August 17, 2018

AN ACT STRENGTHENING THE SECURED TRANSACTIONS LEGAL FRAMEWORK IN THE PHILIPPINES. WHICH SHALL PROVIDE FOR THE CREATION, PERFECTION, DETERMINATION OF PRIORITY, ESTABLISHMENT OF A CENTRALIZED NOTICE REGISTRY, AND ENFORCEMENT OF SECURITY INTERESTS IN PERSONAL PROPERTY, AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

SECTION 1. Title. — This Act shall be known as the "Personal Property Security Act".

SEC. 2. Declaration of Policy. — It is the policy of the State to promote economic activity by increasing access to least cost credit, particularly for micro, small, and medium enterprises (MSMEs), by establishing a unified and modern legal framework for securing obligations with personal property.

CHAPTER 1. DEFINITIONS AND SCOPE

SEC. 3. Definition of Terms. — As used in this Act, the following terms shall mean:

(a) Commodity contract - a commodity futures contract, an option on a commodity futures contract, a commodity option, or another contract if the contract or option is:

(1) Traded on or subject to the rules of a board of trade that has been designated as a contract market for such a contract: or

(2) Traded on a foreign commodity board of trade, exchange, or market, and is carried on the books of a commodity-intermediary for a commodity customer:

(b) Control agreement -

(1) With respect to securities, means an agreement in writing among the issuer or the intermediary, the grantor and the secured creditor, according to which the issuer or the intermediary agrees to follow instructions from the secured creditor with respect to the security, without farther consent from the grantor:

(2) With respect to rights to deposit account, means an agreement in writing among the deposit-taking institution, the grantor and the secured creditor, according to which the deposit-taking institution agrees to follow instructions from the secured creditor with respect to the payment of funds credited to the deposit account without further consent from the grantor:

(3) With respect to commodity contracts, means an agreement in writing among the grantor, secured creditor, and intermediary, according to which the commodity intermediary will apply any value distributed on account of the commodity contract as directed by the secured creditor without further consent by the commodity customer or grantor;

(c) Grantor —

(1) The person who grants a security interest in collateral to secure its own obligation or that of another person;

(2) A buyer or other transferee of a collateral that, acquires its right subject to a security interest;

(3) A transferor in an outright transfer of an accounts receivable: or

(4) A lessee of goods;

(d) Non-intermediated securities — securities other than securities credited to a securities account and rights in securities resulting from the credit of securities to a securities

(e) Notice — a statement of information that is registered in the Registry relating to a security interest or lien. The term includes art initial notice, amendment notice, and termination, notice;

(f) Proceeds — any property received upon sale, lease or other disposition of collateral, or whatever is collected on or distributed with respect to collateral, claims arising out of the loss or damage to the collateral, as well as a right to insurance payment or other compensation for loss or damage of the collateral;

(g) Purchase money security interest — a security interest in goods taken, by the seller to secure the price or by a person who gives value to enable the grantor to acquire the goods to the extent, that the credit is used for that purpose;

(h) Registry - the centralized and nationwide electronic registry established in the Land Registration Authority (LRA) where notice of a security interest and a lien in personal property may be registered:

(i) Secured creditor - a person that has a security interest. For the purposes of registration and priority only, it includes a buyer of account receivable and a lessor of goods under an operating lease for not less than one (1) year;

(j) Security interest - a property right in collateral that secures payment or other performance of an obligation, regardless of whether the parties have denominated it as a security interest, and regardless of the type of asset, the status of the grantor or secured creditor, or the nature of the secured obligation; including the right of a buyer of accounts receivable and a lessor under an operating lease for not less than one (1) year; and

(k) Writing - for the purpose of this Act includes electronic records.

SEC 4. Scope of the Act. — This Act shall apply to ail transactions of any form that secure an obligation with movable collateral, except interests in aircrafts subject to Republic Act No. 9497, or the "Civil Aviation Authority Act of 2008", and interests in ships subject to Presidential Decree No, 1521, or the "Ship Mortgage Decree of 1978".

CHAPTER 2. CREATION OF SECURITY INTEREST

SEC. 5. Creation of a Security Interest. —

(a) A security interest, shall be created by a. security agreement.

(b) A security agreement may provide for the creation of a security interest in a future property, but the security interest in that property is created only when the grantor acquires rights in it or the power to encumber it.

SEC. 6. Security Agreement. - A security agreement must be contained in a written contract signed by the parties. It may consist of one or more writings that, taken together, establish the intent of the parties to create a security interest.

The security agreement shall likewise provide for the language to be used in agreements and notices. The grantor shall be given the option to have the agreement and notices in Filipino. The Department of Finance (DOF) shall prepare model agreements in plain English and Filipino.

SEC. 7. Description of Collateral - A description of collateral shall be considered sufficient, whether it is specific or general, if it reasonably identifies the collateral. A description such as "all personal property", "all equipment", "all inventory", or "all personal property within a generic category" of the grantor shall be sufficient.

SEC. 8. Right to Proceeds and Commingled Funds and Money. -

(a) A security interest in personal property shall extend to its identifiable or traceable proceeds.

(b) Where proceeds in the form of funds credited to a deposit account or money are commingled with other funds or money:

(1) The security interest, shall extend to the commingled money or funds, notwithstanding that the proceeds have ceased to be identifiable to the extent they remain traceable:

(2) The security interest in the commingled funds or money shall be limited to the amount of the proceeds immediately before they were commingled; and

(3) If at any time after the commingling, the balance credited to the deposit, account or the amount of the commingled money is less than the amount of the proceeds immediately before they were com mingled. the security interest against the commingled funds or money shall be limited to the lowest amount of the commingled funds or money between the time when the proceeds were commingled and the time the security interest in the proceeds is claimed.

SEC. 9. Continuity of Security Interest. — A security interest shall continue in collateral notwithstanding sale, lease, license, exchange, or other disposition of the collateral, except as otherwise provided in Section 21 of this Act, or agreed upon by the parties.

SEC. 10. Contractual Limitation on the Creation of a Security Interest. —

(a) A security interest in an account receivable shall be effective notwithstanding any agreement between the grantor and the account debtor or any secured creditor limiting in any way the grantor's right to create a security interest.

(b) Nothing in this section shall affect any obligation or liability of the grantor for breach of the agreement in subsection (a).

(c) Any stipulation limiting the grantor's right to create a security interest shall be void.

(d) This section shall apply only to accounts receivable arising from:

(1) A contract for the supply or lease of goods or services other than financial services;

(2) A construction contract or a contract for the sale or lease of real property; and

(3) A contract for the sale, lease or license of intellectual property.

CHAPTER 3. PERFECTION OF SECURITY INTEREST

SEC. 11. Perfection of Security Interest. -

(a) A security interest shall be perfected when it has been created and the secured creditor has taken one of the actions in accordance with Section 12.

(b) On perfection, a security interest becomes effective against third parties.

SEC. 12. Means of Perfection. - A security interest may be perfected by:

(a) Registration of a notice with the Registry;

(b) Possession of the collateral by the secured creditor; and

(c) Control of investment property and deposit account.

A security interest in any tangible asset may be perfected by registration or possession. A security interest in investment property and deposit account may be perfected by registration or control.

SEC. 13. Perfection by Control. -

(a) A security interest in a deposit account or investment property may be perfected by control through:

(1) The creation of the security interest in favor of the deposit-taking institution or the intermediary:

(2) The conclusion of a control agreement; or

(3) For an investment property that is an electronic security not held with an intermediary, the notation of the security interest in the books maintained by or on behalf of the issuer for the purpose of recording the name of the holder of the securities.

(b) Nothing in this Act shall require a deposit-taking institution or an intermediary to enter into a control agreement, even if the grantor so requests. A deposit-taking institution or an intermediary that has entered into such an agreement shall not be required to confirm the existence of the agreement to another person unless requested to do so by the grantor.

SEC. 14. Perfection in Proceeds. -

(a) Upon disposition of collateral, a security interest shall extend to proceeds of the collateral without further act and be continuously perfected, if the proceeds are in the form of money, accounts receivable, negotiable instruments or deposit accounts.

(b) Upon disposition of the collateral, if the proceeds are in a form different from money, accounts receivable, negotiable instruments or deposit accounts, the security Interest in such proceeds must be perfected by one of the means applicable to the relevant type of collateral within fifteen (15) days after the grantor receives such proceeds; otherwise, the security interest in such proceeds shall not be effective against third parties.

SEC. 15. Change in Means of Perfection. - A security interest shall remain perfected despite a change in the means for achieving perfection: Provided, That there was no time when the security interest was not perfected.

SEC. 16. Assignment of Security Interest. - If a secured creditor assigns a perfected security interest, an amendment notice may be registered to reflect the assignment.

CHAPTER 4. PRIORITY OF SECURITY INTEREST

SEC. 17. Priority Rules. - The priority of security interests and liens in the same collateral shall be determined according to time of registration of a notice or perfection by other means, without regard to the order of creation of the security interests and liens.

SEC. 18. Priority for Perfection by Control. -

(a) A security interest in a deposit account with respect to which the secured creditor is the deposit-taking institution or the intermediary shall have priority over a competing security interest perfected by any method.

(b) A security interest in a deposit account or investment property that is perfected by a control agreement shall have priority over a competing security interest except a security interest of the deposit-taking institution or the intermediary.

(c) The order of priority among competing security interests in a deposit account or investment property that were perfected by the conclusion of control agreements shall be determined on the basis of the time of conclusion of the control agreements.

(d) Any rights to set-off that the deposit-taking institution may have against a grantor's right to payment of funds credited to a deposit account shall have priority over a security interest in the deposit account.

(e) A security interest in a security certificate perfected, by the secured creditor's possession of the certificate shall have priority over a competing security interest perfected by registration of a notice in the Registry.

(f) A security interest in electronic securities not held with an intermediary perfected by a notation of the security interests in the books maintained for that purpose by or on behalf of the issuer shall have priority over a security interest in the same securities perfected by any other method.

(g) A security interest in electronic securities not held with an intermediary perfected by the conclusion of a control agreement shall have priority over a security interest in the same securities perfected by registration of a notice in the Registry.

(h) The order of priority among competing security interests in electronic securities not held with an intermediary perfected by the conclusion of control agreements is determined on the basis of the time of conclusion of the control agreements.

SEC. 19. Priority for Instruments and Negotiable Documents. - A security interest in an instrument or negotiable document that is perfected by possession of the instrument or the negotiable document shall have priority over a security interest in the instrument or negotiable document that is perfected by registration of a notice in the Registry.

SEC. 20. Priority and Right of Retention by Operation of Law. - A person who provides services or materials with respect to the goods, in the ordinary course of business, and retains possession of the goods shall have priority over a perfected security interest in the goods until payment thereof.

SEC. 21. Transferee Exceptions. — Any party who obtains, in the ordinary course of business, any movable property containing a security interest shall take the same free of such security interest provided he was in. good faith. No such good faith shall exist if the security interest in the movable property was registered prior to his obtaining the property.

SEC. 22. Effect of the Grantor's Insolvency on the Priority of a Security Interest. - Subject to the applicable insolvency law, a security interest perfected prior to the commencement of insolvency proceedings in respect of the grantor shall remain perfected and retain the priority it had before the commencement of the insolvency proceedings.

SEC. 23. Purchase Money Security Interest. -

(a) A purchase money security interest in equipment and its proceeds shall have priority over a conflicting security interest, if a notice relating to the purchase money security interest is registered within three (3) business days after the grantor receives possession of the equipment.

(b) A purchase money security interest in consumer goods that is perfected by registration of notice not later than three (3) business days after the grantor obtains possession of the consumer goods shall have priority over a conflicting security interest.

(c) A purchase money security interest in inventory, intellectual property or livestock shall have priority over a conflicting perfected security interest in the same inventory, intellectual property or livestock if:

(1) The purchase money security interest is perfected when the grantor receives possession of the inventory or livestock, or acquires rights to intellectual property; and

(2) Before the grantor receives possession of the inventory or livestock, or acquires rights in intellectual property, the purchase money secured creditor gives written notification to the holder of the conflicting perfected security interest in the same types of inventory, livestock, or intellectual property. The notification sent to the holder of the conflicting security interest may cover multiple transactions between the purchase money secured creditor and the grantor without the need to identify each transaction.

(d) The purchase money security interest in equipment or consumer goods perfected timely in accordance with subsections (a) and (.b), shall have priority over the rights of a buyer, lessee, or lien holder which arise between delivery of the equipment or consumer goods to the grantor and the time the notice is registered.

SEC. 24. Livestock. - A perfected security interest in livestock securing an obligation incurred to enable the grantor to obtain food or medicine for the livestock shall have priority over any other security interest, in the livestock, except for a perfected purchase money security interest in the livestock, if the secured creditor providing credit for food or medicine gives written notification to the holder of the conflicting perfected security interest in the same livestock before the grantor receives possession of the food or medicine.

SEC. 25. Fixtures, Accessions, and Commingled Goods. - A perfected security interest in a movable property which has become a fixture, or has undergone accession or commingling shall continue provided the movable property involved can still be reasonably traced. In determining ownership over fixtures, accessions, and commingled goods, the provisions of Book II of Republic Act No. 386 or the "Civil Code of the Philippines" shall apply.

CHAPTER 5. REGISTRATION - REGISTRY

SEC. 26. Establishment of Electronic Registry. -

(a) The Registry shall be established in and administered by the LRA.

(b) The Registry shall provide electronic means for registration and searching of notices,

SEC. 27. Public Record. -

(a) Information contained in a registered notice shall be considered as a public record.

(b) Any person may search notices registered in the Registry.

(c) The electronic records of the Registry shall be the official records.

SEC. 28. Sufficiency of Notice. -

(a) An initial notice of security interest shall not be rejected:

(1) If it identifies the grantor by an. identification number, as further prescribed in the regulations;

(2) If it identifies the secured creditor or an agent of the secured creditor by name;

(3) If it provides an address for the grantor and secured creditor or its agent;

(4) If it describes the collateral; and

(5) If the prescribed fee has been tendered, or an arrangement has been made for payment of fees by other means.

(b) if the Registry rejects to register a notice, it shall promptly communicate the fact of and reason for its rejection to the person who submitted the notice.

(c) Each grantor must authorize the registration of an initial notice by signing a security agreement or otherwise in writing.

(d) A notice may be registered before a security agreement is concluded. Once a security agreement is concluded, the date of registration of the notice shall be reckoned from the date the

notice was registered.

(e) A notice of lien may be registered by a lien holder without the consent of the person against whom the lien is sought to be enforced.

(f) Description of the collateral in a notice shall be entered in English.

SEC. 29. One Notice Sufficient for Security Interests Under Multiple Security Agreements. - The registration of a single notice may relate to security interests created by the grantor under one (1) or more than one security agreement.

SEC. 30. Effectiveness of Notice. -

(a) A notice shall be effective at the time it is discoverable on the records of the Registry.

(b) A notice shall be effective for the duration of the term indicated in the notice unless a continuation notice is registered before the term lapses.

(c) A notice substantially complying with the requirements of this Chapter shall be effective unless it is seriously misleading.

(d) A notice that may not be retrieved in a search of the Registry against the correct identifier of the grantor shall be ineffective with respect to that grantor.

SEC. 31. Seriously Misleading Notice. - A notice that does not provide the identification number of the grantor shall be seriously misleading.

SEC. 32. Amendment of Notice. -

(a) A notice may be amended by the registration of an amendment notice that:

(1) Identifies the initial notice by its registration number; and

(2) Provides the new information.

(b) An amendment notice that adds collateral that is not proceeds must be authorized by the grantor in writing.

(c) An amendment notice that adds a grantor must be authorized by the added grantor in writing.

(d) An amendment notice shall be effective only as to each secured creditor who authorizes it.

(e) An amendment notice that adds collateral or a grantor shall be effective &a to the added collateral or grantor from the date of its registration.

SEC. 33. Continuation of Notice. -

(a) The period of effectiveness of a notice may be continued by registering an amendment notice that identifies the initial notice by its registration number.

(b) Continuation of notice may be registered only within six (6) months before the expiration of the effective period of the notice.

SEC. 34. Termination of Effectiveness of a Notice. -

(a) The effectiveness of a notice may be terminated by registering a termination notice that:

(1) Identifies the initial notice by its registration number; and

(2) Identifies each secured creditor who authorizes the registration of the termination notice.

(b) A termination notice terminates effectiveness of the notice as to each authorizing secured creditor.

SEC. 35. Registry Duties. -

(a) For each registered notice, the Registry shall:

(1) Assign a unique registration number:

(2) Create a record that bears the number assigned to the initial notice and the date and time of registration: and

(3) Maintain the record for public inspection.

(b) The Registry shall index notices by the identification number of the grantor and, for notices containing a serial number of a motor vehicle., by serial number.

(c) The Registry shall provide a copy of the electronic record of the notice, including the registration number and the date and time of registration to the person who submitted it.

(d) The Registry shall maintain the capability to retrieve a record by the identification number of the grantor, and by serial number of a motor vehicle.

(e) The Registry shall maintain records of lapsed notices for a period of ten (10) years after the lapse.

(f) The duties of the Registry shall be merely administrative in nature. By registering a notice or refusing to register a notice, the Registry does not determine the sufficiency, correctness, authenticity, or validity of any information contained in the notice.

SEC. 36. Search of Registry Records and Certified Report. -

(a) The Registry shall communicate the following information to any person who requests it:

(1) Whether there are in the Registry any unlapsed notices that indicate the grantor's identification number or vehicle serial number that exactly matches the relevant criterion provided by the searcher;

(2) The registration number, and the date and time of registration of each notice; and

(3) All of the information contained in each notice.

(b) If requested, the Registry shall issue a certified report of the results of a search that is an official record of the Registry and shall be admissible into evidence in. judicial proceedings without extrinsic evidence of its authenticity.

SEC. 37. Disclosure of Information. -

(a) The secured creditor must provide to the grantor at its request:

(1) The current amount of the unpaid secured obligation; and

(2) A list of assets currently subject to a security interest.

(b) The secured creditor may require payment of a fee for each request made by the grantor in subsection (a) in this section, but the grantor is entitled to a reply without, charge once every six (6) months.

(c) A security interest in a deposit account shall not:

(1) Affect the rights and obligations of the deposit-taking institution without its consent; or

(2) Require the deposit-taking institution to provide any information about the deposit account to third parties.

SEC. 38. Fees Set by Registration. -

(a) The fees for registering a notice and for requesting a certified search report shall be set by regulation issued by the DOF for the recovery of reasonable costs of establishing and operating the Registry.

(b) The fee structure or any change thereof under subsection (a) shall further consider that the same shall not be burdensome to either lender or grantor.

(c) There shall be no fee for electronic searches of the Registry records or for the registration of termination notices.

(d) The Registry may charge fees for services not mentioned above.

SEC. 39. When the Grantor May Demand Amendment or Termination of Notice. - A grantor may give a written demand to the secured creditor to amend or terminate the effectiveness of the notice if:

(a) All the obligations under the security agreement to which the registration relates have been performed and there is no commitment to make future advances;

(b) The secured creditor has agreed to release part of the collateral described in the notice;

(c) The collateral described in the notice includes an item or kind of property that is not a collateral under a security agreement between the secured creditor and the grantor;

(d) No security agreement exists between the parties; or

(e) The security interest is extinguished in accordance with this Act.

SEC. 40. Matters That May be Required by Demand. - Upon receipt of the demand submitted under Section 39, the secured creditor must register, within fifteen (15) working days, an amendment or termination notice;

(a) Terminating the registration in subsections (a), (d) or (e) of Section 39;

(b) Amending the registration to release some property that is no longer collateral in a case within subsection (c) of Section 39 or that was never collateral under a security agreement between the secured creditor and the grantor in a case within subsection (c) of Section 39.

SEC. 41. Procedure for Non-compliance with Demand. - If the secured creditor fails to comply with the demand within fifteen (15) working days after its receipt, the person giving the demand under Section 39 may ask the proper court to issue an order terminating or amending the notice as appropriate.

SEC. 42. Compulsory Amendment or Termination by Court Order. -

(a) The court may, on application by the grantor, issue an order that the notice be terminated or amended in accordance with the demand, which order shall be conclusive and binding on the LRA: Provided, That the secured creditor who disagrees with the order of the court may appeal the order.

(b) The court may make any other order it deems proper for the purpose of giving effect to an order under subsection (a) of this section.

(c) The LRA shall amend or terminate a notice in accordance with a court order made under subsection (a) of this section as soon as reasonably practicable after receiving the order.

SEC. 43. No Pee for Compliance of Demand. - A secured creditor shall not charge any fee for compliance with a demand received under Section 39.

SEC. 44. When Registration and Search Constitutes Interference with Privacy of Individual. - A person who submitted a notice for registration or carried out a search of the Registry with a frivolous, malicious or criminal purpose or intent shall be subject to civil and criminal penalties according to the relevant laws.

CHAPTER 6. ENFORCEMENT OF SECURITY INTEREST SECURED CREDITOR'S RIGHTS

SEC. 45. Right of Redemption. -

(a) Any person who is entitled to receive a notification of disposition in accordance with this Chapter is entitled to redeem the collateral by paying or otherwise performing the secured obligation in full, including the reasonable cost of enforcement.

(b) The right of redemption may be exercised, unless:

(1) The person entitled to redeem has not, after the default, waived in writing the right to redeem;

(2) The collateral is sold or otherwise disposed of acquired or collected by the secured creditor or until the conclusion of an agreement by the secured creditor for that purpose: and

(3) The secured creditor has retained the collateral.

SEC. 46. Right of Higher-Ranking Secured Creditor to Take Over Enforcement. -

(a) Even if another secured creditor or a lien holder has commenced enforcement, a secured creditor whose security interest has priority over that of the enforcing secured creditor or lien holder shall be entitled to take over the enforcement process.

(b) The right referred to in subsection (a) of this section may be invoked at any time before the collateral is sold or otherwise disposed of, or retained by the secured creditor or until the conclusion of an agreement by the secured creditor for that purpose.

(c) The right of the higher-ranking secured creditor to take over the enforcement process shall include the right to enforce the rights by any method available to a secured creditor under this Act.

SEC. 47. Expedited Repossession of the Collateral. -

(a) The secured creditor may take possession of the collateral without judicial process if the security agreement so stipulates: Provided, That possession can be taken without a breach of the peace.

(b) If the collateral is a fixture, the secured creditor, if it has priority over all owners and. mortgagees, may remove the fixture from the real property to which it is affixed without judicial process. The secured creditor shall exercise due care in removing the fixture.

(c) If, upon default, the secured creditor cannot take possession of collateral without breach of the peace, the secured creditor may proceed as follows:

(1) The secured creditor shall be entitled to an expedited hearing upon application for an order granting the secured creditor possession of the collateral. Such application shall include a statement by the secured creditor, under oath, verifying the existence of the security agreement attached to the application and identifying at least one event, of default by the debtor under the security agreement;

(2) The secured creditor shall provide the debtor, grantor, and, if the collateral is a fixture, any real estate mortgagee, a copy of the application, including all supporting documents and evidence for the order granting the secured creditor possession of the collateral: and

(3) The secured creditor is entitled to an order granting possession of the collateral upon the court finding that a default has occurred under the security agreement and that the secured creditor has a right to take possession of the collateral. The court may direct the grantor to take such action as the court deems necessary and appropriate so that the secured creditor may take possession of the collateral: Provided. That breach of the peace shall include entering the private residence of the grantor without permission, resorting to physical violence or intimidation, or being accompanied by a law enforcement officer when taking possession or confronting the grantor.

SEC. 48. Recovery in Special Cases. - Upon default, the secured creditor may without judicial process:

(a) Instruct the account debtor to make payment to the secured creditor, and apply such payment to the satisfaction of the obligation secured by the security interest after deducting the secured creditor's reasonable collection expenses. On request of the account debtor, the secured creditor shall provide evidence of its security interest to the account debtor when it delivers the instruction to the account debtor:

(b) In a negotiable document that is perfected by possession, proceed as to the negotiable document or goods covered by the negotiable document;

(c) In a deposit account maintained by the secured creditor, apply the balance of the deposit account to the obligation secured by the deposit account; and

(d) In other cases of security interest in a deposit account perfected by control, instruct the deposit-taking institution to pay the balance of the deposit account to the secured creditor's account.

SEC. 49. Right to Dispose of Collateral. -

(a) After default, a secured creditor may sell or otherwise dispose of the collateral, publicly or privately, in its present condition or following any commercially reasonable preparation or processing.

(b) The secured creditor may buy the collateral at any public disposition, or at a private disposition but only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations.

SEC. 50. Commercial Reasonableness Required. -

(a) In disposing of collateral, the secured creditor shall act in a commercially reasonable manner.

(b) A disposition is commercially reasonable if the secured creditor disposes of the collateral in conformity with commercial practices among dealers in that type of property.

(c) A disposition is not commercially unreasonable merely because a better price could have been obtained by disposition at a different time or by a different method from the time and method selected by the secured creditor.

(d) If a method of disposition of collateral has been approved in any legal proceeding, it is conclusively commercially reasonable.

SEC. 51. Notification of Disposition. -

(a) Not later than ten (10) days before disposition of the collateral, the secured creditor shall notify:

(1) The grantor;

(2) Any other secured creditor or lien, holder who, five (5) days before the date notification is sent to the grantor, held a security interest or lien, in the collateral that was perfected by registration; and

(3) Any other person from whom the secured creditor received notification of a claim of an interest in the collateral if the notification was received before the secured creditor gave notification of the proposed disposition to the grantor.

(b) The grantor may waive the right to be notified.

(c) A notification of disposition is sufficient if it identifies the grantor and the secured creditor; describes the collateral; states the method of intended disposition; and states the time and place of a public disposition or the time after which other disposition is to be made.

(d) The requirement to send a notification under this section shall not apply if the collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market.

SEC. 52. Application of Proceeds. -

(a) The proceeds of disposition shall be applied in the following order:

(1) The reasonable expenses of taking, holding, preparing for disposition, and disposing of the collateral, including reasonable attorneys' fees and legal expenses incurred by the secured creditor;

(2) The satisfaction of the obligation secured by the security interest of the enforcing secured creditor; and

(3) The satisfaction of obligations secured by any subordinate security interest or lien in the collateral if a written demand and proof of the interest are received before distribution of the proceeds is completed.

(b) The secured creditor shall account to the grantor for any surplus, and unless otherwise agreed, the debtor is liable for any deficiency.

SEC. 53. Rights of Buyers and Other Third Parties. -

(a) If a secured creditor sells the collateral under this Chapter, the buyer shall acquire the grantor's right in the asset free of the rights of any secured creditor or lien holder.

(b) If a secured creditor leases or licenses the collateral under this Chapter, the lessee or licensee shall be entitled to the benefit of the lease or license during its term.

(c) If a secured creditor sells, leases or licenses the collateral not in compliance with this Chapter, the buyer, lessee or licensee of the collateral shall acquire the rights or benefits described in subsections (a) and (b) of this section: Provided, That it had no knowledge of a violation of this Chapter that materially prejudiced the rights of the grantor or another person.

SEC. 54. Retention of Collateral by Secured Creditor. -

(a) After default, the secured creditor may propose to the debtor and grantor to take all or part of the collateral in total or partial satisfaction of the secured obligation, and shall send a proposal to:

(1) The debtor and the grantor;

(2) Any other secured creditor or lien holder who, five (5) days before the proposal is sent to the debtor and the grantor, perfected its security interest or lien by registration; and

(3) Any other person with an interest in the collateral who has given a written notification to the secured creditor before the proposal is sent to the debtor and the grantor.

(b) The secured creditor may retain the collateral in the case of:

(1) A proposal for the acquisition of the collateral in full satisfaction of the secured obligation, unless the secured creditor receives an objection in writing from any person entitled to receive such a proposal within twenty (20) days after the proposal is sent to that person; or

(2) A proposal for the acquisition of the collateral in partial satisfaction of the secured obligation, only if the secured creditor receives the affirmative consent of each addressee of the proposal in writing within twenty (20) days after the proposal is sent to that person.

CHAPTER 7. TRANSITIONAL PROVISIONS

SEC. 55. Interpretation of Transitional Provisions. - For this Chapter, unless the context otherwise requires:

(a) Existing secured creditor - means a secured creditor with a prior security interest;

(b) Prior law - means any law that existed or in force before the effectivity of this Act;

(c) Prior interest - means a security interest created or provided for by an agreement or other transaction that was made or entered into before the effectivity of this Act and that had not been terminated before the effectivity of this Act, but excludes a security interest that is renewed or extended by a security agreement or other transaction made or entered into on or after the effectivity of this Act; and

(d) Transitional period - means the period from the date of effectivity of this Act until the date when the Registry has been established and operational.

SEC. 56. Creation of Prior Interest. -

(a) Creation of prior interest shall be determined by prior law.

(b) A prior interest remains effective between the parties notwithstanding its creation did not comply with the creation of this Act.

SEC. 57. Perfection of Prior Interest. —

(a) A prior interest that was perfected under prior law continues to be perfected under this Act until the earlier of:

(1) The time the prior interest would cease to be perfected under prior law; and

(2) The expiration of the transitional period.

(b) If the perfection requirements of this Act are satisfied before the perfection of a prior interest ceases in accordance with subsection (a) of this section., the prior interest continues to be perfected under this Act from the time when it was perfected under the prior law.

(c) If the perfection requirements of this Act are not satisfied before the perfection of a prior interest ceases in accordance with subsection (a) of this section, the prior interest, is perfected only from the time it is perfected under this Act.

(d) A written agreement between a grantor and a secured creditor creating a prior interest is sufficient to constitute authorization by the grantor of the registration of a notice covering assets described in that agreement under this Act.

(e) If a prior interest referred to in subsection (b) of this section was perfected by the registration of a notice under prior law, the time of registration under the prior law shall be the time to be used for purposes of applying the priority rules of this Act.

SEC. 58. Priority of Prior Interest. -

(a) The priority of a prior interest as against the rights of a competing claimant is determined by the prior law if:

(1) The security interest and the rights of all competing claimant arose before the effectivity of this Act; and

(2) The priority status of these rights has not changed since the effectivity of this Act.

(b) For purposes of subsection (a)(2) of this section, the priority status of a prior interest has changed only if:

(1) It was perfected when this Act took effect, but ceased to be perfected; or

(2) It was not perfected under prior law when this Act took effect, and was only perfected under this Act.

SEC. 59. Enforcement of Prior Interest. -

(a) If any step or action has been taken to enforce a prior interest before the effectivity of this Act. enforcement may continue under prior law or may proceed under this Act.

(b) Subject to subsection (a) of this section, prior law shall apply to a matter that is the subject of proceedings before a court before the effectivity of this Act.

CHAPTER 8. CONGRESSIONAL OVERSIGHT AND MISCELLANEOUS PROVISIONS

SEC. 60. Congressional Oversight and Periodic Review. - A Congressional Oversight Committee shall be created that will conduct a periodic review every five (5) years commencing from the effectivity of this Act. The Congressional Oversight Committee shall be composed of the Chairperson of the Senate Committee on Banks, Financial Institutions and Currencies, the Chairperson of the House of Representatives Committee on Banks and Financial Intermediaries, and representatives of other relevant congressional committees.

SEC. 61. Interpretation. - If there is conflict between a provision of this Act and a provision of any other law, this Act shall govern unless the other law specifically cites or amends the conflicting provisions of this law.

SEC. 62. Implementing Rules and Regulations. — Within six (6) months from the passage of this Act, the DOF in coordination with the Department of Justice, through the LRA, shall promulgate the necessary rules and regulations for the effective implementation of this Act.

SEC. 63. Rules on Enforcement Procedure. - Subject to Section, 47, the expedited hearing/proceedings shall be conducted irua.summary manner consistent with the declared policies of this Act and in accordance with the rules of procedure that the Supreme Court may promulgate.

SEC. 64. Sourcing of Funds. - The funds needed for the implementation of this Act shall be taken from the Special Account arising from revenues collected by the LRA under Section 111 of Presidential Decree No. 1529. without need for any further government approval.

SEC. 65. Separability Clause. - Should any provision herein be declared unconstitutional, the same shall not affect the validity of the other provisions of this Act.

SEC. 66. Repealing Clause. - The following laws, and all laws, decrees, orders, and issuances or portions thereof, which are inconsistent with the provisions of this Act, are hereby repealed, amended, or modified accordingly:

(a) Sections 1 to 16 of Act No. 1508, otherwise known as "The Chattel Mortgage Law":

(b) Articles 2085-2123, 2127, 2140-2141, 2241, 2243, and 2246-2247 of Republic Act No. 386, otherwise known as the "Civil Code of the Philippines";

(c) Section 13 of Republic Act No. 5980, as amended by Republic Act No. 8556, otherwise known as the "Financing Company Act of 1998";

(d) Sections 114-116 of Presidential Decree No. 1529, otherwise known as the "Property Registration Decree";

(e) Section 10 of Presidential Decree No. 1529, insofar as the provision thereof is inconsistent with this Act; and

(f) Section 5(e) of Republic Act No. 4136. otherwise known as the "Land Transportation and Traffic Code".

SEC. 67. Effectivity. — This Act shall take effect fifteen (16) days after publication in at least two (2) newspapers of general circulation.

SEC. 68. Implementation. - Notwithstanding the entry into force of this Act under Section 67, the implementation of the Act shall be conditioned upon the Registry being established and operational under Section 26.

Approved: AUG 17 2018

AN ACT PROVIDING FOR A NATIONAL COMPETITION POLICY PROHIBITING ANTI-COMPETITIVE AGREEMENTS, ABUSE OF DOMINANT POSITION AND ANTI-COMPETITIVE MERGERS AND ACQUISITIONS, ESTABLISHING THE PHILIPPINE COMPETITION COMMISSION AND APPROPRIATING FUNDS THEREFOR

Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:

CHAPTER I GENERAL PROVISIONS

Section 1. Short Title. – This Act shall be known as the "Philippine Competition Act".

Section 2. Declaration of Policy. – The efficiency of market competition as a mechanism for allocating goods and services is a generally accepted precept. The State recognizes that past measures undertaken to liberalize key sectors in the economy need to be reinforced by measures that safeguard competitive conditions. The State also recognizes that the provision of equal opportunities to all promotes entrepreneurial spirit, encourages private investments, facilitates technology development and transfer and enhances resource productivity. Unencumbered market competition also serves the interest of consumers by allowing them to exercise their right of choice over goods and services offered in the market.

Pursuant to the constitutional goals for the national economy to attain a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged and the constitutional mandate that the State shall regulate or prohibit monopolies when the public interest so requires and that no combinations in restraint of trade or unfair competition shall be allowed, the State shall:

(a) Enhance economic efficiency and promote free and fair competition in trade, industry and all commercial economic activities, as well as establish a National Competition Policy to be implemented by the Government of the Republic of the Philippines and all of its political agencies as a whole;

(b) Prevent economic concentration which will control the production, distribution, trade, or industry that will unduly stifle competition, lessen, manipulate or constrict the discipline of free markets; and

(c) Penalize all forms of anti-competitive agreements, abuse of dominant position and anti-competitive mergers and acquisitions, with the objective of protecting consumer welfare and advancing domestic and international trade and economic development.

Section 3. Scope and Application. — This Act shall be enforceable against any person or entity engaged in any trade, industry and commerce in the Republic of the Philippines. It shall likewise be applicable to international trade having direct, substantial, and reasonably foreseeable effects in trade, industry, or commerce in the Republic of the Philippines, including those that result from acts done outside the Republic of the Philippines.

This Act shall not apply to the combinations or activities of workers or employees nor to agreements or arrangements with their employers when such combinations, activities, agreements, or arrangements are designed solely to facilitate collective bargaining in respect of conditions of employment.

