ASSIGNEE IN INSOLVENCY
Insolvency Law - Act 1956
> An assignee is the person elected by the creditors or appointed by the court to whom an insolvent debtor makes an assignment of all his property for the benefit of his creditors
CREDITORS NOT ENTITLED TO VOTE IN THE ELECTION OF ASSIGNEE
1. Those who didn’t file their claims at least 2 days prior to the time appointed for such election
2. Those claims are barred by the statute of limitations
3. Secured creditors unless they surrender their security or lien to the sheriff or receiver or unless they shall first have the value of such security fixed as provided for in Section 59
4. Holders of claims for unliquidated damages arising out of pure tort
IMPORTANT! The vote requirement is DOUBLE MAJORITY.
ASSIGNEE’S TITLE VESTS ON FILING OF PETITION
> An assignee in insolvency acquires title to the property of the insolvent by virtue of the transfer of the insolvent’s property by the clerk of court
> But this instrument relates back to the commencement of the proceedings in insolvency with the result that the title of the assignee is determined as of the date when the petition in insolvency is filed
> With respect to property registered under the Land Registration Law, it is necessary that such proceedings be recorded in the registry of deeds from their commencement and the assignment is likewise recorded
EFFECTS OF ASSIGNMENT
1. The assignee takes the property in the plight and conditions that the insolvent held it
2. Upon assignment, the legal title to all the property of the insolvent is vested in the assignee, and the control of the property is vested in the court
3. All actions to recover the estate, debts and effects of the insolvent shall be brought by the assignee and not by the creditors
4. The assignment shall—
a. Dissolve any attachment levied within 1 month next preceding the commencement of the insolvency proceedings
b. Vacate and set aside judgment entered in any action commenced within 30 days immediately prior to the commencement of insolvency proceedings
NOTE:
5. There is a cut-off period—one month in attachment cases and 30 days in judgments entered in actions commenced rior to the insolvency proceedings. A levy of attachment not made within the period specified isn’t dissolved by the insolvency proceedings and the refusal of the court to enforce the lien arising from such levy is grave abuse of discretion.
6. The plaintiff has the right if the attachment is not dissolved before the commencement of the proceedings in insolvency, or is dissolved by an undertaking given by the defendant, if the claim upon which the attachment suit was commenced is proved against the estate of the debtor.
BOND OF ASSIGNEE
> After his election, he is required to give a bond for the faithful performance of his duties
> To establish his official character and his right to sue in that capacity, it is incumbent on the assignee to show that the bond required has been given
PROPERTIES OF INSOLVENT THAT PASS TO THE ASSIGNEE
1. All real and personal property, estate and effects of the debtor including all deeds, books, and papers in relation thereto
2. Properties fraudulently conveyed
3. Right of action for damages to real property
4. The undivided share for interest of the insolvent debtor in property held under co-ownership
PROPERTIES OF INSOLVENT THAT DOESN’T PASS TO THE ASSIGNEE
1. Property exempt from execution
2. Property held in trust
3. Property of the conjugal partnership or absolute community so long as said partnership or community exists except insofar as the insolvent debtor’s obligations have redounded to the benefit of the former
4. Property over which a mortgage or pledge exists unless the creditor surrenders his security or lien
5. After-acquired property except fruits and income of property owned by the debtor and which had passed to the assignee in insolvency law
6. Non-leviable assets like a life insurance policy which doesn’t have cash surrender value
7. Right of action for tort which is purely personal in nature
POWERS OF ASSIGNEE
1. To sue and recover all the estate, assets, debts, and claims, belonging to or due to such debtor;
2. To take in to his possession all the estate of such debtor except property exempt by law from execution,
3. In case of a nonresident or absconding or concealed debtor, to demand and receive of every sheriff who shall have attached any of the property of such debtor, or who shall have in his possession any moneys arising from the sale of such property, all such property and moneys, on paying him his lawful costs and charges for attaching and keeping the same.
4. To sell, upon order of the court, any of the estate, real and personal, which has come into his possession, and which is vested in him as such assignee, and on such sales to execute the necessary conveyances and bills of sale.
5. To redeem all valid mortgages and conditional contracts, and all valid pledges of personal property, and to satisfy any judgments which may be an encumbrance on any property sold by him; or to sell such property, subject to such mortgage, contracts, pledges, judgments, or liens.
6. To settle all matters and accounts between such debtor and his creditors subject to the approval of the court.
7. Under the order of the court or judge appointing him, to compound with any person indebted to such debtor, and thereupon discharge all demands against such person.
