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Steel Corporation of the Phils vs. MAPFRE Insular Insurance Corp. December 2009, a fire again broke out at SCP's plant damaging its cold rolling regarding the payment of filing fees upon filing of the pleading or other
Insurance; debtor mill and other machineries. SCP filed with the RTC a motion to direct application which initiates an action or proceeding
respondent insurers to pay insurance proceeds in the amounts of $28M
SCP is engaged in the manufacture and distribution of cold-rolled and property damage and $8M business interruption. Respondent insurers CA:
galvanized steel sheets and coils. It obtained loans from several creditors and, entered a special appearance solely for the purpose of questioning the RTC's o confirmed RTC’s authority and jurisdiction.
as security, mortgaged its assets in their favor. The creditors appointed BPI as jurisdiction over the insurance claim. They later on filed with the RTC an o The mere fact that the RTC by raffle has been designated as a
their trustee. SCP and BPI entered into a Mortgage Trust Indenture (MTI) opposition ad cautelam praying that the motion be denied. rehabilitation court does not mean that it has lost its powers or authority
requiring SCP to insure all of its assets until the loans are fully paid. Under the as a court of general jurisdiction.
MTI, the insurance policies were to be made payable to BPI. Respondent insurers: o It is not true that the second panel of insurers are not "affected parties"
 SCP failed to comply with the terms of the policies; and therefore cannot be deemed covered by the in rem nature of the
During the course of its business, SCP suffered financial difficulties. On  SCP defrauded the respondent insurers; rehabilitation proceedings.
September 11, 2006, one of the creditors, Equitable (now known as BDO)  the gross over-insurance of the cold rolling mill constitutes prima facie o The second panel of insurers unequivocally admitted that "the panel of
filed with the RTC a petition to have SCP placed under corporate proof of arson; insurers are aware that any proceeding initiated under the Rules on
rehabilitation before the RTC.  SCP failed to show the actual damage sustained by its machineries; Corporate Rehabilitation shall be considered in rem and that jurisdiction
 SCP failed to commence the repair and replacement of the damaged over all persons affected by the proceedings shall be considered acquired
SCP insured (Collective Master Policy) against material damage and business machineries within 12 months; upon publication of the notice of the commencement of the proceedings
interruption its assets located in Barangay Munting Tubig, Balayan, Batangas,  SCP's negligence caused the fire; and in any newspaper of general circulation in the Philippines as required by
for the period 19 August 2007 to 19 August 2008. On 8 June 2008, a fire  since SCP's claim for property damage is non-compensable, its claim for the Rules.
broke out at SCP's plant damaging its machineries. Invoking its right under business interruption is also non-compensable. o The insurers, holding sums of money, recovery of which is sought by SCP,
the MTI, BPI demanded and received from the insurers $450k insurance as the insured, are parts of the assets of its estate. Thus, the fact that SCP,
proceeds. SCP filed a motion to direct BPI to turn over such insurance Respondent insurers’ Ad cautelam opposition: as insured, is claiming the proceeds of insurance policies issued to it,
proceeds in order for SCP to repair and replace the damaged machineries.  the amount of the claim for property damage was increased from $28M makes the insurers affected parties covered by the instant rehabilitation
to $30M proceedings.
RTC: directed BPI to release the insurance proceeds directly to the  RTC lacked jurisdiction; o The Interim Rules of Procedure on Corporate Rehabilitation clearly
contractors and suppliers who will undertake the repairs and replacements of  RTC's Order directing BPI to release the insurance proceeds directly to the recognizes the right of the parties affected by the proceedings to file their
the damaged machineries. contractors and suppliers who will undertake the repairs and opposition. The rehabilitation judge can hold clarificatory hearings if
replacements of SCP's damaged machineries did not apply; and there is a need to clarify certain questions arising from such opposition. In
CA (petition for certiorari – Rule 65) by BPI: affirmed the RTC’s Order.  respondent insurers already denied SCP's insurance claim. short, the right to oppose (together with the corresponding right to be
heard on the opposition) does not necessarily mean that a "full-blown
CA (Amended Decision): reversed RTC: trial" should be conducted. The instant proceedings do not automatically
o SCP should formally manifest its amenability to the repair and become "adversarial" (as compared to "summary" proceedings)
SC (petition for review on certiorari - Rule 45) by SCP: denied the petition replacement of the damaged machineries instead of payment of necessitating "full-blown trial" just because the insurers have conveyed
 The MTI Agreement between the parties expressly stipulated that BPI insurance proceeds their intent to oppose (which they did) the claim.