Section 4. Definition of Terms. – As used in this Act:

(a) Acquisition refers to the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by:

(1) One (1) entity of the whole or part of another;

(2) Two (2) or more entities over another; or

(3) One (1) or more entities over one (1) or more entities;

(b) Agreement refers to any type or form of contract, arrangement, understanding, collective recommendation, or concerted action, whether formal or informal, explicit or tacit, written or oral;

(c) Conduct refers to any type or form of undertaking, collective recommendation, independent or concerted action or practice, whether formal or informal;

(d) Commission refers to the Philippine Competition Commission created under this Act;

(e) Confidential business information refers to information which concerns or relates to the operations, production, sales, shipments, purchases, transfers, identification of customers, inventories, or amount or source of any income, profits, losses, expenditures;

(f) Control refers to the ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise;

(g) Dominant position refers to a position of economic strength that an entity or entities hold which makes it capable of controlling the relevant market independently from any or a combination of the following: competitors, customers, suppliers, or consumers;

(h) Entity refers to any person, natural or juridical, sole proprietorship, partnership, combination or association in any form, whether incorporated or not, domestic or foreign, including those owned or controlled by the government, engaged directly or indirectly in any economic activity;

(i) Market refers to the group of goods or services that are sufficiently interchangeable or substitutable and the object of competition, and the geographic area where said goods or services are offered;

(j) Merger refers to the joining of two (2) or more entities into an existing entity or to form a new entity;

(k) Relevant market refers to the market in which a particular good or service is sold and which is a combination of the relevant product market and the relevant geographic market, defined as follows:

(1) A relevant product market comprises all those goods and/or services which are regarded as interchangeable or substitutable by the consumer or the customer, by reason of the goods and/or services’ characteristics, their prices and their intended use; and

(2) The relevant geographic market comprises the area in which the entity concerned is involved in the supply and demand of goods and services, in which the conditions of competition are sufficiently homogenous and which can be distinguished from neighboring areas because the conditions of competition are different in those areas.

CHAPTER II PHILIPPINE COMPETITION COMMISSION

Section 5. Philippine Competition Commission. – To implement the national competition policy and attain the objectives and purposes of this Act, an independent quasi-judicial body is hereby created, which shall be known as the Philippine Competition Commission (PCC), hereinafter referred to as the Commission, and which shall be organized within sixty (60) days after the effectivity of this Act. Upon establishment of the Commission, Executive Order No. 45 designating the Department of Justice as the Competition Authority is hereby amended. The Office for Competition (OFC) under the Office of the Secretary of Justice shall however be retained, with its powers and functions modified pursuant to Section 13 of this Chapter.

The Commission shall be an attached agency to the Office of the President.

Section 6. Composition of the Commission. – The Commission shall be composed of a Chairperson and four (4) Commissioners. The Chairperson and the Commissioners shall be citizens and residents of the Philippines, of good moral character, of recognized probity and independence and must have distinguished themselves professionally in public, civic or academic service in any of the following fields: economics, law, finance, commerce or engineering. They must have been in the active practice of their professions for at least ten (10) years, and must not have been candidates for any elective national or local office in the immediately preceding elections, whether regular or special: Provided, That at least one (1) shall be a member of the Philippine Bar with at least ten (10) years of experience in the active practice of law, and at least one (1) shall be an economist. The Chairperson and the Commissioners who shall have the rank equivalent of cabinet secretary and undersecretary, respectively, shall be appointed by the President.

Section 7. Term of Office. – The term of office of the Chairperson and the Commissioners shall be seven (7) years without reappointment. Of the first set of appointees, the Chairperson shall hold office for seven (7) years and of the first four (4) Commissioners, two (2) shall hold office for a term of seven (7) years and two (2) for a term of five (5) years. In case a vacancy occurs before the expiration of the term of office, the appointment to such vacancy shall only be for the unexpired term of the predecessor.

The Chairperson and the Commissioners shall enjoy security of tenure and shall not be suspended or removed from office except for just cause as provided by law.

Section 8. Prohibitions and Disqualifications. – The Commissioners shall not, during their tenure, hold any other office or employment. They shall not, during their tenure, directly or indirectly practice any profession, except in a teaching capacity, participate in any business, or be financially interested in any contract with, or any franchise, or special privileges granted by the government or any subdivision, agency, or instrumentality thereof, including government-owned and -controlled corporations or their subsidiaries. They shall strictly avoid conflict of interest in the conduct of their office. They shall not be qualified to run for any office in the election immediately succeeding their cessation from office: Provided, That the election mentioned hereof is not a Barangay election or a Sangguniang Kabataan election. Provided, they shall not be allowed to personally appear or practice as counsel or agent on any matter pending before the Commission for two (2) years following their cessation from office.

No spouse or relative by consanguinity or affinity within the fourth civil degree of any of the Commissioners, the Chairperson and the Executive Director of the Commission may appear as counsel nor agent on any matter pending before the Commission or transact business directly or indirectly therein during incumbency and within two (2) years from cessation of office.

Section 9. Compensation and Other Emoluments for Members and Personnel of the Commission.— The compensation and other emoluments for the members and personnel of the Commission shall be exempted from the coverage of Republic Act No. 6758, otherwise known as the "Salary Standardization Act". For this purpose, the salaries and other emoluments of the Chairperson, the Commissioners, and personnel of the Commission shall be set based on an objective classification system, taking into consideration the importance and responsibilities attached to the respective positions, and shall be submitted to the President of the Philippines for his approval.

Section 10. Quorum. – Three (3) members of the Commission shall constitute a quorum and the affirmative vote of three (3) members shall be necessary for the adoption of any rule, ruling, order, resolution, decision or other acts of the Commission.

Section 11. Staff. – The Commission shall appoint, fix the compensation, and determine the status, qualifications, and duties of an adequate staff, which shall include an Executive Director of the Commission. The Executive Director shall be appointed by the Commission and shall have relevant experience in any of the fields of law, economics, commerce, management, finance or engineering for at least ten (10) years. The members of the technical staff, except those performing purely clerical functions, shall possess at least a Bachelor’s Degree in any of the following lines of specialization: economics, law, finance, commerce, engineering, accounting, or management.

Section 12. Powers and Functions. — The Commission shall have original and primary jurisdiction over the enforcement and implementation of the provisions of this Act, and its implementing rules and regulations. The Commission shall exercise the following powers and functions:

(a) Conduct inquiry, investigate, and hear and decide on cases involving any violation of this Act and other existing competition laws motu proprio or upon receipt of a verified complaint from an interested party or upon referral by the concerned regulatory agency, and institute the appropriate civil or criminal proceedings;

(b) Review proposed mergers and acquisitions, determine thresholds for notification, determine the requirements and procedures for notification, and upon exercise of its powers to review, prohibit mergers and acquisitions that will substantially prevent, restrict, or lessen competition in the relevant market;

(c) Monitor and undertake consultation with stakeholders and affected agencies for the purpose of understanding market behavior;

(d) Upon finding, based on substantial evidence, that an entity has entered into an anti-competitive agreement or has abused its dominant position after due notice and hearing, stop or redress the same, by applying remedies, such as, but not limited to, issuance of injunctions, requirement of divestment, and disgorgement of excess profits under such reasonable parameters that shall be prescribed by the rules and regulations implementing this Act;

(e) Conduct administrative proceedings, impose sanctions, fines or penalties for any noncompliance with or breach of this Act and its implementing rules and regulations (IRR) and punish for contempt;

(f) Issue subpoena duces tecum and subpoena ad testificandum to require the production of books, records, or other documents or data which relate to any matter relevant to the investigation and personal appearance before the Commission, summon witnesses, administer oaths, and issue interim orders such as show cause orders and cease and desist orders after due notice and hearing in accordance with the rules and regulations implementing this Act;

(g) Upon order of the court, undertake inspections of business premises and other offices, land and vehicles, as used by the entity, where it reasonably suspects that relevant books, tax records, or other documents which relate to any matter relevant to the investigation are kept, in order to prevent the removal, concealment, tampering with, or destruction of the books, records, or other documents;

(h) Issue adjustment or divestiture orders including orders for corporate reorganization or divestment in the manner and under such terms and conditions as may be prescribed in the rules and regulations implementing this Act. Adjustment or divestiture orders, which are structural remedies, should only be imposed:

(1) Where there is no equally effective behavioral remedy; or

(2) Where any equally effective behavioral remedy would be more burdensome for the enterprise concerned than the structural remedy. Changes to the structure of an enterprise as it existed before the infringement was committed would only be proportionate to the substantial risk of a lasting or repeated infringement that derives from the very structure of the enterprise;

(i) Deputize any and all enforcement agencies of the government or enlist the aid and support of any private institution, corporation, entity or association, in the implementation of its powers and functions;

(j) Monitor compliance by the person or entities concerned with the cease and desist order or consent judgment;

(k) Issue advisory opinions and guidelines on competition matters for the effective enforcement of this Act and submit annual and special reports to Congress, including proposed legislation for the regulation of commerce, trade, or industry;

(l) Monitor and analyze the practice of competition in markets that affect the Philippine economy; implement and oversee measures to promote transparency and accountability; and ensure that prohibitions and requirements of competition laws are adhered to;

(m) Conduct, publish, and disseminate studies and reports on anti-competitive conduct and agreements to inform and guide the industry and consumers;

(n) Intervene or participate in administrative and regulatory proceedings requiring consideration of the provisions of this Act that are initiated by government agencies such as the Securities and Exchange Commission, the Energy Regulatory Commission and the National Telecommunications Commission;

(o) Assist the National Economic and Development Authority, in consultation with relevant agencies and sectors, in the preparation and formulation of a national competition policy;

(p) Act as the official representative of the Philippine government in international competition matters;

(q) Promote capacity building and the sharing of best practices with other competition-related bodies;

(r) Advocate pro-competitive policies of the government by:

(1) Reviewing economic and administrative regulations, motu proprio or upon request, as to whether or not they adversely affect relevant market competition, and advising the concerned agencies against such regulations; and

(2) Advising the Executive Branch on the competitive implications of government actions, policies and programs; and

(s) Charging reasonable fees to defray the administrative cost of the services rendered.

Section 13. Office for Competition (OFC), Powers and Functions. — The OFC under the Department of Justice (DOJ-OFC) shall only conduct preliminary investigation and undertake prosecution of all criminal offenses arising under this Act and other competition-related laws in accordance with Section 31 of Chapter VI of this Act. The OFC shall be reorganized and allocated resources as may be required therefor to effectively pursue such mandate.

CHAPTER III PROHIBITED ACTS

Section 14. Anti-Competitive Agreements. –

(a) The following agreements, between or among competitors, are per se prohibited:

(1) Restricting competition as to price, or components thereof, or other terms of trade;

(2) Fixing price at an auction or in any form of bidding including cover bidding, bid suppression, bid rotation and market allocation and other analogous practices of bid manipulation;

(b) The following agreements, between or among competitors which have the object or effect of substantially preventing, restricting or lessening competition shall be prohibited:

(1) Setting, Kmiting, or controlling production, markets, technical development, or investment;

(2) Dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers or any other means;

(c) Agreements other than those specified in (a) and (b) of this section which have the object or effect of substantially preventing, restricting or lessening competition shall also be prohibited: Provided, Those which contribute to improving the production or distribution of goods and services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits, may not necessarily be deemed a violation of this Act.

An entity that controls, is controlled by, or is under common control with another entity or entities, have common economic interests, and are not otherwise able to decide or act independently of each other, shall not be considered competitors for purposes of this section.

Section 15. Abuse of Dominant Position. – It shall be prohibited for one or more entities to abuse their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition:

(a) Selling goods or services below cost with the object of driving competition out of the relevant market: Provided, That in the Commission’s evaluation of this fact, it shall consider whether the entity or entities have no such object and the price established was in good faith to meet or compete with the lower price of a competitor in the same market selling the same or comparable product or service of like quality;

(b) Imposing barriers to entry or committing acts that prevent competitors from growing within the market in an anti-competitive manner except those that develop in the market as a result of or arising from a superior product or process, business acumen, or legal rights or laws;

(c) Making a transaction subject to acceptance by the other parties of other obligations which, by their nature or according to commercial usage, have no connection with the transaction;

(d) Setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services, where such customers or sellers are contemporaneously trading on similar terms and conditions, where the effect may be to lessen competition substantially: Provided, That the following shall be considered permissible price differentials:

(1) Socialized pricing for the less fortunate sector of the economy;

(2) Price differential which reasonably or approximately reflect differences in the cost of manufacture, sale, or delivery resulting from differing methods, technical conditions, or quantities in which the goods or services are sold or delivered to the buyers or sellers;

(3) Price differential or terms of sale offered in response to the competitive price of payments, services or changes in the facilities furnished by a competitor; and

(4) Price changes in response to changing market conditions, marketability of goods or services, or volume;

(e) Imposing restrictions on the lease or contract for sale or trade of goods or services concerning where, to whom, or in what forms goods or services may be sold or traded, such as fixing prices, giving preferential discounts or rebate upon such price, or imposing conditions not to deal with competing entities, where the object or effect of the restrictions is to prevent, restrict or lessen competition substantially: Provided, That nothing contained in this Act shall prohibit or render unlawful:

(1) Permissible franchising, licensing, exclusive merchandising or exclusive distributorship agreements such as those which give each party the right to unilaterally terminate the agreement; or

(2) Agreements protecting intellectual property rights, confidential information, or trade secrets;

(f) Making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier which have no direct connection with the main goods or services to be supplied;

(g) Directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, micro-, small-, medium-scale enterprises, and other marginalized service providers and producers;

(h) Directly or indirectly imposing unfair purchase or selling price on their competitors, customers, suppliers or consumers, provided that prices that develop in the market as a result of or due to a superior product or process, business acumen or legal rights or laws shall not be considered unfair prices; and

(i) Limiting production, markets or technical development to the prejudice of consumers, provided that limitations that develop in the market as a result of or due to a superior product or process, business acumen or legal rights or laws shall not be a violation of this Act:

Provided, That nothing in this Act shall be construed or interpreted as a prohibition on having a dominant position in a relevant market or on acquiring, maintaining and increasing market share through legitimate means that do not substantially prevent, restrict or lessen competition:

Provided, further, That any conduct which contributes to improving production or distribution of goods or services within the relevant market, or promoting technical and economic progress while allowing consumers a fair share of the resulting benefit may not necessarily be considered an abuse of dominant position:

Provided, finally, That the foregoing shall not constrain the Commission or the relevant regulator from pursuing measures that would promote fair competition or more competition as provided in this Act.

CHAPTER IV MERGERS AND ACQUISITIONS

Section 16. Review of Mergers and Acquisitions. — The Commission shall have the power to review mergers and acquisitions based on factors deemed relevant by the Commission.

Section 17. Compulsory Notification. – Parties to the merger or acquisition agreement referred to in the preceding section wherein the value of the transaction exceeds one billion pesos (P1,000,000,000.00) are prohibited from consummating their agreement until thirty (30) days after providing notification to the Commission in the form and containing the information specified in the regulations issued by the Commission: Provided, That the Commission shall promulgate other criteria, such as increased market share in the relevant market in excess of minimum thresholds, that may be applied specifically to a sector, or across some or all sectors, in determining whether parties to a merger or acquisition shall notify the Commission under this Chapter.

An agreement consummated in violation of this requirement to notify the Commission shall be considered void and subject the parties to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction.

Should the Commission deem it necessary, it may request further information that are reasonably necessary and directly relevant to the prohibition under Section 20 hereof from the parties to the agreement before the expiration of the thirty (30)-day period referred. The issuance of such a request has the effect of extending the period within which the agreement may not be consummated for an additional sixty (60) days, beginning on the day after the request for information is received by the parties: Provided, That, in no case shall the total period for review by the Commission of the subject agreement exceed ninety (90) days from initial notification by the parties.

When the above periods have expired and no decision has been promulgated for whatever reason, the merger or acquisition shall be deemed approved and the parties may proceed to implement or consummate it. All notices, documents and information provided to or emanating from the Commission under this section shall be subject to confidentiality rule under Section 34 of this Act except when the release of information contained therein is with the consent of the notifying entity or is mandatorily required to be disclosed by law or by a valid order of a court of competent jurisdiction, or of a government or regulatory agency, including an exchange.

In the case of the merger or acquisition of banks, banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions and other special corporations governed by special laws, a favorable or no-objection ruling by the Commission shall not be construed as dispensing of the requirement for a favorable recommendation by the appropriate government agency under Section 79 of the Corporation Code of the Philippines.

A favorable recommendation by a governmental agency with a competition mandate shall give rise to a disputable presumption that the proposed merger or acquisition is not violative of this Act.

Section 18. Effect of Notification. — If within the relevant periods stipulated in the preceding section, the Commission determines that such agreement is prohibited under Section 20 and does not qualify for exemption under Section 21 of this Chapter, the Commission may:

(a) Prohibit the implementation of the agreement;

(b) Prohibit the implementation of the agreement unless and until it is modified by changes specified by the Commission.

(c) Prohibit the implementation of the agreement unless and until the pertinent party or parties enter into legally enforceable agreements specified by the Commission.

Section 19. Notification Threshold. – The Commission shall, from time to time, adopt and publish regulations stipulating:

(a) The transaction value threshold and such other criteria subject to the notification requirement of Section 17 of this Act;

(b) The information that must be supplied for notified merger or acquisition;

(c) Exceptions or exemptions from the notification requirement; and

(d) Other rules relating to the notification procedures.

Section 20. Prohibited. Mergers and Acquisitions. – Merger or acquisition agreements that substantially prevent, restrict or lessen competition in the relevant market or in the market for goods or services as may be determined by the Commission shall be prohibited.

Section 21. Exemptions from Prohibited. Mergers and Acquisitions. – Merger or acquisition agreement prohibited under Section 20 of this Chapter may, nonetheless, be exempt from prohibition by the Commission when the parties establish either of the following:

(a) The concentration has brought about or is likely to bring about gains in efficiencies that are greater than the effects of any limitation on competition that result or likely to result from the merger or acquisition agreement; or

(b) A party to the merger or acquisition agreement is faced with actual or imminent financial failure, and the agreement represents the least anti-competitive arrangement among the known alternative uses for the failing entity’s assets:

Provided, That an entity shall not be prohibited from continuing to own and hold the stock or other share capital or assets of another corporation which it acquired prior to the approval of this Act or acquiring or maintaining its market share in a relevant market through such means without violating the provisions of this Act:

Provided, further, That the acquisition of the stock or other share capital of one or more corporations solely for investment and not used for voting or exercising control and not to otherwise bring about, or attempt to bring about the prevention, restriction, or lessening of competition in the relevant market shall not be prohibited.

Section 22. Burden of Proof. – The burden of proof under Section 21 lies with the parties seeking the exemption. A party seeking to rely on the exemption specified in Section 21(a) must demonstrate that if the agreement were not implemented, significant efficiency gains would not be realized.

Section 23. Finality of Ridings on Mergers and Acquisitions. – Merger or acquisition agreements that have received a favorable ruling from the Commission, except when such ruling was obtained on the basis of fraud or false material information, may not be challenged under this Act.

CHAPTER V DISPOSITION OF CASES

Section 24. Relevant Market. – For purposes of determining the relevant market, the following factors, among others, affecting the substitutability among goods or services constituting such market and the geographic area delineating the boundaries of the market shall be considered:

(a) The possibilities of substituting the goods or services in question, with others of domestic or foreign origin, considering the technological possibilities, extent to which substitutes are available to consumers and time required for such substitution;

(b) The cost of distribution of the good or service, its raw materials, its supplements and substitutes from other areas and abroad, considering freight, insurance, import duties and non-tariff restrictions; the restrictions imposed by economic agents or by their associations; and the time required to supply the market from those areas;

(c) The cost and probability of users or consumers seeking other markets; and

(d) National, local or international restrictions which limit access by users or consumers to alternate sources of supply or the access of suppliers to alternate consumers.

Section 25. Control of an Entity. – In determining the control of an entity, the Commission may consider the following:

Control is presumed to exist when the parent owns directly or indirectly, through subsidiaries, more than one half (1/2) of the voting power of an entity, unless in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control. Control also exists even when an entity owns one half (1/2) or less of the voting power of another entity when:

(a) There is power over more than one half (1/2) of the voting rights by virtue of an agreement with investors;

(b) There is power to direct or govern the financial and operating policies of the entity under a statute or agreement;

(c) There is power to appoint or remove the majority of the members of the board of directors or equivalent governing body;

(d) There is power to cast the majority votes at meetings of the board of directors or equivalent governing body;

(e) There exists ownership over or the right to use all or a significant part of the assets of the entity;

(f) There exist rights or contracts which confer decisive influence on the decisions of the entity.

Section 26. Determination of Anti-Competitive Agreement or Conduct. – In determining whether anti-competitive agreement or conduct has been committed, the Commission shall:

(a) Define the relevant market allegedly affected by the anti-competitive agreement or conduct, following the principles laid out in Section 24 of this Chapter;

(b) Determine if there is actual or potential adverse impact on competition in the relevant market caused by the alleged agreement or conduct, and if such impact is substantial and outweighs the actual or potential efficiency gains that result from the agreement or conduct;

(c) Adopt a broad and forward-looking perspective, recognizing future market developments, any overriding need to make the goods or services available to consumers, the requirements of large investments in infrastructure, the requirements of law, and the need of our economy to respond to international competition, but also taking account of past behavior of the parties involved and prevailing market conditions;

(d) Balance the need to ensure that competition is not prevented or substantially restricted and the risk that competition efficiency, productivity, innovation, or development of priority areas or industries in the general interest of the country may be deterred by overzealous or undue intervention; and

(e) Assess the totality of evidence on whether it is more likely than not that the entity has engaged in anti-competitive agreement or conduct including whether the entity’s conduct was done with a reasonable commercial purpose such as but not limited to phasing out of a product or closure of a business, or as a reasonable commercial response to the market entry or conduct of a competitor.

Section 27. Market Dominant Position. – In determining whether an entity has market dominant position for purposes of this Act, the Commission shall consider the following:

(a) The share of the entity in the relevant market and whether it is able to fix prices unilaterally or to restrict supply in the relevant market;

(b) The existence of barriers to entry and the elements which could foreseeably alter both said barriers and the supply from competitors;

(c) The existence and power of its competitors;

(d) The possibility of access by its competitors or other entities to its sources of inputs;

(e) The power of its customers to switch to other goods or services;

(f) Its recent conducts; and

(g) Other criteria established by the regulations of this Act.

There shall be a rebuttable presumption of market dominant position if the market share of an entity in the relevant market is at least fifty percent (50%), unless a new market share threshold is determined by the Commission for that particular sector.

The Commission shall from time to time determine and publish the threshold for dominant position or minimum level of share in the relevant market that could give rise to a presumption of dominant position. In such determination, the Commission would consider the structure of the relevant market, degree of integration, access to end-users, technology and financial resources, and other factors affecting the control of a market, as provided in subsections (a) to (g) of this section.

The Commission shall not consider the acquiring, maintaining and increasing of market share through legitimate means not substantially preventing, restricting, or lessening competition in the market such as but not limited to having superior skills, rendering superior service, producing or distributing quality products, having business acumen, and the enjoyment and use of protected intellectual property rights as violative of this Act.

Section 28. Forbearance. – The Commission may forbear from applying the provisions of this Act, for a limited time, in whole or in part, in all or specific cases, on an entity or group of entities, if in its determination:

(a) Enforcement is not necessary to the attainment of the policy objectives of this Act;

(b) Forbearance will neither impede competition in the market where the entity or group of entities seeking exemption operates nor in related markets; and

(c) Forbearance is consistent with public interest and the benefit and welfare of the consumers.

A public hearing shall be held to assist the Commission in making this determination.

The Commission’s order exempting the relevant entity or group of entities under this section shall be made public. Conditions may be attached to the forbearance if the Commission deems it appropriate to ensure the long-term interest of consumers.

In the event that the basis for the issuance of the exemption order ceases to be valid, the order may be withdrawn by the Commission.

CHAPTER VI FINES AND PENALTIES

Section 29. Administrative Penalties. –

(a) Administrative Fines. – In any investigation under Chapter III, Sections 14 and 15, and Chapter IV, Sections 17 and 20 of this Act, after due notice and hearing, the Commission may impose the following schedule of administrative fines on any entity found to have violated the said sections:

First offense: Fine of up to one hundred million pesos (P100,000,000.00);

Second offense: Fine of not less than one hundred million pesos (P100,000,000.00) but not more than two hundred fifty million pesos (P250,000,000.00).

In fixing the amount of the fine, the Commission shall have regard to both the gravity and the duration of the violation.

(b) Failure to Comply With an Order of the Commission. – An entity which fails or refuses to comply with a ruling, order or decision issued by the Commission shall pay a penalty of not less than fifty thousand pesos (P50,000.00) up to two million pesos (P2,000,000.00) for each violation and a similar amount of penalty for each day thereafter until the said entity fully complies. Provided that these fines shall only accrue daily beginning forty-five (45) days from the time that the said decision, order or ruling was received.

(c) Supply of Incorrect or Misleading Information. – The Commission may likewise impose upon any entity fines of up to one million pesos (PI,000,000.00) where, intentionally or negligently, they supply incorrect or misleading information in any document, application or other paper filed with or submitted to the Commission or supply incorrect or misleading information in an application for a binding ruling, a proposal for a consent judgment, proceedings relating to a show cause order, or application for modification of the Commission’s ruling, order or approval, as the case may be.

(d) Any other violations not specifically penalized under the relevant provisions of this Act shall be penalized by a fine of not less than fifty thousand pesos (P50,000.00) up to two million pesos (P2,000,000.00).

Provided that the schedule of fines indicated in this section shall be increased by the Commission every five (5) years to maintain their real value from the time it was set.

Section 30. Criminal Penalties. – An entity that enters into any anti-competitive agreement as covered by Chapter III, Section 14(a) and 14(b) under this Act shall, for each and every violation, be penalized by imprisonment from two (2) to seven (7) years, and a fine of not less than fifty million pesos (P50,000,000.00) but not more than two hundred fifty million pesos (P250,000,000.00). The penalty of imprisonment shall be imposed upon the responsible officers, and directors of the entity.

When the entities involved are juridical persons, the penalty of. imprisonment shall be imposed on its officers, directors, or employees holding managerial positions, who are knowingly and willfully responsible for such violation.

CHAPTER VII ENFORCEMENT

Section 31. Fact Finding; Preliminary Inquiry. – The Commission, motu proprio, or upon the filing of a verified complaint by an interested party or upon referral by a regulatory agency, shall have the sole and exclusive authority to initiate and conduct a fact-finding or preliminary inquiry for the enforcement of this Act based on reasonable grounds.

The Commission, after considering the statements made, or documents or articles produced in the course of the fact-finding or preliminary inquiry, shall terminate the same by:

(a) Issuing a resolution ordering its closure if no violation or infringement of this Act is found; or

(b) Issuing a resolution to proceed, on the basis of reasonable grounds, to the conduct of a full administrative investigation.

The Commission, after due notice and hearing, and on the basis of facts and evidence presented, may issue an order for the temporary cessation or desistance from the performance of certain acts by the respondent entity, the continued performance of which would result in a material and adverse effect on consumers or competition in the relevant market.

If the evidence so warrants, the Commission may file before the DOJ criminal complaints for violations of this Act or relevant laws for preliminary investigation and prosecution before the proper court. The DOJ shall conduct such preliminary investigation in accordance with the Revised Rules of Criminal Procedure.

The preliminary inquiry shall, in all cases, be completed by the Commission within ninety (90) days from submission of the verified complaint, referral, or date of initiation by the Commission, motu proprio, of the same.

Except as provided in Section 12(i) of Chapter II of this Act, no law enforcement agency shall conduct any kind of fact-finding, inquiry or investigation into any competition-related matters.

Section 32. Relationship With Sector Regulators. – The Commission shall have original and primary jurisdiction in the enforcement and regulation of all competition-related issues.

The Commission shall still have jurisdiction if the issue involves both competition and noncompetition issues, but the concerned sector regulator shall be consulted and afforded reasonable opportunity to submit its own opinion and recommendation on the matter before the Commission makes a decision on any case.

Where appropriate, the Commission and the sector regulators shall work together to issue rules and regulations to promote competition, protect consumers, and prevent abuse of market power by dominant players within their respective sectors.

Section 33. Power to Investigate and Enforce Orders and Resolutions. – The Commission shall conduct inquiries by administering oaths, issuing subpoena duces tecum and summoning witnesses, and commissioning consultants or experts. It shall determine if any provision of this Act has been violated, enforce its orders and carry out its resolutions by making use of any available means, provisional or otherwise, under existing laws and procedures including the power to punish for contempt and to impose fines.

Section 34. Confidentiality of Information. – Confidential business information submitted by entities, relevant to any inquiry or investigation being conducted pursuant to this Act as well as any deliberation in relation thereto, shall not, in any manner, be directly or indirectly disclosed, published, transferred, copied, or disseminated. Likewise, the Commission shall, to the extent possible, subject such information to the confidentiality rule provided under this section when it issues notices, bulletins, rulings and other documents: Provided., That the confidentiality rule shall not apply if the notifying entity consents to the disclosure, or the document or information is mandatorily required to be disclosed by law or by a valid order of a court of competent jurisdiction or of a government or regulatory agency, including an exchange. The identity of the persons who provide information to the Commission under condition of anonymity, shall remain confidential, unless such confidentiality is expressly waived by these persons.

Any violation of this provision shall be imposed a fine of not less than one million pesos (PI,000,000.00) but not more than five million pesos (P5,000,000.00).

Section 35. Leniency Program. – The Commission shall develop a Leniency Program to be granted to any entity in the form of immunity from suit or reduction of any fine which would otherwise be imposed on a participant in an anti-competitive agreement as provided in Section 14(a) and 14(b) of this Act in exchange for the voluntary disclosure of information regarding such an agreement which satisfies specific criteria prior to or during the fact-finding or preliminary inquiry stage of the case.

Immunity from suit will be granted to an entity reporting illegal anti-competitive activity before a fact-finding or preliminary inquiry has begun if the following conditions are met:

(a) At the time the entity comes forward, the Commission has not received information about the activity from any other source;

(b) Upon the entity’s discovery of illegal activity, it took prompt and effective action to terminate its participation therein;

(c) The entity reports the wrongdoing with candor and completeness and provides full, continuing, and complete cooperation throughout the investigation; and

(d) The entity did not coerce another party to participate in the activity and clearly was not the leader in, or the originator of, the activity.

Even after the Commission has received information about the illegal activity after a fact-finding or preliminary inquiry has commenced, the reporting entity will be granted leniency, provided preceding conditions (b) and (c) and the following additional requirements are complied with:

(1) The entity is the first to come forward and qualify for leniency;

(2) At the time the entity comes forward, the Commission does not have evidence against the entity that is likely to result in a sustainable conviction; and

(3) The Commission determines that granting leniency would not be unfair to others.

Such program shall include the immunity from any suit or charge of affected parties and third parties, exemption, waiver, or gradation of fines and/or penalties giving precedence to the entity submitting such evidence. An entity cooperating or furnishing information, document or data to the Commission in connection to an investigation being conducted shall not be subjected to any form of reprisal or discrimination. Such reprisal or discrimination shall be considered a violation of this Act subject to the sanctions provided in this Act.

Nothing in this section shall preclude prosecution for entities that report to the Commission false, misleading, or malicious information, data or documents damaging to the business or integrity of the entities under inquiry as a violation of said section. An entity found to have reported false, misleading or malicious information, data, or document may be penalized by a fine not less than the penalty imposed in the section reported to have been violated by the entity complained of.

The DOJ-OFC may likewise grant leniency or immunity as provided in this section in the event that there is already a preliminary investigation pending before it.

Section 36. Nolo Contendere. – An entity charged in a criminal proceeding pursuant to Section 14(a) and 14(b) of this Act may enter a plea of Nolo Contendere, in which he does not accept nor deny responsibility for the charges but agrees to accept punishment as if he had pleaded guilty. The plea cannot be used against the defendant entity to prove liability in a civil suit arising from the criminal action nor in another cause of action: Provided, That a plea of Nolo Contendere may be entered only up to arraignment and subsequently, only with the permission of the court which shall accept it only after weighing its effect on the parties, the public and the administration of justice.

Section 37. Non-Adversarial Remedies. — As an implementing and enforcement policy, the Commission shall, under such rules and regulations it may prescribe, encourage voluntary compliance with this Act and other competition laws by making available to the parties concerned the following and other analogous non-adversarial administrative remedies, before the institution of administrative, civil or criminal action:

(a) Binding Ruling. — Where no prior complaint or investigation has been initiated, any entity that is in doubt as to whether a contemplated act, course of conduct, agreement, or decision, is in compliance with, is exempt from, or is in violation of any of the provisions of this Act, other competition laws, or implementing rules and regulations thereof, may request the Commission, in writing, to render a binding ruling thereon: Provided,That the ruling is for a specified period, subject to extension as may be determined by the Commission, and based on substantial evidence.

In the event of an adverse binding ruling on an act, course or conduct, agreement, or decision, the applicant shall be provided with a reasonable period, which in no case shall be more than ninety (90) days, to abide by the ruling of the Commission and shall not be subject to administrative, civil, or criminal action unless the applicant fails to comply with the provisions of this Act;

(b) Show Cause Order. — Upon preliminary findings motu proprio or on written complaint under oath by an interested party that any entity is conducting its business, in whole or in part in a manner that may not be in accord with the provisions of this Act or other competition laws, and it finds that the issuance of a show cause order would be in the interest of the public, the Commission shall issue and serve upon such entity or entities a written description of its business conduct complained of, a statement of the facts, data, and information together with a summary of the evidence thereof, with an order requiring the said entity or entities to show cause, within the period therein fixed, why no order shall issue requiring such person or persons to cease and desist from continuing with its identified business conduct, or pay the administrative fine therein specified, or readjust its business conduct or practices;

(c) Consent Order. – At any time prior to the conclusion by the Commission of its inquiry, any entity under inquiry may, without in any manner admitting a violation of this Act or any other competition laws, submit to the Commission a written proposal for the entry of a consent order, specifying therein the terms and conditions of the proposed consent order which shall include among others the following:

(1) The payment of an amount within the range of fines provided for under this Act;

(2) The required compliance report as well as an entity to submit regular compliance reports;

(3) Payment of damages to any private party/parties who may have suffered injury; and

(4) Other terms and conditions that the Commission deems appropriate and necessary for the effective enforcement of this Act or other Competition Laws:

Provided, That a consent order shall not bar any inquiry for the same or similar acts if continued or repeated;

(d) Monitoring of Compliance. – The Commission shall monitor the compliance by the entity or entities concerned, their officers, and employees, with the final and executory binding ruling, cease and desist order, or approval of a consent judgment. Upon motion of an interested party/parties, the Commission shall issue a certification or resolution to the effect that the entity or entities concerned have, or have not, as the case may be, complied with a final and executory ruling, order, or approval.

(e) Inadmissibility of Evidence in Criminal Proceedings. – The request for a binding ruling, the show cause order, or the proposal for consent order; the facts, data, and information therein contained or subsequently supplied by the entity or entities concerned; admissions, oral or written, made by them against their interest; all other documents filed by them, including their evidence presented in the proceedings before the Commission; and the judgment or order rendered thereon; shall not be admissible as evidence in any criminal proceedings arising from the same act subject of the binding ruling, show cause order or consent order against such entity or entities, their officers, employees, and agents.

Section 38. Contempt. — The Commission may summarily punish for contempt by imprisonment not exceeding thirty (30) days or by a fine not exceeding one hundred thousand pesos (P 100,000.00), or both, any entity guilty of such misconduct in the presence of the Commission in its vicinity as to seriously interrupt any hearing, session or any proceeding before it, including cases in which an entity willfully fails or refuses, without just cause, to comply with a summons, subpoena or subpoena duces tecum legally issued by the Commission being present at a hearing, proceeding, session or investigation, refused to be sworn as a witness or to answer questions or to furnish information when lawfully required to do so.

Section 39. Appeals of the Decisions of the Commission. – Decisions of the Commission shall be appealable to the Court of Appeals in accordance with the Rules of Court. The appeal shall not stay the order, ruling or decision sought to be reviewed, unless the Court of Appeals shall direct otherwise upon such terms and conditions it may deem just. In the appeal, the Commission shall be included as a party respondent to the case.

Section 40. ‘Writ of Execution. – Upon the finality of its binding ruling, order, resolution, decision, judgment, or rule or regulation, collectively, the Commission may issue a writ of execution to enforce its decision and the payment of the administrative fines provided in the preceding sections.

