[ BATAS PAMBANSA BLG. 22, April 03, 1979 ] SEC. 7. Effectivity.
SEC. 7. Effectivity.—This Act shall take effect fifteen days after publication in the Official Gazette
AN ACT PENALIZING THE MAKING OR DRAWING AND ISSUANCE OF A CHECK WITHOUT SUFFICIENT
FUNDS OR CREDIT AND FOR OTHER PURPOSES.
SECTION 1. Checks without sufficient funds.—Any person who makes or draws and issues any check to
apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or
credit with the drawee bank for the payment of such check in full upon its presentment, which check is
subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been
dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop
payment, shall be punished by imprisonment of not less than thirty days but not more than one (1) year
or by a fine of not less than but not more than double the amount of the check which fine shall in no
case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the discretion of the
court.
The same penalty shall be imposed upon any person who, having sufficient funds in or credit with the
drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to
maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days
from the date appearing thereon, for which reason it is dishonored by the drawee bank.
Where the check is drawn by a corporation, company or entity, the person or persons who actually
signed the check in behalf of such drawer shall be liable under this Act.
SEC. 2. Evidence of knowledge of insufficient funds.—The making, drawing and issuance of a check
payment of which is refused by the drawee because of insufficient funds in or credit with such bank,
when presented within ninety (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or drawer pays the holder thereof
the amount due thereon, or makes arrangements for payment in full by the drawee of such check within
five (5) banking days after receiving notice that such check has not been paid by the drawee.
SEC. 3. Duty of drawee; rules of evidence.—It shall be the duty of the drawee of any check, when
refusing to pay the same to the holder thereof upon presentment, to cause to be written, printed, or
stamped in plain language thereon, or attached thereto, the reason for drawee's dishonor or refusal to
pay the same: Provided, That where there are no sufficient funds in or credit with such drawee bank,
such fact shall always be explicitly stated in the notice of dishonor or refusal. In all prosecutions under
this Act, the introduction in evidence of any unpaid and dishonored check, having the drawee's refusal to
pay stamped or written thereon, or attached thereto, with the reason therefor as aforesaid, shall be
prima facie evidence of the making or issuance of said check, and the due presentment to the drawee for
payment and the dishonor thereof, and that the same was properly dishonored for the reason written,
stamped or attached by the drawee on such dishonored check.
Notwithstanding receipt of an order to stop payment, the drawee shall state in the notice that there
were no sufficient funds in or credit with such bank for the payment in full of such check, if such be the
fact.
SEC. 4. Credit construed.—The word "credit" as used herein shall be construed to mean an arrangement
or understanding with the bank for the payment of such check
SEC. 5. Liability under the Revised Penal Code.—Prosecution under this Act shall be without prejudice to
any liability for violation of any provision of the Revised Penal Code.
SEC. 6. Separability clause.—If any separable provision of this Act be declared unconstitutional, the
remaining provisions shall continue to be in force.
Law and Definition of Estafa by False Pretenses or Deceit
The crime of Estafa or Swindling is punishable under Article 315 of the Revised Penal Code (“RPC”) and
there are different forms of committing it. Estafa can be committed a) with unfaithfulness or abuse of
confidence; b) by means of false pretenses or fraudulent acts; and c) through fraudulent means.
The first form which is “with unfaithfulness or abuse of confidence” is known as estafa with abuse of
confidence, while the second form and third form, which are “by means of false pretenses or fraudulent
acts” and “through fraudulent means” are known simply as estafa by means of deceit.
In general, case laws enumerate the elements of Estafa by means of deceit, as follows:
1. that there must be a false pretense or fraudulent representation as to the offender’s power,
influence, qualifications, property, credit, agency, business or imaginary transactions;
2. that such false pretense or fraudulent representation was made or executed prior to or
simultaneously with the commission of the fraud;
3. that the offended party relied on the false pretense, fraudulent act, or fraudulent means and
was induced to part with his money or property; and
4. that, as a result thereof, the offended party suffered damage.
This article is focused on the discussion of estafa under Article 315, paragraph 2 (a) of the RPC, which is
covered by estafa by means of deceit. Accordingly, this crime of estafa is defined and penalized by Article
315, paragraph 2 (a) of the Revised Penal Code, to wit.:
“Article 315. Swindling (estafa). Any person who shall defraud another by any of the means mentioned
herein below shall be punished by:
x x xx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
(a) By using fictitious name, or falsely pretending to possess power, influence, qualifications, property,
credit, agency, business or imaginary transactions, or by means of other similar deceits.”
The elements of the said crime are as follows:
 There must be a false pretense, fraudulent acts or fraudulent means;
 Such false pretense, fraudulent act or fraudulent means must be made or executed prior to or
simultaneously with the commission of the fraud;
 The offended party must have relied on the false pretense, fraudulent act or fraudulent
means and was thus induced to part with his money or property; and
 As a result thereof, the offended party suffered damage.
In this particular crime, three ways are enumerated to commit such, and they are:
 By using fictitious name;
  By falsely pretending to possess power, influence, qualifications, property, credit, agency,
business or imaginary transactions
 by means of other similar deceits.”
SWINDLING AND OTHER DECEITS
Article 315. Swindling (estafa). - Any person who shall defraud another by any of the means mentioned
hereinbelow shall be punished by:
1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if
the amount of the fraud is over 12,000 pesos but does not exceed 22,000 pesos, and if such amount
exceeds the latter sum, the penalty provided in this paragraph shall be imposed in its maximum period,
adding one year for each additional 10,000 pesos; but the total penalty which may be imposed shall not
exceed twenty years. In such cases, and in connection with the accessory penalties which may be
imposed under the provisions of this Code, the penalty shall be termed prision mayor or reclusion
temporal, as the case may be.
2nd. The penalty of prision correccional in its minimum and medium periods, if the amount of the fraud
is over 6,000 pesos but does not exceed 12,000 pesos;
3rd. The penalty of arresto mayor in its maximum period to prision correccional in its minimum period if
such amount is over 200 pesos but does not exceed 6,000 pesos; and
4th. By arresto mayor in its maximum period, if such amount does not exceed 200 pesos, provided that
in the four cases mentioned, the fraud be committed by any of the following means:
1. With unfaithfulness or abuse of confidence, namely:
(a) By altering the substance, quantity, or quality or anything of value which the offender shall deliver by
virtue of an obligation to do so, even though such obligation be based on an immoral or illegal
consideration.
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other personal
property received by the offender in trust or on commission, or for administration, or under any other
obligation involving the duty to make delivery of or to return the same, even though such obligation be
totally or partially guaranteed by a bond; or by denying having received such money, goods, or other
property.
(c) By taking undue advantage of the signature of the offended party in blank, and by writing any
document above such signature in blank, to the prejudice of the offended party or of any third person.
2. By means of any of the following false pretenses or fraudulent acts executed prior to or
simultaneously with the commission of the fraud:
(a) By using fictitious name, or falsely pretending to possess power, influence, qualifications, property,
credit, agency, business or imaginary transactions, or by means of other similar deceits.
(b) By altering the quality, fineness or weight of anything pertaining to his art or business.
(c) By pretending to have bribed any Government employee, without prejudice to the action for calumny
which the offended party may deem proper to bring against the offender. In this case, the offender shall
be punished by the maximum period of the penalty.
(d) By post-dating a check, or issuing a check in payment of an obligation when the offender therein were
not sufficient to cover the amount of the check. The failure of the drawer of the check to deposit the
amount necessary to cover his check within three (3) days from receipt of notice from the bank and/or
the payee or holder that said check has been dishonored for lack of insufficiency of funds shall be prima
facie evidence of deceit constituting false pretense or fraudulent act. (As amended by R.A. 4885,
approved June 17, 1967.)
(e) By obtaining any food, refreshment or accommodation at a hotel, inn, restaurant, boarding house,
lodging house, or apartment house and the like without paying therefor, with intent to defraud the
proprietor or manager thereof, or by obtaining credit at hotel, inn, restaurant, boarding house, lodging
house, or apartment house by the use of any false pretense, or by abandoning or surreptitiously
removing any part of his baggage from a hotel, inn, restaurant, boarding house, lodging house or
apartment house after obtaining credit, food, refreshment or accommodation therein without paying for
his food, refreshment or accommodation.
3. Through any of the following fraudulent means:
(a) By inducing another, by means of deceit, to sign any document.
(b) By resorting to some fraudulent practice to insure success in a gambling game.
(c) By removing, concealing or destroying, in whole or in part, any court record, office files, document or
any other papers.
Article 316. Other forms of swindling. - The penalty of arresto mayor in its minimum and medium period
and a fine of not less than the value of the damage caused and not more than three times such value,
shall be imposed upon:
1. Any person who, pretending to be owner of any real property, shall convey, sell, encumber or
mortgage the same.
2. Any person, who, knowing that real property is encumbered, shall dispose of the same, although such
encumbrance be not recorded.
3. The owner of any personal property who shall wrongfully take it from its lawful possessor, to the
prejudice of the latter or any third person.
4. Any person who, to the prejudice of another, shall execute any fictitious contract.
5. Any person who shall accept any compensation given him under the belief that it was in payment of
services rendered or labor performed by him, when in fact he did not actually perform such services or
labor.
6. Any person who, while being a surety in a bond given in a criminal or civil action, without express
authority from the court or before the cancellation of his bond or before being relieved from the
obligation contracted by him, shall sell, mortgage, or, in any other manner, encumber the real property
or properties with which he guaranteed the fulfillment of such obligation.
Article 317. Swindling a minor. - Any person who taking advantage of the inexperience or emotions or
feelings of a minor, to his detriment, shall induce him to assume any obligation or to give any release or
execute a transfer of any property right in consideration of some loan of money, credit or other personal
property, whether the loan clearly appears in the document or is shown in any other form, shall suffer
the penalty of arresto mayor and a fine of a sum ranging from 10 to 50 per cent of the value of the
obligation contracted by the minor.
Article 318. Other deceits. - The penalty of arresto mayor and a fine of not less than the amount of the
damage caused and not more than twice such amount shall be imposed upon any person who shall
defraud or damage another by any other deceit not mentioned in the preceding articles of this chapter.
Any person who, for profit or gain, shall interpret dreams, make forecasts, tell fortunes, or take
advantage of the credulity of the public in any other similar manner, shall suffer the penalty of arresto
mayor or a fine not exceeding 200 pesos.
DOUBLE JEOPARDY
Contrary to the misconception, the prohibition on double jeopardy is not absolute. In this article, I will
discuss the exceptions thereto.
But first, what is this rule against double jeopardy? Why is it important?
As defined by jurisprudence, it simply means that a person cannot be charged with a same or identical
crime when such person was already previously convicted or acquitted of a similar crime (See Carmelo vs
People, GR L-3580, 22 March 1950, En Banc). The rule against double jeopardy is constitutionally-
protected as it is enshrined in Article III, Section 21 of the Fundamental Law.
Notwithstanding, the rule against double jeopardy is not without exceptions, both as to a previous
conviction or acquittal.
First, as to conviction. Rule 117, Section 7 of the Rules of Court expressly provides three instances
wherein an accused may still be subsequently charged with an offense “which necessarily includes the
offense charged in the former complaint” despite a previous conviction. This is commonly called as the
Doctrine of Supervening Event:
(a) The graver offense developed due to supervening facts arising from the same act or omission
constituting the former charge;
(b) The facts constituting the graver charge became known or were discovered only after a plea was
entered in the former complaint or information; or
(c) The plea of guilty to the lesser offense was made without the consent of the prosecutor and of the
offended party except as provided in section 1(f) of Rule 116.
Second, as to acquittal. As a rule, once an accused is acquitted, the prosecution may no longer file an
appeal on account of double jeopardy (See Villareal vs Aliga, GR 166995, 13 January 2014).
