[ Commonwealth Act No. 697, October 15, 1945 ]

AN ACT FOR THE REHABILITATION,LIQUIDATION, AND DISSOLUTION OF DELINQUENT INSURERS, AMENDING FOR THE PURPOSE SECRETION ONE HUNDRED AND SEVENTY-FIVIVE OF ACT NUMBERED TWENTY-FOUR HUNDRED AND TWENTY-SEVEN, AS AMENDED BY ACT NUMBERED THIRTY-ONE HUNDRED AND FIFTY-TWO.

Be it enacted by the Senate and House of Representatives in Congress assembled:SECTION 1. Section one hundred and seventy-five of Act Numbered Twenty-four hundred and twenty-seven, as amended by Act Numbered Thirty-one hundred and fifty-two, is hereby further amended by inserting thereafter the following new sections to be known as section 175 (A) to section 175 (U):"SEC. 175 (A). Application of Act: Definition.-1. This Act shall apply to all corporations, associations, societies, orders, partnerships, and indivioduals to which any section of the Insurance Act is applicable, or which are subject to examination or supervision under any section of the Insurance Act, or which are doing or attempting to do or representing that they are doing the business of insurance in the Philippines, or which are in process of organization for the purpose of doing or intending to do such  business therein, anything as to any such corporations, associations, societies, orders, partnerships, or individuals provided in this Act oir elsewhere in the laws of the Philippines to the contrary notwithstanding."2. (a) The word 'insurer' as used in this Act includes all the above  named corporations, associations, societies, orders, partnerships and individuals (b) The word 'Commissioner' as used in this Act refers to Insurance Commissioner. (c) The word 'assets' as used in this Act includes all deposits and bonds of a special or trust nature."SEC. 175 (B). Grounds for rehabilitation or liquidation of domestic insurer.-The Commissioner may apply under this Act for an order directing him to rehabilitate or liquidate a domestic insurer upon any one or more of the following grounds: That such insurer (a) is insolvent; or (b) has neglected or refused to observed an order of the Commissioner to make good within the time prescribed by law any deficiency, whenever its capital, if it be a stock corporation, or its reserve, if it be a mutual corporation, shall have become impaired; or (c) is found, after an examination, to be in such condition that its further transaction of business will be hazardous to its policyholders, or to its creditors, or to the public; or (d) has consented through a majority of its directors, stockholders, or members."SEC. 175 (C). Order of rehabilitation or liquidation.-1. An order top rehabilitate aor liquidate a domestic insurer shall direct the Commissioner and his successors in office forthwith to take possession of the property of such insurer and to conduct the business thereof, and to take such steps toward the removal of the causes and conditions which have made such proceeding necessary as the court shall direct."2. The Commissioner may submit any plan he may deem advisable to protect the public interest for the rehabilitation or liquidation of such insurer to the court for approval and if approved such plan shall be binding upon the insurer, stockholders and creditors."3. The Commissioner and his successors shall be vested by operation of law with the title to all of the property, contracts and rights of action of such insurer as of the date of the order dso directing them to rehabilitate or liquidate. The filing or recording of such order in any record office of the Philippines shall impart the same notice that a deed, bill of sale or other evidence of title duly filed or recorded by such insurer would have imparted. The rigths and liabilities of any such insurer and of its creditors, policyholders, stockholders, members and all other persons interested in its estate shall, unless otherwise directed by the court, be fixed as of the date of the entry of the order directing the rehabilitation or liquidation of such insurer in the office of the clerk of court where such insurer had its principal office for the transaction of business upon the date of the institution of proceedings under this Act: Provided, however, That the right of claimants holding continget claims on said date to share,That the right of claimants holding contingent claims on said date to share in an insolvent estate shall be determined by section one hundred and seventy-five (A) of this Act."SEC. 175 (D). Grounds for dissolution of domestic insurers.-The Commissioner may apply under this Act for an order dissolving the corporate existence of a domestic insurer at any time after an order of rehabilitation has been granted; or at any time upon the grounds specified in section one hundred and seventy-five (B)."SEC. 1754 (E). Commencement of a proceeding.-The Commissioner may, the Solicitor-General representing him commence any proceeding under this Act by an application to the Court of competent jurisdiction, in the Judicial District in which the principal office of the insurer involved is located, for an order directing such insurer to show cause why, the Commissioner should not have the relief prayed for. On the return of such order to show cause, and after a full hearing, which shall be held by the court or judge without delay, such court, or judges shall either deny the application or grant the same together with such other relief as the nature of the case and the interests of policy-holders, creditors, stockholders, members, and the public may require. All proceedings under this Act shall be given preference in the courts."SEC. 175 (F). Service of order to show cause.