed but which an
interested party desires to be attached to the records of an investment company—Five
pesos.
Every right, privilege, exemption or registration under this Act shall be sought from the Commission in
the form of a petition for which the corresponding fee herein authorized to be collected shall be paid
before any action is taken thereon. The grant or denial of the petition shall be in the form of an order
issued by the Commission. No denial, withdrawal or abandonement of the petition shall be a ground for
the refund of the fee paid therefor.

b. For the effective implementation and enforcement of this Act, the following additional positions
in the Securities and Exchange Commission are hereby authorized to be created by the
Commission:

One Legal Officer at six thousand five hundred fifty-two pesos per annum.

Three Legal Officers at five thousand three hundred seventy-six pesos each per annum.

Five Examiners at five thousand three hundred seventy-six pesos each per annum.

One Stenographer at three thousand one hundred eight pesos per annum; and

Two Clerks at two thousand four hundred fifty-four pesos each per annum.

Any person entering the government service who may be appointed to any of said positions shall start at
the initial rate of the salary corresponding to his position, as provided under the pertinent laws, rules
and regulations.

The Commission shall take charge of the enforcement implementation of the provisions of this Act. The
Securities and Exchange Commissioner shall receive the compensation and enjoy all the privileges of
Judges of the Court of First Instance.

SEC. 45. Appropriation; assessment.—To carry out the purposes of this Act, the Commission is hereby
authorized to spend its income under this Act. Should the Commission's total income under this Act in
any year be less than its total expenditures as certified by the Securities and Exchange Commissioner,
the difference shall be prorated among all investment companies in business, and the Commission is
authorized to assess and collect from each of them its corresponding share which shall not exceed one-
half of one per centum of its net asset value.

SEC. 46. Validity of contracts.—

a. Any condition, stipulation, or provision binding any person to waive compliance with any
provision of this Act or with any rule, regulation or order thereunder shall be void.

b. Every contract made in violation of any provision of this Act or of any rule, regulation, or order
thereunder, and every contract heretofore or hereafter made, the performance of which
involves the violation of, or the continuance of any relationship or practice in violation of, any
 provision of this Act or any rule, regulation, or order thereunder, shall be void (1) as regards the
rights of an/ person who, in violation of any such provision, rule, regulation, or order, shall have
made or engaged in the performance of any such contract, and (2) as regards the rights of any
person who, not being a party to such contract, shall have acquired any right thereunder with
actual knowledge of the facts by reason of which the making or performance of such contract
was in violation of any such provision, rule, regulation, or order.

SEC. 47. Procuring violation of Act; obstructing compliance.—

a. It shall be unlawful for any person, directly or indirectly, to cause to be done any act or thing
through or by means of any other person which it would be unlawful for such person to do
under the provisions of this Act or any rule, regulation, or order thereunder.

b. It shall be unlawful for any person without just cause to hinder, delay, or obstruct the making,
filing, or of any information, document, report, record, or account required to be made, filed, or
kept under any provision of this Act or any rule, regulation, or order thereunder.

SEC. 48. Penalties.—Unless otherwise specifically provided elsewhere in this Act, any person who
violates any provision of this Act or of any rule, regulation, or order thereunder, or any person who in
any registration statement, application, report, account, record, or other document filed or transmitted
pursuant to this Act or the keeping of which is required pursuant to section twenty-eight (a) of this Act
makes any untrue statement of fact or omits to state arty fact necessary in order to prevent the
statements made therein from being materially misleading in the light of the circumstances under which
they were made, shall upon conviction be fined not more than fifty thousand pesos or imprisoned for
not more than five years, or both.

SEC. 49. Effect on existing law and repealing clause.—The rights and remedies provided by this Act shall
be in addition to any and all other rights and remedies that may now exist, but no person permitted to
maintain a suit for damages under the provisions of this Act shall recover, through satisfaction of
judgment in one or more actions, a total amount in excess of his actual damages on account of the act
complained of.

Paragraph (r) of section one hundred ninety-four of Commonwealth Act Numbered Four hundred sixty-
six, as amended by section three of Republic Act Numbered Forty-two, is further amended to read as
follows:

"Stockbroker" includes all persons whose business it is, for themselves as such brokers or for other
brokers, to negotiate purchases or sales of stock, bonds, exchange, bullion, coined money, bank notes,
promissory notes, or other securities; but does not include underwriters for one or more investment
companies as defined in the Investment Company Act; "dealer in securities" includes all persons who for
their own account are engaged in the sale of stock, bonds, exchange, bullion, coined money, bank notes,
promissory notes or other securities."

All laws, Acts, parts of Acts, Rules of Court, orders, and administrative regulations which are inconsistent
with this Act are hereby repealed.

SEC. 50. Separability of provisions.—If any provision of this Act shall be held invalid, the remainder of the
Act shall not be affected thereby.

SEC. 51. Effective date.—This Act shall take effect upon its approval.
REPUBLIC ACT No. 10142

AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY DISTRESSED

ENTERPRISES AND INDIVIDUALS

Be it enacted by the Senate and House of Representatives of the Philippine Congress Assembled:

CHAPTER I
GENERAL PROVISIONS

Section 1. Title. - This Act shall be known as the "Financial Rehabilitation and Insolvency Act (FRIA) of
2010".

Section 2. Declaration of Policy. - It is the policy of the State to encourage debtors, both juridical and
natural persons, and their creditors to collectively and realistically resolve and adjust competing claims
and property rights. In furtherance thereof, the State shall ensure a timely, fair, transparent, effective
and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made with
a view to ensure or maintain certainly and predictability in commercial affairs, preserve and maximize
the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and
ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it
is in the interest of the State to facilities a speedy and orderly liquidation of these debtor's assets and
the settlement of their obligations.

Section 3. Nature of Proceedings. - The proceedings under this Act shall be in rem. Jurisdiction over all
persons affected by the proceedings shall be considered as acquired upon publication of the notice of
the commencement of the proceedings in any newspaper of general circulation in the Philippines in the
manner prescribed by the rules of procedure to be promulgated by the Supreme Court.

The proceedings shall be conducted in a summary and non-adversarial manner consistent with the
declared policies of this Act and in accordance with the rules of procedure that the Supreme Court may
promulgate.

Section 4. Definition of Terms. - As used in this Act, the term:

(a) Administrative expenses shall refer to those reasonable and necessary expenses:

(1) incurred or arising from the filing of a petition under the provisions of this Act;

(2) arising from, or in connection with, the conduct of the proceedings under this Act, including those
incurred for the rehabilitation or liquidation of the debtor;

(3) incurred in the ordinary course of business of the debtor after the commencement date;

(4) for the payment of new obligations obtained after the commencement date to finance the
rehabilitation of the debtor;
(5) incurred for the fees of the rehabilitation receiver or liquidator and of the professionals engaged by
them; and

(6) that are otherwise authorized or mandated under this Act or such other expenses as may be allowed
by the Supreme Court in its rules.

(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more intermediaries, is
controlled by, or is under the common control of another corporation.

(c) Claim shall refer to all claims or demands of whatever nature or character against the debtor or its
property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or
unmatured, disputed or undisputed, including, but not limited to; (1) all claims of the government,
whether national or local, including taxes, tariffs and customs duties; and (2) claims against directors
and officers of the debtor arising from acts done in the discharge of their functions falling within the
scope of their authority: Provided, That, this inclusion does not prohibit the creditors or third parties
from filing cases against the directors and officers acting in their personal capacities.

(d) Commencement date shall refer to the date on which the court issues the Commencement Order,
which shall be retroactive to the date of filing of the petition for voluntary or involuntary proceedings.

(e) Commencement Order shall refer to the order issued by the court under Section 16 of this Act.

(f) Control shall refer to the power of a parent corporation to direct or govern the financial and
operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to
exist when the parent owns, directly or indirectly through subsidiaries or affiliates, more than one-half
(1/2) of the voting power of an enterprise unless, in exceptional circumstances, it can clearly be
demonstrated that such ownership does not constitute control. Control also exists even when the
parent owns one-half (1/2) or less of the voting power of an enterprise when there is power:

(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with investors;

(2) to direct or govern the financial and operating policies of the enterprise under a statute or an
agreement;

(3) to appoint or remove the majority of the members of the board of directors or equivalent governing
body; or

(4) to cast the majority votes at meetings of the board of directors or equivalent governing body.

(g) Court shall refer to the court designated by the Supreme Court to hear and determine, at the first
instance, the cases brought under this Act.

(h) Creditor shall refer to a natural or juridical person which has a claim against the debtor that arose on
or before the commencement date.

(i) Date of liquidation shall refer to the date on which the court issues the Liquidation Order.

(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.

(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship duly
registered with the Department of Trade and Industry (DTI), a partnership duly registered with the
Securities and Exchange Commission (SEC), a corporation duly organized and existing under Philippine
laws, or an individual debtor who has become insolvent as defined herein.

(l) Encumbered property shall refer to real or personal property of the debtor upon which a lien
attaches.

(m) General unsecured creditor shall refer to a creditor whose claim or a portion thereof its neither
secured, preferred nor subordinated under this Act.

(n) Group of debtors shall refer to and can cover only: (1) corporations that are financially related to one
another as parent corporations, subsidiaries or affiliates; (2) partnerships that are owned more than fifty
percent (50%) by the same person; and (3) single proprietorships that are owned by the same person.
When the petition covers a group of debtors, all reference under these rules to debtor shall include and
apply to the group of debtors.

(o) Individual debtor shall refer to a natural person who is a resident and citizen of the Philippines that
has become insolvent as defined herein.

(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or
his assets.

(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which includes all the
property and assets of the debtor as of commencement date, plus the property and assets acquired by
the rehabilitation receiver or liquidator after that date, as well as all other property and assets in which
the debtor has an ownership interest, whether or not these property and assets are in the debtor's
possession as of commencement date: Provided, That trust assets and bailment, and other property and
assets of a third party that are in the possession of the debtor as of commencement date, are excluded
therefrom.

(r) Involuntary proceedings shall refer to proceedings initiated by creditors.

(s) Liabilities shall refer to monetary claims against the debtor, including stockholder's advances that
have been recorded in the debtor's audited financial statements as advances for future subscriptions.

(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or personal property that
legality entities a creditor to resort to said property for payment of the claim or debt secured by such
lien.

(u) Liquidation shall refer to the proceedings under Chapter V of this Act.

(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of this Act.

(w) Liquidator shall refer to the natural person or juridical entity appointed as such by the court and
entrusted with such powers and duties as set forth in this Act: Provided, That, if the liquidator is a
juridical entity, it must designated a natural person who possesses all the qualifications and none of the
disqualifications as its representative, it being understood that the juridical entity and the representative
are solidarity liable for all obligations and responsibilities of the liquidator.
(x) Officer shall refer to a natural person holding a management position described in or contemplated
by a juridical entity's articles of incorporation, bylaws or equivalent documents, except for the corporate
secretary, the assistant corporate secretary and the external auditor.

(y) Ordinary course of business shall refer to transactions in the pursuit of the individual debtor's or
debtor's business operations prior to rehabilitation or insolvency proceedings and on ordinary business
terms.

(z) Ownership interest shall refer to the ownership interest of third parties in property held by the
debtor, including those covered by trust receipts or assignments of receivables.

(aa) Parent shall refer to a corporation which has control over another corporation either directly or
indirectly through one or more intermediaries.

(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured creditors' committee, a
stakeholder, a party with an ownership interest in property held by the debtor, a secured creditor, the
rehabilitation receiver, liquidator or any other juridical or natural person who stands to be benefited or
injured by the outcome of the proceedings and whose notice of appearance is accepted by the court.

(cc) Possessory lien shall refer to a lien on property, the possession of which has been transferred to a
creditor or a representative or agent thereof.

(dd) Proceedings shall refer to judicial proceedings commenced by the court's acceptance of a petition

filed under this Act.

(ee) Property of others shall refer to property held by the debtor in which other persons have an
ownership interest.

(ff) Publication notice shall refer to notice through publication in a newspaper of general circulation in

the Philippines on a business day for two (2) consecutive weeks.

(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and
solvency, if it is shown that its continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan, more if the debtor continues as a
going concern than if it is immediately liquidated.

(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as such
by the court pursuant to this Act and which shall be entrusted with such powers and duties as set forth
herein.

(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an insolvent
debtor can be restored using various means including, but not limited to, debt forgiveness, debt
rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-equity conversion and sale of
the business (or parts of it) as a going concern, or setting-up of new business entity as prescribed in
Section 62 hereof, or other similar arrangements as may be approved by the court or creditors.

(jj) Secured claim shall refer to a claim that is secured by a lien.