Nevertheless, (1) where there has been deprivation of due process, (2) where there is a finding of a
mistrial, or (3) where there has been a grave abuse of discretion, the rule against double jeopardy does
NOT apply (People vs Alejandro, GR 223099, 11 January 2018). The aggrieved party may file a petition for
certiorari to assail the wrongful acquittal of an accused on the ground of grave abuse of discretion
Definition Of Double Jeopardy
Sec. 7. Former conviction or acquittal; double jeopardy. – When an accused has been convicted or
acquitted, or the case against him dismissed or otherwise terminated without his express consent by
a court of competent jurisdiction, upon a valid complaint or information or other formal charge
sufficient in form and substance to sustain a conviction and after the accused had pleaded to the
charge, the conviction or acquittal of the accused or the dismissal of the case shall be a bar to
another prosecution for the offense charged, or for any attempt to commit the same or
frustration thereof, or for any offense which necessarily includes or is necessarily included in the
offense charged in the former complaint or information.
However, the conviction of the accused shall not be a bar to another prosecution for an offense
which necessarily includes the offense charged in the former complaint or information under any of the
following instances:
(a) the graver offense developed due to supervening facts arising from the same act or omission
constituting the former charge;
(b) the facts constituting the graver charge became known or were discovered only after a plea was
entered in the former complaint or information; or
(c) the plea of guilty to the lesser offense was made without the consent of the prosecutor and
of the offended party except as provided in section 1(f) of Rule 116.
In any of the foregoing cases, where the accused satisfies or serves in whole or in part the
judgment, he shall be credited with the same in the event of conviction for the graver offense.
WHAT IS JEOPARDY AND WHAT IS THE RULE ON DOUBLE JEOPARDY?
> Jeopardy is the peril in which a person is placed when he is regularly charged with a
crime before a tribunal properly organized and competent to try him
> The rule on double jeopardy means that when a person is charged with an offense and the case is
terminate either by conviction or acquittal, or in any other manner without the consent of the
accused, the latter cannot again be charged with the same or identical offense
WHAT ARE THE 2 KINDS OF JEOPARDY?
1. That no person shall be put twice in jeopardy for the same offense
2. If an act is punished by a law and an ordinance, conviction or acquittal under either shall
constitute a bar to another prosecution for the same act
WHAT ARE THE REQUISITES FOR THE ACCUSED TO RAISE THE DEFENSE OF DOUBLE JEOPARDY?
1. A first jeopardy must have validly attached prior to the second
2. The first jeopardy must have been validly terminated
3. The second jeopardy must be for the same offense or the second offense includes or is necessarily
included in the offense charged in the first information or is an attempt to commit the offense or a
frustration thereof
WHAT ARE THE REQUISITES FOR THE FIRST JEOPARDY TO ATTACH?
1. There is a valid complaint or information
2. Court of competent jurisdiction
3. Arraignment
4. Plea
5. The defendant is acquitted, convicted, or the case was dismissed or terminated without his express
consent
N.B: The judgment should not only be final and executory but also be promulgated before there
could be a valid jeopardy.
IS THERE AN EXCEPTION TO THE FOREGOING RULE?
> There are two exceptions to the foregoing rule, and double jeopardy may attach even if the
dismissal of the case was with the consent of the accused—
1. If there is insufficiency of evidence to support the charge against him, and
2. Where there has been an unreasonable delay in the proceedings, in violation of the accused’s
right to speedy trial
[REPUBLIC ACT NO. 10642-LEMON LAW]
Begun and held in Metro Manila, on Monday, the twenty-second day of July, two thousand thirteen.
AN ACT STRENGTHENING CONSUMER PROTECTION IN THE PURCHASE OF BRAND NEW MOTOR VEHICLES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
SECTION 1. Short Title. – This Act shall be known as the “Philippine Lemon Law”.
SEC. 2. Declaration of Policy. – It is hereby declared the policy of the State to promote full protection to
the rights of consumers in the sale of motor vehicles against business and trade practices which are
deceptive, unfair or otherwise inimical to consumers and the public interest.
The State recognizes that a motor vehicle is a major consumer purchase or investment. Hence, the rights
of consumers should be clearly defined, including the means for redress for violations thereof.
SEC. 3. Definition of Terms. – As used in this Act:
(a) Brand new motor vehicle refers to a vehicle constructed entirely from new parts and covered by a
manufacturer’s express warranty at the time of purchase that it has never been sold or registered with
the Department of Transportation and Communications (DOTC) or an appropriate agency or authority,
and has never been operated on any highway of the Philippines, or in any foreign state or country;
(b) Collateral charges refer to the fees paid’ to the Land Transportation Office (LTO) for the registration
of a brand new motor vehicle and other incidental expenses such as, but not limited to, the cost of
insurance pertaining to the vehicle, chattel mortgage fees and interest expenses if applicable;
(c) Comparable motor vehicle refers to a motor vehicle that is identical or reasonably equivalent to the
motor vehicle to be replaced, in terms of specifications and values, subject to availability, as the motor
vehicle existed at the time of purchase: Provided, That there shall be an offsetting from this value for
reasonable allowance for its use;
(d) Consumer refers to any person, natural or juridical, who purchases a brand new motor vehicle either
by cash or credit from an authorized distributor, dealer or retailer in the Philippines;
(e) Dealer or retailer refers to any person, natural or juridical, authorized by the manufacturer or
distributor to sell brand new motor vehicles directly to the retail buyers and the public;
(f) Distributor refers to any person, natural or juridical, authorized by the manufacturer to sell brand new
motor vehicles to duly authorized dealers or retailers;
(g) Implementing agency refers to the Department of Trade and Industry (DTI), reorganized under Title
X, Book IV of Executive Order No. 292, series of 1987, otherwise known as the “Administrative Code of
1987”;
(h) Lemon Law rights period refers to the period ending twelve (12) months after the date of the original
delivery of a brand new motor vehicle to a consumer or the first twenty thousand (20,000) kilometers of
operation after such delivery, whichever comes first. This shall be the period during which the consumer
can report any nonconformity, as defined in paragraph (k) herein, to the standards and specifications of
the manufacturer, authorized distributor, authorized dealer or retailer, and pursue any right as provided
for under this Act;
(i) Manufacturer refers to any person, natural or juridical, engaged in the business of manufacturing or
assembling motor vehicles;
(j) Motor vehicle refers to any self-propelled, four (4) wheeled road vehicle designed to carry passengers
including, but not limited to, sedans, coupes, station wagons, convertibles, pick-ups, vans, sports utility
vehicles (SUVs) and Asian Utility Vehicles (AUVs) but excluding motorcycles, delivery trucks, dump trucks,
buses, road rollers, trolley cars, street sweepers, sprinklers, lawn mowers and heavy equipment such as,
but not limited to, bulldozers, payloaders, graders, forklifts, amphibian trucks, cranes, and vehicles which
run only on rails or tracks, and tractors, trailers and traction engines of all kinds used exclusively for
agricultural purposes. Trailers having any number of wheels, when propelled or intended by attachment
to a motor vehicle, shall be classified as separate motor vehicle with no power rating;
(k) Nonconformity refers to any defect or condition that substantially impairs the use, value or safety of
a brand new motor vehicle which prevents it from conforming to the manufacturer’s or distributor’s
standards or specifications, which cannot be repaired, but excluding conditions resulting from
noncompliance by the consumer of his or her obligations under the warranty, modifications not
authorized by the manufacturer or distributor, abuse or neglect, and damage due to accident or force
majeure;
(l) Purchase price refers to the invoice price or the amount of money which the dealer or retailer actually
received for the brand new motor vehicle, in consideration of the sale of such brand new motor vehicle;
(m) Warranty refers to the written assurance, so labeled, of the manufacturer of a brand new motor
vehicle including any term or condition precedent to the enforcement of obligations under the warranty;
and
(n) Warranty rights period refers to the period provided for under the contract of sale when the
manufacturer would guarantee the materials used, the workmanship and the roadworthiness of a brand
new motor vehicle for ordinary use or reasonable intended purposes.
SEC. 4. Coverage. – This Act shall cover brand new motor vehicles purchased in the Philippines reported
by a consumer to be in nonconformity with the vehicle’s manufacturer or distributor’s standards or
specifications within twelve (12) months from the date of .original delivery to the consumer, or up to
twenty thousand (20,000) kilometers of operation after such delivery, whichever comes first. The
following causes of nonconformity shall be excluded:
(a) Noncompliance by the consumer of the obligations under the warranty;
(b) Modifications not authorized by the manufacturer, distributor, authorized dealer or retailer;
(c) Abuse or neglect of the brand new motor vehicle; and
(d) Damage to the vehicle due to accident or force majeure.
SEC. 5. Repair Attempts. – At any time within the Lemon Law rights period, and after at least four (4)
separate repair attempts by the same manufacturer, distributor, authorized dealer or retailer for the
same complaint, and the nonconformity issue remains unresolved, the consumer may invoke his or her
rights under this Act.
The repair may include replacement of parts components, or assemblies.
SEC. 6. Notice of Availment of Lemon Law Rights. – Before availing of any remedy under this Act and
subject to compliance with the provisions of Section 5 hereof, the consumer shall, in writing, notify the
manufacturer, distributor, authorized dealer or retailer of the unresolved complaint, and the consumer’s
intention to invoke his or her rights under this Act within the Lemon Law rights period.
The warranty booklet issued by the manufacturer, distributor, authorized dealer or retailer shall clearly
state the manner and form of such notice to constitute a valid and legal notice to the manufacturer,
distributor, authorized dealer or retailer. It shall also clearly state the responsibility of the consumer
under this section.
SEC. 7. Availment of Lemon Law Rights. – Subsequent to filing the notice of availment referred to in the
preceding section, the consumer shall bring the vehicle to the manufacturer, distributor, authorized
dealer or retailer from where the vehicle was purchased for a final attempt to address the complaint of
the consumer to his or her satisfaction.
It shall be the duty of the manufacturer, distributor, authorized dealer or retailer, upon receipt of the
motor vehicle and the notice of nonconformity required under Section 6 hereof, to attend to the
complaints of the consumer including, as may be necessary, making the repairs and undertaking such
actions to make the vehicle conform to the standards or specifications of the manufacturer, distributor,
authorized dealer or retailer for such vehicle.
In case the nonconformity issue remains unresolved despite the manufacturer, distributor, authorized
dealer or retailer’s efforts to repair the vehicle, pursuant to the consumer’s availment of his or her
Lemon Law rights, the consumer may file a complaint before the DTI as provided for under this Act:
Provided, however, That if the vehicle is not returned for repair, based on the same complaint, within
thirty (30) calendar days from the date of notice of release of the motor vehicle to the consumer
following this repair attempt within the Lemon Law rights period, the repair is deemedsuccessful:
Provided, finally, That, in the event that the nonconformity issue still exists or persists after the thirty
(30)-day period but still within the Lemon Law rights period, the consumer may be allowed to avail of the
same remedies under Sections 5 and 6 hereof.
To compensate for the non-usage of the vehicle while under repair and during the period of availment of
the Lemon Law rights, the consumer shall be provided a reasonable daily transportation allowance, an
amount which covers the transportation of the consumer from his or her residence to his or her regular
workplace or destination and vice versa, equivalent to air-conditioned taxi fare, as evidenced by official
receipt, or in such amount to be agreed upon by the parties, or a service vehicle at the option of the
manufacturer, distributor, authorized dealer or retailer. Any disagreement on this matter shall be
resolved by the DTI.
Nothing herein shall be construed to limit or impair the rights and remedies of a consumer under any
other law.