Section 41. Basic Necessities and Prime Commodities. – If the violation involves the trade or movement of basic necessities and prime commodities as defined by Republic Act No. 7581, as amended, the fine imposed by the Commission or the courts, as the case may be, shall be tripled.

Section 42. Immunity from Suit. – The Chairperson,the Commissioners, officers, employees and agents of the Commission shall not be subject to any action, claim or demand in connection with any act done or omitted by them in the performance of their duties and exercise of their powers except for those actions and omissions done in evident bad faith or gross negligence.

Section 43. Indemnity. – Unless the actions of the Commission or its Chairperson, any of its Commissioners, officers, employees and agents are found to be in willful violation of this Act, performed with evident bad faith or gross negligence, the Commission, its Chairperson, Commissioners, officers, employees and agents are held free and harmless to the fullest extent permitted by law from any liability, and they shall be indemnified for any and all liabilities, losses, claims, demands, damages, deficiencies, costs and expenses of whatsoever kind and nature that may arise in connection with the exercise of their powers and performance of their duties and functions.

The Commission shall underwrite or advance litigation costs and expenses, including legal fees and other expenses of external counsel, or provide legal assistance to its Chairperson, Commissioners, officers, employees, or agents in connection with any civil, criminal, administrative or any other action or proceeding, to which they are made a party by reason of, or in connection with, the exercise of authority or performance of duties and functions under this Act: Provided, That such legal protection shall not apply to any civil, criminal, administrative, or any action or proceeding that may be initiated by the Commission, against such Chairperson, Commissioners, officers, employees, or agents: Provided, further, That the Chairperson, Commissioners, officers, employees, or agents, who shall resign, retire, transfer to another agency or be separated from the service, shall continue to be provided with such legal protection in connection with any act done or omitted to be done by them in good faith during their tenure or employment with the Commission: Provided, finally, That in the event of a settlement or compromise, indemnification shall be provided only in connection with such matters covered by the settlement as to which the Commission is advised by counsel that the persons to be indemnified did not commit any negligence or misconduct.

The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the Commission in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the Chairperson, Commissioner, officer, employee, or agent to repay the amount advanced should it ultimately be determined by the Commission that one is not entitled to be indemnified as provided in this section.

Section 44. Jurisdiction of the Regional Trial Court. – The Regional Trial Court of the city or province where the entity or any of the entities whose business act or conduct Constitutes the subject matter of a case, conducts its principal place of business, shall have original and exclusive jurisdiction, regardless of the penalties and fines herein imposed, of all criminal and civil cases involving violations of this Act and other competition-related laws. If the defendant or anyone is charged in the capacity of a director, officer, shareholder, employee, or agent of a corporation or other juridical entity who knowingly and willfully authorized the commission of the offense charged, the Regional Trial Court of the city or province where such corporation or juridical entity conducts its principal place of business, shall have jurisdiction.

Section 45. Private Action. – Any person who suffers direct injury by reason of any violation of this Act may institute a separate and independent civil action after the Commission has completed the preliminary inquiry provided under Section 31.

CHAPTER VIII OTHER PROVISIONS

Section 46. Statute of Limitations. — Any action arising from a violation of any provision of this Act shall be forever barred unless commenced within five (5) years from:

• For criminal actions, the time the violation is discovered by the offended party, the authorities, or their agents; and

• For administrative and civil actions, the time the cause of action accrues.

Section 47. Prohibition on the Issuance of Temporary Restraining Orders, Preliminary Injunctions and Preliminary Mandatory Injunctions. — Except for the Court of Appeals and the Supreme Court, no other court shall issue any temporary restraining order, preliminary injunction or preliminary mandatory injunction against the Commission in the exercise of its duties or functions: Provided, That, this prohibition shall apply in all cases, disputes or controversies instituted by a private party, including, but not limited to, cases filed by entities or those claiming to have rights through such entities: Provided, however, That, this prohibition shall not apply when the matter is of extreme urgency involving a constitutional issue, such that the non-issuance of a temporary restraining order will result in grave injustice and irreparable injury to the public: Provided, further, That, the applicant shall file a bond, in an amount to be fixed by the Court, but in no case shall it exceed twenty percent (20%) of the imposable fines provided for under Chapter VI, Section 29 of this Act: Provided, finally, That in the event that the court finally decides that the applicant was not entitled to the relief applied for, the bond shall accrue in favor of the Commission.

Any temporary restraining order, preliminary injunction or preliminary mandatory injunction issued in violation of this section is void and of no force and effect. Any judge who violates this section shall be penalized by suspension of at least one (1) year without pay in addition to other criminal, civil or administrative penalties.

Section 48. Trade Associations. – Nothing contained in this Act shall be construed to prohibit the existence and operation of trade associations organized to promote quality standards and safety issues: Provided, That, these associations shall not in any way be used to justify any violation of this Act: Provided, however, That it shall not be illegal to use the association as a forum to discuss or promote quality standards, efficiency, safety, security, productivity, competitiveness and other matters of common interest involving the industry: Provided, further, That such is done without any anti-competitive intent or effect.

Section 49. Congressional Oversight Committee. – To oversee the implementation of this Act, there shall be created a Congressional Oversight Committee on Competition (COCC) to be composed of the Chairpersons of the Senate Committees on Trade and Commerce, Economic Affairs, and Finance, the Chairpersons of the House of Representatives Committees on Economic Affairs, Trade and Industry, and Appropriations and two (2) members each from the Senate and the House of Representatives who shall be designated by the Senate President and the Speaker of the House of Representatives: Provided, That one (1) of the two (2) Senators and one (1) of the two (2) House Members shall be nominated by the respective Minority Leaders of the Senate and the House of Representatives. The Congressional Oversight Committee shall be jointly chaired by the Chairpersons of the Senate Committee on Trade and Commerce and the House of Representatives Committee on Economic Affairs. The Vice Chairperson of the Congressional Oversight Committee shall be jointly held by the Chairpersons of the Senate Committee on Economic Affairs and the House of Representatives Committee on Trade and Industry.

The Secretariat of the COCC shall be drawn from the existing personnel of the Senate and House of Representatives committees comprising the Congressional Oversight Committee.

CHAPTER IX FINAL PROVISIONS

Section 50. Implementing Rules and Regulations. — Within one hundred eighty (180) days from the effectivity of this Act, the Commission, in consultation with the DOJ-OFC and concerned sector regulators shall promulgate the necessary implementing rules and regulations for the implementation of this Act: Provided, That, the Commission may revise such implementing rules and regulations as it deems necessary: Provided, however, That such revised implementing rules and regulations shall only take effect fifteen (15) days following its publication in two (2) newspapers of general circulation.

Section 51. Appropriations and Use of Fees, Charges and Penalties. – The initial budgetary requirements of the Commission of three hundred million pesos (P300,000,000.00) is hereby appropriated.

All fees, fines, penalties collected by the Commission shall not be retained by the Commission, but will be remitted to the National Treasury and shall accrue to the general funds.

Such funds necessary for the continuous and effective operation of the Commission shall be included in the annual General Appropriations Act.

Section 52. Transparency Clause. — Final decisions, orders and rulings of the Commission shall be published on the official website subject to Section 34 of this Act.

Records of public proceedings shall be made available to the public subject to Section 34 of this Act.

Section 53. Transitional Clause. — In order to allow affected parties time to renegotiate agreements or restructure their business to comply with the provisions of this Act, an existing business structure, conduct, practice or any act that may be in violation of this Act shall be subject to the administrative, civil and criminal penalties prescribed herein only if it is not cured or is continuing upon the expiration of two (2) years after the effectivity of this Act: Provided, That this section shall not apply to administrative, civil and criminal proceedings against anti­-competitive agreement or conduct, abuse of dominant position, and anti-competitive mergers and acquisitions, initiated prior to the entry into force of this Act: Provided, further, That during the said two (2)-year period, the government shall undertake an advocacy program to inform the general public of the provisions of this Act.

Section 54. Separability Clause. – If any clause, sentence, section or part of this Act shall be adjudged by a court of competent jurisdiction to be invalid, such judgment shall not affect, impair or invalidate the remainder of this Act, but shall be confined in its operation to the clause, sentence, paragraph, section, or part thereof directly involved in the controversy.

Section 55. Repealing Clause. – The following laws, and all other laws, decrees, executive orders and regulations, or part or parts thereof inconsistent with any provision of this Act, are hereby repealed, amended or otherwise modified accordingly:

(a) Article 186 of Act No. 3815, otherwise known as the Revised Penal Code: Provided, That violations of Article 186 of the Revised Penal Code committed before the effectivity of this Act may continue to be prosecuted unless the same have been barred by prescription, and subject to the procedure under Section 31 of this Act;

(b) Section 4 of Commonwealth Act No. 138;

(c) Section 43(u) on Functions of the ERC of Republic Act No. 9136, entitled "An Act Ordaining Reforms in the Electric Power Industry, Amending for the Purpose Certain Laws and for Other Purposes", otherwise known as the "Electric Power Industry Reform Act of 2001", insofar as the provision thereof is inconsistent with this Act;

(d) Section 24 on Illegal Acts of Price Manipulation and Section 25 on Penalty for Illegal Acts of Price Manipulation of Republic Act No. 9502, entitled "An Act Providing for Cheaper and Quality Medicines, Amending for the Purpose Republic Act No. 8293 or the Intellectual Property Code, Republic Act No. 6675 or the Generics Act of 1988, and Republic Act No. 5921 or the Pharmacy Law, and for Other Purposes", otherwise known as the "Universally Accessible Cheaper and Quality Medicines Act of 2008". insofar as the provisions thereof are inconsistent with this Act; and

(e) Executive Order No. 45, Series of 2011, Designating the Department of Justice as the Competition Authority, Department of Justice Circular 005 Series of 2015, and other related issuances, insofar as they are inconsistent with the provisions of this Act.

Section 56.Effectivity Clause. – This Act shall take effect fifteen (15) days following its publication in the Official Gazette or at least two (2) national newspapers of general circulation. Notwithstanding any provision herein, this Act shall have no retroactive effect.

May 31, 2016

RULES AND REGULATIONS TO IMPLEMENT THE PROVISIONS OF

REPUBLIC ACT NO. 10667 (PHILIPPINE COMPETITION ACT)

To effectively carry out the provisions of Republic Act No. 10667, or the Philippine Competition Act (Act), the Philippine Competition Commission, pursuant to the powers vested in it under said Act, hereby issues, adopts and promulgates the following rules and regulations. The Commission may revise and supplement these rules and regulations and issue related guidelines, circulars and other subsidiary issuances as it deems necessary for the effective implementation of the various provisions of this Act.

RULE 1 Title and Scope

SECTION 1. Title. —

These rules and regulations shall be referred to as the "Implementing Rules and Regulations of Republic Act No. 10667" (Rules).

SECTION 2. Scope. —

(a) These Rules shall apply to any entity engaged in trade, industry or commerce in the Republic of the Philippines or in international trade, industry or commerce having direct, substantial and reasonably foreseeable effects in the Philippines, including those that result from acts done outside the territory of the Philippines.

(b) These Rules shall not apply to the combinations or activities of workers or employees nor to agreements or arrangements with their employers when such combinations, activities, agreements, or arrangements are designed solely to facilitate collective bargaining in respect of conditions of employment.

RULE 2 Definition of Terms

The following definition of terms shall apply for purposes of these Rules:

(a) "Acquisition" refers to the purchase or transfer of securities or assets, through contract or other means, for the purpose of obtaining control by:

(1) One (1) entity of the whole or part of another;

(2) Two (2) or more entities over another; or

(3) One (1) or more entities over one (1) or more entities;

(b) "Agreement" refers to any type or form of contract, arrangement, understanding, collective recommendation, or concerted action, whether formal or informal, explicit or tacit, written, or oral;

(c) "Conduct" refers to any type or form of undertaking, collective recommendation, independent or concerted action or practice, whether formal or informal;

(d) "Commission" refers to the Philippine Competition Commission created under the Act;

(e) "Confidential business information" refers to information, which concerns or relates to the operations, production, sales, shipments, purchases, transfers, identification of customers, inventories, or amount or source of any income, profits, losses, expenditures, which are not generally known to the public or to other persons who can obtain economic value from its disclosure or use, or is liable to cause serious harm to the person who provided it, or from whom it originates, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy;

(f) "Control" refers to the ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise;

(g) "Dominant position" refers to a position of economic strength that an entity or entities hold which makes it capable of controlling the relevant market independently from any or a combination of the following: competitors, customers, suppliers, or consumers;

(h) "Entity" refers to any person, natural or juridical, sole proprietorship, partnership, combination or association in any form, whether incorporated or not, domestic or foreign, including those owned or controlled by the government, engaged directly or indirectly in any economic activity;

(i) "Joint venture" refers to a business arrangement whereby an entity or group of entities contribute capital, services, assets, or a combination of any or all of the foregoing, to undertake an investment activity or a specific project, where each entity shall have the right to direct and govern the policies in connection therewith, with the intention to share both profits and risks and losses subject to agreement by the entities;

(j) "Market" refers to the group of goods or services that are sufficiently interchangeable or substitutable and the object of competition, and the geographic area where said goods or services are offered;

(k) "Merger" refers to the joining of two (2) or more entities into an existing entity or to form a new entity, including joint ventures;

(l) "Relevant market" refers to the market in which a particular good or service is sold and which is a combination of the relevant product market and the relevant geographic market, defined as follows:

(1) a relevant product market comprises all those goods and/or services which are regarded as interchangeable or substitutable by the consumer or the customer, by reason of the goods and/or services' characteristics, their prices, and their intended use; and

(2) the relevant geographic market comprises the area in which the entity concerned is involved in the supply and demand of goods and services, in which the conditions of competition are sufficiently homogenous and which can be distinguished from neighboring areas because the conditions of competition are different in those area;

(m) "Ultimate parent entity" is the juridical entity that, directly or indirectly, controls a party to the transaction, and is not controlled by any other entity.

RULE 3 Prohibited Acts

SECTION 1. Anti-Competitive Agreements. —

(a) The following agreements, between or among competitors, are per se prohibited:

(1) Restricting competition as to price, or components thereof, or other terms of trade;

(2) Fixing the price at an auction or in any form of bidding, including cover bidding, bid suppression, bid rotation and market allocation, and other analogous practices of bid manipulation.

(b) The following agreements, between or among competitors, which have the object or effect of substantially preventing, restricting, or lessening competition shall be prohibited:

(1) Setting, limiting, or controlling production, markets, technical development, or investment;

(2) Dividing or sharing the market, whether by volume of sales or purchases, territory, type of goods or services, buyers or sellers, or any other means.

(c) Agreements other than those specified in (a) and (b) of this Section, which have the object or effect of substantially preventing, restricting, or lessening competition shall also be prohibited. Provided, that those which contribute to improving the production or distribution of goods and services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefits, may not necessarily be deemed a violation of the Act.

(d) For purposes of this Section, entities that control, are controlled by, or are under common control with another entity or entities, have common economic interests, and are not otherwise able to decide or act independently of each other, shall not be considered competitors.

SECTION 2. Abuse of Dominant Position. —

(a) It shall be prohibited for one or more entities to abuse their dominant position by engaging in conduct that would substantially prevent, restrict, or lessen competition, including:

(1) Selling goods or services below cost with the object of driving competition out of the relevant market. Provided, that in the Commission's evaluation of this fact, it shall consider whether such entity or entities had no such object and that the price established was in good faith to meet or compete with the lower price of a competitor in the same market selling the same or comparable product or service of like quality.

(2) Imposing barriers to entry or committing acts that prevent competitors from growing within the market in an anti-competitive manner, except those that develop in the market as a result of or arising from a superior product or process, business acumen, or legal rights or laws;

(3) Making a transaction subject to acceptance by the other parties of other obligations which, by their nature or according to commercial usage, have no connection with the transaction;

(4) Setting prices or other terms or conditions that discriminate unreasonably between customers or sellers of the same goods or services, where such customers or sellers are contemporaneously trading on similar terms and conditions, where the effect may be to lessen competition substantially;Provided, that the following shall be considered permissible price differentials:

i. Socialized pricing for the less fortunate sector of the economy;

ii. Price differentials which reasonably or approximately reflect differences in the cost of manufacture, sale, or delivery resulting from differing methods, technical conditions, or quantities in which the goods or services are sold or delivered to the buyers or sellers;

iii. Price differential or terms of sale offered in response to the competitive price of payments, services, or changes in the facilities furnished by a competitor; and

iv. Price changes in response to changing market conditions, marketability of goods or services, or volume.

(5) Imposing restrictions on the lease or contract for sale or trade of goods or services concerning where, to whom, or in what forms goods or services may be sold or traded, such as:

i. fixing prices, or

ii. giving preferential discounts or rebate upon such price, or

iii. imposing conditions not to deal with competing entities,

where the object or effect of the restrictions is to prevent, restrict or lessen competition substantially: Provided, that nothing contained in the Act shall prohibit or render unlawful:

1) Permissible franchising, licensing, exclusive merchandising, or exclusive distributorship agreements, such as those which give each party the right to unilaterally terminate the agreement, unless found by the Commission to have substantial anti-competitive effect;

2) Agreements protecting intellectual property rights, confidential information, or trade secrets;

(6) Making supply of particular goods or services dependent upon the purchase of other goods or services from the supplier which have no direct connection with the main goods or services to be supplied;

(7) Directly or indirectly imposing unfairly low purchase prices for the goods or services of, among others, marginalized agricultural producers, fisherfolk, micro-, small-, medium-scaled enterprises, and other marginalized service providers and producers;

(8) Directly or indirectly imposing unfair purchase or selling price on their competitors, customers, suppliers, or consumers, Provided that prices that develop in the market as a result of or due to a superior product or process, business acumen or legal rights or laws shall not be considered unfair prices; and

(9) Limiting production, markets, or technical development to the prejudice of consumers, Provided, that limitations that develop in the market as a result of or due to a superior product or process, business acumen, or legal rights or laws shall not be a violation of this Act.

(b) Nothing in the Act or these Rules shall be construed or interpreted as a prohibition on having a dominant position in a relevant market, or on acquiring, maintaining, and increasing market share through legitimate means that do not substantially prevent, restrict, or lessen competition.

(c) Any conduct which contributes to improving production or distribution of goods or services within the relevant market, or promoting technical and economic progress, while allowing consumers a fair share of the resulting benefit may not necessarily be considered an abuse of dominant position.

(d) The foregoing shall not constrain the Commission or the relevant regulator from pursuing measures that would promote fair competition or more competition as provided in the Act.

SECTION 3. Determination of Exceptions. —

In Section 2, par. (a) (2), (8) and (9), the concerned entity or entities invoking the exception shall clearly establish to the Commission's satisfaction, that the barrier to entry or anti-competitive act is an indispensable and natural result of the superior product or process, business acumen, or legal rights or laws.

RULE 4 Mergers and Acquisitions

SECTION 1. Review of Mergers and Acquisitions. —

The Commission, motu proprio or upon notification as provided under these Rules, shall have the power to review mergers and acquisitions having a direct, substantial and reasonably foreseeable effect on trade, industry, or commerce in the Philippines, based on factors deemed relevant by the Commission.

(a) In conducting this review, the Commission shall:

(1) Assess whether a proposed merger or acquisition is likely to substantially prevent, restrict, or lessen competition in the relevant market or in the market for goods and services as may be determined by the Commission; and

(2) Take into account any substantiated efficiencies put forward by the parties to the proposed merger or acquisition, which are likely to arise from the transaction.

(b) In evaluating the competitive effects of a merger or acquisition, the Commission shall endeavor to compare the competitive conditions that would likely result from the merger or acquisition with the conditions that would likely have prevailed without the merger or acquisition.

(c) In its evaluation, the Commission may consider, on a case-to-case basis, the broad range of possible factual contexts and the specific competitive effects that may arise in different transactions, such as:

(1) the structure of the relevant markets concerned;

(2) the market position of the entities concerned;

(3) the actual or potential competition from entities within or outside of the relevant market;

(4) the alternatives available to suppliers and users, and their access to supplies or markets;

(5) any legal or other barriers to entry.

SECTION 2. Notifying Entities. —

(a) Parties to a merger or acquisition that satisfy the thresholds in Section 3 of this Rule are required to notify the Commission before the execution of the definitive agreements relating to the transaction.

(b) If notice to the Commission is required for a merger or acquisition, then all acquiring and acquired pre-acquisition ultimate parent entities or any entity authorized by the ultimate parent entity to file notification on its behalf must each submit a Notification Form (the "Form") and comply with the procedure set forth in Section 5 of this Rule. The parties shall not consummate the transaction before the expiration of the relevant periods provided in this Rule.

(c) In the formation of a joint venture (other than in connection with a merger or consolidation), the contributing entities shall be deemed acquiring entities, and the joint venture shall be deemed the acquired entity.

SECTION 3. Thresholds for Compulsory Notification. —

Parties to a merger or acquisition are required to provide notification when:

(a) The aggregate annual gross revenues in, into or from the Philippines, or value of the assets in the Philippines of the ultimate parent entity of at least one of the acquiring or acquired entities, including that of all entities that the ultimate parent entity controls, directly or indirectly, exceeds One Billion Pesos (PhP1,000,000,000.00); and

(b) The value of the transaction exceeds One Billion Pesos (PhP1,000,000,000.00), as determined in subsections (1), (2), (3) or (4), as the case may be.

(1) With respect to a proposed merger or acquisition of assets in the Philippines if either:

i. the aggregate value of the assets in the Philippines being acquired in the proposed transaction exceeds One Billion Pesos (PhP1,000,000,000.00); or

ii. the gross revenues generated in the Philippines by assets acquired in the Philippines exceed One Billion Pesos (PhP1,000,000,000.00).

(2) With respect to a proposed merger or acquisition of assets outside the Philippines, if

i. the aggregate value of the assets in the Philippines of the acquiring entity exceeds One Billion Pesos (PhP1,000,000,000.00); and

ii. the gross revenues generated in or into the Philippines by those assets acquired outside the Philippines exceed One Billion Pesos (PhP1,000,000,000.00).

(3) With respect to a proposed merger or acquisition of assets inside and outside the Philippines, if

i. the aggregate value of the assets in the Philippines of the acquiring entity exceeds One Billion Pesos (PhP1,000,000,000.00); and

ii. the aggregate gross revenues generated in or into the Philippines by assets acquired in the Philippines and any assets acquired outside the Philippines collectively exceed One Billion Pesos (PhP1,000,000,000.00).

(4) With respect to a proposed acquisition of (i) voting shares of a corporation or of (ii) an interest in a non-corporate entity

i. If the aggregate value of the assets in the Philippines that are owned by the corporation or non-corporate entity or by entities it controls, other than assets that are shares of any of those corporations, exceed One Billion Pesos (PhP1,000,000,000.00); or

ii. The gross revenues from sales in, into, or from the Philippines of the corporation or non-corporate entity or by entities it controls, other than assets that are shares of any of those corporations, exceed One Billion Pesos (PhP1,000,000,000.00); and

iii. If

A. as a result of the proposed acquisition of the voting shares of a corporation, the entity or entities acquiring the shares, together with their affiliates, would own voting shares of the corporation that, in the aggregate, carry more than the following percentages of the votes attached to all the corporation's outstanding voting shares:

I. Thirty-five percent (35%), or

II. Fifty percent (50%), if the entity or entities already own more than the percentage set out in subsection I above, as the case may be, before the proposed acquisition; or

B. as a result of the proposed acquisition of an interest in a non-corporate entity, the entity or entities acquiring the interest, together with their affiliates, would hold an aggregate interest in the non-corporate entity that entitles the entity or entities to receive more than the following percentages of the profits of the non-corporate entity or assets of that non-corporate entity on its dissolution:

I. Thirty-five percent (35%), or

II. Fifty percent (50%), if the entity or entities acquiring the interest are already entitled to receive more than the percentage set out in subsection I immediately above before the proposed acquisition.

(c) Where an entity has already exceeded the 35% threshold for an acquisition of voting shares, or the 35% threshold for an acquisition of an interest in a non-corporate entity, another notification will be required if the same entity will exceed 50% threshold after making a further acquisition of either voting shares or an interest in a non-corporate entity.

(d) In a notifiable joint venture transaction, an acquiring entity shall be subject to the notification requirements if either (i) the aggregate value of the assets that will be combined in the Philippines or contributed into the proposed joint venture exceeds One Billion Pesos (PhP1,000,000,000.00) or (ii) the gross revenues generated in the Philippines by assets to be combined in the Philippines or contributed into the proposed joint venture exceed One Billion Pesos (PhP1,000,000,000.00). In determining the assets of the joint venture, the following shall be included:

1) All assets which any entity contributing to the formation of the joint venture has agreed to transfer, or for which agreements have been secured for the joint venture to obtain at any time, whether or not such entity is subject to the requirements of the act; and

2) Any amount of credit or any obligations of the joint venture which any entity contributing to the formation has agreed to extend or guarantee, at any time.

(e) A merger or acquisition consisting of successive transactions, or acquisition of parts of one or more entities, which shall take place within a one-year period between the same parties, or any entity they control or are controlled by or are under common control with another entity or entities, shall be treated as one transaction. If a binding preliminary agreement provides for such successive transactions or acquisition of parts, the entities shall provide notification on the basis of such preliminary agreement. If there is no binding preliminary agreement, notification shall be made when the parties execute the agreement relating to the last transaction which, when taken together with the preceding transactions, satisfies the thresholds under this Section.

(f) For purposes of calculating notification thresholds:

(1) The aggregate value of assets in the Philippines shall be as stated on the last regularly prepared balance sheet or the most recent audited financial statements in which those assets are accounted for.

(2) The gross revenues from sales of an entity shall be the amount stated on the last regularly prepared annual statement of income and expense of that entity.

(g) A transaction that meets the thresholds and does not comply with the notification requirements and waiting periods set out in Section 5 shall be considered void and will subject the parties to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction.

(h) In the case of a merger or acquisition of banks, banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions, and other special corporations governed by special laws, a favorable or no-objection ruling by the Commission shall not be construed as dispensing with the requirement for a favorable recommendation by the appropriate government agency under Section 79 of the Corporation Code of the Philippines.

(i) A favorable recommendation by a governmental agency with a competition mandate shall give rise to a disputable presumption that the proposed merger or acquisition is not violative of the Act or these Rules, Provided, that the recommendation must arise directly from the exercise of the agency's mandate to determine any anti-competitive effect of the proposed merger or acquisition.

SECTION 4. Consultations Preceding the Submission of Notification. —

(a) Prior to filing a notification pursuant to this Rule, parties to a proposed merger or acquisition that are required to notify may inform the Commission of their proposed merger or acquisition and request a pre-notification consultation with the staff of the Commission.

To request a meeting, the parties must provide the following information in writing:

(1) the names and business contact information of the entities concerned;

(2) the type of transaction; and

(3) the markets covered or lines of businesses by the proposed merger or acquisition.

(b) During such pre-notification consultations, the parties may seek non-binding advice on the specific information that is required to be in the notification.

SECTION 5. Procedure for Notification and Review. —

(a) Each party to a merger or acquisition required to give notification to the Commission shall submit the Notification Form and pay such applicable fees as may be determined by the Commission. An electronic copy of the Form and a scanned copy of the certification referred to in subparagraph (b) of this Section, contained in a secure electronic storage device, shall likewise be submitted to the Commission, simultaneous with the filing of the aforementioned hard copy.

(b) The Form must be signed by a general partner of a partnership, an officer or director of a corporation, or in the case of a natural person, the natural person or his/her legal representative, and certified that the contents of the Form are true and accurate of their own personal knowledge and/or based on authentic records. In all cases, the certifying individual must possess actual authority to make the certification on behalf of the entity filing the notification.

(c) The parties may notify, on the basis of a binding preliminary agreement in any form, such as a memorandum of agreement, term sheet, or letter of intent. Each of the acquired and acquiring entities must submit an affidavit with their Forms, attesting to the fact that a binding preliminary agreement has been executed and that each party has an intention of completing the proposed transaction in good faith.

(d) Both the certification and the affidavit must be notarized or otherwise authenticated.

(e) Except as described below, the waiting period begins after all notifying entities have filed their respective Forms, together with the corresponding certifications and affidavits, and have been notified by the Commission that the Forms are complete.

(1) In voting securities acquisitions, such as tender offers, third party and open market transactions, in which the acquiring entity proposes to buy voting securities from shareholders of the acquired entity, rather than from the entity itself:

i. the acquiring entity is required to serve notice on the issuer of those shares to ensure the acquired entity is aware of its reporting obligation;

ii. only the acquiring entity must submit an affidavit. The acquiring entity must state in the affidavit that it has an intention of completing the proposed transaction in good faith, and that it has served notice on the acquired entity as to its potential reporting obligations (and in tender offers, the acquiring entity also must affirm that the intention to make the tender offer has been publicly announced); and

iii. the waiting period begins after the acquiring entity files a complete Form.

(f) Upon submission of the Form, the Commission shall determine within fifteen (15) days whether the Form and other relevant requirements have been completed in accordance with applicable rules or guidelines, and shall inform the parties of other information and/or documents it may have failed to supply, or issue a notice to the parties that the notification is sufficient for purposes of commencing Phase I review of the merger or acquisition.

(g) The waiting period under this Section shall commence only upon the Commission's determination that the notification has been completed in accordance with applicable rules and guidelines.

(h) Within thirty (30) days from commencing Phase I review, the Commission shall, if necessary, inform the parties of the need for a more comprehensive and detailed analysis of the merger or acquisition under a Phase II review, and request other information and/or documents that are relevant to its review.

(i) The issuance of the request under the immediately preceding paragraph has the effect of extending the period within which the agreement may not be consummated for an additional sixty (60) days. The additional sixty (60) day period shall begin on the day after the request for information is received by the parties; Provided, that, in no case shall the total period for review by the Commission of the subject agreement exceed ninety (90) days from the time the initial notification by the parties is deemed complete as provided under paragraph (f) of this Section; Provided further, that should the parties fail to provide the requested information within fifteen (15) days from receipt of the said request, the notification shall be deemed expired and the parties must refile their notification. Alternatively, should the parties wish to submit the requested information beyond the fifteen (15) day period, the parties may request for an extension of time within which to comply with the request for additional information, in which case, the period for review shall be correspondingly extended.

(j) Parties to a proposed transaction under review shall inform the Commission of any substantial modifications to the transaction. On the basis of the information provided, the Commission shall determine if a new notification is required.

(k) Where notification of a transaction is not required, then the periods provided above for the Commission to conclude its review shall not apply.

(l) The Commission, in its discretion, may terminate a waiting period prior to its expiration.

(m) When either waiting period set out ends on a Saturday, Sunday or holiday, the waiting period is extended until the next business day.

(n) When the above periods have expired and no decision has been promulgated for whatever reason, the merger or acquisition shall be deemed approved and the parties may proceed to implement or consummate it.

(o) All notices, documents, and information provided to or emanating from the Commission under Sections 4 and 5 of this Rule shall be subject to the confidentiality rule under Section 34 of the Act and Section 13 of this Rule, except for the purpose of enforcing the Act or these Rules, or when the release of information contained therein is with the consent of the notifying entity or is mandatorily required to be disclosed by law or by a valid order of a court of competent jurisdiction, or of a government or regulatory agency, including an exchange.

SECTION 6. Effect of Notification. —

If within the relevant periods stipulated in the preceding section, the Commission determines that the merger or acquisition agreement is prohibited under Section 20 of the Act and Section 9 of this Rule, and does not qualify for exemption under Section 21 of the Act and Section 10 of this Rule, the Commission may:

(a) Prohibit the implementation of the agreement;

(b) Prohibit the implementation of the agreement unless and until it is modified by changes specified by the Commission; or

(c) Prohibit the implementation of the agreement unless and until the pertinent party or parties enter into legally enforceable agreements specified by the Commission.

SECTION 7. Publication of Notification Summary. —

(a) When additional information or documents requested by the Commission for the purpose of a Phase II review of a notified merger or acquisition has been submitted by the parties, the Commission shall publish on its website the following information related to the notification on the basis of the Form submitted by the parties:

(1) the name of the involved entities;

(2) the type of the transaction;

(3) the markets covered or lines of businesses by the proposed merger or acquisition; and

(4) the date when the complete notification was received.

(b) When publishing this information, the Commission shall take into account the legitimate interest of the entities regarding the protection of their trade secrets and other confidential information.

SECTION 8. Modifications to Thresholds on Compulsory Notification. —

The Commission shall publish, from time to time, regulations adopting, modifying, rescinding or otherwise changing:

(a) The transaction value threshold and such other criteria subject to compulsory notification;

(b) The information that must be supplied for notified mergers or acquisitions;

(c) Exceptions or exemptions from the notification requirement; and

(d) Other rules relating to the notification procedures.

SECTION 9. Prohibited Mergers and Acquisitions. —

Merger or acquisition agreements that substantially prevent, restrict, or lessen competition in the Philippines in the relevant market or in the market for goods or services, as may be determined by the Commission, shall be prohibited.

SECTION 10. Exemptions from Prohibited Mergers and Acquisitions. —

Merger or acquisition agreements prohibited under Section 20 of the Act and Section 9 of this Rule may, nonetheless, be exempt from prohibition by the Commission when the parties establish either of the following:

(a) The concentration has brought about or is likely to bring about gains in efficiencies that are greater than the effects of any limitation on competition that result or are likely to result from the merger or acquisition agreement; or

(b) A party to the merger or acquisition agreement is faced with actual or imminent financial failure, and the agreement represents the least anti-competitive arrangement among the known alternative uses for the failing entity's assets.

Provided, that an entity shall not be prohibited from continuing to own and hold the stock or other share capital or assets of another corporation, which it acquired prior to the approval of the Act, or from acquiring or maintaining its market share in a relevant market through such means without violating the provisions of the Act and these Rules;

Provided, further, that the acquisition of the stock or other share capital of one or more corporations solely for investment and not used for voting or exercising control and not to otherwise bring about, or attempt to bring about the prevention, restriction or lessening of competition in the relevant market shall not be prohibited.

SECTION 11. Burden of Proof. —

The burden of proof under Section 10 of this Rule lies with the parties seeking the exemption. A party seeking to rely on the exemption specified in Section 21 (a) of the Act or Section 10 (a) of this Rule must demonstrate that if the agreement were not implemented, significant efficiency gains would not be realized.

SECTION 12. Finality of Rulings on Mergers and Acquisitions. —

Merger or acquisition agreements that have received a favorable ruling from the Commission, except when such ruling was obtained on the basis of fraud or false material information, may not be challenged under the Act or these Rules.

SECTION 13. Treatment of Confidential Information. —

(a) Information, including documents, shall not be communicated or made accessible by the Commission, insofar as it contains trade secrets or other confidential information, the disclosure of which is not considered necessary by the Commission for the purpose of the review.

(b) Any entity or party that supplies information, including documents, to the Commission, shall clearly identify any material that it considers to be confidential, provide a justification for the request of confidential treatment of the information supplied and the time period within which confidentiality is requested, and provide a separate non-confidential version by the date set by the Commission.

(c) The Commission may require the parties to the merger or acquisition and other interested parties to identify any part of a decision or case summary adopted by the Commission, if any, which in their view contains trade secrets or other confidential information. Where trade secrets or other confidential information are identified, the parties to the merger or acquisition and other interested parties shall provide a justification for the request of confidential treatment and provide a separate non-confidential version by the date set by the Commission.

(d) Whenever the Commission, pursuant to Section 13 (c) of this Rule, deems that the justification for confidential treatment provided by the party is insufficient or not grounded, it shall inform the interested party of its decision to make the information accessible.

(e) If a merger or acquisition is under review in multiple jurisdictions, parties to the transaction may waive the confidentiality protections contained in this Rule, so as to allow the Commission to exchange otherwise protected information with competition authorities in other countries.

RULE 5 Determination of the Relevant Market

SECTION 1. For purposes of determining the relevant market, the following factors, among others, affecting the substitutability among goods or services constituting such market, and the geographic area delineating the boundaries of the market shall be considered:

(a) The possibilities of substituting the goods or services in question with others of domestic or foreign origin, considering the technological possibilities, the extent to which substitutes are available to consumers and the time required for such substitution;

(b) The cost of distribution of the good or service, its raw materials, its supplements and substitutes from other areas and abroad, considering freight, insurance, import duties, and non-tariff restrictions; the restrictions imposed by economic agents or by their associations; and the time required to supply the market from those areas;

(c) The cost and probability of users or consumers seeking other markets; and

(d) National, local or international restrictions which limit the access by users or consumers to alternate sources of supply or the access of suppliers to alternate consumers.