8. To recover from any person receiving a conveyance, gift transfer, payment, or assignment, made contrary to any provision of this Act, the property thereby transferred or assigned; or in case a redelivery of the property can not be had, to recover the value thereof with damages for the
detention.
DUTIES OF AN ASSIGNEE
1. To register the assignment to him of the real estate of the debtor
2. To file a schedule and inventory of the property of the debtor
3. To convert, as speedily as possible, the estate, real and person, into money
a. Any disposition requires court approval
b. Private sale needs authorization of the court
4. To keep a regular account of all moneys received by him as assignee
a. Why is a private sale an exception? Because there is always room for irregularity.
b. Assignee is allowed to recover the expenses he advanced for.
c. There is a distinction between claims and expenses. As creditor, WATCH OUT!
5. To petition the court to allow the private sale of debtor’s property if it appears that it is for the best interest of the estate
6. To file a just and true account of receipts and payments
7. To file accounts upon order of the court on motion of two or more creditors
8. To distribute such dividends as he may be required
9. To file a final account within one year from the date of order of adjudication
SALE OF ASSETS
1. Generally—the law provides for the reduction of the insolvent’s assets into cash by means of public sales. Proceedings are in rem. The only question of jurisdiction is the power of the court over the subject matter without regard to the parties who may have an interest in it.
2. Persons competent to purchase—the insolvent will not be generally allowed to purchase the assets, either in his own name or through a dummy. If he does so, the property purchased becomes subject to the claims of his creditors.
APPLICABILITY OF SECTION 37
> The provisions of Section 37 which make the person coming within the purview liable for double the value of the property sought to be disposed of, are not applicable where what has been disposed of is the creditor’s own credit and not the insolvent’s property
DIVIDENDS IN INSOLVENCY DEFINED
> Parcel of the fund arising from the assets of the estate, rightfully allotted to share in the fund, whether in the same proportion with other creditor or in a different proportion
> It is paid by the assignee only upon order of the court
EFFECT OF DEBTS SUBSEQUENTLY PROVED ON RIGHT TO DIVIDENDS
> Whenever any dividend has been duly declared, the distribution of it shall not be stayed or affected by reason of debts being subsequently proved
> However, any creditor proving such a debt shall be entitled to a dividend equal to those already received by other creditors before any further dividend is made to the latter, if the failure to prove such claim shall not have resulted from his own neglect
WHAT WOULD BE COVERED BY THE ASSETS?
Assets whose title is vested in the debtor—both equitable and legal title. At least there is beneficial ownership.
CAN INSOLVENCY PROCEEDINGS BE FILED AGAINST THE HUSBAND ALONE?
No.
CAN CORPORATIONS AND PARTNERSHIPS BE SUBJECT TO INSOLVENCY PROCEEDINGS?
Yes. However, it is not good to have voluntary proceedings.
Insolvency Law Act 1956 on Assignees
SECTION 29. Election; Creditors holding security. — No creditor shall be entitled to vote for the election of an assignee unless he shall have filed his claim in the office of the clerk of the court in which the proceedings are pending at least two days prior to the time appointed for such election. All claims shall contain a statement showing the amount and nature of the claim and security, if any. The claim shall be verified by the claimant, or his duly authorized agent or attorney. No claim barred by the statute of limitations 16 shall be proved or allowed against the estate of an insolvent debtor for any purpose. Any person interested in the estate of the insolvent may file exceptions to the legality of good faith of any claim, by setting forth specifically in writing his interest in the estate, and the grounds of his objection to such claim. Such exceptions shall be verified by the affidavit of the party objecting, or his duly authorized agent or attorney, and the affidavit shall set out that such exceptions are not made for the purpose of delay and are made in good faith in the best interests of said estate. Exceptions to any claim must be filed with the clerk of the court at least one day before the time appointed for the election of an assignee, and such exceptions shall be heard and disposed of by the court, on affidavit or other evidence, in a summary manner, before the election of an assignee. No creditor or claimant who holds any mortgage, pledge, or lien of any kind whatever as security for the payment of his claim or attachment or execution on property of the debtor duly recorded and not dissolved under this Act shall be permitted to vote at the election of the assignee any part of his secured claim unless he shall first have the value of such security fixed as provided section fifty-nine of this Act, or shall surrender to the sheriff or receiver of the estate of the insolvent, if there be a receiver, all such property, or assign such lien to such sheriff or receiver. The surrender or assignment of such security or lien shall be for the benefit of all creditors of the estate of the insolvent. The value of such security, if fixed by the court, shall be so fixed at least one day before the day appointed for the election of an assignee, in which event the claimant may prove his demand as provided in this section for any unsecured balance, subject to the filing of exceptions as in all other claims.
