THIRD DIVISION
G.R. No. 163156
December 10, 2008
NEGROS NAVIGATION CO., INC., petitioner,
vs.
COURT OF APPEALS, SPECIAL TWELFTH DIVISION AND TSUNEISHI HEAVY INDUSTRIES (CEBU), INC.,respondents.
x---------------------------------------------------x
G.R. No. 166845
December 10, 2008
TSUNEISHI HEAVY INDUSTRIES (CEBU), INC., petitioner,
vs.
NEGROS NAVIGATION CO., INC., SULFICIO O. TAGUD, JR., AND THE REHABILITATION RECEIVER FOR NEGROS NAVIGATION
CO., INC., respondents. NACHURA, J.:
Facts:
NNC is a shipping company engaged in the business of transporting through shipping vessels, passengers and
cargoes at various ports of call in the country. THI, on the other hand, is engaged in the business of shipbuilding and repair.
NNC engaged the services of THI for the repair of its vessels.
THI filed a case for sum of money and damages with prayer for issuance of writ of attachment against NNC before the
Regional Trial Court of Cebu (Cebu RTC. Inc. The action is based on the unpaid services for the repair of NNC’s vessels,
otherwise known as repairman’s lien.
the Cebu RTC issued an Order granting the issuance of a writ of preliminary attachment against the properties of NNC. It
reasoned that based on the affidavit in support of the application for the writ, NNC committed fraud in contracting the debt
or in incurring the obligation upon which the action was brought, thus, justifying the issuance of the writ 8 as mandated by
Section 1(d) of Rule 57.
NNC filed a Petition for Corporate Rehabilitation with Prayer for Suspension of Payments with the RTC of Manila (Manila
RTC).
Petitioner Negros Navigation Co., Inc. filed a Petition alleging that, it had been very viable and financially profitable; that
because of the Asian Currency Crisis and the devaluation of the Peso. Hence, it is presenting a Rehabilitation Plan for
approval of its creditors as well as this Court.
On April 5, 2004, THI filed an Amended Complaint15 in the Cebu RTC. In the amended complaint, THI impleaded the following
vessels of NNC as co-defendants in the suit: M/V San Sebastian, M/S Princess of Negros, M/V Nossa Senhora (Nuestra
Señora) De Fatima, M/V St. Peter the Apostle, M/V Santa Ana and M/V San Paolo. 16 THI prayed for the following in the
amended complaint:
WHEREFORE, it is respectfully prayed that:
1. An ex-parte writ of preliminary attachment/arrest order be issued directing the sheriff to attach defendant’s properties
not exempt from execution as security for the satisfaction of the judgment in this action, and/or arrest the defendant
vessels, upon approval by the Court of an appropriate attachment/arrest bond in accordance with the Rules of Court.
2. It is further respectfully prayed that after trial, judgment be rendered in favor of the plaintiff and against the defendant,
Negros Navigation ordering the latter to pay the amount of P104,464,000.00 plus interest and penalties, and in satisfaction
thereof and/or to ensure the same:
a. In the in personam action, attaching the assets of defendant Negros Navigation, including the vessel, M/V St. Joseph; and
b. In the in rem action, an order/warrant of arrest of the Vessels based on plaintiff’s lien which arose from repairs and dry
docking furnished by plaintiff
Page 1 of 22
the Cebu RTC issued two (2) Orders. The first was an Order18 admitting the amended complaint as a matter of right since
NNC had not yet filed a responsive pleading when the same was filed. The second was an Order 19 for the arrest of the
vessels of NNC in the in rem aspect of the case. The fallo of the Order reads:
WHEREFORE, in view of the foregoing, the sheriff, or other proper officers of this court and such other person(s) as they
may deputize, is/are hereby directed to arrest and detain the following vessels: M/V San Sebastian, M/S Princess of Negros,
M/V Nossa Senhora de Fatima (Nuestra Senora de Fatima), M/V St. Peter the Apostle, M/V Sta. Ana and M/V San Paolo. The
Philippine Ports Authority, the Philippine Coast Guard, the Maritime Industry Authority (MARINA), the Philippine National
Police, the National Bureau of Investigation and other law enforcement agencies and all other government agencies and
instrumentalities are hereby ordered to assist. Assistance shall include but not be limited to preventing the vessel from
sailing or trading except as this admiralty court shall direct. Keep the vessels in custody until further order of this court,
sitting as an admiralty court.
IT IS SO ORDERED.
On April 12, 2004, NNC’s Rehabilitation Receiver filed with the Manila RTC a Motion for the clarification of the stay order.
It sought to confirm whether the claim sought to be enforced by THI against the vessels of NNC is covered by the stay order.
RTC replied:
The Interim Rules of Procedure on Corporate Rehabilitation does not distinguish the kind of claims covered, whether in rem
or in personam, due or not due. Hence, when the law does not distinguish, courts ought not to distinguish. So the stay order
applies to all CLAIMS.
NNC filed a Motion to Suspend Proceedings and to Lift the Writ of Attachment and Arrest Orders23 before the Cebu RTC by
virtue of the April 12, 2004 Order of the Manila RTC. However, the CA issued the Resolutionassailed in what is before this
Court as G.R. No. 163156, wherein the appellate court temporarily restrained the implementation of the Orders of the
Manila RTC dated April 1, 2004 and April 12, 2004. The pertinent portion of the assailed Resolution reads:
To preserve the status quo and so as not to render ineffectual and nugatory the judgment that will be rendered in this
petition, a temporary restraining order valid for sixty (60) days is issued enjoining respondents and all persons acting for
them and on their behalf or third persons from enforcing or implementing the Orders dated April 1, 2004 and April 12, 2004
of the public respondent.
the CA issued the Decision27 assailed in what is now G.R. No. 166845, denying the petition of THI that sought to annul and
enjoin the enforcement and implementation of the Orders of the Manila RTC. Hence, this case.
Issue:
Whether or not the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction in issuing the
Resolution dated April 29, 2004 embodying the temporary restraining order which enjoined the implementation of the
Orders of the Manila RTC
Ruling:
No.
In G.R. No. 163156
The issue presented by NNC in G.R. No. 163156 was rendered moot and academic by the promulgation of the CA Decision
and Resolution dated October 6, 2004 and January 24, 2005, respectively. The SC find it it unnecessary to discuss it
extensively because the arguments presented by NNC and THI in support of their respective positions are, ultimately, the
very same issues we now resolve in G.R. No. 166845.
In G.R. No. 166845
On the first issue, THI maintains that its maritime liens against the vessels of NNC were impaired by the issuance of the stay
order. THI argues that the issuance of the stay order by the Manila RTC, acting as rehabilitation court, was erroneous
considering that maritime liens cannot be enforced, divested, and otherwise affected or dealt with except by an admiralty
court in an admiralty proceeding in rem. THI cited various foreign jurisprudence to the effect that maritime liens are
enforceable only by a suit in rem. It further averred that the mere suspension of the in rem proceedings in the admiralty
case prejudiced its substantive rights under Presidential Decree (PD) 1521.
Page 2 of 22
The argument of THI is misplaced. There is no conflict as to which law should apply to the case at bench. The Court agrees
that PD 1521 is the governing law concerning its maritime lien for the services it rendered to NNC. However, when NNC
filed a petition for corporate rehabilitation and suspension of payments, and the Manila RTC found that the petition was
sufficient in form and in substance and appointed the rehabilitation receiver, the admiralty proceeding was appropriately
suspended in accordance with Section 6 of the Interim Rules on Corporate Rehabilitation.
Rehabilitation contemplates continuance of corporate life and activities in an effort to restore and reinstate the corporation
to its former position of successful operation and solvency. The purpose of rehabilitation proceedings is precisely to enable
the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. The
rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger sense,
the general public.
The governing law concerning rehabilitation and suspension of actions for claims against corporations is PD 902-A, as
amended. Republic Act No. 8799 (RA 8799), otherwise known as The Securities Regulation Code, amended Section 5 of PD
902-A, thereby transferring to the Regional Trial Courts the jurisdiction of the Securities and Exchange Commission (SEC)
over cases, among others, involving petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments where the corporation, partnership or association possesses property to cover all its debts but
foresees the impossibility of meeting them when they respectively fall due, or where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the management of a rehabilitation receiver or a
management committee.
The Court adopted the Interim Rules of Procedure on Corporate Rehabilitation on December 15, 2000, and these rules
apply to petitions for rehabilitation filed by corporations, partnerships, and associations pursuant to PD 902-A.