-The order to show cause and the papers upon which the same is made in any proceeding under this Act shall be served upon the insurer named in such order by delivering them to the president or other head of the corporation, the secretary or clerk to the corporation, the cashier, the treasurer or a director or managing agent; if it be a voluntary, unincorporated or a joint stock association, order or society, by delivering them to the President, Vice-President, Treasurer, Director, Trustee or other officer or a member with managerial powers. If such service cannot be made immediately by the exercise of reasonable diligence, such order to show cause may provide for service thereof in such manner as the court of judge by whom the same is made, shall direct."SEC. 175 (G). Injunctions.- Upon an application by the Commissioner for an order to show cause under this Act, or at any time thereafter, the court in which such order is made, or any judge thereof may, without notice, issue an injunction restraining the insurer named in the order, its officers, directors, stockholders, members, trustees, agents, servants, employees, policyholders, attorneys, managers, and all other persons from the transaction of its business or the waste or disposition of its property until the further order of the court."2. Such court or judge may at any time during a proceeding under this Act issue such other injunctions or orders as may be deemed necessary to prevent interference with the Commissioner or the proceeding, or waste of the assets of the insurer, or the prosecution of any actionss, or the obtaining of preferences, judgmentsa, attachments or other liens, or the making of any levy against the corporation or against its assetsa or any part thereof."SEC. 175 (H). Annual report.-The Commissioner shall transmit to the Secretary of Finance in his annual report the names of all insurers proceeded against under this Act together which such facts as shall acquaint the policyholders, creditors, stockholders, and the public with all proceedings. To that end the special Deputy Commissioner in charge of any such insurer shall file annually with the Commissioner areport of the affairs of such insurer."SEC. 175 (I). Appointment of deputies; employment of assistants; payment of salaries and expenses.-1. For the purposes of this Act the Commissioner shall have the power to appoint under his hand and official seal, one or more to appoint under his hand and official seal, one or more special Deputy Commissioners of Insurance, as his agent or agents, and to employ such counsel, clerks and assistants as may by him be deemed necessary, and to give each of such persons such powers to assists him as he may consider wise."2. The compensation of such Special Deputy Commissioners, counsel, clerks and assistants, and all expenses of conducting any proceeding under this Act shall be fixed by the Commissioner, subject to the approval of the court, and may, on certificate of the Commissioner, be paid out of the funds or assets of such insurer."SEC. 175 (J). Examinations; action upon refusal to be examined.-1. At any time during the progress of any proceeding taken under this Act, the Commissioner shall have power either personally or by his deputies, including his special deputy commissioners or examiners to subpoenawitnesses, to compel their attendance, to administer an oath, and to examine any person under oath, before him or before a deputy or examiner duly designated for such purpose, and in connection therewith to require the production of any books or papers relevant to the inquiry. If a person subpoenaed to attend such inquiry fails to obey the command of a subpoena without reasonable excuse, or if a person in attendance upon such inquiry, shall, without reasonable cause, refuse to be sworn, or to be examined, or to answer a question, or to produce a book or paper when ordered to do so by the officer duly conducting such inquiry, or if a corporation, association, partnership or individual fails to perform any act required hereunder to be performed, he shall be required by the court to comply with the order of the officer duly conducting such inquiry."2. If any person shall ask to be excused from testifying or producing any book or paper or other document before the Commissioner or before any person duly designated by him to conduct any such investigation upon the ground or for the reason that the testimony or evidence, documentary or otherwise, required of him may tend to incrminate him or degrade him or to subject him to a penalty or forfeiture, and shall notwithstanding be directed by the Commissioner or by the person duly designated by the Commissioner to conduct any such inquiry to testify or to produce book, paper or document, he must none the less comply with such direction but in such event he shall not thereafter be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter or thing concerninbg which he may testify or produce evidence, documentary or otherwise, pursuant thereto and no testimony so given or produced shall be received against him upon any criminal action, suit or proceeding, investigation, iquisition or inquiry. Provided, however, No person so testifying shall be exempt from prosecution or punishment for any perjury or other false statement committed or made by him in his testimony given as herein provided for."SEC. 175 (K). Exemption from filing fees.