INVOLUNTARY INSOLVENCY

Category: Obligations and Contracts

INVOLUNTARY INSOLVENCY

Act No. 1956

NATURE OF INVOLUNTARY INSOLVENCY PROCEEDINGS

> An  involuntary  insolvency  isn’t  a  mere  personal  action against  the  insolvent  for  the  collection  of  debts;  but  its purpose  is  to  impound  all  of  his  non-exempt  property,  to distribute  it  equitably  among  his  creditors  and  to  release him from further liability
> It is an action in rem and action in personam

WHO MAY PETITION FOR INVOLUNTARY INSOLVENCY

1.   They  have  the  qualifications  required  by  the  Insolvency Law
2.   Their   credits   must   be   those   contemplated   by   the Insolvency Law

STEPS IN INVOLUNTARY INSOLVENCY

1.   Filing of the petition by three or more creditors
2.   Issuance of order requiring the debtor to show cause why he shouldn’t be adjudged insolvent
3.   Service of order to show cause
4.   Filing of answer or motion to dismiss
5.   Hearing of the case
6.   Issuance of order or decision adjudging debtor insolvent
7.   Publication and service of order
8.   Meeting   of   creditors   for   election   of   an   assignee   in insolvency
9.   Conveyance of debtor’s property by clerk of court
10. Liquidation of assets and payments of debts
11. Composition, if agreed upon
12. Discharge  of  the  debtor  on  his  application,  except  a corporation
13. Objection if any to the discharge
14. Appeal to the SC in certain cases

WHY  IS  THERE  NO  NEED  TO  ATTACH  SCHEDULE  AND  WHY IS THERE A NEED FOR VERIFICATION?

> Answer behind this isn’t legal
> It  is  not  required  because  the  creditors  are  not  in  the position in the first place to know

WHO WILL ULTIMATELY SUBMIT THE SCHEDULE OF ASSETS AND  LIABILITIES?   

The  debtor.    In  case  of  his  absence,  the assignee may be required to submit as far as practicable. 

IS THERE ANYTHING CREDITOR CAN DO IN THE MEANTIME?  DEBTOR  CAN  HAVE  POSSESSION  OF  PROPERTY  BETWEEN STEPS 1 AND 2.

> The  creditor  may  ask  for  the  appointment  of  a  receiver during steps 1 and 2 as provisional remedy to prevent the leak of assets

WHAT  IS  THE  RECOURSE  OF  THE  DEBTOR  WHEN  THE CREDITOR FILED FOR INSOLVENCY FOR THE SOLE PURPOSE OF HARASSMENT?

> File  for  damages  and  if  you  are  thinking  criminal,  file  for perjury.
> Recover from the bond posted by the creditors

REQUISITES OF PETITION FOR INVOLUNTARY INSOLVENCY THE PETITION IS TO BE FILED BY

1.   Three or more creditors
2.   None of whom has become such a creditor by assignment, within 30 days prior to the filing of petition
3.   Whose credits accrued in the Philippines
4.   The total amount of which credits is not less than P1000

5.   In  the  RTC  of  the  province  or  city  in  which  the  debtor resides or has his principal place of business

THE PETITION--

6.   Must  be  verified  by  at  least  three  of  the  petitioning creditors
7.   Must set forth one or more acts of insolvency mentioned in the law
8.   Must  be  accompanied  by  a  bond,  approved  by  the  court with at least two sureties, in such penal sum as the court shall direct

ACTS OF INSOLVENCY

1.   Intention  to  depart  or  departure  from  the  Philippines  to defraud creditors
2.   Absence from the Philippines to defraud creditors
3.   Concealment of debtor to avoid legal process
4.   Concealment  or  removal  of  his  property  to  avoid  legal process
5.   Confession of judgment in favor of any creditor to defraud other creditors
6.   Allowing default judgment in favor of a creditor to defraud other creditors
7.   Allowing  his  property  to  be  taken  under  legal  process  in preference   of   a   particular   creditor   to   defraud   other creditors
8.   Making conveyance, assignment or transfer of his property to defraud creditors
9.   Making conveyance, assignment or transfer of his property in contemplation of insolvency
10. Default  of  a  merchant  or  tradesman  to  pay  his  current obligations for a period of 30 days
11. Failure to pay money on deposit or received in a fiduciary capacity for a period of 30 days after demand
12. Insufficiency  of  property  to  satisfy  an  execution  issued against him

ADJUDICATION OF INSOLVENCY

> If the respondent debtor  shall make a  default,  or if, after trial,  the  issues  are  found  in  favor  of  the  petitioning creditors, the court shall make an order adjudging the said respondent is and was, at the time of filing of the petition, an insolvent debtor  and that the debtor was guilty  of the act and things charged in the petition or  such of them as the court may find to be true
> The date of adjudication of insolvency retroacts to the date of the filing of the petition for insolvenc