SEC. 8. Remedies for Dispute Resolution. – The DTI shall exercise exclusive and original jurisdiction over
disputes arising from the provisions of this Act. All disputes arising from the provisions of this Act shall be
settled by the DTI in accordance with the following dispute resolution mechanisms:
(a) Mediation
(1) The principles of negotiation, conciliation and mediation towards amicable settlement between the
manufacturer, distributor, authorized dealer or retailer and the consumer shall be strictly observed;
(2) In the course of its dispute resolution efforts, the DTI shall endeavor to independently establish the
validity of the consumer’s outstanding complaint. The DTI shall likewise retain the services of other
government agencies or qualified independent private entities in the ascertainment of the validity of the
consumer’s complaint. Any cost incurred in establishing the validity of the consumer’s complaint shall be
borne jointly by the consumer and the manufacturer, distributor, authorized dealer or retailer;
(3) The complaint shall be deemed valid if it is independently established that the motor vehicle does not
conform to the standards or specifications set by the manufacturer, distributor, authorized dealer or
retailer;
(4) Upon failure of the negotiation or mediation between the manufacturer, distributor, authorized,
dealer or retailer and the consumer, the parties shall execute a certificate attesting to such failure; and
(5) At any time during the dispute resolution period, the manufacturer, distributor, authorized dealer or
retailer and the consumer shall be encouraged to settle amicably. All disputes that have been submitted
for mediation shall be settled not later than ten (10) working days from the date of filing of the
complaint with the DTI.
(b) Arbitration
In the event there is a failure to settle the complaint during the mediation proceedings, both parties may
voluntarily decide to undertake arbitration proceedings.
(c) Adjudication
(1) In the event that both parties do not undertake arbitration proceedings, at least one of the parties
may commence adjudication proceedings, administered by the DTI. The DTI shall rely on the qualified
independent findings as to conformity to standards and specifications established herein. In no case shall
adjudication proceedings exceed twenty (20) working days;
(2) In case a finding of nonconformity is arrived at, the DTI shall rule in favor of the consumer and direct
the manufacturer, distributor, authorized dealer or retailer to grant either of the following remedies to
the consumer:
(i) Replace the motor vehicle with a similar or comparable motor vehicle in terms of specifications and
values, subject to availability; or
(ii) Accept the return of the motor vehicle and pay the consumer the purchase price plus the collateral
charges.
In case the consumer decides to purchase another vehicle with a higher value and specifications from
the same manufacturer, distributor, authorized dealer or retailer, the consumer shall pay the difference
in cost.
In both cases of replacement and repurchase, the reasonable allowance for use, as defined in this Act,
shall be deducted in determining the value of the nonconforming motor vehicle; and
(3) In case a nonconformity of the motor vehicle is not found by the DTI, it shall rule in favor of the
manufacturer, distributor, .authorized dealer or retailer, and direct the consumer to reimburse the
manufacturer, distributor, authorized dealer or retailer the costs incurred by the latter in validating the
consumer’s complaints.
An appeal may be taken from a final judgment or order of the Adjudication Officer which completely
disposes of the case within fifteen (15) days from receipt thereof. The appeal shall be taken by filing a
Memorandum of Appeal with the Secretary of the DTI, with Notice of Appeal to the Adjudication Officer,
and with a copy duly furnished the adverse party or parties on any of the following grounds:
(i) Grave abuse of discretion; Approved: JUL 15 2014

(ii) The decision/order is in excess of jurisdiction or authority of the Adjudication Officer; and REPUBLIC ACT NO. 7394

(iii) The decision/order is not supported by the evidence or there is serious error in the findings of facts. THE CONSUMER ACT OF THE PHILIPPINES

The Secretary of the DTI shall decide on the appeal within thirty (30) days from receipt thereof. A party TITLE I
seeking further appeal from the decision of the Secretary of the DTI may file a case for certiorari to the
Court of Appeals under Section 4, Rule 65 of the Revised Rules of Court. General Provisions

SEC. 9. Determination of Reasonable Allowance for Use. – For purposes of this Act, “reasonable ARTICLE 1. Short Title. — This Act shall be known as the “Consumer Act of the Philippines.”
allowance for use” shall mean twenty percent (20%) per annum deduction from the purchase price, or
ARTICLE 2. Declaration of Basic Policy. — It is the policy of the State to protect the interests of the
the product of the distance traveled in kilometers and the purchase price divided by one hundred
consumer, promote his general welfare and to establish standards of conduct for business and industry.
thousand (100,000) kilometers, whichever is lower.
Towards this end, the State shall implement measures to achieve the following objectives:
SEC. 10. Disclosure on Resale. – Should the returned motor vehicle be made available for resale, the
a) protection against hazards to health and safety;
manufacturer, distributor, authorized dealer or retailer shall, prior to sale or transfer, disclose in writing
to the next purchaser of the same vehicle the following information: b) protection against deceptive, unfair and unconscionable sales acts and practices;
(a) The motor vehicle was returned to the manufacturer, distributor, authorized dealer or retailer; c) provision of information and education to facilitate sound choice and the proper exercise of
rights by the consumer;
(b) The nature of the nonconformity which caused the return; and
d) provision of adequate rights and means of redress; and
(c) The condition of the motor vehicle at the time of the transfer to the manufacturer, distributor,
authorized dealer or retailer. e) involvement of consumer representatives in the formulation of social and economic policies.
The responsibility of the manufacturer, distributor, authorized dealer or retailer under this section shall ARTICLE 3. Construction. — The best interest of the consumer shall be considered in the
cease upon the sale of the affected motor vehicle to the first purchaser. interpretation and implementation of the provisions of this Act, including its implementing rules and
regulations.
SEC. 11. Penalty. – The manufacturer, distributor, authorized dealer or retailer adjudged to have violated
the provisions requiring disclosure as mentioned in the preceding section shall be liable to pay a (read definition of terms)
minimum amount of One hundred thousand pesos (P100,000.00) as damages to the aggrieved party
without prejudice to any civil or criminal liability they and/or the responsible officer may incur under TITLE II
existing laws.
CHAPTER I
SEC. 12. Assistance by Other Agencies. – The DOTC and other agencies, political subdivisions, local
government units, including government-owned and/or controlled corporations, shall render such Consumer Product Quality and Safety
assistance as required by the DTI in order to effectively implement the provisions of this Act.
ARTICLE 5. Declaration of Policy. — It shall be the duty of the State:
SEC. 13. Implementing Rules and Regulations. – The DTI shall promulgate the necessary implementing
a) to develop and provide safety and quality standards for consumer products, including
rules and regulations within, ninety (90) days from the effectivity of this Act.
performance or use-oriented standards, codes of practice and methods of tests;
SEC. 14. Separability Clause. – If, for any reason, any part or provision of this Act is declared invalid, such
b) to assist the consumer in evaluating the quality, including safety, performance and
declaration shall not affect the other provisions of this Act.
comparative utility of consumer products;
SEC. 15. Repealing Clause. – All laws, decrees, executive orders, issuances, rules and regulations or parts
c) to protect the public against unreasonable risks of injury associated with consumer products;
thereof which are inconsistent with the provisions of this Act are hereby deemed repealed, amended or
modified accordingly. d) to undertake research on quality improvement of products and investigation into causes and
prevention of product related deaths, illness and injuries;
SEC. 16. Effectivity. – This Act shall take effect fifteen (15) days after its publication in the Official Gazette
or in any newspaper of .general circulation. e) to assure the public of the consistency of standardized products.
This Act which is a consolidation of Senate Bill No. 2211 and House Bill No. 4082 was finally passed by the ARTICLE 6. Implementing Agencies. — The provisions of this Article and its implementing rules
Senate and the House of Representatives on June 11, 2014 and June 10, 2014, respectively. and regulations shall be enforced by:
a) the Department of Health with respect to food, drugs, cosmetics, devices and substances;
b) the Department of Agriculture with respect to products related to agriculture, and;
c) the Department of Trade and Industry with respect to other consumer products not specified
above.
ARTICLE 7. Promulgation and Adoption of Consumer Product Standards . — The concerned
department shall establish consumer product quality and safety standards which shall consist of one or
more of the following:
a) requirements as to performance, composition, contents, design, construction, finish, packaging
of a consumer product;
b) requirements as to kind, class, grade, dimensions, weights, material;
c) requirements as to the methods of sampling, tests and codes used to check the quality of the
product;
d) requirements as to precautions in storage, transporting and packaging;
e) requirements that a consumer product be marked with or accompanied by clear and adequate
safety warnings or instructions, or requirements respecting the form of warnings or instructions.
For this purpose, the concerned department shall adopt existing government domestic product quality
and safety standards: Provided, That in the absence of such standards, the concerned department shall
form specialized technical committees composed of equal number of representatives from each of the
Government, business and consumer sectors to formulate, develop and purpose consumer product
quality and safety standards. The said technical committees shall consult with the private sector, which
may, motu proprio, develop its own quality and safety standards that shall be subject to review and
approval of the concerned government agency or agencies after public hearings have been conducted
for that purpose; and shall likewise consider existing international standards recognized by the Philippine
Government.
ARTICLE 15. Imported Products. — a) Any consumer product offered for importation into the
customs of the Philippine territory shall be refused admission if such product:
1) fails to comply with an applicable consumer product quality and safety standard or rule;
2) is or has been determined to be injurious, unsafe and dangerous;
3) is substandard; or
4) has material defect.
b) Samples of consumer products being imported into the Philippines in a quantity necessary for
purposes of determining the existence of any of the above causes for non-admission may be obtained by
the concerned department or agency without charge from the owner or consignee thereof. The owner
or consignee of the imported consumer product under examination shall be afforded an opportunity to a
hearing with respect to the importation of such products into the Philippines. If it appears from
examination of such samples or otherwise that an imported consumer product does not conform to the
consumer product safety rule or its injurious, unsafe and dangerous, is substandard or has a material
defect, such product shall be refused admission unless the owner or the consignee thereof manifests
under bond that none of the above ground for non-admission exists or that measures have been taken
to cure them before they are sold, distributed or offered for sale to the general public.
Any consumer product, the sale or use of which has been banned or withdrawn in the country of
manufacture, shall not be imported into the country.
c) If it appears that any consumer product which may not be admitted pursuant to paragraph (a)
of this Article can be so modified that it can already be accepted, the concerned department may defer
final determination as to the admission of such product for a period not exceeding ten (10) days, and in
accordance with such regulations as the department and the Commissioner of Customs shall jointly
promulgate, such product may be released from customs custody under bond for the purpose of
permitting the owner or consignee an opportunity to so modify such product.
d) All modifications taken by an owner or consignee for the purpose of securing admission of an
imported consumer product under paragraph (c) shall be subject to the supervision of the concerned
department. If the product cannot be so modified, or if the owner or consignee is not proceeding to
satisfactorily modify such product, it shall be refused admission and the department may direct
redelivery of the product into customs custody, and to seize the product if not so redelivered.
e) Imported consumer products not admitted must be exported, except that upon application,
the Commissioner of Customs may permit the destruction of the product if, within a reasonable time,
the owner or consignee thereof fails to export the same.
f) All expenses in connection with the destruction provided for in this Article, and all expenses in
connection with the storage, cartage or labor with respect to any consumer product refused admission
under this Article, shall be paid by the owner or consignee and, in default of such payment, shall
constitute a lien against any future importation made by such owner or consignee.
Prohibited Acts Penalties
ARTICLE 18. Prohibited Acts. — It shall be unlawful for any person to:
a) manufacture for sale, offer for sale, distribute in commerce, or import into the Philippines any
consumer product which is not in conformity with an applicable consumer product quality or safety
standard promulgated in this Act;
b) manufacture for sale, offer for sale, distribute in commerce, or import into the Philippines any
consumer product which has been declared as banned consumer product by a rule in this Act;
c) refuse access to or copying of pertinent records or fail or refuse to permit entry of or inspection
by authorized officers or employees of the department;
d) fail to comply with an order issued under Article 11 relating to notifications of substantial
product hazards and to recall, repair, replacement or refund of unsafe products;
e) fail to comply with the rule prohibiting stockpiling.