shall receive the insurance proceeds in case the risks covered by the said o granted SCP's motion and directed respondent insurers to pay SCP o Adversarial proceedings simply means that it is "one having opposing
policy occur and it may be released, applied, and/or paid to SCP to $33,882,393 property damage and $8,000,000 business interruption. parties, contested as distinguished from an ex-parte application, one of
procure replacement equipment and/or machinery only upon written o It has jurisdiction over the insurance claims filed by SCP in these which the party seeking relief has given legal warning to the other party
notice to the creditors, who shall issue a Deed of Undertaking. No such rehabilitation proceedings. and afforded the latter an opportunity to contest it." In this case, the
compliance was shown. insurers have all the opportunity in these proceedings to oppose even
 Contract is the law between the parties and the obligation arising Insurers: without the necessity of a "full-blown hearing."
therefrom should be complied with in good faith. o The claim "may not be resolved summarily as the same requires a full- o The subject motion for payment of the insurance claim need not comply
 The rehabilitation proceedings were already terminated by the CA (which blown trial" such that it may be considered a complaint and therefore this with Sec. 141 of the Revised Rules of Court regarding the payment of
decisions are immediately executory). Court did not acquire jurisdiction over the res because of the non- filing fees “upon filing of the pleading or other application which initiates
 Procedural defect: The petition lacked copy of the RTC Order as well as payment of docket fees. an action or proceeding” since such does not necessarily entail full-blown
relevant pleadings thereto. o they are not "affected parties" in the rehabilitation proceedings because hearings despite it being an adversarial motion
they do not hold any asset belonging to SCP o As to the issue of the rightful payee of the insurance proceeds : although it
Under Industrial All Risks Insurance Policy, SCP insured with respondents o The motion for payment of the insurance claim is a complaint that must is beyond dispute that the provisions of the MTI continue to bind the
Mapfre Insular Insurance Corporation, etc. (respondent insurers) against be resolved in an original, separate, full-blown proceedings, parties, the MTI's binding effect should be qualified. Pursuant to the
material damage and business interruption its assets located in Barangay independently of the instant case which is summary in nature, and provision of the Interim Rules and in deference to the purpose of
Munting Tubig for the period 19 August 2009 to 19 August 2010. On 7 necessarily must comply with Sec. 141 of the Revised Rules of Court rehabilitation proceedings, the MTI would be binding only insofar as it

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does not conflict with the provisions of the rehabilitation plan undertaken benefit of creditors. respondent insurers. Since the issue involved errors of jurisdiction, the proper
by the private respondent as well as if it does not hinder the corporate o The reference to 'all those affected by the proceedings' covers creditors or remedy was to file a petition for certiorari under Rule 65.
rehabilitation of private respondent itself. such other persons or entities holding assets belonging to the debtor
o In deciding who has the better right to receive the disputed insurance under rehabilitation which should be reflected in its audited FS. RTC, acting as rehabilitation court, has no jurisdiction over the subject matter
proceeds: "utmost regard must be had to the restoration of herein o In essence, private respondent's "Motion to Pay" is a collection suit; of the insurance claim of SCP against respondent insurers. SCP must file a
private respondent to a position of successful operation and solvency." hence, it must be filed in a separate proceeding and the corresponding separate action for collection where respondent insurers can properly thresh
o It is not true that there are distinctions between the instant motion (for docket fees must be paid. out their defenses. SCP cannot simply file with the RTC a motion to direct
the second fire) from the first motion (for the first fire) which had already o The court acquires jurisdiction over a case only upon the payment of the respondent insurers to pay insurance proceeds. Section 3 of rhe FRIA states
been ruled in favor of SCP by the previous judge. The factual prescribed fees. Here, the filing of the "Motion to Pay" in the that rehabilitation proceedings are "summary and non-adversarial" in nature.
