The Rule on ‘Abolition of LGUs’ and Disposal of Assets

March 24, 2026

SUBJECT: The Rule on ‘Abolition of LGUs’ and Disposal of Assets

I. Introduction

This memorandum exhaustively examines the legal framework governing the abolition of local government units (LGUs) in the Philippines and the concomitant rules for the disposition and liquidation of their assets, properties, and obligations. The power to create or abolish LGUs is a legislative prerogative, but its exercise is constrained by constitutional and statutory mandates designed to protect local autonomy, ensure public welfare, and uphold the due process rights of affected communities and personnel. The process of abolition triggers a complex procedure for winding down the LGU’s affairs, with specific rules for the disposal of its assets and the settlement of its liabilities. This research synthesizes constitutional provisions, the Local Government Code of 1991 (Republic Act No. 7160), pertinent jurisprudence, and relevant issuances from oversight bodies like the Commission on Audit (COA).

II. Constitutional Foundation: Local Autonomy and the Creation of LGUs

The 1987 Constitution enshrines the principle of local autonomy. Section 2, Article X mandates that “The territorial and political subdivisions shall enjoy local autonomy.” However, this autonomy operates within the framework of national sovereignty. The power to create, consolidate, merge, or abolish LGUs is expressly granted to Congress. Section 10 of the same Article provides that “no… abolition of local government units shall take effect unless approved by a majority of the votes cast in a plebiscite in the political unit or units directly affected.” This dual requirement-legislative action and plebiscitary approval-serves as a critical check, ensuring that such significant alterations to the local government structure reflect the will of the people most impacted.

III. Statutory Framework: The Local Government Code of 1991 (R.A. 7160)

The Local Government Code operationalizes the constitutional principles. Its key provisions are:
Section 7: Provides the criteria for the creation or conversion of LGUs (e.g., income, population, land area). While focused on creation, the absence or failure to maintain these criteria can be a ground for abolition or merger*.
Section 8: Explicitly governs the Division and Merger, and by implication, the Abolition, of LGUs. It reiterates the plebiscite* requirement and mandates that such acts shall “take effect at the end of the calendar year.”
Section 9: Titled “Annexation of Barangays,” also requires a plebiscite*.
Title Four, Book I: Contains general provisions on Property and Assets of LGUs, which become central upon abolition*.
Sections 465(d), 466(d), 467(d): Grant provincial, city, and municipal sanggunians, respectively, the power to dispose of local government properties in accordance with law, subject to pertinent COA* rules.

IV. Grounds and Procedure for Abolition

Abolition is distinct from merger or consolidation*. It implies the complete cessation of the LGU’s legal existence, not its integration into another.
Grounds: While the Local Government Code* does not provide an exhaustive list, grounds are typically legislative policy determinations. These may include: (1) Failure to meet the criteria for creation (e.g., drastic loss of income/population); (2) National interest or public welfare requiring administrative reorganization; (3) Inefficiency or non-viability as a governing unit.
Procedure: The standard procedure involves: (1) Passage of an Act of Congress specifically providing for the abolition; (2) Conduct of a plebiscite in the LGU to be abolished, where the majority of votes cast must approve the abolition*; (3) Effectivity at the end of the calendar year, allowing for an orderly transition.

V. Legal Effects of a Valid Abolition

Upon the effective date of a valid abolition:

The corporate existence of the LGU ceases.

Its governmental powers and functions are terminated or reassigned as provided by law (often to the province or a neighboring LGU).

The positions of its elective and appointive officials are deemed vacated, subject to civil service laws and rules on separation/placement.

The process of liquidation begins. The LGU, through a designated liquidation committee or its successor-in-interest, must settle all outstanding obligations, liabilities, and claims.

The title to, and responsibility for, its public domain, assets, properties, and records must be transferred or disposed of according to law.

VI. The Rule on Disposal of Assets and Liquidation of Obligations

The disposition of assets and settlement of liabilities is governed by a hierarchy of rules:

The Abolition Law Itself: The Act of Congress ordaining the abolition may contain specific provisions on the disposition of assets and liquidation of obligations. This is the primary law to consult.