RULE 6 Determination of Control

SECTION 1. What Constitutes Control of an Entity. —

Control refers to the ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise.

In determining the control of an entity, the Commission may consider the following:

(a) Control is presumed to exist when the parent owns directly or indirectly, through subsidiaries, more than one half (1/2) of the voting power of an entity, unless in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control.

(b) Control also exists even when an entity owns one half (1/2) or less of the voting power of another entity when:

(1) There is power over more than one half (1/2) of the voting rights by virtue of an agreement with investors;

(2) There is power to direct or govern the financial and operating policies of the entity under a statute or agreement;

(3) There is power to appoint or remove the majority of the members of the board of directors or equivalent governing body;

(4) There is power to cast the majority votes at meetings of the board of directors or equivalent governing body;

(5) There exists ownership over or the right to use all or a significant part of the assets of the entity; or

(6) There exist rights or contracts which confer decisive influence on the decisions of the entity.

RULE 7 Determination of Anti-Competitive Agreement or Conduct

SECTION 1. Determination of an Anti-Competitive Agreement or Conduct. —

In determining whether an anti-competitive agreement or conduct substantially prevents, restricts, or lessens competition, the Commission, in appropriate cases, shall, inter alia:

(a) Define the relevant market allegedly affected by the anti-competitive agreement or conduct, following the principles laid out in Section 24 of the Act and Rule 5 of these Rules;

(b) Determine if there is actual or potential adverse impact on competition in the relevant market caused by the alleged agreement or conduct, and if such impact is substantial and outweighs the actual or potential efficiency gains that result from the agreement or conduct;

(c) Adopt a broad and forward-looking perspective, recognizing future market developments, any overriding need to make the goods or services available to consumers, the requirements of large investments in infrastructure, the requirements of law, and the need of our economy to respond to international competition, but also taking account of past behavior of the parties involved and prevailing market conditions;

(d) Balance the need to ensure that competition is not prevented or substantially restricted and the risk that competition efficiency, productivity, innovation, or development of priority areas or industries in the general interest of the country may be deterred by overzealous or undue intervention; and

(e) Assess the totality of evidence on whether it is more likely than not that the entity has engaged in anti-competitive agreement or conduct, including whether the entity's conduct was done with a reasonable commercial purpose, such as but not limited to, phasing out of a product or closure of a business, or as a reasonable commercial response to the market entry or conduct of a competitor.

RULE 8 Determination of Dominance

SECTION 1. Existence of Dominance. —

Dominance can exist on the part of one entity (single dominance) or of two or more entities (collective dominance).

SECTION 2. Assessment of Dominance. —

In determining whether an entity has a market dominant position for purposes of this Act and these Rules, the Commission shall consider the following illustrative and non-exhaustive criteria, as may be appropriate:

(a) The share of the entity in the relevant market and the ability of the entity to fix prices unilaterally or to restrict supply in the relevant market;

(b) The share of other market participants in the relevant market;

(c) The existence of barriers to entry and the elements which could foreseeably alter both the said barriers and the supply from competitors;

(d) The existence and power of its competitors;

(e) The credible threat of future expansion by its actual competitors or entry by potential competitors (expansion and entry);

(f) Market exit of actual competitors;

(g) The bargaining strength of its customers (countervailing power);

(h) The possibility of access by its competitors or other entities to its sources of inputs;

(i) The power of its customers to switch to other goods or services;

(j) Its recent conduct;

(k) Its ownership, possession or control of infrastructure which are not easily duplicated;

(l) Its technological advantages or superiority, compared to other competitors;

(m) Its easy or privileged access to capital markets or financial resources;

(n) Its economies of scale and of scope;

(o) Its vertical integration; and

(p) The existence of a highly developed distribution and sales network.

SECTION 3. Presumption of Dominance. —

There shall be a rebuttable presumption of market dominant position if the market share of an entity in the relevant market is at least fifty percent (50%), unless a new market share threshold is determined by the Commission for that particular sector.

SECTION 4. Setting the Thresholds for Dominance. —

The Commission shall, from time to time, determine and publish the threshold for dominant position or the minimum level of share in the relevant market that could give rise to a presumption of dominant position. In such a determination, the Commission would consider:

(a) The structure of the relevant market;

(b) The degree of integration;

(c) Access to end-users;

(d) Technology and financial resources; and

(e) Other factors affecting the control of a market, as provided in Section 2 of this Rule.

SECTION 5. Exceptions. —

The Commission shall not consider the acquisition, maintenance and increase of market share through legitimate means that does not substantially prevent, restrict, or lessen competition in the market, such as but not limited to, having superior skills, rendering superior service, producing or distributing quality products, having business acumen, and enjoying the use of protected intellectual property rights as violative of the Act and these Rules, Provided, that the concerned entity or entities invoking the exception shall clearly establish to the Commission's satisfaction, that the barrier to entry or anti-competitive act is an indispensable and natural result of the superior product or process, business acumen, or legal rights or laws.

RULE 9 Forbearance

SECTION 1. Forbearance of the Commission. —

The Commission, motu proprio or upon application, prior to its initiation of an inquiry, may forbear from applying the provisions of the Act or these Rules, for a limited time, in whole or in part, in all or specific cases, on an entity or group of entities, if in its determination:

(a) Enforcement is not necessary to the attainment of the policy objectives of this Act;

(b) Forbearance will neither impede competition in the market where the entity or group of entities seeking exemption operates nor in related markets;

(c) Forbearance is consistent with public interest and the benefit and welfare of the consumers; and

(d) Forbearance is justified in economic terms;

Provided, that forbearance will be granted for a maximum period of one year. Any extension to the period will have to be expressly approved by the Commission. Any extension of the duration of an exemption shall not be longer than one year.

SECTION 2. Public Hearing. —

(a) A public hearing shall be held to assist the Commission in making its determination under Section 1 of this Rule.

(b) The Commission's order exempting the relevant entity, or group of entities under this Rule shall be made public. Conditions may be attached to the forbearance if the Commission deems it appropriate to ensure the long-term interests of consumers.

(c) In the event that the basis for the issuance of the exemption order ceases to be valid, the order may be withdrawn by the Commission.

RULE 10 Final Provisions

SECTION 1. Revisions of These Rules. —

The Commission may revise these Rules whenever it deems necessary and after due consultation with affected stakeholders.

SECTION 2. Separability Clause. —

Should any provision herein be subsequently declared unconstitutional, the same shall not affect the validity or legality of the other provisions.

SECTION 3. Effectivity. —

These Rules shall take effect fifteen (15) days after the date of its publication in at least two (2) newspapers of general circulation.

Approved, this 31st day of May 2016.

August 15, 2012

AN ACT PROTECTING INDIVIDUAL PERSONAL INFORMATION IN INFORMATION AND COMMUNICATIONS SYSTEMS IN THE GOVERNMENT AND THE PRIVATE SECTOR, CREATING FOR THIS PURPOSE A NATIONAL PRIVACY COMMISSION, AND FOR OTHER PURPOSES

Be it enacted, by the Senate and House of Representatives of the Philippines in Congress assembled:

CHAPTER I GENERAL PROVISIONS

SECTION 1. Short Title. – This Act shall be known as the “Data Privacy Act of 2012”.

SEC. 2. Declaration of Policy. – It is the policy of the State to protect the fundamental human right of privacy, of communication while ensuring free flow of information to promote innovation and growth. The State recognizes the vital role of information and communications technology in nation-building and its inherent obligation to ensure that personal information in information and communications systems in the government and in the private sector are secured and protected.

SEC. 3. Definition of Terms. – Whenever used in this Act, the following terms shall have the respective meanings hereafter set forth:

(a) Commission shall refer to the National Privacy Commission created by virtue of this Act.

(b) Consent of the data subject refers to any freely given, specific, informed indication of will, whereby the data subject agrees to the collection and processing of personal information about and/or relating to him or her. Consent shall be evidenced by written, electronic or recorded means. It may also be given on behalf of the data subject by an agent specifically authorized by the data subject to do so.

(c) Data subject refers to an individual whose personal information is processed.

(d) Direct marketing refers to communication by whatever means of any advertising or marketing material which is directed to particular individuals.

(e) Filing system refers to any act of information relating to natural or juridical persons to the extent that, although the information is not processed by equipment operating automatically in response to instructions given for that purpose, the set is structured, either by reference to individuals or by reference to criteria relating to individuals, in such a way that specific information relating to a particular person is readily accessible.

(f) Information and Communications System refers to a system for generating, sending, receiving, storing or otherwise processing electronic data messages or electronic documents and includes the computer system or other similar device by or which data is recorded, transmitted or stored and any procedure related to the recording, transmission or storage of electronic data, electronic message, or electronic document.

(g) Personal information refers to any information whether recorded in a material form or not, from which the identity of an individual is apparent or can be reasonably and directly ascertained by the entity holding the information, or when put together with other information would directly and certainly identify an individual.

(h) Personal information controller refers to a person or organization who controls the collection, holding, processing or use of personal information, including a person or organization who instructs another person or organization to collect, hold, process, use, transfer or disclose personal information on his or her behalf. The term excludes:

(1) A person or organization who performs such functions as instructed by another person or organization; and

(2) An individual who collects, holds, processes or uses personal information in connection with the individual’s personal, family or household affairs.

(i) Personal information processor refers to any natural or juridical person qualified to act as such under this Act to whom a personal information controller may outsource the processing of personal data pertaining to a data subject.

(j) Processing refers to any operation or any set of operations performed upon personal information including, but not limited to, the collection, recording, organization, storage, updating or modification, retrieval, consultation, use, consolidation, blocking, erasure or destruction of data.

(k) Privileged information refers to any and all forms of data which under the Rules of Court and other pertinent laws constitute privileged communication.

(l) Sensitive personal information refers to personal information:

(1) About an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical or political affiliations;

(2) About an individual’s health, education, genetic or sexual life of a person, or to any proceeding for any offense committed or alleged to have been committed by such person, the disposal of such proceedings, or the sentence of any court in such proceedings;

(3) Issued by government agencies peculiar to an individual which includes, but not limited to, social security numbers, previous or current health records, licenses or its denials, suspension or revocation, and tax returns; and

(4) Specifically established by an executive order or an act of Congress to be kept classified.

SEC. 4. Scope. – This Act applies to the processing of all types of personal information and to any natural and juridical person involved in personal information processing including those personal information controllers and processors who, although not found or established in the Philippines, use equipment that are located in the Philippines, or those who maintain an office, branch or agency in the Philippines subject to the immediately succeeding paragraph: Provided, That the requirements of Section 5 are complied with.

This Act does not apply to the following:

(a) Information about any individual who is or was an officer or employee of a government institution that relates to the position or functions of the individual, including:

(1) The fact that the individual is or was an officer or employee of the government institution;

(2) The title, business address and office telephone number of the individual;

(3) The classification, salary range and responsibilities of the position held by the individual; and

(4) The name of the individual on a document prepared by the individual in the course of employment with the government;

(b) Information about an individual who is or was performing service under contract for a government institution that relates to the services performed, including the terms of the contract, and the name of the individual given in the course of the performance of those services;

(c) Information relating to any discretionary benefit of a financial nature such as the granting of a license or permit given by the government to an individual, including the name of the individual and the exact nature of the benefit;

(d) Personal information processed for journalistic, artistic, literary or research purposes;

(e) Information necessary in order to carry out the functions of public authority which includes the processing of personal data for the performance by the independent, central monetary authority and law enforcement and regulatory agencies of their constitutionally and statutorily mandated functions. Nothing in this Act shall be construed as to have amended or repealed Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act; Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act; and Republic Act No. 9510, otherwise known as the Credit Information System Act (CISA);

(f) Information necessary for banks and other financial institutions under the jurisdiction of the independent, central monetary authority or Bangko Sentral ng Pilipinas to comply with Republic Act No. 9510, and Republic Act No. 9160, as amended, otherwise known as the Anti-Money Laundering Act and other applicable laws; and

(g) Personal information originally collected from residents of foreign jurisdictions in accordance with the laws of those foreign jurisdictions, including any applicable data privacy laws, which is being processed in the Philippines.

SEC. 5. Protection Afforded to Journalists and Their Sources. – Nothing in this Act shall be construed as to have amended or repealed the provisions of Republic Act No. 53, which affords the publishers, editors or duly accredited reporters of any newspaper, magazine or periodical of general circulation protection from being compelled to reveal the source of any news report or information appearing in said publication which was related in any confidence to such publisher, editor, or reporter.

SEC. 6. Extraterritorial Application. – This Act applies to an act done or practice engaged in and outside of the Philippines by an entity if:

(a) The act, practice or processing relates to personal information about a Philippine citizen or a resident;

(b) The entity has a link with the Philippines, and the entity is processing personal information in the Philippines or even if the processing is outside the Philippines as long as it is about Philippine citizens or residents such as, but not limited to, the following:

(1) A contract is entered in the Philippines;

(2) A juridical entity unincorporated in the Philippines but has central management and control in the country; and

(3) An entity that has a branch, agency, office or subsidiary in the Philippines and the parent or affiliate of the Philippine entity has access to personal information; and

(c) The entity has other links in the Philippines such as, but not limited to:

(1) The entity carries on business in the Philippines; and

(2) The personal information was collected or held by an entity in the Philippines.

CHAPTER II THE NATIONAL PRIVACY COMMISSION

SEC. 7. Functions of the National Privacy Commission. – To administer and implement the provisions of this Act, and to monitor and ensure compliance of the country with international standards set for data protection, there is hereby created an independent body to be known as the National Privacy Commission, winch shall have the following functions:

(a) Ensure compliance of personal information controllers with the provisions of this Act;

(b) Receive complaints, institute investigations, facilitate or enable settlement of complaints through the use of alternative dispute resolution processes, adjudicate, award indemnity on matters affecting any personal information, prepare reports on disposition of complaints and resolution of any investigation it initiates, and, in cases it deems appropriate, publicize any such report: Provided, That in resolving any complaint or investigation (except where amicable settlement is reached by the parties), the Commission shall act as a collegial body. For this purpose, the Commission may be given access to personal information that is subject of any complaint and to collect the information necessary to perform its functions under this Act;

(c) Issue cease and desist orders, impose a temporary or permanent ban on the processing of personal information, upon finding that the processing will be detrimental to national security and public interest;

(d) Compel or petition any entity, government agency or instrumentality to abide by its orders or take action on a matter affecting data privacy;

(e) Monitor the compliance of other government agencies or instrumentalities on their security and technical measures and recommend the necessary action in order to meet minimum standards for protection of personal information pursuant to this Act;

(f) Coordinate with other government agencies and the private sector on efforts to formulate and implement plans and policies to strengthen the protection of personal information in the country;

(g) Publish on a regular basis a guide to all laws relating to data protection;

(h) Publish a compilation of agency system of records and notices, including index and other finding aids;

(i) Recommend to the Department of Justice (DOJ) the prosecution and imposition of penalties specified in Sections 25 to 29 of this Act;

(j) Review, approve, reject or require modification of privacy codes voluntarily adhered to by personal information controllers: Provided, That the privacy codes shall adhere to the underlying data privacy principles embodied in this Act: Provided, further, That such privacy codes may include private dispute resolution mechanisms for complaints against any participating personal information controller. For this purpose, the Commission shall consult with relevant regulatory agencies in the formulation and administration of privacy codes applying the standards set out in this Act, with respect to the persons, entities, business activities and business sectors that said regulatory bodies are authorized to principally regulate pursuant to the law: Provided, finally. That the Commission may review such privacy codes and require changes thereto for purposes of complying with this Act;

(k) Provide assistance on matters relating to privacy or data protection at the request of a national or local agency, a private entity or any person;

(l) Comment on the implication on data privacy of proposed national or local statutes, regulations or procedures, issue advisory opinions and interpret the provisions of this Act and other data privacy laws;

(m) Propose legislation, amendments or modifications to Philippine laws on privacy or data protection as may be necessary;

(n) Ensure proper and effective coordination with data privacy regulators in other countries and private accountability agents, participate in international and regional initiatives for data privacy protection;

(o) Negotiate and contract with other data privacy authorities of other countries for cross-border application and implementation of respective privacy laws;

(p) Assist Philippine companies doing business abroad to respond to foreign privacy or data protection laws and regulations; and

(q) Generally perform such acts as may be necessary to facilitate cross-border enforcement of data privacy protection.

SEC. 8. Confidentiality. – The Commission shall ensure at all times the confidentiality of any personal information that comes to its knowledge and possession.

SEC. 9. Organizational Structure of the Commission. – The Commission shall be attached to the Department of Information and Communications Technology (DICT) and shall be headed by a Privacy Commissioner, who shall also act as Chairman of the Commission. The Privacy Commissioner shall be assisted by two (2) Deputy Privacy Commissioners, one to be responsible for Data Processing Systems and one to be responsible for Policies and Planning. The Privacy Commissioner and the two (2) Deputy Privacy Commissioners shall be appointed by the President of the Philippines for a term of three (3) years, and may be reappointed for another term of three (3) years. Vacancies in the Commission shall be filled in the same manner in which the original appointment was made.

The Privacy Commissioner must be at least thirty-five (35) years of age and of good moral character, unquestionable integrity and known probity, and a recognized expert in the field of information technology and data privacy. The Privacy Commissioner shall enjoy the benefits, privileges and emoluments equivalent to the rank of Secretary.

The Deputy Privacy Commissioners must be recognized experts in the field of information and communications technology and data privacy. They shall enjoy the benefits, privileges and emoluments equivalent to the rank of Undersecretary.

The Privacy Commissioner, the Deputy Commissioners, or any person acting on their behalf or under their direction, shall not be civilly liable for acts done in good faith in the performance of their duties. However, he or she shall be liable for willful or negligent acts done by him or her which are contrary to law, morals, public policy and good customs even if he or she acted under orders or instructions of superiors: Provided, That in case a lawsuit is filed against such official on the subject of the performance of his or her duties, where such performance is lawful, he or she shall be reimbursed by the Commission for reasonable costs of litigation.

SEC. 10. The Secretariat. – The Commission is hereby authorized to establish a Secretariat. Majority of the members of the Secretariat must have served for at least five (5) years in any agency of the government that is involved in the processing of personal information including, but not limited to, the following offices: Social Security System (SSS), Government Service Insurance System (GSIS), Land Transportation Office (LTO), Bureau of Internal Revenue (BIR), Philippine Health Insurance Corporation (PhilHealth), Commission on Elections (COMELEC), Department of Foreign Affairs (DFA), Department of Justice (DOJ), and Philippine Postal Corporation (Philpost).

CHAPTER III PROCESSING OF PERSONAL INFORMATION

SEC. 11. General Data Privacy Principles. – The processing of personal information shall be allowed, subject to compliance with the requirements of this Act and other laws allowing disclosure of information to the public and adherence to the principles of transparency, legitimate purpose and proportionality.

Personal information must, be:,

(a) Collected for specified and legitimate purposes determined and declared before, or as soon as reasonably practicable after collection, and later processed in a way compatible with such declared, specified and legitimate purposes only;

(b) Processed fairly and lawfully;

(c) Accurate, relevant and, where necessary for purposes for which it is to be used the processing of personal information, kept up to date; inaccurate or incomplete data must be rectified, supplemented, destroyed or their further processing restricted;

(d) Adequate and not excessive in relation to the purposes for which they are collected and processed;

(e) Retained only for as long as necessary for the fulfillment of the purposes for which the data was obtained or for the establishment, exercise or defense of legal claims, or for legitimate business purposes, or as provided by law; and

(f) Kept in a form which permits identification of data subjects for no longer than is necessary for the purposes for which the data were collected and processed: Provided, That personal information collected for other purposes may lie processed for historical, statistical or scientific purposes, and in cases laid down in law may be stored for longer periods: Provided, further, That adequate safeguards are guaranteed by said laws authorizing their processing.

The personal information controller must ensure implementation of personal information processing principles set out herein.

SEC. 12. Criteria for Lawful Processing of Personal Information. – The processing of personal information shall be permitted only if not otherwise prohibited by law, and when at least one of the following conditions exists:

(a) The data subject has given his or her consent;

(b) The processing of personal information is necessary and is related to the fulfillment of a contract with the data subject or in order to take steps at the request of the data subject prior to entering into a contract;

(c) The processing is necessary for compliance with a legal obligation to which the personal information controller is subject;

(d) The processing is necessary to protect vitally important interests of the data subject, including life and health;

(e) The processing is necessary in order to respond to national emergency, to comply with the requirements of public order and safety, or to fulfill functions of public authority which necessarily includes the processing of personal data for the fulfillment of its mandate; or

(f) The processing is necessary for the purposes of the legitimate interests pursued by the personal information controller or by a third party or parties to whom the data is disclosed, except where such interests are overridden by fundamental rights and freedoms of the data subject which require protection under the Philippine Constitution.

SEC. 13. Sensitive Personal Information and Privileged Information. – The processing of sensitive personal information and privileged information shall be prohibited, except in the following cases:

(a) The data subject has given his or her consent, specific to the purpose prior to the processing, or in the case of privileged information, all parties to the exchange have given their consent prior to processing;

(b) The processing of the same is provided for by existing laws and regulations: Provided, That such regulatory enactments guarantee the protection of the sensitive personal information and the privileged information: Provided, further, That the consent of the data subjects are not required by law or regulation permitting the processing of the sensitive personal information or the privileged information;

(c) The processing is necessary to protect the life and health of the data subject or another person, and the data subject is not legally or physically able to express his or her consent prior to the processing;

(d) The processing is necessary to achieve the lawful and noncommercial objectives of public organizations and their associations: Provided, That such processing is only confined and related to the bona fide members of these organizations or their associations: Provided, further, That the sensitive personal information are not transferred to third parties: Provided, finally, That consent of the data subject was obtained prior to processing;

(e) The processing is necessary for purposes of medical treatment, is carried out by a medical practitioner or a medical treatment institution, and an adequate level of protection of personal information is ensured; or

(f) The processing concerns such personal information as is necessary for the protection of lawful rights and interests of natural or legal persons in court proceedings, or the establishment, exercise or defense of legal claims, or when provided to government or public authority.

SEC. 14. Subcontract of Personal Information. – A personal information controller may subcontract the processing of personal information: Provided, That the personal information controller shall be responsible for ensuring that proper safeguards are in place to ensure the confidentiality of the personal information processed, prevent its use for unauthorized purposes, and generally, comply with the requirements of this Act and other laws for processing of personal information. The personal information processor shall comply with all the requirements of this Act and other applicable laws.

SEC. 15. Extension of Privileged Communication. – Personal information controllers may invoke the principle of privileged communication over privileged information that they lawfully control or process. Subject to existing laws and regulations, any evidence gathered on privileged information is inadmissible.

CHAPTER IV RIGHTS OF THE DATA SUBJECT

SEC. 16. Rights of the Data Subject. – The data subject is entitled to:

(a) Be informed whether personal information pertaining to him or her shall be, are being or have been processed;

(b) Be furnished the information indicated hereunder before the entry of his or her personal information into the processing system of the personal information controller, or at the next practical opportunity:

(1) Description of the personal information to be entered into the system;

(2) Purposes for which they are being or are to be processed;

(3) Scope and method of the personal information processing;

(4) The recipients or classes of recipients to whom they are or may be disclosed;

(5) Methods utilized for automated access, if the same is allowed by the data subject, and the extent to which such access is authorized;

(6) The identity and contact details of the personal information controller or its representative;

(7) The period for which the information will be stored; and

(8) The existence of their rights, i.e., to access, correction, as well as the right to lodge a complaint before the Commission.

Any information supplied or declaration made to the data subject on these matters shall not be amended without prior notification of data subject: Provided, That the notification under subsection (b) shall not apply should the personal information be needed pursuant to a subpoena or when the collection and processing are for obvious purposes, including when it is necessary for the performance of or in relation to a contract or service or when necessary or desirable in the context of an employer-employee relationship, between the collector and the data subject, or when the information is being collected and processed as a result of legal obligation;

(c) Reasonable access to, upon demand, the following:

(1) Contents of his or her personal information that were processed;

(2) Sources from which personal information were obtained;

(3) Names and addresses of recipients of the personal information;

(4) Manner by which such data were processed;

(5) Reasons for the disclosure of the personal information to recipients;

(6) Information on automated processes where the data will or likely to be made as the sole basis for any decision significantly affecting or will affect the data subject;

(7) Date when his or her personal information concerning the data subject were last accessed and modified; and

(8) The designation, or name or identity and address of the personal information controller;

(d) Dispute the inaccuracy or error in the personal information and have the personal information controller correct it immediately and accordingly, unless the request is vexatious or otherwise unreasonable. If the personal information have been corrected, the personal information controller shall ensure the accessibility of both the new and the retracted information and the simultaneous receipt of the new and the retracted information by recipients thereof: Provided, That the third parties who have previously received such processed personal information shall he informed of its inaccuracy and its rectification upon reasonable request of the data subject;

(e) Suspend, withdraw or order the blocking, removal or destruction of his or her personal information from the personal information controller’s filing system upon discovery and substantial proof that the personal information are incomplete, outdated, false, unlawfully obtained, used for unauthorized purposes or are no longer necessary for the purposes for which they were collected. In this case, the personal information controller may notify third parties who have previously received such processed personal information; and

(f) Be indemnified for any damages sustained due to such inaccurate, incomplete, outdated, false, unlawfully obtained or unauthorized use of personal information.

SEC. 17. Transmissibility of Rights of the Data Subject. – The lawful heirs and assigns of the data subject may invoke the rights of the data subject for, which he or she is an heir or assignee at any time after the death of the data subject or when the data subject is incapacitated or incapable of exercising the rights as enumerated in the immediately preceding section.

SEC. 18. Right to Data Portability. – The data subject shall have the right, where personal information is processed by electronic means and in a structured and commonly used format, to obtain from the personal information controller a copy of data undergoing processing in an electronic or structured format, which is commonly used and allows for further use by the data subject. The Commission may specify the electronic format referred to above, as well as the technical standards, modalities and procedures for their transfer.

SEC. 19. Non-Applicability. – The immediately preceding sections are not applicable if the processed personal information are used only for the needs of scientific and statistical research and, on the basis of such, no activities are carried out and no decisions are taken regarding the data subject: Provided, That the personal information shall be held under strict confidentiality and shall be used only for the declared purpose. Likewise, the immediately preceding sections are not applicable to processing of personal information gathered for the purpose of investigations in relation to any criminal, administrative or tax liabilities of a data subject.

CHAPTER V SECURITY OF PERSONAL INFORMATION

SEC. 20. Security of Personal Information. – (a) The personal information controller must implement reasonable and appropriate organizational, physical and technical measures intended for the protection of personal information against any accidental or unlawful destruction, alteration and disclosure, as well as against any other unlawful processing.

(b) The personal information controller shall implement reasonable and appropriate measures to protect personal information against natural dangers such as accidental loss or destruction, and human dangers such as unlawful access, fraudulent misuse, unlawful destruction, alteration and contamination.

(c) The determination of the appropriate level of security under this section must take into account the nature of the personal information to be protected, the risks represented by the processing, the size of the organization and complexity of its operations, current data privacy best practices and the cost of security implementation. Subject to guidelines as the Commission may issue from time to time, the measures implemented must include:

(1) Safeguards to protect its computer network against accidental, unlawful or unauthorized usage or interference with or hindering of their functioning or availability;

(2) A security policy with respect to the processing of personal information;

(3) A process for identifying and accessing reasonably foreseeable vulnerabilities in its computer networks, and for taking preventive, corrective and mitigating action against security incidents that can lead to a security breach; and

(4) Regular monitoring for security breaches and a process for taking preventive, corrective and mitigating action against security incidents that can lead to a security breach.

(d) The personal information controller must further ensure that third parties processing personal information on its behalf shall implement the security measures required by this provision.

(e) The employees, agents or representatives of a personal information controller who are involved in the processing of personal information shall operate and hold personal information under strict confidentiality if the personal information are not intended for public disclosure. This obligation shall continue even after leaving the public service, transfer to another position or upon termination of employment or contractual relations.

(f) The personal information controller shall promptly notify the Commission and affected data subjects when sensitive personal information or other information that may, under the circumstances, be used to enable identity fraud are reasonably believed to have been acquired by an unauthorized person, and the personal information controller or the Commission believes (bat such unauthorized acquisition is likely to give rise to a real risk of serious harm to any affected data subject. The notification shall at least describe the nature of the breach, the sensitive personal information possibly involved, and the measures taken by the entity to address the breach. Notification may be delayed only to the extent necessary to determine the scope of the breach, to prevent further disclosures, or to restore reasonable integrity to the information and communications system.

(1) In evaluating if notification is unwarranted, the Commission may take into account compliance by the personal information controller with this section and existence of good faith in the acquisition of personal information.

(2) The Commission may exempt a personal information controller from notification where, in its reasonable judgment, such notification would not be in the public interest or in the interests of the affected data subjects.

(3) The Commission may authorize postponement of notification where it may hinder the progress of a criminal investigation related to a serious breach.

CHAPTER VI ACCOUNTABILITY FOR TRANSFER OF PERSONAL INFORMATION

SEC. 21. Principle of Accountability. – Each personal information controller is responsible for personal information under its control or custody, including information that have been transferred to a third party for processing, whether domestically or internationally, subject to cross-border arrangement and cooperation.

(a) The personal information controller is accountable for complying with the requirements of this Act and shall use contractual or other reasonable means to provide a comparable level of protection while the information are being processed by a third party.

(b) The personal information controller shall designate an individual or individuals who are accountable for the organization’s compliance with this Act. The identity of the individual(s) so designated shall be made known to any data subject upon request.

CHAPTER VII SECURITY OF SENSITIVE PERSONAL INFORMATION IN GOVERNMENT

SEC. 22. Responsibility of Heads of Agencies. – All sensitive personal information maintained by the government, its agencies and instrumentalities shall be secured, as far as practicable, with the use of the most appropriate standard recognized by the information and communications technology industry, and as recommended by the Commission. The head of each government agency or instrumentality shall be responsible for complying with the security requirements mentioned herein while the Commission shall monitor the compliance and may recommend the necessary action in order to satisfy the minimum standards.

SEC. 23. Requirements Relating to Access by Agency Personnel to Sensitive Personal Information. – (a) On-site and Online Access – Except as may be allowed through guidelines to be issued by the Commission, no employee of the government shall have access to sensitive personal information on government property or through online facilities unless the employee has received a security clearance from the head of the source agency.

(b) Off-site Access – Unless otherwise provided in guidelines to be issued by the Commission, sensitive personal information maintained by an agency may not be transported or accessed from a location off government property unless a request for such transportation or access is submitted and approved by the head of the agency in accordance with the following guidelines:

(1) Deadline for Approval or Disapproval – In the case of any request submitted to the head of an agency, such head of the agency shall approve or disapprove the request within two (2) business days after the date of submission of the request. In case there is no action by the head of the agency, then such request is considered disapproved;

(2) Limitation to One thousand (1,000) Records – If a request is approved, the head of the agency shall limit the access to not more than one thousand (1,000) records at a time; and

(3) Encryption – Any technology used to store, transport or access sensitive personal information for purposes of off-site access approved under this subsection shall be secured by the use of the most secure encryption standard recognized by the Commission.

The requirements of this subsection shall be implemented not later than six (6) months after the date of the enactment of this Act.

SEC. 24. Applicability to Government Contractors. – In entering into any contract that may involve accessing or requiring sensitive personal information from one thousand (1,000) or more individuals, an agency shall require a contractor and its employees to register their personal information processing system with the Commission in accordance with this Act and to comply with the other provisions of this Act including the immediately preceding section, in the same manner as agencies and government employees comply with such requirements.

CHAPTER VIII PENALTIES

SEC. 25. Unauthorized Processing of Personal Information and Sensitive Personal Information. – (a) The unauthorized processing of personal information shall be penalized by imprisonment ranging from one (1) year to three (3) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00) shall be imposed on persons who process personal information without the consent of the data subject, or without being authorized under this Act or any existing law.

(b) The unauthorized processing of personal sensitive information shall be penalized by imprisonment ranging from three (3) years to six (6) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Four million pesos (Php4,000,000.00) shall be imposed on persons who process personal information without the consent of the data subject, or without being authorized under this Act or any existing law.

SEC. 26. Accessing Personal Information and Sensitive Personal Information Due to Negligence. – (a) Accessing personal information due to negligence shall be penalized by imprisonment ranging from one (1) year to three (3) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00) shall be imposed on persons who, due to negligence, provided access to personal information without being authorized under this Act or any existing law.

(b) Accessing sensitive personal information due to negligence shall be penalized by imprisonment ranging from three (3) years to six (6) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Four million pesos (Php4,000,000.00) shall be imposed on persons who, due to negligence, provided access to personal information without being authorized under this Act or any existing law.

SEC. 27. Improper Disposal of Personal Information and Sensitive Personal Information. – (a) The improper disposal of personal information shall be penalized by imprisonment ranging from six (6) months to two (2) years and a fine of not less than One hundred thousand pesos (Php100,000.00) but not more than Five hundred thousand pesos (Php500,000.00) shall be imposed on persons who knowingly or negligently dispose, discard or abandon the personal information of an individual in an area accessible to the public or has otherwise placed the personal information of an individual in its container for trash collection.

(b) The improper disposal of sensitive personal information shall be penalized by imprisonment ranging from one (1) year to three (3) years and a fine of not less than One hundred thousand pesos (Php100,000.00) but not more than One million pesos (Php1,000,000.00) shall be imposed on persons who knowingly or negligently dispose, discard or abandon the personal information of an individual in an area accessible to the public or has otherwise placed the personal information of an individual in its container for trash collection.

SEC. 28. Processing of Personal Information and Sensitive Personal Information for Unauthorized Purposes. – The processing of personal information for unauthorized purposes shall be penalized by imprisonment ranging from one (1) year and six (6) months to five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00) shall be imposed on persons processing personal information for purposes not authorized by the data subject, or otherwise authorized under this Act or under existing laws.

The processing of sensitive personal information for unauthorized purposes shall be penalized by imprisonment ranging from two (2) years to seven (7) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00) shall be imposed on persons processing sensitive personal information for purposes not authorized by the data subject, or otherwise authorized under this Act or under existing laws.

SEC. 29. Unauthorized Access or Intentional Breach. – The penalty of imprisonment ranging from one (1) year to three (3) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00) shall be imposed on persons who knowingly and unlawfully, or violating data confidentiality and security data systems, breaks in any way into any system where personal and sensitive personal information is stored.

SEC. 30. Concealment of Security Breaches Involving Sensitive Personal Information. – The penalty of imprisonment of one (1) year and six (6) months to five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00) shall be imposed on persons who, after having knowledge of a security breach and of the obligation to notify the Commission pursuant to Section 20(f), intentionally or by omission conceals the fact of such security breach.

SEC. 31. Malicious Disclosure. – Any personal information controller or personal information processor or any of its officials, employees or agents, who, with malice or in bad faith, discloses unwarranted or false information relative to any personal information or personal sensitive information obtained by him or her, shall be subject to imprisonment ranging from one (1) year and six (6) months to five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00).

SEC. 32. Unauthorized Disclosure. – (a) Any personal information controller or personal information processor or any of its officials, employees or agents, who discloses to a third party personal information not covered by the immediately preceding section without the consent of the data subject, shall he subject to imprisonment ranging from one (1) year to three (3) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00).

(b) Any personal information controller or personal information processor or any of its officials, employees or agents, who discloses to a third party sensitive personal information not covered by the immediately preceding section without the consent of the data subject, shall be subject to imprisonment ranging from three (3) years to five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00).

SEC. 33. Combination or Series of Acts. – Any combination or series of acts as defined in Sections 25 to 32 shall make the person subject to imprisonment ranging from three (3) years to six (6) years and a fine of not less than One million pesos (Php1,000,000.00) but not more than Five million pesos (Php5,000,000.00).