circumstances under the first motion and the present one are similar or rehabilitation court was a circumvention of the basic and indispensable They do not include adjudication of claims that require full trial on the merits,
analogous even if not entirely identical. Both motions refer to disputed requirement of payment of docket fees. like SCP's insurance claim against respondent insurers.
insurance claims arising from losses covered by existing policies issued to o There is also no gainsaying that the trial court had not validly acquired
SCP. Both have been disputed or opposed either by the MTI Trustee or by jurisdiction over the persons of petitioners. Jurisdiction over the person of Advent Capital and Finance Corporation v. Alcantara:
the insurers themselves. Thus, both motions should be resolved in the a party defendant is acquired upon the service of summons in the manner  The issue is what court has jurisdiction to hear and adjudicate the
same manner in order to maintain consistency and stability in this Court's required by law or, otherwise, by his voluntary appearance. Petitioners conflicting claims of the parties over the dividends that Belson held in
judicial pronouncements. were not served with summons. Their appearance before the trial court trust for their owners. Certainly, the rehabilitation court has no power to
o If the creditors insist on being paid the cash proceeds of the claim or if cannot be considered as voluntary appearance since the same was done resolve such ownership disputes.
the proceeds are to be given to the MTI trustee, the said act may not only precisely to question the jurisdiction of the trial court.  Advent Capital must file a separate action for collection to recover the
constitute a violation of the Stay Order but it would also result in SCP not o The trial court committed grave abuse of discretion amounting to lack or trust fees that it allegedly earned and, with the trial court's authorization
being able to restart normal operations which would adversely affect its excess of jurisdiction in issuing the Order. if warranted, put the money in escrow for payment to whoever it
rehabilitation. belongs.
o The second panel of insurers should pay the insurance claims of SCP or in WON respondent insurers availed of the improper remedy when they filed  Having failed to collect the trust fees, all it had against the Alcantaras was
lieu thereof, replace or reinstate the CRM. with the CA a petition for certiorari under Rule 65 of the Rules of Court, a claim for payment which is proper subject for an ordinary action for
instead of a petition for review under Rule 43? NO collection.
CA petition for certiorari under Rule 65 by respondent insurers: WON the jurisdiction of the rehabilitation courts is over claims against the  Rehabilitation proceedings are summary and non-adversarial in nature,
o This is an appropriate remedy, as it assails the very jurisdiction of the trial debtor that is under rehabilitation, not over claims by the debtor against its and do not contemplate adjudication of claims that must be threshed out
court in granting private respondent's insurance claims which were raised own debtors or against third parties? YES in ordinary court proceedings.
through a mere "Motion to Pay" in the rehabilitation proceedings. WON RTC has jurisdiction over the insurance claim of SCP against respondent
o A special civil action for certiorari is intended for the correction of errors insurers? NO Adversarial proceedings are inconsistent with the commercial nature of a
of jurisdiction or grave abuse of discretion amounting to lack or excess of WON insurance claims can be considered as "claims" within the jurisdiction of rehabilitation case. The latter must be resolved quickly and expeditiously for
jurisdiction. the trial court functioning as a rehabilitation court? NO the sake of the corporate debtor, its creditors and other interested parties.
o The subject matter of "Motion to Pay" comprised of its insurance claims  Petition for certiorari (Rule 65) – issue raised involves errors of Thus, the Interim Rules "incorporate the concept of prohibited pleadings,
for (i) business interruption in the amount of US$8M, and (ii) property jurisdiction, one where the act complained was issued by the court affidavit evidence in lieu of oral testimony, clarificatory hearings instead of
loss in the amount of US$28M. Said insurance claims cannot be without or in excess of jurisdiction and which error is correctible only by the traditional approach of receiving evidence, and the grant of authority to
considered as "claims" within the jurisdiction of the trial court the extraordinary writ of certiorari. the court to decide the case, or any incident, on the basis of affidavits and
functioning as a rehabilitation court.  Petition for review (Rule 43) – Issue raised involves errors of judgment, documentary evidence."
o Rehabilitation courts only have limited jurisdiction over the claims by one in which the court may commit in the exercise of its jurisdiction, and
creditors against the distressed company, not on the claims of said which error is reversible only by appeal. Rehabilitation courts only have limited jurisdiction over the claims by
distressed company against its debtors. creditors against the distressed company, not on the claims of said distressed
o "The public respondent relied on Sec. 1, Rule 3 of the Interim Rules on China Banking Corporation is inapplicable because the issue in that case company against its debtors.