-The Commissioner shall not be required to pay any fee to any public officer for filing, recording, or any manner authenticating any paper or instrument relating to any proceeding under this Act."SEC. 175 (L). Deposit of monies collected; preference.-The monies collected by the Commissioner in a proceeding under this Act, shall be, from time to time, deposited in one or more banks, saving banks, or trust companies authorized by the Bank Commissioner to do business in the Philippines."SEC. 175 (M). Voidable transfer.-1. Any transfer of, or lien upon, the property of an insurer made or created within four months prior to the granting of an order to show cause under this Act with the intent of giving to any creditor or of abling him to obtain greater percentage of his debt tan any other creditor of the same class which is accepted by such creditor having reasonable cause to believe that such preference will occur, shall be voidable."2. The Commissioner as liquidator may avoid any transfer of, or lien upon the property to an insurer which any creditor, stockholder or members of such insurer might have avoided and may recover the property so transferred or its value from the person to whom it was transferred unless he was a bona fide holder for value prior to the date of the entry of the order of liquidation. Such property may be recovered or its value collected from whoever may have receive it except a bona fide holder for value."SEC. 175 (N). Priority of claims for wages.-All wages actually owing to clerical employees of an insurer, against whom a proceeding under this Act is commenced, for services rendered within three months prior to the commencement of such proceedings, not exceeding six hundred pesos to each employee, shall be paid prior to the payment of every other debt or claim, and subject to the direction of the Court shall be paid as soon as possible after the proceeding has been commenced; Provided, however, At all times, sufficient funds shall be reserved for the expenses of administration."SEC. 175 (O). Set-offs.-1. In all cases of mutual devts or mutual credits between the insurer and another person, such credits and debts shall be set off and the balance only shall be allowed or paid."2. No set-off shall be allowed in favor of any such person, however, where (a) the obligation of the insurer to such person would not then entitle him to share as a claimant in the assets of such insurer, or (b) the obligation of the insurer to such person was purchased by or transferred to such person with a view of its being used as a set-off, or (c) the obligation of such person is to pay an assessment levied against the members of a mutual insurer or to pay a balance upon a subscription to the capital stock of a stock corporation insurer."SEC. 175 (P). Sale or other disposition of assets and compromise of claims.-The Commissioner may, subject to the approval of the Court, (a) sell or otherwise dispose of the real and personal property, or any part thereof, of an insurer against whom a proceeding has been brought under this Act and (b) sell or compound all doubtful or uncollectible debts or claims owed by or owing to such insurer provided that whenever the amount of any such debt or claim owed by or owing to such insurer does not exceed four hundred pesos, the Commissioner may compromise or compound the same upon such terms as he may deem for the best interest of said insurer without obtaining the approval of the Court."SEC. 175 (Q). Borrowing on the pledge of assets.-For the purpose of facilitating the rehabilitation, liquidation, or dissolution provided for by this Act the Commissioner may, subject to the approval of the Court, borrow money and execute, acknowledge and deliver notes or other evidence of indebtness therefor and secure the repayments of the same by the mortgage, pledge, assignment, transfer in trust, or hypothecation of any or all  of the property whether real, personal or mixed of an insurer against whom a proceeding has been brought under this Act and the Commissioner, subject to the approval of the Court, shall have power to take any and all other action necessary and proper to consummate any such loans and to provide for the repayment thereof. The Commissioner shall be under no obligation personally or in his official capacity as insurance commissioner to repay any loan made pursuant to this section."SEC. 175 (R). Time to file claims against insolvent insurer.-1. Upon the granting of an order for the liquidation of a domestic insurer, the Court shall after such notice and hearing, as it deems proper, make an order declaring such insurer to be insolvent. Thereupon, regardless of any prior notice which may have been given creditors, the Commissioner shall notify all persons who may have claims against such insurer and who have not filed proper proofs thereof, to present the same to him at a place specified in such notice within four months or some longer time in the discretion of the Court, if the Commissioner shall certify that it is necessary, and not otherwise, from the date of the entry of such order. The last day for the filing of proofs of claim shall be specified in the notice. Such notice shall be given in a manner determined by the Court."2. Proofs of claim may be filed subsequent to the date specified, but, no such claim shall share in the distribution of the assets until all allowed claims, proofs of which have been filed before said date, have been paid in full with interest."SEC. 175 (S). Proof and allowance of claims.