BY-LAWS g) The time for holding the annual election of directors or trustees and the mode or manner of
giving notice thereof; the manner of election or appointment and the term of office of all
By-Laws refer to the rules of action adopted by a corporation for its internal government and for the
regulation of conduct, and its prescribes the rights and duties of its stockholders or members towards
itself and among themselves in reference to the management.
Effectivity: After approval by the SEC.
Adoption of by-laws may be made:
1. Prior to incorporation - it must be signed by all the incorporators without need of
majority vote of outstanding stocks or members as long as it is submitted together with
AOI;
2. After incorporation - must be submitted from receipt of the notice of issuance of
certificate of registration or incorporation and must be approved by majority of
outstanding capital stock or members.
Amendment of by-laws may be made in two modes:
1. By a majority vote of the directors or trustees and the majority vote of the outstanding
capital stock or members, at a regular or special meeting called for the purpose.
2. By the board of directors alone when delegated by stockholders owning 2/3 of the
outstanding capital stock or 2/3 of the members. This power, however, is considered
revoked, when so voted by a majority of the outstanding capital stock or members in a
regular or special meeting.
Whenever the bylaws are amended or new bylaws are adopted, the corporation shall file with the
Commission such amended or new bylaws and, if applicable, the stockholders’ or members’
resolution authorizing the delegation of the power to amend and/or adopt new bylaws, duly certified
under oath by the corporate secretary and a majority of the directors or trustees. The amended or
new bylaws shall only be effective upon the issuance by the Commission of a certification that the
same is in accordance with this Code and other relevant laws.
Contents of the Bylaws
a) The time, place and manner of calling and conducting regular or special meetings of the
directors or trustees;
b) The time and manner of calling and conducting regular or special meetings and mode of
notifying the stockholders or members thereof;
c) The required quorum in meetings of stockholders or members and the manner of voting
therein;
d) The modes by which a stockholder, member, director or trustees may attend meetings and
cast their votes;
e) The form for proxies of stockholders and members and the manner of voting them;
f) The directors’ or trustees’ qualifications, duties and responsibilities, the guidelines for
setting the compensation of directors or trustees and officers, and the maximum number of
other board representations that an independent director or trustee may have which shall,
in no case, be more than the number prescribed by the Commission;
officers other than directors or trustees
h) The penalties for violation of the bylaws;
i) In the case of stock corporations, the manner of issuing stock certificates; and
j) Such other matters as may be necessary for the proper or convenient transaction of its
corporate affairs for the promotion of good governance and anti-graft and corruption
measures.
the Stocks and Transfer Books
the
The stock and transfer book, or STB, is the registry of ownership in a corporation. It is the
quintessential record of all stockholders and their corresponding stockholdings in the corporation (SEC
the
Opinion dated 03 July 2015). It is the official record of equity ownership, of stockholder status, and
the
of those who are entitled in vote in meetings. It is such an important corporate register that a
corporate secretary is required to serve as custodian thereof, to make the proper and necessary
entries therein, and to preserve these records.
Section 48. Kinds of Meetings. - Meetings of directors, trustees, stockholders, or members may
be regular or special.
Section 49. Regular and Special Meetings of Stockholders or Members. - Regular meetings
of stockholders or members shall be held annually on a date fixed in the bylaws, or if not so fixed, on
any date after April 15 of every year as determined by the board of directors or trustees: Provided,
That written notice of regular meetings shall be sent to all stockholders or members of record at
least twenty-one (21) days prior to the meeting, unless a different period is required in the bylaws,
law, or regulation: Provided, further, That written notice of regular meetings may be sent to all
stockholders or members of record through electronic mail or such other manner as the Commission
shall allow under its guidelines
At each regular meeting of stockholders or members, the board of directors or trustees shall
endeavor to present to stockholders or members the following:
a) The minutes of the most recent regular meeting which shall include among others:
1.) A description of the voting and vote tabulation procedures used in previous meeting:
2.) A description of the opportunity given to stockholders or members to ask questions and
a record of the questions asked and answers given;
3.) The matters discussed and resolutions reached;
4.) A record of the voting results for each agenda item;
5.) A list of the directors or trustees, officers and stockholders or members who attended
the meeting; and,
6.) Such other items that the Commission may require in the interest of good corporate
governance and theprotection of minority stockholders;
b) A member's list for nonstock corporations and, for stock corporations, material information on
the current stockholders, and their voting rights;
 c) A detailed, descriptive, balanced and comprehensible assessment of the corporation's
performance, which shall include information on any material change in the corporation's
business, strategy or other affairs;
d) A financial report for the preceding year, which shall include financial statements duly signed
and certified in accordance with this Code and the rules the Commission may prescribe, a
statement of the adequacy of the corporation's internal controls or risk management systems,
and statement of all external audit and non-audit fees;
e) An explanation of the dividend policy and the fact of payment of dividends or the reasons for
nonpayment thereof;
f) Director or trustee profiles which shall include, among others, their qualifications and relevant
experience, length of service in the corporation, trainings and continuing education attended,
and their board representations in other corporations
A director, trustee, stockholder, or members may propose any other matter for inclusion in the
agenda at any regular meeting of stockholders or members. Special meetings of directors or members
shall be held at any time deemed necessary or as provided in the bylaws: Provided, however, That at
least one (1) week written notice shall be sent to all stockholders or members, unless a different
period is provided in the bylaws, law or regulation. A stockholder or member may propose the holding
of a special meeting and items to be included in the agenda.
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member:
Provided, That general waivers of notice in the articles of incorporation or the bylaws shall not be
allowed: Provided, further, That attendance at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or convened.
Whenever for any cause, there is no person authorized or the person authorized unjustly refuses to
call a meeting, the Commission, upon petition of a stockholder or member on a showing of good
cause therefore, may issue an order, directing the petitioning stockholder or member to call a
meeting of the corporation by giving proper notice required by this Code or bylaws. The petitioning
stockholder or member shall preside thereafter until at least a majority of the stockholders or
members present have chosen from among themselves, a presiding officer.
Unless the bylaws provide for a longer period, the stock and transfer book or membership book may
be closed at least twenty (20) days for regular meetings arseven (7) days for special meetings before
the scheduled date of the meeting.
In case of postponement of stockholder's or members' regular meetings, written notice thereof and
the reasons therefore shall be sent to all stockholders or members of record at least two (2) weeks
prior to the date of meeting, unless a different period is required under the bylaws, law or
regulation.
The right to vote of stockholders or members may be exercised in the bylaws, through remote
communication or in absentia. The Commission shall issue the rules and regulations governing
participation and voting through remote communication or in absentia, taking into account the
company's scale, number of shareholders or members, structure, and other factors, consistent with
the protection and promotion of shareholders or members' meetings.
Section 50. Place and Time of Meetings of Stockholder or Members. Stockholder's or
members' meetings, whether regular or special, shall be held in the principal office of the
corporation as set forth in the articles of incorporation, or, if not practicable, in the city or
municipality where the principal office of the corporation is located'' Provided, That any city or
municipality in Metro Manila, Metro Cebu, Metro Davao and other Metropolitan areas shall, for
purposes of this section, be considered a city or municipality.
Notice of meetings shall be sent through the means of communication provided in the bylaws which
notice shall state the time, place and purpose of meetings.
Each notice of meeting shall further be accompanied by the following:
(a) The agenda for the meeting:
(b) A proxy form which shall be submitted to the corporate secretary within a reasonable time
prior to the meeting.
(c) When attendance, participation, and voting are allowed by remote communication or in
absentia, the requirements and procedures to be followed when a stockholder or member
elects either option; and,
(d) When the meeting is for the election of directors or trustees, the requirements and procedure
for nomination and election.