PD 902-Amandates that upon appointment of a management committee, rehabilitation receiver, board or body, all actions
for claims against corporations, partnerships or associations under management or receivership pending before any court,
tribunal, board or body shall be suspended. PD 902-A does not make any distinction as to what claims are covered by the
suspension of actions for claims against corporations under rehabilitation. No exception is made therein in favor of maritime
claims. Thus, since the law does not make any exemptions or distinctions, neither should we. Ubi lex non distinguit nec nos
distinguere debemos.
The justification for the suspension of actions or claims, without distinction, pending rehabilitation proceedings is to enable
the management committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the "rescue" of the debtor company. To allow such other actions
to continue would only add to the burden of the management committee or rehabilitation receiver, whose time, effort and
resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring
and rehabilitation.
PD 902-A was designed not only to salvage an ailing corporation but also to protect the interest of investors, creditors and
the general public. Section 6 (d) of PD 902-A provides: "the management committee or rehabilitation receiver, board or
body shall have the power to take custody of, and control over, all the existing assets and property of such entities under
management; to evaluate the existing assets and liabilities, earnings and operations of such corporations, partnerships or
other associations; to determine the best way to salvage and protect the interest of the investors and creditors; to study,
review and evaluate the feasibility of continuing operations and restructure and rehabilitate such entities if determined to
be feasible by the [court]. It shall report and be responsible to the [court] until dissolved by order of the [court]: Provided,
however, That the [court] may, on the basis of the findings and recommendation of the management committee, or
rehabilitation receiver, board or body, or on its own findings, determine that the continuance in business of such
corporation or entity would not be feasible or profitable nor work to the best interest of the stockholders, parties-litigants,
creditors, or the general public, order the dissolution of such corporation entity and its remaining assets liquidated
accordingly. The management committee or rehabilitation receiver, board or body may overrule or revoke the actions of
the previous management and board of directors of the entity or entities under management notwithstanding any provision
of law, articles of incorporation or by-laws to the contrary."
When a distressed company is placed under rehabilitation, the appointment of a management committee follows to avoid
collusion between the previous management and creditors it might favor, to the prejudice of the other creditors. The stay
order is effective on all creditors of the corporation without distinction, whether secured or unsecured. All assets of a
corporation under rehabilitation receivership are held in trust for the equal benefit of all creditors to preclude one from
Page 3 of 22
obtaining an advantage or preference over another by the expediency of attachment, execution or otherwise. As between
the creditors, the key phrase is equality in equity. Once the corporation threatened by bankruptcy is taken over by a
receiver, all the creditors ought to stand on equal footing. Not any one of them should be paid ahead of the others. This is
precisely the reason for suspending all pending claims against the corporation under receivership. 40
In previous cases, SC enumerates the guidelines in the treatment of claims involving corporations undergoing
rehabilitation, viz.:
1. All claims against corporations, partnerships, or associations that are pending before any court, tribunal, or board,
without distinction as to whether or not a creditor is secured or unsecured, shall be suspended effective upon the
appointment of a management committee, rehabilitation receiver, board, or body in accordance with the provisions of
Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally
suspended upon the appointment of a management committee, rehabilitation receiver, board, or body. In the event that
the assets of the corporation, partnership, or association are finally liquidated, however, secured and preferred credits
under the applicable provisions of the Civil Code will definitely have preference over unsecured ones. 42
On the second issue, THI argues that the Manila RTC, in granting the stay order, divested the Cebu RTC, which is acting as
an admiralty court, of its jurisdiction over the maritime case of THI.
True enough, a maritime lien is not affected by bankruptcy or reorganization. However, in the instant case, we are not
dealing with bankruptcy or reorganization; rather, we are confronted with NNC’s rehabilitation. If we follow the argument
of THI and allow the continued enforcement of its claims against NNC, we would, in effect, violate provisions of PD 902-A.
To reiterate, the rationale behind PD 902-A is to effect a feasible and viable rehabilitation of an ailing corporation.
There is no conflict between PD 1521 and PD 902-A. The Manila RTC acting as a rehabilitation court merely suspended the
proceedings in the admiralty case in the Cebu RTC. It did not divest the Cebu RTC of its jurisdiction over the maritime claims
of THI against NNC. The preferred maritime lien of THI can still be enforced upon the termination of the rehabilitation
proceedings, or if it such be unsuccessful, upon the dissolution of the corporation.
In both cases, the SC denied the petition.
Page 4 of 22
G.R. No. 166197
February 27, 2007
METROPOLITAN BANK & TRUST COMPANY, Petitioner
vs.
ASB HOLDINGS, INC., ASB REALTY CORPORATION, ASB DEVELOPMENT CORPORATION, ASB LAND, INC., ASB FINANCE, INC.,
MAKATI HOPE CHRISTIAN SCHOOL, INC., BEL-AIR HOLDINGS CORPORATION, WINCHESTER TRADING, INC., VYL
DEVELOPMENT CORPORATION, GERICK HOLDINGS CORPORATION, NEIGHBORHOOD HOLDINGS, INC., and ROSARIO S.
BERNALDO, Respondents. CAMERON GRANVILLE 3 ASSET MANAGEMENT, INC., Intervenor. SANDOVAL-GUTIERREZ, J.:
Facts:
The Metropolitan Bank and Trust Company, petitioner, is a creditor bank of respondent corporations, collectively
known as the ASB Group of Companies, owner and developer of condominium and real estate projects. Specifically, the
loans extended by petitioner bank to respondents ASB Realty Corporation and ASB Development Corporation amounted to
₱523.5 million and ₱1.073 billion, respectively. These loans were secured by real estate mortgages.
the ASB Group of Companies filed with the Securities and Exchange Commission (SEC) a Petition For Rehabilitation With
Prayer For Suspension Of Actions And Proceedings Against Petitioners, pursuant to Presidential Decree (P.D.) No. 902-A, as
amended, docketed as SEC Case No. 05-00-6609. The pertinent portions of the petition allege:
6. The total assets of petitioner ASB Group of Companies, together with petitioner ASB Allied Companies, amount to
Nineteen Billion Four Hundred Ten Million Pesos (₱19,410,000,000.00).
7. The Projects were financed with loans or borrowings from bank and individual creditors which resulted in petitioner
Group of Companies having a total liability in the amount of Twelve Billion Seven Hundred Million Pesos
(₱12,700,000,000.00).
8. On account of the sudden non-renewal and/or the massive withdrawal by creditors of their loans to petitioner ASB
Holdings, Inc., coupled with the recent developments in the country, like, among others, (i) the glut in the real estate market;
(ii) the severe drop in the sale of real properties; (iii) the depreciation of the peso vis-a-vis the dollar; and (iv) the decreased
investor confidence in the economy, petitioner Group of Companies was unable to complete and sell some of its projects
on schedule and, hence, was unable to service its obligations as they fell due.
9. Petitioner Group of Companies possesses sufficient property to cover its obligations. However, petitioner Group of
Companies foresees its inability to pay its obligations within a period of one (1) year.
10. Because of the inability of the Group of Companies to pay its obligations as they respectively fall due, its secured and
non-secured creditors pressed for payments of due and maturing obligations and threatened to initiate separate actions
against it, which will adversely affect its operations and shatter its hope in rehabilitating itself for the benefit of its investors
and creditors and the general public.
There is, therefore, a need for the suspension of payment of all claims against petitioner Group of Companies, in the
separate and combined capacities of its member companies, while it is working for its rehabilitation.
the Hearing Panel of the SEC Securities Investigation and Clearing Department, finding the petition for rehabilitation
sufficient in form and substance, issued a sixty-day Suspension Order (a) suspending all actions for claims against the ASB
Group of Companies pending or still to be filed with any court, office, board, body, or tribunal; (b) enjoining the ASB Group
of Companies from disposing of their properties in any manner, except in the ordinary course of business, and from paying
their liabilities outstanding as of the date of the filing of the petition; and (c) appointing Atty. Monico V. Jacob as interim
receiver of the ASB Group of Companies.
the ASB Group of Companies submitted to the SEC for its approval a Rehabilitation Plan,4thus:
Metropolitan Bank and Trust Co.
