INVOLUNTARY INSOLVENCY

An adjudication of insolvency may be made on the petition of three or more creditors, residents of
the Philippines, whose creditors or demands accrued in the Philippines, and the amount of which creditors
or demands are in the aggregate of not less than P1,000.

Nature of Involuntary Insolvency:
Not a mere personal action against the insolvent for the collection of debts

Purpose is to impound all of his non-exempt property, to distribute it equitably among his creditors, and to release him from further liability

Action is a proceeding in rem as well as inpersonam (Sec. 46)

PROCEDURE FOR INVOLUNTARY INSOLVENCY:
1. Filing of the petition by three or more creditors (Sec. 20);
2. Issuance of the order requiring the debtor to show cause why he should not be
adjudged insolvent (Sec. 21);
3. Service of order to show cause (Sec. 22);
4. Filing of answer or motion to dismiss (Sec. 23);
5. Hearing of the case (Sec. 24);
6. Issuance of order for decision adjudging debtor insolvent (Sec. 24);
7. Publication and service of order (Sec. 25);
8. Meeting of the creditors to elect the assignee in insolvency (Sec. 30);
9. Conveyance of the debtor’s property by the clerk of court to the assignee (Sec. 32);
10. Liquidation of the debtor’s assets and payment of his debts (Sec. 33);
11. Composition, if agreed upon (Sec. 63);
12. Discharge of the debtor on his application (Sec. 52);
13. Objection, if any, to the discharge (Sec. 66);
14. Appeal to the Supreme Court in certain cases (sec. 62)

COMPOSITION – an agreement, made upon a sufficient consideration, between an insolvent or embarrassed debtor and his creditors, whereby the latter for the sake of immediate or sooner payment, agree to accept a dividend less than the whole amount of their claims, to be distributed pro rata, in discharge and satisfaction of the whole debt.