(kk) Secured creditor shall refer to a creditor with a secured claim.

(ll) Secured party shall refer to a secured creditor or the agent or representative of such secured
creditor.

(mm) Securities market participant shall refer to a broker dealer, underwriter, transfer agent or other
juridical persons transacting securities in the capital market.

(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a member of a

nonstock corporation or association or a partner in a partnership.

(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting stock of which is
owned or controlled directly or indirectly through one or more intermediaries by another corporation,
which thereby becomes its parent corporation.

(pp) Unsecured claim shall refer to a claim that is not secured by a lien.

(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.

(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.

(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the consent of which
is necessary for the approval of a Rehabilitation Plan under this Act.

Section 5. Exclusions. - The term debtor does not include banks, insurance companies, pre-need
companies, and national and local government agencies or units.

For purposes of this section:

(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually subject to
conservatorship, receivership or liquidation proceedings under the New Central Bank Act (Republic Act
No. 7653) or successor legislation;

(b) Insurance company shall refer to those companies that are potentially or actually subject to
insolvency proceedings under the Insurance Code (Presidential Decree No. 1460) or successor
legislation; and

(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell pre-need
plans.

Provided, That government financial institutions other than banks and government-owned or controlled
corporations shall be covered by this Act, unless their specific charter provides otherwise.

Section 6. Designation of Courts and Promulgation of Procedural Rules. - The Supreme Court shall
designate the court or courts that will hear and resolve cases brought under this Act and shall
promulgate the rules of pleading, practice and procedure to govern the proceedings brought under this
Act.

Section 7. Substantive and Procedural Consolidation. - Each juridical entity shall be considered as a
separate entity under the proceedings in this Act. Under these proceedings, the assets and liabilities of a
debtor may not be commingled or aggregated with those of another, unless the latter is a related
enterprise that is owned or controlled directly or indirectly by the same interests: Provided,
however, That the commingling or aggregation of assets and liabilities of the debtor with those of a
related enterprise may only be allowed where:

(a) there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior
to the commencement of the proceedings;

(b) the debtor and the related enterprise have common creditors and it will be more convenient to treat
them together rather than separately;

(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to commingle its
assets and liabilities with the debtor's; and

(d) The consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all
concerned and promotes the objectives of rehabilitation.

Provided, finally, That nothing in this section shall prevent the court from joining other entities affiliated
with the debtor as parties pursuant to the rules of procedure as may be promulgated by the Supreme
Court.

Section 8. Decisions of Creditors. - Decisions of creditors shall be made according to the relevant
provisions of the Corporation Code in the case of stock or nonstock corporations or the Civil Code in the
case of partnerships that are not inconsistent with this Act.

Section 9. Creditors Representatives. - Creditors may designate representatives to vote or otherwise act
on their behalf by filing notice of such representation with the court and serving a copy on the
rehabilitation receiver or liquidator.

Section 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or

Directors and Officers. - Individual debtor, owner of a sole proprietorship, partners in a partnership, or
directors and officers of a debtor shall be liable for double the value of the property sold, embezzled or
disposed of or double the amount of the transaction involved, whichever is higher to be recovered for
benefit of the debtor and the creditors, if they, having notice of the commencement of the proceedings,
or having reason to believe that proceedings are about to be commenced, or in contemplation of the
proceedings, willfully commit the following acts:

(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of
business or authorize or approve any transaction in fraud of creditors or in a manner grossly
disadvantageous to the debtor and/or creditors; or

(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or
misappropriates, any property of the debtor.

The court shall determine the extent of the liability of an owner, partner, director or officer under this
section. In this connection, in case of partnerships and corporations, the court shall consider the amount
of the shareholding or partnership or equity interest of such partner, director or officer, the degree of
control of such partner, director or officer over the debtor, and the extent of the involvement of such
partner, director or debtor in the actual management of the operations of the debtor.

Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable banking legislation
to the contrary, any bank, whether universal or not, may acquire and hold an equity interest or
investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction of debts pursuant
to a Rehabilitation or Liquidation Plan approved by the court: Provided, That such ownership shall be
subject to the ownership limits applicable to universal banks for equity investments and: Provided,
further, That any equity investment or interest acquired or held pursuant to this section shall be
disposed by the bank within a period of five (5) years or as may be prescribed by the Monetary Board.

CHAPTER II
COURT-SUPERVISED REHABILITATION

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner in case
of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case of a
corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of
nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder's or
member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings
under this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter
specifically provided. The petition shall be verified to establish the insolvency of the debtor and the
viability of its rehabilitation, and include, whether as an attachment or as part of the body of the
petition, as a minimum the following:

(a) Identification of the debtor, its principal activities and its addresses;

(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as
they become due;

(c) The specific relief sought pursuant to this Act;

(d) The grounds upon which the petition is based;

(e) Other information that may be required under this Act depending on the form of relief requested;

(f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if any;

(g) An inventory of all its assets including receivables and claims against third parties;

(h) A Rehabilitation Plan;

(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and

(j) Other documents required to be filed with the petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme Court.

A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its
members foresee the impossibility of meeting debts when they respectively fall due, and the financial
distress would likely adversely affect the financial condition and/or operations of the other members of
the group and/or the participation of the other members of the group is essential under the terms and
conditions of the proposed Rehabilitation Plan.

(2) Involuntary Proceedings.

Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of

creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners'
contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a
petition for rehabilitation with the court if:

(a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least sixty (60) days or that the debtor has
failed generally to meet its liabilities as they fall due; or

(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that
will prevent the debtor from paying its debts as they become due or will render it insolvent.

Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for rehabilitation shall
be verified to establish the substantial likelihood that the debtor may be rehabilitated, and include:

(a) identification of the debtor its principal activities and its address;

(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings
under Section 13 of this Act;

(c) the specific relief sought under this Act;

(d) a Rehabilitation Plan;

(e) the names of at least three (3) nominees to the position of rehabilitation receiver;

(f) other information that may be required under this Act depending on the form of relief requested;
and

(g) other documents required to be filed with the petition pursuant to this Act and the rules of
procedure as may be promulgated by the Supreme Court.

(B) Action on the Petition and Commencement of Proceedings.

Section 15. Action on the Petition. - If the court finds the petition for rehabilitation to be sufficient in
form and substance, it shall, within five (5) working days from the filing of the petition, issue a
Commencement Order. If, within the same period, the court finds the petition deficient in form or
substance, the court may, in its discretion, give the petitioner/s a reasonable period of time within
which to amend or supplement the petition, or to submit such documents as may be necessary or
proper to put the petition in proper order. In such case, the five (5) working days provided above for the
issuance of the Commencement Order shall be reckoned from the date of the filing of the amended or
supplemental petition or the submission of such documents.

Section 16. Commencement of Proceedings and Issuance of a Commencement Order. - The rehabilitation

proceedings shall commence upon the issuance of the Commencement Order, which shall:
(a) identify the debtor, its principal business or activity/ies and its principal place of business;

(b) summarize the ground/s for initiating the proceedings;

(c) state the relief sought under this Act and any requirement or procedure particular to the relief
sought;

(d) state the legal effects of the Commencement Order, including those mentioned in Section 17 hereof;

(e) declare that the debtor is under rehabilitation;

(f) direct the publication of the Commencement Order in a newspaper of general circulation in the
Philippines once a week for at least two (2) consecutive weeks, with the first publication to be made
within seven (7) days from the time of its issuance;

(g) If the petitioner is the debtor direct the service by personal delivery of a copy of the petition on each
creditor holding at least ten percent (10%) of the total liabilities of the debtor as determined from the
schedule attached to the petition within five (5) days; if the petitioner/s is/are creditor/s, direct the
service by personal delivery of a copy of the petition on the debtor within five (5) days;

(h) appoint a rehabilitation receiver who may or not be from among the nominees of the petitioner/s
and who shall exercise such powers and duties defined in this Act as well as the procedural rules that
the Supreme Court will promulgate;

(i) summarize the requirements and deadlines for creditors to establish their claims against the debtor
and direct all creditors to their claims with the court at least five (5) days before the initial hearing;

(j) direct Bureau of internal Revenue (BIR) to file and serve on the debtor its comment on or opposition
to the petition or its claim/s against the debtor under such procedures as the Supreme Court provide;

(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods and
services in the ordinary course of business for as long as the debtor makes payments for the services or
goods supplied after the issuance of the Commencement Order;

(l) authorize the payment of administrative expenses as they become due;

(m) set the case for initial hearing, which shall not be more than forty (40) days from the date of filing of
the petition for the purpose of determining whether there is substantial likelihood for the debtor to be
rehabilitated;

(n) make available copies of the petition and rehabilitation plan for examination and copying by any
interested party;

(o) indicate the location or locations at which documents regarding the debtor and the proceedings
under Act may be reviewed and copied;

(p) state that any creditor or debtor who is not the petitioner, may submit the name or nominate any
other qualified person to the position of rehabilitation receiver at least five (5) days before the initial
hearing;

(q) include s Stay or Suspension Order which shall:

(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the
debtor;

(2) suspend all actions to enforce any judgment, attachment or other provisional remedies against the
debtor;

(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its
properties except in the ordinary course of business; and

(4) prohibit the debtor from making any payment of its liabilities outstanding as of the commencement
date except as may be provided herein.

Section 17. Effects of the Commencement Order. - Unless otherwise provided for in this Act, the court's
issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension Order
described in Section 16 hereof:

(a) vest the rehabilitation with all the powers and functions provided for this Act, such as the right to
review and obtain records to which the debtor's management and directors have access, including bank
accounts or whatever nature of the debtor subject to the approval by the court of the performance
bond filed by the rehabilitation receiver;

(b) prohibit or otherwise serve as the legal basis rendering null and void the results of any extrajudicial
activity or process to seize property, sell encumbered property, or otherwise attempt to collection or
enforce a claim against the debtor after commencement date unless otherwise allowed in this Act,
subject to the provisions of Section 50 hereof;

(c) serve as the legal basis for rendering null and void any setoff after the commencement date of any
debt owed to the debtor by any of the debtor's creditors;

(d) serve as the legal basis for rendering null and void the perfection of any lien against the debtor's
property after the commencement date; and

(e) consolidate the resolution of all legal proceedings by and against the debtor to the court Provided.
However, That the court may allow the continuation of cases on other courts where the debtor had
initiated the suit.

Attempts to seek legal of other resource against the debtor outside these proceedings shall be sufficient
to support a finding of indirect contempt of court.

Section 18. Exceptions to the Stay or Suspension Order. - The Stay or Suspension Order shall not apply:

(a) to cases already pending appeal in the Supreme Court as of commencement date Provided, That any
final and executory judgment arising from such appeal shall be referred to the court for appropriate
action;

(b) subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-judicial
agency which, upon determination by the court is capable of resolving the claim more quickly, fairly and
efficiently than the court: Provided, That any final and executory judgment of such court or agency shall
be referred to the court and shall be treated as a non-disputed claim;
(c) to the enforcement of claims against sureties and other persons solidarily liable with the debtor, and
third party or accommodation mortgagors as well as issuers of letters of credit, unless the property
subject of the third party or accommodation mortgage is necessary for the rehabilitation of the debtor
as determined by the court upon recommendation by the rehabilitation receiver;

(d) to any form of action of customers or clients of a securities market participant to recover or
otherwise claim moneys and securities entrusted to the latter in the ordinary course of the latter's
business as well as any action of such securities market participant or the appropriate regulatory agency
or self-regulatory organization to pay or settle such claims or liabilities;

(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a
securities pledge or margin agreement for the settlement of securities transactions in accordance with
the provisions of the Securities Regulation Code and its implementing rules and regulations;

(f) the clearing and settlement of financial transactions through the facilities of a clearing agency or
similar entities duly authorized, registered and/or recognized by the appropriate regulatory agency like
the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or
entities to reimburse themselves for any transactions settled for the debtor; and

(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor shall
not be affected by any proceeding commend under this Act.

Section 19. Waiver of taxes and Fees Due to the National Government and to Local Government Units
(LGUs). - Upon issuance of the Commencement Order by the court, and until the approval of the
Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all taxes and fees
including penalties, interests and charges thereof due to the national government or to LGUs shall be
considered waived, in furtherance of the objectives of rehabilitation.

Section 20. Application of Stay or Suspension Order to Government Financial Institutions. - The

provisions of this Act concerning the effects of the Commencement Order and the Stay or Suspension
Order on the suspension of rights to foreclose or otherwise pursue legal remedies shall apply to
government financial institutions, notwithstanding provisions in their charters or other laws to the
contrary.

