Can creditors initiate liquidation proceedings against a debtor even though his assets are more than liabilities ? The answer is in the affirmative, both under the old Insolvency law and FRIA. Thus, any creditor or group of creditors with a claim of, or with claims aggregating at least five hundred thousand pesos (P500, 000) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides alleging he committed an act of insolvency.

For purposes of distinction, voluntary liquidation is filed by the debtor whose assets are less than liabilities. Involuntary liquidation is filed by any creditor or group of creditors whose aggregate claim is at least 500,000 if the debtor commits an act of insolvency. Under FRIA, the following shall be considered acts of insolvency; a) that debtor is about to depart or has departed from the Republic of the Philippines, with intent to defraud his creditors; b) that being absent from the Republic of the Philippines, with intent to defraud his creditors, he remains absent; c) that he conceals himself to avoid the service of legal process for the purpose of hindering or delaying the liquidation or of defrauding his creditors; d) that he conceals, or is removing, any of his property to avoid its being attached or taken on legal process; e) that he has suffered his property to remain under attachment or legal process for three days for the purpose of hindering or delaying the liquidation or of defrauding his creditors; f) that he has confessed or offered to allow judgment in favor of any creditor or claimant for the purpose of hindering or delaying the liquidation or of defrauding any creditors or claimant; g) that he has willfully suffered judgment to be taken against him by default for the purpose of hindering or delaying the liquidation or of defrauding his creditors; h) that he has suffered or procured his property to be taken on legal process with intent to give a preference to one or more of his creditors and thereby hinder or delay the liquidation or defraud any one of his creditors; i) that he has made any assignment, gift, sale, conveyance or transfer of his estate, property, rights or credits with intent to hinder or delay the liquidation or defraud his creditors; j) that he has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance or transfer of his estate, property, rights or credits; k) that being a merchant or tradesman, he has generally defaulted in the payment of his current obligations for a period of 30 days; l) that for a period of thirty 30 days, he has failed, after demand, to pay any moneys deposited with him or received by him in a fiduciary; and, m) that an execution having been issued against him on final judgment for money, he shall have been found to be without sufficient property subject to execution to satisfy the judgment.

This means that once the court determines, after hearing, that the debtor committed any of the foregoing acts of insolvency, his assets may be equitably distributed to his creditors in payment of his debts. The first ten acts of insolvency basically assume fraudulent act/s on the part of the individual debtor to defeat the rights of his creditor/s but fraud is not an element of the last three enumerate acts of insolvency. Merchants and tradesmen then better make good on their obligation to pay; trustees, agents and similarly situated persons must return funds held in fiduciary capacity within 30 days from demand, and judgment debtor should have leviable assets to answer for his debt. Otherwise, such debtors may be subjected to liquidation proceedings even against their will. This can have multiplier effects on their reputation, good credit standing, debt capacity, ability to obtain financing or keeping their loan current. Pertinently, take a look at the promissory note/loan agreement you signed or intend to sign with your bank or credit company. It is standard question, have you filed or been a party to any bankruptcy, insolvency, rehabilitation or liquidation proceeding? An affirmative answer is likely to yield a negative result to your loan application. In fact, if you obtain a loan but become a party to these proceedings, your lender is likely to consider it an event which will make your obligation due and demandable despite religious payment.

Indeed, the law provides a legitimate remedy to shame debtors who have no shame in committing acts of insolvency.

(Incidentally, next week, I will start my series of jurisprudentially-culled dos and donts for parties

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