Published 29 May 2020, The Daily Tribune

To complete our three-part series on options available to businesses in distress, let us discuss a couple of other remedies under FRIA, a standstill agreement and liquidation.

A standstill agreement may be executed pending the negotiation and finalization of the out-of-court or informal restructuring agreement. It is basically an agreement by the debtor and the creditors providing for a standstill period, which is effective and enforceable not only against the contracting parties but also against other creditors. Provided, that such agreement is approved by creditors representing more than 50 percent of the total liabilities of the debtor; notice thereof is published in a newspaper of general circulation in the Philippines once a week for two consecutive weeks; and the standstill period does not exceed 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 are met.


The Supreme Court has observed that liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the same time. In rehabilitation, corporations have to maintain their assets to continue business operations. In liquidation, on the other hand, corporations preserve their assets in order to sell them. Without these assets, business operations are effectively discontinued. The proceeds of the sale are distributed equitably among creditors, and surplus is divided or losses are re-allocated. (Viva Shipping Lines vs. Keppel Philippines Mining, February 17, 2016, G.R. No. 177382)

An individual debtor whose properties are not sufficient to cover his liabilities, and owing debts exceeding P500,000 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, and attaching a schedule of debts and liabilities and an inventory of assets. The filing of such petition is considered an act of insolvency. Insolvent juridical debtors may also file a similar Petition, attaching to it a schedule of assets, debts and liabilities and the names of at least three (3) nominees for liquidator.

An insolvent juridical debtor, on the other hand, 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 (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.

If the court finds the Petition in order, it shall issue a Liquidation Order which has the effect of liquidating the debtor and, in the case of a juridical debtor, declare it as dissolved. All creditors will be directed to file their claims with the liquidator within the period set by the rules of procedure. 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. No separate action for the collection of an unsecured claim shall be allowed, and such actions already pending will be transferred to the liquidator for him to accept and settle or contest. No foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days.

Note that if the petition for liquidation is sufficient in form and substance, it is mandatory upon the court to declare the debtor insolvent. Once an individual debtor has been adjudged insolvent and given his discharge by the court, his debts are extinguished and cannot be revived even if he comes to a large fortune thereafter. He is  free of debts except for the following: Taxes and assessments due the government, national or local; Obligation arising from embezzlement or fraud; Obligations of any person liable to the insolvent debtor for the same debt; Alimony or claim for support; In general, debts that are not provable against the estate of the insolvent or not listed in the schedule submitted by the insolvent debtor.

The duty to manage the assets of the debtor and to pay the creditors will then rest on the liquidator. Within three (3) months from his assumption into office, the liquidator shall submit a Liquidation Plan to the court, enumerating all the assets of the debtor and a schedule of liquidation of the assets and payment of the claims of creditors.  The Liquidator shall implement the Liquidation Plan as approved by the court and payments shall be made to the creditors only in accordance with the provisions of the Plan. Once the Liquidation Plan is carried out, the court shall issue an order approving the liquidator’s report and ordering the Securities and Exchange Commission to remove the debtor from the registry of legal entities.

If ever you find yourself in business woes, remember what John Rockefeller said “I always convert disaster into opportunity” or to paraphrase one author, I don’t worry about disaster, I just find a way to DIVINE it.

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