Details: Category: Obligations and Contracts

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.

SUSPENSION OF PAYMENTS - Insolvency Law