All proceedings and any business transacted at a meeting of stockholders or members, if within the
powers or authority of the corporation, shall be valid even if the meeting is improperly held or
called: Provided, That all the stockholders or members of the corporation are present or duly
represented at the meetings and not one of them expressly states at the beginning of the meeting
that the purpose of their attendance is to object to the transaction of any business because the
meeting is not lawfully called or convened.
Section 51. Quorum in Meetings. - Unless otherwise provided in this Code or in the bylaws, a
quorum shall consist of the stockholders representing a majority of the outstanding capital stock or a
majority of the members in the case of nonstock corporations.
Section 52. Regular and Special Meetings of Directors or Trustees; Quorum. - Unless the
articles of incorporation or the bylaws provides for a greater majority, a majority of the directors or
trustees as stated in the articles and incorporation shall constitute a quorum to transact corporate
business, and every decision reached by at least a majority of the directors or trustees constituting a
quorum, except for the election of officers which shall require the vote of the majority of all the
members of the board shall be a valid corporate act.
Regular meetings of the board of directors or trustees of every corporation shall be held monthly,
unless the bylaws provide otherwise.
Special meetings of the board of directors or trustees may be held at any time upon the call of the
president or as provided in the bylaws.
Meetings of directors or trustees of corporations may be held anywhere in or outside of the
Philippines, unless the bylaws provide otherwise. Notice of regular or special meetings stating the
date, time and place of the meeting must be sent to every director or trustee at least two (2) days
prior to the scheduled meeting, unless a longer time is provided in the bylaws. A director or trustee
may waive this requirement, either expressly or impliedly.
Directors or trustees who cannot physically attend or vote at board meetings can participate and vote
through remote communication such as videoconferencing, teleconferencing, or other alternative
modes of communication that allow them reasonable opportunities to participate. Directors or
trustees cannot attend or vote by proxy at board meetings.
A directors or trustee who has the potential interest in any related party transaction must recuse
from voting on the approval of the related party transaction without prejudice to the compliance
with the requirements of Section 31 of this code.
Section 53. Who shall preside at meetings. The chairman or, in his absence, the president shall
preside at all meetings of the directors or trustees as well as of the stockholders or members, unless
the bylaws provide otherwise.
Section 54, Right to Vote of Secured Creditors and Administrators. - In case a stockholder
grants security interest in his or her share in stock corporations, the stockholder-grantor shall have
the right to attend and vote at meetings of stockholders, unless the secured creditor is expressly
given by the stockholder-grantor such right in writing which is recorded in the appropriate corporate
books.
Executors, administrators, receivers, and other legal representatives duly appointed by the court may
attend and vote on behalf of the stockholder or members without any written proxy.
Section 55. Voting in Case of Joint Ownership of Stock. - The consent of all the co-owners
shall be necessary in voting of shares of stock owned jointly by two (2) or more persons, unless there
is a written proxy, signed by all the co-owners, authorizing one (1) or some of them or any other
person to vote such share or shares Provided. That when the shares are owned in an and/or capacity
by the holders thereof, any one of the joint owners can vote said shares or appoint a proxy therefor.
Section 56. Voting Right of Treasury Shares.- Treasury shares shall have no voting right as
long as such shares remain in the Treasury.
Section 57. Manner of Voting; Proxies. - Stockholders and members may vote in person or by
proxy in all meetings of stockholders or members.
When so authorized in the bylaws or by a majority of the board of directors, the stockholders or
members of corporations may also vote through remote communication or in absentia: Provided, That
the votes received before the corporation finishes the tally of votes.
A stockholder or member who participates through remote communication or in absentia shall be
deemed present for purposes of quorum.
The corporation shall establish the appropriate requirements and procedures for voting through
remote communication and in absentia, taking into account the company's scale, number of
shareholders or members, structure and other factors consistent with the basic right of corporate
suffrage.
Proxies shall be in writing, signed and filed, by the stockholder or member, in any form authorized in
the bylaws and received by the corporate secretary within a reasonable time before the scheduled
meeting. Unless otherwise provided in the proxy form, it shall be valid only for the meeting for which
it is intended. No proxy shall be valid and effective for a period longer than five (5) years at any one
time.
Section 58. Voting Trusts. One or more stockholders of a stock corporation may create a voting
trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights
pertaining to shares for a period not exceeding five (5) years at any time: Provided. That in the case
of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for
a period exceeding five (5) years but shall automatically expire upon full payment of the loan. A
voting trust agreement must be in writing and notarized, and shall specify the terms and conditions
thereof. A certified true copy of such agreement shall be filed with the corporation and with the
Commission; otherwise, the agreement is ineffective and unenforceable.
The certificate or certificates of stock covered by the voting trust agreement shall be canceled and
new one shall be issued in the name of the trustee or trustees, stating that they are issued pursuant
to said agreement. The books of the corporation shall state that the transfer in the name of the
trustee or trustees is made pursuant to the voting trust agreement.
The trustee or trustees shall execute and deliver to the transferors, voting trust certificates, which
shall be transferable in the same manner and with the same effect as a certificate of stock.
The voting trust agreement filed with the corporation shall be subject to examination by any
stockholder of the corporation in the same manner as any other corporate book or record, Provided,
That both the trustor and the trustee or trustees may exercise the right of inspection of all corporate
books and records in accordance with the provisions of this Code.
Any other stockholder may transfer the shares to the same trustee or trustees upon the terms and
conditions stated in the voting trust agreement, and thereupon shall be bound by all the provisions of
said agreement.
No voting trust agreement shall be entered into for purposes of circumventing the laws against anti-
competitive agreements, abuse of dominant position, anti-competitive mergers and acquisitions,
violations of nationality and capital requirements, or for the perpetuation of fraud.
Unless expressly renewed, all rights granted in a voting trust shall automatically expire at the end of
the agreed period. The voting trust certificate as well as the certificate of stock in the name of the
trustee or trustees shall thereby be deemed canceled and a new certificate of stock shall be reissued
in the name of the trustees. The voting trustee or trustees may vote by proxy in any manner
authorized under the bylaws unless the agreement provides otherwise.
MERGER OF CONSOLIDATION
Section 75. Plan of Merger or Consolidation. Two or more corporations may merge into a
single corporation which shall be one of the constituent corporations or may consolidate into a new
single corporation which shall be a consolidated corporation. The board of directors or trustees of
each corporation, party to the merger or consolidation, shall approve a plan of merger or
consolidation setting forth the following:
(a) The names of the corporations proposing to merge or consolidate, hereinafter referred to as the
constituent corporations;
(b) The terms of the merger or consolidation and the more of carrying the same into effect;
(c) A statement of the changes, if any, in the articles of incorporation of the surviving corporation in
the case of merger; and, in case of consolidation, all the statements required to be set forth in
the articles of incorporation for corporations organized under this Code; and,
(d) Such other provisions with respect to the proposed merger or consolidation as are deemed
necessary or desirable.
Section 76. Stockholder's or Member's vote of each of the board of directors or trustees
of the constituent corporations of Approval. - Upon approval by a majority of the plan of
merger or consolidation, the same shall be submitted for approval by the stockholders or members of
each of such corporations at separate corporate meetings duly called for the purpose. Notice of such
meetings shall be given to all stockholders or members of the respective corporations in the same
manner as giving notice of the regular or special meetings under Section 49 of this Code. The notice
shall state the purpose of the meeting and include a copy or a summary of the plan of merger or
consolidation.
