Reviewer in RFBT Special LAWS PDF

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Reviewer in RFBTPart 1New Law Topics for CPA Board Exam October2017Batch Dobyvatel, CPA October 2017kcbdeleonContains: Insolvency Law Corporate Rehabilitation Bouncing Checks Law Securities Regulations Code Code of Corporate Governance PDIC Law Secrecy of Bank Deposits Unclaimed Balances Law...

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Reviewer in RFBT Part 1 New Law Topics for CPA Board Exam October 2017

Contains:        

Insolvency Law Corporate Rehabilitation Bouncing Checks Law Securities Regulations Code Code of Corporate Governance PDIC Law Secrecy of Bank Deposits Unclaimed Balances Law

Batch Dobyvatel, CPA October 2017

kcbdeleon

INSOLVENCY LAW (Act No. 1956) INSOLVENCY DEFINED -

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Under the Insolvency Law, a person is insolvent when his liabilities are more than his assets. Under the Civil Code, a person is insolvent when even though he possesses sufficient assets to cover his liabilities, he is unable to regularly pay said obligations as they fall due. In general terms, it is the state wherein a debtor, 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.

When a debtor is in the state of insolvency, he 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. The petition must have an attached schedule and inventory of: a. Statement of debts and liabilities b. Description of real and personal property c. Verification d. Proposed agreement requested with Creditors 2. Issuance by the court of an order calling a meeting of creditors -

PHILOSOPHY BEHIND THE INSOLVENCY LAW There are times when a person wants to pay his debts but cannot pay them despite his efforts and desire to do so. The philosophy behind the Insolvency Law is to allow such debtor to turn over all his assets, except those exempt from execution, for distribution among his creditors and, thereafter, to turn a new leaf in his economic life. Then he can start anew without being bothered by his old creditors. SUSPENSION OF PAYMENTS (SOP) is the 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.

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3. Publication of the order and service of summons -

PURPOSE & BASIS OF SOP -

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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 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

The meeting must take place in not less than 2 weeks nor more than 8 weeks from the calling of such order The order must 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 Said order shall further contain an absolute injunction forbidding the petitioning debtor from disposing in any manner of his property, or making payments for expense, except those in the ordinary course of the business.

A copy of said order shall immediately be published 1 by the clerk of said court. Copies of orders must also be sent to all the creditors declared in the attachments to the petition.

4. Meeting of creditors for the consideration of the debtor’s proposition -

The presence of the creditors representing at least three-fifths of the liabilities shall be necessary for holding a meeting.

5. Approval of the creditors of the debtor’s proposition

6. Objections, if any, to the decision which must be made within 10 days following the meeting GROUNDS FOR OBJECTION TO DECISION: 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. 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. KINDS OF INSOLVENCY VOLUNTARY INSOLVENCY - an insolvent debtor owing debts exceeding in amount in the sum of P1000, may apply to be discharged from his debts and liabilities by petition to the RTC of the province or city in which he has resided for 6 months next preceding the filing of the petition. STEPS IN VOLUNTARY INSOLVENCY a. Filing of the petition by the debtor praying for the declaration of insolvency b. Issuance of order of adjudication declaring the petitioner insolvent c. Publication and service of the order d. Meeting of the creditors to elect the assignee in insolvency e. Conveyance of the debtor’s property by the clerk of court to the assignee f. Liquidation of the debtor’s assets and payment of his debts g. Composition, if agreed upon h. Discharge of the debtor on his application, except a corporation i. Objection, if any, to the discharge j. Appeal to the SC in certain cases In voluntary insolvency, a debtor is deemed insolvent upon filing of the petition. The filing of such petition on the part of the debtor is considered an admission of insolvency on his part.

In simple terms, it is called “voluntary” insolvency because the debtor admits that he cannot pay his obligations as they come due. He is declared insolvent from the time he admits such (i.e. submission of petition). ASSIGNEE IN INSOLVENCY -

role is in a nature of a receiver. gathers all the assets of the debtor, and proceeds to make the inventory. If he discovers some properties of the debtor to be in the possession of third parties, he must take action to recover them. His main function is to preserve the property and convert the assets into cash to await the order of the court for the payment of approved claims.

