SUSPENSION OF PAYMENTS

Insolvency Law

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

PURPOSE AND BASIS OF SUSPENSION OF PAYMENTS

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

STEPS IN SUSPENSION OF PAYMENTS

1.   Filing of petition by the debtor
2.   Issuance  by  the  court  of  an  order  calling  a  meeting  of creditors
3.   Publication of the order and service of summons
4.   Meeting  of  creditors  for  the  consideration  of  the  debtor’s proposition
5.   Approval of the creditor’s of the debtor’s proposition
6.   Objections,  if  any,  to  the  decision  which  must  be  made within 10 days following the meeting
7.   Issuance   of   order   by   the   court   directing   that   the agreement be carried  out in case the decision is declared valid,  or  when  no  objection  to  said  decision  has  been presented
 

REQUISITES OF PETITION FOR SUSPENSION OF PAYMENTS THE PETITION TO BE FILED BY A DEBTOR—

1.   Possessing sufficient property to cover all debts
2.   Foreseeing  the  impossibility  of  meeting  them  when  they respectively fall due
3.   Petitioning that  he be declared in the state  of  suspension of payments
4.   The petition need not be verified (Verification is when the debtor would affirm all allegations and statement of facts)

DOCUMENTS TO ACCOMPANY PETITION

1.   A verified schedule containing a full and true statement of the debts and liabilities of the petitioner together with a list of creditors, including the residence, sum due each, nature of liability, consideration thereof, and any existing pledge, lien or security
2.   A  verified  inventory  containing  a  list  of  creditors,  an accurate description of all the property, real and personal, of the petitioner including property exempt from execution and a statement as to the value of each item of property, its location, and encumbrances thereon, if any
3.   A statement of his assets and liabilities
4.   The proposed agreements he requests of his creditors 

EFFECTS OF FILING OF PETITION

1.   No disposition in any manner of his property may be made by  the  petitioner  except  insofar  as  concerns  the  ordinary operations  of  commerce  or  of  industry  in  which  he  is engaged
2.   No payments may be made by the petitioner except in the ordinary course of business or industry
3.   Upon request to the  court,  all  pending executions  against the  debtor  shall  be  suspended  except  execution  against property especially mortgaged
 

CREDITORS AFFECTED BY FILING OF PETITION

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

CREDITORS  NOT  AFFECTED  BY  ORDER  OF  SUSPENSION  OF PAYMENTS

1.   Persons  having  claims  for  personal  labor,  maintenance, expenses of last illness and funeral of the wife or children of  the  debtor  incurred  in  60  days  immediately  preceding the filing of the petition
2.   Persons having legal or contractual mortgages
 

RULE   OF   DOUBLE   MAJORITY   IN   THE   MEANING   OF CREDITORS

     The majority shall be 2/3 of the creditors voting upon the same proposition, which 2/3 represent at least 3/5 of the total liabilities of the debtor
     Any  creditor,  at  any  stage  of  the  proceedings,  may  be represented by his attorney or duly authorized agent who shall  be  entitled  to  vote  when  properly  authorized  at  any creditors’ meeting as and for his principal
 
WHEN  PETITION  FOR  SUSPENSION  OF PAYMENTS DEEMED REJECTED
1.   When the number of creditors representing at least 3/5 of the liabilities don’t attend
2.   When  the  two  majorities  required  are  not  in  favor  of  the proposed agreement
 

EFFECT OF DISAPPROVAL OF PETITION

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

CAUSES   FOR   WHICH   OBJECTION   MAY   BE   MADE   TO DECISION OF THE MEETING

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

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

SECTION  5.     Creditors  cited  to  appear.  —  Only  creditors included in the schedule filed by the debtor shall be cited to appear  and  take  part  in  the  meeting  mentioned  in  section
three,   and   they   shall   be   notified   upon   delivery   or transmission  to  them  of  a  copy  of  the  order  calling  the meeting  to  appear  at  same  with  the  written  evidences  of
their  respective  claims,  without  which  they  shall  not  be admitted.
 
SECTION  6.     Pending  Execution.  —  If  any  execution  be pending against the debtor it shall not be consolidated with this proceeding, but the course thereof shall be suspended
before  sale  of  property  is  made  thereunder,  provided  the debtor makes a request therefor to the court before which the  proceeding  for  suspension  of  payments  is  pending,
unless   the   execution   be   against   property   especially mortgaged  which  is  hereby  exempted  from  the  least  the provisions of this section. The suspension ordered by virtue
of  this  section  shall  lapse  when  three  months  shall  have passed without the proposed agreement being accepted by the creditors or as soon as it is denied. No creditor and the
other  than  those  mentioned  in  section  nine  shall  sue  or institute  proceedings  to  collect  his  claim  from  the  debtor from  the  moment  that  suspension  of  payments  is  applied
for      and      while      the      proceedings      are      pending. 

SECTION 7.    Creditors may be represented at the meeting by  one  or  more  lawyers  or  by  any  person  authorized  by power of attorney, which document shall be presented and
be attached to the record.
 
Persons  appearing  for  more  than  one  creditor  shall  have only  one  personal  vote,  but  the  claims  presented  by  them shall be taken into consideration for the purpose of arriving
at      the      majority      of      the      amount      represented.
 