Principal Amount – Principal (amount) plus any interest due and unpaid as of April 30, 2000, less any prepaid interest,
without any penalties and charges.
the SEC Hearing Panel, finding petitioner bank’s objections unreasonable, issued an Order7approving the Rehabilitation Plan
and appointing Mr. Fortunato Cruz as rehabilitation receiverAccordingly, the Rehabilitation Plan submitted by petitioners is
Page 5 of 22
hereby APPROVED, except those pertaining to Mr. Roxas’ advances, and the ASB-Malayan Towers. Finally, Interim Receiver
Mr. Fortunato Cruz is appointed as Rehabilitation Receiver.
petitioner bank filed with the SEC En Banc a Petition for Certiorari, , alleging that the SEC Hearing Panel, in approving the
Rehabilitation Plan, committed grave abuse of discretion amounting to lack or excess of jurisdiction. the SEC En Banc denied
petitioner bank’s Petition for Certiorari and affirmed the SEC Hearing Panel’s Order of April 26, 2001.Petitioner bank then
filed with the Court of Appeals a Petition for Review. The CA denied the petition. Hence, this case.
Issue:
Whether or not the CA acted in GADALEJ in not nullifying the SEC Resolution dated April 15, 2003 approving the
Rehabilitation Plan.
Ruling:
No. The SC ruled that it is of NO merit to say thet the approval of the Rehabilitation Plan impairs petitioner bank’s
lien over the mortgaged properties. Section 6 [c] of P.D. No. 902-A provides that "upon appointment of a management
committee, rehabilitation receiver, board or body, pursuant to this Decree, all actions for claims against corporations,
partnerships or associations under management or receivership pending before any court, tribunal, board or body shall be
suspended."
By that statutory provision, it is clear that the approval of the Rehabilitation Plan and the appointment of a rehabilitation
receiver merely suspend the actions for claims against respondent corporations. Petitioner bank’s preferred status over the
unsecured creditors relative to the mortgage liens is retained, but the enforcement of such preference is suspended. The
loan agreements between the parties have not been set aside and petitioner bank may still enforce its preference when
the assets of ASB Group of Companies will be liquidated. Considering that the provisions of the loan agreements are merely
suspended, there is no impairment of contracts, specifically its lien in the mortgaged properties.
As we stressed in Rizal Commercial Banking Corporation v. Intermediate Appellate Court, such suspension "shall not
prejudice or render ineffective the status of a secured creditor as compared to a totally unsecured creditor," for what P.D.
No. 902-A merely provides is that all actions for claims against the distressed corporation, partnership or association shall
be suspended. This arrangement provided by law is intended to give the receiver a chance to rehabilitate the corporation
if there should still be a possibility for doing so, without being unnecessarily disturbed by the creditors’ actions against the
distressed corporation. However, in the event that rehabilitation is no longer feasible and the claims against the distressed
corporation would eventually have to be settled, the secured creditors, like petitioner bank, shall enjoy preference over the
unsecured creditors.
Likewise, there is no compulsion on the part of petitioner bank to accept a dacion en pago arrangement of the mortgaged
properties based on ASB Group of Companies’ transfer values and to condone interests and penalties. The Rehabilitation
Plan itself, under item IV-A, explains the dacion en pago proposal, thus:
IV. THE REVISED REHABILITATION PLAN
A. The Total Approach
It is apparent that ASB’s corporate indebtedness needs to be reduced as quickly as possible in order to prevent rapid
deterioration in equity. x x x. In order to reduce debt quickly, we must do the following:
1. Complete or sell on-going projects;
2. Invite secured creditors to complete dacion en pago transactions, waiving all penalties; and
3. Invite unsecured creditors to purchase real estate parcels and other assets and set-off the amount of their outstanding
claim against the purchase price.
The assets included in the above program include all real estate assets.
In order to determine the feasibility of the above, representatives of our financial advisors met with or had discussions with
most of the secured creditors. Preliminary discussions indicate support from the secured creditors towards the concepts of
the program associated with them. The majority of these secured creditors appear to want to complete dacion en pago
transactions based on MUTUALLY AGREED UPON TERMS. x x x. We continue to pursue discussions with secured creditors.
Based on the program, secured creditors’ claims amounting to PhP5.192 billion will be paid in full including interest up to
Page 6 of 22
April 30, 2000. Secured creditors have been asked to waive all penalties and other charges. This dacion en pago program is
essential to eventually pay all creditors and rehabilitate the ASB Group of Companies. If the dacion en pago herein
contemplated does not materialize for failure of the secured creditors to agree thereto, this rehabilitation plan
contemplates to settle the obligations (without interest, penalties, and other related charges accruing after the date of the
initial suspension order) to secured creditors with mortgaged properties at ASB selling prices for the general interest on the
employees, creditors, unit buyers, government, general public and the economy.
A cursory reading of the Rehabilitation Plan debunks this assertion. The Plan provides that dacion en pago transaction will
be effected only if the secured creditors, like petitioner, agree thereto and under terms and conditions mutually agreeable
to private respondents and the secured creditor concerned. The dacion en pago program is essential to eventually pay all
creditors and rehabilitate private respondents. If the dacion en pago does not materialize in case secured creditors refuse
to agree thereto, the Rehabilitation Plan contemplates to settle the obligations to secured creditors with mortgaged
properties at selling prices. This is for the general interest of the employees, creditors, unit buyers, government, general
public, and the economy.21 (Underscoring supplied)
One last word. The purpose of rehabilitation proceedings is to enable the company to gain new lease on life and thereby
allows creditors to be paid their claims from its earnings.25 Rehabilitation contemplates a continuance of corporate life and
activities in an effort to restore and reinstate the financially distressed corporation to its former position of successful
operation and solvency.26 This is in consonance with the State’s objective to promote a wider and more meaningful
equitable distribution of wealth to protect investments and the public.27 The approval of the Rehabilitation Plan by the SEC
Hearing Panel, affirmed by both the SEC En Banc and the Court of Appeals, is precisely in furtherance of the rationale behind
P.D. No. 902-A, as amended, which is "to effect a feasible and viable rehabilitation"28 of ailing corporations which affect the
public welfare.
The SC denied the petition.
Page 7 of 22
THIRD DIVISION
G.R. No. 178768
November 25, 2009
PACIFIC WIDE REALTY AND DEVELOPMENT CORPORATION, Petitioner,
vs.
PUERTO AZUL LAND, INC., Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 180893
PACIFIC WIDE REALTY AND DEVELOPMENT CORPORATION, Petitioner,
vs.
PUERTO AZUL LAND, INC., Respondent. NACHURA, J.:
Facts
In G.R. No. 180893
Puerto Azul Land, Inc. (PALI) is the owner and developer of the Puerto Azul Complex situated in Ternate, Cavite. Its
business involves the development of Puerto Azul into a satellite city with residential areas, resort, tourism and retail
commercial centers with recreational areas. In order to finance its operations, it obtained loans from various banks, the
principal amount of which amounted to Six Hundred Forty Million Two Hundred Twenty-Five Thousand Three Hundred
Twenty-Four Pesos (₱640,225,324.00). PALI and its accommodation mortgagors, i.e., Ternate Development Corporation
(TDC), Ternate Utilities, Inc. (TUI), and Mrs. Trinidad Diaz-Enriquez, secured the loans.
In the beginning, PALI’s business did very well. However, it started encountering problems when the Philippine Stock
Exchange rejected the listing of its shares in its initial public offering. The situation was aggravated by the 1997 Asian financial
crisis and the decline of the real estate market. Consequently, PALI was unable to keep up with the payment of its
obligations, both current and those that were about to fall due. One of its creditors, the Export and Industry Bank (EIB),
later substituted by Pacific Wide Realty and Development Corporation (PWRDC), filed foreclosure proceedings on PALI’s
mortgaged properties. Thrust to a corner, PALI filed a petition for suspension of payments and rehabilitation, accompanied
by a proposed rehabilitation plan and three (3) nominees for the appointment of a rehabilitation receiver.
after finding that the petition was sufficient in form and substance, the Regional Trial Court (RTC) issued a Stay
Order and appointed Patrick V. Caoile as rehabilitation receiver. Dissatisfied, EIB filed a motion to replace the appointed
rehabilitation receiver. the RTC denied the motion. the rehabilitation receiver filed his rehabilitation report and
recommendation, wherein he proposed that PALI should be rehabilitated rather than be dissolved and liquidated. PALI filed
a revised rehabilitation plan.13
the RTC rendered a Decision16 approving PALI’s petition for suspension of payments and rehabilitation. The
pertinent portions of the decision read:
The rehabilitation of the petitioner, therefore, shall proceed as follows:
1. The creditors shall have, as first option, the right to be paid with real estate properties being offered by the petitioner in
dacion en pago, which shall be implemented under the following terms and conditions:
a. The properties offered by the petitioner shall be appraised by three appraisers, one to be chosen by the petitioner, a
second to be chosen by the bank creditors and the third to be chosen by the Receiver. The average of the appraisals of the
three (3) chosen appraisers shall be the value to be applied in arriving at the dacion value of the properties. In case the
dacion amount is less than the total of the secured creditor’s principal obligation, the balance shall be restructured in
accordance with the schedule of payments under option 2, paragraph (a). In case of excess, the same shall [be] applied in
full or partial payment of the accrued interest on the obligations. The balance of the accrued interest, if any, together with
the penalties shall [be] condoned.