ARTICLE 19. Penalties. — a) Any person who shall violate any provision of Article 18 shall upon
conviction, be subject to a fine of not less than One thousand pesos (P1,000.00) but not more than Ten
thousand pesos (P10,000.00) or imprisonment of not less than two (2) months but not more than one (1)
year, or both upon the discretion of the court. If the offender is an alien, he shall be deported after
service of sentence and payment of fine without further deportation proceedings.
b) In case the offender is a naturalized citizen, he shall, in addition to the penalty prescribed
herein, suffer the penalty of cancellation of his naturalization certificate and its registration in the civil
register and immediate deportation after service of sentence and payment of fine.
c) Any director, officer or agent of a corporation who shall authorize, order or perform any of the
acts or practices constituting in whole or in part a violation of Article 18, and who has knowledge or
notice of noncompliance received by the corporation from the concerned department, shall be subject
to penalties to which that corporation may be subject.
In case the violation is committed by, or in the interest of a foreign juridical person duly licensed to
engage in business in the Philippines, such license to engage in business in the Philippines shall
immediately be revoked.
CHAPTER II
Food, Drugs, Cosmetics and Devices
ARTICLE 20. Declaration of Policy. — The State shall ensure safe and good quality of food, drugs,
cosmetics and devices, and regulate their production, sale, distribution and advertisement to protect the
health of the consumer.
ARTICLE 21. Implementing Agency. — In the implementation of the foregoing policy, the State,
through the Department of Health, hereby referred as the Department, shall, in accordance with the
provisions of this Act:
a) establish standards and quality measures for foods, drugs, devices and cosmetics;
b) adopt measures to ensure pure and safe supply of foods and cosmetics, and safe, efficacious
and good quality of drugs and devices in the Country;
c) adopt measures to ensure the rational use of drugs and devices, such as, but not limited to,
banning, recalling or withdrawing from the market drugs and devices which are unregistered, unsafe,
inefficacious or of doubtful therapeutic value, the adoption of an official National Drug Formulary, and
the use of generic names in the labeling of drugs;
d) strengthen the Bureau of Food and Drugs.
ARTICLE 22. Rules and Regulations on Definitions and Standards. — Whenever in the judgment of
the Department such action will promote honesty and fair dealing in the interest of consumers, it shall
promulgate rules and regulations fixing and establishing a reasonable definition and standard of identity,
a reasonable standard of quality and/or reasonable standard of fill of containers for food, drugs,
cosmetics or devices.
ARTICLE 23. Adulterated Food. — A food shall be deemed to be adulterated:
a)1) if it bears or contains any poisonous or deleterious substance which may render it injurious to
health; but in case the substance is not an added substance, such food shall not be considered
adulterated under this clause if the quantity of such substance does not ordinarily render it injurious to
health;
2) if it bears or contains any added poisonous or deleterious substance other than one which is (i)
a pesticide chemical in or on a raw agricultural commodity, (ii) a food additive, (iii) a color additive, for
which tolerances have been established and it conforms to such tolerances;
3) if it consists in whole or in part of any filthy, putrid or decomposed substance, or if it is
otherwise unfit for food;
4) if it has been prepared, packed or held under unsanitary conditions whereby it may have
become contaminated with filth, or whereby, it may have been rendered injurious to health;
5) if it is, in whole or part, the product of a diseased animal or of an animal which has died other
than by slaughter;
6) if its container is composed, in whole or in part, of any poisonous or deleterious substance
which may render the contents injurious to health; or
7) if it has passed its expiry date.
b)1) If any valuable constituent has been, in whole or in part, omitted or abstracted therefrom and
the same has not been substituted by any healthful equivalent of such constituent;
2) if any substance, not a valuable constituent, has been added or substituted or in part therefor;
3) if damage or inferiority has been concealed in any manner; or
4) if any substance has been added thereto or packed therewith so as to increase its bulk or
weight, reduce its quality or strength, or make it appear better or of greater value than it is.
c) if it is, or bears or contains a color additive which is unsafe under existing regulations: Provided,
That the Department shall promulgate regulations providing for the listing of color additives which are
harmless and suitable for use in food for which tolerances have been established;
d) if it is confectionary, and it bears or contains any alcohol or non-nutritive article or substance
except harmless coloring, harmless flavoring, harmless resinous glass not in excess of four-tenths (4/10)
of one per centum (1%) natural gum and pectin: Provided, That this clause shall not apply to a safe non-
nutritive article or substance if, in the judgment of the Department as provided by regulations, (1) such
article or substance is of practical functional value in the manufacture, packaging or storage of such
confectionery, (2) if the use of the substance does not promote deception of the consumer or otherwise
results in adulteration or mislabeling in violation of any provision of this Act, and (3) would not render
the product injurious or hazardous to health: Provided, further, That this paragraph shall not apply to
any confectionery by reason of its containing less than one-half (1/2) of one per centum (1%) by volume
of alcohol, derived solely from the use of flavoring extracts, or to any chewing gum by reason of its
containing harmless non-nutritive masticatory substance: Provided, finally, That the Department may,
for the purposes of avoiding or resolving uncertainty as to the application of this clause, promulgate
regulations allowing or prohibiting the use of particular non-nutritive substances;
e) if it is oleomargarine, margarine or butter and any of the raw materials used therein consists in
whole or in part of any filthy, putrid or decomposed substance, or such oleomargarine, margarine or
butter is otherwise unfit for food;
f) if it has not been prepared in accordance with current acceptable manufacturing practice
established by the Department through regulations.
Drugs and Devices
ARTICLE 29. Adulterated Drugs and Devices. — A drug or device shall be deemed to be adulterated:
a)1) if it contains in whole or in part of any filthy, putrid, or decomposed substance which may affect
its safety, efficacy or good quality; or (2) if it has been manufactured, prepared or held under unsanitary
conditions whereby it may have been contaminated with dirt or filth or whereby it may have been
rendered injurious to health; or (3) if its container is composed, in whole or in part, of any poisonous or
deleterious substance which may render the contents injurious to health; or (4) if it bears or contains any
color other than a permissible one as determined by the Department, taking into consideration
standards of safety, efficacy or good quality.
b) If it purports to be or is represented as a drug, the name of which is recognized in an official
compendium, and its strength differs from, or its safety, efficacy, quality or purity falls below the
standards set forth in such compendium, except that whenever tests or methods of assay as prescribed
are, in the judgment of the Department, insufficient for the making of such determination, the
Department shall promulgate regulations prescribing appropriate tests or methods of assay in
accordance with which such determination as to strength, safety, efficacy, quality or purity shall be
made. No drug defined in an official compendium shall be deemed to be adulterated under this
paragraph because it differs from the standards of strength, safety, efficacy, quality or purity therefor set
forth in such compendium, if its difference in strength, safety, efficacy, quality or purity from such
standards is plainly stated in its label and approved for registration as such.
c) If it is not subject to the provisions of paragraph (b) and its strength differs from, or its efficacy,
quality or purity falls below, that which it purports or is represented to possess.
d) If a drug or device and any substance has been mixed or packed therewith, or any substance
has been substituted wholly or in part thereof, so as to reduce its safety, efficacy, quality, strength or
purity.
e) If the methods used in, or the facilities or controls used for its manufacture or holding do not
conform to or are not operated or administered in conformity with current good manufacturing practice
to assure that such drug meets the requirements of this Act as to safety, quality and efficacy, and has the
identity and strength, and meets the quality and purity characteristics which it purports or is represented
to possess.
ARTICLE 30. Exemption in Case of Drugs and Devices. — a) The Department is hereby directed to
promulgate regulations exempting from any labeling or packaging requirement of this Act drugs and
devices which are, in accordance with the practice of the trade, to be processed, labeled or repacked in
substantial quantities at establishments other than those where originally processed or packed, on
condition that such drugs and devices are not adulterated or mislabeled under the provisions of this Act
upon removal from such processing, labeling or repacking establishment.
b)1) Drugs intended for use by man which:
(i) are habit-forming;
(ii) because of their toxicity or other potentiality for harmful effect, or method of their use is not
safe for use except under the supervision of practitioner licensed by law to administer such drug;
(iii) are new drugs whose applications are limited to investigational use; shall be dispensed only (a)
upon written prescription of a practitioner licensed by law to administer such drug, or (b) upon an oral
prescription of such practitioner which is reduced promptly to writing and filed by the pharmacist, or (c)
by refilling any such written or oral prescription if such refilling is authorized by the prescriber either in
the original prescription or by oral order which is reduced promptly to writing and filed by the
pharmacist. The act of dispensing a drug contrary to the provisions of this paragraph shall be deemed to
be an act which results in the drug being mislabeled while held for sale.
2) Any drug dispensed by filling or refilling a written prescription of a practitioner licensed by law
to administer such drug shall be exempt from the requirements of Article 89, except paragraphs (a), (h),
(2) and (3), and the packaging requirements of paragraphs (f) and (g), if the drug bears a label containing
the name and address of the dispenser, the serial number and date of the prescription or its filling, the
name of the prescriber and, if stated in the prescription the name of the patient and the directions for
use and cautionary statements, if any, contained in such prescription.
3) The Department may, by regulation, remove drugs subject to Article 89(d) and Article 31 from
the requirements of sub-article (b)(1) of this Article, when such requirements are not necessary for the
protection of the public health.
4) A drug which is subject to sub-article (b)(1) of this Article shall be deemed to be mislabeled if at
any time prior to dispensing, its label fails to bear the statement “Caution: Should not be dispensed
without prescription.” A drug to which sub-article (b)(1) of this Article does not apply shall de deemed to
be mislabeled if at any time prior to dispensing, its label bears the caution statement quoted in the
preceding sentence.
ARTICLE 31. Licensing and Registration. — a) No person shall manufacture, sell, offer for sale,
import, export, distribute or transfer any drug or device, unless an application filed pursuant to sub-
article (b) hereof is effective with respect to such drug or device.
b) Any person may file with the Department, through the Department, an application under oath
with respect to any drug or device subject to the provisions of sub-article (a) hereof. Such persons shall
submit to the Department: (1) full reports of investigations which have been made to show whether or
not such drug or device is safe, efficacious and of good quality for use based on clinical studies
conducted in the Philippines; (2) a full list of the articles used as components of such drug or device; (3) a
full statement of the composition of such drug or device; (4) a full description of the methods used in
and the facilities and controls used for the manufacture of such drug or device; (5) such samples of such
drug or device and of the articles used as components thereof as the Department may require; (6)
specimens of the labeling proposed to be used for such drug or device; and (7) such other requirements
as may be prescribed by regulations to ensure safety, efficacy and good quality of such drug or device.
c) Within one hundred eighty (180) days after the filing of an application under this sub-article, or
such additional period as may be agreed upon by the Department and the applicant, the Department
shall either (1) approve the application if he then finds that none of the grounds for denying approval
specified in sub-article (d) applies, or (2) give the applicant notice of an opportunity for a hearing before
the Department under sub-article (d) on the question whether such application is approvable.
d) If the Department finds, after due notice to the applicant and giving him an opportunity for a
hearing, that (1) the reports of the investigations which are required to be submitted to the Department
pursuant to sub-article (b) hereof, do not include adequate tests by all methods reasonably applicable to
show whether or not such drug or device is safe, efficacious and of good quality for use under the
conditions prescribed, recommended or suggested in the proposed labeling thereof; (2) the results of
such test show that such drug or device is unsafe, inefficacious or of doubtful therapeutic value for use
under such conditions or do not show that such drug or device is safe, efficacious or of good quality for
use under such conditions; (3) the methods used in, and the facilities and controls used for the
manufacture of such drug or device are inadequate to preserve its identity, strength, quality and purity;
or (4) upon the basis of the information submitted to him as part of the application, or upon the basis of
any other information before him with respect to such drug or device, he has insufficient information to
determine whether such drug or device is safe, efficacious or of good equality for use under such
conditions; or (5) evaluated on the basis of the information submitted to him as part of the application,
and any other information before him with respect to such drug or device, there is a lack of substantial
evidence that the drug or device will have the effect it purports or is represented to have under the
conditions of use prescribed, recommended or suggested in the proposed labeling thereof; or (6) based
on a fair evaluation of all material facts, such labeling is false or misleading in any way; he shall issue an
order disapproving the application.