Section 21. Effectivity and Duration of Commencement Order. - Unless lifted by the court, the
Commencement Order shall be for the effective for the duration of the rehabilitation proceedings for as
long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In determining
whether there is substantial likelihood for the debtor to be successfully rehabilitated, the court shall
ensure that the following minimum requirements are met:

(a) The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed by this
Act;

(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the
protection of creditors;

(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach
consensus on the proposed Rehabilitation Plan;
(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the
underlying assumptions and the goals stated in the petitioner's Rehabilitation Plan are realistic
reasonable and reasonable or if not, there is, in any case, a substantial likelihood for the debtor to be
successfully rehabilitated because, among others:

(1) there are sufficient assets with/which to rehabilitate the debtor;

(2) there is sufficient cash flow to maintain the operations of the debtor;

(3) the debtor's, partners, stockholders, directors and officers have been acting in good faith and which
due diligence;

(4) the petition is not s sham filing intended only to delay the enforcement of the rights of the creditor's
or of any group of creditors; and

(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;

(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any materially false
or misleading statement;

(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least three-
fourths (3/4) of its total obligations to the extent reasonably possible and made a good faith effort to
reach a consensus on the proposed Rehabilitation Plan if the petitioner/s is/are a creditor or group of
creditors, that/ the petitioner/s has/have met with the debtor and made a good faith effort to reach a
consensus on the proposed Rehabilitation Plan; and

(g) The debtor has not committed acts misrepresentation or in fraud of its creditor/s or a group of
creditors.

Section 22. Action at the Initial Hearing. - At the initial hearing, the court shall:

(a) determine the creditors who have made timely and proper filing of their notice of claims;

(b) hear and determine any objection to the qualifications of the appointment of the rehabilitation
receiver and, if necessary appoint a new one in accordance with this Act;

(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the same
to the court and to the rehabilitation receiver within a period of not more than twenty (20) days; and

(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to prepare and
submit to the court within forty (40) days from initial hearing the report provided in Section 24 hereof.

Section 23. Effect of Failure to File Notice of Claim. - A creditor whose claim is not listed in the schedule
of debts and liabilities and who fails to file a notice of claim in accordance with the Commencement
Order but subsequently files a belated claim shall not be entitled to participate in the rehabilitation
proceedings but shall be entitled to receive distributions arising therefrom.

Section 24. Report of the Rehabilitation Receiver. - Within forty (40) days from the initial hearing and
with or without the comments of the creditors or any of them, the rehabilitation receiver shall submit a
report to the court stating his preliminary findings and recommendations on whether:
(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or acts
committed by the owner/s of a sole proprietorship partners of a partnership or directors or officers of a
corporation in contemplation of the insolvency of the debtor or which may have contributed to the
insolvency of the debtor;

(b) the underlying assumptions, the financial goals and the procedures to accomplish such goals as
stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;

(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(d) the petition should be dismissed; and

(e) the debtor should be dissolved and/or liquidated.

Section 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. - Within ten (10)
days from receipt of the report of the rehabilitation receiver mentioned in Section 24 hereof the court
may:

(a) give due course to the petition upon a finding that:

(1) the debtor is insolvent; and

(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(b) dismiss the petition upon a finding that:

(1)debtor is not insolvent;

(2) the petition i8 a sham filing intended only to delay the enforcement of the rights of the creditor/s or
of any group of creditors;

(3)the petition, the Rehabilitation Plan and the attachments thereto contain any materially false or
misleading statements; or

(4)the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group of
creditors;

(c)convert the proceedings into one for the liquidation of the debtor upon a finding that:

(1)the debtor is insolvent; and

(2)there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in

accordance with the rules to be promulgated by the Supreme Court.

Section 26.Petition Given Due Course.  - If the petition is given due course, the court shall direct the
rehabilitation receiver to review, revise and/or recommend action on the Rehabilitation Plan and submit
the same or a new one to the court within a period of not more than ninety (90) days.

The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation proceedings
pending before it to arbitration or other modes of dispute resolution, as provided for under Republic Act
No. 9285, Or the Alternative Dispute Resolution Act of 2004, should it determine that such mode will
resolve the dispute more quickly, fairly and efficiently than the court.
Section 27.Dismissal of Petition. - If the petition is dismissed pursuant to paragraph (b) of Section 25
hereof, then the court may, in its discretion, order the petitioner to pay damages to any creditor or to
the debtor, as the case may be, who may have been injured by the filing of the petition, to the extent of
any such injury.

(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.

Section 28.Who May Serve as a Rehabilitation Receiver.  - Any qualified natural or juridical person may
serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a juridical entity, it must
designate a natural person/s who possess/es all the qualifications and none of the disqualification’s as
its representative, it being understood that the juridical entity and the representative/s are solidarily
liable for all obligations and responsibilities of the rehabilitation receiver.

Section 29.Qualifications of a Rehabilitation Receiver.  - The rehabilitation receiver shall have the
following minimum qualifications:

(a)A citizen of the Philippines or a resident of the Philippines in the six (6) months immediately
preceding his nomination;

(b)Of good moral character and with acknowledged integrity, impartiality and independence;

(c)Has the requisite knowledge of insolvency and other relevant commercial laws, rules and procedures,
as well as the relevant training and/or experience that may be necessary to enable him to properly
discharge the duties and obligations of a rehabilitation receiver; 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.

Other qualifications and disqualification’s of the rehabilitation receiver shall be set forth in procedural
rules, taking into consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.

Section 30.Initial Appointment of the Rehabilitation Receiver. - The court shall initially appoint the
rehabilitation receiver, who mayor may not be from among the nominees of the petitioner, However, at
the initial hearing of the petition, the creditors and the debtor who are not petitioners may nominate
other persons to the position. The court may retain the rehabilitation receiver initially appointed or
appoint another who mayor may not be from among those nominated.

In case the debtor is a securities market participant, the court shall give priority to the nominee of the
appropriate securities or investor protection fund.

If a qualified natural person or entity is nominated by more than fifty percent (50%) of the secured
creditors and the general unsecured creditors, and satisfactory evidence is submitted, the court shall
appoint the creditors' nominee as rehabilitation receiver.

Section 31.Powers, Duties and Responsibilities of the Rehabilitation Receiver. - The rehabilitation
receiver shall be deemed an officer of the court with the principal duty of preserving and maximizing the
value of the assets of the debtor during the rehabilitation proceedings, determining the viability of the
rehabilitation of the debtor, preparing and recommending a Rehabilitation Plan to the court, and
implementing the approved Rehabilitation Plan, To this end, and without limiting the generality of the
foregoing, the rehabilitation receiver shall have the following powers, duties and responsibilities:

(a)To verify the accuracy of the factual allegations in the petition and its annexes;

(b)To verify and correct, if necessary, the inventory of all of the assets of the debtor, and their valuation;

(c)To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;

(d)To evaluate the validity, genuineness and true amount of all the claims against the debtor;

(e)To take possession, custody and control, and to preserve the value of all the property of the debtor;

(f)To sue and recover, with the approval of the court, all amounts owed to, and all properties pertaining
to the debtor;

(g)To have access to all information necessary, proper or relevant to the operations and business of the
debtor and for its rehabilitation;

(h) To sue and recover, with the. approval of the court, all property or  money of the debtor paid,
transferred or disbursed in fraud of the debtor or its creditors, or which constitute undue preference of
creditor/s;

(i) To monitor the operations and the business of the debtor to ensure that no payments or transfers of
property are made other than in the ordinary course of business;

(j) With the court's approval, to engage the services of or to employ persons or entities to assist him in
the discharge of his functions;

(k) To determine the manner by which the debtor may be best rehabilitated, to review) revise and/or
recommend action on the Rehabilitation Plan and submit the same or a new one to the court for
approval;

(1) To implement the Rehabilitation Plan as approved by the court, if 80 provided under the
Rehabilitation Plan;

(m) To assume and exercise the powers of management of the debtor, if directed by the court pursuant
to Section 36 hereof;

(n) To exercise such other powers as may, from time to time, be conferred upon him by the court; and

To submit a status report on the rehabilitation proceedings every quarter or as may be required by the
court motu proprio.  or upon motion of any creditor. or as may be provided, in the Rehabilitation Plan.

Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall not take
over the management and control of the debtor but may recommend the appointment of a
management committee over the debtor in the cases provided by this Act.

Section 32.Removal of the Rehabilitation Receiver.  – The rehabilitation receiver may be removed at any
time by the court either motu proprio  or upon motion by any creditor/s holding more than fifty percent
(50%) of the total obligations of the debtor, on such grounds as the rules of procedure may provide
which shall include, but are not limited to, the following:
(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper degree of care in
the performance of his duties and powers;

(b) Lack of a particular or specialized competency required by the specific case;

(c) Illegal acts or conduct in the performance of his duties and powers;

(d) Lack of qualification or presence of any disqualification;

(e) Conflict of interest that arises after his appointment; and

(f) Manifest lack of independence that is detrimental to the general body of the stakeholders.

Section 33.Compensation and Terms of Service.  The rehabilitation receiver and his direct employees or
independent contractors shall be entitled to compensation for reasonable fees and expenses from the
debtor according to the terms approved by the court after notice and hearing. Prior to such hearing, the
rehabilitation receiver and his direct employees shall be entitled to reasonable compensation based
on quantum meruit.  Such costs shall be considered administrative expenses.

Section 34.Oath and Bond of the Rehabilitation Receiver.  Prior to entering upon his powers, duties and
responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such amount to be fixed
by the court, conditioned upon the faithful and proper discharge of his powers, duties and
responsibilities.

Section 35.Vacancy.  - Incase the position of rehabilitation receiver is vacated for any reason
whatsoever. the court shall direct the debtor and the creditors to submit the name/s of their nominee/s
to the position. The court may appoint any of the qualified nominees. or any other person qualified for
the position.

Section 36.Displacement of Existing Management by the Rehabilitation Receiver  or Management

Committee.  – Upon motion of any interested party, the court may appoint and direct the rehabilitation
receiver to assume the powers of management of the debtor, or appoint a management committee that
will undertake the management of the debtor. upon clear and convincing evidence of any of the
following circumstances:

(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor’s assets or other
properties;

(b) Paralyzation of the business operations of the debtor; or

(c) Gross mismanagement of the debtor. or fraud or other wrongful conduct on the part of, or gross or
willful violation of this Act by. existing management of the debtor Or the owner, partner, director,
officer or representative/s in management of the debtor.

In case the court appoints the rehabilitation receiver to assume the powers of management of the
debtor. the court may:

(1) require the rehabilitation receiver to post an additional bond;

(2) authorize him to engage the services or to employ persona or entities to assist him in the discharge
of his managerial functions; and
(3) authorize a commensurate increase in his compensation.

Section 37.Role of the Management Committee.  – When appointed pursuant to the foregoing section,
the management committee shall take the place of the management and the governing body of the
debtor and assume their rights and responsibilities.

The specific powers and duties of the management committee, whose members shall be considered as
officers of the court, shall be prescribed by the procedural rules.

Section 38.Qualifications of Members of the Management Committee.  - The qualifications and

disqualification’s of the members of the management committee shall be set forth in the procedural
rules, taking into consideration the nature of the business of the debtor and the need to protect the
interest of all stakeholders concerned.

Section 39.Employment of Professionals.  - Upon approval of the court, and after notice and hearing, the
rehabilitation receiver or the management committee may employ specialized professionals and other
experts to assist each in the performance of their duties. Such professionals and other experts shall be
considered either employees or independent contractors of the rehabilitation receiver or the
management committee, as the case may be. The qualifications and disqualification’s of the
professionals and experts may be set forth in procedural rules, taking into consideration the nature of
the business of the debtor and the need to protect the interest of all stakeholders concerned.

Section 40.Conflict of Interest.  - No person may be appointed as a rehabilitation receiver, member of a_

management committee, or be employed by the rehabilitation receiver or the management committee
if he has a conflict of interest.

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. Without limiting
the generality of the foregoing, an individual shall be deemed to have a conflict of interest if:

(a) he is a creditor, owner, partner or stockholder of the debtor;

(b) he is engaged in a line of business which competes with that of the debtor;

(c) he is, or was, within five (5) years from the filing of the petition, a director, officer, owner, partner or
employee of the debtor or any of the creditors, or the auditor or accountant of the debtor;

(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the outstanding
securities of the debtor;

(e) he is related by consanguinity or affinity within the fourth civil degree to any individual creditor,
owners of a sale proprietorship-debtor, partners of a partnership- debtor or to any stockholder,
director, officer, employee or underwriter of a corporation-debtor; or

(f) he has any other direct or indirect material interest in the debtor or any of the creditors.