2. Creditors who will not opt for dacion shall be paid in accordance with the restructuring of the obligations as
recommended by the Receiver as follows:
a) The obligations to secured creditors will be subject to a 50% haircut of the principal, and repayment shall be semi-annually
over a period of 10 years, with 3-year grace period. Accrued interests and penalties shall be condoned. Interest shall be
paid at the rate of 2% p.a. for the first 5 years and 5% p.a. thereafter until the obligations are fully paid. The petitioner shall
allot 50% of its cash flow available for debt service for secured creditors. Upon completion of payments to government and
employee accounts, the petitioner’s cash flow available for debt service shall be used until the obligations are fully paid.
Page 8 of 22
b) One half (1/2) of the principal of the petitioner’s unsecured loan obligations to other creditors shall be settled through
non-cash offsetting arrangements, with the balance payable semi-annually over a period of 10 years, with 3-year grace
period, with interest at the rate of 2% p.a. for the first 5 years and 5% p.a. from the 6th year onwards until the obligations
are settled in full. Accrued interest and penalties shall be condoned.
c) Similarly, one half (1/2) of the petitioner’s obligations to trade creditors shall be settled through non-cash offsetting
arrangements. The cash payments shall be made semi-annually over a period of 10 years on a pari passu basis with the bank
creditors, without interest, penalties and other charges of similar kind.
Finding the terms of the rehabilitation plan and the qualifications of the appointed rehabilitation receiver unacceptable, EIB
filed with the CA a petition for review under Rule 42 of the Rules of Court.
the CA dismissed the petition. Hence, this case.
In G.R. No. 178768
On September 21, 2004, EIB entered its appearance before the rehabilitation court and moved for the clarification of the
stay order dated September 17, 2004 and/or leave to continue the extrajudicial foreclosure of the real estates owned by
PALI’s accommodation mortgagors. In opposition, PALI argued that the foreclosure sought would preempt the rehabilitation
proceedings and would give EIB undue preference over PALI’s other creditors. On November 10, 2004, the RTC issued an
Order,21 denying EIB’s motion.22
the RTC issued an Order,25 the dispositive portion of which reads:
Accordingly, and as being invoked by the creditor movant, this Court hereby modifies the Stay Order of September 17, 2004,
in such a manner that TCT No. 133614 which is mortgaged with creditor movant Export and Industry Bank, Inc. is now
excluded from the Stay Order. As such, Export and Industry Bank, Inc. may settle the above-stated realty taxes of third party
mortgagor with the local government of Pasay City. In return, and to adequately protect the creditor movant Export and
Industry Bank, Inc., the latter may foreclose on TCT No. 133614.
On April 12, 2005, PALI filed an urgent motion for a status quo order, praying that the stay order be maintained and that
the enforcement of the claim of Pasay City be held in abeyance pending the hearing of its motion. 27 On April 13, 2005, the
RTC, so as not to render moot PALI’s motion, issued an Order,28 directing EIB to refrain from taking any steps to implement
the March 31, 2005 Order. The City Treasurer of Pasay City was, likewise, directed to respect the stay order dated
September 17, 2004 insofar as TCT No. 133164 was concerned, until further orders from the court.29PALI filed an urgent
motion to modify the Order dated August 16, 2005. The same was denied by the RTC in an Order31 dated October 19, 2005.
Aggrieved, PALI filed with the CA a petition for certiorari under Rule 65 of the Rules of Court, ascribing grave abuse of
discretion on the part of the rehabilitation court in allowing the foreclosure of a mortgage constituted over the property of
an accommodation mortgagor, to secure the loan obligations of a corporation seeking relief in a rehabilitation proceeding.
The case was entitled, "Puerto Azul Land, Inc. v. The Regional Trial Court of Manila, Br. 24; Sheriff IV of Pasay City Virgilio F.
Villar; and Export and Industry Bank, Inc."
The CA granted the petition on appeal
issues
(1) |Whether or not the terms of the rehabilitation plan are unreasonable and in violation of the non-impairment clause;
(no)
(2) Whether or not the rehabilitation court erred when it allowed the foreclosure of the accommodation mortgagee’s
property and excluded the same from the coverage of the stay order. (no)
Ruling:
I
Rehabilitation35 contemplates a continuance of corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency. The purpose of rehabilitation proceedings is to
enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. The
rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger sense,
the general public.36
Page 9 of 22
An indispensable requirement in the rehabilitation of a distressed corporation is the rehabilitation plan, and Section 5 of
the Interim Rules of Procedure on Corporate Rehabilitation provides the requisites thereof:
SEC. 5. Rehabilitation Plan. — The rehabilitation plan shall include (a) the desired business targets or goals and the duration
and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors; (c) the material financial commitments to support
the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may include conversion of the
debts or any portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling
interest; (e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would
receive if the debtor’s properties were liquidated; and (f) such other relevant information to enable a reasonable investor
to make an informed decision on the feasibility of the rehabilitation plan.
In G.R. No. 180893, the rehabilitation plan is contested on the ground that the same is unreasonable and results in the
impairment of the obligations of contract. PWRDC contests the following stipulations in PALI’s rehabilitation plan: fifty
percent (50%) reduction of the principal obligation; condonation of the accrued and substantial interests and penalty
charges; repayment over a period of ten years, with minimal interest of two percent (2%) for the first five years and five
percent (5%) for the next five years until fully paid, and only upon availability of cash flow for debt service.
We find nothing onerous in the terms of PALI’s rehabilitation plan. The Interim Rules on Corporate Rehabilitation provides
for means of execution of the rehabilitation plan, which may include, among others, the conversion of the debts or any
portion thereof to equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest.1 a vv p
hi1
The restructuring of the debts of PALI is part and parcel of its rehabilitation. Moreover, per findings of fact of the RTC and
as affirmed by the CA, the restructuring of the debts of PALI would not be prejudicial to the interest of PWRDC as a secured
creditor. Enlightening is the observation of the CA in this regard, viz.:
There is nothing unreasonable or onerous about the 50% reduction of the principal amount when, as found by the court a
quo, a Special Purpose Vehicle (SPV) acquired the credits of PALI from its creditors at deep discounts of as much as 85%.
Meaning, PALI’s creditors accepted only 15% of their credit’s value. Stated otherwise, if PALI’s creditors are in a position to
accept 15% of their credit’s value, with more reason that they should be able to accept 50% thereof as full settlement by
their debtor. x x x.
We also find no merit in PWRDC’s contention that there is a violation of the impairment clause. Section 10, Article III of the
Constitution mandates that no law impairing the obligations of contract shall be passed. This case does not involve a law or
an executive issuance declaring the modification of the contract among debtor PALI, its creditors and its accommodation
mortgagors. Thus, the non-impairment clause may not be invoked. Furthermore, as held in Oposa v. Factoran, Jr.39 even
assuming that the same may be invoked, the non-impairment clause must yield to the police power of the State. Property
rights and contractual rights are not absolute. The constitutional guaranty of non-impairment of obligations is limited by
the exercise of the police power of the State for the common good of the general public.
Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees, and the economy in
general. The court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the total
liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is
manifestly unreasonable. The rehabilitation plan, once approved, is 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 have opposed
the plan or whether or not their claims have been scheduled
II
On the issue of whether the rehabilitation court erred when it allowed the foreclosure by PWRDC of the property of the
accommodation mortgagor and excluded the same from the coverage of the stay order, we rule in the negative.
The governing law concerning rehabilitation and suspension of actions for claims against corporations is Presidential Decree
(P.D.) No. 902-A, as amended (P.D. No. 902-A). Section 6(c) of P.D. No. 902-A mandates that, upon appointment of a
management committee, rehabilitation receiver, board, or body, all actions for claims against corporations, partnerships or
associations under management or receivership pending before any court, tribunal, board, or body shall be suspended.