The Local Government Code: In the absence of specific congressional direction, the general provisions of the Code apply.

Assets: Public domain properties revert to the state. Patrimonial properties are subject to liquidation. The sanggunian of the abolishing entity (or the overseeing province) must authorize the disposition through a valid ordinance. The disposal must follow COA rules on the audit and disposition of government assets*.
Obligations: Outstanding debts and liabilities must be settled using the assets of the abolished LGU. The principle is that the assets constitute a trust fund for the payment of its obligations*.

Commission on Audit (COA) Rules and Jurisprudence: COA Circulars (e.g., the Rules and Regulations on the Settlement of Accounts) provide detailed procedures for liquidation. Jurisprudence emphasizes that the liquidation process is administrative in nature and must be undertaken with transparency and accountability. The liquidation committee is tasked with collecting receivables, selling assets, and paying valid claims.

VII. Comparative Analysis: Abolition vs. Merger/Consolidation

The legal consequences differ significantly between abolition and merger/consolidation.

Aspect	Abolition of an LGU	Merger/Consolidation of LGUs
Legal Status	The LGU ceases to exist as a corporate body.	The merging LGUs cease to exist, giving rise to a new LGU, or one absorbs the other(s).
Governing Law	Specific Abolition Law; Local Government Code general provisions on liquidation.	Specific Merger/Consolidation Law; Local Government Code on creation.
Plebiscite Requirement	Required in the LGU to be abolished.	Required in all LGUs directly affected.
Disposition of Assets	Assets are liquidated; proceeds settle debts, remainder may be transferred to the national or provincial treasury, or as directed by law.	Assets are transferred to the new or surviving LGU, subject to the law effecting the merger.
Assumption of Liabilities	Liabilities are extinguished upon settlement from liquidated assets; unpaid valid claims may be pursued against the liquidation committee or the national government if provided by law.	Liabilities are generally assumed by the new or surviving LGU.
Personnel	All positions are vacated; personnel are separated, subject to civil service rules on placement or benefits.	Personnel are typically absorbed by the new or surviving LGU, with security of tenure protected.

VIII. Relevant Jurisprudence

Tan v. COMELEC: Emphasized that the plebiscite requirement is mandatory and jurisdictional. The people’s direct vote on the abolition* is a constitutional condition sine qua non.
Padilla v. COMELEC: Highlighted that the power to create includes the power to abolish, and that the legislative discretion is subject only to constitutional limits, chiefly the plebiscite*.
COA Opinions and Decisions: Various COA rulings provide guidance on the audit of liquidation proceedings, the treatment of unliquidated cash advances, and the proper disposition of properties post-abolition. They stress that liquidation* is a fiduciary duty.

IX. Practical and Procedural Considerations

Liquidation Committee: The law or an executive order typically creates a liquidation committee composed of representatives from the COA, the Department of the Interior and Local Government (DILG), and the LGU. This committee takes inventory, controls assets, and processes claims.

Priority of Claims: In liquidation, the order of payment generally follows: (a) administrative expenses of liquidation; (b) preferential credits as defined by the Civil Code (e.g., taxes, wages); (c) other unsecured credits.

Residual Assets: After full settlement of obligations, any remaining assets or funds are escheated to the national treasury, unless the abolition law provides for a specific beneficiary (e.g., the province).

Real Property: The disposal of real property must comply with COA rules and, if applicable, public bidding requirements under Republic Act No. 9184 (Government Procurement Reform Act).

X. Conclusion

The abolition of an LGU is a grave act that terminates its corporate life. It is strictly governed by the Constitution’s requirement of a plebiscite and must be effected by an Act of Congress. The subsequent disposal of assets and liquidation of obligations is a meticulous administrative process anchored on the Local Government Code and detailed COA regulations. The overarching principles are the protection of creditors’ rights, the proper accounting of public assets, and the faithful execution of the legislative will. Legal practitioners and local government officials involved in such a process must adhere to the specific abolition law, the general framework of the Local Government Code, and the audit rules of the COA to ensure a lawful and orderly winding down of the abolished LGU’s affairs.

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