The affirmative vote of the stockholders representing at least two-thirds (2/3) of the outstanding
capital stock of each corporation in the case of stock corporations or at least two-thirds (2/3) of the
members in the case of nonstock corporations shall be necessary for the approval of such plan.
Any dissenting stockholder may exercise the right of appraisal in accordance with this Code:
Provided, That if after the approval by the stockholders of such plan, the board of directors decides
to abandon the plan, the right of appraisal shall be extinguished.
Any amendment to the plan of merger or consolidation may be made: Provide, That such amendment
is approved by a majority vote of the respective boards of directors or trustees of all the constituent
corporations. Such plan, together with any amendment, shall be considered as the agreement of
merger or consolidation.
Section 77. Articles of Merger or Consolidation. - After the approval by the stockholders or
members as required by the preceding section, articles of merger or articles of consolidation shall be
executed by each of the constituent corporations, to be signed by the president or vice president and
certified by the secretary or assistant secretary setting forth:
(a) The plan of merger or the plan of consolidation;
(b) As to stock corporations, the number of shares outstanding, or in the case of nonstock
corporations, the number of members;
(c) As to each corporation, the number of shares or members for or against such plan, respectively;
(d) The carrying amounts and fair values of the assets and liabilities of the respective companies as
of the agreed cut-off date;
(e) The method to be used in the merger or consolidation of accounts of the companies;
(f) The provisional or pro forma values, as merged or consolidated, using the accounting method;
and
(g) Such other information as may be prescribed by the Commission.
Section 78. Effectivity of Merger or Consolidation. - The articles of merger or of
consolidation, signed and certified as required by this Code, shall be submitted to the Commission for
its approval: Provided, That in the case of merger or consolidation of banks or banking institutions,
loan associations, trust companies, insurance companies, public utilities, educational institutions,
and other special corporations governed by special laws, the favorable recommendation of the
appropriate government agency shall first be obtained. If the Commission is satisfied that the merger
or consolidation of the corporations concerned is consistent with the provisions of this Code and
existing laws, it shall issue a certificate approving the articles and plan of merger or of consolidation,
at which time the merger or consolidation shall be effective.
If upon investigation, the Commission has reason to believe that the proposed merger or
consolidation is contrary to or inconsistent with the provisions of this Code or existing laws, it shall
set a hearing to give the corporations concerned the opportunity to be heard. Written notice of the
date, time, and place of hearing shall be given to each constituent corporations at least two (2)
weeks before said hearing. The Commission shall thereafter proceed as provided in this Code.
Section 79. Effects of Merger or Consolidation. - The merger or consolidation shall have the
following effects:
(a) The constituent corporations shall become a single corporation which, in case of merger, shall be
surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the
consolidated corporation designation in the plan of consolidation;
(b) The separate existence of the constituent corporations shall cease, except that of the surviving
or the consolidated corporation;
(c) The surviving or the consolidated corporation shall process all the rights, privileges, immunities,
and powers and shall be subject to all the duties and liabilities of a corporation organized under
this Code;
(d) The surviving or consolidated corporation shall possess all the rights, privileges, immunities and
franchise of each constituent corporation; and all real or personal property, all receivables due
on whatever account, including subscriptions to shares and other choses in action, and every
other interest of, belonging to, or due to each constituent corporation, shall be deemed
transferred to and vested in such surviving or consolidated corporation without further act or
deed; and,
(e) The surviving or consolidated corporation shall be responsible for all the liabilities and
obligations of each constituent corporation as though such surviving or consolidated corporation
had itself incurred such liabilities or obligations; and any pending claim, action or proceeding
brought by or against any constituent corporation may be prosecuted by or against the surviving
or consolidated corporation. The rights of creditors or liens upon the property of such constituent
corporations shall not be impaired by the merger or consolidation.
ONE PERSON CORPORATIONS
Section 115. Applicability of Provisions to One Person Corporations. - The provisions of
this Title shall primarily apply to One Person Corporations. Other provisions of this Code apply
suppletorily, except as otherwise provided in this Title.
Section 116. One Person Corporation. - A One Person Corporation is a corporation with a single
stockholder: Provided. That only a natural person, trust, or an estate may form a One Person
Corporation.
Banks and quasi-banks, preneed, trust, insurance, public and publicly-listed companies, and non-
chartered government owned-and-controlled corporations may not incorporate as One Person
Corporations: Provided, further, That a natural person who is license to exercise a profession may not
organize as One Person Corporation for the purpose of exercising such profession except as otherwise
provided under special laws.
Section 117. Minimum Capital Stock Not Required for One person Corporation. - A One
Person Corporation shall not be required to have a minimum authorized capital stock except as
otherwise provided by special law.
Section 118. Articles of Incorporation. - A One Person Corporation shall file articles of
incorporation in accordance with the requirements under Section 14 of this Code.
It shall likewise substantially contain the following:
(a) If the single stockholder is a trust or an estate, the name, nationality, and residence of the
trustee, administrator, executor, guardian, conservator, custodian, or other person exercising
fiduciary duties together with the proof of such authority to act on behalf of the trust or estate;
and,
(b) Name, nationality, residence of the nominee and alternate nominee, and the extent, coverage
and limitation of the authority.
Section 119. Bylaws. - The One Person Corporation is not required to submit and file corporate
Bylaws.
Section 120. Display of Corporate Name. - A One Person Corporation shall indicate the letters
"OPC" either below or at the end of its corporate name.
Section 121. Single Stockholder as Director, President. - The single stockholder shall be the
sole director and president of the One Person Corporation.
Section 122. Treasurer, Corporate Secretary, and Other Officers. Within fifteen (15) days
from issuance of its certificate of incorporation, the One Person Corporation shall appoint a
treasurer, corporate secretary, and other officers as it may deem necessary, and notify the
Commission thereof within five (5) days from appointment.
The single stockholder may not be appointed as the corporate secretary.
A single stockholder who is likewise the self- appointed treasurer of the corporation shall five a bond
to the Commission in such sum as may be required: Provided, That the said stockholder/treasurer
shall undertake in writing to faithfully administer the One Person Corporation's funds to be received
as treasurer, and to disburse and invest the same according to the articles of incorporation as
approved by the Commission. The bond shall be renewed every two (2) years or as often as may be
required.
Section 123. Special Functions of the Corporate Secretary. In addition to the functions
designated by the One Person Corporation, the corporate secretary shall:
(a) Be responsible for maintaining the minutes book and/or records of the corporation;
(b) Notify the nominee or alternative nominee of the death or incapacity of the single stockholder,
which notice shall be given not later than five (5) days from such occurrence;
(c) Notify the Commission of the death of the single stockholder within five (5) days from such
occurrence and stating in such notice the names, residence address, and contact details of all
known legal heirs; and,
(d) Call the nominee or alternate nominee and the known legal heirs to a meeting and advise the
legal heirs with regard to, among others, the election of a new director, amendment of the
articles of incorporation, and other ancillary and/or consequential matters.
Section 124. Nominee and Alternate Nominee. - The single stockholder shall designate a
nominee and an alternate nominee who shall, in the event of the single stockholder's death or
incapacity, take the place of the single stockholder as director and shall manage the corporation's
affairs.
The articles of incorporation shall state the names, residence address and contact details of the
nominee and alternate nominee, as well as the extent and limitations of their authority in managing
the affairs of the One Person Corporation.
The written consent of the nominee and alternate nominee shall be attached to the application for
incorporation. Such consent may be withdrawn in writing any time before the death of the single
stockholder.
Section 125. Term of Nominee and Alternate Nominee. - When the incapacity of the single
stockholder is temporary, the nominee shall sit as director and manage the affairs of the One Person
Corporation until the stockholder, by self determination, regains the capacity to assume such duties.