SEC. 34. Extent of Liability. – If the offender is a corporation, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in, or by their gross negligence, allowed the commission of the crime. If the offender is a juridical person, the court may suspend or revoke any of its rights under this Act. If the offender is an alien, he or she shall, in addition to the penalties herein prescribed, be deported without further proceedings after serving the penalties prescribed. If the offender is a public official or employee and lie or she is found guilty of acts penalized under Sections 27 and 28 of this Act, he or she shall, in addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be.

SEC. 35. Large-Scale. – The maximum penalty in the scale of penalties respectively provided for the preceding offenses shall be imposed when the personal information of at least one hundred (100) persons is harmed, affected or involved as the result of the above mentioned actions.

SEC. 36. Offense Committed by Public Officer. – When the offender or the person responsible for the offense is a public officer as defined in the Administrative Code of the Philippines in the exercise of his or her duties, an accessory penalty consisting in the disqualification to occupy public office for a term double the term of criminal penalty imposed shall he applied.

SEC. 37. Restitution. – Restitution for any aggrieved party shall be governed by the provisions of the New Civil Code.

CHAPTER IX MISCELLANEOUS PROVISIONS

SEC. 38. Interpretation. – Any doubt in the interpretation of any provision of this Act shall be liberally interpreted in a manner mindful of the rights and interests of the individual about whom personal information is processed.

SEC. 39. Implementing Rules and Regulations (IRR). – Within ninety (90) days from the effectivity of this Act, the Commission shall promulgate the rules and regulations to effectively implement the provisions of this Act.

SEC. 40. Reports and Information. – The Commission shall annually report to the President and Congress on its activities in carrying out the provisions of this Act. The Commission shall undertake whatever efforts it may determine to be necessary or appropriate to inform and educate the public of data privacy, data protection and fair information rights and responsibilities.

SEC. 41. Appropriations Clause. – The Commission shall be provided with an initial appropriation of Twenty million pesos (Php20,000,000.00) to be drawn from the national government. Appropriations for the succeeding years shall be included in the General Appropriations Act. It shall likewise receive Ten million pesos (Php10,000,000.00) per year for five (5) years upon implementation of this Act drawn from the national government.

SEC. 42. Transitory Provision. – Existing industries, businesses and offices affected by the implementation of this Act shall be given one (1) year transitory period from the effectivity of the IRR or such other period as may be determined by the Commission, to comply with the requirements of this Act.

In case that the DICT has not yet been created by the time the law takes full force and effect, the National Privacy Commission shall be attached to the Office of the President.

SEC. 43. Separability Clause. – If any provision or part hereof is held invalid or unconstitutional, the remainder of the law or the provision not otherwise affected shall remain valid and subsisting.

SEC. 44. Repealing Clause. – The provision of Section 7 of Republic Act No. 9372, otherwise known as the “Human Security Act of 2007”, is hereby amended. Except as otherwise expressly provided in this Act, all other laws, decrees, executive orders, proclamations and administrative regulations or parts thereof inconsistent herewith are hereby repealed or modified accordingly.

SEC. 45. Effectivity Clause. – This Act shall take effect fifteen (15) days after its publication in at least two (2) national newspapers of general circulation.

August 4, 2016

Pursuant to the mandate of the National Privacy Commission to administer and implement the provisions of the Data Privacy Act of 2012, and to monitor and ensure compliance of the country with international standards set for data protection, the following rules and regulations are hereby promulgated to effectively implement the provisions of the Act:

Rule I. Preliminary Provisions

Section 1. Title. These rules and regulations shall be known as the “Implementing Rules and Regulations of the Data Privacy Act of 2012”, or the “Rules”.

Section 2. Policy. These Rules further enforce the Data Privacy Act and adopt generally accepted international principles and standards for personal data protection. They safeguard the fundamental human right of every individual to privacy while ensuring free flow of information for innovation, growth, and national development. These Rules also recognize the vital role of information and communications technology in nation-building and enforce the State’s inherent obligation to ensure that personal data in information and communications systems in the government and in the private sector are secured and protected.

Section 3. Definitions. Whenever used in these Rules, the following terms shall have the respective meanings hereafter set forth:

1. “Act” refers to Republic Act No. 10173, also known as the Data Privacy Act of 2012;

2. “Commission” refers to the National Privacy Commission;

3. “Consent of the data subject” refers to any freely given, specific, informed indication of will, whereby the data subject agrees to the collection and processing of his or her personal, sensitive personal, or privileged information. Consent shall be evidenced by written, electronic or recorded means. It may also be given on behalf of a data subject by a lawful representative or an agent specifically authorized by the data subject to do so;

4. “Data subject” refers to an individual whose personal, sensitive personal, or privileged information is processed;

5. “Data processing systems” refers to the structure and procedure by which personal data is collected and further processed in an information and communications system or relevant filing system, including the purpose and intended output of the processing;

6. “Data sharing” is the disclosure or transfer to a third party of personal data under the custody of a personal information controller or personal information processor. In the case of the latter, such disclosure or transfer must have been upon the instructions of the personal information controller concerned. The term excludes outsourcing, or the disclosure or transfer of personal data by a personal information controller to a personal information processor;

7. “Direct marketing” refers to communication by whatever means of any advertising or marketing material which is directed to particular individuals;

8. “Filing system” refers to any set of information relating to natural or juridical persons to the extent that, although the information is not processed by equipment operating automatically in response to instructions given for that purpose, the set is structured, either by reference to individuals or by reference to criteria relating to individuals, in such a way that specific information relating to a particular individual is readily accessible;

9. “Information and communications system” refers to a system for generating, sending, receiving, storing, or otherwise processing electronic data messages or electronic documents, and includes the computer system or other similar device by which data is recorded, transmitted, or stored, and any procedure related to the recording, transmission, or storage of electronic data, electronic message, or electronic document;

10. “Personal data” refers to all types of personal information;

11. “Personal data breach” refers to a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorized disclosure of, or access to, personal data transmitted, stored, or otherwise processed;

12. “Personal information” refers to any information, whether recorded in a material form or not, from which the identity of an individual is apparent or can be reasonably and directly ascertained by the entity holding the information, or when put together with other information would directly and certainly identify an individual;

13. “Personal information controller” refers to a natural or juridical person, or any other body who controls the processing of personal data, or instructs another to process personal data on its behalf. The term excludes:

1. A natural or juridical person, or any other body, who performs such functions as instructed by another person or organization; or

2. A natural person who processes personal data in connection with his or her personal, family, or household affairs;

There is control if the natural or juridical person or any other body decides on what information is collected, or the purpose or extent of its processing;

14. “Personal information processor” refers to any natural or juridical person or any other body to whom a personal information controller may outsource or instruct the processing of personal data pertaining to a data subject;

15. “Processing” refers to any operation or any set of operations performed upon personal data including, but not limited to, the collection, recording, organization, storage, updating or modification, retrieval, consultation, use, consolidation, blocking, erasure or destruction of data. Processing may be performed through automated means, or manual processing, if the personal data are contained or are intended to be contained in a filing system;

16. “Profiling” refers to any form of automated processing of personal data consisting of the use of personal data to evaluate certain personal aspects relating to a natural person, in particular to analyze or predict aspects concerning that natural person's performance at work, economic situation, health, personal preferences, interests, reliability, behavior, location or movements;

17. “Privileged information” refers to any and all forms of data, which, under the Rules of Court and other pertinent laws constitute privileged communication;

18. “Public authority” refers to any government entity created by the Constitution or law, and vested with law enforcement or regulatory authority and functions;

19. “Security incident” is an event or occurrence that affects or tends to affect data protection, or may compromise the availability, integrity and confidentiality of personal data. It includes incidents that would result to a personal data breach, if not for safeguards that have been put in place;

20. Sensitive personal information refers to personal information:

1. About an individual’s race, ethnic origin, marital status, age, color, and religious, philosophical or political affiliations;

2. About an individual’s health, education, genetic or sexual life of a person, or to any proceeding for any offense committed or alleged to have been committed by such individual, the disposal of such proceedings, or the sentence of any court in such proceedings;

3. Issued by government agencies peculiar to an individual which includes, but is not limited to, social security numbers, previous or current health records, licenses or its denials, suspension or revocation, and tax returns; and

4. Specifically established by an executive order or an act of Congress to be kept classified.

Rule II. Scope of Application

Section 4. Scope. The Act and these Rules apply to the processing of personal data by any natural and juridical person in the government or private sector. They apply to an act done or practice engaged in and outside of the Philippines if:

1. The natural or juridical person involved in the processing of personal data is found or established in the Philippines;

2. The act, practice or processing relates to personal data about a Philippine citizen or Philippine resident;

3. The processing of personal data is being done in the Philippines; or

4. The act, practice or processing of personal data is done or engaged in by an entity with links to the Philippines, with due consideration to international law and comity, such as, but not limited to, the following:

1. Use of equipment located in the country, or maintains an office, branch or agency in the Philippines for processing of personal data;

2. A contract is entered in the Philippines;

3. A juridical entity unincorporated in the Philippines but has central management and control in the country;

4. An entity that has a branch, agency, office or subsidiary in the Philippines and the parent or affiliate of the Philippine entity has access to personal data;

5. An entity that carries on business in the Philippines;

6. An entity that collects or holds personal data in the Philippines.

Section 5. Special Cases. The Act and these Rules shall not apply to the following specified information, only to the minimum extent of collection, access, use, disclosure or other processing necessary to the purpose, function, or activity concerned:

1. Information processed for purpose of allowing public access to information that fall within matters of public concern, pertaining to:

1. Information about any individual who is or was an officer or employee of government that relates to his or her position or functions, including:

2. 
   (a)

3. 
   The fact that the individual is or was an officer or employee of the government;

4. 
   (b)

5. 
   The title, office address, and office telephone number of the individual;

6. 
   (c)

7. 
   The classification, salary range, and responsibilities of the position held by the individual; and

8. 
   (d)

9. 
   The name of the individual on a document he or she prepared in the course of his or her employment with the government;

2. 
   Information about an individual who is or was performing a service under contract for a government institution, but only in so far as it relates to such service, including the the name of the individual and the terms of his or her contract;

3. Information relating to a benefit of a financial nature conferred on an individual upon the discretion of the government, such as the granting of a license or permit, including the name of the individual and the exact nature of the benefit: Provided, that they do not include benefits given in the course of an ordinary transaction or as a matter of right;

2. Personal information processed for journalistic, artistic or literary purpose, in order to uphold freedom of speech, of expression, or of the press, subject to requirements of other applicable law or regulations;

3. Personal information that will be processed for research purpose, intended for a public benefit, subject to the requirements of applicable laws, regulations, or ethical standards;

4. Information necessary in order to carry out the functions of public authority, in accordance with a constitutionally or statutorily mandated function pertaining to law enforcement or regulatory function, including the performance of the functions of the independent, central monetary authority, subject to restrictions provided by law. Nothing in this Act shall be construed as having amended or repealed Republic Act No. 1405, otherwise known as the Secrecy of Bank Deposits Act; Republic Act No. 6426, otherwise known as the Foreign Currency Deposit Act; and Republic Act No. 9510, otherwise known as the Credit Information System Act (CISA);

5. Information necessary for banks, other financial institutions under the jurisdiction of the independent, central monetary authority or Bangko Sentral ng Pilipinas, and other bodies authorized by law, to the extent necessary to comply with Republic Act No. 9510 (CISA), Republic Act No. 9160, as amended, otherwise known as the Anti-Money Laundering Act, and other applicable laws;

6. Personal information originally collected from residents of foreign jurisdictions in accordance with the laws of those foreign jurisdictions, including any applicable data privacy laws, which is being processed in the Philippines. The burden of proving the law of the foreign jurisdiction falls on the person or body seeking exemption. In the absence of proof, the applicable law shall be presumed to be the Act and these Rules:

Provided, that the non-applicability of the Act or these Rules do not extend to personal information controllers or personal information processors, who remain subject to the requirements of implementing security measures for personal data protection: Provided further, that the processing of the information provided in the preceding paragraphs shall be exempted from the requirements of the Act only to the minimum extent necessary to achieve the specific purpose, function, or activity.

Section 6. Protection afforded to Data Subjects.

1. Unless directly incompatible or inconsistent with the preceding sections in relation to the purpose, function, or activities the non-applicability concerns, the personal information controller or personal information processor shall uphold the rights of data subjects, and adhere to general data privacy principles and the requirements of lawful processing.

2. The burden of proving that the Act and these Rules are not applicable to a particular information falls on those involved in the processing of personal data or the party claiming the non-applicability.

3. In all cases, the determination of any exemption shall be liberally interpreted in favor of the rights and interests of the data subject.

Section 7. Protection Afforded to Journalists and their Sources.

1. Publishers, editors, or duly accredited reporters of any newspaper, magazine or periodical of general circulation shall not be compelled to reveal the source of any news report or information appearing in said publication if it was related in any confidence to such publisher, editor, or reporter.

2. Publishers, editors, or duly accredited reporters who are likewise personal information controllers or personal information processors within the meaning of the law are still bound to follow the Data Privacy Act and related issuances with regard to the processing of personal data, upholding rights of their data subjects and maintaining compliance with other provisions that are not incompatible with the protection provided by Republic Act No. 53.

Rule III. National Privacy Commission

Section 8. Mandate. The National Privacy Commission is an independent body mandated to administer and implement the Act, and to monitor and ensure compliance of the country with international standards set for personal data protection.

Section 9. Functions. The National Privacy Commission shall have the following functions:

1. Rule Making. The Commission shall develop, promulgate, review or amend rules and regulations for the effective implementation of the Act. This includes:

1. Recommending organizational, physical and technical security measures for personal data protection, encryption, and access to sensitive personal information maintained by government agencies, considering the most appropriate standard recognized by the information and communications technology industry, as may be necessary;

2. Specifying electronic format and technical standards, modalities and procedures for data portability, as may be necessary;

3. Issuing guidelines for organizational, physical, and technical security measures for personal data protection, taking into account the nature of the personal data to be protected, the risks presented by the processing, the size of the organization and complexity of its operations, current data privacy best practices, cost of security implementation, and the most appropriate standard recognized by the information and communications technology industry, as may be necessary;

4. Consulting with relevant regulatory agencies in the formulation, review, amendment, and administration of privacy codes, applying the standards set out in the Act, with respect to the persons, entities, business activities, and business sectors that said regulatory bodies are authorized to principally regulate pursuant to law;

5. Proposing legislation, amendments or modifications to Philippine laws on privacy or data protection, as may be necessary;

6. Ensuring proper and effective coordination with data privacy regulators in other countries and private accountability agents;

7. Participating in international and regional initiatives for data privacy protection.

2. Advisory. The Commission shall be the advisory body on matters affecting protection of personal data. This includes:

1. Commenting on the implication on data privacy of proposed national or local statutes, regulations or procedures, issuing advisory opinions, and interpreting the provisions of the Act and other data privacy laws;

2. Reviewing, approving, rejecting, or requiring modification of privacy codes voluntarily adhered to by personal information controllers, which may include private dispute resolution mechanisms for complaints against any participating personal information controller, and which adhere to the underlying data privacy principles embodied in the Act and these Rules;

3. Providing assistance on matters relating to privacy or data protection at the request of a national or local agency, a private entity or any person, including the enforcement of rights of data subjects;

4. Assisting Philippine companies doing business abroad to respond to data protection laws and regulations.

3. Public Education. The Commission shall undertake necessary or appropriate efforts to inform and educate the public of data privacy, data protection, and fair information rights and responsibilities. This includes:

1. Publishing, on a regular basis, a guide to all laws relating to data protection;

2. Publishing a compilation of agency system of records and notices, including index and other finding aids;

3. Coordinating with other government agencies and the private sector on efforts to formulate and implement plans and policies to strengthen the protection of personal data in the country;

4. Compliance and Monitoring. The Commission shall perform compliance and monitoring functions to ensure effective implementation of the Act, these Rules, and other issuances. This includes:

   1. Ensuring compliance by personal information controllers with the provisions of the Act;

   2. Monitoring the compliance of all government agencies or instrumentalities as regards their security and technical measures, and recommending the necessary action in order to meet minimum standards for protection of personal data pursuant to the Act;

   3. Negotiating and contracting with other data privacy authorities of other countries for cross-border application and implementation of respective privacy laws;

   4. Generally performing such acts as may be necessary to facilitate cross-border enforcement of data privacy protection;

   5. Managing the registration of personal data processing systems in the country, including the personal data processing system of contractors and their employees entering into contracts with government agencies that involves accessing or requiring sensitive personal information of at least one thousand (1,000) individuals.

5. Complaints and Investigations. The Commission shall adjudicate on complaints and investigations on matters affecting personal data: Provided, that In resolving any complaint or investigation, except where amicable settlement is reached by the parties, the Commission shall act as a collegial body. This includes:

1. Receiving complaints and instituting investigations regarding violations of the Act, these Rules, and other issuances of the Commission, including violations of the rights of data subjects and other matters affecting personal data;

2. Summoning witnesses, and requiring the production of evidence by a subpoena duces tecum for the purpose of collecting the information necessary to perform its functions under the Act: Provided, that the Commission may be given access to personal data that is subject of any complaint;

3. Facilitating or enabling settlement of complaints through the use of alternative dispute resolution processes, and adjudicating on matters affecting any personal data;

4. Preparing reports on the disposition of complaints and the resolution of any investigation it initiates, and, in cases it deems appropriate, publicizing such reports;

6. Enforcement. The Commission shall perform all acts as may be necessary to effectively implement the Act, these Rules, and its other issuances, and to enforce its Orders, Resolutions or Decisions, including the imposition of administrative sanctions, fines, or penalties. This includes:

1. Issuing compliance or enforcement orders;

2. Awarding indemnity on matters affecting any personal data, or rights of data subjects;

3. Issuing cease and desist orders, or imposing a temporary or permanent ban on the processing of personal data, upon finding that the processing will be detrimental to national security or public interest, or if it is necessary to preserve and protect the rights of data subjects;

4. Recommending to the Department of Justice (DOJ) the prosecution of crimes and imposition of penalties specified in the Act;

5. Compelling or petitioning any entity, government agency, or instrumentality, to abide by its orders or take action on a matter affecting data privacy;
   

6. Imposing administrative fines for violations of the Act, these Rules, and other issuances of the Commission.

7. Other functions. The Commission shall exercise such other functions as may be necessary to fulfill its mandate under the Act.

Section 10. Administrative Issuances. The Commission shall publish or issue official directives and administrative issuances, orders, and circulars, which include:

1. Rules of procedure in the exercise of its quasi-judicial functions, subject to the suppletory application of the Rules of Court;

2. Schedule of administrative fines and penalties for violations of the Act, these Rules, and issuances or Orders of the Commission, including the applicable fees for its administrative services and filing fees;

3. Procedure for registration of data processing systems, and notification;

4. Other administrative issuances consistent with its mandate and other functions.

Section 11. Reports and Information. The Commission shall report annually to the President and Congress regarding its activities in carrying out the provisions of the Act, these Rules, and its other issuances. It shall undertake all efforts it deems necessary or appropriate to inform and educate the public of data privacy, data protection, and fair information rights and responsibilities.

Section 12. Confidentiality of Personal Data. Members, employees, and consultants of the Commission shall ensure at all times the confidentiality of any personal data that come to their knowledge and possession: Provided, that such duty of confidentiality shall remain even after their term, employment, or contract has ended.

Section 13. Organizational Structure. The Commission is attached to the Department of Information and Communications Technology for policy and program coordination in accordance with Section 38(3) of Executive Order No. 292, series of 1987, also known as the Administrative Code of 1987. The Commission shall remain completely independent in the performance of its functions.

The Commission shall be headed by a Privacy Commissioner, who shall act as Chairman of the Commission. The Privacy Commissioner must be at least thirty-five (35) years of age and of good moral character, unquestionable integrity and known probity, and a recognized expert in the field of information technology and data privacy. The Privacy Commissioner shall enjoy the benefits, privileges, and emoluments equivalent to the rank of Secretary.

The Privacy Commissioner shall be assisted by two (2) Deputy Privacy Commissioners. One shall be responsible for Data Processing Systems, while the other shall be responsible for Policies and Planning. The Deputy Privacy Commissioners must be recognized experts in the field of information and communications technology and data privacy. They shall enjoy the benefits, privileges, and emoluments equivalent to the rank of Undersecretary.

Section 14. Secretariat. The Commission is authorized to establish a Secretariat, which shall assist in the performance of its functions. The Secretariat shall be headed by an Executive Director and shall be organized according to the following offices:

1. Data Security and Compliance Office;

2. Legal and Enforcement Office;

3. Finance and Administrative Office;

4. Privacy Policy Office;

5. Public Information and Assistance Office.

Majority of the members of the Secretariat, in so far as practicable, must have served for at least five (5) years in any agency of the government that is involved in the processing of personal data including, but not limited to, the following offices: Social Security System (SSS), Government Service Insurance System (GSIS), Land Transportation Office (LTO), Bureau of Internal Revenue (BIR), Philippine Health Insurance Corporation (PhilHealth), Commission on Elections (COMELEC), Department of Foreign Affairs (DFA), Department of Justice (DOJ), and Philippine Postal Corporation (Philpost).

The organizational structure shall be subject to review and modification by the Commission, including the creation of new divisions and units it may deem necessary, and shall appoint officers and employees of the Commission in accordance with civil service law, rules, and regulations.

Section 15. Effect of Lawful Performance of Duty. The Privacy Commissioner, the Deputy Commissioners, or any person acting on their behalf or under their direction, shall not be civilly liable for acts done in good faith in the performance of their duties: Provided, that they shall be liable for willful or negligent acts, which are contrary to law, morals, public policy, and good customs, even if they acted under orders or instructions of superiors: Provided further, that in case a lawsuit is filed against them in relation to the performance of their duties, where such performance is lawful, he or she shall be reimbursed by the Commission for reasonable costs of litigation.

Section 16. Magna Carta for Science and Technology Personnel. Qualified employees of the Commission shall be covered by Republic Act No. 8349, which provides a magna carta for scientists, engineers, researchers, and other science and technology personnel in the government.

Rule IV. Data Privacy Principles

Section 17. General Data Privacy Principles. The processing of personal data shall be allowed, subject to compliance with the requirements of the Act and other laws allowing disclosure of information to the public, and adherence to the principles of transparency, legitimate purpose, and proportionality.

Section 18. Principles of Transparency, Legitimate Purpose and Proportionality. The processing of personal data shall be allowed subject to adherence to the principles of transparency, legitimate purpose, and proportionality.

1. Transparency. The data subject must be aware of the nature, purpose, and extent of the processing of his or her personal data, including the risks and safeguards involved, the identity of personal information controller, his or her rights as a data subject, and how these can be exercised. Any information and communication relating to the processing of personal data should be easy to access and understand, using clear and plain language.

2. Legitimate purpose. The processing of information shall be compatible with a declared and specified purpose which must not be contrary to law, morals, or public policy.

3. Proportionality. The processing of information shall be adequate, relevant, suitable, necessary, and not excessive in relation to a declared and specified purpose. Personal data shall be processed only if the purpose of the processing could not reasonably be fulfilled by other means.

Section 19. General principles in collection, processing and retention. The processing of personal data shall adhere to the following general principles in the collection, processing, and retention of personal data:

1. Collection must be for a declared, specified, and legitimate purpose.

1. Consent is required prior to the collection and processing of personal data, subject to exemptions provided by the Act and other applicable laws and regulations. When consent is required, it must be time-bound in relation to the declared, specified and legitimate purpose. Consent given may be withdrawn.

2. The data subject must be provided specific information regarding the purpose and extent of processing, including, where applicable, the automated processing of his or her personal data for profiling, or processing for direct marketing, and data sharing.

3. Purpose should be determined and declared before, or as soon as reasonably practicable, after collection.

4. Only personal data that is necessary and compatible with declared, specified, and legitimate purpose shall be collected.

2. Personal data shall be processed fairly and lawfully.

1. Processing shall uphold the rights of the data subject, including the right to refuse, withdraw consent, or object. It shall likewise be transparent, and allow the data subject sufficient information to know the nature and extent of processing.

2. Information provided to a data subject must always be in clear and plain language to ensure that they are easy to understand and access.

3. Processing must be in a manner compatible with declared, specified, and legitimate purpose.

4. Processed personal data should be adequate, relevant, and limited to what is necessary in relation to the purposes for which they are processed.

5. Processing shall be undertaken in a manner that ensures appropriate privacy and security safeguards.

3. Processing should ensure data quality.

1. Personal data should be accurate and where necessary for declared, specified and legitimate purpose, kept up to date.

2. Inaccurate or incomplete data must be rectified, supplemented, destroyed or their further processing restricted.

4. Personal Data shall not be retained longer than necessary.

1. Retention of personal data shall only for as long as necessary:

2. 
   (a)

3. 
   for the fulfillment of the declared, specified, and legitimate purpose, or when the processing relevant to the purpose has been terminated;

4. 
   (b)

5. 
   for the establishment, exercise or defense of legal claims; or

6. 
   (c)

7. 
   for legitimate business purposes, which must be consistent with standards followed by the applicable industry or approved by appropriate government agency.

2. 
   Retention of personal data shall be allowed in cases provided by law.

3. Personal data shall be disposed or discarded in a secure manner that would prevent further processing, unauthorized access, or disclosure to any other party or the public, or prejudice the interests of the data subjects.

5. Any authorized further processing shall have adequate safeguards.

1. Personal data originally collected for a declared, specified, or legitimate purpose may be processed further for historical, statistical, or scientific purposes, and, in cases laid down in law, may be stored for longer periods, subject to implementation of the appropriate organizational, physical, and technical security measures required by the Act in order to safeguard the rights and freedoms of the data subject.

2. Personal data which is aggregated or kept in a form which does not permit identification of data subjects may be kept longer than necessary for the declared, specified, and legitimate purpose.

3. Personal data shall not be retained in perpetuity in contemplation of a possible future use yet to be determined.

Section 20. General Principles for Data Sharing. Further Processing of Personal Data collected from a party other than the Data Subject shall be allowed under any of the following conditions:

1. Data sharing shall be allowed when it is expressly authorized by law: Provided, that there are adequate safeguards for data privacy and security, and processing adheres to principle of transparency, legitimate purpose and proportionality.

2. Data Sharing shall be allowed in the private sector if the data subject consents to data sharing, and the following conditions are complied with:

1. Consent for data sharing shall be required even when the data is to be shared with an affiliate or mother company, or similar relationships;

2. Data sharing for commercial purposes, including direct marketing, shall be covered by a data sharing agreement.

3. 
   (a)

4. 
   The data sharing agreement shall establish adequate safeguards for data privacy and security, and uphold rights of data subjects.

5. 
   (b)

6. 
   The data sharing agreement shall be subject to review by the Commission, on its own initiative or upon complaint of data subject;

3. 
   The data subject shall be provided with the following information prior to collection or before data is shared:

4. 
   (a)

5. 
   Identity of the personal information controllers or personal information processors that will be given access to the personal data;

6. 
   (b)

7. 
   Purpose of data sharing;

8. 
   (c)

9. 
   Categories of personal data concerned;

10. 
    (d)

11. 
    Intended recipients or categories of recipients of the personal data;

12. 
    (e)

13. 
    Existence of the rights of data subjects, including the right to access and correction, and the right to object;

14. 
    (f)

15. 
    Other information that would sufficiently notify the data subject of the nature and extent of data sharing and the manner of processing.

4. 
   Further processing of shared data shall adhere to the data privacy principles laid down in the Act, these Rules, and other issuances of the Commission.

3. Data collected from parties other than the data subject for purpose of research shall be allowed when the personal data is publicly available, or has the consent of the data subject for purpose of research: Provided, that adequate safeguards are in place, and no decision directly affecting the data subject shall be made on the basis of the data collected or processed. The rights of the data subject shall be upheld without compromising research integrity.

4. Data sharing between government agencies for the purpose of a public function or provision of a public service shall be covered by a data sharing agreement.

1. Any or all government agencies party to the agreement shall comply with the Act, these Rules, and all other issuances of the Commission, including putting in place adequate safeguards for data privacy and security.

2. The data sharing agreement shall be subject to review of the Commission, on its own initiative or upon complaint of data subject.

Rule V. Lawful Processing of Personal Data

Section 21. Criteria for Lawful Processing of Personal Information. Processing of personal information is allowed, unless prohibited by law. For processing to be lawful, any of the following conditions must be complied with:

1. The data subject must have given his or her consent prior to the collection, or as soon as practicable and reasonable;

2. The processing involves the personal information of a data subject who is a party to a contractual agreement, in order to fulfill obligations under the contract or to take steps at the request of the data subject prior to entering the said agreement;

3. The processing is necessary for compliance with a legal obligation to which the personal information controller is subject;

4. The processing is necessary to protect vitally important interests of the data subject, including his or her life and health;

5. The processing of personal information is necessary to respond to national emergency or to comply with the requirements of public order and safety, as prescribed by law;

6. The processing of personal information is necessary for the fulfillment of the constitutional or statutory mandate of a public authority; or

7. The processing is necessary to pursue the legitimate interests of the personal information controller, or by a third party or parties to whom the data is disclosed, except where such interests are overridden by fundamental rights and freedoms of the data subject, which require protection under the Philippine Constitution.

Section 22. Sensitive Personal Information and Privileged Information. The processing of sensitive personal and privileged information is prohibited, except in any of the following cases:

1. Consent is given by data subject, or by the parties to the exchange of privileged information, prior to the processing of the sensitive personal information or privileged information, which shall be undertaken pursuant to a declared, specified, and legitimate purpose;

2. The processing of the sensitive personal information or privileged information is provided for by existing laws and regulations: Provided, that said laws and regulations do not require the consent of the data subject for the processing, and guarantee the protection of personal data;

3. The processing is necessary to protect the life and health of the data subject or another person, and the data subject is not legally or physically able to express his or her consent prior to the processing;

4. The processing is necessary to achieve the lawful and noncommercial objectives of public organizations and their associations provided that:

1. Processing is confined and related to the bona fide members of these organizations or their associations;

2. The sensitive personal information are not transferred to third parties; and

3. Consent of the data subject was obtained prior to processing;

5. The processing is necessary for the purpose of medical treatment: Provided, that it is carried out by a medical practitioner or a medical treatment institution, and an adequate level of protection of personal data is ensured; or

6. The processing concerns sensitive personal information or privileged information necessary for the protection of lawful rights and interests of natural or legal persons in court proceedings, or the establishment, exercise, or defense of legal claims, or when provided to government or public authority pursuant to a constitutional or statutory mandate.

Section 23. Extension of Privileged Communication. Personal information controllers may invoke the principle of privileged communication over privileged information that they lawfully control or process. Subject to existing laws and regulations, any evidence gathered from privileged information is inadmissible.

When the Commission inquires upon communication claimed to be privileged, the personal information controller concerned shall prove the nature of the communication in an executive session. Should the communication be determined as privileged, it shall be excluded from evidence, and the contents thereof shall not form part of the records of the case: Provided, that where the privileged communication itself is the subject of a breach, or a privacy concern or investigation, it may be disclosed to the Commission but only to the extent necessary for the purpose of investigation, without including the contents thereof in the records.

Section 24. Surveillance of Suspects and Interception of Recording of Communications. Section 7 of Republic Act No. 9372, otherwise known as the "Human Security Act of 2007”, is hereby amended to include the condition that the processing of personal data for the purpose of surveillance, interception, or recording of communications shall comply with the Data Privacy Act, including adherence to the principles of transparency, proportionality, and legitimate purpose.

Rule VI. Security Measures for the Protection of Personal Data

Section 25. Data Privacy and Security. Personal information controllers and personal information processors shall implement reasonable and appropriate organizational, physical, and technical security measures for the protection of personal data.

The personal information controller and personal information processor shall take steps to ensure that any natural person acting under their authority and who has access to personal data, does not process them except upon their instructions, or as required by law.

The security measures shall aim to maintain the availability, integrity, and confidentiality of personal data and are intended for the protection of personal data against any accidental or unlawful destruction, alteration, and disclosure, as well as against any other unlawful processing. These measures shall be implemented to protect personal data against natural dangers such as accidental loss or destruction, and human dangers such as unlawful access, fraudulent misuse, unlawful destruction, alteration and contamination.

Section 26. Organizational Security Measures. Where appropriate, personal information controllers and personal information processors shall comply with the following guidelines for organizational security:

1. Compliance Officers. Any natural or juridical person or other body involved in the processing of personal data shall designate an individual or individuals who shall function as data protection officer, compliance officer or otherwise be accountable for ensuring compliance with applicable laws and regulations for the protection of data privacy and security.

2. Data Protection Policies. Any natural or juridical person or other body involved in the processing of personal data shall implement appropriate data protection policies that provide for organization, physical, and technical security measures, and, for such purpose, take into account the nature, scope, context and purposes of the processing, as well as the risks posed to the rights and freedoms of data subjects.

1. The policies shall implement data protection principles both at the time of the determination of the means for processing and at the time of the processing itself.

2. The policies shall implement appropriate security measures that, by default, ensure only personal data which is necessary for the specified purpose of the processing are processed. They shall determine the amount of personal data collected, including the extent of processing involved, the period of their storage, and their accessibility.

3. The polices shall provide for documentation, regular review, evaluation, and updating of the privacy and security policies and practices.

3. Records of Processing Activities. Any natural or juridical person or other body involved in the processing of personal data shall maintain records that sufficiently describe its data processing system, and identify the duties and responsibilities of those individuals who will have access to personal data. Records should include:

1. Information about the purpose of the processing of personal data, including any intended future processing or data sharing;

2. A description of all categories of data subjects, personal data, and recipients of such personal data that will be involved in the processing;

3. General information about the data flow within the organization, from the time of collection, processing, and retention, including the time limits for disposal or erasure of personal data;

4. A general description of the organizational, physical, and technical security measures in place;

5. The name and contact details of the personal information controller and, where applicable, the joint controller, the its representative, and the compliance officer or Data Protection Officer, or any other individual or individuals accountable for ensuring compliance with the applicable laws and regulations for the protection of data privacy and security.

4. Management of Human Resources. Any natural or juridical person or other entity involved in the processing of personal data shall be responsible for selecting and supervising its employees, agents, or representatives, particularly those who will have access to personal data.
   The said employees, agents, or representatives shall operate and hold personal data under strict confidentiality if the personal data are not intended for public disclosure. This obligation shall continue even after leaving the public service, transferring to another position, or upon terminating their employment or contractual relations. There shall be capacity building, orientation or training programs for such employees, agents or representatives, regarding privacy or security policies.

5. Processing of Personal Data. Any natural or juridical person or other body involved in the processing of personal data shall develop, implement and review:

1. A procedure for the collection of personal data, including procedures for obtaining consent, when applicable;

2. Procedures that limit the processing of data, to ensure that it is only to the extent necessary for the declared, specified, and legitimate purpose;

3. Policies for access management, system monitoring, and protocols to follow during security incidents or technical problems;

4. Policies and procedures for data subjects to exercise their rights under the Act;

5. Data retention schedule, including timeline or conditions for erasure or disposal of records.

6. Contracts with Personal Information Processors. The personal information controller, through appropriate contractual agreements, shall ensure that its personal information processors, where applicable, shall also implement the security measures required by the Act and these Rules. It shall only engage those personal information processors that provide sufficient guarantees to implement appropriate security measures specified in the Act and these Rules, and ensure the protection of the rights of the data subject.

Section 27. Physical Security Measures. Where appropriate, personal information controllers and personal information processors shall comply with the following guidelines for physical security:

1. Policies and procedures shall be implemented to monitor and limit access to and activities in the room, workstation or facility, including guidelines that specify the proper use of and access to electronic media;

2. Design of office space and work stations, including the physical arrangement of furniture and equipment, shall provide privacy to anyone processing personal data, taking into consideration the environment and accessibility to the public;

3. The duties, responsibilities and schedule of individuals involved in the processing of personal data shall be clearly defined to ensure that only the individuals actually performing official duties shall be in the room or work station, at any given time;

4. Any natural or juridical person or other body involved in the processing of personal data shall implement Policies and procedures regarding the transfer, removal, disposal, and reuse of electronic media, to ensure appropriate protection of personal data;

5. Policies and procedures that prevent the mechanical destruction of files and equipment shall be established. The room and workstation used in the processing of personal data shall, as far as practicable, be secured against natural disasters, power disturbances, external access, and other similar threats.