Any rehabilitation receiver, member of the management committee or persons employed or contracted
by them possessing any conflict of interest shall make the appropriate disclosure either to the court or
to the creditors in case of out-of-court rehabilitation proceedings. Any party to the proceeding adversely
affected by the appointment of any person with a conflict of interest to any of the positions enumerated
above may however waive his right to object to such appointment and, if the waiver is unreasonably
withheld, the court may disregard the conflict of interest, taking into account the general interest of the
stakeholders.

Section 41.Immunity.  - The rehabilitation receiver and all persons employed by him, and the members
of the management committee and all persons employed by it, shall not be subject to any action. claim
or demand in connection with any act done or omitted to be done by them in good faith in connection
with the exercise of their powers and functions under this Act or other actions duly approved by the
court.1awp++il

Section 42.Creditors' Committee.  - After the creditors' meeting called pursuant to Section 63 hereof, the
creditors belonging to a class may formally organize a committee among

themselves. In addition, the creditors may, as a body, agree to form a creditors' committee composed of
a representative from each class of creditors, such as the following:

(a) Secured creditors;

(b) Unsecured creditors;

(c) Trade creditors and suppliers; and

(d) Employees of the debtor.

In the . election of the creditors' representatives, the rehabilitation receiver or his representative shall
attend such meeting and extend the appropriate assistance as may be defined in the procedural rules.

Section 43.Role of Creditors' Committee.  - The creditors' committee when constituted pursuant to
Section 42 of this Act shall assist the rehabilitation receiver in communicating with the creditors and
shall be the primary liaison between the rehabilitation receiver and the creditors. The creditors'
committee cannot exercise or waive any right or give any consent on behalf of any creditor unless
specifically authorized in writing by such creditor. The creditors' committee may be authorized by the
court or by the rehabilitation receiver to perform such other tasks and functions as may be defined by
the procedural rules in order to facilitate the rehabilitation process.

(D) Determination of Claims.

Section 44.Registry of Claims.  - Within twenty (20) days from his assumption into office, the
rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation receiver shall
make the registry available for public inspection and provide

publication notice to the debtor, creditors and stakeholders on where and when they may inspect it. All
claims included in the registry of claims must be duly supported by sufficient evidence.

Section 45.Opposition or Challenge of Claims.  – Within thirty (30) days from the expiration of the period
stated in the immediately preceding section, the debtor, creditors, stakeholders and other interested
parties may submit a challenge to claim/s to the court, serving a certified copy on the rehabilitation
receiver and the creditor holding the challenged claim/so Upon the expiration of the thirty (30)-day
period, the rehabilitation receiver shall submit to the court the registry of claims which shall include
undisputed claims that have not been subject to challenge.
Section 46.Appeal.  - Any decision of the rehabilitation receiver regarding a claim may be appealed to
the court.

(E) Governance.

Section 47.Management.  - Unless otherwise provided herein, the management of the juridical debtor
shall remain with the existing management subject to the applicable law/s and agreement/s, if any, on
the election or appointment of directors, managers Or managing partner. However, all disbursements,
payments or sale, disposal, assignment, transfer or encumbrance of property , or any other act affecting
title or interest in property, shall be subject to the approval of the rehabilitation receiver and/or the
court, as provided in the following subchapter.

(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after Commencement
Date.

Section 48.Use or Disposition of Assets.  - Except as otherwise provided herein, no funds or property of
the debtor shall he used or disposed of except in the ordinary course of business of the debtor, or unless
necessary to finance the administrative expenses of the rehabilitation proceedings.

Section 49.Sale of Assets.  - The court, upon application of the rehabilitation receiver, may authorize the
sale of unencumbered property of the debtor outside the ordinary course of business upon a showing
that the property, by its nature or because of other circumstance, is perishable, costly to maintain,
susceptible to devaluation or otherwise injeopardy.

Section 50.Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held by
Debtor.  The court may authorize the sale, transfer, conveyance or disposal of encumbered property of
the debtor, or property of others held by the debtor where there is a security interest pertaining to third
parties under a financial, credit or other similar transactions if, upon application of the rehabilitation
receiver and with the consent of the affected owners of the property, or secured creditor/s in the case
of encumbered property of the debtor and, after notice and hearing, the court determines that:

(a) such sale, transfer, conveyance or disposal is necessary for the continued operation of the debtor's
business; and

(b) the debtor has made arrangements to provide a substitute lien or ownership right that provides an
equal level of security for the counter-party's claim or right.

Provided,  That properties held by the debtor where the debtor has authority to sell such as trust receipt
or consignment arrangements may be sold or disposed of by the .debtor, if such sale or disposal is
necessary for the operation of the debtor's business, and the debtor has made arrangements to provide
a substitute lien or ownership right that provides an equal level of security for the counter-party's claim
or right.

Sale or disposal of property under this section shall not give rise to any criminal liability under applicable
laws.

Section 51.Assets of Debtor Held by Third Parties.  – In the case of possessory pledges, mechanic's liens
or similar claims, third parties who have in their possession or control property of the debtor shall not
transfer, conveyor otherwise dispose of the same to persons other than the debtor, unless upon prior
approval of the rehabilitation receiver. The rehabilitation receiver may also:

(a) demand the surrender or the transfer of the possession or control of such property to the
rehabilitation receiver or any other person, subject to payment of the claims secured by any possessory
Iien/s thereon;

(b) allow said third parties to retain possession or control, if such an arrangement would more likely
preserve or increase the value of the property in question or the total value of the assets of the debtor;
or

(c) undertake any otI1er disposition of the said property as may be beneficial for the rehabilitation of
the debtor, after notice and hearing, and approval of the court.

Section 52.Rescission or Nullity of Sale, Payment, Transfer  or Conveyance of Assets.  - The court may
rescind or declare as null and void any sale, payment, transfer or conveyance of the debtor's
unencumbered property or any encumbering thereof by the debtor or its agents or representatives after
the commencement date which are not in the ordinary course of the business of the debtor: Provided,
however,  That the unencumbered property may be sold, encumbered or otherwise disposed of upon
order of the court after notice and hearing:

(a) if such are in the interest of administering the debtor and facilitating the preparation and
implementation of a Rehabilitation Plan;

(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;

(c) for payments made to meet administrative expenses as they arise;

(d) for payments to victims of quasi delicts upon a showing that the claim is valid and the debtor has
insurance to reimburse the debtor for the payments made;

(e) for payments made to repurchase property of the debtor that is auctioned off in a judicial or
extrajudicial sale under. This Act; or

(f) for payments made to reclaim property of the debtor held pursuant to a possessory lien.

Section 53.Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value.  - Upon the
application of a secured creditor holding a lien against or holder of an ownership interest in property
held by the debtor that is subject to potentially rapid obsolescence, depreciation or diminution in value,
the court shall, after notice and hearing, order the debtor or rehabilitation receiver to take reasonable
steps necessary to prevent the depreciation. If depreciation cannot be avoided and such depreciation is
jeopardizing the security or property interest of the secured creditor or owner, the court shall:

(a) allow the encumbered property to be foreclosed upon by the secured creditor according to the
relevant agreement between the debtor and the secured creditor, applicable rules of procedure and
relevant legislation: Provided.  That the proceeds of the sale will be distributed in accordance with the
order prescribed under the rules of concurrence and preference of credits; or

(b) upon motion of, or with the consent of the affected secured creditor or interest owner. order the
conveyance of a lien against or ownership interest in substitute property of the debtor to the secured
creditor: Provided.  That other creditors holding liens on such property, if any, do not object thereto, or,
if such property is not available;

(c) order the conveyance to the secured creditor or holder . of an ownership interest of a lien on the
residual funds from the sale of encumbered property during the proceedings; or

(d) allow the sale or disposition of the property: Provided.  That the sale or disposition will maximize the
value of the property for the benefit of the secured creditor and the debtor, and the proceeds of the
sale will be distributed in accordance with the order prescribed under the rules of concurrence and
preference of credits.

Section 54.Post-commencement Interest.  - The rate and term of interest, if any, on secured and
unsecured claims shall be determined and provided for in the approved Rehabilitation Plan.

Section 55.Post-commencement Loans and Obligations.  - With the approval of the court upon the
recommendation of the rehabilitation receiver, the debtor, in order to enhance its

rehabilitation. may:

(a) enter into credit arrangements; or

(b) enter into credit arrangements, secured by mortgages of its unencumbered property or secondary
mortgages of encumbered property with the approval of senior secured parties with regard to the
encumbered property; or

(c) incur other obligations as may be essential for its rehabilitation.

The payment of the foregoing obligations shall be considered administrative expenses under this Act.

Section 56.Treatment of Employees, Claims.  Compensation of employees required to carry on the

business shall be considered an administrative expense. Claims of separation pay for months worked
prior to the commencement date shall be considered a pre- ommencement claim. Claims for salary and
separation pay for work performed after the commencement date shall be an administrative expense.

Section 57.Treatment of Contracts.  - Unless cancelled by virtue of a final judgment of a court of

competent jurisdiction issued prior to the issuance of the Commencement Order, or at anytime
thereafter by the court before which the rehabilitation proceedings are pending, all valid and subbsisting
contracts of the debtor with creditors and other third parties as at the commencement date shall
continue in force: Provided,  That within  ninety (90)  days following the commencement of proceedings,
the debtor, with the consent of the rehabilitation receiver, shall notify each contractual counter-party of
whether it is confirming the particular contract. Contractual obligations of the debtor arising or
performed during this period, and afterwards for confirmed contracts, shall be considered
administrative expenses. Contracts not confirmed within the required deadline shall be considered
terminated. Claims for actual damages, if any, arising as a result of the election to terminate a contract
shall be considered a pre-commencement claim against the debtor. Nothing contained herein shall
prevent the cancellation or termination of any contract of the debtor for any ground provided by law.

(G) Avoidance Proceedings.

Section 58.Rescission or Nullity of Certain  Pre-commencement Transactions.  Any transaction occurring
prior to commencement date entered into by the debtor or involving its funds or assets may be
rescinded or declared null and void on the ground that the same was executed with intent to defraud a
creditor or creditors or which constitute undue preference of creditors. Without limiting the generality
of the foregoing, a disputable presumption of such design shall arise if the transaction:

(a) provides unreasonably inadequate consideration to the debtor and is executed within ninety (90)
days prior to the commencement date;

(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior to the
commencement date;

(c) provides security or additional security executed within ninety (90) days prior to the commencement
date;

(d) involves creditors, where a creditor obtained, or received the benefit of, more than its pro rata  share
in the assets of the debtor, executed at a time when the debtor was insolvent; or

(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where the effect of
the transaction is to put assets of the debtor beyond the reach of creditors or to otherwise prejudice the
interests of creditors.

Provided, however,  That nothing in this section shall prevent the court from rescinding or declaring as
null and void a transaction on other grounds provided by relevant legislation and
jurisprudence: Provided, further,  That the provisions of the Civil Code on rescission shall in any case
apply to these transactions.

Section 59.Actions for Rescission or Nullity.  - (a) The rehabilitation receiver or, with his conformity, any
creditor may initiate and prosecute any action to rescind, or declare null and void any transaction
described in Section 58 hereof. If the rehabilitation receiver does not consent to the filing or prosecution
of such action,

(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign and transfer
to the creditor all rights, title and interest in the chose in action or subject matter of the proceeding,
including any document in support thereof.

(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent of his claim
and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any,
belongs to the estate.

(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or liquidator)
signifies to the court his readiness to institute the proceeding for the benefit of the creditors, the order
shall fix the time within which he shall do so and, m that case, the benefit derived from the proceeding,
if instituted within the time limits so fixed, belongs to the estate.

(H) Treatment of Secured Creditors.

Section 60.No Diminution of Secured Creditor Rights.  The issuance of the Commencement Order and the
Suspension or Stay Order, and any other provision of this Act, shall not be
deemed in any way to diminish or impair the security or lien of a secured creditor, or the value of his
lien or security, except that his right to enforce said security or lien may be suspended during the term
of the Stay Order.

The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured creditor
to enforce his security or lien, or foreclose upon property of the debtor

securing his/its claim, if the said property is not necessary for the rehabilitation of the debtor. The
secured creditor and/or the other lien holders shall be admitted to the rehabilitation proceedings only
for the balance of his claim, if any.

Section 61.Lack of Adequate Protection.  - The court, on motion or motu proprio,  may terminate, modify
or set conditions for the continuance of suspension of payment, or relieve a claim from the coverage
thereof, upon showing that: (a) a creditor does not have adequate protection over property securing its
claim; or

(b) the value of a claim secured by a lien on property which is not necessary for rehabilitation of the
debtor exceeds the fair market value of the said property.