In case of death or permanent incapacity of the single stockholder, the nominee shall sit as director
and manage the affairs of the One Person Corporation until the legal heirs of the single stockholder
have been lawfully determined, and the heirs have designated one of them or have agreed that the
estate shall be the single stockholder of the One Person Corporation.
The alternate nominee shall sit as director and manage the One Person Corporation in case of the
nominee's inability, incapacity, death, or refusal to discharge the functions as director and manager
of the corporation, and only for the same term and under the same conditions applicable to the
nominee.
Section 126. Change of the Nominee or Alternate Nominee. The single stockholder may, at
any time, change its nominee and alternate nominee by submitting to the Commission the names of
the new nominees and their corresponding written consent. For this purpose, the articles of
incorporation need not be amended.
Section 127. Minutes Book. - A One Person Corporation shall maintain a minutes book which shall
contain all actions, decisions, and resolutions taken by the One Person Corporation.
Section 128. Records in Lieu of Meetings. - When action is needed on any matter, it shall be
sufficient to prepare a written resolution, signed and dated by the single stockholder and recorded in
the minutes book of the One Person Corporation. The date of recording in the minute book shall be
deemed to be the date of the meeting for all purposes under this Code.
Section 129. Reportorial Requirements. - The One Person Corporation shall submit the
following within such period as the Commission may prescribe:
(a) Annual financial statements audited by an independent certified public accountant: Provided,
That if the total assets or total liabilities of the corporation are less than Six Hundred Thousand
Pesos (P600,000.00), the financial statements shall be certified under oath by the corporation's
treasurer and president.
(b) A report containing explanations or comments by the president on every qualification,
reservation, or adverse remark or disclaimer made by the auditor in the latter's report:
(c) A disclosure of all self-dealings and related party transactions entered into between One Person
Corporation and the single stockholder, and,
(d) Other reports as the Commission may require.
For purposes of this provision, the fiscal year of a One Person Corporation shall be that set forth in its
articles of incorporation, or in the absence thereof, the calendar year.
The Commission may place the corporation under delinquent status should the corporation fail to
submit the reportorial requirements three (3) times, consecutively or intermittently, within a period
of five (5) years.
Section 130. Liability of Single Shareholder. - A sole shareholder claiming limited liability has
the burden of affirmatively showing that the corporation is adequately financed.
Where the single stockholder cannot prove that the property of One Person Corporation is
independent of the stockholder's personal property, the stockholder shall be jointly and severally
liable for the debts and other liabilities of the One Person Corporation.
The principles of piercing the corporate veil applies with equal force to the One person Corporations
as with other corporations.
Section 131. Conversion from an Ordinary Corporation to a One Person Corporation. -
When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter may
apply for conversion into One Person Corporation, subject to the submission of such documents as the
Commission may require. If the application for conversion is approved, the Commission shall issue a
certificate of filing amended articles of incorporation reflecting the conversion. The One Person
Corporation converted from an ordinary stock corporation shall succeed the latter and be legally
responsible for all the latter's outstanding liabilities as of the date of conversion.
Section 132. Conversion from a One Person Corporation to an Ordinary Stock
Corporation. A One Person Corporation may be converted into an ordinary stock corporation after
due notice to the Commission of such fact and of the circumstances leading to the conversion, and
after compliance with all other requirements for stock corporations under this Code and applicable
rules. Such notice shall be filed with the Commission within sixty (60) days from the occurrence of
the circumstances leading to the conversion into an ordinary stock corporation. If all the
requirements have been complied with, the Commission shall issue a certificate of filing an amended
articles of incorporation reflecting the conversion.
In case of death of the single stockholder, the nominee or alternative nominee shall transfer the
shares to the duly designated legal heir or estate within seven (7) days from receipt of either an
affidavit of heirship or self-adjudication executed by sole heir, or any other legal document declaring
the legal heirs of the single stockholder and notify the Commission of the transfer. Within sixty (60)
days from the transfer of shares, the legal heirs shall notify the Commission of their decision to either
wind up and dissolve the One Person Corporation or convert it into an ordinary stock corporation. The
ordinary stock corporation converted from One Person Corporation shall succeed the latter and be
legally responsible for all the latter's outstanding liabilities as of the date of conversion.
COOPERATIVES
An autonomous and duly registered association of persons, with a common bond of interest, who have
voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by
making equitable contributions to the capital required, patronizing their products and services and
accepting a fair share of the risks and benefits of the undertaking in accordance with universally
accepted cooperative principles.
COOPERATIVE PRINCIPLES
1. Voluntary and Open Membership
2. Democrative Member Control
3. Member Economic Participation
4. Autonomy and Independence
5. Education, Training and Information
6. Cooperation Among Cooperatives
7. Concern for Community
ORGANIZATION AND REGISTRATION.
ARTICLES OF COOPERATION: Filed with the Cooperative Development Authority (Authority) which
shall be signed by the organizers and acknowledged by them if natural persons, and by the
chairpersons or secretaries, if juridical persons, before a notary public.
Economic survey: Every group of individuals or cooperatives intending to form a cooperative shall
submit to the CDA a general statement describing among other the structure and purposes of the
proposed cooperative; provided, that the structure and actual staffing pattern of the cooperative
shall include a bookkeeper; provided further, that they shall not be allowed to operate without the
necessary personnel and shall also submit an economic survey, indicating therein:
 Area of operation;
 Size of membership; and
 Other pertinent data in a format provided by the CDA.
Organizing a primary cooperative: would require 15 or more natural persons who are:
1. Filipino citizens;
 2. Of legal age;
3. Having a common bond of interest; and
4. Are actually residing or working in the intended area of operation,
Subscription
Minimum subscription: 25% of authorized share capital
Under CDA MC 2011-05, this requirement shall apply to common share capital only. Should preferred
share capital be provided in the bylaws, it shall not exceed 25% of the total authorized share capital
of the cooperative. No fractional shares shall be issued for both the common and preferred share
capital.
Minimum paid-up share capital: 25% of the total subscription but not less than P15,000.00 except for
multipurpose cooperatives which should have at least P100,000.00 or as required by the feasibility
study whichever is higher (Article VIII, Section 2.2 of CDA MC 2015-01)
In terms of membership:
a. Primary - The members of which are natural persons except electric cooperative, water
service cooperative and other cooperatives which the implementing rules and the Authority
may allow;
b. Secondary - The members of which are primaries; and
c. Tertiary - The members of which are secondary cooperatives; and
Registration. A cooperative formed and organized under The Cooperative Code acquires juridical
personality from the date the Authority issues a certificate of registration under its official seal.
Rules on Cooperative Name
 The word "Cooperative", "Kooperatiba", or "Cooperativa" shall be included in the name of the
cooperative, which name shall likewise specify the type of cooperative.
 No cooperative name shall be allowed by the CDA if the proposed name is identical or
deceptively or confusingly similar to that of any existing cooperative, contrary to public
policy, morals, and existing laws.
 The use of the words "development" and "integrated" shall be discouraged.
 The use of "Incorporated", "Corporation", "Company", "Incorporation", "Partnership", or other
similar connotation and abbreviation shall not be allowed.
 The use of the "Federation" and "Union" in the name of the proposed primary cooperative is
prohibited except if it is part of the registered name of association or institution where the
members of the proposed cooperative come from.
 Name shall not be written in all capital letters except if it is an acronym. Acronym shall be
written after the full name of cooperative.
Registration of Secondary and Tertiary Cooperatives. The minimum number of members and minimum
paid- up share capital for the:
Secondary Category:
Tertiary Category:
Characteristics.