e) The effectiveness of an application with respect to any drug or device shall, after due notice
and opportunity for hearing to the applicant, by order of the Department be suspended if it finds (1) that
clinical experience, tests by new methods, or tests by methods not deemed reasonably applicable when
such application became effective show that such drug or device is unsafe or ineffective for use under
the conditions of use upon the basis of which the application became effective, or (2) that the
application contains any untrue statement of a material fact. The order shall state the findings upon
which it is based.
f) The Department shall promulgate regulations for exempting from the operation of this Article
drugs and devices intended solely for investigational used by experts qualified by scientific training and
experience to investigate the safety and effectiveness of drugs and devices.
g) No person shall manufacture, sell, offer for sale, import, export, distribute or transfer any drug
or device without first securing a license to operate from the Department after due compliance with
technical requirements in accordance with the rules and regulations promulgated by the Department
pursuant to this Act.
h) No drug or device shall be manufactured, sold, offered for sale, imported, exported, distributed
or transferred, unless registered by the manufacturer, importer or distributor thereof in accordance with
rules and regulations promulgated by the Department pursuant to this Act. The provisions of Article 31
(b), (d) and (e), to the extent applicable, shall govern the registration of such drugs and devices.
i) The Department shall promulgate a schedule of fees for the issuance of the certificate of
product registration and license to operate provided for under this Article.
ARTICLE 32. Dangerous Drugs. — The importation, distribution, manufacture, production,
compounding, prescription, dispensing and sale of, and other lawful acts in connection with, dangerous
drugs of such kind and quantity as may be deemed necessary according to the medical and research
needs of the country and the determination of the quantity/quantities to be imported, manufactured
and held in stock at any given time by an authorized importer, manufacturer or distributor of dangerous
drugs shall be under the jurisdiction and authority of the Dangerous Drugs Board as provided for by
existing laws and regulations.
ARTICLE 33. Banned or Restricted Drugs. — Banned or severely restricted drugs for health and
safety reasons in their country of origin shall be banned and confiscated or its uses severely restricted,
whichever is appropriate, by the Department. The Department shall monitor the presence in the market
of such drugs and cause the maintenance and regular publications of an updated consolidated list
thereof.
Certification of Drugs Containing Antibiotics
ARTICLE 34. Certification of Certain Drugs. — a) The Department shall, by regulations, provide for
the certification of batches of drugs composed wholly or partially of any kind of antibiotic. A batch of
such drug shall be certified if such drug has such characteristics of identity, strength, quality and purity,
as the Department prescribes in such regulations as necessary to insure adequately safety and efficacy of
use and good quality, but shall not otherwise be certified. Prior to the effective date of such regulations
the Department, in lieu of certification, shall issue a release for any batch which, in his judgment, may be
released without risk as to the safety and efficacy of its use. Such release shall prescribe the date of its
expiration and other conditions under which it shall cease to be effective as to such batch and as to
portions thereof. For purposes of this Article and of Article 89 (j), the term “antibiotic drug” means any
drug intended for use by man containing any quantity of any chemical substance which is produced by a
micro-organism and which has the capacity to inhibit or destroy micro-organisms in dilute solution
(including the chemically synthesized equivalent of any such substance).
b) Whenever in the judgment of the Department, the requirements of this Article and of Article
89 (j) with respect to any drug or class of drugs are not necessary to insure safety and efficacy of use and
good quality, the Department shall promulgate regulations exempting such drug or class of drugs from
such requirements.
c) The Department shall promulgate regulations exempting from any requirement of this Article
and of Article 89(j), (1) drugs which are to be stored, processed, labeled, or repacked at establishments
other than those where manufactured, or condition that such drugs comply with all such requirements
upon removal from such establishments; (2) drugs which conform to applicable standards of identity,
strength, quality, and purity prescribed by these regulations and are intended for use in manufacturing
other drugs; and (3) drugs which are intended for investigational use by experts qualified by scientific
training and experience to investigate the safety and efficacy of drugs.
Cosmetics
ARTICLE 35. Adulterated Cosmetics. — A cosmetic shall be deemed to be adulterated:
a) if it bears or contains any poisonous or deleterious substance which may render it injurious to
users under the condition of use prescribed in the labeling thereof, or under the condition of use as are
customary or usual: Provided, That this provision shall not apply to color additive hair dye, the label of
which bears the following legend conspicuously displayed thereon: “Caution: this product contains
ingredients which may cause skin irritation on certain individuals and a preliminary test according to
accompanying directions should first be made. This product must not be used for dyeing the eyelashes or
eyebrows; to do so may cause blindness” and labeling of which bears adequate directions for such
preliminary testing. For purposes of this paragraph (e) the term “hair dye” shall not include eyelash dyes
or eyebrow dyes.
b) if it consists in whole or in part of any filthy, putrid, or decomposed substance.
c) if it has been prepared, packed or held under unsanitary conditions whereby it may have
become contaminated with filth, or whereby it may have been rendered injurious to health.
d) if its container is composed, in whole or in part, of any poisonous or deleterious substance
which may render the contents injurious to health.
e) if it is not a hair dye, and it bears or contains color additive other than which is permissible.
f) if any of its substances has been (1) mixed or packed therewith so as to reduce its quality or
strength or (2) substituted wholly or in parts therefor.
Prohibited Acts and Penalties
ARTICLE 40. Prohibited Acts. — The following acts and the causing thereof are hereby prohibited:
a) the manufacture, importation, exportation, sale, offering for sale, distribution or transfer of
any food, drug, device or cosmetic that is adulterated or mislabeled;
b) the adulteration or misbranding of any food, drug, device, or cosmetic;
c) the refusal to permit entry or inspection as authorized by Article 36 to allow samples to be
collected;
d) the giving of a guaranty or undertaking referred to in Article 41(b) hereof which guaranty or
undertaking is false, except by a person who relied upon a guaranty or undertaking to the same effect
signed by, and containing the name and address of, the person residing in the Philippines from whom he
received in good faith the food, drug, device, or cosmetic or the giving of a guaranty or undertaking
referred to in Article 41(b) which guaranty or undertaking is false;
e) forging, counterfeiting, simulating, or falsely representing or without proper authority using
any mark, stamp, tag, label, or other identification device authorized or required by regulations
promulgated under the provisions of this Act;
f) the using by any person to his own advantage, or revealing, other than to the Department or to
the courts when relevant in any judicial proceeding under this Act, any information concerning any
method or process which as a trade secret is entitled to protection;
g) the alteration, mutilation, destruction, obliteration, or removal of the whole or any part of the
labeling of, or the doing of any other act with respect to a food, drug, device, or cosmetic, if such act is
done while such product is held for sale (whether or not the first sale) and results in such product being
adulterated or mislabeled;
h) the use, on the labeling of any drug or in any advertising relating to such drug, of any
representation or suggestion that an application with respect to such drug is effective under Article 31
hereof, or that such drug complies with the provisions of such articles;
i) the use, in labeling, advertising or other sales promotion, of any reference to any report or
analysis furnished in compliance with Section 19 of Executive Order 175, series of 1987;
j) the manufacture, importation, exportation, sale, offering for sale, distribution, or transfer of
any drug or device which is not registered with the Department pursuant to this Act;
k) the manufacture, importation, exportation, sale, offering for sale, distribution, or transfer of
any drug or device by any person without the license from the Department required in this Act;
l) the sale or offering for sale of any drug or device beyond its expiration or expiry date;
m) the release for sale or distribution of a batch of drugs without batch certification when required
under Article 34 hereof.
ARTICLE 41. Penalties. — a) Any person who violates any of the provisions of Article 40 hereof shall,
upon conviction, be subject to imprisonment of not less than one (1) year but not more than five (5)
years, or a fine of not less than Five thousand pesos (P5,000.00) but not more than Ten thousand pesos
(P10,000.00), or both such imprisonment and fine, in the discretion of the Court.
Should the offense be committed by a juridical person, the Chairman of the Board of Directors, the
President, General Manager, or the partners and/or the persons directly responsible therefor shall be
penalized.
b) No person shall be subject to the penalties of sub-article (a) of this Article for (1) having sold,
offered for sale or transferred any product and delivered it, if such delivery was made in good faith,
unless he refuses to furnish on request of the Department, the name and address of the person from
whom he purchased or received such product and copies of all documents, if any there be, pertaining to
the delivery of the product to him; (2) having violated Article 40(a) if he established a guaranty or
undertaking signed by, and containing the name and address of, the person residing in the Philippines
from whom he received in good faith the product, or (3) having violated Article 40(a), where the
violation exists because the product is adulterated by reason of containing a color other than the
permissible one under regulations promulgated by the Department in this Act, if such person establishes
a guaranty or undertaking signed by, and containing the name and address, of the manufacturer of the
color, to the effect that such color is permissible, under applicable regulations promulgated by the
Department in this Act.
Prohibited Acts and Penalties
ARTICLE 46. Prohibited Acts. — It shall be unlawful for any person to:
a) introduce or deliver for introduction into commerce of any mislabeled hazardous substance or
banned hazardous substance;
b) alter, mutilate, destroy, obliterate or remove the whole or any part of the label of a mislabeled
hazardous substance, or banned hazardous substance, if such act is done while the substance is in
commerce or while the substance is held for sale, whether or not it is the first sale;
c) receive in commerce any mislabeled hazardous substance or banned hazardous substance and
the delivery or preferred delivery thereof at cost or otherwise;
d) give the guaranty or undertaking referred to in paragraph (b) of Article 93 and paragraph (b) of
Article 45 if such guaranty or undertaking if false, except by a person who relied upon a guaranty or
undertaking which he received in good faith;
e) introduce or deliver for introduction into commerce or receive in commerce and subsequently
deliver or preferred at cost or otherwise, or a hazardous substance in a reused food, drug, cosmetic or
device container or in a container which, though not a reused container, is identifiable as a food, drug,
cosmetic or device container by its labeling or by other identification. The use of a used food, drug,
cosmetic or device container for a hazardous substance does not diminish the danger posed by the
hazardous substance involved, therefore, such substance shall be deemed a mislabeled hazardous
substance.
ARTICLE 47. Penalties, Exception. — a) Any person who violates any of the provisions of Article 46
shall, upon conviction, be subject to a fine of not less than One thousand pesos (P1,000.00) or an
imprisonment of not less than six (6) months but not more than five (5) years or both upon the discretion
of the court.
b) No person shall be subject to the penalties of paragraph (a) of this Article for (1) having
violated paragraph (c) of Article 46 unless he refuses to furnish, upon request by the Department or his
representative, the name and address of the person from who he purchased such hazardous substances
and (2) having violated paragraph (a) of Article 46, if he establishes a guaranty or undertaking signed by,
and containing the name and address of, the person from whom he received in good faith, the
hazardous substance to the effect that the hazardous substance is not a mislabeled hazardous substance
or banned hazardous within the meaning of that term in this Act.
TITLE III
Protection Against Deceptive, Unfair and Unconscionable Sales Acts or Practices
CHAPTER I
Deceptive, Unfair and Unconscionable Sales Acts or Practices
ARTICLE 48. Declaration of Policy. — The State shall promote and encourage fair, honest and
equitable relations among parties in consumer transactions and protect the consumer against deceptive,
unfair and unconscionable sales acts or practices.