SECTION   8.      Creditors   necessary   to   hold   a   meeting; Meeting;  Minutes  of  the  meeting.  —  The  presence  of  the creditors  representing  at  least  three-fifths  the  liabilities
shall be necessary for holding a meeting. The meeting shall be  held  on  the  day  and  at  the  hour  and  place  designated, the  judge,  or  commissioner  deputized  by  him  when  he  is
absent from the province where the meeting is held, acting as  president  and  the  clerk  as  secretary  thereof,  subject  to the following rules:
 
(a)    The clerk shall prepare for insertion in the minutes of the  meeting  a  statement  of  the  persons  present  and  their claims; the judge, or, in default thereof, the commissioner,
shall  examine  the  written  evidences  of  the  claims  and  the powers of attorney, if any. If the persons present who have complied with the foregoing rules represent at least three-
fifths  of  the  liabilities,  the  judge  or  commissioner  shall declare        the        meeting        open        for        business.
 
(b)    The petition of the debtor, the schedule of debts and of property, the statement of assets and liabilities, and the proposed   agreement   filed   there-   with   shall   be   read forthwith by the clerk, and the discussion shall be opened. 
 
(c)    The debtor may modify his proposition or propositions in view of the result of the debate, or insist upon the ones already  made,  and  the  judge  or  commissioner,  without further discussion, shall clearly and succinctly  place  these several   propositions   before   the   meeting   for   a   vote thereupon. 
 
(d)    The vote shall be taken by a call of names and shall be inserted  in  and  the  minutes;  a  majority  vote  shall  rule.
 
(e)        To     form     a     majority     it     is     necessary     —
 
1.     That  two-thirds  of  the  creditors  voting  unite  upon  the same position.
 
2.     That  the  claims  represented  by  said  majority  vote amount to at least three-fifths of the total liabilities of the debtor mentioned in the petition.
 
(f)    After the result of the voting has been announced, all protests made against the majority vote shall be drawn up, and  there  shall  be  inserted  therein  the  proposition  or propositions voted upon, which, after having been read and approved,  shall  be  signed  by  the  judge  or  commissioner together  with  all  persons  taking  part  in  the  voting;  if  any such  persons  shall  be  unable  to  write,  any  person  present shall sign, at their request, and the clerk shall certify to all of the above.
 
SECTION  9.     Persons  who  may  refrain  from  voting.  — Persons  having  claims  for  personal  labor,  maintenance, expenses  of last illness and funeral  of the  wife or children of  the  debtor,  incurred  in  the  sixty  days  immediately preceding  the  filing  of  the  petition,  and  persons  having legal or contractual mortgages, 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  10.     Rejection  of  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  majorities  mentioned  in  rule  (e)  of section eight are  not in favor thereof, even if the negative vote     itself     does      not     receive     such     majorities.
 
SECTION    11.       Termination    of    proceedings    without recourse; Court hearing. — If the decision of the meeting be negative  as  regards  the  proposed  agreement  or  if  no decision  is  had  in  default  of  such  number  or  of   such majorities,  the  proceeding  shall  be  terminated  without recourse  and  the  parties  concerned  shall  be  at  liberty  to enforce  the  rights  which  may  correspond  to  them.  If  the decision  is  favorable  to  the  debtor  it  may  be  objected  to within  ten  days  following  the  date  of  the  meeting  by  any creditor who attended the meeting and who dissented from and   protested   against   the   vote   of   the   majority.   The opposition  or  objection  to  the  decision  of  the  majority favorable  to  the  debtor  shall  be  proceeded  with  as  in  any other  incidental  motion,  the  debtor  and  the  creditors  who shall appear declaring their purpose to sustain the decision of  the  meeting  being  the  defendants.  The  court  shall  hear and  pass   upon  such  objection  as  soon  as  possible  in  a summary  manner,  and  in  its  order,  which  shall  be  final,  it shall declare whether or not the decision of the meeting is valid. In case that the decision of the meeting is held to be null, the court shall declare the proceeding terminated and the parties concerned at liberty to exercise the rights which may  correspond  to  them;  and  in  case  the  decision  of  the meeting   is   declared   valid,   or   when   no   opposition   or objection  to  said  decision  has  been  presented,  the  court shall  order  that  the  agreement  be  carried  out  and  the
persons  concerned  shall  be  bound  by  the  decision  of  the meeting. The court may also issue all orders which may be proper  to  enforce  the  agreement  on  motion  of  any  of  the
parties  litigant.  The  order  directing  the  agreement  to  be made effective shall be binding upon all creditors included in the schedule of the debtor who may have been properly
summoned,  but  not  upon  creditors  mentioned  in  section nine  who  failed  to  attend  the  meeting  or  refrained  from voting therein, and their rights shall not be affected by the agreement  unless  they  may  have  expressly  or  impliedly consented
thereto.
 
SECTION 12.    The causes for which objection may be made to     the     decision     of     the     meeting     shall     be     — 

(a)     Defects  in  the  call  for  the  meeting,  in  the  holding thereof,  and  in  and  the  deliberations  had  thereat  which prejudice         the         rights         of         the         creditors; 

(b)    Fraudulent connivance between one or more creditors and  in  debtor  to  vote  in  favor  of  the  proposed  agreement;
 
(c)     Fraudulent  conveyance  of  claims  for  the  purpose  of obtaining a majority.
 
SECTION 13.    Failure of debtor to perform agreement. — If the 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  debtor  before  the agreement  shall  revest  in  them.  In  such  case  the  debtor may  be  made  subject  to  the  bankruptcy  and  insolvency
proceedings  in  the  manner  established  by  the  following chapters of this Act.