Liability: A cooperative duly registered shall have limited liability.
Separate personality: A cooperative can be likened to a corporation with a personality separate
and distinct from its owner-members.
Term: for a period not exceeding 50 years from the date of registration; may be extended for
periods not exceeding 50 years, but no extension can be made earlier than 5 years prior to the
original or subsequent expiry date/dates unless there are justifiable reasons.
Division and Merger.
Division of cooperatives: Any registered cooperative may, by a resolution approved by a vote of
three-fourths (3/4) of all the members with voting rights, present and constituting a quorum, resolve
to divide itself into the two (2) or more cooperatives.
Merger and Consolidation: Two (2) or more cooperatives may merge into a single cooperative which
shall either be one of the constituent cooperatives or the consolidated cooperative.
FUNCTIONS OF A FEDERATION OF COOPERATIVES
1. To carry on any cooperative enterprise authorized under Article 6 that complements
augments, or supplements but does not conflict, complete with, nor supplant the business or
economic activities of its members;
2. To carry on, encourage, and assist educational and advisory work relating to its member
cooperatives;
3. To render services designed to encourage simplicity, efficiency, and economy in the conduct
of the business of its member cooperatives and to facilitate the implementation of their
bookkeeping, accounting, and other systems and procedures;
4. To print, publish, and circulate any newspaper or other publication in the interest of its
member cooperatives and enterprises;
5. To coordinate and facilitate the activities of its member cooperatives;
6. To enter into joint ventures with national or international cooperatives of other countries in
the manufacture and sale of products and/or services in the Philippines and abroad;
 7. To perform such other functions as may be necessary to attain its objectives.
A federation of cooperatives may be registered by carrying out the formalities for registration of a
cooperative.
Registered cooperatives and federations at the appropriate levels may organize or join cooperative
unions to represent the interest and welfare of all types of cooperatives at the provincial, city,
regional, and national levels.
FUNCTIONS OF A COOPERATIVE UNIONS
1. To represent its member organizations;
2. To acquire, analyze, and disseminate, economic, statistical, and other information relating
to its members and to all types of cooperatives within its area of operation;
3. To sponsor studies in the economic, legal, financial, social and other phases of cooperation,
and publish the results thereof;
4. To promote the knowledge of cooperative principles and practices;
5. To develop the cooperative movement in their respective jurisdictions;
6. To advise the appropriate authorities on all questions relating to cooperatives;
7. To raise funds through membership fees, dues and contributions, donations, and subsidies
from local and foreign sources whether private or government; and
8. To do and perform such other non-business activities as may be necessary to attain the
foregoing objectives.
Cooperative unions may assist the national and local governments in the latter's development
activities in their respective jurisdictions.
KINDS OF MEMBERSHIP
A regular member is one who has complied with all the membership requirements and entitled to all
the rights and privileges of membership.
An associate member is one who has no right to vote nor be voted upon and shall be entitled only to
such rights and privileges as the by-laws may provide: Provided, That an associate who meets the
minimum requirements of regular membership, continues to patronize the cooperative for two (2)
years, and signifies his/her intention to remain a member shall be considered a regular member.
RULES ON GOVERNMENT OFFICERS AND EMPLOYEES
Any officer or employee of the CDA shall be disqualified to be elected or appointed to any position in
a cooperative: Provided, That the disqualification does not extend to a cooperative organized by the
officers or employees of the CDA.
All elective officials of the Government shall be ineligible to become officers and directors of
cooperatives: Provided, That the disqualification does not extend to a party list representative being
an officer of a cooperative he or she represents;
Any government employee or official may, in the discharge of his duties as a member in the
cooperative, be allowed by the end of office concerned to use official time for attendance at the
general assembly, board and committee meetings of cooperatives as well as cooperative seminars,
conferences, workshops, technical meetings, and training courses locally or abroad: Provided, That
the operations of the office concerned are not adversely affected.
TERMINATION OF MEMBERSHIP
 Withdrawal
 Death or Insanity
 Vote of the majority
LABORATORY COOPERATIVE
 Members
 Purposes
 Affliation
 Rules
 Termination
GENERAL ASSEMBLY. The General Assembly refers to the full membership of the cooperative duly
assembled for the purpose of exercising the rights and performing all the obligations pertaining to
cooperatives, and is considered the highest policy-making body of the cooperative.
Exclusive Powers
To determine and approve amendments to the articles of cooperation and bylaws;
To elect or appoint the members of the board of directors, and to remove them for cause. However,
in the case of the registered electric cooperatives, election of the members of the board shall be
held in accordance with its bylaws or election guidelines of such electric cooperative
To approve developmental plans of the cooperative.
Delegation of powers of the GA: only for purposes of prompt and intelligent decision-making, the
general assembly may by a three-fourths (3/4) vote of all its members with voting rights, present and
constituting a quorum, delegate some of its powers to a smaller body of the cooperative; these
powers shall be enumerated under the bylaws of the cooperative.
 Meetings
 Regular Meetings
 Special Meetings
 Quorum.
Voting system: Each member of a primary cooperative shall have only one vote.
In case of members of secondary or tertiary cooperatives, they shall have one basic vote and as many
incentive votes as provided for in the bylaws but not to exceed 5 votes.
Delegates: the votes cast by the delegates shall be deemed as votes cast by the members thereof.
Voting by proxy may be allowed by the by-laws of a cooperative other than a primary cooperative. C. The risk insured against.
D. The period of coverage of the insurance.
Board of Directors on Cooperatives.
SEC. 51. A policy of insurance must specify:
The direction and management of the affairs of the cooperatives shall be vested in a Board of
Directors, unless the by-laws provide otherwise. 1. The parties between whom the contract is made;
2. The amount to be insured except in the cases of open or running policies;
Composition: not less than 5 but not more than 15 elected by the general assembly. 3. The premium, or if the insurance is of a character where the exact premium is only
determinable upon the termination of the contract, a statement of the basis and rates upon
Term: 2 years
which the final premium is to be determined;
Powers: 4. The property or life insured;
5. The interest of the insured in property insured, if he is not the absolute owner thereof;
1. Strategic planning; 6. The risks insured against; and
2. Direction-setting; and 7. The period during which the insurance is to continue.
3. Policy formulation
CLASSES OF INSURANCE
In the case of primary cooperatives, regular meetings of the board of directors shall be held at least
once a month. MARINE INSURANCE. It covers the loss or damage of ships, cargo, terminals, and any transport by
which the property is transferred, acquired, or held between the points of origin and the final
INSURANCE (R.A. 10607) destination.
CONCEPT OF INSURANCE FIRE INSURANCE. It includes insurance against loss by fire, lightning, windstorm, tornado or
earthquake and other allied risks, when such risks are covered by extension to fire insurance policies
A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify
or under separate policies.
another against loss, damage or liability arising from an unknown or contingent event.
CASUALTY INSURANCE. An insurance covering loss or liability arising from accident or mishap,
ELEMENTS: INSURANCE CONTRACT
excluding certain types of loss which by law or custom are considered as falling exclusively within the
Like any other contract, an insurance contract must have consent of the parties, object and cause or scope of other types of insurance such as fire or marine. It includes, but is not limited to, employer's
consideration. The parties who give their consent in this contract are the insurer and insured. The liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
object of the contract is the transferring or distributing of the risk of loss, damage, liability or insurance, personal accident and health insurance as written by non-life insurance companies, and
disability from the insured to the insurer. The cause or consideration of the contract is the premium other substantially similar kinds of insurance.
which the insured pays the insurer.
