(a) In relation to each type of insolvency procedure available in the legal system of this economy, what assets of the corporate debtor are available to its administrator to satisfy the claims of its creditors?

 

For voluntary and involuntary insolvency, the properties of the insolvent that pass to the assignee are the following: (1) all real and personal property, estate and effects of the debtor including all deeds, books and papers in relation thereto (Sec. 32); (2) Properties fraudulently conveyed (Secs. 33, 36); (3) Right of action for damages to real property; and (4) the undivided share or interest of the insolvent debtor in property held under co-ownership (Art. 2239, Civil Code). A secured creditor may maintain his right under his security or lien and may enforce his lien thereon, or he may waive his right under the security or lien and thereby share in the distribution of the assets of the debtor (Sec. 59).

Under the present rule, recently decided by the Supreme Court in Barotac Sugar Mills vs. Court of Appeals (275 SCRA 497) it is only upon the appointment of a management committee or a rehabilitation receives by the SEC when court actions are ipso jure suspended. The secured creditors, however, may not be deprived of their security or lien by the SEC.

(a) To what extent and in what circumstances may the administrator of a corporate debtor take steps to recover assets of the debtor by overturning past transactions involving property of the debtor? (for example preferences given to certain creditors over others, invalid charges granted by the debtor, uncommercial transactions entered into by the debtor, profits on sales to and from the debtor at an undervalue or overvalue.)

 

Under the Insolvency law, the assignee may recover the property or the value of assets which have been fraudulently conveyed. Sec. 70 of the Insolvency Law reads:

"SEC. 70. If any debtor, being insolvent, or in contemplation of insolvency, within thirty days before the filing of a petition by or against him, with a view to giving a preference to any creditor or person having a claim against him or who is under any liability for him procures any part of his property to be attached, sequestered, or seized on execution, or makes any payment, pledge, mortgage, assignment, transfer, sale, or conveyance of any part of his property, either directly or indirectly, absolutely or conditionally, to anyone, the person receiving such payment, pledge, mortgage, assignment, transfer, sale or conveyance, or to be benefitted thereby, or by such attachment, sequestration, seizure, payment, pledge, mortgage, conveyance, transfer, sale or assignment is made with a view to prevent his property from coming to his assignee in insolvency or to prevent the same from being distributed ratably among his creditors, or to defeat the object of, or in any way hinder, impede or delay the operation of or to evade the provisions of this Act, such attachment, sequestration, seizure, payment, pledge, mortgage, transfer, sale, assignment, or conveyance is void, and the assignee, or the receiver, may recover the property or the value thereof, as assets of such insolvent debtor. If such payment, pledge, mortgage, conveyance, sale assignment, or transfer is not made in the usual and ordinary course of business of the debtor, or if such seizure is made under a judgment which the debtor has confessed or offered to allow, that fact shall be prima facie evidence of fraud. Any payment, pledge, mortgage, conveyance, sale, assignment, or transfer of property of whatever character made by the insolvent within one month before the filing of a petition in insolvency by or against him, except for a valuable pecuniary consideration made in good faith, shall be void. All assignments, transfers, conveyances, mortgages, or encumbrances of real estate shall be deemed, under this section, to have been made at the time the instrument conveying of affecting such realty was filed for record in the office of the Register of Deeds of the province or city where the same is situated."

The SEC has ruled that Sec. 70 should also apply to proceedings filed before it pursuant to PD 902-A.

Under Sec. 71 of the Insolvency Law, the following acts of the debtor shall be punishable by imprisonment:

1. If he shall, after the commencement of proceedings in insolvency, secrete or conceal any property belonging to his estate or part with, conceal, destroy, alter, mutilate, or falsify or cause to be concealed, destroyed, altered, mutilated, or falsified, any book, deed, document, or writing relating thereto, or remove, or cause to be removed, the same or any part thereof, with the intent to prevent if from coming into the possession of the assignee in insolvency, or to hinder, impede, or delay his assignee in recovering or receiving the same, or if he shall make any payment, gift, sale assignment, transfer, or conveyance of any property belonging to his estate, with like intent, or shall spend any part thereof in gambling; or if he shall, with intent to defraud, willfully and fraudulently conceal from his assignee, or fraudulently or designedly omit from his schedule any property or effects whatsoever, or if, in case of any person having, to his knowledge or belief, proved a false or fictitious debt against his estate he shall fail to disclose the same to his assignee within one month after coming to the knowledge or belief thereof; or if he shall attempt to account for any of his property by fictitious losses or expenses.

2. If he shall, within three months before commencement of proceedings in insolvency, under the false pretense of carrying on business and dealing in the ordinary course of trade, obtain on credit from any person any goods or chattels [with intent to defraud], or shall, [with intent to defraud his creditors,] pawn, pledge, or dispose of, otherwise than by bonafide transactions in the ordinary course of his trade, any of his goods and chattels which have been obtained or credit and remain unpaid for, or shall have suffered loss in any kind of gaming when such loss is one of the causes determining the commencement of proceedings in insolvency, of shall have sold at a loss or for less than the current price any goods bought on credit and still unpaid for, or shall have advanced payments to the prejudice of his creditors.

3. If he shall, from and after the taking effect of this Act, during the proceedings for the suspension of payments, secrete or conceal, or destroy, or cause to be destroyed or secreted any property belonging to his estate; or if he shall secrete, destroy, alter, mutilate, or falsify or cause to be secreted, destroyed, altered, mutilated, or falsified, any book, deed, document, or writing relating thereto, or if he shall, with intent to defraud his creditors, make any payment, sale, assignment, transfer, or conveyance of any property belonging to his estate; or if he shall spend any part thereof in gaming; or if he shall falsely swear to the schedule and inventory exacted by paragraph two of Section two as required by Sections fifteen, sixteen, and seventeen of this Act, with intent to defraud his creditors; of if he shall violate or break in any manner whatsoever the injunction issued by the court under Section three of this Act.

Sec. 37 of the Insolvency Law also imposes a liability on the persons, who, 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 received for the benefit of the insolvent's estate.

The above provisions are seldom enforced in insolvency proceedings in the country.

(b) What powers or mechanisms are available to each type of administrator for investigation of the affairs of the corporate debtor, for examination of persons formerly involved in the management or control of the debtor, and for the discovery of assets of the debtor?

 

See discussion in (a) above.

(c) What procedures may be employed by each type of administrator for the recovery of assets of the corporate debtor which are available for distribution to creditors? (for example initiation of legal proceedings, compensation from directors.)

 

See discussion in (a) above.