For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be shown
that:

(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the property
insured;

(b) the debtor fails or refuses to take commercially reasonable steps to maintain the property; or

(c) the property has depreciated to an extent that the creditor is under secured.

Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation receiver to
make arrangements to provide for the insurance or maintenance of the property; or to make payments
or otherwise provide additional or replacement security such that the obligation is fully secured. If such
arrangements are not feasible, the court may modify the Stay Order to allow the secured creditor
lacking adequate protection to enforce its security claim against the debtor: Provided, however,  That the
court may deny the creditor the remedies in this paragraph if the property subject of the enforcement is
required for the rehabilitation of the debtor.

(i) Administration of Proceedings.

Section 62.Contents of a Rehabilitation Plan.  – The Rehabilitation Plan shall, as a minimum:

(a) specify the underlying assumptions, the financial goals and the procedures proposed to accomplish
such goals;

(b) compare the amounts expected to be received by the creditors under the Rehabilitation Plan with
those that they will receive if liquidation ensues within the next one hundred twenty (120) days;

(c) contain information sufficient to give the various classes of creditors a reasonable basis for
determining whether supporting the Plan is in their financial interest when compared to the immediate
liquidation of the debtor, including any reduction of principal interest and penalties payable to the
creditors;
(d) establish classes of voting creditors;

(e) establish subclasses of voting creditors if prior approval has been granted by the court;

(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt forgiveness,
debt rescheduling, reorganization or quasi-reorganization. dacion en pago,  debt-equity conversion and
sale of the business (or parts of it) as a going concern, or setting-up of a new business entity or other
similar arrangements as may be necessary to restore the financial well-being and visibility of the
insolvent debtor;

(g) specify the treatment of each class or subclass described in subsections (d) and (e);

(h) provide for equal treatment of all claims within the same class or subclass, unless a particular
creditor voluntarily agrees to less favorable treatment;

(i) ensure that the payments made under the plan follow the priority established under the provisions of
the Civil Code on concurrence and preference of credits and other applicable laws;

(j) maintain the security interest of secured creditors and preserve the liquidation value of the security
unless such has been waived or modified voluntarily;

(k) disclose all payments to creditors for pre-commencement debts made during the proceedings and
the justifications thereof;

(1) describe the disputed claims and the provisioning of funds to account for appropriate payments
should the claim be ruled valid or its amount adjusted;

(m) identify the debtor's role in the implementation of the Plan;

(n) state any rehabilitation covenants of the debtor, the breach of which shall be considered a material
breach of the Plan;

(o) identify those responsible for the future management of the debtor and the supervision and
implementation of the Plan, their affiliation with the debtor and their remuneration;

(p) address the treatment of claims arising after the confirmation of the Rehabilitation Plan;

(q) require the debtor and its counter-parties to adhere to the terms of all contracts that the debtor has
chosen to confirm;

(r) arrange for the payment of all outstanding administrative expenses as a condition to the Plan's
approval unless such condition has been waived in writing by the creditors concerned;

(s) arrange for the payment" of all outstanding taxes and assessments, or an adjusted amount pursuant
to a compromise settlement with the BlR Or other applicable tax authorities;

(t) include a certified copy of a certificate of tax clearance or evidence of a compromise settlement with
the BIR;

(u) include a valid and binding r(,solution of a meeting of the debtor's stockholders to increase the
shares by the required amount in cases where the Plan contemplates an additional issuance of shares by
the debtor;
(v) state the compensation and status, if any, of the rehabilitation receiver after the approval of the
Plan; and

(w) contain provisions for conciliation and/or mediation as a prerequisite to court assistance or
intervention in the event of any disagreement in the interpretation or implementation of the
Rehabilitation Plan.

Section 63.Consultation with Debtor and Creditors.  – if the court gives due course to the petition, the
rehabilitation receiver shall confer with the debtor and all the classes of creditors, and may consider
their views and proposals ill the review, revision or preparation of a new Rehabilitation Plan.

Section 64.Creditor Approval of Rehabilitation Plan.  – The rehabilitation receiver shall notify the
creditors and stakeholders that the Plan is ready for their examination. Within twenty (2Q) days from
the said notification, the rehabilitation receiver shall convene the creditors, either as a whole or per
class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected unless
approved by all classes of creditors w hose rights are adversely modified or affected by the Plan. For
purposes of this section, the Plan is deemed to have been approved by a class of creditors if members of
the said class holding more than fifty percent (50%) of the total claims of the said class vote in favor of
the Plan. The votes of the creditors shall be based solely on the amount of their respective claims based
on the registry of claims submitted by the rehabilitation receiver pursuant to Section 44 hereof.

Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation Plan if
all of the following circumstances are present:

(a)The Rehabilitation Plan complies with the requirements specified in this Act.

(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;

(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as
a result of the Rehabilitation Plan; and

(d) The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which
has a net present value greater than that which they would have received if the debtor were under
liquidation.

Section 65.Submission of Rehabilitation Plan to the Court.  - 1fthe Rehabilitation Plan is approved, the
rehabilitation receiver shall submit the same to the court for confirmation. Within five (5) days from
receipt of the Rehabilitation Plan, the court shall notify the creditors that the Rehabilitation Plan has
been submitted for confirmation, that any creditor may obtain copies of the Rehabilitation Plan and that
any creditor may file an objection thereto.

Section 66.Filing of Objections to Rehabilitation Plan.  – A creditor may file an objection to the
Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the Rehabilitation
Plan has been submitted for confirmation. Objections to a Rehabilitation Plan shall be limited to the
following:

(a) The creditors' support was induced by fraud;

(b)The documents or data relied upon in the Rehabilitation Plan are materially false or misleading; or
(c)The Rehabilitation Plan is in fact not supported by the voting creditors.

Section 67.Hearing on the Objections.  - If objections have been submitted during the relevant period,
the court shall issue an order setting the time and date for the hearing or hearings on the objections.

If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to cure
the defect, whenever feasible. If the court determines that the debtor acted in bad faith, or that it is not
feasible to cure the defect, the court shall convert the proceedings into one for the liquidation of the
debtor under Chapter V of this Act.

Section 68.Confirmation of the Rehabilitation Plan.  – If no objections are filed within the relevant period
or, if objections are filed, the court finds them lacking in merit, or determines that the basis for the
objection has been cured, or determines that the debtor has complied with an order to cure the
objection, the court shall issue an order confirming the Rehabilitation Plan.

The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims if the
Rehabilitation Plan has made adequate provisions for paying such claims.

For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the court shall
have the power to approve or implement the Rehabilitation Plan despite the lack of approval, or
objection from the owners, partners or stockholders of the insolvent debtor: Provided,  That the terms
thereof are necessary to restore the financial well-being and viability of the insolvent debtor.

Section 69.Effect of Confirmation of the Rehabilitation Plan,  - The confirmation of the Rehabilitation
Plan by the court shall result in the following:

(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons who may
be affected by . it, including the creditors, whether or not such persons have participated in the
proceedings or opposed the Rehabilitation Plan or whether or not their claims have been scheduled;

(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions
necessary to carry out the Plan;

(c) Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;

(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as
continuing to apply to the extent that they do not conflict with the provisions of the Rehabilitation Plan;

(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding
on creditors regardless of whether or not the Plan is successfully implement; and

(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to
any Suspension Order.

The Order confirming the Plan shall comply with Rules 36 of the Rules of Court: Provided, however, That
the court may maintain jurisdiction over the case in order to resolve claims against the debtor that
remain contested and allegations that the debtor has breached the Plan.

Section 70. Liability of General Partners of a Partnership for Unpaid Balances Under an Approved Plan. -
The approval of the Plan shall not affect the rights of creditors to pursue actions against the general
partners of a partnership to the extent they are liable under relevant legislation for the debts thereof.
Section 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. - Amounts of any
indebtedness or obligations reduced or forgiven in connection with a Plan's approval shall not be subject
to any tax in furtherance of the purposes of this Act.

Section 72. Period for Confirmation of the Rehabilitation Plan. - The court shall have a maximum period
of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.

If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or motu
propio, be converted into one for the liquidation of the debtor .

Section 73. Accounting Discharge of Rehabilitation Receiver. - Upon the confirmation of the

Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the court.
Unless the Rehabilitation Plan specifically requires and describes the role of the rehabilitation receiver
after the approval of the Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his
duties.

(j) Termination of Proceedings

Section 74. Termination of Proceedings. - The rehabilitation proceedings under Chapter II shall, upon
motion by any stakeholder or the rehabilitation receiver be terminated by order of the court either
declaring a successful implementation of the Rehabilitation Plan or a failure of rehabilitation.

There is failure of rehabilitation in the following cases:

(a) Dismissal of the petition by the court;

(b) The debtor fails to submit a Rehabilitation Plan;

(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the
debtor can be rehabilitated within a reasonable period;

(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation
thereof, the debtor fails to perform its obligations thereunder or there is a failure to realize the
objectives, targets or goals set forth therein, including the timelines and conditions for the settlement of
the obligations due to the creditors and other claimants;

(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment; and

(f) Other analogous circumstances as may be defined by the rules of procedure.

Upon a breach of, or upon a failure of the Rehabilitation Plan the court, upon motion by an affected
party may:

(1) Issue an order directing that the breach be cured within a specified period of time, falling which the
proceedings may be converted to a liquidation;

(2) Issue an order converting the proceedings to a liquidation;

(3) Allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan, the
approval of which shall be governed by the same requirements for the approval of a Rehabilitation Plan
under this subchapter;
(4) Issue any other order to remedy the breach consistent with the present regulation, other applicable
law and the best interests of the creditors; or

(5) Enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.

Section 75. Effects of Termination. - Termination of the proceedings shall result in the following:

(a) The discharge of the rehabilitation receiver subject to his submission of a final accounting; and

(b) The lifting of the Stay Order and any other court order holding in abeyance any action for the
enforcement of a claim against the debtor.

Provided, however, That if the termination of proceedings is due to failure of rehabilitation or dismissal

of the petition for reasons other than technical grounds, the proceedings shall be immediately
converted to liquidation as provided in Section 92 of this Act.

CHAPTER III
PRE-NEGOTIATED REHABILITATION

Section 76. Petition by Debtor. - An insolvent debtor, by itself or jointly with any of its creditors, may file
a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan which has been
endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the debtor,
including secured creditors holding more than fifty percent (50%) of the total secured claims of the
debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims of
the debtor. The petition shall include as a minimum:

(a) a schedule of the debtor's debts and liabilities;

(b) an inventory of the debtor's assets;

(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified nominees
for rehabilitation receiver; and

(d) a summary of disputed claims against the debtor and a report on the provisioning of funds to
account for appropriate payments should any such claims be ruled valid or their amounts adjusted.

Section 77. Issuance of Order. - Within five (5) working days, and after determination that the petition is
sufficient in form and substance, the court shall issue an Order which shall;

(a) identify the debtor, its principal business of activity/ies and its principal place of business;

(b) declare that the debtor is under rehabilitation;

(c) summarize the ground./s for the filling of the petition;

(d) direct the publication of the Order in a newspaper of general circulation in the Philippines once a
week for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days
from the time of its issuance;

(e) direct the service by personal delivery of a copy of the petition on each creditor who is not a
petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as determined in the
schedule attached to the petition, within three (3) days;
(f) state that copies of the petition and the Rehabilitation Plan are available for examination and copying
by any interested party;

(g) state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file
their objections or comments thereto within a period of not later than twenty (20) days from the second
publication of the Order;

(h) appoint a rehabilitation receiver, if provided for in the Plan; and

(i) include a Suspension or Stay Order as described in this Act.

Section 78. Approval of the Plan. - Within ten (10) days from the date of the second publication of the
Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested party submits
an objection to it in accordance with the next succeeding section.

Section 79. Objection to the Petition or Rehabilitation Plan. - Any creditor or other interested party may
submit to the court a verified objection to the petition or the Rehabilitation Plan not later than eight (8)
days from the date of the second publication of the Order mentioned in Section 77 hereof. The
objections shall be limited to the following:

(a) The allegations in the petition or the Rehabilitation Plan or the attachments thereto are materially
false or misleading;

(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;

(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim in not
categorically declared as a contested claim; or

(d) The support of the creditors, or any of them was induced by fraud.

Copies of any objection to the petition of the Rehabilitation Plan shall be served on the debtor, the
rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports the
Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the
Rehabilitation Plan.

Section 80. Hearing on the Objections. - After receipt of an objection, the court shall set the same for
hearing. The date of the hearing shall be no earlier than twenty (20) days and no later than thirty (30)
days from the date of the second publication of the Order mentioned in Section 77 hereof. If the court
finds merit in the objection, it shall direct the debtor, when feasible to cure the detect within a
reasonable period. If the court determines that the debtor or creditors supporting the Rehabilitation
Plan acted in bad faith, or that the objection is non-curable, the court may order the conversion of the
proceedings into liquidation. A finding by the court that the objection has no substantial merit, or that
the same has been cured shall be deemed an approval of the Rehabilitation Plan.