ARTICLE 49. Implementing Agency. — The Department of Trade and Industry, hereby referred to as
the Department, shall enforce the provisions of this Chapter.
Regulation of Sales Acts and Practices
ARTICLE 50. (memorize deceptive sales)Prohibition Against Deceptive Sales Acts or Practices. — A
deceptive act or practice by a seller or supplier in connection with a consumer transaction violates this
Act whether it occurs before, during or after the transaction. An act or practice shall be deemed
deceptive whenever the producer, manufacturer, supplier or seller, through concealment, false
representation or fraudulent manipwarrantyulation, induces a consumer to enter into a sales or lease
transaction of any consumer product or service. cdtai
Without limiting the scope of the above paragraph, the act or practice of a seller or supplier is deceptive
when it represents that:
a) a consumer product or service has the sponsorship, approval, performance, characteristics,
ingredients, accessories, uses, or benefits it does not have;
b) a consumer product or service is of a particular standard, quality, grade, style, or model when
in fact it is not;
c) a consumer product is new, original or unused, when in fact, it is in a deteriorated, altered,
reconditioned, reclaimed or second-hand state;
d) a consumer product or service is available to the consumer for a reason that is different from
the fact;
e) a consumer product or service has been supplied in accordance with the previous
representation when in fact it is not;
f) a consumer product or service can be supplied in a quantity greater than the supplier intends;
g) a service, or repair of a consumer product is needed when in fact it is not;
h) a specific price advantage of a consumer product exists when in fact it does not;
i) the sales act or practice involves or does not involve a warranty, a disclaimer of warranties,
particular warranty terms or other rights, remedies or obligations if the indication is false; and
j) the seller or supplier has a sponsorship, approval, or affiliation he does not have.
ARTICLE 51. Deceptive Sales Act or Practices By Regulation. — The Department shall, after due
notice and hearing, promulgate regulations declaring as deceptive any sales act, practice or technique
which is a misrepresentation of facts other than these enumerated in Article 50.
ARTICLE 52. (memorize) Unfair or Unconscionable Sales Act or Practice. — An unfair or
unconscionable sales act or practice by a seller or supplier in connection with a consumer transaction
violates this Chapter whether it occurs before, during or after the consumer transaction. An act or
practice shall be deemed unfair or unconscionable whenever the producer, manufacturer, distributor,
supplier or seller, by taking advantage of the consumer’s physical or mental infirmity, ignorance,
illiteracy, lack of time or the general conditions of the environment or surroundings, induces the
consumer to enter into a sales or lease transaction grossly inimical to the interests of the consumer or
grossly one-sided in favor of the producer, manufacturer, distributor, supplier or seller.
In determining whether an act or practice is unfair and unconscionable, the following circumstances shall
be considered:
a) that the producer, manufacturer, distributor, supplier or seller took advantage of the inability
of the consumer to reasonably protect his interest because of his inability to understand the language of
an agreement, or similar factors;
b) that when the consumer transaction was entered into, the price grossly exceeded the price at
which similar products or services were readily obtainable in similar transaction by like consumers;
c) that when the consumer transaction was entered into, the consumer was unable to receive a
substantial benefit from the subject of the transaction;
d) that when the consumer transaction was entered into, the seller or supplier was aware that
there was no reasonable probability or payment of the obligation in full by the consumer; and
e) that the transaction that the seller or supplier induced the consumer to enter into was
excessively one-sided in favor of the seller or supplier.
ARTICLE 53. Chain Distribution Plans or Pyramid Sales Schemes. — Chain distribution plans or
pyramid sales schemes shall not be employed in the sale of consumer products.
ARTICLE 54. Home Solicitation Sales. — No business entity shall conduct any home solicitation sale
of any consumer product or service without first obtaining a permit from the Department. Such permit
may be denied suspended or revoked upon cause as provided in the rules and regulations promulgated
by the Department, after due notice and hearing.
ARTICLE 55. Home Solicitation Sales; When Conducted. — Home solicitation sales may be
conducted only between the hours of nine o’clock in the morning and seven o’clock in the evening of
each working day: Provided, That solicitation sales may be made at a time other than the prescribed
hours where the person solicited has previously agreed to the same.
ARTICLE 56. Home Solicitation Sales; by Whom Conducted. — Home solicitation sales shall only be
conducted by a person who has the proper identification and authority from his principal to make such
solicitations.
ARTICLE 57. Receipts for Home Solicitation Sales. — Sales generated from home solicitation sales
shall be properly receipted as per existing laws, rules and regulations on sale transactions.
ARTICLE 58. Prohibited Representations. — A home solicitation sale shall not represent that:
a) the buyer has been specially selected;
b) a survey, test or research is being conducted; or
c) the seller is making a special offer to a few persons only for a limited period of time.
ARTICLE 59. Referral Sales. — Referral selling plans shall not be used in the sale of consumer
products unless the seller executes in favor of the buyer a written undertaking that will grant a specified
compensation or other benefit to said buyer in return for each and every transaction consummated by
said seller with the persons referred by said buyer or for subsequent sales that said buyers has helped
the seller enter into.
ARTICLE 60. Penalties. — a) Any person who shall violate the provisions of Title III, Chapter I, shall
upon conviction, be subject to a fine of not less than Five Hundred Pesos (P500.00) but not more than
Ten Thousand Pesos (P10,000.00) or imprisonment of not less than five (5) months but not more than
one (1) year or both, upon the discretion of the court.
b) In addition to the penalty provided for in paragraph (1), the court may grant an injunction
restraining the conduct constituting the contravention of the provisions of Articles 50 and 51 and/or
actual damages and such other orders as it thinks fit to redress injury to the person caused by such
conduct.
CHAPTER III
Consumer Product and Service Warranties
ARTICLE 66. Implementing Agency. — The Department of Trade and Industry, shall strictly enforce
the provision of this Chapter and its implementing rules and regulations.
ARTICLE 67. Applicable Law on Warranties. — The provisions of the Civil Code on conditions and
warranties shall govern all contracts of sale with conditions and warranties.
ARTICLE 68. Additional Provisions on Warranties. — In addition to the Civil Code provisions on sale
with warranties, the following provisions shall govern the sale of consumer products with warranty:
a) Terms of express warranty. — Any seller or manufacturer who gives an express warranty
shall:
1) set forth the terms of warranty in clear and readily understandable language and clearly
identify himself as the warrantor;
2) identify the party to whom the warranty is extended;
3) state the products or parts covered;
4) state what the warrantor will do in the event of a defect, malfunction of failure to conform to
the written warranty and at whose expense;
5) state what the consumer must do to avail of the rights which accrue to the warranty; and
6) stipulate the period within which, after notice of defect, malfunction or failure to conform to
the warranty, the warrantor will perform any obligation under the warranty.
b) Express warranty — operative from moment of sale. — All written warranties or guarantees
issued by a manufacturer, producer, or importer shall be operative from the moment of sale.
1) Sales Report. — All sales made by distributors of products covered by this Article shall be
reported to the manufacturer, producer, or importer of the product sold within thirty (30) days from
date of purchase, unless otherwise agreed upon. The report shall contain, among others, the date of
purchase, model of the product bought, its serial number, name and address of the buyer. The report
made in accordance with this provision shall be equivalent to a warranty registration with the
manufacturer, producer, or importer. Such registration is sufficient to hold the manufacturer, producer,
or importer liable, in appropriate cases, under its warranty.
2) Failure to make or send report. — Failure of the distributor to make the report or send them
the form required by the manufacturer, producer, or importer shall relieve the latter of its liability under
the warranty: Provided, however, That the distributor who failed to comply with its obligation to send
the sales report shall be personally liable under the warranty. For this purpose, the manufacturer shall
be obligated to make good the warranty at the expense of the distributor.
3) Retail. — The retailer shall be subsidiarily liable under the warranty in case of failure of both
the manufacturer and distributor to honor the warranty. In such case, the retailer shall shoulder the
expenses and costs necessary to honor the warranty. Nothing therein shall prevent the retailer from
proceeding against the distributor or manufacturer.
4) Enforcement of warranty or guarantee. — The warranty rights can be enforced by presentment
of a claim. To this end, the purchaser needs only to present to the immediate seller either the warranty
card or the official receipt along with the product to be serviced or returned to the immediate seller. No
other documentary requirement shall be demanded from the purchaser. If the immediate seller is the
manufacturer’s factory or showroom, the warranty shall immediately be honored. If the product was
purchased from a distributor, the distributor shall likewise immediately honor the warranty. In the case
of a retailer other than the distributor, the former shall take responsibility without cost to the buyer of
presenting the warranty claim to the distributor in the consumer’s behalf.
5) Record of purchases. — Distributors and retailers covered by this Article shall keep a record of
all purchases covered by a warranty or guarantee for such period of time corresponding to the lifetime
of the product’s respective warranties or guarantees.
6) Contrary stipulations — null and void. — All covenants, stipulations or agreements contrary to
the provisions of this Article shall be without legal effect.
c) Designation of warranties. — A written warranty shall clearly and conspicuously designate such
warranty as:
1) “Full warranty” if the written warranty meets the minimum requirements set forth in
paragraph (d); or
2) “Limited warranty” if the written warranty does not meet such minimum requirements.
d) Minimum standards for warranties. — For the warrantor of a consumer product to meet the
minimum standards for warranty, he shall:
1) remedy such consumer product within a reasonable time and without charge in case of a
defect, malfunction or failure to conform to such written warranty;
2) permit the consumer to elect whether to ask for a refund or replacement without charge of
such product or part, as the case may be, where after reasonable number of attempts to remedy the
defect or malfunction, the product continues to have the defect or to malfunction.
The warrantor will not be required to perform the above duties if he can show that the defect,
malfunction or failure to conform to a written warranty was caused by damage due to unreasonable use
thereof.
e) Duration of warranty. — The seller and the consumer may stipulate the period within which
the express warranty shall be enforceable. If the implied warranty on merchantability accompanies an
express warranty, both will be of equal duration.
Any other implied warranty shall endure not less than sixty (60) days nor more than one (1) year
following the sale of new consumer products.
f) Breach of warranties. — 1) In case of breach of express warranty, the consumer may elect to
have the goods repaired or its purchase price refunded by the warrantor. In case the repair of the
product in whole or in part is elected, the warranty work must be made to conform to the express
warranty within thirty (30) days by either the warrantor or his representative. The thirty-day period,
however, may be extended by conditions which are beyond the control of the warrantor or his The imposition of any of the penalties herein provided is without prejudice to any liability incurred under
representative. In case the refund of the purchase price is elected, the amount directly attributable to the warranty or guarantee.
the use of the consumer prior to the discovery of the non-conformity shall be deducted.

2) In case of breach of implied warranty, the consumer may retain in the goods and recover
damages, or reject the goods, cancel and contract and recover from the seller so much of the purchase
price as has been paid, including damages.
ARTICLE 69. Warranties in Supply of Services. — a) In every contract for the supply of services to a
consumer made by a seller in the course of a business, there is an implied warranty that the service will
be rendered with due care and skill and that any material supplied in connection with such services will
be reasonably fit for the purpose for which it is supplied.
b) Where a seller supplies consumer services in the course of a business and the consumer,
expressly or by implication, makes known to the seller the particular purpose for which the services are
required, there is an implied warranty that the services supplied under the contract and any material
supplied in connection therewith will be reasonably fit for that purpose or are of such a nature or quality
that they might reasonably be expected to achieve that result, unless the circumstances show that the
consumer does not rely or that it is unreasonable for him to rely, on the seller’s skill or judgment.
ARTICLE 70. Professional Services. — The provisions of this Act on warranty shall not apply to
professional services of certified public accountants, architects, engineers, lawyers, veterinarians,
optometrists, pharmacists, nurses, nutritionists, dietitians, physical therapists, salesmen, medical and
dental practitioners and other professionals engaged in their respective professional endeavors.