SECTION 30. Election of assignee in open court. — At a meeting of the creditors in open court or, if the court is not in session, in the presence of the judge or the clerk of the court, those being entitled to vote, as provided by section twenty-nine, shall proceed to the election of an assignee. The majority of the creditors who have proven their claims, such majority being both in number and amount, must concur for the election of an assignee. The clerk of the court shall keep a minute of the deliberations of said creditors, and of the election and appointment of the assignee, and enter the same upon the records of the court, and, in the absence of the judge, shall send a copy of such record to him at the place where he may be found. The assignee shall file, within five days, unless the time be extended by the court, with the clerk, a bond, in an amount to be fixed by the court, to the Government of the Philippine Islands, with two or more sufficient sureties, approved by the court, and conditioned upon the faithful performance of the duties devolving upon him. The bond shall not be void upon the first recovery, but may be sued upon from time to time by any person aggrieved, in his own name, until the whole penalty be exhausted. The sureties on such bond may be required to justify as to their sufficiency upon the application of any party interested.
SECTION 31. Appointment of assignee by court. — If, on the day appointed for the meeting, creditors do not attend, or fail or refuse to elect an assignee, or if, after election, the assignee shall fail to qualify within the proper time, or if a vacancy occurs by death or otherwise, the court shall appoint an assignee and fix the amount of his bond.
SECTION 32. Transfer of property to assignee. — As soon as an assignee is elected or appointed and qualified, the clerk of the court shall, by an instrument under his hand and seal of the court, assign and convey to the assignee all the real and personal property, estate, and effects of the debtor with all his deeds, books, and papers relating thereto, and such assignment shall relate back to the commencement of the proceedings in insolvency, and shall relate back to the acts upon which the adjudication was founded, and by operation of law shall vest the title to all such property, estate, and effects in the assignee, although the same is then attached on mesne process, as the property of the debtor. Such assignment shall operate to vest in the assignee all of the estate of the insolvent debtor not exempt by law from execution. 17 It shall also dissolve any attachment levied within one month next preceding the commencement of the insolvency proceedings and vacate and set aside any judgment entered in any action commenced within thirty days immediately prior to the commencement of insolvency proceedings and shall vacate and set aside any execution issued thereon and shall vacate and set aside any judgment entered by default or consent of the debtor within thirty days immediately prior to the commencement of the insolvency proceedings.
SECTION 33. Recovery and action of assignee. — The assignee shall have the right to recover all the state debts, and effects of said insolvent. If, at the time of the commencement of proceeings in insolvency, an action is pending in the name of the debtor, for the recovery of a debtor other thing which might or ought to pass to the assignee by the assignment, the assignee shall be allowed and admitted to prosecute the action, in like manner and with like effect as if it had been originally commenced by him. If there are any rights of action in favor of the insolvent for damages, on any account, for which an action is not pending, the assignee shall have the right to
prosecute the same with the same effect as the insolvent might have done himself if no proceedings in insolvency had been instituted. If any action or proceeding in which the insolvent is defendant is pending at the time of the adjudication, the assignee may defend the same in the same manner and with like effect as it might have been defended by the insolvent. In a suit prosecuted or defended by the assignee, a certified copy of the assignment made to him shall be conclusive evidence of his authority to sue or defend.
SECTION 34. Registration of assignment to assignee. — The assignee shall, within one month after the making of the assignment to him, cause the same to be recorded in every province or city within the Philippine Islands where any real estate owned by the debtor is situated, and the record of such assignment, or a duly certified copy thereof, shall be conclusive evidence thereof in all courts. If the schedule and inventory required by this Act have not been filed by the debtor the assignee shall, within one month after his election, prepare and file such schedule and inventory from the best information he can obtain, and shall thereupon personally deliver notice or send same by registered mail, postage prepaid, to all creditors named in such schedule, whose claims have not been filed, to forthwith prove their demands.
SECTION 35. Resignation of assignee. — Any assignee may at any time, by writing filed in court, resign his appointment, having first settled his accounts and delivered up all the deeds, vouchers, books of account, notes, bills, bonds, and securities of the debtor and all his real and personal property, estate, and effects to such successor as the court shall appoint: Provided, That if, in the discretion of the court, the circumstances of the case require it, upon good cause being shown, the court may, at any time before such settlement of account and delivery of the estate shall have been completed, revoke the appointment of such assignee and appoint another in his stead. The liability of the outgoing assignee, or of the sureties on his bond, shall not be in any manner discharged, released, or affected by such appointment of another in his stead.