Section 28. Guidelines for Technical Security Measures. Where appropriate, personal information controllers and personal information processors shall adopt and establish the following technical security measures:

1. A security policy with respect to the processing of personal data;

2. Safeguards to protect their computer network against accidental, unlawful or unauthorized usage, any interference which will affect data integrity or hinder the functioning or availability of the system, and unauthorized access through an electronic network;

3. The ability to ensure and maintain the confidentiality, integrity, availability, and resilience of their processing systems and services;

4. Regular monitoring for security breaches, and a process both for identifying and accessing reasonably foreseeable vulnerabilities in their computer networks, and for taking preventive, corrective, and mitigating action against security incidents that can lead to a personal data breach;

5. The ability to restore the availability and access to personal data in a timely manner in the event of a physical or technical incident;

6. A process for regularly testing, assessing, and evaluating the effectiveness of security measures;

7. Encryption of personal data during storage and while in transit, authentication process, and other technical security measures that control and limit access.

Section 29. Appropriate Level of Security. The Commission shall monitor the compliance of natural or juridical person or other body involved in the processing of personal data, specifically their security measures, with the guidelines provided in these Rules and subsequent issuances of the Commission. In determining the level of security appropriate for a particular personal information controller or personal information processor, the Commission shall take into account the nature of the personal data that requires protection, the risks posed by the processing, the size of the organization and complexity of its operations, current data privacy best practices, and the cost of security implementation. The security measures provided herein shall be subject to regular review and evaluation, and may be updated as necessary by the Commission in separate issuances, taking into account the most appropriate standard recognized by the information and communications technology industry and data privacy best practices.

Rule VII. Security of Sensitive Personal Information in Government

Section 30. Responsibility of Heads of Agencies. All sensitive personal information maintained by the government, its agencies, and instrumentalities shall be secured, as far as practicable, with the use of the most appropriate standard recognized by the information and communications technology industry, subject to these Rules and other issuances of the Commission. The head of each government agency or instrumentality shall be responsible for complying with the security requirements mentioned herein. The Commission shall monitor government agency compliance and may recommend the necessary action in order to satisfy the minimum standards.

Section 31. Requirements Relating to Access by Agency Personnel to Sensitive Personal Information.

1. On-site and Online Access.

1. No employee of the government shall have access to sensitive personal information on government property or through online facilities unless he or she the employee has received a security clearance from the head of the source agency. The source agency is the government agency who originally collected the personal data.

2. A source agency shall strictly regulate access to sensitive personal information under its custody or control, particularly when it allows online access. An employee of the government shall only be granted a security clearance when the performance of his or her official functions or the provision of a public service directly depends on and cannot otherwise be performed unless access to the personal data is allowed.

3. Where allowed under the next preceding sections, online access to sensitive personal information shall be subject to the following conditions:

4. 
   (a)

5. 
   An information technology governance framework has been designed and implemented;

6. 
   (b)

7. 
   Sufficient organizational, physical and technical security measures have been established;

8. 
   (c)

9. 
   The agency is capable of protecting sensitive personal information in accordance with data privacy practices and standards recognized by the information and communication technology industry;

10. 
    (d)

11. 
    The employee of the government is only given online access to sensitive personal information necessary for the performance of official functions or the provision of a public service.

4. 
   Off-site access.

5. Sensitive personal information maintained by an agency may not be transported or accessed from a location off or outside of government property, whether by its agent or employee, unless the head of agency has ensured the implementation of privacy policies and appropriate security measures. A request for such transportation or access shall be submitted to and approved by the head of agency. The request must include proper accountability mechanisms in the processing of data.

6. The head of agency shall approve requests for off-site access in accordance with the following guidelines:

7. 
   (a)

8. 
   Deadline for Approval or Disapproval. The head of agency shall approve or disapprove the request within two (2) business days after the date of submission of the request. Where no action is taken by the head of agency, the request is considered disapproved;

9. 
   (b)

10. 
    Limitation to One thousand (1,000) Records. Where a request is approved, the head of agency shall limit the access to not more than one thousand (1,000) records at a time, subject to the next succeeding paragraph.

11. 
    (c)

12. 
    Encryption. Any technology used to store, transport or access sensitive personal information for purposes of off-site access approved under this subsection shall be secured by the use of the most secure encryption standard recognized by the Commission.

Section 32. Implementation of Security Requirements. Notwithstanding the effective date of these Rules, the requirements in the preceding sections shall be implemented before any off-site or online access request is approved. Any data sharing agreement between a source agency and another government agency shall be subject to review of the Commission on its own initiative or upon complaint of data subject.

Section 33. Applicability to Government Contractors. In entering into any contract with a private service provider that may involve accessing or requiring sensitive personal information from one thousand (1,000) or more individuals, a government agency shall require such service provider and its employees to register their personal data processing system with the Commission in accordance with the Act and these Rules. The service provider, as personal information processor, shall comply with the other provisions of the Act and these Rules, particularly the immediately preceding sections, similar to a government agency and its employees.

Rule VIII. Rights of Data Subjects

Section 34. Rights of the Data Subject. The data subject is entitled to the following rights:

1. Right to be informed.

1. The data subject has a right to be informed whether personal data pertaining to him or her shall be, are being, or have been processed, including the existence of automated decision-making and profiling.

2. The data subject shall be notified and furnished with information indicated hereunder before the entry of his or her personal data into the processing system of the personal information controller, or at the next practical opportunity:

3. 
   (a)

4. 
   Description of the personal data to be entered into the system;

5. 
   (b)

6. 
   Purposes for which they are being or will be processed, including processing for direct marketing, profiling or historical, statistical or scientific purpose;

7. 
   (c)

8. 
   Basis of processing, when processing is not based on the consent of the data subject;

9. 
   (d)

10. 
    Scope and method of the personal data processing;

11. 
    (e)

12. 
    The recipients or classes of recipients to whom the personal data are or may be disclosed;

13. 
    (f)

14. 
    Methods utilized for automated access, if the same is allowed by the data subject, and the extent to which such access is authorized, including meaningful information about the logic involved, as well as the significance and the envisaged consequences of such processing for the data subject;

15. 
    (g)

16. 
    The identity and contact details of the personal data controller or its representative;

17. 
    (h)

18. 
    The period for which the information will be stored; and

19. 
    (i)

20. 
    The existence of their rights as data subjects, including the right to access, correction, and object to the processing, as well as the right to lodge a complaint before the Commission.

3. 
   Right to object. The data subject shall have the right to object to the processing of his or her personal data, including processing for direct marketing, automated processing or profiling. The data subject shall also be notified and given an opportunity to withhold consent to the processing in case of changes or any amendment to the information supplied or declared to the data subject in the preceding paragraph.
   When a data subject objects or withholds consent, the personal information controller shall no longer process the personal data, unless:

1. The personal data is needed pursuant to a subpoena;

2. The collection and processing are for obvious purposes, including, when it is necessary for the performance of or in relation to a contract or service to which the data subject is a party, or when necessary or desirable in the context of an employer-employee relationship between the collector and the data subject; or

3. The information is being collected and processed as a result of a legal obligation.

4. Right to Access. The data subject has the right to reasonable access to, upon demand, the following:

1. Contents of his or her personal data that were processed;

2. Sources from which personal data were obtained;

3. Names and addresses of recipients of the personal data;

4. Manner by which such data were processed;

5. Reasons for the disclosure of the personal data to recipients, if any;

6. Information on automated processes where the data will, or is likely to, be made as the sole basis for any decision that significantly affects or will affect the data subject;

7. Date when his or her personal data concerning the data subject were last accessed and modified; and

8. The designation, name or identity, and address of the personal information controller.

5. Right to rectification. The data subject has the right to dispute the inaccuracy or error in the personal data and have the personal information controller correct it immediately and accordingly, unless the request is vexatious or otherwise unreasonable. If the personal data has been corrected, the personal information controller shall ensure the accessibility of both the new and the retracted information and the simultaneous receipt of the new and the retracted information by the intended recipients thereof: Provided, That recipients or third parties who have previously received such processed personal data shall be informed of its inaccuracy and its rectification, upon reasonable request of the data subject.

6. Right to Erasure or Blocking. The data subject shall have the right to suspend, withdraw or order the blocking, removal or destruction of his or her personal data from the personal information controller’s filing system.

1. This right may be exercised upon discovery and substantial proof of any of the following:

2. 
   (a)

3. 
   The personal data is incomplete, outdated, false, or unlawfully obtained;

4. 
   (b)

5. 
   The personal data is being used for purpose not authorized by the data subject;

6. 
   (c)

7. 
   The personal data is no longer necessary for the purposes for which they were collected;

8. 
   (d)

9. 
   The data subject withdraws consent or objects to the processing, and there is no other legal ground or overriding legitimate interest for the processing;

10. 
    (e)

11. 
    The personal data concerns private information that is prejudicial to data subject, unless justified by freedom of speech, of expression, or of the press or otherwise authorized;

12. 
    (f)

13. 
    The processing is unlawful;

14. 
    (g)

15. 
    The personal information controller or personal information processor violated the rights of the data subject.

2. 
   The personal information controller may notify third parties who have previously received such processed personal information.

7. Right to damages. The data subject shall be indemnified for any damages sustained due to such inaccurate, incomplete, outdated, false, unlawfully obtained or unauthorized use of personal data, taking into account any violation of his or her rights and freedoms as data subject.

Section 35. Transmissibility of Rights of the Data Subject. The lawful heirs and assigns of the data subject may invoke the rights of the data subject to which he or she is an heir or an assignee, at any time after the death of the data subject, or when the data subject is incapacitated or incapable of exercising the rights as enumerated in the immediately preceding section.

Section 36. Right to Data Portability. Where his or her personal data is processed by electronic means and in a structured and commonly used format, the data subject shall have the right to obtain from the personal information controller a copy of such data in an electronic or structured format that is commonly used and allows for further use by the data subject. The exercise of this right shall primarily take into account the right of data subject to have control over his or her personal data being processed based on consent or contract, for commercial purpose, or through automated means. The Commission may specify the electronic format referred to above, as well as the technical standards, modalities, procedures and other rules for their transfer.

Section 37. Limitation on Rights. The immediately preceding sections shall not be applicable if the processed personal data are used only for the needs of scientific and statistical research and, on the basis of such, no activities are carried out and no decisions are taken regarding the data subject: Provided, that the personal data shall be held under strict confidentiality and shall be used only for the declared purpose. The said sections are also not applicable to the processing of personal data gathered for the purpose of investigations in relation to any criminal, administrative or tax liabilities of a data subject. Any limitations on the rights of the data subject shall only be to the minimum extent necessary to achieve the purpose of said research or investigation.

Rule IX. Data Breach Notification

Section 38. Data Breach Notification.

1. The Commission and affected data subjects shall be notified by the personal information controller within seventy-two (72) hours upon knowledge of, or when there is reasonable belief by the personal information controller or personal information processor that, a personal data breach requiring notification has occurred.

2. Notification of personal data breach shall be required when sensitive personal information or any other information that may, under the circumstances, be used to enable identity fraud are reasonably believed to have been acquired by an unauthorized person, and the personal information controller or the Commission believes that such unauthorized acquisition is likely to give rise to a real risk of serious harm to any affected data subject.

3. Depending on the nature of the incident, or if there is delay or failure to notify, the Commission may investigate the circumstances surrounding the personal data breach. Investigations may include on-site examination of systems and procedures.

Section 39. Contents of Notification. The notification shall at least describe the nature of the breach, the personal data possibly involved, and the measures taken by the entity to address the breach. The notification shall also include measures taken to reduce the harm or negative consequences of the breach, the representatives of the personal information controller, including their contact details, from whom the data subject can obtain additional information about the breach, and any assistance to be provided to the affected data subjects.

Section 40. Delay of Notification. Notification may be delayed only to the extent necessary to determine the scope of the breach, to prevent further disclosures, or to restore reasonable integrity to the information and communications system.

1. In evaluating if notification is unwarranted, the Commission may take into account compliance by the personal information controller with this section and existence of good faith in the acquisition of personal data.

2. The Commission may exempt a personal information controller from notification where, in its reasonable judgment, such notification would not be in the public interest, or in the interest of the affected data subjects.

3. The Commission may authorize postponement of notification where it may hinder the progress of a criminal investigation related to a serious breach.

Section 41. Breach Report.

1. The personal information controller shall notify the Commission by submitting a report, whether written or electronic, containing the required contents of notification. The report shall also include the name of a designated representative of the personal information controller, and his or her contact details.

2. All security incidents and personal data breaches shall be documented through written reports, including those not covered by the notification requirements. In the case of personal data breaches, a report shall include the facts surrounding an incident, the effects of such incident, and the remedial actions taken by the personal information controller. In other security incidents not involving personal data, a report containing aggregated data shall constitute sufficient documentation. These reports shall be made available when requested by the Commission. A general summary of the reports shall be submitted to the Commission annually.

Section 42. Procedure for Notification. The Procedure for breach notification shall be in accordance with the Act, these Rules, and any other issuance of the Commission.

Rule X. Outsourcing and Subcontracting Agreements

Section 43. Subcontract of Personal Data. A personal information controller may subcontract or outsource the processing of personal data: Provided, that the personal information controller shall use contractual or other reasonable means to ensure that proper safeguards are in place, to ensure the confidentiality, integrity and availability of the personal data processed, prevent its use for unauthorized purposes, and generally, comply with the requirements of the Act, these Rules, other applicable laws for processing of personal data, and other issuances of the Commission.

Section 44. Agreements for Outsourcing. Processing by a personal information processor shall be governed by a contract or other legal act that binds the personal information processor to the personal information controller.

1. The contract or legal act shall set out the subject-matter and duration of the processing, the nature and purpose of the processing, the type of personal data and categories of data subjects, the obligations and rights of the personal information controller, and the geographic location of the processing under the subcontracting agreement.

2. The contract or other legal act shall stipulate, in particular, that the personal information processor shall:

1. Process the personal data only upon the documented instructions of the personal information controller, including transfers of personal data to another country or an international organization, unless such transfer is authorized by law;

2. Ensure that an obligation of confidentiality is imposed on persons authorized to process the personal data;

3. Implement appropriate security measures and comply with the Act, these Rules, and other issuances of the Commission;

4. Not engage another processor without prior instruction from the personal information controller: Provided, that any such arrangement shall ensure that the same obligations for data protection under the contract or legal act are implemented, taking into account the nature of the processing;

5. Assist the personal information controller, by appropriate technical and organizational measures and to the extent possible, fulfill the obligation to respond to requests by data subjects relative to the exercise of their rights;

6. Assist the personal information controller in ensuring compliance with the Act, these Rules, other relevant laws, and other issuances of the Commission, taking into account the nature of processing and the information available to the personal information processor;

7. At the choice of the personal information controller, delete or return all personal data to the personal information controller after the end of the provision of services relating to the processing: Provided, that this includes deleting existing copies unless storage is authorized by the Act or another law;

8. Make available to the personal information controller all information necessary to demonstrate compliance with the obligations laid down in the Act, and allow for and contribute to audits, including inspections, conducted by the personal information controller or another auditor mandated by the latter;

9. Immediately inform the personal information controller if, in its opinion, an instruction infringes the Act, these Rules, or any other issuance of the Commission.

Section 45. Duty of personal information processor. The personal information processor shall comply with the requirements of the Act, these Rules, other applicable laws, and other issuances of the Commission, in addition to obligations provided in a contract, or other legal act with a personal information controller.

Rule XI. Registration and Compliance Requirements

Section 46. Enforcement of the Data Privacy Act. Pursuant to the mandate of the Commission to administer and implement the Act, and to ensure the compliance of personal information controllers with its obligations under the law, the Commission requires the following:

1. Registration of personal data processing systems operating in the country that involves accessing or requiring sensitive personal information of at least one thousand (1,000) individuals, including the personal data processing system of contractors, and their personnel, entering into contracts with government agencies;

2. Notification of automated processing operations where the processing becomes the sole basis of making decisions that would significantly affect the data subject;

3. Annual report of the summary of documented security incidents and personal data breaches;

4. Compliance with other requirements that may be provided in other issuances of the Commission.

Section 47. Registration of Personal Data Processing Systems. The personal information controller or personal information processor that employs fewer than two hundred fifty (250) persons shall not be required to register unless the processing it carries out is likely to pose a risk to the rights and freedoms of data subjects, the processing is not occasional, or the processing includes sensitive personal information of at least one thousand (1,000) individuals.

1. The contents of registration shall include:

1. The name and address of the personal information controller or personal information processor, and of its representative, if any, including their contact details;

2. The purpose or purposes of the processing, and whether processing is being done under an outsourcing or subcontracting agreement;

3. A description of the category or categories of data subjects, and of the data or categories of data relating to them;

4. The recipients or categories of recipients to whom the data might be disclosed;

5. Proposed transfers of personal data outside the Philippines;

6. A general description of privacy and security measures for data protection;

7. Brief description of the data processing system;

8. Copy of all policies relating to data governance, data privacy, and information security;

9. Attestation to all certifications attained that are related to information and communications processing; and

10. Name and contact details of the compliance or data protection officer, which shall immediately be updated in case of changes.

2. The procedure for registration shall be in accordance with these Rules and other issuances of the Commission.

Section 48. Notification of Automated Processing Operations. The personal information controller carrying out any wholly or partly automated processing operations or set of such operations intended to serve a single purpose or several related purposes shall notify the Commission when the automated processing becomes the sole basis for making decisions about a data subject, and when the decision would significantly affect the data subject.

1. The notification shall include the following information:

1. Purpose of processing;

2. Categories of personal data to undergo processing;

3. Category or categories of data subject;

4. Consent forms or manner of obtaining consent;

5. The recipients or categories of recipients to whom the data are to be disclosed;

6. The length of time the data are to be stored;

7. Methods and logic utilized for automated processing;

8. Decisions relating to the data subject that would be made on the basis of processed data or that would significantly affect the rights and freedoms of data subject; and

9. Names and contact details of the compliance or data protection officer.

2. No decision with legal effects concerning a data subject shall be made solely on the basis of automated processing without the consent of the data subject.

Section 49. Review by the Commission. The following are subject to the review of the Commission, upon its own initiative or upon the filing of a complaint by a data subject:

1. Compliance by a personal information controller or personal information processor with the Act, these Rules, and other issuances of the Commission;

2. Compliance by a personal information controller or personal information processor with the requirement of establishing adequate safeguards for data privacy and security;

3. Any data sharing agreement, outsourcing contract, and similar contracts involving the processing of personal data, and its implementation;

4. Any off-site or online access to sensitive personal data in government allowed by a head of agency;

5. Processing of personal data for research purposes, public functions, or commercial activities;

6. Any reported violation of the rights and freedoms of data subjects;

7. Other matters necessary to ensure the effective implementation and administration of the Act, these Rules, and other issuances of the Commission.

Rule XII. Rules on Accountability

Section 50. Accountability for Transfer of Personal Data. A personal information controller shall be responsible for any personal data under its control or custody, including information that have been outsourced or transferred to a personal information processor or a third party for processing, whether domestically or internationally, subject to cross-border arrangement and cooperation.

1. A personal information controller shall be accountable for complying with the requirements of the Act, these Rules, and other issuances of the Commission. It shall use contractual or other reasonable means to provide a comparable level of protection to the personal data while it is being processed by a personal information processor or third party.

2. A personal information controller shall designate an individual or individuals who are accountable for its compliance with the Act. The identity of the individual or individuals so designated shall be made known to a data subject upon request.

Section 51. Accountability for Violation of the Act, these Rules and Other Issuances of the Commission.

1. Any natural or juridical person, or other body involved in the processing of personal data, who fails to comply with the Act, these Rules, and other issuances of the Commission, shall be liable for such violation, and shall be subject to its corresponding sanction, penalty, or fine, without prejudice to any civil or criminal liability, as may be applicable.

2. In cases where a data subject files a complaint for violation of his or her rights as data subject, and for any injury suffered as a result of the processing of his or her personal data, the Commission may award indemnity on the basis of the applicable provisions of the New Civil Code.

3. In case of criminal acts and their corresponding personal penalties, the person who committed the unlawful act or omission shall be recommended for prosecution by the Commission based on substantial evidence. If the offender is a corporation, partnership, or any juridical person, the responsible officers, as the case may be, who participated in, or by their gross negligence, allowed the commission of the crime, shall be recommended for prosecution by the Commission based on substantial evidence.

Rule XIII. Penalties

Section 52. Unauthorized Processing of Personal Information and Sensitive Personal Information.

1. A penalty of imprisonment ranging from one (1) year to three (3) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00) shall be imposed on persons who process personal information without the consent of the data subject, or without being authorized under the Act or any existing law.

2. A penalty of imprisonment ranging from three (3) years to six (6) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Four million pesos (Php4,000,000.00) shall be imposed on persons who process sensitive personal information without the consent of the data subject, or without being authorized under the Act or any existing law.

Section 53. Accessing Personal Information and Sensitive Personal Information Due to Negligence.

1. A penalty of imprisonment ranging from one (1) year to three (3) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00) shall be imposed on persons who, due to negligence, provided access to personal information without being authorized under the Act or any existing law.

2. A penalty of imprisonment ranging from three (3) years to six (6) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Four million pesos (Php4,000,000.00) shall be imposed on persons who, due to negligence, provided access to sensitive personal information without being authorized under the Act or any existing law.

Section 54. Improper Disposal of Personal Information and Sensitive Personal Information.

1. A penalty of imprisonment ranging from six (6) months to two (2) years and a fine of not less than One hundred thousand pesos (Php100,000.00) but not more than Five hundred thousand pesos (Php500,000.00) shall be imposed on persons who knowingly or negligently dispose, discard, or abandon the personal information of an individual in an area accessible to the public or has otherwise placed the personal information of an individual in its container for trash collection.

2. A penalty of imprisonment ranging from one (1) year to three (3) years and a fine of not less than One hundred thousand pesos (Php100,000.00) but not more than One million pesos (Php1,000,000.00) shall be imposed on persons who knowingly or negligently dispose, discard or abandon the sensitive personal information of an individual in an area accessible to the public or has otherwise placed the sensitive personal information of an individual in its container for trash collection.

Section 55. Processing of Personal Information and Sensitive Personal Information for Unauthorized Purposes.

1. A penalty of imprisonment ranging from one (1) year and six (6) months to five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00) shall be imposed on persons processing personal information for purposes not authorized by the data subject, or otherwise authorized under the Act or under existing laws.

2. A penalty of imprisonment ranging from two (2) years to seven (7) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00) shall be imposed on persons processing sensitive personal information for purposes not authorized by the data subject, or otherwise authorized under the Act or under existing laws.

Section 56. Unauthorized Access or Intentional Breach. A penalty of imprisonment ranging from one (1) year to three (3) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00) shall be imposed on persons who knowingly and unlawfully, or violating data confidentiality and security data systems, breaks in any way into any system where personal and sensitive personal information are stored.

Section 57. Concealment of Security Breaches Involving Sensitive Personal Information. A penalty of imprisonment ranging from one (1) year and six (6) months to five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00) shall be imposed on persons who, after having knowledge of a security breach and of the obligation to notify the Commission pursuant to Section 20(f) of the Act, intentionally or by omission conceals the fact of such security breach.

Section 58. Malicious Disclosure. Any personal information controller or personal information processor, or any of its officials, employees or agents, who, with malice or in bad faith, discloses unwarranted or false information relative to any personal information or sensitive personal information obtained by him or her, shall be subject to imprisonment ranging from one (1) year and six (6) months to five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00).

Section 59. Unauthorized Disclosure.

1. Any personal information controller or personal information processor, or any of its officials, employees, or agents, who discloses to a third party personal information not covered by the immediately preceding section without the consent of the data subject, shall be subject to imprisonment ranging from one (1) year to three (3) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than One million pesos (Php1,000,000.00).

2. Any personal information controller or personal information processor, or any of its officials, employees or agents, who discloses to a third party sensitive personal information not covered by the immediately preceding section without the consent of the data subject, shall be subject to imprisonment ranging from three (3) years to five (5) years and a fine of not less than Five hundred thousand pesos (Php500,000.00) but not more than Two million pesos (Php2,000,000.00).

Section 60. Combination or Series of Acts. Any combination or series of acts as defined in Sections 52 to 59 shall make the person subject to imprisonment ranging from three (3) years to six (6) years and a fine of not less than One million pesos (Php1,000,000.00) but not more than Five million pesos (Php5,000,000.00).

Section 61. Extent of Liability. If the offender is a corporation, partnership or any juridical person, the penalty shall be imposed upon the responsible officers, as the case may be, who participated in, or by their gross negligence, allowed the commission of the crime. Where applicable, the court may also suspend or revoke any of its rights under this Act.

If the offender is an alien, he or she shall, in addition to the penalties herein prescribed, be deported without further proceedings after serving the penalties prescribed.

If the offender is a public official or employee and he or she is found guilty of acts penalized under Sections 54 and 55 of these Rules, he or she shall, in addition to the penalties prescribed herein, suffer perpetual or temporary absolute disqualification from office, as the case may be.

Section 62. Large-Scale. The maximum penalty in the corresponding scale of penalties provided for the preceding offenses shall be imposed when the personal data of at least one hundred (100) persons are harmed, affected, or involved, as the result of any of the above-mentioned offenses.

Section 63. Offense Committed by Public Officer. When the offender or the person responsible for the offense is a public officer, as defined in the Administrative Code of 1987, in the exercise of his or her duties, he or she shall likewise suffer an accessory penalty consisting of disqualification to occupy public office for a term double the term of the criminal penalty imposed.

Section 64. Restitution. Pursuant to the exercise of its quasi-judicial functions, the Commission shall award indemnity to an aggrieved party on the basis of the provisions of the New Civil Code. Any complaint filed by a data subject shall be subject to the payment of filing fees, unless the data subject is an indigent.

Section 65. Fines and Penalties. Violations of the Act, these Rules, other issuances and orders of the Commission, shall, upon notice and hearing, be subject to compliance and enforcement orders, cease and desist orders, temporary or permanent ban on the processing of personal data, or payment of fines, in accordance with a schedule to be published by the Commission.

Rule XIV. Miscellaneous Provisions

Section 66. Appeal. Appeal from final decisions of the Commission shall be made to the proper courts in accordance with the Rules of Court, or as may be prescribed by law.

Section 67. Period for Compliance. Any natural or juridical person or other body involved in the processing of personal data shall comply with the personal data processing principles and standards of personal data privacy and security already laid out in the Act.

Personal information controllers and Personal Information processors shall register with the Commission their data processing systems or automated processing operations, subject to notification, within one (1) year after the effectivity of these Rules. Any subsequent issuance of the Commission, including those that implement specific standards for data portability, encryption, or other security measures shall provide the period for its compliance.

For a period of one (1) year from the effectivity of these Rules, a personal information controller or personal information processor may apply for an extension of the period within which to comply with the issuances of the Commission. The Commission may grant such request for good cause shown.

Section 68. Appropriations Clause. The Commission shall be provided with appropriations for the performance of its functions which shall be included in the General Appropriations Act.

Section 69. Interpretation. Any doubt in the interpretation of any provision of this Act shall be liberally interpreted in a manner that would uphold the rights and interests of the individual about whom personal data is processed.

Section 70. Separability Clause. If any provision or part hereof is held invalid or unconstitutional, the remainder of these Rules or the provision not otherwise affected shall remain valid and subsisting.

Section 71. Repealing Clause. Except as otherwise expressly provided in the Act or these Rules, all other laws, decrees, executive orders, proclamations and administrative regulations or parts thereof inconsistent herewith are hereby repealed or modified accordingly.

Section 72. Effectivity Clause. These Rules shall take effect fifteen (15) days after its publication in the Official Gazette.

July 18, 2010

AN ACT PROVIDING FOR THE REHABILITATION OR LIQUIDATION OF FINANCIALLY DISTRESSED ENTERPRISES AND INDIVIDUALS

SECTION 1. Title. — This Act shall be known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010".

SECTION 2. Declaration of Policy. — It is the policy of the State to encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and property rights. In furtherance thereof, the State shall ensure a timely, fair, transparent, effective and efficient rehabilitation or liquidation of debtors. The rehabilitation or liquidation shall be made with a view to ensure or maintain certainty and predictability in commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation of these debtors' assets and the settlement of their obligations.

SECTION 3. Nature of Proceedings. — The proceedings under this Act shall be in rem. Jurisdiction over all persons affected by the proceedings shall be considered as acquired upon publication of the notice of the commencement of the proceedings in any newspaper of general circulation in the Philippines in the manner prescribed by the rules of procedure to be promulgated by the Supreme Court.

The proceedings shall be conducted in a summary and non-adversarial manner consistent with the declared policies of this Act and in accordance with the rules of procedure that the Supreme Court may promulgate.

SECTION 4. Definition of Terms. — As used in this Act, the term:

(a) Administrative expenses shall refer to those reasonable and necessary expenses:

(1) incurred or arising from the filing of a petition under the provisions of this Act;

(2) arising from, or in connection with, the conduct of the proceedings under this Act, including those incurred for the rehabilitation or liquidation of the debtor;

(3) incurred in the ordinary course of business of the debtor after the commencement date;

(4) for the payment of new obligations obtained after the commencement date to finance the rehabilitation of the debtor;

(5) incurred for the fees of the rehabilitation receiver or liquidator and of the professionals engaged by them; and

(6) that are otherwise authorized or mandated under this Act or such other expenses as may be allowed by the Supreme Court in its rules.

(b) Affiliate shall refer to a corporation that directly or indirectly, through one or more intermediaries, is controlled by, or is under the common control of another corporation.

(c) Claim shall refer to all claims or demands of whatever nature or character against the debtor or its property, whether for money or otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, including, but not limited to: (1) all claims of the government, whether national or local, including taxes, tariffs and customs duties; and (2) claims against directors and officers of the debtor arising from acts done in the discharge of their functions falling within the scope of their authority: Provided, That, this inclusion does not prohibit the creditors or third parties from filing cases against the directors and officers acting in their personal capacities.

(d) Commencement date shall refer to the date on which the court issues the Commencement Order, which shall be retroactive to the date of filing of the petition for voluntary or involuntary proceedings.

(e) Commencement Order shall refer to the order issued by the court under Section 16 of this Act.

(f) Control shall refer to the power of a parent corporation to direct or govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries or affiliates, more than one-half (1/2) of the voting power of an enterprise unless, in exceptional circumstances, it can clearly be demonstrated that such ownership does not constitute control. Control also exists even when the parent owns one-half (1/2) or less of the voting power of an enterprise when there is power:

(1) over more than one-half (1/2) of the voting rights by virtue of an agreement with investors;

(2) to direct or govern the financial and operating policies of the enterprise under a statute or an agreement;

(3) to appoint or remove the majority of the members of the board of directors or equivalent governing body; or

(4) to cast the majority votes at meetings of the board of directors or equivalent governing body.

(g) Court shall refer to the court designated by the Supreme Court to hear and determine, at the first instance, the cases brought under this Act.

(h) Creditor shall refer to a natural or juridical person which has a claim against the debtor that arose on or before the commencement date.

(i) Date of liquidation shall refer to the date on which the court issues the Liquidation Order.

(j) Days shall refer to calendar days unless otherwise specifically stated in this Act.

(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership duly registered with the Securities and Exchange Commission (SEC), a corporation duly organized and existing under Philippine laws, or an individual debtor who has become insolvent as defined herein.

(l) Encumbered property shall refer to real or personal property of the debtor upon which a lien attaches.

(m) General unsecured creditor shall refer to a creditor whose claim or a portion thereof is neither secured, preferred nor subordinated under this Act.

(n) Group of debtors shall refer to and can cover only: (1) corporations that are financially related to one another as parent corporations, subsidiaries or affiliates; (2) partnerships that are owned more than fifty percent (50%) by the same person; and (3) single proprietorships that are owned by the same person. When the petition covers a group of debtors, all reference under these rules to debtor shall include and apply to the group of debtors.

(o) Individual debtor shall refer to a natural person who is a resident and citizen of the Philippines that has become insolvent as defined herein.

(p) Insolvent shall refer to the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.

(q) Insolvent debtor's estate shall refer to the estate of the insolvent debtor, which includes all the property and assets of the debtor as of commencement date, plus the property and assets acquired by the rehabilitation receiver or liquidator after that date, as well as all other property and assets in which the debtor has an ownership interest, whether or not these property and assets are in the debtor's possession as of commencement date: Provided,That trust assets and bailment, and other property and assets of a third party that are in the possession of the debtor as of commencement date, are excluded therefrom.

(r) Involuntary proceedings shall refer to proceedings initiated by creditors.

(s) Liabilities shall refer to monetary claims against the debtor, including stockholder's advances that have been recorded in the debtor's audited financial statements as advances for future subscriptions.

(t) Lien shall refer to a statutory or contractual claim or judicial charge on real or personal property that legally entitles a creditor to resort to said property for payment of the claim or debt secured by such lien.

(u) Liquidation shall refer to the proceedings under Chapter V of this Act.

(v) Liquidation Order shall refer to the Order issued by the court under Section 112 of this Act.

(w) Liquidator shall refer to the natural person or juridical entity appointed as such by the court and entrusted with such powers and duties as set forth in this Act: Provided, That, if the liquidator is a juridical entity, it must designate a natural person who possesses all the qualifications and none of the disqualifications as its representative, it being understood that the juridical entity and the representative are solidarily liable for all obligations and responsibilities of the liquidator.

(x) Officer shall refer to a natural person holding a management position described in or contemplated by a juridical entity's articles of incorporation, bylaws or equivalent documents, except for the corporate secretary, the assistant corporate secretary and the external auditor.

(y) Ordinary course of business shall refer to transactions in the pursuit of the individual debtor's or debtor's business operations prior to rehabilitation or insolvency proceedings and on ordinary business terms.

(z) Ownership interest shall refer to the ownership interest of third parties in property held by the debtor, including those covered by trust receipts or assignments of receivables.

(aa) Parent shall refer to a corporation which has control over another corporation either directly or indirectly through one or more intermediaries.

(bb) Party to the proceedings shall refer to the debtor, a creditor, the unsecured creditors' committee, a stakeholder, a party with an ownership interest in property held by the debtor, a secured creditor, the rehabilitation receiver, liquidator or any other juridical or natural person who stands to be benefited or injured by the outcome of the proceedings and whose notice of appearance is accepted by the court.

(cc) Possessory lien shall refer to a lien on property, the possession of which has been transferred to a creditor or a representative or agent thereof.

(dd) Proceedings shall refer to judicial proceedings commenced by the court's acceptance of a petition filed under this Act.

(ee) Property of others shall refer to property held by the debtor in which other persons have an ownership interest.

(ff) Publication notice shall refer to notice through publication in a newspaper of general circulation in the Philippines on a business day for two (2) consecutive weeks.

(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated.

(hh) Rehabilitation receiver shall refer to the person or persons, natural or juridical, appointed as such by the court pursuant to this Act and which shall be entrusted with such powers and duties as set forth herein.

(ii) Rehabilitation Plan shall refer to a plan by which the financial well-being and viability of an insolvent debtor can be restored using various means including, but not limited to, debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of new business entity as prescribed in Section 62 hereof, or other similar arrangements as may be approved by the court or creditors.

(jj) Secured claim shall refer to a claim that is secured by a lien.

(kk) Secured creditor shall refer to a creditor with a secured claim.

(ll) Secured party shall refer to a secured creditor or the agent or representative of such secured creditor.

(mm) Securities market participant shall refer to a broker, dealer, underwriter, transfer agent or other juridical persons transacting securities in the capital market.

(nn) Stakeholder shall refer, in addition to a holder of shares of a corporation, to a member of a nonstock corporation or association or a partner in a partnership.

(oo) Subsidiary shall refer to a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly through one or more intermediaries by another corporation, which thereby becomes its parent corporation.

(pp) Unsecured claim shall refer to a claim that is not secured by a lien.

(qq) Unsecured creditor shall refer to a creditor with an unsecured claim.

(rr) Voluntary proceedings shall refer to proceedings initiated by the debtor.

(ss) Voting creditor shall refer to a creditor that is a member of a class of creditors, the consent of which is necessary for the approval of a Rehabilitation Plan under this Act.