Corporate Rehabilitation to support its jurisdiction over the Irrevocable involved errors of judgment. In particular, Cebu Printing and Packaging
Standby Letter of Credit and the banks that issued it. The section reads in Corporation (CPPC) questioned the rehabilitation court's findings of fact and CLAIM Definition
part that jurisdiction over those affected by the proceedings is considered law in its 30 April 2002 Order denying due course to the petition for corporate  Interim Rules: It refers to all claims or demands, of whatever nature or
acquired upon the publication of the notice of commencement of rehabilitation. CPPC never questioned the rehabilitation court's jurisdiction. character against a debtor or its property, whether for money or
proceedings in a newspaper of general circulation, and goes further to Since the issue involved errors of judgment, the proper remedy was to file a otherwise.
define rehabilitation as an in rem proceeding. This provision is a logical petition for review under Rule 43.  Section 1, Rule 2, New Rules of Procedure on Corporate Rehabilitation: It is
consequence of the in rem nature of the proceedings, where jurisdiction defined as "all claims or demands of whatever nature or character against
is acquired by publication and where it is necessary that the assets of the In the present case, respondent insurers questioned the RTC's jurisdiction a debtor or its property, whether for money or otherwise."
debtor come within the court's jurisdiction to secure the same for the over the subject matter of SCP's insurance claim and over the persons of  Section 4(c), RA 10142: It shall refer to all claims or demands of whatever
nature or character against the debtor or its property, whether for money
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or otherwise, liquidated or unliquidated, fixed or contingent, matured or by credit line was approved by FEBTC in the same year. The foregoing debts capitalized and treated as part of the principal;
unmatured, disputed or undisputed, including, but not limited to: (1) all were secured by REM over several parcels of land owned by Sarabia and a  waive all penalties;
claims of the government, whether national or local, including taxes, comprehensive surety agreement signed by its stockholders. By virtue of a  extend the payment period to 17 years, i.e., from 2003 to 2019, with
tariffs and customs duties; and (2) claims against directors and officers of merger, BPI assumed all of FEBTC's rights against Sarabia. Unfortunately, its a 2-year grace period in principal payment;
the debtor arising from the acts done in the discharge of their functions contractor defaulted which impelled Sarabia to take-over the same. This  fix the interest rate at 6.75% p.a. plus 10% VAT on interest for the
falling within the scope of their authority: Provided, That, this inclusion significantly skewed its projected revenues and led to various cash flow entire term of the restructured loans;
does not prohibit the creditors or third parties from filing cases against difficulties, resulting in its incapacity to meet its maturing obligations.  the interest and principal based on the amortization schedule shall
the directors and officers acting in their personal capacities." be payable annually at the last banking day of each year; and
Sarabia started to pay interests on its loans. However, largely because of the  any deficiency shall be paid personally by Sarabia's stockholders in
Respondent insurers are not claiming or demanding any money or property delayed completion of the New Building, Sarabia incurred various cash flow the event it fails to generate enough cash flow; on the other hand,
from SCP. IOW, respondent insurers are not creditors of SCP. Respondent problems. Thus, any excess funds generated at the end of the year shall be paid to the
insurers are contingent debtors of SCP because they may possibly be, subject creditors to accelerate the debt servicing;
to proof during trial, liable to SCP. Thus, the RTC has no jurisdiction over the Despite the fact that it had more assets than liabilities at that time, it, (2) Pay Sarabia's outstanding payables with its suppliers and the government
insurance claim of SCP against respondent insurers. SCP must file a separate nevertheless, filed a Petition for corporate rehabilitation with prayer for the so as not to disrupt hotel operations;
action against respondent insurers to recover whatever claim it may have issuance of a stay order as it foresaw the impossibility to meet its maturing (3) Convert the Advances from stockholders amounting to P18,748,306.00 to
against them. obligations to its creditors when they fall due. It claimed: stockholder's equity and other advances amounting to P42,688,734.00 as