SECTION 36. The said assignee shall have power:
1. To sue and recover all the estate, assets, debts, and claims, belonging to or due to such debtor; and no set-off or counterclaim shall be allowed in any such for debts contracted by the insolvent within thirty days immediately preceding the filing of the petition of insolvency except in case of creditors specified in section fifty of this Act.
2. To take in to his possession all the estate of such debtor except property exempt by law from execution, 2. whether attached or delivered to him, or afterwards discovered, and all books, vouchers, evidence of indebtedness, and securities belonging to the same.
3. In case of a nonresident or absconding or concealed debtor, to demand and receive of every sheriff who shall have attached any of the property of such debtor, or who shall have in his possession any moneys arising from the sale of such property, all such property and moneys, on paying him his lawful costs and charges for attaching and keeping the same.
4. From time to time to sell at public auction after advertisement in the manner provided by subsections (1), (2), and (3) of section four hundred and fifty-four of the Code of Civil Procedure, 19 upon order of the court, any of the estate, real and personal, which has come into his possession, and which is vested in him as such assignee, and on such sales to execute the necessary conveyances and bills of sale.
5. To redeem all valid mortgages and conditional contracts, and all valid pledges of personal property, and to satisfy any judgments which may be an encumbrance on any property sold by him; or to sell such property, subject to such mortgage, contracts, pledges, judgments, or liens.
6. To settle all matters and accounts between such debtor and his creditors subject to the approval of the court.
7. Under the order of the court or judge appointing him, to compound with any person indebted to such debtor, and thereupon discharge all demands against such person.
8. To recover from any person receiving a conveyance, gift transfer, payment, or assignment, made contrary to any provision of this Act, the property thereby transferred or assigned; or in case a redelivery of the property can not be had, to recover the value thereof with damages for the detention.
SECTION 37. Embezzlement, etc. — If any person, before the assignment is made, having notice of the commencement of the proceedings in insolvency, or having reason to believe that insolvency proceedings are about to be commenced, embezzles or disposes of any of the moneys, goods, chattels, or effects of the insolvent, he is chargeable therewith, and liable to an action by the assignee for double the value of the property so embezzled or disposed of, to be recovered for the benefit of the insolvent's estate.
SECTION 38. Penalties and forfeitures. — The same penalties, forfeitures, and proceedings by citation, examination, and commitment shall apply on behalf of an assignee against persons suspected of having concealed, embezzled, conveyed away, or disposed of any property of the debtor, or of having possession or knowledge of any deeds, conveyances, bonds, contracts, or other writings which relate to any interest of the debtor in any real or personal estate as provided in the case of estates of deceased persons in sections seven hundred and nine to seven hundred and thirteen, inclusive, of the Code of Civil Procedure.
SECTION 39. Conversion of property into money. — The assignee shall as speedily as possible convert the estate, real and personal, into money. He shall keep a regular account of all moneys received by him as assignee, to which every creditor or other person interested therein may, at all reasonable times, have access. No private sale of any property of the estate of an insolvent debtor shall be valid unless made under the order of the court, upon a petition in writing, which shall set forth the facts showing the sale to be necessary. Upon filing the petition, notice of the hearing thereof of at least ten days shall be given by publication and mailing, in the same manner as is provided in section nineteen of this Act. If it appears that a private sale is for the best interests of the estate, the court shall order it to be made.
SECTION 40. Perishable property. — In all cases when it appears to the satisfaction of the court that the estate of the debtor, or any part thereof, is of a perishable nature, or is liable to deteriorate in value, or is disproportionately expensive to keep, and that the insolvent's estate will suffer if sufficient time elapses for the giving of notice, the court may order the same to be sold in such manner and at such time as may be deemed most expedient, under the direction of the sheriff, receiver, or assignee, as the case may be, who shall hold the funds received in place of the property sold until further order of the court.
SECTION 41. Outstanding debts, etc. due estate. — Outstanding debts, or other property due or belonging to the estate, which can not be collected and received by the assignee without unreasonable or inconvenient delay or expense, may be sold and assigned in like manner as the remainder of the estate. If there are any rights of action for damages in favor of the insolvent prior to the commencement of the insolvency proceedings, the same may, with the approval of the court, be compromised.