-1. A proof of claim shall consist of a statement under oath, in writing, signed by the claimant, setting forth the claim, the consideration therefor, and whether any, and if so, what securities are held therefor and whether any, and if so, what payments have been made thereon, and that the sum claimed is justly owing from the insurer to the claimant. Whenever a claim is founded upon an instrument in writing, such instrument, unless lost or destroyed, shall be filed with the proof of claim. If such instrument is lost or destroyed, a statement of such fact and of the circumstances of such loss or destruction shall be filed under oath with the claim."2. Upon the rehabilitation or liquidation of any domestic insurer which has issued policies insuring the lives of persons, the Commissioner shall, within thirty days after the last day set for the filing of claims, make a list of the persons who have not filed proofs of claim with him, to whom it appears to his entire satisfaction from the books of the company, there are owing amounts on such policies and he shall set opposite the name of each person such amount so owing to such person. Each person whose name shall appear upon said list shall be deemed to have duly filed prior to the last day set for the filing of claims a proof of claim for the amount set opposite his name on said list."3. No contingent claim shall share in a distribution of the assets of an insurer which has been adjudicated to be insolvent except such claims shall be considered, if properly presented, and may be allowed to share where (a) such claim becomes absolute against the insurer on or before the last day fixed for the filing of proofs of claim against the assets of such insurer, or (b) there is a surplus and the liquidation is thereafter conducted upon the basis that such insurer is solvent. "4. Where an insurer has been adjudicated to be insolvent, any person who has a cause of action against an assured of such insurer, which is the subject of indemnity under a liability policy issued by such insurer, shall have the right to file a claim in the liquidation proceeding, regardless of the fact that such claim may be contingent, and such claim may be allowed, provided (a) that it may be reasonably inferred from the proof presented upon such claim that such person would be able to obtain a judgment upon such cause of action against such insurer; (b) that such person shall furnish suitable proof that no further valid claims against such insurer arising out of his cause of action other than those already presented can be made unless for good cause shown the Court in which the proceeding is pending shall otherwise direct; (c) that the total liability of such insurer to all claimants arising out of the same act of its assured shall be no greater than its total liability would be were it not in liquidation; (d) That no judgment taken by default, or by collusion, against such an assured shall be considered as evidence in the liquidation proceeding either of the liability of such assured to such person upon such cause of action or of the amount of damages to which such person is therein entitled."5. No claim of any secured claimant shall be allowed at a sum greater than the difference between the value of the security and the amount for which the claim is allowed, unless the claimant shall surrender his security to the Commissioner in which event the claim shall be allowed in the full amount for which it is valued."SEC. 175 (T). Distribution of assets; priorities; unclaimed dividents.-Any time after the last day fixed for filing of proofs of claim in the rehabilitation or liquidation of a domestic insurer, the Court may, upon the application of the Commissioner, authorize him to declare out of the funds remaining in his hands after the payment of expenses one or more dividends. Such order shall specify what claims, if any, are entitled to priority of payment and shall direct the manner in which dividends shall be paid. (a) Where there has been no adjudication of insolvency, the Commissioner shall pay all allowed claims in full and shall distribute the balance of the assets remaining in his hands in accordance with the direction of the Court."2. Dividends remaining unclaimed or unpaid in the hands of the Commissioner for six months after the final order of distribution may be by him deposited in one or more banks, trust companies or savings banks authorized by the Bank Commissioner to do business in the Philippines to the credit of the Insurance Commissioner, whoever he may be, in trust for the person entitled thereto. All such deposits shall be entitled to priority of payment in case of the insolvency or voluntary or involuntary liquidation of the depository on an equality with any other priority given by by the Banking Law."SEC. 175 (U). Effect of unconstitutionality of part of this Act.-Should any section or provision of this Act be declared unconstitutional by the decision of any Court, such decision shall affect the section or provision so declared unconstitutional and shall not affect any other section or provisions of this Act."SEC. 2. All laws and parts of laws inconsistent with this Act are hereby repealed.SEC. 3. This Act shall take effect upon its approval.Approved, October 15, 1945.

Source: Supreme Court E-Library