SECTION 5. Exclusions. — The term debtor does not include banks, insurance companies, pre-need companies, and national and local government agencies or units.

For purposes of this section:

(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually subject to conservatorship, receivership or liquidation proceedings under the New Central Bank Act (Republic Act No. 7653) or successor legislation;

(b) Insurance company shall refer to those companies that are potentially or actually subject to insolvency proceedings under the Insurance Code (Presidential Decree No. 1460) or successor legislation; and

(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell pre-need plans.

Provided, That government financial institutions other than banks and government-owned or -controlled corporations shall be covered by this Act, unless their specific charter provides otherwise.

SECTION 6. Designation of Courts and Promulgation of Procedural Rules. — The Supreme Court shall designate the court or courts that will hear and resolve cases brought under this Act and shall promulgate the rules of pleading, practice and procedure to govern the proceedings brought under this Act.

SECTION 7. Substantive and Procedural Consolidation. — Each juridical entity shall be considered as a separate entity under the proceedings in this Act. Under these proceedings, the assets and liabilities of a debtor may not be commingled or aggregated with those of another, unless the latter is a related enterprise that is owned or controlled directly or indirectly by the same interests: Provided, however, That the commingling or aggregation of assets and liabilities of the debtor with those of a related enterprise may only be allowed where:

(a) there was commingling in fact of assets and liabilities of the debtor and the related enterprise prior to the commencement of the proceedings;

(b) the debtor and the related enterprise have common creditors and it will be more convenient to treat them together rather than separately;

(c) the related enterprise voluntarily accedes to join the debtor as party petitioner and to commingle its assets and liabilities with the debtor's; and

(d) The consolidation of assets and liabilities of the debtor and the related enterprise is beneficial to all concerned and promotes the objectives of rehabilitation.

Provided, finally, That nothing in this section shall prevent the court from joining other entities affiliated with the debtor as parties pursuant to the rules of procedure as may be promulgated by the Supreme Court.

SECTION 8. Decisions of Creditors. — Decisions of creditors shall be made according to the relevant provisions of the Corporation Code in the case of stock or nonstock corporations or the Civil Code in the case of partnerships that are not inconsistent with this Act.

SECTION 9. Creditors' Representatives. — Creditors may designate representatives to vote or otherwise act on their behalf by filing notice of such representation with the court and serving a copy on the rehabilitation receiver or liquidator.

SECTION 10. Liability of Individual Debtor, Owner of a Sole Proprietorship, Partners in a Partnership, or Directors and Officers. — Individual debtor, owner of a sole proprietorship, partners in a partnership, or directors and officers of a debtor shall be liable for double the value of the property sold, embezzled or disposed of or double the amount of the transaction involved, whichever is higher, to be recovered for the benefit of the debtor and the creditors, if they, having notice of the commencement of the proceedings, or having reason to believe that proceedings are about to be commenced, or in contemplation of the proceedings, willfully commit the following acts:

(a) Dispose or cause to be disposed of any property of the debtor other than in the ordinary course of business or authorize or approve any transaction in fraud of creditors or in a manner grossly disadvantageous to the debtor and/or creditors; or

(b) Conceal, or authorize or approve the concealment, from the creditors, or embezzles or misappropriates, any property of the debtor.

The court shall determine the extent of the liability of an owner, partner, director or officer under this section. In this connection, in case of partnerships and corporations, the court shall consider the amount of the shareholding or partnership or equity interest of such partner, director or officer, the degree of control of such partner, director or officer over the debtor, and the extent of the involvement of such partner, director or debtor in the actual management of the operations of the debtor.

SECTION 11. Authorization to Exchange Debt for Equity. — Notwithstanding applicable banking legislation to the contrary, any bank, whether universal or not, may acquire and hold an equity interest or investment in a debtor or its subsidiaries when conveyed to such bank in satisfaction of debts pursuant to a Rehabilitation or Liquidation Plan approved by the court: Provided, That such ownership shall be subject to the ownership limits applicable to universal banks for equity investments and: Provided, further, That any equity investment or interest acquired or held pursuant to this section shall be disposed by the bank within a period of five (5) years or as may be prescribed by the Monetary Board.

(A) Initiation Proceedings.

(1) Voluntary Proceedings.

SECTION 12. Petition to Initiate Voluntary Proceedings by Debtor. — When approved by the owner in case of a sole proprietorship, or by a majority of the partners in case of a partnership, or, in case of a corporation, by a majority vote of the board of directors or trustees and authorized by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members, in a stockholder's or member's meeting duly called for the purpose, an insolvent debtor may initiate voluntary proceedings under this Act by filing a petition for rehabilitation with the court and on the grounds hereinafter specifically provided. The petition shall be verified to establish the insolvency of the debtor and the viability of its rehabilitation, and include, whether as an attachment or as part of the body of the petition, as a minimum, the following:

(a) Identification of the debtor, its principal activities and its addresses;

(b) Statement of the fact of and the cause of the debtor's insolvency or inability to pay its obligations as they become due;

(c) The specific relief sought pursuant to this Act;

(d) The grounds upon which the petition is based;

(e) Other information that may be required under this Act depending on the form of relief requested;

(f) Schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;

(g) An inventory of all its assets including receivables and claims against third parties;

(h) A Rehabilitation Plan;

(i) The names of at least three (3) nominees to the position of rehabilitation receiver; and

(j) Other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme Court.

A group of debtors may jointly file a petition for rehabilitation under this Act when one or more of its members foresee the impossibility of meeting debts when they respectively fall due, and the financial distress would likely adversely affect the financial condition and/or operations of the other members of the group and/or the participation of the other members of the group is essential under the terms and conditions of the proposed Rehabilitation Plan.

(2) Involuntary Proceedings.

SECTION 13. Circumstances Necessary to Initiate Involuntary Proceedings. — Any creditor or group of creditors with a claim of, or the aggregate of whose claims is, at least One million pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partners' contributions, whichever is higher, may initiate involuntary proceedings against the debtor by filing a petition for rehabilitation with the court if:

(a) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least sixty (60) days or that the debtor has failed generally to meet its liabilities as they fall due; or

(b) a creditor, other than the petitioner/s, has initiated foreclosure proceedings against the debtor that will prevent the debtor from paying its debts as they become due or will render it insolvent.

SECTION 14. Petition to Initiate Involuntary Proceedings. — The creditor/s' petition for rehabilitation shall be verified to establish the substantial likelihood that the debtor may be rehabilitated, and include:

(a) identification of the debtor, its principal activities and its address;

(b) the circumstances sufficient to support a petition to initiate involuntary rehabilitation proceedings under Section 13 of this Act;

(c) the specific relief sought under this Act;

(d) a Rehabilitation Plan;

(e) the names of at least three (3) nominees to the position of rehabilitation receiver;

(f) other information that may be required under this Act depending on the form of relief requested; and

(g) other documents required to be filed with the petition pursuant to this Act and the rules of procedure as may be promulgated by the Supreme Court.

(B) Action on the Petition and Commencement of Proceedings.

SECTION 15. Action on the Petition. — If the court finds the petition for rehabilitation to be sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue a Commencement Order. If, within the same period, the court finds the petition deficient in form or substance, the court may, in its discretion, give the petitioner/s a reasonable period of time within which to amend or supplement the petition, or to submit such documents as may be necessary or proper to put the petition in proper order. In such case, the five (5) working days provided above for the issuance of the Commencement Order shall be reckoned from the date of the filing of the amended or supplemental petition or the submission of such documents.

SECTION 16. Commencement of Proceedings and Issuance of a Commencement Order. — The rehabilitation proceedings shall commence upon the issuance of the Commencement Order, which shall:

(a) identify the debtor, its principal business or activity/ies and its principal place of business;

(b) summarize the ground/s for initiating the proceedings;

(c) state the relief sought under this Act and any requirement or procedure particular to the relief sought;

(d) state the legal effects of the Commencement Order, including those mentioned in Section 17 hereof;

(e) declare that the debtor is under rehabilitation;

(f) direct the publication of the Commencement Order in a newspaper of general circulation in the Philippines once a week for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of its issuance;

(g) if the petitioner is the debtor, direct the service by personal delivery of a copy of the petition on each creditor holding at least ten percent (10%) of the total liabilities of the debtor as determined from the schedule attached to the petition within five (5) days; if the petitioner/s is/are creditor/s, direct the service by personal delivery of a copy of the petition on the debtor within five (5) days;

(h) appoint a rehabilitation receiver who may or may not be from among the nominees of the petitioner/s, and who shall exercise such powers and duties defined in this Act as well as the procedural rules that the Supreme Court will promulgate;

(i) summarize the requirements and deadlines for creditors to establish their claims against the debtor and direct all creditors to file their claims with the court at least five (5) days before the initial hearing;

(j) direct the Bureau of Internal Revenue (BIR) to file and serve on the debtor its comment on or opposition to the petition or its claim/s against the debtor under such procedures as the Supreme Court may hereafter provide;

(k) prohibit the debtor's suppliers of goods or services from withholding the supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services or goods supplied after the issuance of the Commencement Order;

(l) authorize the payment of administrative expenses as they become due;

(m) set the case for initial hearing, which shall not be more than forty (40) days from the date of filing of the petition for the purpose of determining whether there is substantial likelihood for the debtor to be rehabilitated;

(n) make available copies of the petition and rehabilitation plan for examination and copying by any interested party;

(o) indicate the location or locations at which documents regarding the debtor and the proceedings under this Act may be reviewed and copied;

(p) state that any creditor or debtor, who is not the petitioner, may submit the name or nominate any other qualified person to the position of rehabilitation receiver at least five (5) days before the initial hearing;

(q) include a Stay or Suspension Order which shall:

(1) suspend all actions or proceedings, in court or otherwise, for the enforcement of claims against the debtor;

(2) suspend all actions to enforce any judgment, attachment or other provisional remedies against the debtor;

(3) prohibit the debtor from selling, encumbering, transferring or disposing in any manner any of its properties except in the ordinary course of business; and

(4) prohibit the debtor from making any payment of its liabilities outstanding as of the commencement date except as may be provided herein.

SECTION 17. Effects of the Commencement Order. — Unless otherwise provided for in this Act, the court's issuance of a Commencement Order shall, in addition to the effects of a Stay or Suspension Order described in Section 16 hereof:

(a) vest the rehabilitation receiver with all the powers and functions provided for in this Act, such as the right to review and obtain all records to which the debtor's management and directors have access, including bank accounts of whatever nature of the debtor, subject to the approval by the court of the performance bond filed by the rehabilitation receiver;

(b) prohibit, or otherwise serve as the legal basis for rendering null and void the results of any extrajudicial activity or process to seize property, sell encumbered property, or otherwise attempt to collect on or enforce a claim against the debtor after the commencement date unless otherwise allowed in this Act, subject to the provisions of Section 50 hereof;

(c) serve as the legal basis for rendering null and void any set-off after the commencement date of any debt owed to the debtor by any of the debtor's creditors;

(d) serve as the legal basis for rendering null and void the perfection of any lien against the debtor's property after the commencement date; and

(e) consolidate the resolution of all legal proceedings by and against the debtor to the court: Provided, however, That the court may allow the continuation of cases in other courts where the debtor had initiated the suit.

Attempts to seek legal or other recourse against the debtor outside these proceedings shall be sufficient to support a finding of indirect contempt of court.

SECTION 18. Exceptions to the Stay or Suspension Order. — The Stay or Suspension Order shall not apply:

(a) to cases already pending appeal in the Supreme Court as of commencement date: Provided, That any final and executory judgment arising from such appeal shall be referred to the court for appropriate action;

(b) subject to the discretion of the court, to cases pending or filed at a specialized court or quasi-judicial agency which, upon determination by the court, is capable of resolving the claim more quickly, fairly and efficiently than the court: Provided, That any final and executory judgment of such court or agency shall be referred to the court and shall be treated as a non-disputed claim;

(c) to the enforcement of claims against sureties and other persons solidarily liable with the debtor, and third party or accommodation mortgagors as well as issuers of letters of credit, unless the property subject of the third party or accommodation mortgage is necessary for the rehabilitation of the debtor as determined by the court upon recommendation by the rehabilitation receiver;

(d) to any form of action of customers or clients of a securities market participant to recover or otherwise claim moneys and securities entrusted to the latter in the ordinary course of the latter's business as well as any action of such securities market participant or the appropriate regulatory agency or self-regulatory organization to pay or settle such claims or liabilities;

(e) to the actions of a licensed broker or dealer to sell pledged securities of a debtor pursuant to a securities pledge or margin agreement for the settlement of securities transactions in accordance with the provisions of the Securities Regulation Code and its implementing rules and regulations;

(f) the clearing and settlement of financial transactions through the facilities of a clearing agency or similar entities duly authorized, registered and/or recognized by the appropriate regulatory agency like the Bangko Sentral ng Pilipinas (BSP) and the SEC as well as any form of actions of such agencies or entities to reimburse themselves for any transactions settled for the debtor; and

(g) any criminal action against the individual debtor or owner, partner, director or officer of a debtor shall not be affected by any proceeding commenced under this Act.

SECTION 19. Waiver of Taxes and Fees Due to the National Government and to Local Government Units (LGUs). — Upon issuance of the Commencement Order by the court, and until the approval of the Rehabilitation Plan or dismissal of the petition, whichever is earlier, the imposition of all taxes and fees, including penalties, interests and charges thereof, due to the national government or to LGUs shall be considered waived, in furtherance of the objectives of rehabilitation.

SECTION 20. Application of Stay or Suspension Order to Government Financial Institutions. — The provisions of this Act concerning the effects of the Commencement Order and the Stay or Suspension Order on the suspension of rights to foreclose or otherwise pursue legal remedies shall apply to government financial institutions, notwithstanding provisions in their charters or other laws to the contrary.

SECTION 21. Effectivity and Duration of Commencement Order. — Unless lifted by the court, the Commencement Order shall be effective for the duration of the rehabilitation proceedings for as long as there is a substantial likelihood that the debtor will be successfully rehabilitated. In determining whether there is substantial likelihood for the debtor to be successfully rehabilitated, the court shall ensure that the following minimum requirements are met:

(a) The proposed Rehabilitation Plan submitted complies with the minimum contents prescribed by this Act;

(b) There is sufficient monitoring by the rehabilitation receiver of the debtor's business for the protection of creditors;

(c) The debtor has met with its creditors to the extent reasonably possible in attempts to reach a consensus on the proposed Rehabilitation Plan;

(d) The rehabilitation receiver submits a report, based on preliminary evaluation, stating that the underlying assumptions and the financial goals stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable; or, if not, there is, in any case, a substantial likelihood for the debtor to be successfully rehabilitated because, among others:

(1) there are sufficient assets with which to rehabilitate the debtor;

(2) there is sufficient cash flow to maintain the operations of the debtor;

(3) the debtor's owner/s, partners, stockholders, directors and officers have been acting in good faith and with due diligence;

(4) the petition is not a sham filing intended only to delay the enforcement of the rights of the creditor/s or of any group of creditors; and

(5) the debtor would likely be able to pursue a viable Rehabilitation Plan;

(e) The petition, the Rehabilitation Plan and the attachments thereto do not contain any materially false or misleading statement;

(f) If the petitioner is the debtor, that the debtor has met with its creditor/s representing at least three-fourths (3/4) of its total obligations to the extent reasonably possible and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan; if the petitioner/s is/are a creditor or group of creditors, that the petitioner/s has/have met with the debtor and made a good faith effort to reach a consensus on the proposed Rehabilitation Plan; and

(g) The debtor has not committed acts of misrepresentation or in fraud of its creditor/s or a group of creditors.

SECTION 22. Action at the Initial Hearing. — At the initial hearing, the court shall:

(a) determine the creditors who have made timely and proper filing of their notice of claims;

(b) hear and determine any objection to the qualifications or the appointment of the rehabilitation receiver and, if necessary, appoint a new one in accordance with this Act;

(c) direct the creditors to comment on the petition and the Rehabilitation Plan, and to submit the same to the court and to the rehabilitation receiver within a period of not more than twenty (20) days; and

(d) direct the rehabilitation receiver to evaluate the financial condition of the debtor and to prepare and submit to the court within forty (40) days from the initial hearing the report provided in Section 24 hereof.

SECTION 23. Effect of Failure to File Notice of Claim. — A creditor whose claim is not listed in the schedule of debts and liabilities and who fails to file a notice of claim in accordance with the Commencement Order but subsequently files a belated claim shall not be entitled to participate in the rehabilitation proceedings but shall be entitled to receive distributions arising therefrom.

SECTION 24. Report of the Rehabilitation Receiver. — Within forty (40) days from the initial hearing, and with or without the comments of the creditors or any of them, the rehabilitation receiver shall submit a report to the court stating his preliminary findings and recommendations on whether:

(a) the debtor is insolvent and if so, the causes thereof and any unlawful or irregular act or acts committed by the owner/s of a sole proprietorship, partners of a partnership, or directors or officers of a corporation in contemplation of the insolvency of the debtor or which may have contributed to the insolvency of the debtor;

(b) the underlying assumptions, the financial goals and the procedures to accomplish such goals as stated in the petitioner's Rehabilitation Plan are realistic, feasible and reasonable;

(c) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(d) the petition should be dismissed; and

(e) the debtor should be dissolved and/or liquidated.

SECTION 25. Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. — Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section 24 hereof, the court may:

(a) give due course to the petition upon a finding that:

(1) the debtor is insolvent; and

(2) there is a substantial likelihood for the debtor to be successfully rehabilitated;

(b) dismiss the petition upon a finding that:

(1) debtor is not insolvent;

(2) the petition is a sham filing intended only to delay the enforcement of the rights of the creditor/s or of any group of creditors;

(3) the petition, the Rehabilitation Plan and the attachments thereto contain any materially false or misleading statements; or

(4) the debtor has committed acts of misrepresentation or in fraud of its creditor/s or a group of creditors;

(c) convert the proceedings into one for the liquidation of the debtor upon a finding that:

(1) the debtor is insolvent; and

(2) there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in accordance with the rules to be promulgated by the Supreme Court.

SECTION 26. Petition Given Due Course. — If the petition is given due course, the court shall direct the rehabilitation receiver to review, revise and/or recommend action on the Rehabilitation Plan and submit the same or a new one to the court within a period of not more than ninety (90) days.

The court may refer any dispute relating to the Rehabilitation Plan or the rehabilitation proceedings pending before it to arbitration or other modes of dispute resolution, as provided for under Republic Act No. 9285, or the Alternative Dispute Resolution Act of 2004, should it determine that such mode will resolve the dispute more quickly, fairly and efficiently than the court.

SECTION 27. Dismissal of Petition. — If the petition is dismissed pursuant to paragraph (b) of Section 25 hereof, then the court may, in its discretion, order the petitioner to pay damages to any creditor or to the debtor, as the case may be, who may have been injured by the filing of the petition, to the extent of any such injury.

(C) The Rehabilitation Receiver, Management Committee and Creditors' Committee.

SECTION 28. Who May Serve as a Rehabilitation Receiver. — Any qualified natural or juridical person may serve as a rehabilitation receiver: Provided, That if the rehabilitation receiver is a juridical entity, it must designate a natural person/s who possess/es all the qualifications and none of the disqualifications as its representative, it being understood that the juridical entity and the representative/s are solidarily liable for all obligations and responsibilities of the rehabilitation receiver.

SECTION 29. Qualifications of a Rehabilitation Receiver. — The rehabilitation receiver shall have the following minimum qualifications:

(a) A citizen of the Philippines or a resident of the Philippines in the six (6) months immediately preceding his nomination;

(b) Of good moral character and with acknowledged integrity, impartiality and independence;

(c) Has the requisite knowledge of insolvency and other relevant commercial laws, rules and procedures, as well as the relevant training and/or experience that may be necessary to enable him to properly discharge the duties and obligations of a rehabilitation receiver; and

(d) Has no conflict of interest: Provided, That such conflict of interest may be waived, expressly or impliedly, by a party who may be prejudiced thereby.

Other qualifications and disqualifications of the rehabilitation receiver shall be set forth in procedural rules, taking into consideration the nature of the business of the debtor and the need to protect the interest of all stakeholders concerned.

SECTION 30. Initial Appointment of the Rehabilitation Receiver. — The court shall initially appoint the rehabilitation receiver, who may or may not be from among the nominees of the petitioner. However, at the initial hearing of the petition, the creditors and the debtor who are not petitioners may nominate other persons to the position. The court may retain the rehabilitation receiver initially appointed or appoint another who may or may not be from among those nominated.

In case the debtor is a securities market participant, the court shall give priority to the nominee of the appropriate securities or investor protection fund.

If a qualified natural person or entity is nominated by more than fifty percent (50%) of the secured creditors and the general unsecured creditors, and satisfactory evidence is submitted, the court shall appoint the creditors' nominee as rehabilitation receiver.

SECTION 31. Powers, Duties and Responsibilities of the Rehabilitation Receiver. — The rehabilitation receiver shall be deemed an officer of the court with the principal duty of preserving and maximizing the value of the assets of the debtor during the rehabilitation proceedings, determining the viability of the rehabilitation of the debtor, preparing and recommending a Rehabilitation Plan to the court, and implementing the approved Rehabilitation Plan. To this end, and without limiting the generality of the foregoing, the rehabilitation receiver shall have the following powers, duties and responsibilities:

(a) To verify the accuracy of the factual allegations in the petition and its annexes;

(b) To verify and correct, if necessary, the inventory of all of the assets of the debtor, and their valuation;

(c) To verify and correct, if necessary, the schedule of debts and liabilities of the debtor;

(d) To evaluate the validity, genuineness and true amount of all the claims against the debtor;

(e) To take possession, custody and control, and to preserve the value of all the property of the debtor;

(f) To sue and recover, with the approval of the court, all amounts owed to, and all properties pertaining to the debtor;

(g) To have access to all information necessary, proper or relevant to the operations and business of the debtor and for its rehabilitation;

(h) To sue and recover, with the approval of the court, all property or money of the debtor paid, transferred or disbursed in fraud of the debtor or its creditors, or which constitute undue preference of creditor/s;

(i) To monitor the operations and the business of the debtor to ensure that no payments or transfers of property are made other than in the ordinary course of business;

(j) With the court's approval, to engage the services of or to employ persons or entities to assist him in the discharge of his functions;

(k) To determine the manner by which the debtor may be best rehabilitated, to review, revise and/or recommend action on the Rehabilitation Plan and submit the same or a new one to the court for approval;

(l) To implement the Rehabilitation Plan as approved by the court, if so provided under the Rehabilitation Plan;

(m) To assume and exercise the powers of management of the debtor, if directed by the court pursuant to Section 36 hereof;

(n) To exercise such other powers as may, from time to time, be conferred upon him by the court; and

(o) To submit a status report on the rehabilitation proceedings every quarter or as may be required by the court motu proprio, or upon motion of any creditor, or as may be provided, in the Rehabilitation Plan.

Unless appointed by the court, pursuant to Section 36 hereof, the rehabilitation receiver shall not take over the management and control of the debtor but may recommend the appointment of a management committee over the debtor in the cases provided by this Act.

SECTION 32. Removal of the Rehabilitation Receiver. — The rehabilitation receiver may be removed at any time by the court, either motu proprio or upon motion by any creditor/s holding more than fifty percent (50%) of the total obligations of the debtor, on such grounds as the rules of procedure may provide which shall include, but are not limited to, the following:

(a) Incompetence, gross negligence, failure to perform or failure to exercise the proper degree of care in the performance of his duties and powers;

(b) Lack of a particular or specialized competency required by the specific case;

(c) Illegal acts or conduct in the performance of his duties and powers;

(d) Lack of qualification or presence of any disqualification;

(e) Conflict of interest that arises after his appointment; and

(f) Manifest lack of independence that is detrimental to the general body of the stakeholders.

SECTION 33. Compensation and Terms of Service. — The rehabilitation receiver and his direct employees or independent contractors shall be entitled to compensation for reasonable fees and expenses from the debtor according to the terms approved by the court after notice and hearing. Prior to such hearing, the rehabilitation receiver and his direct employees shall be entitled to reasonable compensation based on quantum meruit. Such costs shall be considered administrative expenses.

SECTION 34. Oath and Bond of the Rehabilitation Receiver. — Prior to entering upon his powers, duties and responsibilities, the rehabilitation receiver shall take an oath and file a bond, in such amount to be fixed by the court, conditioned upon the faithful and proper discharge of his powers, duties and responsibilities.

SECTION 35. Vacancy. — In case the position of rehabilitation receiver is vacated for any reason whatsoever, the court shall direct the debtor and the creditors to submit the name/s of their nominee/s to the position. The court may appoint any of the qualified nominees, or any other person qualified for the position.

SECTION 36. Displacement of Existing Management by the Rehabilitation Receiver or Management Committee. — Upon motion of any interested party, the court may appoint and direct the rehabilitation receiver to assume the powers of management of the debtor, or appoint a management committee that will undertake the management of the debtor, upon clear and convincing evidence of any of the following circumstances:

(a) Actual or imminent danger of dissipation, loss, wastage or destruction of the debtor's assets or other properties;

(b) Paralyzation of the business operations of the debtor; or

(c) Gross mismanagement of the debtor, or fraud or other wrongful conduct on the part of, or gross or willful violation of this Act by, existing management of the debtor or the owner, partner, director, officer or representative/s in management of the debtor.

In case the court appoints the rehabilitation receiver to assume the powers of management of the debtor, the court may:

(1) require the rehabilitation receiver to post an additional bond;

(2) authorize him to engage the services or to employ persons or entities to assist him in the discharge of his managerial functions; and

(3) authorize a commensurate increase in his compensation.

SECTION 37. Role of the Management Committee. — When appointed pursuant to the foregoing section, the management committee shall take the place of the management and the governing body of the debtor and assume their rights and responsibilities.

The specific powers and duties of the management committee, whose members shall be considered as officers of the court, shall be prescribed by the procedural rules.

SECTION 38. Qualifications of Members of the Management Committee. — The qualifications and disqualifications of the members of the management committee shall be set forth in the procedural rules, taking into consideration the nature of the business of the debtor and the need to protect the interest of all stakeholders concerned.

SECTION 39. Employment of Professionals. — Upon approval of the court, and after notice and hearing, the rehabilitation receiver or the management committee may employ specialized professionals and other experts to assist each in the performance of their duties. Such professionals and other experts shall be considered either employees or independent contractors of the rehabilitation receiver or the management committee, as the case may be. The qualifications and disqualifications of the professionals and experts may be set forth in procedural rules, taking into consideration the nature of the business of the debtor and the need to protect the interest of all stakeholders concerned.

SECTION 40. Conflict of Interest. — No person may be appointed as a rehabilitation receiver, member of a management committee, or be employed by the rehabilitation receiver or the management committee if he has a conflict of interest.

An individual shall be deemed to have a conflict of interest if he is so situated as to be materially influenced in the exercise of his judgment for or against any party to the proceedings. Without limiting the generality of the foregoing, an individual shall be deemed to have a conflict of interest if:

(a) he is a creditor, owner, partner or stockholder of the debtor;

(b) he is engaged in a line of business which competes with that of the debtor;

(c) he is, or was, within five (5) years from the filing of the petition, a director, officer, owner, partner or employee of the debtor or any of the creditors, or the auditor or accountant of the debtor;

(d) he is, or was, within two (2) years from the filing of the petition, an underwriter of the outstanding securities of the debtor;

(e) he is related by consanguinity or affinity within the fourth civil degree to any individual creditor, owner/s of a sole proprietorship-debtor, partners of a partnership-debtor or to any stockholder, director, officer, employee or underwriter of a corporation-debtor; or

(f) he has any other direct or indirect material interest in the debtor or any of the creditors.

Any rehabilitation receiver, member of the management committee or persons employed or contracted by them possessing any conflict of interest shall make the appropriate disclosure either to the court or to the creditors in case of out-of-court rehabilitation proceedings. Any party to the proceeding adversely affected by the appointment of any person with a conflict of interest to any of the positions enumerated above may however waive his right to object to such appointment and, if the waiver is unreasonably withheld, the court may disregard the conflict of interest, taking into account the general interest of the stakeholders.

SECTION 41. Immunity. — The rehabilitation receiver and all persons employed by him, and the members of the management committee and all persons employed by it, shall not be subject to any action, claim or demand in connection with any act done or omitted to be done by them in good faith in connection with the exercise of their powers and functions under this Act or other actions duly approved by the court.

SECTION 42. Creditors' Committee. — After the creditors' meeting called pursuant to Section 63 hereof, the creditors belonging to a class may formally organize a committee among themselves. In addition, the creditors may, as a body, agree to form a creditors' committee composed of a representative from each class of creditors, such as the following:

(a) Secured creditors;

(b) Unsecured creditors;

(c) Trade creditors and suppliers; and

(d) Employees of the debtor.

In the election of the creditors' representatives, the rehabilitation receiver or his representative shall attend such meeting and extend the appropriate assistance as may be defined in the procedural rules.

SECTION 43. Role of Creditors' Committee. — The creditors' committee when constituted pursuant to Section 42 of this Act shall assist the rehabilitation receiver in communicating with the creditors and shall be the primary liaison between the rehabilitation receiver and the creditors. The creditors' committee cannot exercise or waive any right or give any consent on behalf of any creditor unless specifically authorized in writing by such creditor. The creditors' committee may be authorized by the court or by the rehabilitation receiver to perform such other tasks and functions as may be defined by the procedural rules in order to facilitate the rehabilitation process.

(D) Determination of Claims.

SECTION 44. Registry of Claims. — Within twenty (20) days from his assumption into office, the rehabilitation receiver shall establish a preliminary registry of claims. The rehabilitation receiver shall make the registry available for public inspection and provide publication notice to the debtor, creditors and stakeholders on where and when they may inspect it. All claims included in the registry of claims must be duly supported by sufficient evidence.

SECTION 45. Opposition or Challenge of Claims. — Within thirty (30) days from the expiration of the period stated in the immediately preceding section, the debtor, creditors, stakeholders and other interested parties may submit a challenge to claim/s to the court, serving a certified copy on the rehabilitation receiver and the creditor holding the challenged claim/s. Upon the expiration of the thirty (30)-day period, the rehabilitation receiver shall submit to the court the registry of claims which shall include undisputed claims that have not been subject to challenge.

SECTION 46. Appeal. — Any decision of the rehabilitation receiver regarding a claim may be appealed to the court.

(E) Governance.

SECTION 47. Management. — Unless otherwise provided herein, the management of the juridical debtor shall remain with the existing management subject to the applicable law/s and agreement/s, if any, on the election or appointment of directors, managers or managing partner. However, all disbursements, payments or sale, disposal, assignment, transfer or encumbrance of property, or any other act affecting title or interest in property, shall be subject to the approval of the rehabilitation receiver and/or the court, as provided in the following subchapter.

(F) Use, Preservation and Disposal of Assets and Treatment of Assets and Claims after Commencement Date.

SECTION 48. Use or Disposition of Assets. — Except as otherwise provided herein, no funds or property of the debtor shall be used or disposed of except in the ordinary course of business of the debtor, or unless necessary to finance the administrative expenses of the rehabilitation proceedings.

SECTION 49. Sale of Assets. — The court, upon application of the rehabilitation receiver, may authorize the sale of unencumbered property of the debtor outside the ordinary course of business upon a showing that the property, by its nature or because of other circumstance, is perishable, costly to maintain, susceptible to devaluation or otherwise in jeopardy.

SECTION 50. Sale or Disposal of Encumbered Property of the Debtor and Assets of Third Parties Held by Debtor. — The court may authorize the sale, transfer, conveyance or disposal of encumbered property of the debtor, or property of others held by the debtor where there is a security interest pertaining to third parties under a financial, credit or other similar transactions if, upon application of the rehabilitation receiver and with the consent of the affected owners of the property, or secured creditor/s in the case of encumbered property of the debtor and, after notice and hearing, the court determines that:

(a) such sale, transfer, conveyance or disposal is necessary for the continued operation of the debtor's business; and

(b) the debtor has made arrangements to provide a substitute lien or ownership right that provides an equal level of security for the counter-party's claim or right.

Provided, That properties held by the debtor where the debtor has authority to sell such as trust receipt or consignment arrangements may be sold or disposed of by the debtor, if such sale or disposal is necessary for the operation of the debtor's business, and the debtor has made arrangements to provide a substitute lien or ownership right that provides an equal level of security for the counter-party's claim or right.

Sale or disposal of property under this section shall not give rise to any criminal liability under applicable laws.

SECTION 51. Assets of Debtor Held by Third Parties. — In the case of possessory pledges, mechanic's liens or similar claims, third parties who have in their possession or control property of the debtor shall not transfer, convey or otherwise dispose of the same to persons other than the debtor, unless upon prior approval of the rehabilitation receiver. The rehabilitation receiver may also:

(a) demand the surrender or the transfer of the possession or control of such property to the rehabilitation receiver or any other person, subject to payment of the claims secured by any possessory lien/s thereon;

(b) allow said third parties to retain possession or control, if such an arrangement would more likely preserve or increase the value of the property in question or the total value of the assets of the debtor; or

(c) undertake any other disposition of the said property as may be beneficial for the rehabilitation of the debtor, after notice and hearing, and approval of the court.

SECTION 52. Rescission or Nullity of Sale, Payment, Transfer or Conveyance of Assets. — The court may rescind or declare as null and void any sale, payment, transfer or conveyance of the debtor's unencumbered property or any encumbering thereof by the debtor or its agents or representatives after the commencement date which are not in the ordinary course of the business of the debtor: Provided, however, That the unencumbered property may be sold, encumbered or otherwise disposed of upon order of the court after notice and hearing:

(a) if such are in the interest of administering the debtor and facilitating the preparation and implementation of a Rehabilitation Plan;

(b) in order to provide a substitute lien, mortgage or pledge of property under this Act;

(c) for payments made to meet administrative expenses as they arise;

(d) for payments to victims of quasi delicts upon a showing that the claim is valid and the debtor has insurance to reimburse the debtor for the payments made;

(e) for payments made to repurchase property of the debtor that is auctioned off in a judicial or extrajudicial sale under this Act; or

(f) for payments made to reclaim property of the debtor held pursuant to a possessory lien.

SECTION 53. Assets Subject to Rapid Obsolescence, Depreciation and Diminution of Value. — Upon the application of a secured creditor holding a lien against or holder of an ownership interest in property held by the debtor that is subject to potentially rapid obsolescence, depreciation or diminution in value, the court shall, after notice and hearing, order the debtor or rehabilitation receiver to take reasonable steps necessary to prevent the depreciation. If depreciation cannot be avoided and such depreciation is jeopardizing the security or property interest of the secured creditor or owner, the court shall:

(a) allow the encumbered property to be foreclosed upon by the secured creditor according to the relevant agreement between the debtor and the secured creditor, applicable rules of procedure and relevant legislation: Provided, That the proceeds of the sale will be distributed in accordance with the order prescribed under the rules of concurrence and preference of credits; or

(b) upon motion of, or with the consent of the affected secured creditor or interest owner, order the conveyance of a lien against or ownership interest in substitute property of the debtor to the secured creditor: Provided,That other creditors holding liens on such property, if any, do not object thereto, or, if such property is not available;

(c) order the conveyance to the secured creditor or holder of an ownership interest of a lien on the residual funds from the sale of encumbered property during the proceedings; or

(d) allow the sale or disposition of the property: Provided, That the sale or disposition will maximize the value of the property for the benefit of the secured creditor and the debtor, and the proceeds of the sale will be distributed in accordance with the order prescribed under the rules of concurrence and preference of credits.

SECTION 54. Post-commencement Interest. — The rate and term of interest, if any, on secured and unsecured claims shall be determined and provided for in the approved Rehabilitation Plan.

SECTION 55. Post-commencement Loans and Obligations. — With the approval of the court upon the recommendation of the rehabilitation receiver, the debtor, in order to enhance its rehabilitation, may:

(a) enter into credit arrangements; or

(b) enter into credit arrangements, secured by mortgages of its unencumbered property or secondary mortgages of encumbered property with the approval of senior secured parties with regard to the encumbered property; or

(c) incur other obligations as may be essential for its rehabilitation.

The payment of the foregoing obligations shall be considered administrative expenses under this Act.