o its cash position suffered when it was forced to take-over the of the December 31, 2002 tentative financial statements to Deferred
BPI v. Sarabia Manor Hotel Corp construction of the New Building due to the recurring default of its Credits; the said conversion should increase stockholders' equity to
The debt-to-equity ratio shows the proportions of equity and debt a company contractor, and its subsequent abandonment of the said project. P268,545,731.00 and bring the debt to equity ratio to 0.85:1;
is using to finance its assets and it signals the extent to which shareholder's Accordingly, the New Building was completed only 2 years past the (4) Require Sarabia's stockholders to pay its payables to the hotel recorded
equity can fulfill obligations to creditors, in the event a business declines. A original target date, thereby skewing Sarabia's projected revenues. as A/R — Trade, amounting to P285,612.17 as of December 31, 2001, and
low debt-to-equity ratio indicates a lower amount of financing by debt via o it was compelled to divert some of its funds in order to cover cost its remaining receivables after such date;
lenders, versus funding through equity via shareholders. A higher ratio overruns. (5) No compensation or cash dividends shall be paid to the stockholders
indicates that the company is getting more of its financing by borrowing o The grace period for the payment of the principal loan amounts ended in during the rehabilitation period, except those who are directly employed
money, which subjects the company to potential risk if debt levels are too 2000 which resulted in higher amortizations. by the hotel as a full-time officer, employee or consultant covered by a
high. Simply put: the more a company's operations rely on borrowed money, o external events adversely affecting the hotel industry, i.e., terrorist valid contract and for a reasonable fee;
the greater the risk of bankruptcy, if the business hits hard times. This is attacks and the Abu Sayyaf issue, also contributed to Sarabia's financial (6) All capital expenditures which are over and above what is provided in the
because minimum payments on loans must still be paid--even if a company difficulties. cash flow of the rehabilitation plan which will materially affect Sarabia's
has not profited enough to meet its obligations. For a highly leveraged o Maturing obligations to its creditors, namely: BPI; Rural Bank of Pavia; Vic cash position but which are deemed necessary in order to maintain the
company, sustained earnings declines could lead to financial distress or Imperial Appliance Corp.; its various suppliers; the government for MCIT; hotel's competitiveness in the industry shall be subject to the RTC's
bankruptcy. and its stockholders approval prior to its implementation;
(7) Terminate the management contract with Barcelo, thereby saving an
Sarabia Proposed rehabilitation plan estimated P25,830,997.00 in management fees, over and above the
 corporation duly organized and existing under Philippine laws o restructuring of all its outstanding loans: interest payments on the same salaries and benefits of certain managerial employees;
 Principal place of business: 101 General Luna Street, Iloilo City be pegged at a uniform escalating rate of: (a) 7% per annum (p.a.) for the (8) Appoint a new management team which would be required to submit a
 incorporated on February 22, 1982, with an ACS of P10M, fully subscribed years 2002 to 2005; (b) 8% p.a. for the years 2006 to 2010; (c) 10% p.a. comprehensive business plan to support the generation of the target
and paid-up for the years 2011 to 2013; (d) 12% p.a. for the years 2014 to 2015; and revenue as reported in the rehabilitation plan;
 Primary purpose: owning, leasing, managing and/or operating hotels, (e) 14% p.a. for the year 2018. (9) Open a debt servicing account and transfer all excess funds thereto,
restaurants, barber shops, beauty parlors, sauna and steam baths, o sought to make annual payments on the principal loans starting in 2004, which in no case should be less than P500k at the end of the month; the
massage parlors and such other businesses incident to or necessary in the also in escalating amounts depending on cash flow. funds will be drawn payable to the creditors only based on the
management or operation of hotels o should pay off its outstanding obligations to the government and its amortization schedule; and
suppliers on their respective due dates, for the sake of its day to day (10) Release the surety obligations of Sarabia's stockholders, considering the
Sarabia has been in the hotel business for over 30 years, tracing its operations. adequate collaterals and securities covered by the rehabilitation plan
operations back to 1972. Its hotel building has been even considered a and the continuing mortgages over Sarabia's properties.