SURETYSHIP. A contract of suretyship is an agreement whereby a party called the surety guarantees
PERFECTION OF INSURANCE CONTRACT the performance by another party called the principal or obligor of an obligation or undertaking in
favor of a third party called the obligee. It includes official recognizances, stipulations, bonds or
An insurance contract is perfected when the assent or consent is manifested by the meeting of the undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended
offer and the acceptance upon the thing and the cause which are to constitute the contract. Mere by Act No. 2206.
offer or proposal is not contemplated.
LIFE INSURANCE. Life insurance is insurance on human lives and insurance appertaining thereto or
CHARACTERISTICS AND NATURE: INSURANCE CONTRACT connected therewith.

WHAT MAY BE INSURED. Any contingent or unknown event, whether past or future, which may
damnify a person having an insurable interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.
WHICH OF THE FOLLOWING ITEMS NEED NOT BE CONTAINED IN A POLICY INSURANCE?
A. The amount to be insured in an open policy.
B. The interest of the insured who is not the absolute owner of the property insured.
MICROINSURANCE. Microinsurance is the protection of low-income people against specific perils in
exchange for regular premium payment proportionate to the likelihood and cost of the risks involved.
WHICH OF THE FOLLOWING STATEMENTS RELATIVE TO MARINE INSURANCE POLICIES IS TRUE?
A. An "all risks" marine insurance policy covers all losses during the voyage, provided they arise
only from a maritime peril.
 B. An "inchamaree clause" in a marine insurance policy does not cover loss or damage to the The term variable contract shall mean any policy or contract on either a group or on an individual
hull or machinery arising from the negligence of the captain or crew. basis issued by an insurance company providing for benefits or other contractual payments or values
C. A "lost or not los" provision in a marine insurance policy means that the insurer expressly thereunder to vary so as to reflect investment results of any segregated portfolio of investments or of
binds itself in the event of loss of the vessel, even if the vessel should already be lost at the a designated separate account in which amounts received in connection with such contracts shall
time the contract was entered into. have been placed and accounted for separately and apart from other investments and accounts. This
D. A "floater policy" covers jewelry, works of art and other valuable personal property which contract may also provide benefits or values incidental thereto payable in fixed or variable amounts,
must be moved from one place to another as a condition for the insurer's liability in case of or both.
loss or damage.
No insurance company authorized to transact business in the Philippines shall issue, deliver, sell or
An "all risk" marine insurance policy covers all losses during the voyage, whether or not they arise use any variable contract in the Philippines, unless and until such company shall have satisfied the
from maritime peril. It even includes pilferages losses at wartime. Commissioner that its financial and general condition and its methods of operations, including the
issue and sale of variable contracts, are not and will not be hazardous to the public or to its policy
An "inchamaree clause" in a marine insurance policy covers loss or damage to the hull or machinery and contract owners. No foreign insurance company shall be authorized to issue, deliver or sell any
through: variable contract in the Philippines, unless it is likewise authorized to do so by the laws of its
domicile.
1. Negligence of the captain or crew
2. Explosion or breakage of shafts; or INSURABLE INTEREST
3. Latent defect of the hull or machinery
Every person has an insurable interest in the life and health:
A "lost or not lost" provision in a marine insurance policy means that the insurer expressly binds itself
in the event if loss of the vessel even if the vessel should already be lost at the time the contract was 1. Of himself, of his spouse and of his children;
entered. 2. Of any person on whom he depends wholly or in part for education or support, or in whom he
has a pecuniary interest;
A "floater policy" covers jewelry, works of art and other valuable personal property. It is so-called 3. Of any person under a legal obligation to him for the payment of money, or respecting
because the insurance policy follows wherever the movable is carried or transported. But the practice property or services, of which death or illness might delay or prevent the performance; and
is to issue floaters even to articles that are not moved from their location. 4. Of any person upon whose life any estate or interest vested in him depends.
THE INSURER IS NOT LIABLE UNDER A FIRE INSURANCE POLICY WHERE: RESCISSION OF INSURANCE CONTRACT
A. The fire that originated from an adjacent building caused the "LPG" tank in insured house to In a non-life insurance policy, the insurer may rescind a contract of insurance prior to the
explode. commencement of an action on the contract.
B. The "LPG" tank in an adjacent building tat exploded caused fire to the insured house.
C. The "LPG" tank in an adjacent building that exploded caused fire to the insured house, In a life insurance policy, the insurer may rescind the contract of insurance during the first two years
explosion being an excepted risk in the policy. when the policy was in force during the lifetime of the insured from the date of its issue or of its last
D. The appliances in the insured house were damaged due to mishandling in an attempt to reinstatement.
rescue them from the fire.
A concealment whether intentional or unintentional entitles the injured party to rescind a contract of
An insurer is liable for loss: insurance.

1. Where the proximate cause is the peril insured against- in fire insurance, where a fire that An intentional and fraudulent omission, on the part of one insured, to communicate information of
originated from an adjacent building caused the "LPG" tank in the insured house to explode, matters proving or tending to prove the falsity of a warranty, entitles the insurer to rescind.
the insurer is liable since the proximate cause (fire) is the peril insured against, even if the
immediate cause (explosion) may not be insured against. If a representation is false in a material point, whether affirmative or promissory, the injured party is
2. Where the immediate cause is the peril insured against, even if the proximate cause is not entitled to rescind the contract from the time when the representation becomes false.
the peril insured against, unless the proximate cause is an excepted risk - in fire insurance,
What are the requisites in order that the insurer may rescind a life insurance policy?
where the "LPG" tank in an adjacent building that exploded caused fire to the insured
house; but the insurer is not liable if explosion was an excepted risk. 1. There must be a basis for the rescission (breach of warranty, concealment,
misrepresentation, etc.)
VARIABLE CONTRACTS
 2. The rescission must be coupled with a check for the amount of premiums already paid.
(without this, the rescission is not effective)
3. The rescission must be exercised within the two years that the insurance is in force during
the lifetime of the insured.
WHICH OF THE FOLLOWING CASES WOULD MAKE THE INSURER LIABLE ON THE INSURANCE?
A. Insured concealed that he had contracted syphilis; he died from a vehicular accident a year
later.
B. Insured (an old, illiterate Chinese who does not speak English) concealed the fact that she
was seriously ill in an insurance contract.
C. Insured concealed that he was suffering from tuberculosis in his non-medical insurance that
dispenses with the usual medical examination.
D. Insured concealed the fact that he was diabetic which resulted to his death three (3) years
later.
The insurer is liable even if the insured concealed the fact that he was diabetic which resulted to his
death three (3) years. Concealment does not bar recovery on the policy where death occurs after the
incontestability period of two (2) years from the date of issue or last reinstatement of the policy
payable upon the death of the insured. But where concealment is made within the 2-year
incontestable period (may be shortened but not extended), the insurer may rescind the policy. even
if the cause of death be different from the sickness concealed.
A non-medical insurance does not grant the insured the right to conceal material information
regarding his medical and physical condition, past and present.
In a case, the Supreme Court absolved the insurer from liability where the insured (an old, illiterate
Chinese who does not speak English) concealed the fact that she was seriously ill in an insurance
contract worded in English (Tang vs CA, 90 SCRA 236).
Allan took a life insurance policy on January 2, 2000 with his wife as the beneficiary upon his death.
In the application, Allan answered In the negative the question whether or not he was hospitalized in
the past five (5) years prior to the application for insurance. Allan died of leukemia on October 1,
2003. Which of the following statements is CORRECT?
A. The insurer is liable because the death occurred more than two (2) years from the date of
issue of the life insurance policy.