Section 81. Period for Approval of Rehabilitation Plan. - The court shall have a maximum period of one
hundred twenty (120) days from the date of the filing of the petition to approve the Rehabilitation Plan.
If the court fails to act within the said period, the Rehabilitation Plan shall be deemed approved.

Section 82. Effect of Approval. - Approval of a Plan under this chapter shall have the same legal effect as
confirmation of a Plan under Chapter II of this Act.
CHAPTER IV
OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR REHABILITATION PLANS

Section 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. - An out-of-curt

or informal restructuring agreement or Rehabilitation Plan that meets the minimum requirements
prescribed in this chapter is hereby recognized as consistent with the objectives of this Act.

Section 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and

Rehabilitation Plans. - For an out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan to qualify under this chapter, it must meet the following minimum requirements:

(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan;

(b) It must be approved by creditors representing at least sixty-seven (67%) of the secured obligations of
the debtor;

(c) It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured
obligations of the debtor; and

(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities,
secured and unsecured, of the debtor.

Section 85. Standstill Period. - A standstill period that may be agreed upon by the parties pending
negotiation and finalization of the out-of-court or informal restructuring/workout agreement or
Rehabilitation Plan contemplated herein shall be effective and enforceable not only against the
contracting parties but also against the other creditors: Provided, That (a) such agreement is approved
by creditors representing more than fifty percent (50%) of the total liabilities of the debtor; (b) notice
thereof is publishing in a newspaper of general circulation in the Philippines once a week for two (2)
consecutive weeks; and (c) the standstill period does not exceed one hundred twenty (120) days from
the date of effectivity. The notice must invite creditors to participate in the negotiation for out-of-court
rehabilitation or restructuring agreement and notify them that said agreement will be binding on all
creditors if the required majority votes prescribed in Section 84 of this Act are met.

Section 86. Cram Down Effect. - A restructuring/workout agreement or Rehabilitation Plan that is

approved pursuant to an informal workout framework referred to in this chapter shall have the same
legal effect as confirmation of a Plan under Section 69 hereof. The notice of the Rehabilitation Plan or
restructuring agreement or Plan shall be published once a week for at least three (3) consecutive weeks
in a newspaper of general circulation in the Philippines. The Rehabilitation Plan or restructuring
agreement shall take effect upon the lapse of fifteen (15) days from the date of the last publication of
the notice thereof.

Section 87. Amendment or Modification. - Any amendment of an out-of-court restructuring/workout

agreement or Rehabilitation Plan must be made in accordance with the terms of the agreement and
with due notice on all creditors.

Section 88. Effect of Court Action or Other Proceedings. - Any court action or other proceedings arising
from, or relating to, the out-of-court or informal restructuring/workout agreement or Rehabilitation
Plan shall not stay its implementation, unless the relevant party is able to secure a temporary restraining
order or injunctive relief from the Court of Appeals.

Section 89. Court Assistance. - The insolvent debtor and/or creditor may seek court assistance for the
execution or implementation of a Rehabilitation Plan under this Chapter, under such rules of procedure
as may be promulgated by the Supreme Court.

CHAPTER V
LIQUIDATION OF INSOLVENT JURIDICAL DEBTORS

Section 90. Voluntary Liquidation. - An insolvent debtor may apply for liquidation by filing a petition for
liquidation with the court. The petition shall be verified, shall establish the insolvency of the debtor and
shall contain, whether as an attachment or as part of the body of the petition;

(a) a schedule of the debtor's debts and liabilities including a list of creditors with their addresses,
amounts of claims and collaterals, or securities, if any;

(b) an inventory of all its assets including receivables and claims against third parties; and

(c) the names of at least three (3) nominees to the position of liquidator.

At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the
debtor may also initiate liquidation proceedings by filing a motion in the same court where the
rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation
proceedings. The motion shall be verified, shall contain or set forth the same matters required in the
preceding paragraph, and state that the debtor is seeking immediate dissolution and termination of its
corporate existence.

If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall issue
a Liquidation Order mentioned in Section 112 hereof.

Section 91. Involuntary Liquidation. - Three (3) or more creditors the aggregate of whose claims is at
least either One million pesos (Php1,000,000,00) or at least twenty-five percent (25%0 of the subscribed
capital stock or partner's contributions of the debtor, whichever is higher, may apply for and seek the
liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court. The
petition shall show that:

(a) there is no genuine issue of fact or law on the claims/s of the petitioner/s, and that the due and
demandable payments thereon have not been made for at least one hundred eighty (180) days or that
the debtor has failed generally to meet its liabilities as they fall due; and

(b) there is no substantial likelihood that the debtor may be rehabilitated.

At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated

rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million pesos
(Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or partner's
contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing a
motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation
proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth the
same matters required in the preceding paragraph, and state that the movants are seeking the
immediate liquidation of the debtor.

If the petition or motion is sufficient in form and substance, the court shall issue an Order:

(1) directing the publication of the petition or motion in a newspaper of general circulation once a week
for two (2) consecutive weeks; and

(2) directing the debtor and all creditors who are not the petitioners to file their comment on the
petition or motion within fifteen (15) days from the date of last publication.

If, after considering the comments filed, the court determines that the petition or motion is meritorious,
it shall issue the Liquidation Order mentioned in Section 112 hereof.

Section 92. Conversion by the Court into Liquidation Proceedings. - During the pendency of court-
supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of
rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b)
Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon
the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible.
Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.

Section 93. Powers of the Securities and Exchange Commission (SEC). - The provisions of this chapter
shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree No. 902-A, as
amended, with respect to any dissolution and liquidation proceeding initiated and heard before it.

CHAPTER VI
INSOLVENCY OF INDIVIDUAL DEBTORS

(A) Suspension of Payments.

Section 94. Petition. - An individual debtor who, possessing sufficient property to cover all his debts but
foreseeing the impossibility of meeting them when they respectively fall due, may file a verified petition
that he be declared in the state of suspension of payments by the court of the province or city in which
he has resides for six (6) months prior to the filing of his petition. He shall attach to his petition, as a
minimum: (a) a schedule of debts and liabilities; (b) an inventory of assess; and (c) a proposed
agreement with his creditors.

Section 95. 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 an Order:

(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such 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;

(b) directing such creditors to prepare and present written evidence of their claims before the scheduled
creditors' meeting;

(c) directing the publication of the said order in a newspaper of general circulation published in the
province or city in which the petition is filed 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;
(d) directing the clerk of court to 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;

(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner
of his property, except 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 the suspension of
payments are pending;

(f) prohibiting the individual debtor from making any payment 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

(g) appointing a commissioner to preside over the creditors' meeting.

Section 96. Actions Suspended. - Upon motion filed by the individual debtor, the court may issue an
order suspending any pending execution against the individual debtor. Provide, That properties held as
security by secured creditors shall not be the subject of such suspension order. The suspension order
shall lapse when three (3) months shall have passed without the proposed agreement being accepted by
the creditors or as soon as such agreement is denied.

No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the
filing of the petition for suspension of payments and for as long as proceedings remain pending except:

(a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of
the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the
petition; and

(b) secured creditors.

Section 97. Creditors' Meeting. - The presence of creditors holding claims amounting to at least three-
fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner appointed by the
court shall preside over the meeting and the clerk of court shall act as the secretary thereof, subject to
the following rules:

(a) The clerk shall record the creditors present and amount of their respective claims;

(b) The commissioner shall examine the written evidence of the claims. If the creditors present hold at
least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall declare the
meeting open for business;

(c) The creditors and individual debtor shall discuss the propositions in the proposed agreement and put
them to a vote;

(d) To form a majority, it is necessary:

(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and

(2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total
liabilities of the debtor mentioned in the petition; and
(e) After the result of the voting has been announced, all protests made against the majority vote shall
be drawn up, and the commissioner and the individual debtor together with all creditors taking part in
the voting shall sign the affirmed propositions.

No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be
entitled to vote.

Section 98. Persons Who May Refrain From Voting. - Creditors who are unaffected by the Suspension
Order may refrain from attending the meeting and from voting therein. Such persons shall not be bound
by any agreement determined upon at such meeting, but if they should join in the voting they shall be
bound in the same manner as are the other creditors.

Section 99. Rejection of the Proposed Agreement. - The proposed agreement shall be deemed rejected if
the number of creditors required for holding a meeting do not attend thereat, or if the two (2) majorities
mentioned in Section 97 hereof are not in favor thereof. In such instances, the proceeding shall be
terminated without recourse and the parties concerned shall be at liberty to enforce the rights which
may correspond to them.

Section 100. Objections. - If the proposal of the individual debtor, or any amendment thereof made
during the creditors' meeting, is approved by the majority of creditors in accordance with Section 97
hereof, any creditor who attended the meeting and who dissented from and protested against the vote
of the majority may file an objection with the court within ten (10) days from the date of the last
creditors' meeting. The causes for which objection may be made to the decision made by the majority
during the meeting shall be: (a) defects in the call for the meeting, in the holding thereof and in the
deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent connivance between
one or more creditors and the individual debtor to vote in favor of the proposed agreement; or (c)
fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear and pass
upon such objection as soon as possible and in a summary manner.

In case the decision of the majority of creditors to approve the individual debtor's proposal or any
amendment thereof made during the creditors' meeting is annulled by the court, the court shall declare
the proceedings terminated and the creditors shall be at liberty to exercise the rights which may
correspond to them.

Section 101. Effects of Approval of Proposed Agreement. - If the decision of the majority of the creditors
to approve the proposed agreement or any amendment thereof made during the creditors' meeting is
uphold by the court, or when no opposition or objection to said decision has been presented, the court
shall order that the agreement be carried out and all parties bound thereby to comply with its terms.

The court may also issue all orders which may be necessary or proper to enforce the agreement on
motion of any affected party. The Order confirming the approval of the proposed agreement or any
amendment thereof made during the creditors' meeting shall be binding upon all creditors whose claims
are included in the schedule of debts and liabilities submitted by the individual debtor and who were
properly summoned, but not upon: (a) those creditors having claims for personal labor, maintenance,
expenses of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days
immediately prior to the filing of the petition; and (b) secured creditors who failed to attend the meeting
or refrained from voting therein.
Section 102. Failure of Individual Debtor to Perform Agreement. - If the individual debtor fails, wholly or
in part, to perform the agreement decided upon at the meeting of the creditors, all the rights which the
creditors had against the individual debtor before the agreement shall revest in them. In such case the
individual debtor may be made subject to the insolvency proceedings in the manner established by this
Act.

(B) Voluntary Liquidation.

Section 103. Application. - An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to be
discharged from his debts and liabilities by filing a verified petition with the court of the province or city
in which he has resided for six (6) months prior to the filing of such petition. He shall attach to his
petition a schedule of debts and liabilities and an inventory of assets. The filing of such petition shall be
an act of insolvency.

Section 104. Liquidation Order. - If the court finds the petition sufficient in form and substance it shall,
within five (5) working days issue the Liquidation Order mentioned in Section 112 hereof.

(C) In voluntary Liquidation.

Section 105. Petition; Acts of Insolvency. - Any creditor or group of creditors with a claim of, or with
claims aggregating at least Five hundred thousand pesos (Php500, 000.00) may file a verified petition for
liquidation with the court of the province or city in which the individual debtor resides.

The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or
allege at least one of such acts:

(a) That such person is about to depart or has departed from the Republic of the Philippines, with intent
to defraud his creditors;

(b) That being absent from the Republic of the Philippines, with intent to defraud his creditors, he
remains absent;

(c) That he conceals himself to avoid the service of legal process for the purpose of hindering or delaying
the liquidation or of defrauding his creditors;

(d) That he conceals, or is removing, any of his property to avoid its being attached or taken on legal
process;

(e) That he has suffered his property to remain under attachment or legal process for three (3) days for
the purpose of hindering or delaying the liquidation or of defrauding his creditors;

(f) That he has confessed or offered to allow judgment in favor of any creditor or claimant for the
purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant;

(g) That he has willfully suffered judgment to be taken against him by default for the purpose of
hindering or delaying the liquidation or of defrauding his creditors;

(h) That he has suffered or procured his property to be taken on legal process with intent to give a
preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud any
one of his creditors;
(i) That he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or
credits with intent to hinder or delay the liquidation or defraud his creditors;

(j) That he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or
transfer of his estate, property, rights or credits;

(k) That being a merchant or tradesman, he has generally defaulted in the payment of his current
obligations for a period of thirty (30) days;

(l) That for a period of thirty (30) days, he has failed, after demand, to pay any moneys deposited with
him or received by him in a fiduciary; and

(m) That an execution having been issued against him on final judgment for money, he shall have been
found to be without sufficient property subject to execution to satisfy the judgment.