INVOLUNTARY INSOLVENCY - an adjudication of insolvency may be made by the petition of 3 or more creditors, residents of the Philippines, whose credits or demands accrued in the Philippines, for the amount of which credits or demands are in the aggregate of not less than P1000. NATURE OF INVOLUNTARY PROCEEDINGS

INSOLVENCY

- 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 persona. STEPS IN INVOLUNTARY INSOLVENCY a. Filing of the petition by three or more creditors b. Issuance of order requiring the debtor to show cause why he shouldn’t be adjudged insolvent c. Service of order to show cause d. Filing of answer or motion to dismiss e. Hearing of the case f. Issuance of order or decision adjudging debtor insolvent g. Publication and service of order h. Meeting of creditors for election of an assignee in insolvency i. Conveyance of debtor’s property by clerk of court j. Liquidation of assets and payments of debts k. Composition, if agreed upon

l. Discharge of the debtor on his application, except a corporation m. Objection if any to the discharge n. Appeal to the SC in certain cases

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CORPORATE REHABILITATION (A.M. NO. 00-8-10-SC) DEFINITION OF TERMS "Administrative expenses" shall refer to those expenses incurred in the ordinary course of business of the debtor after the issuance of the stay order, excluding interest payable to creditors. "Affidavit of General Financial Condition" shall refer to a verified statement on the general financial condition of the debtor required in Section 2, Rule 4 of these Rules. "Board of Directors" shall include the executive committee or the management of a partnership or association. "Claim" shall include all claims or demands of whatever nature or character against a debtor or its property, whether for money or otherwise. "Creditor" shall mean any holder of a Claim. "Court" shall refer to the proper Regional Trial Court designated to hear and decide the cases contemplated under these Rules. "Debtor" shall mean any corporation, partnership, or association, whether supervised or regulated by the Securities and Exchange Commission or other government agencies, on whose behalf a petition for rehabilitation has been filed under these Rules. "Stockholder" shall include a member of a non-stock corporation or association, in a partnership. STAY ORDER A stay order is sometimes essential to the survival of a distressed company. A stay order keeps at bay the pack of unhappy and understandably impatient creditors and prevents them from tearing apart and bringing about the certain death of the helpless company.

If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue a Stay Order: (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims (c) prohibiting the debtor from selling, encumbering, transferring, or disposing in any manner any of its properties except in the ordinary course of business; (d) prohibiting the debtor from making any payment of its liabilities outstanding as at the date of filing of the petition; (e) prohibiting the debtor's suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance of the stay order; (g) fixing the initial hearing on the petition not earlier than forty five (45) days but not later than sixty (60) days from the filing thereof; (h) directing the petitioner to publish the Order in a newspaper of general of general circulation in the Philippines once a week for two (2) consecutive weeks; (i) directing all creditors and all interested parties (including the SEC) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and (j) directing the creditors and interested parties to secure from the court copies of the petition and its annexes within such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition. The petitioner shall immediately serve a copy of the stay order on the Rehabilitation Receiver appointed by the court, who shall manifest his acceptance or non-acceptance of his appointment not later than ten (10) days from receipt of the order.

Period of the Stay Order. - The stay order shall be effective from the date of its issuance until the dismissal of the petition or the termination of the rehabilitation proceedings.

or creditors holding at least twenty-five percent (25%) of the debtor's total liabilities, may petition the proper Regional Trial Court to have the debtor placed under rehabilitation.

The petition shall be dismissal if no rehabilitation plan is approved by the court upon the lapse of one hundred eighty (180) days from the date of the initial hearing. The court may grant an extension beyond this period only if it appears by convincing and compelling evidence that the debtor may successfully be rehabilitated. In no instance, however, shall the period for approving or disapproving a rehabilitation plan exceed eighteen (18) months from the date of filing of the petition.

CONTENTS OF PETITION

REHABILITATION RECEIVER The Rehabilitation Receiver shall not take over the management and control of the debtor but shall closely oversee and monitor the operations of the debtor during the pendency of the proceedings, and for this purpose shall have the powers, duties and functions of a receiver under Presidential Decree No. 902-A, as amended, and the Rules of Court. The Rehabilitation Receiver shall be considered as an officer of the court. He shall be primarily tasked to study the best way to rehabilitate the debtor and to ensure that the value of the debtor's property is reasonably maintained pending the determination of whether or not the debtor should be rehabilitated, as well as implement the rehabilitation plan after its approval. REHABILITATION PLAN The rehabilitation plan shall include 1. the desired business targets or goals and the duration and coverage of the rehabilitation; 2. the terms and conditions of such rehabilitation 3. the material financial commitments to support the rehabilitation plan; 4. the means for the execution of the rehabilitation plan 5. a liquidation analysis 6. such other relevant information A petition for rehabilitation may be made by any debtor who foresees the impossibility of meeting its debts when they respectively fall due, or any creditor