Stated differently, all actions for claims against a corporation pending before any court, tribunal or board shall ipso jure be
suspended in whatever stage such actions may be found.42
Page 10 of 22
The justification for the suspension of actions or claims pending rehabilitation proceedings is to enable the management
committee or rehabilitation receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference
that might unduly hinder or prevent the "rescue" of the debtor company. To allow such other action to continue would only
add to the burden of the management committee or rehabilitation receiver, whose time, effort and resources would be
wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation
Furthermore, the newly adopted Rules of Procedure on Corporate Rehabilitation has a specific provision for this special
arrangement among a debtor, its creditor and its accommodation mortgagor. Section 7(b), Rule 3 of the said Rules explicitly
allows the foreclosure by a creditor of a property not belonging to a debtor under corporate rehabilitation, as it provides:
SEC. 7. Stay Order.— x x x (b) staying enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and persons not solidarily liable with the
debtor; provided, that the stay order shall not cover claims against letters of credit and similar security arrangements issued
by a third party to secure the payment of the debtor’s obligations; provided, further, that the stay order shall not cover
foreclosure by a creditor of property not belonging to a debtor under corporate rehabilitation; provided, however, that
where the owner of such property sought to be foreclosed is also a guarantor or one who is not solidarily liable, said owner
shall be entitled to the benefit of excussion as such guarantor[.]47
Thus, there is no question that the action of the rehabilitation court in G.R. No. 178768 was justified.
WHEREFORE, in view of the foregoing, (1) the Decision dated May 17, 2007 and the Resolution dated October 30, 2007 of
the Court of Appeals in CA-G.R. SP No. 92695 are hereby AFFIRMED; and (2) the Decision dated March 16, 2007 and the
Resolution dated June 29, 2007 of the Court of Appeals in CA-G.R. SP No. 91996 are hereby SET ASIDE.
Page 11 of 22
FIRST DIVISION
June 28, 2016
G.R. No. 206528
PHILIPPINE ASSET GROWTH TWO, INC. (Successor-In-Interest of Planters Development Bank) and PLANTERS DEVELOPMENT
BANK, Petitioners,
vs.
FASTECH SYNERGY PHILIPPINES, INC. (Formerly First Asia System Technology, Inc.), FASTECH MICROASSEMBLY & TEST, INC.,
FASTECH ELECTRONIQUE, INC., and FASTECH PROPERTIES, INC., Respondents. PERLAS-BERNABE, J.:
The Facts
respondents filed a verified Joint Petitions for corporate rehabilitation (rehabilitation petition) before the RTC-Makati, with
prayer for the issuance of a Stay or Suspension Order. They claimed that: (a) their business operations and daily affairs are
being managed by the same individuals;7 (b) they share a majority of their common assets;8 and (c) they have common
creditors and common liabilities.9
Among the common creditors listed in the rehabilitation petition was PDB, 10which had earlier filed a petition 11 for extra
judicial foreclosure of mortgage over the two (2) parcels of land, covered by Transfer Certificate of Title (TCT) Nos. T45810212 and T-458103 13 and registered in the name of Fastech Properties (subject properties), listed as common assets
of respondents in the rehabilitation petition.The foreclosure sale was held on April 13, 2011, with PDB emerging as the
highest bidder. Respondents claimed that this situation has impacted on their chance to recover from the losses they have
suffered over the years, since the said properties are being used by Fastech Microassembly and Fastech Electronique 17 in
their business operations, and a source of significant revenue for their owner-lessor, Fastech Properties. 18 Hence,
respondents submitted for the court's approval their proposed Rehabilitation Plan, 19 which sought: (a) a waiver of all
accrued interests and penalties; (b) a grace period of two (2) years to pay the principal amount of respondents' outstanding
loans, with the interests accruing during the said period capitalized as part of the principal, to be paid over a twelve (12)year period after the grace period; and (c) an interest rate of four percent (4%) and two percent (2%) per annum (p.a.) for
creditors whose credits are secured by real estate and chattel mortgages, respectively. 20
the RTC-Makati issued a Commencement Order with Stay Order, and appointed Atty. Rosario S. Bernaldo as Rehabilitation
Receiver, which the latter subsequently accepted. the RTC-Makati gave due course to the said petition.
After the creditors had filed their respective comments and/or oppositions to the revised Rehabilitation Plan, and
respondents had submitted their consolidated reply27 thereto, the court-appointed Rehabilitation Receiver submitted her
comments,28 opining that respondents may be successfully rehabilitated, considering the sufficiency of their assets to cover
their liabilities and the underlying assumptions, financial projections and procedures to accomplish said goals in their
Rehabilitation Plan.29
The RTC-Makati Ruling
In a Resolution30 dated December 9, 2011, the RTC-Makati dismissed the rehabilitation petition despite the favorable
recommendation of its appointed Rehabilitation Receiver. It found the facts and figures submitted by respondents to be
unreliable in view of the disclaimer of opinion of the independent auditors who reviewed respondents' 2009 financial
statements,
Aggrieved, respondents appealed36 to the CA, with prayer for the issuance of a temporary restraining order (TRO) and/or a
writ of preliminary injunction (WPI), docketed as CA-G.R. SP No. 122836.
The Proceedings Before the CA
the CA issued a TRO37 so as not to render moot and academic the case before it in view of PDB 's pending Ex-Parte Petition
for Issuance of a Writ of Possession over the subject properties before the RTC of Biñan, Laguna, docketed as LRC Case No.
B-5141.38 Thereafter, the CA issued a WPI39 on March 22, 2012.
Page 12 of 22
On April 30, 2012, the court-appointed Rehabilitation Receiver submitted a manifestation40 before the CA, maintaining that
the rehabilitation of respondents is viable since the financial projections and procedures set forth to accomplish the goals
in their Rehabilitation Plan are attainable.
After the creditors and respondents had filed their respective comments and reply to the manifestation, the CA rendered a
Decision reversing and setting aside the RTC-Makati ruling.43 It ruled that the RTC-Makati grievously erred in disregarding
the report/opinion of the Rehabilitation Receiver that respondents may be successfully rehabilitated, despite being highly
qualified to make an opinion on accounting in relation to rehabilitation matters.
Accordingly, the CA reinstated the rehabilitation petition, approved respondents' Rehabilitation Plan, and remanded the
case to the RTC-Makati to supervise its implementation.
The Proceedings Before the Court
On April 18, 2013, PAGTI and PDB (petitioners), represented by DivinaLaw, filed the instant petition, claiming that PDB
received a copy of the March 5, 2013 Resolution on April 3, 2013.54
On July 10, 2013, respondents filed their Urgent Motion to Dismiss Petition for Review on Certiorari for Being Filed Out of
Time55 (urgent motion), positing that contrary to petitioners' claim that PDB received notice of the March 5, 2013 Resolution
on April 3, 2013, its counsel, Janda Asia & Associates, already received a copy of the said resolution on March 12, 2013.
Thus, petitioners only had until March 27, 2013 to file a petition for review on certiorari before the Court, and the petition
filed on April 18, 2013 was filed out oftime.56
The Issues
(a) Whether or not the petition for review on certiorari was timely filed;
(b) Whether or not the Rehabilitation Plan is feasible.
The Court's Ruling
a. NO. It is a long-standing doctrine that where a party is represented by several counsels, notice to one is sufficient,
and binds the said party. 70 Notice to any one of the several counsels on record is equivalent to notice to all, and
such notice starts the running of the period to appeal notwithstanding that the other counsel on record has not
received a copy of the decision or resolution.71
In the present case, PDB was represented by both Janda Asia & Associates and DivinaLaw. It was not disputed that Janda
Asia & Associates, which remained a counsel of record, albeit, as collaborating counsel, received notice of the CA's March
5, 2013 Resolution on March 12, 2013. As such, it is from this date, and not from DivinaLaw's receipt of the notice of said
resolution on April 3, 2013 that the fifteen (15)-day period72 to file the petition for review on certiorari before the Court
started to run. Hence, petitioners only had until March 27, 2013 to file a petition for review on certiorari before the Court,
and the petition filed on April 18, 2013 was filed out of time. Notably, there is no showing that the CA had already resolved
PAGTI's motion for substitution; 73 hence, it remained bound by the proceedings and the judgment rendered against its
transferor, PDB. Generally, the failure to perfect an appeal in the manner and within the period provided for by law renders
the decision appealed from final and executory, 74 and beyond the competence of the Court to review. However, the Court
has repeatedly relaxed this procedural rule in the higher interest of substantial justice. In Barnes v. Padilla,75it was held that:
[A] final and executory judgment can no longer be attacked by any of the parties or be modified, directly or indirectly, even
by the highest court of the land.