The petitioning creditor/s shall post a bond in such as the court shall direct, conditioned that if the
petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall
not be declared an insolvent the petitioners will pay to the debtor all costs, expenses, damages
occasioned by the proceedings and attorney's fees.

Section 106. Order to Individual Debtor to Show Cause. - Upon the filing of such creditors' petition, the
court shall issue an Order requiring the individual debtor to show cause, at a time and place to be fixed
by the said court, why he should not be adjudged an insolvent. Upon good cause shown, the court may
issue an Order forbidding the individual debtor from making payments of any of his debts, and
transferring any property belonging to him. However, nothing contained herein shall affect or impair the
rights of a secured creditor to enforce his lien in accordance with its terms.

Section 107. Default. - If the individual debtor shall default or if, after trial, the issues are found in favor
of the petitioning creditors the court shall issue the Liquidation Order mentioned in Section 112 hereof.

Section 108. Absent Individual Debtor. - In all cases where the individual debtor resides out of the
Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be found therein;
or conceals himself to avoid service of the Order to show cause, or any other preliminary process or
orders in the matter, then the petitioning creditors, upon submitting the affidavits requisite to
procedure an Order of publication, and presenting a bond in double the amount of the aggregate sum of
their claims against the individual debtor, shall be entitled to an Order of the court directing the sheriff
of the province or city in which the matter is pending to take into his custody a sufficient amount of
property of the individual debtor to satisfy the demands of the petitioning creditors and the costs of the
proceedings. Upon receiving such Order of the court to take into custody of the property of the
individual debtor, it shall be the duty of the sheriff to take possession of the property and effects of the
individual debtor, not exempt from execution, to an extent sufficient to cover the amount provided for
and to prepare within three (3) days from the time of taking such possession, a complete inventory of all
the property so taken, and to return it to the court as soon as completed. The time for taking the
inventory and making return thereof may be extended for good cause shown to the court. The sheriff
shall also prepare a schedule of the names and residences of the creditors, and the amount due each,
from the books of the debtor, or from such other papers or data of the individual debtor available as
may come to his possession, and shall file such schedule or list of creditors and inventory with the clerk
of court.
Section 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exemptions to Sureties. - In all
cases where property is taken into custody by the sheriff, if it does not embrace all the property and
effects of the debtor not exempt from execution, any other creditor or creditors of the individual
debtor, upon giving bond to be approved by the court in double the amount of their claims, singly or
jointly, shall be entitled to similar orders and to like action, by the sheriff; until all claims be provided for,
if there be sufficient property or effects. All property taken into custody by the sheriff by virtue of the
giving of any such bonds shall be held by him for the benefit of all creditors of the individual debtor
whose claims shall be duly proved as provided in this Act. The bonds provided for in this section and the
preceding section to procure the order for custody of the property and effects of the individual debtor
shall be conditioned that if, upon final hearing of the petition in insolvency, the court shall find in favor
of the petitioners, such bonds and all of them shall be void; if the decision be in favor of the individual
debtor, the proceedings shall be dismissed, and the individual debtor, his heirs, administrators,
executors or assigns shall be entitled to recover such sum of money as shall be sufficient to cover the
damages sustained by him, not to exceed the amount of the respective bonds. Such damages shall be
fixed and allowed by the court. If either the petitioners or the debtor shall appeal from the decision of
the court, upon final hearing of the petition, the appellant shall be required to give bond to the
successful party in a sum double the amount of the value of the property in controversy, and for the
costs of the proceedings.

Any person interested in the estate may take exception to the sufficiency of the sureties on such bond or
bonds. When excepted to the petitioner's sureties, upon notice to the person excepting of not less than
two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure to justify, or of
others in their place fail to justify at the time and place appointed the judge shall issue an Order vacating
the order to take the property of the individual debtor into the custody of the sheriff, or denying the
appeal, as the case may be.

Section 110. Sale Under Execution. - If, in any case, proper affidavits and bonds are presented to the
court or a judge thereof, asking for and obtaining an Order of publication and an Order for the custody
of the property of the individual debtor and thereafter the petitioners shall make it appear satisfactorily
to the court or a judge thereof that the interest of the parties to the proceedings will be subserved by a
sale thereof, the court may order such property to be sold in the same manner as property is sold under
execution, the proceeds to de deposited in the court to abide by the result of the proceedings.

CHAPTER VII
PROVISIONS COMMON TO LIQUIDATION IN INSOLVENCY OF INDIVIDUAL AND JURIDICAL DEBTORS

Section 111. Use of Term Debtor. - For purposes of this chapter, the term debtor shall include both
individual debtor as defined in Section 4(o) and debtor as defined in Section 4(k) of this Act.

(A) The Liquidation Order.

Section 112. Liquidation Order. - The Liquidation Order shall:

(a) declare the debtor insolvent;

(b) order the liquidation of the debtor and, in the case of a juridical debtor, declare it as dissolved;
(c) order the sheriff to take possession and control of all the property of the debtor, except those that
may be exempt from execution;

(d) order the publication of the petition or motion in a newspaper of general circulation once a week for
two (2) consecutive weeks;

(e) direct payments of any claims and conveyance of any property due the debtor to the liquidator;

(f) prohibit payments by the debtor and the transfer of any property by the debtor;

(g) direct all creditors to file their claims with the liquidator within the period set by the rules of
procedure;

(h) authorize the payment of administrative expenses as they become due;

(i) state that the debtor and creditors who are not petitioner/s may submit the names of other
nominees to the position of liquidator; and

(j) set the case for hearing for the election and appointment of the liquidator, which date shall not be
less than thirty (30) days nor more than forty-five (45) days from the date of the last publication.

Section 113. Effects of the Liquidation Order. - Upon the issuance of the Liquidation Order:

(a) the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated;

(b) legal title to and control of all the assets of the debtor, except those that may be exempt from
execution, shall be deemed vested in the liquidator or, pending his election or appointment, with the
court;

(c) all contracts of the debtor shall be deemed terminated and/or breached, unless the liquidator, within
ninety (90) days from the date of his assumption of office, declares otherwise and the contracting party
agrees;

(d) no separate action for the collection of an unsecured claim shall be allowed. Such actions already
pending will be transferred to the Liquidator for him to accept and settle or contest. If the liquidator
contests or disputes the claim, the court shall allow, hear and resolve such contest except when the case
is already on appeal. In such a case, the suit may proceed to judgment, and any final and executor
judgment therein for a claim against the debtor shall be filed and allowed in court; and

(e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.

Section 114. Rights of Secured Creditors. - The Liquidation Order shall not affect the right of a secured
creditor to enforce his lien in accordance with the applicable contract or law. A secured creditor may:

(a) waive his right under the security or lien, prove his claim in the liquidation proceedings and share in
the distribution of the assets of the debtor; or

(b) maintain his rights under the security or lien:

If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the creditor and the liquidator.
When the value of the property is less than the claim it secures, the liquidator may convey the property
to the secured creditor and the latter will be admitted in the liquidation proceedings as a creditor for the
balance. If its value exceeds the claim secured, the liquidator may convey the property to the creditor
and waive the debtor's right of redemption upon receiving the excess from the creditor;

(2) the liquidator may sell the property and satisfy the secured creditor's entire claim from the proceeds
of the sale; or

(3) the secure creditor may enforce the lien or foreclose on the property pursuant to applicable laws.

(B) The Liquidator.

Section 115. Election of Liquidator. - Only creditors who have filed their claims within the period set by
the court, and whose claims are not barred by the statute of limitations, will be allowed to vote in the
election of the liquidator. A secured creditor will not be allowed to vote, unless: (a) he waives his
security or lien; or (b) has the value of the property subject of his security or lien fixed by agreement
with the liquidator, and is admitted for the balance of his claim.

The creditors entitled to vote will elect the liquidator in open court. The nominee receiving the highest
number of votes cast in terms of amount of claims, ad who is qualified pursuant to Section 118 hereof,
shall be appointed as the liquidator.

Section 116. Court-Appointed Liquidator. - The court may appoint the liquidator if:

(a) on the date set for the election of the liquidator, the creditors do not attend;

(b) the creditors who attend, fail or refuse to elect a liquidator;

(c) after being elected, the liquidator fails to qualify; or

(d) a vacancy occurs for any reason whatsoever, In any of the cases provided herein, the court may
instead set another hearing of the election of the liquidator.

Provided further, That nothing in this section shall be construed to prevent a rehabilitation receiver, who
was administering the debtor prior to the commencement of the liquidation, from being appointed as a
liquidator.

Section 117. Oath and Bond of the Liquidator. -Prior to entering upon his powers, duties and
responsibilities, the liquidator shall take an oath and file a bond, In such amount to be fixed by the court,
conditioned upon the proper and faithful discharge of his powers, duties and responsibilities.

Section 118. Qualifications of the Liquidator. - The liquidator shall have the qualifications enumerated in
Section 29 hereof. He may be removed at any time by the court for cause, either motu propio or upon
motion of any creditor entitled to vote for the election of the liquidator.

Section 119. Powers, Duties and Responsibilities of the Liquidator. - The liquidator shall be deemed an
officer of the court with the principal duly of preserving and maximizing the value and recovering the
assets of the debtor, with the end of liquidating them and discharging to the extent possible all the
claims against the debtor. The powers, duties and responsibilities of the liquidator shall include, but not
limited to:
(a) to sue and recover all the assets, debts and claims, belonging or due to the debtor;

(b) to take possession of all the property of the debtor except property exempt by law from execution;

(c) to sell, with the approval of the court, any property of the debtor which has come into his possession
or control;

(d) to redeem all mortgages and pledges, and so satisfy any judgement which may be an encumbrance
on any property sold by him;

(e) to settle all accounts between the debtor and his creditors, subject to the approval of the court;

(f) to recover any property or its value, fraudulently conveyed by the debtor;

(g) to recommend to the court the creation of a creditors' committee which will assist him in the
discharge of the functions and which shall have powers as the court deems just, reasonable and
necessary; and

(h) upon approval of the court, to engage such professional as may be necessary and reasonable to
assist him in the discharge of his duties.

In addition to the rights and duties of a rehabilitation receiver, the liquidator, shall have the right and
duty to take all reasonable steps to manage and dispose of the debtor's assets with a view towards
maximizing the proceedings therefrom, to pay creditors and stockholders, and to terminate the debtor's
legal existence. Other duties of the liquidator in accordance with this section may be established by
procedural rules.

A liquidator shall be subject to removal pursuant to procedures for removing a rehabilitation receiver.

Section 120. Compensation of the Liquidator. - The liquidator and the persons and entities engaged or
employed by him to assist in the discharge of his powers and duties shall be entitled to such reasonable
compensation as may determined by the liquidation court, which shall not exceed the maximum
amount as may be prescribed by the Supreme Court.

Section 121. Reporting Requiremen5ts. - The liquidator shall make and keep a record of all moneys
received and all disbursements mad by him or under his authority as liquidator. He shall render a
quarterly report thereof to the court , which report shall be made available to all interested parties. The
liquidator shall also submit such reports as may be required by the court from time to time as well as a
final report at the end of the liquidation proceedings.

Section 122. Discharge of Liquidator. - In preparation for the final settlement of all the claims against the
debtor , the liquidator will notify all the creditors, either by publication in a newspaper of general
circulation or such other mode as the court may direct or allow, that will apply with the court for the
settlement of his account and his discharge from liability as liquidator. The liquidator will file a final
accounting with the court, with proof of notice to all creditors. The accounting will be set for hearing. If
the court finds the same in order, the court will discharge the liquidator.

(C) Determination of Claims

Section 123. Registry of Claims. - Within twenty (20) days from his assumption into office the liquidator
shall prepare a preliminary registry of claims of secured and unsecured creditors. Secured creditors who
have waived their security or lien, or have fixed the value of the property subject of their security or lien
by agreement with the liquidator and is admitted as a creditor for the balance , shall be considered as
unsecured creditors. The liquidator shall make the registry available for public inspection and provide
publication notice to creditors, individual debtors owner/s of the sole proprietorship-debtor, the
partners of the partnership-debtor and shareholders or members of the corporation-debtor, on where
and when they may inspect it. All claims must be duly proven before being paid.

Section 124. Right of Set-off. - If the debtor and creditor are mutually debtor and creditor of each other
one debt shall be set off against the other, and only the balance, if any shall be allowed in the liquidation
proceedings.