B. The insurer is liable because the concealment is NOT material.
C. The insurer is NOT liable because the death occurred more than two (2) years from the date
of issue of the life insurance policy.
D. The insurer is not liable because the concealment, being material, is NOT subject to the
incontestability clause in life insurance.
The insurer is liable despite the concealment. The incontestability period no longer applies where the
death occurred more than two (2) years (January 2, 2001 to October 1, 2003) from the date of issue
or last reinstatement of the life insurance policy payable upon the death of the insured. In other
words, after this period the insurer is barred from rescinding or annulling the contract on the ground
of concealment of misrepresentation on the part of the insured.
CLAIMS SETTLEMENT
No insurance company doing business in the Philippines shall refuse, without just cause, to pay or
settle claims arising under coverages provided by its policies, nor shall any such company engage in
unfair claim settlement practices.
Any of the following acts by an insurance company, if committed without just cause and performed
with such frequency as to indicate a general business practice, shall constitute unfair claim
settlement practices:
1. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to
coverage at issue;
2. Failing to acknowledge with reasonable promptness pertinent communications with respect
to claims arising under its policies;
3. Failing to adopt and implement reasonable standards for the prompt investigation of claims
arising under its policies;
4. Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims
submitted in which liability has become reasonably clear; or
5. Compelling policyholders to institute suits to recover amounts due under its policies by
offering without justifiable reason substantially less than the amounts ultimately recovered
in suits brought by them.
FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA); (R.A. NO. 10142)
State 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.
The State guarantees a timely, fair, transparent, effective and efficient rehabilitation or liquidation
of debtors.
Introduction
 February 2, 2010, Congress adopted R.A. No. 10142, the Financial Rehabilitation and
Insolvency Act of 2010 (“FRIA”).
 The FRIA lapsed into law and became effective on July 18, 2010.
 The FRIA replaces and repeals the Insolvency Law (Act No. 1956), which was enacted in
1909.
 The FRIA impliedly amends the Rules of Procedure on Corporate Rehabilitation (2008).
Nature of Proceedings: IN REM. Jurisdiction is acquired by publication: 1 newspaper of general
circulation in the PH for 2 consecutive weeks.
Who is a debtor under FRIA?
 Sole proprietorship registered with DTI;
 It has no separate personality on its own but it is still considered a juridical debtor
under FRIA.
  Partnership registered with SEC;
 Generally, partnership need not be registered. However, for you to be considered
under FRIA, partnership must be registered. Unregistered partnership is not
covered.
 Corporation organized and existing under Philippine laws;
 Individual debtor who has become insolvent.
 Natural person who is a resident and citizen of the Philippines that has become
insolvent.
 Banks, insurance companies, pre-need companies, and national and local government
agencies or units are not considered debtors under FRIA.
 Government Financial Institutions other than banks and GOCCs are covered by FRIA
unless their charter provides otherwise.
Insolvent
It refers to the financial condition of a debtor where such debtor:
a. is generally unable to pay its or his liabilities as they fall due in the ordinary course of
business; (TECHNICAL INSOLVENCY) or
b. has liabilities that are greater than its or his assets. (ACTUAL INSOLVENCY)
Prior to FRIA, only a technically insolvent debtor may file a petition for rehabilitation. An actually
insolvent debtor could not file a petition for rehabilitation but should file a petition for insolvency,
instead.
FRIA covers both technical and actual insolvency.
Remedies Available to Insolvent Debtors
1.) SUSPENSION OF PAYMENTS
 It is an action available only for insolvent individual debtors. It is an action for the
insolvent individual debtor to be declared in the state of suspension of payments.
 An insolvent corporation, for instance, cannot ask for suspension of payments.
2.) REHABILITATION
 Rehabilitation refers 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.
3.) LIQUIDATION
2ND REMEDY: REHABILITATION
Types of Rehabilitation
For insolvent juridical debtors:
A. COURT-SUPERVISED REHABILITATION
 Voluntary Proceeding: file a petition for rehabilitation.
 Involuntary Proceeding: file a petition for rehabilitation. Initiated by any creditor or group
of creditors with a claim of, or the aggregate of whose claims is at least P1M or at least 25%
of the subscribed capital stock or partners’ contributions, whichever is higher. Thus, not all
creditors can file. The requirement must be met.
 Commencement Order
 This is only available in a court-supervised rehabilitation.
 If the court finds that the Petition for Rehabilitation is sufficient in form and in
substance, then it will issue a commencement order. It shall contain a commencement
date and a stay or suspension order.
 Commencement date refers 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.
Effects of Commencement Order:
 Vest the rehabilitation [receiver] with all the powers and functions provided for under the
FRIA;
 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;
 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;
 Serve as the legal basis for rendering null and void the perfection of any lien against the
debtor's property after the commencement date;
 Consolidate the resolution of all legal proceedings by and against the debtor to the court;
 Exempt the debtor from liability for taxes and fees, including penalties, interests and charges
thereof due to the national government or to LGUS.
Contents of a Stay or Suspension Order:
 Suspend all actions for the enforcement of claims against the debtor;
 Suspend all actions to enforce any judgment, attachment or other provisional remedies
against the debtor;
 Prohibit the debtor from disposing its properties except in the ordinary course of business;
 Prohibit the debtor from making payment of liabilities outstanding as of the commencement
date.
Rehabilitation Receiver
 Any qualified natural or juridical person may serve as a rehabilitation receiver.
 Note: If a juridical person, it must designate a natural person as its representative. Both of
them are solidarily liable.
Duties of Receiver
 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 Rehabilitation Plan
  Implementing the approved Rehabilitation Plan
Note: A rehabilitation receiver does not take over the management and control of debtor BUT he may
recommend the appointment of a management committee.
Grounds for appointment of management committee:
1. Actual or is imminent danger of dissipation, loss, wastage or destruction of assets;
2. Paralyzation of business operations may be prejudicial to the interest of minority
stockholders, parties-litigants or to the general public;
3. Gross mismanagement of the debtor, fraud or other wrongful conduct on the part of, or
gross or willful violation of the FRIA.
Determination of Claims
 Preliminary Registry of Claims
 To be established by the rehabilitation receiver within twenty (20) days from his
assumption into office.
 The rehabilitation receiver shall make the registry available for public inspection.
The period of inspection shall not exceed 15 days from the last publication.
 Opposition or Challenge of Claims
 Within 30 days from the expiration of the period to inspect, the debtor, creditors,
stakeholders and other interested parties may submit a challenge to claim/s to the
court.
 Upon the expiration of the 30-day period, the rehabilitation receiver shall submit to
the court the registry of claims which shall include the list of:
i. Claims that have not been subject to challenge;
ii. Claims resolved by the rehabilitation receiver after these have been
challenged; and
iii. Disputed but unresolved claims
Rehabilitation Plan: Refers to a plan by which the financial well-being and viability of an insolvent
debtor can be restored using various means as a going concern, or setting up of new business entity as
prescribed in Section 62 or other similar arrangements as may be approved by the court or creditors.
Creditor Approval of Rehabilitation Plan
 The rehabilitation receiver shall notify the creditors and stakeholders that the Plan is ready
for their examination.
 Within 20 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 whose rights
are adversely modified or affected by the Plan.
 Thus, all classes must approve. But it does not require 100% approval.
The Plan is deemed to have been approved by a class of creditors if members of the said
class holding more than 50% of the total claims of the said class vote in favor of the Plan.
Can the court confirm the Rehabilitation Plan notwithstanding its rejection? YES!
 Rehabilitation Plan complies with the requirements;
 Rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
 The shareholders, owners or partners of the juridical debtor lose at least their controlling
interest as a result of the Rehabilitation Plan; and
 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.