However, this Court has relaxed this rule in order to serve substantial justice[,] considering (a) matters of life, liberty, honor
or property, (b) the existence of special or compelling circumstances, (c) the merits of the case, (d) a cause not entirely
attributable to the fault or negligence of the party favored by the suspension of the rules, (e) a lack of any showing that the
review sought is merely frivolous and dilatory, and (f) the other party will not be unjustly prejudiced thereby. 76
Page 13 of 22
After a meticulous scrutiny of this case, the Court finds that the unjustified rehabilitation of respondents, by virtue of the CA
ruling if so allowed to prevail, warrants the relaxation of the procedural rule violated by petitioners in the higher interest of
substantial justice.
b. No.
Rehabilitation is statutorily defined under Republic Act No. 10142,77 otherwise known as the "Financial Rehabilitation and
Insolvency Act of 2010" (FRIA), as follows:
Section 4. Definition of Terms. - As used in this Act, the term:
xxxx
(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.
(Emphasis supplied)
Case law explains that corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable
the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings. 78 Thus, the basic
issues in rehabilitation proceedings concern the viability and desirability of continuing the business operations of the
distressed corporation,79 all with a view of effectively restoring it to a state of solvency or to its former healthy financial
conditionthe adoption of a rehabilitation plan.
In the present case, however, the Rehabilitation Plan failed to comply with the minimum requirements, i.e.: (a) material
financial commitments to support the rehabilitation plan; and (b) a proper liquidation analysis, under Section 18, Rule 3 of the
2008 Rules of Procedure on Corporate Rehabilitation80 (Rules), which Rules were in force at the time respondents'
rehabilitation petition was filed on April 8, 2011:
Section 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired business targets or goals and the
duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the
manner of its implementation, giving due regard to the interests of secured creditors such as, but not limited, to the nonimpairment of their security liens or interests; (c) the material financial commitments to support the rehabilitation plan; (d)
the means for the execution of the rehabilitation plan, which may include debt to equity conversion, restructuring of the
debts, dacion en pago or sale or exchange or any disposition of assets or of the interest of shareholders, partners or
members; (e) a liquidation analysis setting out for each creditor that the present value of payments it would receive under
the plan is more than that which it would receive if the assets of the debtor were sold by a liquidator within a six-month period
from the estimated date of filing of the petition; and (f) such other relevant information to enable a reasonable investor to
make an informed decision on the feasibility of the rehabilitation plan. (Emphases supplied)
A.
Lack
to Support the Rehabilitation Plan.
of
Material
Financial
Commitment
A material financial commitment becomes significant in gauging the resolve, determination, earnestness, and good faith of
the distressed corporation in financing the proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the debtor-corporation indicating their readiness, willingness,
and ability to contribute funds or property to guarantee the continued successful operation of the debtor-corporation during
the period of rehabilitation.81
In this case, respondents' Chief Operating Officer, Primo D. Mateo, Jr., in his executed Affidavit of General Financial
Condition82 dated April 8, 2011, averred that respondents will not require the infusion of additional capital as he, instead,
proposed to have all accrued penalties, charges, and interests waived, and a reduced interest rate prospectively applied to
all respondents' obligations, in addition to the implementation of a two (2)-year grace period.83 Thus, there appears to be
no concrete plan to build on respondents' beleaguered financial position through substantial investments as the plan for
Page 14 of 22
rehabilitation appears to be pegged merely on financial reprieves. Anathema to the true purpose of rehabilitation, a
distressed corporation cannot be restored to its former position of successful operation and regain solvency by the sole
strategy of delaying payments/waiving accrued interests and penalties at the expense of the creditors.
B. Lack of Liquidation Analysis.
Respondents likewise failed to include any liquidation analysis in their Rehabilitation Plan. The total liquidation assets and
the estimated liquidation return to the creditors, as well as the fair market value vis-a-vis the forced liquidation value of the
fixed assets were not shown. As such, the Court could not ascertain if the petitioning debtor's 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. This is a crucial factor in a corporate rehabilitation case, which the CA, unfortunately, failed to
address.
C. Effect of Non-Compliance.
The failure of the Rehabilitation Plan to state any material financial commitment to support rehabilitation, as well as to
include a liquidation analysis, renders the CA's considerations for approving the same, i.e., that: (a) respondents would be
able to meet their obligations to their creditors within their operating cash profits and other assets without disrupting their
business operations; (b)the Rehabilitation Receiver's opinion carries great weight; and (c) rehabilitation will be beneficial
for respondents' creditors, employees, stockholders, and the economy,91 as actually unsubstantiated, and hence,
insufficient to decree the feasibility of respondents' rehabilitation. It is well to emphasize that the remedy of rehabilitation
should be denied to corporations that do not qualify under the Rules. Neither should it be allowed to corporations whose
sole purpose is to delay the enforcement of any of the rights of the creditors.
Even if the Court were to set aside the failure of the Rehabilitation Plan to comply with the fundamental requisites of
material financial commitment to support the rehabilitation and an accompanying liquidation analysis, a review of the
financial documents presented by respondents fails to convince the Court of the feasibility of the proposed plan.
The test in evaluating the economic feasibility of the plan was laid down in Bank of the Philippine Islands v. Sarabia Manor
Hotel Corporation92 (Bank of the Philippine Islands), to wit:
In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough examination and
analysis of the distressed corporation's financial data must be conducted. If the results of such examination and analysis
show that there is a real opportunity to rehabilitate the corporation in view of the assumptions made and financial goals
stated in the proposed rehabilitation plan, then it may be said that a rehabilitation is feasible. In this accord, the
rehabilitation court should not hesitate to allow the corporation to operate as an on-going concern, albeit under the terms
and conditions stated in the approved rehabilitation plan. On the other hand, if the results of the financial examination and
analysis clearly indicate that there lies no reasonable probability that the distressed corporation could be revived and that
liquidation would, in fact, better subserve the interests of its stakeholders, then it may be said that a rehabilitation would
not be feasible. In such case, the rehabilitation court may convert the proceedings into one for liquidation.93
In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Jnc.,94the Court took note of the characteristics
of an economically feasible rehabilitation plan as opposed to an infeasible rehabilitation plan:
Professor Stephanie V. Gomez of the University of the Philippines College of Law suggests specific characteristics of an
economically feasible rehabilitation plan:
a. The debtor has assets that can generate more cash if used in its daily operations than if sold.
b. Liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations.
c. The debtor has a definite source of financing for the proper and full implementation of a Rehabilitation Plan that is
anchored on realistic assumptions and goals.
Page 15 of 22
These requirements put emphasis on liquidity: the cash flow that the distressed corporation will obtain from rehabilitating
its assets and operations. A corporation's assets may be more than its current liabilities, but some assets may be in the form
of land or capital equipment, such as machinery or vessels. Rehabilitation sees to it that these assets generate more value
if used efficiently rather than if liquidated.
On the other hand, this court enumerated the characteristics of a rehabilitation plan that is infeasible:
(a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets and goals;
(c) speculative capital infusion or complete lack thereof for the execution of the business plan;
(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full depreciation or fully depreciated.
In addition to the tests of economic feasibility, Professor Stephanie V. Gomez also suggests that the Financial and
Rehabilitation and Insolvency Act of 2010 emphasizes on rehabilitation that provides for better present value recovery for
its creditors.
Present value recovery acknowledges that, in order to pave way for rehabilitation, the creditor will not be paid by the debtor
when the credit falls due. The court may order a suspension of payments to set a rehabilitation plan in motion; in the
meantime, the creditor remains unpaid. By the time the creditor is paid, the financial and economic conditions will have
been changed. Money paid in the past has a different value in the future. It is unfair if the creditor merely receives the face
value of the debt. Present value of the credit takes into account the interest that the amount of money would have earned
if the creditor were paid on time.
Trial courts must ensure that the projected cash flow from a business' rehabilitation plan allows for the closest present
value recovery for its creditors. If the projected cash flow is realistic and allows the corporation to meet all its obligations,
then courts should favor rehabilitation over liquidation. However, if the projected cash flow is unrealistic, then courts should
consider converting the proceedings into that for liquidation to protect the creditors.95
On the other hand, respondents' unaudited financial statements for the year 2010, and the months of February and March
2011 were unaccompanied by any notes or explanation on how the figures were arrived at. Besides, respondents' cash
operating position remained insufficient to meet their maturing obligations as their current assets are still substantially
lower than their current liabilities. 100 The Court also notes the RTC-Makati's observation that respondents added new
accounts and/or deleted/omitted certain accounts, 101 but failed to explain or justify the same.