Section 125. - Opposition or Challenge to Claims. - Within thirty (30 ) days from the expiration of the
period for filing of applications for recognition of claims, creditors, individual debtors, owner/s of the
sole proprietorship-debtor, partners of the partnership-debtor and shareholders or members of the
corporation -debtor and other interested parties may submit a challenge to claim or claims to the court,
serving a certified copy on the liquidator and the creditor holding the challenged claim. Upon the
expiration of the (30) day period, the rehabilitation receiver shall submit to the court the registry of
claims containing the undisputed claims that have not been subject to challenge. Such claims shall
become final upon the filling of the register and may be subsequently set aside only on grounds or
fraud, accident, mistake or inexcusable neglect.

Section 126. Submission of Disputed to the Court. - The liquidator shall resolve disputed claims and
submit his findings thereon to the court for final approval. The liquidator may disallow claims.

(D) Avoidance Proceedings.

Section 127. Rescission or Nullity of Certain Transactions. - Any transaction occurring prior to the
issuance of the Liquidation Order or, in case of the conversion of the rehabilitation proceedings prior to
the commencement date, entered into by the debtor or involving its assets, may be rescinded or
declared null and void on the ground that the same was executed with intent to defraud a creditor or
creditors or which constitute undue preference of creditors. The presumptions set forth in Section 58
hereof shall apply.

Section 128. Actions for Rescission or Nullity. - (a) The liquidator or, with his conformity, a creditor may
initiate and prosecute any action to rescind, or declare null and void any transaction described in the
immediately preceding paragraph. If the liquidator does not consent to the filling or prosecution of such
action, any creditor may seek leave of the court to commence said action.

(b) if leave of court is granted under subsection (a) hereof, the liquidator shall assign and transfer to the
creditor all rights, title and interest in the chose in action or subject matter of the proceeding, including
any document in support thereof.

(c) Any benefit derived from a proceeding taken pursuant to subsection (a) hereof, to the extent of his
claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if
any, belongs to the estate.

(d) Where, before an orders is made under subsection (a) hereof, the liquidator signifies to the court his
readiness to the institute the proceeding for the benefit of the creditors, the order shall fix the time
within which he shall do so and, in that case the benefit derived from the proceedings, if instituted
within the time limits so fixed, belongs to the estate.

(E) The Liquidation Plan.

Section 129. The Liquidation Plan. - Within three (3) months from his assumption into office, the
Liquidator shall submit a Liquidation Plan to the court. The Liquidation Plan shall, as a minimum
enumerate all the assets of the debtor and a schedule of liquidation of the assets and payment of the
claims.

Section 130. Exempt Property to be Set Apart. - It shall be the duty of the court, upon petition and after
hearing, to exempt and set apart, for the use and benefit of the said insolvent, such real and personal
property as is by law exempt from execution, and also a homestead; but no such petition shall be heard
as aforesaid until it is first proved that notice of the hearing of the application therefor has been duly
given by the clerk, by causing such notice to be posted it at least three (3) public places in the province
or city at least ten (10) days prior to the time of such hearing, which notice shall set forth the name of
the said insolvent debtor, and the time and place appointed for the hearing of such application, and
shall briefly indicate the homestead sought to be exempted or the property sought to be set aside; and
the decree must show that such proof was made to the satisfaction of the court, and shall be conclusive
evidence of that fact.

Section 131. Sale of Assets in Liquidation. - The liquidator may sell the unencumbered assets of the
debtor and convert the same into money. The sale shall be made at public auction. However, a private
sale may be allowed with the approval of the court if; (a) the goods to be sold are of a perishable nature,
or are liable to quickly deteriorate in value, or are disproportionately expensive to keep or maintain; or
(b) the private sale is for the best interest of the debtor and his creditors.

With the approval of the court, unencumbered property of the debtor may also be conveyed to a
creditor in satisfaction of his claim or part thereof.

Section 132. manner of Implementing the Liquidation Plan. - The Liquidator shall implement the
Liquidation Plan as approved by the court. Payments shall be made to the creditors only in accordance
with the provisions of the Plan.

Section 133. Concurrence and Preference of Credits. - The Liquidation Plan and its Implementation shall
ensure that the concurrence and preference of credits as enumerated in the Civil Code of the Philippines
and other relevant laws shall be observed, unless a preferred creditor voluntarily waives his preferred
right. For purposes of this chapter, credits for services rendered by employees or laborers to the debtor
shall enjoy first preference under Article 2244 of the Civil Code, unless the claims constitute legal liens
under Article 2241 and 2242 thereof.

Section 134. Order Removing the Debtor from the List of Registered Entitles at the Securities and
Exchange Commission. - Upon determining that the liquidation has been completed according to this Act
and applicable law, the court shall issue an Order approving the report and ordering the SEC to remove
the debtor from the registry of legal entities.
Section 135. Termination of Proceedings. - Upon receipt of evidence showing that the debtor has been
removed from the registry of legal entities at the SEC. The court shall issue an Order terminating the
proceedings.

(F) Liquidation of a Securities Market Participant.

Section 136. Liquidation of a Securities Market Participant. - The foregoing provisions of this chapter
shall be without prejudice to the power of a regulatory agency or self- regulatory organization to
liquidate trade-related claims of clients or customers of a securities market participant which, for
purposes of investor protection, are hereby deemed to have absolute priority over other claims of
whatever nature or kind insofar as trade-related assets are concerned.

For purposes of this section, trade -related assets include cash, securities, trading right and other owned
and used by the securities market participant in the ordinary course of this business.

CHAPTER VIII
PROCEEDINGS ANCILLARY TO OTHER INSOLVENCY OR REHABILITAION PROCEEDINGS

(A) Banks and Other Financial Institutions Under Rehabilitation Receivership Pursuant to a State-
funded or State-mandated Insurance System.

Section 137. Provision of Assistance. - The court shall issue orders, adjudicate claims and provide other
relief necessary to assist in the liquidation of a financial under rehabilitation receivership established by
a state-funded or state-mandated insurance system.

Section 138. Application of Relevant Legislation. - The liquidation of bank, financial institutions,

insurance companies and pre-need companies shall be determined by relevant legislation. The
provisions in this Act shall apply in a suppletory manner.

(B) Cross-Border Insolvency Proceedings.

Section 139. Adoption of Uncitral Model Law on Cross-Border Insolvency. - Subject to the provision of
Section 136 hereof and the rules of procedure that may be adopted by the Supreme Court, the Model
Law on Cross-Border Insolvency of the United Nations Center for International Trade and Development
is hereby adopted as part of this Act.

Section 140. Initiation of Proceedings. - The court shall set a hearing in connection with an insolvency or
rehabilitation proceeding taking place in a foreign jurisdiction, upon the submission of a petition by the
representative of the foreign entity that is the subject of the foreign proceeding.

Section 141. Provision of Relief. - The court may issue orders:

(a) suspending any action to enforce claims against the entity or otherwise seize or foreclose on
property of the foreign entity located in the Philippines;

(b) requiring the surrender property of the foreign entity to the foreign representative; or

(c) providing other necessary relief.

Section 142. Factors in Granting Relief. - In determining whether to grant relief under this subchapter,
the court shall consider;
(a) the protection of creditors in the Philippines and the inconvenience in pursuing their claim in a
foreign proceeding;

(b) the just treatment of all creditors through resort to a unified insolvency or rehabilitation
proceedings;

(c) whether other jurisdictions have given recognition to the foreign proceeding;

(d) the extent that the foreign proceeding recognizes the rights of creditors and other interested parties
in a manner substantially in accordance with the manner prescribed in this Act; and

(e) the extent that the foreign proceeding has recognized and shown deference to proceedings under
this Act and previous legislation.

CHAPTER IX
FUNDS FOR REHABILITATION OF GOVERNMENT-OWNED AND CONTROLLED CORPORATIONS

Section 143. Funds for Rehabilitation of Government -owned and Controlled Corporations. - Public funds
for the rehabilitation of government-owned and controlled corporations shall be released only pursuant
to an appropriation by Congress and shall be supported by funds actually available as certified by the
National Treasurer.

The Department of Finance, in collaboration with the Department of Budget and Management, shall
promulgate the rules for the use and release of said funds.

CHAPTER X
MISCELLANEOUS PROVISIOS

Section 144. Applicability of Provisions. - The provisions in Chapter II, insofar as they are applicable, shall
likewise apply to proceedings in Chapters II and IV.

Section 145. Penalties. - An owner, partner, director, officer or other employee of the debtor who
commits any one of the following acts shall, upon conviction thereof, be punished by a fine of not more
than One million pesos (Php 1, 000,000.00) and imprisonment for not less than three(3) months nor
more than five (5) years for each offense;

(a) if he shall, having notice of the commencement of the proceedings, or having reason to believe that
proceedings are about to be commented, or in contemplation of the proceedings hide or conceal, or
destroy or cause to be destroyed or hidden any property belonging to the debtor or if he shall hide,
destroy, after mutilate or falsify, or cause to be hidden, destroyed, altered, mutilated or falsified, any
book, deed, document or writing relating thereto; if he shall, with intent to defraud the creditors of the
debtor, make any payment sale, assignment, transfer or conveyance of any property belongings to the
debtor

(b) if he shall, having knowledge belief of any person having proved a false or fictitious claim against the
debtor, fail to disclose the same to the rehabilitation receiver of liquidator within one (1) month after
coming to said knowledge or belief; or if he shall attempt to account for any of the debtors property by
fictitious losses or expense; or
(c) if he shall knowingly violate a prohibition or knowingly fail to undertake an obligation established by
this Act.

Section 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. - This
Act shall govern all petitions filed after it has taken effect. All further proceedings in insolvency,
suspension of payments and rehabilitation cases then pending, except to the extent that in opinion of
the court their application would not be feasible or would work injustice, in which event the procedures
set forth in prior laws and regulations shall apply.

Section 147. Application to Pending Contracts. - This Act shall apply to all contracts of the debtor
regardless of the date of perfection.

Section 148. Repeating Clause. - The Insolvency Law (Act No. 1956). As amended is hereby repealed. All
other laws, orders, rules and regulations or parts thereof inconsistent with any provision of this Act are
hereby repealed or modified accordingly.

Section 149. Separability Clause. - If any provision of this Act shall be held invalid, the remainder of this
Act not otherwise affected shall remain in full force effect

Section 150. Effectivity Clause. - This Act shall take effect fifteen (15) days after its complete publication
in the Official Gazette or in at least two (2) national newspaper of general circulation.

Approved,

nsolvency and the Philippines

In 2014, the World Bank reported the Philippines as one of the countries with the most improved
efficiency of insolvency proceedings for 2012–13, which was largely attributable to the passing of
Republic Act No 10142, or the Financial Rehabilitation and Insolvency Act of 2010 (FRIA).

In the World Bank’s 2020 Doing Business report, the Philippines ranked 65th among 190 countries under
the “Resolving Insolvency” category for addressing insolvency issues through judicial proceedings. It has
been reported that the Philippines scored 14 out of 16 on the strength of the insolvency framework,
indicating a strong legal framework.

Republic Act No 11232, or the Revised Corporation Code (RCC), which took effect in February 2019,
introduced the “one-person corporation”, or single-stockholder corporations. This new development
impacts, to a certain extent, the remedies of individual insolvent debtors in insolvency proceedings.
Although a corporation has a separate juridical personality from its stockholders, the necessary
consequence of recognising one-person corporations is effectively allowing an individual insolvent
debtor, with respect to its assets and liabilities used by the corporation, to file rehabilitation and
liquidation proceedings through the corporation. Under the FRIA, an individual may file a petition to be
declared in a state of suspension of payments, or undergo voluntary or involuntary liquidation, as
opposed to rehabilitation and liquidation of juridical debtors.

Recently, the Philippines passed Republic Act No 11840, amending the charter of the Philippine Deposit
Insurance Corporation (PDIC), which acts as the receiver of closed banks. As an exception to the secrecy
of bank deposits law, RA 11840 authorises the central banking authority and the PDIC to examine,
inquire and look into deposit records of banks when the bank fails to implement corrective actions on
capital deficiency, as declared by the Monetary Board (Republic Act No 11840, Section 10). The law also
expanded the powers of the PDIC as receiver of closed banks, authorising it to convert the assets of a
closed bank to cash or other forms of liquid assets by selling the same to a Financial Institution Strategic
Transfer Corporation (FISTC), which is a corporation authorised to acquire non-performing loans (NPLs)
and non-performing assets (NPAs) of banks and other financial institutions (Republic Act No 11840,
Section 11, and Republic Act No 11523, Section 5).     

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