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The role of the liquidator.

Based on the Financial Liquidation and Suspension of Payments Rules of Procedure for Insolvent Debtors (FLSP Rules), any transaction prior to the issuance of a liquidation order or conversion of rehabilitation proceedings to liquidation proceedings entered into by the debtor company involving its assets may be rescinded or declared void.

This is specifically allowed in avoidance proceedings, but on the ground the transaction was executed with an intent to defraud a creditor or constitutes undue preference of creditors.

Secured creditors

The rights of secured creditors to enforce their security lien are not affected by the liquidation order.

A secured creditor may waive his security lien by making a manifestation to that effect prior to the election of a liquidator. For the waiver to be valid, the secured creditor must do it through a public instrument, in unequivocal language, and with full knowledge of the consequences of his action.

If he fails to make such manifestation, he is deemed to have opted to retain his secured status.

If a secured creditor waives his security interest, he shall be entitled to participate in the liquidation proceedings as an unsecured creditor.

If the value of the security is less than the creditor's claim, the liquidator may convey the property to him and he is entitled to participate in the proceedings to the extent of his unpaid claim. If the value of the property is more than the claim, the liquidator may also convey the property to the secured creditor in payment of the claim but, in turn, the secured creditor must deliver the excess amount to the liquidator.

To ensure the property is properly valued, the FLSP Rules gives an interested party the right to contest the valuation.


A key personality in liquidation proceedings is the liquidator.

The FLSP Rules describes the liquidator as an officer of the court who has the principal duty of preserving and maximizing the value and recovering the assets of the debtor.

A liquidator need not be a natural person. It can be a juridical entity like an accounting or law firm. In such case, it must designate a natural person who possesses all the qualifications and none of the disqualifications as its representative. The juridical entity and its representative are liable for all its obligations and responsibilities as the liquidator.

The liquidator must be elected by the creditors entitled to participate in the liquidation proceedings. In instances where no liquidator is elected, the person or entity fails to qualify, or where a vacancy occurs, the court must appoint one.

The creditors entitled to vote will elect the liquidator in open court. To constitute a quorum for the election of the liquidator, creditors representing or holding at least a majority of the total claims must be present either in person or by proxy.

The creditors allowed to vote are: those included in the schedule of debts and liabilities or registry of claims, those who have filed their claims within the period set by the court, and those whose claims are not barred by the statute of limitations.

The nominee receiving the highest number of votes cast in terms of the amount of claim held or represented, and who is qualified pursuant to Section 8 of this Rule, shall be appointed liquidator.

A secured creditor is not entitled to vote in the election of the liquidator, unless: (a) he waives his right under the security or lien; and (b) the value of the property subject of his security or lien is fixed and approved by the court, and is admitted for the balance of his claim.

The liquidator has the following powers and duties: (1) sue and recover assets of debtor; (2) take possession of all properties of debtor; (3) sell, with court's approval, any property of the debtor under his possession or control; (4) redeem all mortgages, pledges, and satisfy judgment that may constitute an encumbrance on any property sold by him; (5) settle accounts between debtor and creditors with approval of court; (6) recover property fraudulently conveyed by debtor; (7) recommend the creation of creditor's committee; and (8) engage the services of persons with specialized skills or training necessary to assist him.

The liquidator must not have any conflict of interest. The liquidator must immediately disclose to the insolvency court any fact that may give rise to an actual or potential conflict of interest, regardless of his personal assessment of its sufficiency, as soon as he becomes aware of it. The conflict of interest may be waived by the person who may otherwise be prejudiced by it.
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Publication:Philippines Daily Inquirer (Makati City, Philippines)
Date:Jul 21, 2016
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