Verily, respondents' Rehabilitation Plan should have shown that they have enough serviceable assets to be able to continue
its business operation. In fact, as opposed to this objective, the revised Rehabilitation Plan still requires "front load Capex
spending" to replace common equipment and facility equipment to ensure sustainability of capacity and capacity
robustness, 102 thus, further sacrificing respondents' cash flow. In addition, the Court is hard-pressed to see the effects of
the outcome of the streamlining of respondents' manufacturing operations on the carrying value of their existing properties
and equipment.
In fine, the Rehabilitation Plan and the financial documents submitted in support thereof fail to show the feasibility of
rehabilitating respondents' business.
V.
The CA's reliance on the expertise of the court-appointed Rehabilitation Receiver, who opined that respondents'
rehabilitation is viable, in order to justify its finding that the financial statements submitted were reliable, overlooks the fact
that the determination of the validity and the approval of the rehabilitation plan is not the responsibility of the rehabilitation
receiver, but remains the function of the court. Notwithstanding the credentials of the court-appointed rehabilitation
Page 16 of 22
receiver, the duty to determine the feasibility of the rehabilitation of the debtor rests with the court. While the court may
consider the receiver's report favorably recommending the debtor's rehabilitation, it is not bound thereby if, in its judgment,
the debtor's rehabilitation is not feasible.
The purpose of rehabilitation proceedings is not only to enable the company to gain a new lease on life, but also to allow
creditors to be paid their claims from its earnings when so rehabilitated. Hence, the remedy must be accorded only after a
judicious regard of all stakeholders' interests; it is not a one-sided tool that may be graciously invoked to escape every
position of distress. 104 Thus, the remedy of rehabilitation should be denied to corporations whose insolvency appears to
be irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors, which is rendered
obvious by: (a)the absence of a sound and workable business plan; (b)baseless and unexplained assumptions, targets, and
goals; and (c) speculative capital infusion or complete lack thereof for the execution of the business plan, 105 as in this case.
VI.
In view of all the foregoing, the Court is therefore constrained to grant the instant petition, notwithstanding the preliminary
technical error as above-discussed. A distressed corporation should not be rehabilitated when the results of the financial
examination and analysis clearly indicate that there lies no reasonable probability that it may be revived, to the detriment
of its numerous stakeholders which include not only the corporation's creditors but also the public at large. The SC granted
the petition.
Page 17 of 22
FIRST DIVISION
March 25, 2015
G.R. No. 205469
BPI FAMILY SAVINGS BANK, INC., Petitioner,
vs.
ST. MICHAEL MEDICAL CENTER, INC., Respondent. PERLAS-BERNABE, J.:
Facts
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole proprietors of St. Michael Diagnostic and Skin Care
Laboratory Services and Hospital (St. Michael Hospital), a 5-storey secondary level hospital built on their property located
in Molino 2, Bacoor, Cavite. With a vision to upgrade St. Michael Hospital into a modern, well-equipped and full service
tertiary 11-storey hospital, Sps. Rodil purchased two (2) parcels of land adjoining their existing property they planned to
eventually consolidate St. Michael Hospital’s operations. SMMCI had an initial capital of 2,000,000.00 which was later
increased to 53,500,000.00, 94.49% of which outstanding capital stock, or 50,553,000.00, was subscribed and paid by Sps.
Rodil.5
To finance the costs of construction, SMMCI applied for a loan with petitioner BPI Family Savings Bank, Inc. (BPI Family)
which gave a credit line of up to 35,000,000.00,7 secured by a Real Estate Mortgage8 (mortgage) over three (3) parcels of
land9 belonging to Sps. Rodil, on a portion of which stands the hospital building being constructed. SMMCI was able to draw
the aggregate amount of 23,700,000.00,10 with interest at the rate of 10.25% per annum (p.a.) and a late payment charge
of 3% per month accruing on the overdue amount, for which Sps. Rodil, who agreed to be co-borrowers on the loan,
executed and signed a Promissory Note.11
In the meantime, after suffering financial losses due to problems with the first building contractor, 12 Sps. Rodil temporarily
deferred the original construction plans for the 11-storey hospital building and, instead, engaged the services of another
contractor for the completion of the remaining structural works of the unfinished building up to the 5th floor. The lack of
funds for the finishing works of the 3rd, 4th and 5th floors, however, kept the new building from becoming completely
functional and, in turn, hampered the plans for the physical transfer of St. Michael Hospital’s operations to SMMCI.
Nevertheless, using hospital- generated revenues, Sps. Rodil were still able to purchase new equipment and machinery for
St. Michael Hospital valued in excess of 20,000,000.00.13
Although the finishing works were later resumed and some of the hospital operations were eventually transferred to the
completed first two floors of the new building, as of May 2006, SMMCI was still neither operational nor earning revenues.
Hence, it was only able to pay the interest on its BPI Family loan, or the amount of 3,000,000.00 over a two-year period,
from the income of St.Michael Hospital.14
BPI Family demanded immediate payment of the entire loan obligation15 and, soon after, filed a petition for extrajudicial
foreclosure16 of the real properties covered by the mortgage.
SMMCI filed a Petition for Corporate Rehabilitation18 (Rehabilitation Petition), docketed as SEC Case No. 086-10, before the
RTC, with prayer for the issuance of a Stay Order as it foresaw the impossibility of meeting its obligation to BPI Family, its
purported sole creditor.
In the said petition, SMMCI claimed that it had to defer the construction of the projected 11-storey hospital building due to
the problems it had with its first contractor as well as the rise of the cost of construction materials. As of date, only two (2)
floors of the new building are functional, in which some of the operations of St. Michael had already been transferred.
Also, it was alleged that more than 66,000,000.00 had been spent for the construction of the existing structure (in excess
of its proportionate share of the original estimated cost for the entire project), said amount having come from the personal
funds of Sps. Rodil and/or income generated by St. Michael Hospital.
In its proposed Rehabilitation Plan,23 SMMCI merely sought for BPI Family (a) to defer foreclosing on the mortgage and (b)
to agree to a moratorium of at least two (2) years during which SMMCI – either through St. Michael Hospital or its successor
– will retire all other obligations. After which, SMMCI can then start servicing its loan obligation to the bank under a mutually
Page 18 of 22
acceptable restructuring agreement.24 SMMCI declared that it intends to conclude pending negotiations for investments
offered by a group of medical doctors whose capital infusion shall be used (a) to complete the finishing requirements for
the 3rd and 5th floors of the new building; (b) to renovate the old 5- storey building where St. Michael Hospital operates;
and (c) to pay, in whole or in part, the bank loan with the view of finally integrating St. Michael Hospital with SMMCI. 25
The Proceedings Before the RTC
Finding the Rehabilitation Petition to be sufficient in form and substance, the RTC issued a Stay Order26 on August 16, 2010.
After the initial hearing on October 5, 2010, and the filing of comments to the said petition, 27 the same was referred to the
court-appointed Rehabilitation Receiver, Dr. Uriel S. Halum (Dr. Halum), who submitted in due time his Report and
Recommendations28 (Receiver’s Report) to the RTC on February 17, 2011.29
In the said report, Dr. Halum gave credence to the feasibility study conducted by Mrs. Nenita Alibangbang (Mrs.
Alibangbang), a certified public accountant and Dean of the College of Accountancy at the University of Perpetual Help
Dalta. Thus, he made the following recommendations:
1.The two-year moratorium period to pay the bank is not enough. The Court should seriously consider extending it
by another three years or a total of five (5) years, at least. The bank, whose loan is secured by mortgages on three
prime parcels of land with improvements should discuss restructuring the loan with the creditors with the end in
view of stretching the term and allowing for more flexible rate.
2.Obligations to other creditors such as the suppliers and lenders can be serviced at once. Given the performance
of the hospital, the undersigned reasonably believes that these obligations can be settled in next three (3) years.
These accounts can be paid proportionately provided that [SMMCI] should be allowed to re- structure these
accounts to allow for longer and more convenient payment terms.