The petition filed (5 copies) by the debtor must be verified and must set forth with sufficient particularly all the following material facts: (a) the name and business of the debtor; (b) the nature of the business of the debtor; (c) the history of the debtor; (d) the cause of its inability to pay its debts; (e) all the pending actions or proceedings known to the debtor and the courts or tribunals where they are pending; (f) threats or demands to enforce claims or liens against the debtor; and (g) the manner by which the debtor may be rehabilitated and how such rehabilitation may benefit the general body of creditors, employees, and stockholders. The petition shall be accompanied by the following documents: a. An audited financial statement of the debtor at the end of its last fiscal year; b. Interim financial statements as of the end of the month prior to the filing of the petition; c. Schedule of Debts and Liabilities d. Any Inventory of Assets e. A rehabilitation plan f. A Schedule of Payments and disposition of assets g. A Schedule of the Cash Flow h. A Statement of Possible Claims by or against the debtor i. An Affidavit of General Financial Condition j. At least three (3) nominees for the position of Rehabilitation Receiver k. A Certificate attesting, under oath, that the - filing of the petition has been duly authorized; and - the directors and stockholders have irrevocably approved such petition END

BOUNCING CHECKS LAW (BP 22) Checks without sufficient funds Any person who makes or draws and issues any check to apply on account or for value, knowing at the time of issue that he does not have sufficient funds in or credit with the drawee bank for the payment of such check in full upon its presentment, which check is subsequently dishonored by the drawee bank for insufficiency of funds or credit or would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment, shall be punished by: imprisonment of not less than thirty days but not more than one (1) year or - by a fine of not less than but not more than double the amount of the check which fine shall in no case exceed Two Hundred Thousand Pesos, - or both such fine and imprisonment at the discretion of the court. The same penalty shall be imposed upon any Person who, having sufficient funds in or credit with the drawee bank when he makes or draws and issues a check, shall fail to keep sufficient funds or to maintain a credit to cover the full amount of the check if presented within a period of ninety (90) days from the date appearing thereon, for which reason it is dishonored by the drawee bank.

the check, shall be prima facie evidence of knowledge of such insufficiency of funds or credit. Exceptions: - such maker or drawer pays the holder thereof the amount due thereon, or - makes arrangements for payment in full by the drawee of such check within (5) banking days after receiving notice that such check has not been paid by the drawee. Duty of the Drawee - to cause to be written, printed, or stamped in plain language thereon, or attached thereto, the reason for drawee's dishonor or refusal to pay the same Where there are no sufficient funds in or credit with such drawee bank, such fact shall always be explicitly stated in the notice of dishonor or refusal. Not withstanding receipt of an order to stop payment, the drawee shall state in the notice that there were no sufficient funds in or credit with such bank for the payment in full of such check, if such be the fact. Credit construed The word "credit" as used herein shall be construed to mean an arrangement or understanding with the bank for the payment of such check.

Where the check is drawn by a corporation, company or entity, the person or persons who actually signed the check in behalf of such drawer shall be liable under this Act. Evidence of knowledge of insufficient funds General Rule: The making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of

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SECURITIES REGULATION CODE (R.A. 8799) RATIONALE OF ENACTING THE SRC - establish a socially conscious, free market that regulates itself - encourage the widest participation of ownership in enterprises - enhance the democratization of wealth - promote the development of the capital market - protect investors - ensure full and fair disclosure about securities - minimize if not totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in the free market. Securities - are shares, participation or interests in a corporation or in a commercial enterprise or profitmaking venture and evidenced by a certificate, contract, instruments, whether written or electronic in character Kinds of Securities a. Debt Instruments - shares of stocks, bonds, debentures, notes evidences of indebtedness, asset-backed securities; b. Equity Instruments - shares of stock, certificate of deposit for a future subscription, proprietary or non-propriety membership certificates in corporations; c. Investment Instruments – investment contracts, fractional undivided interests in oil, gas or other mineral rights; d. Derivatives - like options and warrants; e. Trust Instruments certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar certificates; f. Catch-All - other instruments as may in the future determined by the Commission DEFINITION OF TERMS

"Issuer" is the originator, maker, obligor, or creator of the security. "Broker" is a person engaged in the business of buying and selling securities for the account of others. "Dealer" means many person who buys sells securities for his/her own account in the ordinary course of business. "Associated person of a broker or dealer" is an employee therefor whom, directly exercises control of supervisory authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial. "Clearing Agency" is any person who acts as intermediary in making deliveries upon payment effect settlement in securities transactions. "Exchange" is an organized market place or facility that brings together buyers and sellers and executes trade of securities and/or commodities. "Insider" means (a) the issuer; (b) a director or officer (or any person performing similar functions) of, or a person controlling the issuer; (c) gives or gave him access to material information about the issuer or the security that is not generally available to the public; (d) A government employee, director, or officer of an exchange, clearing agency and/or selfregulatory organization who has access to material information about a...