SECTION 56. Treatment of Employees, Claims. — Compensation of employees required to carry on the business shall be considered an administrative expense. Claims of separation pay for months worked prior to the commencement date shall be considered a pre-commencement claim. Claims for salary and separation pay for work performed after the commencement date shall be an administrative expense.

SECTION 57. Treatment of Contracts. — Unless cancelled by virtue of a final judgment of a court of competent jurisdiction issued prior to the issuance of the Commencement Order, or at anytime thereafter by the court before which the rehabilitation proceedings are pending, all valid and subsisting contracts of the debtor with creditors and other third parties as at the commencement date shall continue in force: Provided,That within ninety (90) days following the commencement of proceedings, the debtor, with the consent of the rehabilitation receiver, shall notify each contractual counter-party of whether it is confirming the particular contract. Contractual obligations of the debtor arising or performed during this period, and afterwards for confirmed contracts, shall be considered administrative expenses. Contracts not confirmed within the required deadline shall be considered terminated. Claims for actual damages, if any, arising as a result of the election to terminate a contract shall be considered a pre-commencement claim against the debtor. Nothing contained herein shall prevent the cancellation or termination of any contract of the debtor for any ground provided by law.

(G) Avoidance Proceedings.

SECTION 58. Rescission or Nullity of Certain Pre-commencement Transactions. — Any transaction occurring prior to commencement date entered into by the debtor or involving its funds or assets may be rescinded or declared null and void on the ground that the same was executed with intent to defraud a creditor or creditors or which constitute undue preference of creditors. Without limiting the generality of the foregoing, a disputable presumption of such design shall arise if the transaction:

(a) provides unreasonably inadequate consideration to the debtor and is executed within ninety (90) days prior to the commencement date;

(b) involves an accelerated payment of a claim to a creditor within ninety (90) days prior to the commencement date;

(c) provides security or additional security executed within ninety (90) days prior to the commencement date;

(d) involves creditors, where a creditor obtained, or received the benefit of, more than its pro rata share in the assets of the debtor, executed at a time when the debtor was insolvent; or

(e) is intended to defeat, delay or hinder the ability of the creditors to collect claims where the effect of the transaction is to put assets of the debtor beyond the reach of creditors or to otherwise prejudice the interests of creditors.

Provided, however, That nothing in this section shall prevent the court from rescinding or declaring as null and void a transaction on other grounds provided by relevant legislation and jurisprudence: Provided, further, That the provisions of the Civil Code on rescission shall in any case apply to these transactions.

SECTION 59. Actions for Rescission or Nullity. — (a) The rehabilitation receiver or, with his conformity, any creditor may initiate and prosecute any action to rescind, or declare null and void any transaction described in Section 58 hereof. If the rehabilitation receiver does not consent to the filing or prosecution of such action, any creditor may seek leave of the court to commence said action.

(b) If leave of court is granted under subsection (a), the rehabilitation receiver shall assign and transfer to the creditor all rights, title and interest in the chose in action or subject matter of the proceeding, including any document in support thereof.

(c) Any benefit derived from a proceeding taken pursuant to subsection (a), to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.

(d) Where, before an order is made under subsection (a), the rehabilitation receiver (or liquidator) signifies to the court his readiness to institute the proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so and, in that case, the benefit derived from the proceeding, if instituted within the time limits so fixed, belongs to the estate.

(H) Treatment of Secured Creditors.

SECTION 60. No Diminution of Secured Creditor Rights. — The issuance of the Commencement Order and the Suspension or Stay Order, and any other provision of this Act, shall not be deemed in any way to diminish or impair the security or lien of a secured creditor, or the value of his lien or security, except that his right to enforce said security or lien may be suspended during the term of the Stay Order.

The court, upon motion or recommendation of the rehabilitation receiver, may allow a secured creditor to enforce his security or lien, or foreclose upon property of the debtor securing his/its claim, if the said property is not necessary for the rehabilitation of the debtor. The secured creditor and/or the other lien holders shall be admitted to the rehabilitation proceedings only for the balance of his claim, if any.

SECTION 61. Lack of Adequate Protection. — The court, on motion or motu proprio, may terminate, modify or set conditions for the continuance of suspension of payment, or relieve a claim from the coverage thereof, upon showing that:

(a) a creditor does not have adequate protection over property securing its claim; or

(b) the value of a claim secured by a lien on property which is not necessary for rehabilitation of the debtor exceeds the fair market value of the said property.

For purposes of this section, a creditor shall be deemed to lack adequate protection if it can be shown that:

(a) the debtor fails or refuses to honor a pre-existing agreement with the creditor to keep the property insured;

(b) the debtor fails or refuses to take commercially reasonable steps to maintain the property; or

(c) the property has depreciated to an extent that the creditor is under secured.

Upon showing of a lack of protection, the court shall order the debtor or the rehabilitation receiver to make arrangements to provide for the insurance or maintenance of the property; or to make payments or otherwise provide additional or replacement security such that the obligation is fully secured. If such arrangements are not feasible, the court may modify the Stay Order to allow the secured creditor lacking adequate protection to enforce its security claim against the debtor: Provided, however, That the court may deny the creditor the remedies in this paragraph if the property subject of the enforcement is required for the rehabilitation of the debtor.

(I) Administration of Proceedings.

SECTION 62. Contents of a Rehabilitation Plan. — The Rehabilitation Plan shall, as a minimum:

(a) specify the underlying assumptions, the financial goals and the procedures proposed to accomplish such goals;

(b) compare the amounts expected to be received by the creditors under the Rehabilitation Plan with those that they will receive if liquidation ensues within the next one hundred twenty (120) days;

(c) contain information sufficient to give the various classes of creditors a reasonable basis for determining whether supporting the Plan is in their financial interest when compared to the immediate liquidation of the debtor, including any reduction of principal interest and penalties payable to the creditors;

(d) establish classes of voting creditors;

(e) establish subclasses of voting creditors if prior approval has been granted by the court;

(f) indicate how the insolvent debtor will be rehabilitated including, but not limited to, debt forgiveness, debt rescheduling, reorganization or quasi-reorganization, dacion en pago, debt-equity conversion and sale of the business (or parts of it) as a going concern, or setting-up of a new business entity or other similar arrangements as may be necessary to restore the financial well-being and viability of the insolvent debtor;

(g) specify the treatment of each class or subclass described in subsections (d) and (e);

(h) provide for equal treatment of all claims within the same class or subclass, unless a particular creditor voluntarily agrees to less favorable treatment;

(i) ensure that the payments made under the plan follow the priority established under the provisions of the Civil Code on concurrence and preference of credits and other applicable laws;

(j) maintain the security interest of secured creditors and preserve the liquidation value of the security unless such has been waived or modified voluntarily;

(k) disclose all payments to creditors for pre-commencement debts made during the proceedings and the justifications thereof;

(l) describe the disputed claims and the provisioning of funds to account for appropriate payments should the claim be ruled valid or its amount adjusted;

(m) identify the debtor's role in the implementation of the Plan;

(n) state any rehabilitation covenants of the debtor, the breach of which shall be considered a material breach of the Plan;

(o) identify those responsible for the future management of the debtor and the supervision and implementation of the Plan, their affiliation with the debtor and their remuneration;

(p) address the treatment of claims arising after the confirmation of the Rehabilitation Plan;

(q) require the debtor and its counter-parties to adhere to the terms of all contracts that the debtor has chosen to confirm;

(r) arrange for the payment of all outstanding administrative expenses as a condition to the Plan's approval unless such condition has been waived in writing by the creditors concerned;

(s) arrange for the payment of all outstanding taxes and assessments, or an adjusted amount pursuant to a compromise settlement with the BIR or other applicable tax authorities;

(t) include a certified copy of a certificate of tax clearance or evidence of a compromise settlement with the BIR;

(u) include a valid and binding resolution of a meeting of the debtor's stockholders to increase the shares by the required amount in cases where the Plan contemplates an additional issuance of shares by the debtor;

(v) state the compensation and status, if any, of the rehabilitation receiver after the approval of the Plan; and

(w) contain provisions for conciliation and/or mediation as a prerequisite to court assistance or intervention in the event of any disagreement in the interpretation or implementation of the Rehabilitation Plan.

SECTION 63. Consultation with Debtor and Creditors. — If the court gives due course to the petition, the rehabilitation receiver shall confer with the debtor and all the classes of creditors, and may consider their views and proposals in the review, revision or preparation of a new Rehabilitation Plan.

SECTION 64. Creditor Approval of Rehabilitation Plan. — The rehabilitation receiver shall notify the creditors and stakeholders that the Plan is ready for their examination. Within twenty (20) days from the said notification, the rehabilitation receiver shall convene the creditors, either as a whole or per class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected unless approved by all classes of creditors whose rights are adversely modified or affected by the Plan. For purposes of this section, the Plan is deemed to have been approved by a class of creditors if members of the said class holding more than fifty percent (50%) of the total claims of the said class vote in favor of the Plan. The votes of the creditors shall be based solely on the amount of their respective claims based on the registry of claims submitted by the rehabilitation receiver pursuant to Section 44 hereof.

Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation Plan if all of the following circumstances are present:

(a) The Rehabilitation Plan complies with the requirements specified in this Act;

(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;

(c) The shareholders, owners or partners of the juridical debtor lose at least their controlling interest as a result of the Rehabilitation Plan; and

(d) The Rehabilitation Plan would likely provide the objecting class of creditors with compensation which has a net present value greater than that which they would have received if the debtor were under liquidation.

SECTION 65. Submission of Rehabilitation Plan to the Court. — If the Rehabilitation Plan is approved, the rehabilitation receiver shall submit the same to the court for confirmation. Within five (5) days from receipt of the Rehabilitation Plan, the court shall notify the creditors that the Rehabilitation Plan has been submitted for confirmation, that any creditor may obtain copies of the Rehabilitation Plan and that any creditor may file an objection thereto.

SECTION 66. Filing of Objections to Rehabilitation Plan. — A creditor may file an objection to the Rehabilitation Plan within twenty (20) days from receipt of notice from the court that the Rehabilitation Plan has been submitted for confirmation. Objections to a Rehabilitation Plan shall be limited to the following:

(a) The creditors' support was induced by fraud;

(b) The documents or data relied upon in the Rehabilitation Plan are materially false or misleading; or

(c) The Rehabilitation Plan is in fact not supported by the voting creditors.

SECTION 67. Hearing on the Objections. — If objections have been submitted during the relevant period, the court shall issue an order setting the time and date for the hearing or hearings on the objections.

If the court finds merit in the objection, it shall order the rehabilitation receiver or other party to cure the defect, whenever feasible. If the court determines that the debtor acted in bad faith, or that it is not feasible to cure the defect, the court shall convert the proceedings into one for the liquidation of the debtor under Chapter V of this Act.

SECTION 68. Confirmation of the Rehabilitation Plan. — If no objections are filed within the relevant period or, if objections are filed, the court finds them lacking in merit, or determines that the basis for the objection has been cured, or determines that the debtor has complied with an order to cure the objection, the court shall issue an order confirming the Rehabilitation Plan.

The court may confirm the Rehabilitation Plan notwithstanding unresolved disputes over claims if the Rehabilitation Plan has made adequate provisions for paying such claims.

For the avoidance of doubt, the provisions of other laws to the contrary notwithstanding, the court shall have the power to approve or implement the Rehabilitation Plan despite the lack of approval, or objection from the owners, partners or stockholders of the insolvent debtor: Provided, That the terms thereof are necessary to restore the financial well-being and viability of the insolvent debtor.

SECTION 69. Effect of Confirmation of the Rehabilitation Plan. — The confirmation of the Rehabilitation Plan by the court shall result in the following:

(a) The Rehabilitation Plan and its provisions shall be binding upon the debtor and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or opposed the Rehabilitation Plan or whether or not their claims have been scheduled;

(b) The debtor shall comply with the provisions of the Rehabilitation Plan and shall take all actions necessary to carry out the Plan;

(c) Payments shall be made to the creditors in accordance with the provisions of the Rehabilitation Plan;

(d) Contracts and other arrangements between the debtor and its creditors shall be interpreted as continuing to apply to the extent that they do not conflict with the provisions of the Rehabilitation Plan;

(e) Any compromises on amounts or rescheduling of timing of payments by the debtor shall be binding on creditors regardless of whether or not the Plan is successfully implemented; and

(f) Claims arising after approval of the Plan that are otherwise not treated by the Plan are not subject to any Suspension Order.

The Order confirming the Plan shall comply with Rule 36 of the Rules of Court: Provided, however, That the court may maintain jurisdiction over the case in order to resolve claims against the debtor that remain contested and allegations that the debtor has breached the Plan.

SECTION 70. Liability of General Partners of a Partnership for Unpaid Balances Under an Approved Plan. — The approval of the Plan shall not affect the rights of creditors to pursue actions against the general partners of a partnership to the extent they are liable under relevant legislation for the debts thereof.

SECTION 71. Treatment of Amounts of Indebtedness or Obligations Forgiven or Reduced. — Amounts of any indebtedness or obligations reduced or forgiven in connection with a Plan's approval shall not be subject to any tax, in furtherance of the purposes of this Act.

SECTION 72. Period for Confirmation of the Rehabilitation Plan. — The court shall have a maximum period of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.

If no Rehabilitation Plan is confirmed within the said period, the proceedings may, upon motion or motu proprio, be converted into one for the liquidation of the debtor.

SECTION 73. Accounting Discharge of Rehabilitation Receiver. — Upon the confirmation of the Rehabilitation Plan, the rehabilitation receiver shall provide a final report and accounting to the court. Unless the Rehabilitation Plan specifically requires and describes the role of the rehabilitation receiver after the approval of the Rehabilitation Plan, the court shall discharge the rehabilitation receiver of his duties.

(J) Termination of Proceedings.

SECTION 74. Termination of Proceedings. — The rehabilitation proceedings under Chapter II shall, upon motion by any stakeholder or the rehabilitation receiver, be terminated by order of the court either declaring a successful implementation of the Rehabilitation Plan or a failure of rehabilitation.

There is failure of rehabilitation in the following cases:

(a) Dismissal of the petition by the court;

(b) The debtor fails to submit a Rehabilitation Plan;

(c) Under the Rehabilitation Plan submitted by the debtor, there is no substantial likelihood that the debtor can be rehabilitated within a reasonable period;

(d) The Rehabilitation Plan or its amendment is approved by the court but in the implementation thereof, the debtor fails to perform its obligations thereunder, or there is a failure to realize the objectives, targets or goals set forth therein, including the timelines and conditions for the settlement of the obligations due to the creditors and other claimants;

(e) The commission of fraud in securing the approval of the Rehabilitation Plan or its amendment; and

(f) Other analogous circumstances as may be defined by the rules of procedure.

Upon a breach of, or upon a failure of the Rehabilitation Plan, the court, upon motion by an affected party, may:

(1) issue an order directing that the breach be cured within a specified period of time, failing which the proceedings may be converted to a liquidation;

(2) issue an order converting the proceedings to a liquidation;

(3) allow the debtor or rehabilitation receiver to submit amendments to the Rehabilitation Plan, the approval of which shall be governed by the same requirements for the approval of a Rehabilitation Plan under this subchapter;

(4) issue any other order to remedy the breach consistent with the present regulation, other applicable law and the best interests of the creditors; or

(5) enforce the applicable provisions of the Rehabilitation Plan through a writ of execution.

SECTION 75. Effects of Termination. — Termination of the proceedings shall result in the following:

(a) The discharge of the rehabilitation receiver, subject to his submission of a final accounting; and

(b) The lifting of the Stay Order and any other court order holding in abeyance any action for the enforcement of a claim against the debtor.

Provided, however, That if the termination of proceedings is due to failure of rehabilitation or dismissal of the petition for reasons other than technical grounds, the proceedings shall be immediately converted to liquidation as provided in Section 92 of this Act.

SECTION 76. Petition by Debtor. — An insolvent debtor, by itself or jointly with any of its creditors, may file a verified petition with the court for the approval of a pre-negotiated Rehabilitation Plan which has been endorsed or approved by creditors holding at least two-thirds (2/3) of the total liabilities of the debtor, including secured creditors holding more than fifty percent (50%) of the total secured claims of the debtor and unsecured creditors holding more than fifty percent (50%) of the total unsecured claims of the debtor. The petition shall include, as a minimum:

(a) a schedule of the debtor's debts and liabilities;

(b) an inventory of the debtor's assets;

(c) the pre-negotiated Rehabilitation Plan, including the names of at least three (3) qualified nominees for rehabilitation receiver; and

(d) a summary of disputed claims against the debtor and a report on the provisioning of funds to account for appropriate payments should any such claims be ruled valid or their amounts adjusted.

SECTION 77. Issuance of Order. — Within five (5) working days, and after determination that the petition is sufficient in form and substance, the court shall issue an Order which shall:

(a) identify the debtor, its principal business or activity/ies and its principal place of business;

(b) declare that the debtor is under rehabilitation;

(c) summarize the ground/s for the filing of the petition;

(d) direct the publication of the Order in a newspaper of general circulation in the Philippines once a week for at least two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of its issuance;

(e) direct the service by personal delivery of a copy of the petition on each creditor who is not a petitioner holding at least ten percent (10%) of the total liabilities of the debtor, as determined in the schedule attached to the petition, within three (3) days;

(f) state that copies of the petition and the Rehabilitation Plan are available for examination and copying by any interested party;

(g) state that creditors and other interested parties opposing the petition or Rehabilitation Plan may file their objections or comments thereto within a period of not later than twenty (20) days from the second publication of the Order;

(h) appoint a rehabilitation receiver, if provided for in the Plan; and

(i) include a Suspension or Stay Order as described in this Act.

SECTION 78. Approval of the Plan. — Within ten (10) days from the date of the second publication of the Order, the court shall approve the Rehabilitation Plan unless a creditor or other interested party submits an objection to it in accordance with the next succeeding section.

SECTION 79. Objection to the Petition or Rehabilitation Plan. — Any creditor or other interested party may submit to the court a verified objection to the petition or the Rehabilitation Plan not later than eight (8) days from the date of the second publication of the Order mentioned in Section 77 hereof. The objections shall be limited to the following:

(a) The allegations in the petition or the Rehabilitation Plan, or the attachments thereto, are materially false or misleading;

(b) The majority of any class of creditors do not in fact support the Rehabilitation Plan;

(c) The Rehabilitation Plan fails to accurately account for a claim against the debtor and the claim is not categorically declared as a contested claim; or

(d) The support of the creditors, or any of them, was induced by fraud.

Copies of any objection to the petition or the Rehabilitation Plan shall be served on the debtor, the rehabilitation receiver (if applicable), the secured creditor with the largest claim and who supports the Rehabilitation Plan, and the unsecured creditor with the largest claim and who supports the Rehabilitation Plan.

SECTION 80. Hearing on the Objections. — After receipt of an objection, the court shall set the same for hearing. The date of the hearing shall be no earlier than twenty (20) days and no later than thirty (30) days from the date of the second publication of the Order mentioned in Section 77 hereof. If the court finds merit in the objection, it shall direct the debtor, when feasible, to cure the defect within a reasonable period. If the court determines that the debtor or creditors supporting the Rehabilitation Plan acted in bad faith, or that the objection is non-curable, the court may order the conversion of the proceedings into liquidation. A finding by the court that the objection has no substantial merit, or that the same has been cured, shall be deemed an approval of the Rehabilitation Plan.

SECTION 81. Period for Approval of Rehabilitation Plan. — The court shall have a maximum period of one hundred twenty (120) days from the date of the filing of the petition to approve the Rehabilitation Plan. If the court fails to act within the said period, the Rehabilitation Plan shall be deemed approved.

SECTION 82. Effect of Approval. — Approval of a Plan under this chapter shall have the same legal effect as confirmation of a Plan under Chapter II of this Act.

SECTION 83. Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. — An out-of-court or informal restructuring agreement or Rehabilitation Plan that meets the minimum requirements prescribed in this chapter is hereby recognized as consistent with the objectives of this Act.

SECTION 84. Minimum Requirements of Out-of-Court or Informal Restructuring Agreements and Rehabilitation Plans. — For an out-of-court or informal restructuring/workout agreement or Rehabilitation Plan to qualify under this chapter, it must meet the following minimum requirements:

(a) The debtor must agree to the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan;

(b) It must be approved by creditors representing at least sixty-seven percent (67%) of the secured obligations of the debtor;

(c) It must be approved by creditors representing at least seventy-five percent (75%) of the unsecured obligations of the debtor; and

(d) It must be approved by creditors holding at least eighty-five percent (85%) of the total liabilities, secured and unsecured, of the debtor.

SECTION 85. Standstill Period. — A standstill period that may be agreed upon by the parties pending negotiation and finalization of the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan contemplated herein shall be effective and enforceable not only against the contracting parties but also against the other creditors: Provided, That (a) such agreement is approved by creditors representing more than fifty percent (50%) of the total liabilities of the debtor; (b) notice thereof is published in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; and (c) the standstill period does not exceed one hundred twenty (120) days from the date of effectivity. The notice must invite creditors to participate in the negotiation for out-of-court rehabilitation or restructuring agreement and notify them that said agreement will be binding on all creditors if the required majority votes prescribed in Section 84 of this Act are met.

SECTION 86. Cram Down Effect. — A restructuring/workout agreement or Rehabilitation Plan that is approved pursuant to an informal workout framework referred to in this chapter shall have the same legal effect as confirmation of a Plan under Section 69 hereof. The notice of the Rehabilitation Plan or restructuring agreement or Plan shall be published once a week for at least three (3) consecutive weeks in a newspaper of general circulation in the Philippines. The Rehabilitation Plan or restructuring agreement shall take effect upon the lapse of fifteen (15) days from the date of the last publication of the notice thereof.

SECTION 87. Amendment or Modification. — Any amendment of an out-of-court restructuring/workout agreement or Rehabilitation Plan must be made in accordance with the terms of the agreement and with due notice on all creditors.

SECTION 88. Effect of Court Action or Other Proceedings. — Any court action or other proceedings arising from, or relating to, the out-of-court or informal restructuring/workout agreement or Rehabilitation Plan shall not stay its implementation, unless the relevant party is able to secure a temporary restraining order or injunctive relief from the Court of Appeals.

SECTION 89. Court Assistance. — The insolvent debtor and/or creditor may seek court assistance for the execution or implementation of a Rehabilitation Plan under this chapter, under such rules of procedure as may be promulgated by the Supreme Court.

SECTION 90. Voluntary Liquidation. — An insolvent debtor may apply for liquidation by filing a petition for liquidation with the court. The petition shall be verified, shall establish the insolvency of the debtor and shall contain, whether as an attachment or as part of the body of the petition:

(a) a schedule of the debtor's debts and liabilities including a list of creditors with their addresses, amounts of claims and collaterals, or securities, if any;

(b) an inventory of all its assets including receivables and claims against third parties; and

(c) the names of at least three (3) nominees to the position of liquidator.

At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that the debtor is seeking immediate dissolution and termination of its corporate existence.

If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall issue a Liquidation Order mentioned in Section 112 hereof.

SECTION 91. Involuntary Liquidation. — Three (3) or more creditors the aggregate of whose claims is at least either One million pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital stock or partner's contributions of the debtor, whichever is higher, may apply for and seek the liquidation of an insolvent debtor by filing a petition for liquidation of the debtor with the court. The petition shall show that:

(a) there is no genuine issue of fact or law on the claim/s of the petitioner/s, and that the due and demandable payments thereon have not been made for at least one hundred eighty (180) days or that the debtor has failed generally to meet its liabilities as they fall due; and

(b) there is no substantial likelihood that the debtor may be rehabilitated.

At any time during the pendency of or after a rehabilitation court-supervised or pre-negotiated rehabilitation proceedings, three (3) or more creditors whose claims is at least either One million pesos (Php1,000,000.00) or at least twenty-five percent (25%) of the subscribed capital or partner's contributions of the debtor, whichever is higher, may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that the movants are seeking the immediate liquidation of the debtor.

If the petition or motion is sufficient in form and substance, the court shall issue an Order:

(1) directing the publication of the petition or motion in a newspaper of general circulation once a week for two (2) consecutive weeks; and

(2) directing the debtor and all creditors who are not the petitioners to file their comment on the petition or motion within fifteen (15) days from the date of last publication.

If, after considering the comments filed, the court determines that the petition or motion is meritorious, it shall issue the Liquidation Order mentioned in Section 112 hereof.

SECTION 92. Conversion by the Court into Liquidation Proceedings. — During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to: (a) Section 25 (c) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.

SECTION 93. Powers of the Securities and Exchange Commission (SEC).— The provisions of this chapter shall not affect the regulatory powers of the SEC under Section 6 of Presidential Decree No. 902-A, as amended, with respect to any dissolution and liquidation proceeding initiated and heard before it.

(A) Suspension of Payments.

SECTION 94. Petition. — An individual debtor who, possessing sufficient property to cover all his debts but foreseeing the impossibility of meeting them when they respectively fall due, may file a verified petition that he be declared in the state of suspension of payments by the court of the province or city in which he has resided for six (6) months prior to the filing of his petition. He shall attach to his petition, as a minimum: (a) a schedule of debts and liabilities; (b) an inventory of assets; and (c) a proposed agreement with his creditors.

SECTION 95. Action on the Petition. — If the court finds the petition sufficient in form and substance, it shall, within five (5) working days from the filing of the petition, issue an Order:

(a) calling a meeting of all the creditors named in the schedule of debts and liabilities at such time not less than fifteen (15) days nor more than forty (40) days from the date of such Order and designating the date, time and place of the meeting;

(b) directing such creditors to prepare and present written evidence of their claims before the scheduled creditors' meeting;

(c) directing the publication of the said order in a newspaper of general circulation published in the province or city in which the petition is filed once a week for two (2) consecutive weeks, with the first publication to be made within seven (7) days from the time of the issuance of the Order;

(d) directing the clerk of court to cause the sending of a copy of the Order by registered mail, postage prepaid, to all creditors named in the schedule of debts and liabilities;

(e) forbidding the individual debtor from selling, transferring, encumbering or disposing in any manner of his property, except those used in the ordinary operations of commerce or of industry in which the petitioning individual debtor is engaged, so long as the proceedings relative to the suspension of payments are pending;

(f) prohibiting the individual debtor from making any payment outside of the necessary or legitimate expenses of his business or industry, so long as the proceedings relative to the suspension of payments are pending; and

(g) appointing a commissioner to preside over the creditors' meeting.

SECTION 96. Actions Suspended. — Upon motion filed by the individual debtor, the court may issue an order suspending any pending execution against the individual debtor: Provided, that properties held as security by secured creditors shall not be the subject of such suspension order. The suspension order shall lapse when three (3) months shall have passed without the proposed agreement being accepted by the creditors or as soon as such agreement is denied.

No creditor shall sue or institute proceedings to collect his claim from the debtor from the time of the filing of the petition for suspension of payments and for as long as proceedings remain pending except:

(a) those creditors having claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition; and

(b) secured creditors.

SECTION 97. Creditors' Meeting. — The presence of creditors holding claims amounting to at least three-fifths (3/5) of the liabilities shall be necessary for holding a meeting. The commissioner appointed by the court shall preside over the meeting and the clerk of court shall act as the secretary thereof, subject to the following rules:

(a) The clerk shall record the creditors present and amount of their respective claims;

(b) The commissioner shall examine the written evidence of the claims. If the creditors present hold at least three-fifths (3/5) of the liabilities of the individual debtor, the commissioner shall declare the meeting open for business;

(c) The creditors and individual debtor shall discuss the propositions in the proposed agreement and put them to a vote;

(d) To form a majority, it is necessary:

(1) that two-thirds (2/3) of the creditors voting unite upon the same proposition; and

(2) that the claims represented by said majority vote amount to at least three-fifths (3/5) of the total liabilities of the debtor mentioned in the petition; and

(e) After the result of the voting has been announced, all protests made against the majority vote shall be drawn up, and the commissioner and the individual debtor together with all creditors taking part in the voting shall sign the affirmed propositions.

No creditor who incurred his credit within ninety (90) days prior to the filing of the petition shall be entitled to vote.

SECTION 98. Persons Who May Refrain from Voting. — Creditors who are unaffected by the Suspension Order may refrain from attending the meeting and from voting therein. Such persons shall not be bound by any agreement determined upon at such meeting, but if they should join in the voting they shall be bound in the same manner as are the other creditors.

SECTION 99. Rejection of the Proposed Agreement. — The proposed agreement shall be deemed rejected if the number of creditors required for holding a meeting do not attend thereat, or if the two (2) majorities mentioned in Section 97 hereof are not in favor thereof. In such instances, the proceeding shall be terminated without recourse and the parties concerned shall be at liberty to enforce the rights which may correspond to them.

SECTION 100. Objections. — If the proposal of the individual debtor, or any amendment thereof made during the creditors' meeting, is approved by the majority of creditors in accordance with Section 97 hereof, any creditor who attended the meeting and who dissented from and protested against the vote of the majority may file an objection with the court within ten (10) days from the date of the last creditors' meeting. The causes for which objection may be made to the decision made by the majority during the meeting shall be: (a) defects in the call for the meeting, in the holding thereof, and in the deliberations had thereat which prejudice the rights of the creditors; (b) fraudulent connivance between one or more creditors and the individual debtor to vote in favor of the proposed agreement; or (c) fraudulent conveyance of claims for the purpose of obtaining a majority. The court shall hear and pass upon such objection as soon as possible and in a summary manner.

In case the decision of the majority of creditors to approve the individual debtor's proposal or any amendment thereof made during the creditors' meeting is annulled by the court, the court shall declare the proceedings terminated and the creditors shall be at liberty to exercise the rights which may correspond to them.

SECTION 101. Effects of Approval of Proposed Agreement. — If the decision of the majority of the creditors to approve the proposed agreement or any amendment thereof made during the creditors' meeting is upheld by the court, or when no opposition or objection to said decision has been presented, the court shall order that the agreement be carried out and all parties bound thereby to comply with its terms.

The court may also issue all orders which may be necessary or proper to enforce the agreement on motion of any affected party. The Order confirming the approval of the proposed agreement on any amendment thereof made during the creditors' meeting shall be binding upon all creditors whose claims are included in the schedule of debts and liabilities submitted by the individual debtor and who were properly summoned, but not upon: (a) those creditors having claims for personal labor, maintenance, expenses of last illness and funeral of the wife or children of the debtor incurred in the sixty (60) days immediately prior to the filing of the petition, and (b) secured creditors who failed to attend the meeting on refrained from voting therein.

SECTION 102. Failure of Individual Debtor to Perform Agreement. — If the individual debtor fails, wholly or in part, to perform the agreement decided upon at the meeting of the creditors, all the rights which the creditors had against the individual debtor before the agreement shall revest in them. In such case the individual debtor may be made subject to the insolvency proceedings in the manner established by this Act.

(B) Voluntary Liquidation.

SECTION 103. Application. — An individual debtor whose properties are not sufficient to cover his liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to be discharged from his debts and liabilities by filing a verified petition with the court of the province or city in which he has resided for six (6) months prior to the filing of such petition. He shall attach to his petition a schedule of debts and liabilities and an inventory of assets. The filing of such petition shall be an act of insolvency.

SECTION 104. Liquidation Order. — If the court finds the petition sufficient in form and substance, it shall, within five (5) working days, issue the Liquidation Order mentioned in Section 112 hereof.

(C) Involuntary Liquidation.

SECTION 105. Petition; Acts of Insolvency. — Any creditor or group of creditors with a claim of, or with claims aggregating, at least Five hundred thousand pesos (Php500,000.00) may file a verified petition for liquidation with the court of the province or city in which the individual debtor resides.

The following shall be considered acts of insolvency, and the petition for liquidation shall set forth or allege at least one of such acts:

(a) That such person 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 (3) 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 creditor 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 thirty (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 capacity; 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.

The petitioning creditor/s shall post a bond in such sum as the court shall direct, conditioned that if the petition for liquidation is dismissed by the court, or withdrawn by the petitioner, or if the debtor shall not be declared an insolvent, the petitioners will pay to the debtor all costs, expenses, damages occasioned by the proceedings, and attorney's fees.

SECTION 106. Order to Individual Debtor to Show Cause. — Upon the filing of such creditors' petition, the court shall issue an Order requiring the individual debtor to show cause, at a time and place to be fixed by the said court, why he should not be adjudged an insolvent. Upon good cause shown, the court may issue an Order forbidding the individual debtor from making payments of any of his debts, and transferring any property belonging to him. However, nothing contained herein shall affect or impair the rights of a secured creditor to enforce his lien in accordance with its terms.

SECTION 107. Default. — If the individual debtor shall default or if, after trial, the issues are found in favor of the petitioning creditors, the court shall issue the Liquidation Order mentioned in Section 112 hereof.

SECTION 108. Absent Individual Debtor. — In all cases where the individual debtor resides out of the Republic of the Philippines; or has departed therefrom; or cannot, after due diligence, be found therein; or conceals himself to avoid service of the Order to show cause, or any other preliminary process or orders in the matter, then the petitioning creditors, upon submitting the affidavits requisite to procure an Order of publication, and presenting a bond in double the amount of the aggregate sum of their claims against the individual debtor, shall be entitled to an Order of the court directing the sheriff of the province or city in which the matter is pending to take into his custody a sufficient amount of property of the individual debtor to satisfy the demands of the petitioning creditors and the costs of the proceedings. Upon receiving such Order of the court to take into custody property of the individual debtor, it shall be the duty of the sheriff to take possession of the property and effects of the individual debtor, not exempt from execution, to an extent sufficient to cover the amount provided for, and to prepare, within three (3) days from the time of taking such possession, a complete inventory of all the property so taken, and to return it to the court as soon as completed. The time for taking the inventory and making return thereof may be extended for good cause shown to the court. The sheriff shall also prepare a schedule of the names and residences of the creditors, and the amount due each, from the books of the debtor, or from such other papers or data of the individual debtor available as may come to his possession, and shall file such schedule or list of creditors and inventory with the clerk of court.

SECTION 109. All Property Taken to be Held for All Creditors; Appeal Bonds; Exceptions to Sureties. — In all cases where property is taken into custody by the sheriff, if it does not embrace all the property and effects of the debtor not exempt from execution, any other creditor or creditors of the individual debtor, upon giving bond to be approved by the court in double the amount of their claims, singly or jointly, shall be entitled to similar orders and to like action, by the sheriff, until all claims be provided for, if there be sufficient property or effects. All property taken into custody by the sheriff by virtue of the giving of any such bonds shall be held by him for the benefit of all creditors of the individual debtor whose claims shall be duly proved as provided in this Act. The bonds provided for in this section and the preceding section to procure the order for custody of the property and effects of the individual debtor shall be conditioned that if, upon final hearing of the petition in insolvency, the court shall find in favor of the petitioners, such bonds and all of them shall be void; if the decision be in favor of the individual debtor, the proceedings shall be dismissed, and the individual debtor, his heirs, administrators, executors or assigns shall be entitled to recover such sum of money as shall be sufficient to cover the damages sustained by him, not to exceed the amount of the respective bonds. Such damages shall be fixed and allowed by the court. If either the petitioners or the debtor shall appeal from the decision of the court, upon final hearing of the petition, the appellant shall be required to give bond to the successful party in a sum double the amount of the value of the property in controversy, and for the costs of the proceedings.

Any person interested in the estate may take exception to the sufficiency of the sureties on such bond or bonds. When excepted to, the petitioner's sureties, upon notice to the person excepting of not less than two (2) nor more than five (5) days, must justify as to their sufficiency; and upon failure to justify, or if others in their place fail to justify at the time and place appointed, the judge shall issue an Order vacating the order to take the property of the individual debtor into the custody of the sheriff, or denying the appeal, as the case may be.

SECTION 110. Sale Under Execution. — If, in any case, proper affidavits and bonds are presented to the court or a judge thereof, asking for and obtaining an Order of publication and an Order for the custody of the property of the individual debtor and thereafter the petitioners shall make it appear satisfactorily to the court or a judge thereof that the interest of the parties to the proceedings will be subserved by a sale thereof, the court may order such property to be sold in the same manner as property is sold under execution, the proceeds to be deposited in the court to abide by the result of the proceedings.