3.[SMMCI] should be allowed to spend for the improvement of the building but not necessarily continuing with the
planned 11-storey building. It should make do with what it has but should be permitted to spend reasonable part
of the hospital’s revenues to improve the facilities. For instance, we recommend that the fifth floor of the building
should be finished to provide for an intensive care unit or ICU with equipments (sic) and required facilities. [SMMCI]
should also consider spending (sic) an elevator to make access to and from the higher floors convenient to patients,
doctors, nurses and guests. Incidentally, these improvements should be programmed for the next two to three
years. Given the budgetary constraints of the hospital, doing all these improvements all at once would be
impossible.
4.Finally, [SMMCI] should provide for details on its statements regarding the prospective investors. It (sic) true, or
in case it happens, then this fresh capital should be used partly to pay the bank and the rest to improve the hospital
to make it more competitive with the nearby medical service providers.32
On May 26, 2011, the RTC issued an order requiring the counsels of the creditors/oppositors to file their comments to the
Receiver’s Report within ten (10) days from notice, but only counsel for South East Star Enterprises complied. 33
The RTC Ruling
the RTC approved the Rehabilitation Plan with the modifications recommended by the Rehabilitation Receiver and thus,
ordered: (a) a five-year moratorium on SMMCI’s bank loan; (b) a restructuring and payment of obligations to other creditors
such as suppliers and lenders; (c) a programmed spending of a reasonable part of the hospital’s revenues for the finishing
of the 5th floor and the improvement of hospital facilities in the next two or three years; and (d) use of fresh capital from
prospective investors to partly pay SMMCI’s bank loan and improve St. Michael Hospital’s competitiveness.
Aggrieved, BPI Family elevated the matter before the CA, mainly arguing that the approval of the Rehabilitation Plan violated
its rights as an unpaid creditor/mortgagee and that the same was submitted without prior consultation with creditors.37
The CA Ruling
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the CA affirmed the RTC’s approval of the Rehabilitation Plan.hence, this case
Issue:
Whether or not the CA correctly affirmed SMMCI’s Rehabilitation Plan as approved by the RTC.
Ruling:
No. the SC ruled that Restoration is the central idea behind the remedy of corporate rehabilitation. In common parlance, to
"restore" means "to bring back to or put back into a former or original state."42 Case law explains that corporate
rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation
to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on
life and allow its creditors to be paid their claims out of its earnings.43 Consistent therewith is the term’s statutory definition
under Republic Act No. 10142,44 otherwise known as the "Financial Rehabilitation and Insolvency Act of 2010" (FRIA), which
provides:
Section 4. Definition of Terms. – As used in this Act, the term:
xxxx
(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.
x x x x (Emphasis supplied)
In other words, rehabilitation assumes that the corporation has been operational but for some reasons like economic crisis
or mismanagement had become distressed or insolvent, i.e., that it is generally unable to pay its debts as they fall due in the
ordinary course of business or has liability that are greater than its assets.45 Thus, the basic issues in rehabilitation
proceedings concern the viability and desirability of continuing the business operations of the distressed corporation,46 all
with a view of effectively restoring it to a state of solvency or to its former healthy financial condition through the adoption
of a rehabilitation plan.
In this case, it cannot be said that the petitioning corporation, SMMCI, had been in a position of successful operation and
solvency at the time the Rehabilitation Petition was filed on August 11, 2010. While it had indeed "commenced business"
through the preparatory act of opening a credit line with BPI Family to finance the construction of a new hospital building
for its future operations, SMMCI itself admits that it has not formally operated nor earned any income since its
incorporation. This simply means that there exists no viable business concern to be restored. Perforce, the remedy of
corporate rehabilitation is improper, thus rendering the dispositions of the courts a quo infirm.
II.
In fact, for the same reasons, the Court observes that SMMCI could not have even complied with the form and substance
of a proper rehabilitation petition, and submit its accompanying documents, among others, the required financial
statements of a going concern. Section 2, Rule 4 of the 2008 Rules of Procedure on Corporate Rehabilitation47 (Rules), which
were in force at the time SMMCI’s rehabilitation petition was filed on August 11, 2010, pertinently provides:
SEC. 2. Contents of Petition. xxxx
(b)The petition shall be accompanied by the following documents:
(1)An audited financial statement of the debtor at the end of its last fiscal year;
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(2)Interim financial statements as of the end of the month prior to the filing of the petition;
xxxx
Accordingly, St. Michael Hospital’s financials cannot be utilized as basis to determine the feasibility of SMMCI’s
rehabilitation.
Note further that while it appears that Sps. Rodil effectively owned and exercised control over the two entities, such fact
does not, by and of itself, warrant their singular treatment for to do so would only confuse the objective of the proceedings
which is to ascertain whether the petitioning corporation, and not any other entity related thereto (except if joining as a
co-petitioning debtor), may be rehabilitated. Neither is the proceeding the proper forum to pierce the corporate fictions of
both entities for it involves no creditor claiming to be a victim of fraud, an essential requisite for the application of such
doctrine.49
In fine, the petition should not have been given due course, nor should a Stay Order have been issued.1âwphi1
III.
To compound its error, the CA even disregarded the fact that SMMCI’s Rehabilitation Plan, an indispensable requisite in
corporate rehabilitation proceedings, failed to comply with the fundamental requisites outlined in Section 18, Rule 3 of the
Rules, particularly, that of a material financial commitment to support the rehabilitation and an accompanying liquidation
analysis, all of the petitioning debtor:
SEC. 18. Rehabilitation Plan. - The rehabilitation plan shall include (a) the desired business targets or goals and the duration
and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its
implementation, giving due regard to the interests of secured creditors such as, but not limited, to the non- impairment of
their security liens or interests; (c) the material financial commitments to support the rehabilitation plan; (d) the means for
the execution of the rehabilitation plan, which may include debt to equity conversion, restructuring of the debts, dacion en
pago or sale exchange or any disposition of assets or of the interest of shareholders, partners or members; (e) a liquidation
analysis setting out for each creditor that the present value of payments it would receive under the plan is more than that
which it would receive if the assets of the debtor were sold by a liquidator within a six-month period from the estimated date
of filing of the petition; and (f) such other relevant information to enable a reasonable investor to make an informed decision
on the feasibility of the rehabilitation plan. (Emphases supplied)
A.
Lack
to Support the Rehabilitation Plan.
of
Material
Financial
Commitment
A material financial commitment becomes significant in gauging the resolve, determination, earnestness and good faith of
the distressed corporation in financing the proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would- be investors of the debtor-corporation indicating their readiness, willingness
and ability to contribute funds or property to guarantee the continued successful operation of the debtor corporation during
the period of rehabilitation.50
In this case, aside from the harped on merger of St. Michael Hospital with SMMCI, the only proposed source of revenue the
Rehabilitation Plan suggests is the capital which would come from SMMCI’s potential investors, which negotiations are
merely pending. Evidently, both propositions commonly border on the speculative and, hence, hardly fit the description of
a material financial commitment which would inspire confidence that the rehabilitation would turn out to be successful. In
fact, the Rehabilitation Receiver himself recognizes the ambiguity of the proposition when he recommended that:
B. Lack of Liquidation Analysis.
SMMCI likewise failed to include any liquidation analysis in its Rehabilitation Plan. The Court observes that as of November
16, 2009, or about 9 months prior to the filing of the petition for rehabilitation, the loan with BPI Family had already
amounted to 52,784,589.34, with interest at 10.25% p.a. or a daily interest of about 6,655.48 and late payment charge of
36% p.a.53 However, with no SMMCI financial statement on record, it is unclear to the Court what assets it possesses in
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order to determine the values to be derived if liquidation has to be had thereby. Accordingly, this prevents the Court from
ascertaining if the petitioning debtor’s 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, a crucial factor in a corporate
rehabilitation case. Again, the financial records of St. Michael Hospital, being a separate and distinct entity whose merger
with SMMCI only exists in the realm of probability, cannot be taken as a substitute to fulfill the requirement. What remains
pertinent are the financial statements of SMMCI for it solely stands as the debtor to be rehabilitated, or liquidated in this
case.
IV.
While the Court recognizes the financial predicaments of upstart corporations under the prevailing economic climate, it
must nonetheless remain forthright in limiting the remedy of rehabilitation only to meritorious cases. As above-mentioned,
the purpose of rehabilitation proceedings is not only to enable the company to gain a new lease on life but also to allow
creditors to be paid their claims from its earnings, when so rehabilitated. Hence, the remedy must be accorded only after a
judicious regard of all stakeholders’ interests; it is not a one-sided tool that may be graciously invoked to escape every
position of distress.
The SC granted the petition.
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