ARTICLE 71. Guaranty of Service Firms. — Service firms shall guarantee workmanship and
replacement of spare parts for a period not less than ninety (90) days which shall be indicated in the
pertinent invoices.
CHAPTER IV
Labeling and Fair Packaging
ARTICLE 74. Declaration of Policy. — The State shall enforce compulsory labeling, and fair
packaging to enable the consumer to obtain accurate information as to the nature, quality and quantity
of the contents of consumer products and to facilitate his comparison of the value of such products.
ARTICLE 75. Implementing Agency. — The Department of Trade and Industry shall enforce the
provisions of this Chapter and its implementing rules and regulations: Provided, That with respect to
food, drugs, cosmetics, devices, and hazardous substances, it shall be enforced by the concerned
department.
ARTICLE 76. Prohibited Acts on Labeling and Packaging. — It shall be unlawful for any person,
either as principal or agent, engaged in the labeling or packaging of any consumer product, to display or
distribute or to cause to be displayed or distributed in commerce any consumer product whose package
or label does not conform to the provisions of this Chapter.
The prohibition in this Chapter shall not apply to persons engaged in the business of wholesale or retail
distributors of consumer products except to the extent that such persons:
a) are engaged in the packaging or labeling of such products;

ARTICLE 72. Prohibited Acts. — The following acts are prohibited: b) prescribe or specify by any means the manner in which such products are packaged or labeled;
or
a) refusal without any valid legal cause by the total manufacturer or any person obligated under
the warranty or guarantee to honor a warranty or guarantee issued; c) having knowledge, refuse to disclose the source of the mislabeled or mispackaged products.

b) unreasonable delay by the local manufacturer or any person obligated under the warranty or ARTICLE 77.(memorize) Minimum Labeling Requirements for Consumer Products. — All consumer
guarantee in honoring the warranty; products domestically sold whether manufactured locally or imported shall indicate the following in their
respective labels of packaging:
c) removal by any person of a product’s warranty card for the purpose of evading said warranty
obligation; a) its correct and registered trade name or brand name;

d) any false representation in an advertisement as to the existence of a warranty or guarantee. b) its duly registered trademark;

ARTICLE 73. Penalties. — a) Any person who shall violate the provisions of Article 67 shall be c) its duly registered business name;
subject to fine of not less than Five hundred pesos (P500.00) but not more than Five thousand pesos
(P5,000.00) or an imprisonment of not less than three (3) months but not more than two (2) years or d) the address of the manufacturer, importer, repacker of the consumer product in the
both upon the discretion of the court. A second conviction under this paragraph shall also carry with it Philippines;
the penalty or revocation of his business permit and license.
e) its general make or active ingredients;
b) Any person, natural or juridical, committing any of the illegal acts provided for in Chapter III,
f) the net quality of contents, in terms of weight, measure or numerical count rounded of to at
except with respect to Article 67, shall be liable for a fine of not less than One thousand pesos
least the nearest tenths in the metric system;
(P1,000.00) but not more than Fifty thousand pesos (P50,000.00) or imprisonment for a period of at least
one (1) year but not more than five (5) years, or both, at the discretion of the court. g) country of manufacture, if imported; and
h) if a consumer product is manufactured, refilled or repacked under license from a principal, the a) the degree or nature of the hazard to children in the availability of such product, by reason of
label shall so state the fact. its packaging, is such that special packaging is required to protect children from serious personal injury
or serious illness resulting from handling and use of such product; and
The following may be required by the concerned department in accordance with the rules and
regulations they will promulgate under authority of this Act: b) the special packaging to be required by such standard is technically feasible, practicable and
appropriate for such product. In establishing a standard under this Article, the concerned department
a) whether it is flammable or inflammable; shall consider:

b) directions for use, if necessary; 1) the reasonableness of such a standard;

c) warning of toxicity; 2) available scientific, medical and engineering data concerning special packaging and concerning
accidental, ingestions, illnesses and injuries caused by consumer product;
d) wattage, voltage or amperes; or
3) the manufacturing practices of industries affected by this Article; and
e) process of manufacture used if necessary.
4) the nature and use of consumer products.
Any word, statement or other information required by or under authority of the preceding paragraph
shall appear on the label or labeling with such conspicuousness as compared with other words, ARTICLE 81. Price Tag Requirement. — It shall be unlawful to offer any consumer product for retail
statements, designs or devices therein, and in such terms as to render it likely to be read and understood sale to the public without an appropriate price tag, label or marking publicly displayed to indicate the
by the ordinary individual under customary conditions of purchase or use. price of each article and said products shall not be sold at a price higher than that stated therein and
without discrimination to all buyers: Provided, That lumber sold, displayed or offered for sale to the
The above requirements shall form an integral part of the label without danger of being erased or
public shall be tagged or labeled by indicating thereon the price and the corresponding official name of
detached under ordinary handling of the product.
the wood: Provided, further, That if consumer products for sale are too small or the nature of which
ARTICLE 78. Philippine Product Standard Mark. — The label may contain the Philippine Product makes it impractical to place a price tag thereon price list placed at the nearest point where the products
Standard Mark if it is certified to have passed the consumer product standard prescribed by the are displayed indicating the retail price of the same may suffice.
concerned department.
ARTICLE 82. Manner of Placing Price Tags. — Price tags, labels or markings must be written clearly,
ARTICLE 79. Authority of the Concerned Department to Provide for Additional Labeling and indicating the price of the consumer product per unit in pesos and centavos.
Packaging Requirements. — Whenever the concerned department determines that regulations
ARTICLE 83. Regulations for Price Tag Placement. — The concerned department shall prescribe
containing requirements other than those prescribed in Article 77 hereof are necessary to prevent the
rules and regulations for the visible placement of price tags for specific consumer products and services.
deception of the consumer or to facilitate value comparisons as to any consumer product, it may issue
There shall be no erasures or alterations of any sort of price tags, labels or markings.
such rules and regulations to:
ARTICLE 84. Additional Labeling Requirements for Food. — The following additional labeling
a) establish and define standards for characterization of the size of a package enclosing any
requirements shall be imposed by the concerned department for food:
consumer product which may be used to supplement the label statement of net quality, of contents of
packages containing such products but this clause shall not be construed as authorizing any limitation on a) expiry or expiration date, where applicable;
the size, shape, weight, dimensions, or number of packages which may be used to enclose any product;
b) whether the consumer product is semi-processed, fully processed, ready-to-cook, ready-to-eat,
b) regulate the placement upon any package containing any product or upon any label affixed to prepared food or just plain mixture;
such product of any printed matter stating or representing by implication that such product is offered for
retail at a price lower than the ordinary and customary retail price or that a price advantage is accorded c) nutritive value, if any;
to purchases thereof by reason of the size of the package or the quantity of its contents;
d) whether the ingredients use are natural or synthetic, as the case may be;
c) prevent the nonfunctional slack-fill of packages containing consumer products.
e) such other labeling requirements as the concerned department may deem necessary and
For purposes of paragraph (c) of this Article, a package shall be deemed to be nonfunctionally slack-filled reasonable.
if it is filled to substantially less than its capacity for reasons other than (1) protection of the contents of
such package, (2) the requirements of machines used for enclosing the contents in such package, or (3) ARTICLE 85. Mislabeled Food. — A food shall also be deemed mislabeled:
inherent characteristics of package materials or construction being used.
a) if its labeling or advertising is false or misleading in any way;
ARTICLE 80. Special Packaging of Consumer Products for the Protection of Children. — The
b) if it is offered for sale under the name of another food;
concerned department may establish standards for the special packaging of any consumer product if it
finds that:
c) if it is an imitation of another food, unless its label bears in type of uniform size and concerned department. The provisions of this paragraph or paragraphs (g) and (i) with respect to the
prominence, the word “imitation” and, immediately thereafter, the name of the food imitated; artificial coloring shall not apply in the case of butter, cheese or ice cream.

d) its containers is so made, formed, or filled as to be misleading; ARTICLE 86. Labeling of Drugs. — The Generics Act shall apply in the labeling of drugs.

e) if in package form unless it bears a label conforming to the requirements of this Act: Provided, ARTICLE 87. Additional Labeling Requirements for Cosmetics. — The following additional
That reasonable variation on the requirements of labeling shall be permitted and exemptions as to small requirements may be required for cosmetics:
packages shall be established by the regulations prescribed by the concerned department of health;
a) expiry or expiration date;
f) if any word, statement or other information required by or under authority of this Act to
appear on the principal display panel of the label or labeling is not prominently placed thereon with such b) whether or not it may be an irritant;
conspicuousness as compared with other words, statements, designs or devices in the labeling and in
c) precautions or contra-indications; and
such terms as to render it likely to be read and understood by the ordinary individual under customary
conditions of purchase and use; d) such other labeling requirements as the concerned department may deem necessary and
reasonable.
g) if it purports to be or is represented as a food for which a definition or standard of identity has
been prescribed unless: ARTICLE 88. Special Labeling Requirements for Cosmetics. — A cosmetic shall be deemed
mislabeled:
1) it conforms to such definition and standard; and
a) if its labeling or advertising is false or misleading in any way;
2) its labels bears the name of the food specified in the definition or standards, and insofar as
may be required by such regulations, the common names of optional ingredients other than spices, b) if in package form unless it bears a label conforming to the requirements of labeling provided
flavoring and coloring, present in such food; for in this Act or under existing regulations: Provided, That reasonable variations shall be permitted, and
exemptions as to small packages shall be established by regulations prescribed by the concerned
h) if it purports to be or is represented as:
department;
1) a food for which a standard of quality has been prescribed by regulations as provided in this
c) if any word, statement or other information required by or under authority of this Act to
Act and its quality fall below such standard, unless its label bears in such manner and form as such
appear on the label or labeling is not prominently placed thereon with such conspicuousness, as
regulations specify, a statement that it falls below such standard; or
compared with other words, statements, designs or devices in the labeling, and in such terms as to
2) a food for which a standard or standards or fill of container have been prescribed by render it likely to be read and understood by the ordinary individual under customary conditions of
regulations as provided by this Act and it falls below the standard of fill of container applicable thereto, purchase and use;
unless its label bears, in such manner and form as such regulations specify, a statement that it falls below
d) if its container is so made, formed or filled as to be misleading; or
such standard;
e) if its label does not state the common or usual name of its ingredients.
i) if it is not subject to the provisions of paragraph (g) of this Article unless its label bears:
ARTICLE 89. Mislabeled Drugs and Devices. — A drug or device shall be deemed to be mislabeled:
1) the common or usual name of the food, if there be any; and
a) if its labeling is false or misleading in any way;
2) in case it is manufactured or processed from two or more ingredients, the common or usual
name of such ingredient; except the spices, flavorings and colorings other than those sold as such, may b) if it is in package form unless it bears a label conforming to the requirements of this Act or the
be designated as spices, flavorings and colorings without naming each: Provided, That to the extent that regulations promulgated therefor: Provided, that reasonable variations shall be permitted and
compliance with the requirement of clause (2) of this paragraph is impracticable or results in deception exemptions as to small packages shall be established by regulations prescribed by the concerned
or unfair competition, exemptions shall be established by regulations promulgated by the concerned department.