Submission of Rehabilitation Plan to the Court
► If the Rehabilitation Plan is approved, the rehabilitation receiver shall submit the same to
the court for confirmation.
► Within 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.
Objections to Rehabilitation Plan
► A creditor may file an objection to the Rehabilitation Plan within 20 days from notice.
► Grounds for Objections are 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;
c. The Rehabilitation Plan is in fact not supported by the voting creditors.
Confirmation of the Rehabilitation Plan
► The court shall issue an order confirming the Rehabilitation Plan in any of the following
instances:
a. No objections are filed within the 20-day period;
b. The court finds the objections lacking in merit
c. The basis for the objection has been cured;
d. The debtor has complied with an order to cure the objection
Effects of Confirmation of Rehabilitation Plan
► Once the court confirms the plan, it is now 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 (Cram Down Rule);
► The court shall have a maximum period of 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 proprio, be converted into one for the
liquidation of the debtor.
FAILURE OF REHABILITATION
 ► If the termination of proceedings is due to failure of rehabilitation or dismissal of the Note: The Standstill period shall be effective and enforceable not only against the contracting
petition for reasons other than technical grounds, the proceedings shall be immediately parties but also against other creditors.
converted to liquidation.
It is valid if: Approved by creditors representing more than 50% of the total liabilities of the debtor;
B. PRE-NEGOTIATED REHABILITATION
Notice is published in a newspaper of general circulation in the Philippines once a week for 2
 An action where a rehabilitation plan has already been preapproved by the insolvent consecutive weeks; The standstill period shall not exceed 120 days from the date of effectivity.
debtor and only some of the creditors, but its enforcement is still subject to court
supervision.
 Here, before going to court, they already have a rehabilitation plan.
Expiration of the Standstill Period
A. Petition by Debtor
Whichever comes first among the following:
 Verified petition
 Endorsed or approved by creditors holding at least 2/3 of the total liabilities of the debtor,  Lapse of the 120 days from the effectivity of the standstill agreement;
including secured creditors holding more than 50% of the total secured claims of the debtor  Effectivity of the OCRA; or
and unsecured creditors holding more than 50% of the total unsecured claims of the debtor.  Termination of the negotiation for the OCRA as declared by creditors representing more than
 In short, both secured and unsecured creditors must be represented. 50% of the total liabilities of the debtor.
 The court shall have a maximum period of 120 days from the filing of the petition to approve
the Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Cram Down Rule
Plan shall be deemed approved.
This applies to all types of rehabilitation.
Illustration:
The Rehabilitation Plan (including pre-negotiated plans) confirmed by the court shall be binding upon
Secured Creditors = P40M (more than 20M is required) the debtor and all persons who may be affected by it, including the creditors, whether or not such
Unsecured Creditors = P20M (more than 10M is required) persons have participated in the proceedings or opposed the Rehabilitation Plan or whether or not
Total: P60M (at least 40M is required) their claims have been scheduled.

3RD REMEDY: LIQUIDATION

C. OUT-OF-COURT OR INFORMAL RESTRUCTURING AGREEMENTS OR
REHABILITATION PLANS (OCRA)
 This one is similar to a pre-negotiated rehabilitation plan, but such plan has been pre-
approved by a larger majority of the debtor’s creditors.

The OCRA should be approved by the:

 Debtor;
 Creditors representing at least 67% of the secured obligations of the debtor;
 Creditors representing at least 75% of the unsecured obligations of the debtor; and
 It must be approved by creditors holding at least 85% of the total liabilities, secured
and unsecured, of the debtor.

Illustration:
Secured Creditors = P40M (at least 26.8M is required)
Types of Liquidation:
Unsecured Creditors = P20M (at least 15M is required)
Total: P60M (at least 51M is required)
Standstill Agreement: An extrajudicial agreement whereby the interested parties (debtor and
creditors) to an OCRA agree on the terms and conditions under which they will negotiate and enter
into an OCRA.

What is the objective of liquidation?
For juridical debtors: To resolve and adjust competing claims and property rights of the creditors
and the debtor, maximize asset recovery of the debtor and equitably distribute the debtor’s
properties to the creditors based on the rules on concurrence and preference of credit.
For individual debtors: The objective is to be discharged from his obligations and to start afresh.
A. VOLUNTARY LIQUIDATION (debtor initiates)
 Insolvent juridical debtors - no amount is required for one to initiate the liquidation.
 Insolvent individual debtors - the threshold amount of liabilities is 500,000
B. INVOLUNTARY LIQUIDATION (creditor initiates)
 Insolvent juridical debtors
 Initiated by 3 or more creditors
 The aggregate claim is at least either 1M or at least 25% of the subscribed capital
stock or partner's contributions of the debtor, whichever is higher.
The contents of their petition must show:
 No genuine issue of fact or law on the claims/s;
 Due and demandable payments have not been made for at least 180 days or debtor has
failed generally to meet its liabilities as they fall due;
 No substantial likelihood of rehabilitation.
 Insolvent individual debtors – any group of creditors with aggregate claim of at least
500,000.
CONVERSION
► During the pendency of a court-supervised rehabilitation or pre-negotiated rehabilitation,
such rehabilitation proceedings may be converted into liquidation proceedings.
Court-supervised rehabilitation may be converted:
► If the debtor acted in bad faith or if there is no feasibility to cure the defect subject of the
objection, conversion is automatic.
► No rehabilitation plan is confirmed by the court within 1 year from the filing of the motion
or action for confirmation, conversion is automatic.
► There is breach or failure of rehabilitation plan, conversion is discretionary if based on
technical grounds.
► Conversion is automatic if based on non-technical grounds.
Pre-negotiated rehabilitation may be converted:
► If the debtor acted in bad faith or if there is no feasibility to cure the defect subject of the
objection, conversion is discretionary
► In other cases where the debtor voluntarily asked for the liquidation pending rehabilitation.
LIQUIDATION ORDER: This is an order issued by the court upon finding that liquidation is in
order after voluntary, involuntary, or conversion of rehabilitation into liquidation.
EFFECTS OF THE LIQUIDATION ORDER
► The juridical debtor shall be deemed dissolved and its corporate or juridical existence
terminated;
► 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;
► All contracts of the debtor shall be deemed terminated and/or breached, unless the
liquidator, within 90 days declares otherwise and the contracting party agrees;
► No separate action for the collection of an unsecured claim shall be allowed.
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.
DETERMINATION OF CLAIMS
► Within 20 days from liquidator’s assumption into office, he shall prepare a preliminary
registry of claims of secured and unsecured creditors.
► He shall make the registry available for public inspection and provide publication notice to
creditors and debtors concerned.
► All claims must be duly proven before being paid.
For insolvent individual debtors:
A. SUSPENSION OF PAYMENTS
Available to:
► individual debtor who possess sufficient property to cover all his debts but foresees the
impossibility of meeting them when they respectively fall due.
► Not available as a remedy under FRIA to a juridical insolvent debtor.
► For juridical insolvent debtors, suspension of payments is part of the commencement order
which the court may issue through the filing of a petition for rehabilitation.
► Venue of the petition: Court of the province or city in which he has resides for 6 months prior to
the filing of his petition.
Contents of the petition:
a. Schedule of debts and liabilities
b. Inventory of assets
c. Proposed agreement with his creditors
The objective of suspension of payments is the deferment of the payment of debts until such time as
the debtor, which possesses sufficient property to cover all its debts, is able to convert such assets
into cash or otherwise acquires the cash necessary to pay its debts.

END

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