SECTION 42. Expenses and commissions; Division of compensation. — Assignees shall be allowed all necessary expenses in the care, management, and settlement of the estate, and shall be entitled to charge and receive for their services commissions upon all sums of money coming to their hands and accounted for by them, as follows: For the first thousand pesos, at the rate of seven per centum; for all above that sum and not exceeding ten thousand pesos, at the rate of five per centum; and for all above that sum, at the rate of four per centum: Provided, however, That if the person acting as assignee was receiver of the property of the estate pending the election of an assignee, any compensation allowed him as such receiver shall be deducted from the compensation to which he otherwise would be entitled as such assignee: And provided further, further That if there should be two or more assignees the court shall order an equitable division of the compensation herein provided, and if for any reason an assignee's term is completed before the final settlement of the estate and a successor is appointed the court shall not allow to any such assignee prior to the settlement of the estate an amount exceeding four per centum of the sums of money coming into his hands. Upon the final settlement of the estate an equitable distribution of the compensation of the assignees shall be made.
SECTION 43. Filing of accounts with vouchers, statements, etc.; Decisions of court upon claims; Additional accounts. — At the expiration of three months from the appointment of the assignee in any case, or as much earlier as the court may direct, a time and place shall be fixed by the court at which the assignee shall file just and true accounts of all his receipts and payments with proper vouchers, verified by his oath and a statement of the property outstanding, specifying the causes of its outstanding, also what debts or claims are yet undetermined, and stating what sum remains in his possession, and shall accompany the same with an affidavit that notice by registered mail has been given to all creditors named in the schedule filed by the debtor or the assignee that said accounts will be heard at a time specified in such notice, which time shall not be less than two nor more than eight weeks from the filing of such accounts. At the hearing the court shall audit the accounts of the assignee, and any person interested may appear and file exceptions thereto and contest the same. The court shall thereupon confirm said accounts if they shall be found to be correct, or order the same corrected if errors shall be found therein. The court shall also, in such hearing, determine the property which must be deducted from the estate as another's, under the provisions of section forty-eight of this Act, and the right of the claimants to participate in the dividend, and may order a dividend paid to those creditors whose claims have been proven and allowed. The decision of the court
theretofore rendered as to whether any claimant was entitled to vote for an assignee shall not be conclusive upon the right of the claimant to share in such dividend; but all claimants who were so allowed to vote shall participate in such dividend unless objections were filed to the same prior to such hearing. If any such objections have been filed against any claim, or if any claimant was refused the right to vote, the court shall determine said objections and the rights of all such claimants in such hearing and refuse or allow the same before the declaration of a dividend. Thereafter, further accounts, statements, and dividends shall be made in like manner as often as occasion requires: Provided, however, That it shall be the duty of the assignee to file his final account within one year from the date of the order of adjudication, unless the court, after notice to creditors, shall grant further time, upon a satisfactory showing that great loss and waste would result to the estate by reason of the conversion of the property into money within said time, or that it has been impossible to do so by reason of litigation.
SECTION 44. Motion to require accounts, filing of . — The court may at any time, upon the motion of any two or more creditors, require the assignee to file his account in the manner and upon giving the notice specified in the preceding section, and if he has funds subject to distribution he may be required to distribute them without delay.
SECTION 45. Rights of creditors late in proving claims. — Whenever any dividend has been duly declared, the distribution of it shall not be stayed or affected by reason of debts being subsequently proved, but any creditor proving such a debt shall be entitled to a dividend equal to those already received by the other creditors before any further dividend is made to the latter, if the failure to prove such claim shall not have resulted from his own neglect.
SECTION 46. Failure, neglect or refusal by assignee. — Should the assignee refuse or neglect to render his accounts as required by sections forty-three and forty-four of this Act, or refuse or neglect to pay over a dividend when he shall have, in the opinion of the court, sufficient funds for that purpose, or shall neglect or mismanage the estate in any manner whatever or violate any of the provisions of this Act, the court shall immediately discharge such assignee from his trust, and shall appoint another in his place. The assignee so discharged shall forthwith deliver over to the assignee appointed by the court all the funds, property, books, vouchers, or securities belonging to the insolvent, and he shall not be entitled for his services to the compensation provided in section forty-two.
SECTION 47. Final account. — Preparatory to the settlement of the estate, the assignee shall file his final account in the court, accompanying the same with an affidavit that a notice by registered mail has been given to all creditors who have proved their claims, that he will apply for a settlement of his account and for a discharge from all liability as assignee at a time specified in such notice, which time shall not be less than two nor more than eight weeks from such filing. At the hearing the court shall audit the account, and any person interested may appear and file exceptions in writing and contest the same. The court thereupon shall settle the account, and order a dividend of any portion of the estate, if any, remaining undistributed, and shall discharge the assignee, subject to compliance with the order of the court, from all liability as assignee to any creditor of the insolvent.