department of health;
c) if any word, statement or other information required by or under authority of this Act to
j) if it purports to be or is represented for special dietary uses, unless its label bears such appear on the principal display panel of the label or labeling is not prominently placed thereon with such
information concerning its vitamin or mineral or other dietary properties as the concerned department conspicuousness as compared with other words, statements, designs or devices in the labeling and in
determines to be, or by regulations prescribed as necessary in order fully to inform purchasers as its such terms as to render it likely to be read and understood by the ordinary individual under customary
value for such uses; conditions of purchase and use;
k) if it bears or contains any artificial flavoring, artificial coloring, or chemical preservative, unless d) if it is for use by man and contains any quantity of the narcotic or hypnotic substance alpha-
it bears labeling, stating that fact: Provided, That to the extent that compliance with the requirements of eucaine, barbituric acid, beta-eucaine, bromal, cannabis, carbromal, chloral, coca, cocaine, codeine,
this paragraph is impracticable, exemptions shall be established by regulations promulgated by the heroin, marijuana, morphine, opium, paraldehyde, peyote or sulfonmethane, or any chemical derivative
of such substance, which derivative has been designated by the concerned department after
investigation, and by regulations, as habit forming; unless its label bears the name and quantity or
proportion of such substance or derivative and in juxtaposition therewith the statement “Warning —
May be habit forming”;
e) its labeling does not bear:
1) adequate directions for use; and
2) such adequate warning against use in those pathological conditions or by children where its
use may be dangerous to health, or against unsafe dosage or methods or duration of administration or
application, in such manner and form, as are necessary for the protection of users: Provided, That where
any requirement of clause (1) of this paragraph, as applied to any drug or device, is not necessary for the
protection of the public health, the concerned department may promulgate regulations exempting such
drug or device from such requirement;
f) if it purports to be a drug the name of which is recognized in an official compendium, unless it
is packaged and labeled as prescribed therein: Provided, That the method of packing may be modified
with the consent of the concerned department;
g) if it has been found by the concerned department to be a drug liable to deterioration, unless it
is packaged in such form and manner, and its label bears a statement of such precautions, as the
concerned department, shall by regulations, require as necessary for the protection of the public health;
h)1) if it is a drug and its container is so made, formed or filled as to be misleading; or
2) if it is an imitation of another drug; or
3) if it is offered for sale under the name of another drug;
i) if it is dangerous to health when used in the dosage, or with the frequency of duration
prescribed, recommended or suggested in the labeling thereof;
j) if it is, purports to be or is represented as a drug composed wholly or partly of insulin or of any
kind of penicillin, streptomycin, chlortetracycline, chloramphenicol, bacitracin, or any other antibiotic
drug, or any derivative thereof, unless:
1) it is from a batch with respect to which a certificate of release has been issued pursuant to
regulations of the concerned department; and
2) such certificate of release is in effect with respect to such drug: Provided, That this paragraph
shall not apply to any drug or class of drugs exempted by regulations promulgated under Authority of
this Act.
ARTICLE 90. Regulation-making Exemptions. — The concerned department may promulgate
regulations exempting from any labeling requirements of this Act food, cosmetics, drugs or devices
which are, in accordance with the practice of trade, to be processed, labeled or repacked in substantial
quantities at establishments other than those where originally processed, labeled or packed on condition
that such food, cosmetics, drugs or devices are not adulterated or mislabeled under the provisions of this
Act and other applicable laws upon approval from such processing, labeling and repacking
establishments.
ARTICLE 91. Mislabeled Hazardous Substances. — Hazardous substances shall be deemed
mislabeled when:
a) having been intended or packaged in a form suitable for use in households, especially for
children, the packaging or labeling of which is in violation of the special packaging regulations issued by
the concerned department;
b) such substance fails to bear a label:
1) which states conspicuously:
(i) the name and the place of business of the manufacturer, packer, distributor or seller;
(ii) the common or usual name or the chemical name, if there be no common or usual name, of the
hazardous substance or of each component which contributes substantially to the harmfulness of the
substance, unless the concerned department by regulation permits or requires the use of the recognized
generic name;
(iii) the signal word “danger” on substances which are extremely flammable, corrosive or highly
toxic;
(iv) the signal word “warning” or “caution” with a bright red or orange color with a black symbol on
all other hazardous substances;
(v) a clear statement as to the possible injury it may cause if used improperly;
(vi) precautionary measures describing the action to be followed or avoided;
(vii) instructions when necessary or appropriate for first-aid treatment;
(viii) the word “poison” for any hazardous substance which is defined as highly toxic;
(ix) instructions for handling and storage of packages which require special care in handling and
storage; and
(x) the statement “keep out of the reach of children”, or its practical equivalent, if the article is not
intended for use by children and is not a banned hazardous substance, with adequate directions for the
protection of children from the hazard involved. The aforementioned signal words, affirmative
statements, description of precautionary measures, necessary instructions or other words or statements
may be in the English language or its equivalent in Filipino; and
2) on which any statement required under clause 1) of this paragraph is located prominently in
bright red and orange color with a black symbol in contrast typography, layout or color with the other
printed matters on the label.
ARTICLE 92. Exemptions. — If the concerned department finds that for good or sufficient reasons,
full compliance with the labeling requirements otherwise applicable under this Act is impracticable or is
not necessary for the adequate protection of public health and safety, it shall promulgate regulations
exempting such substances from these requirements to the extent it deems consistent with the objective
of adequately safeguarding public health and safety, and any hazardous substance which does not bear a
label in accordance with such regulations shall be deemed mislabeled hazardous substance.
ARTICLE 93. Grounds for Seizure and Condemnation of Mislabeled Hazardous Substances. — a)
Any mislabeled hazardous substance when introduced into commerce or while held for sale shall be
liable to be proceeded against and condemned upon order of the concerned department in accordance
with existing procedure for seizure and condemnation of articles in commerce: Provided, That this Article
shall not apply to a hazardous substance intended for export to any foreign country if:
1) it is in a package labeled in accordance with the specifications of the foreign purchaser;
2) it is labeled in accordance with the laws of the foreign country;
3) it is labeled on the outside of the shipping package to show that it is intended for export; and
4) it is so exported,
b) any hazardous substance condemned under this Article shall after entry of order of
condemnation be disposed of by destruction or sale as the concerned department may direct, and the
proceeds thereof, if sold, less the legal cost and charges, shall be paid into the treasury of the
Philippines; but such hazardous substance shall not be sold under any order which is contrary to the
provisions of this Act: Provided, That, after entry of the order and upon the payment of the costs of such
proceedings and the execution of a good and sufficient bond conditioned that such hazardous substance
shall not be sold or disposed of contrary to the provisions of this Act, the concerned department may
direct that such hazardous substance be delivered to or retained by the owner thereof for destruction or
for alteration to comply with the provisions of this Act under the supervision of an officer or employee
duly designated by the concerned department. The expenses for such supervision shall be paid by the
person obtaining release of the hazardous substance under bond.
c) all expenses in connection with the destruction provided for in paragraphs (a) and (b) of this
Article and all expenses in connection with the storage and labor with respect to such hazardous
substance shall be paid by the owner or consignee, and default in such payment shall constitute a lien
against any importation by such owner or consignee.
ARTICLE 94. Labeling Requirements of Cigarettes. — All cigarettes for sale or distribution within the
country shall be contained in a package which shall bear the following statement or its equivalent in
Filipino: “Warning” Cigarette Smoking is Dangerous to Your Health”. Such statement shall be located in
conspicuous place on every cigarette package and shall appear in conspicuous and legible type in
contrast by typography, layout or color with other printed matter on the package. Any advertisement of
cigarette shall contain the name warning as indicated in the label.
ARTICLE 95. Penalties. — a) Any person who shall violate the provisions of Title III, Chapter IV of this
Act, or its implementing rules and regulations, except Articles 81 to 83 of the same Chapter, shall be
subject to a fine of not less than Five hundred pesos (P500.00) but not more than Twenty thousand
pesos (P20,000.00) or imprisonment of not less than three (3) months but not more than two (2) years or
both, at the discretion of the court: Provided, That, if the consumer product is one which is not a food,
cosmetic, drug, device or hazardous substance, the penalty shall be a fine of not less than Two hundred
pesos (P200.00) but not more than Five thousand pesos (P5,000.00) or imprisonment of not less than
one (1) month but not more than one (1) year or both, at the discretion of the court.
b) Any person who violates the provisions of Article 81 to 83 for the first time shall be subject to a
fine of not less than Two hundred pesos (P200.00) but not more than Five thousand pesos (P5,000.00) or
by imprisonment of not less than one (1) month but not more than six (6) months or both, at the
discretion of the court. A second conviction under this paragraph shall also carry with it the penalty of
revocation of business permit and license.
FRIA LAW
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
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, (f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts
or having reason to believe that proceedings are about to be commenced, or in contemplation of the of claims and collaterals, or securities, if any;
proceedings, willfully commit the following acts:
(g) An inventory of all its assets including receivables and claims against third parties;
(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 (h) A Rehabilitation Plan;
disadvantageous to the debtor and/or creditors; or
(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and
(b) Conceal or authorize or approve the concealment, from the creditors, or embezzles or
(j) Other documents required to be filed with the petition pursuant to this Act and the rules of procedure
misappropriates, any property of the debtor.
as may be promulgated by the Supreme Court.
The court shall determine the extent of the liability of an owner, partner, director or officer under this
A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its
section. In this connection, in case of partnerships and corporations, the court shall consider the amount
members foresee the impossibility of meeting debts when they respectively fall due, and the financial
of the shareholding or partnership or equity interest of such partner, director or officer, the degree of
distress would likely adversely affect the financial condition and/or operations of the other members of
control of such partner, director or officer over the debtor, and the extent of the involvement of such
the group and/or the participation of the other members of the group is essential under the terms and
partner, director or debtor in the actual management of the operations of the debtor.
conditions of the proposed Rehabilitation Plan.
Section 11. Authorization to Exchange Debt for Equity. - Notwithstanding applicable banking legislation
(2) Involuntary Proceedings.
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 Section 13. Circumstances Necessary to Initiate Involuntary Proceedings. - Any creditor or group of
to a Rehabilitation or Liquidation Plan approved by the court: Provided, That such ownership shall be creditors with a claim of, or the aggregate of whose claims is, at least One Million Pesos
subject to the ownership limits applicable to universal banks for equity investments and: Provided, (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners'
further, That any equity investment or interest acquired or held pursuant to this section shall be contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a
disposed by the bank within a period of five (5) years or as may be prescribed by the Monetary Board. petition for rehabilitation with the court if:
CHAPTER II (a) there is no genuine issue of fact on law on the claim/s of the petitioner/s, and that the due and
COURT-SUPERVISED REHABILITATION 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
(A) Initiation Proceedings.
(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that
(1) Voluntary Proceedings.
will prevent the debtor from paying its debts as they become due or will render it insolvent.
Section 12. Petition to Initiate Voluntary Proceedings by Debtor. - When approved by the owner in case
Section 14. Petition to Initiate Involuntary Proceedings. - The creditor/s' petition for rehabilitation shall
of a sole proprietorship, or by a majority of the partners in case of a partnership, or in case of a
be verified to establish the substantial likelihood that the debtor may be rehabilitated, and include:
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 (a) identification of the debtor its principal activities and its address;
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 (b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings
under this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter under Section 13 of this Act;
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 (c) the specific relief sought under this Act;
petition, as a minimum the following:
(d) a Rehabilitation Plan;
(a) Identification of the debtor, its principal activities and its addresses;
(e) the names of at least three (3) nominees to the position of rehabilitation receiver;
(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as
(f) other information that may be required under this Act depending on the form of relief requested; and
they become due;
(g) other documents required to be filed with the petition pursuant to this Act and the rules of procedure
(c) The specific relief sought pursuant to this Act;
as may be promulgated by the Supreme Court.
(d) The grounds upon which the petition is based;
(B) Action on the Petition and Commencement of Proceedings.
(e) Other information that may be required under this Act depending on the form of relief requested;
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.
*The applicable law is Republic Act No. 10142, known as the Financial Rehabilitation and Insolvency Act
of 2010 (FRIA). The FRIA took effect on 18 July 2010.