landmark in Iloilo, being one of its kind in the province and having helped Receiver's Report; recommendations:
bring progress to the community. Since then, its expansion was continuous (1) Restructure the loans with Sarabia's creditors under the following terms RTC
which led to its decision to commence with the construction of a new hotel and conditions: o approved Sarabia's rehabilitation plan
building. Sarabia obtained a P150M special loan package from FEBTC in order  the total outstanding balance as of December 31, 2002 shall be o while it may be true that Sarabia has been unable to comply with its
to finance the construction of a 5-storey hotel and an additional P20M stand- recomputed, with the interest for the years 2001 and 2002 existing terms with BPI, it has nonetheless complied with its obligations to

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its EEs and suppliers and pay its taxes to both local and national reaching a sustainable operating form if only to best accommodate the
government without disrupting the day-to-day operations of its business WON Sarabia's rehabilitation plan should be approved? YES various interests of all its stakeholders, may it be the corporation's
as an on-going concern. WON BPI's opposition on the approved interest rate is manifestly stockholders, its creditors and even the general public.
o did not give credence to BPI's opposition to the Receiver's recommended unreasonable? YES
rehabilitation plan as neither BPI nor the Receiver was able to A petition for review on certiorari filed under Rule 45 of the Rules of Court Corporate rehabilitation
substantiate the claim that BPI's cost of funds was at the 10% p.a. covers only questions of law. In this relation, questions of fact are not  an attempt to conserve and administer the assets of an insolvent
threshold. In this regard, the RTC gave more credence to the Receiver's reviewable and cannot be passed upon by the Court unless, the following corporation in the hope of its eventual return from financial stress to
determination of fixing the interest rate at 6.75% p.a., taking into exceptions are found to exist: solvency
consideration not only Sarabia's ability to pay based on its proposed  when the findings are grounded entirely on speculations, surmises, or  contemplates the continuance of corporate life and activities in an effort
interest rates, i.e., 7% to 14% p.a., but also BPI's perceived cost of money conjectures; to restore and reinstate the corporation to its former position of
based on its own published interest rates for deposits, i.e., 1% to 4.75%  when the inference made is manifestly mistaken, absurd, or impossible; successful operation and liquidity.
p.a., as well as the rates for treasury bills, i.e., 5.498% p.a. and CB  when there is a grave abuse of discretion;  Purpose of rehabilitation proceedings: to enable the company to gain a
overnight borrowings, i.e., 7.094%. p.a. 38  when the judgment is based on misappreciation of facts; new lease on life and thereby allow creditors to be paid their claims from
 when the findings of fact are conflicting; its earnings. Thus, rehabilitation shall be undertaken when it is shown
CA:  when in making its findings, the same are contrary to the admissions of that the continued operation of the corporation is economically more
o reinstated the surety obligations of Sarabia's stockholders to BPI as an both parties; feasible and its creditors can recover, by way of the present value of
additional safeguard for the effective implementation of the approved  when the findings are contrary to those of the trial court; payments projected in the plan, more, if the corporation continues as a
rehabilitation plan.  when the findings are conclusions without citation of specific evidence on going concern than if it is immediately liquidated.
o RTC's conclusions as to the feasibility of Sarabia's rehabilitation was well- which they are based;
supported by the company's FS, both internal and independent, which  when the facts set forth in the petition as well as in the petitioner's main "Cram-down" clause (Section 23, Rule 4 of the Interim Rules of Procedure on
were properly analyzed and examined by the Receiver. and reply briefs are not disputed by the respondent; and Corporate Rehabilitation)
o 6.75%. p.a. interest rate on Sarabia's loans is reasonable given that BPI's  when the findings of fact are premised on the supposed absence of  a rehabilitation plan may be approved even over the opposition of the
interests as a creditor were properly accounted for. As published, BPI's evidence and contradicted by the evidence on record. creditors holding a majority of the corporation's total liabilities if (1) there
time deposit rate for an amount of P5M (with a term of 360-364 days) is is a showing that rehabilitation is feasible and (2) the opposition of the
at 5.5% p.a.; while the benchmark ninety one-day commercial paper,  question of law – the doubt or difference centers on what the law is on a creditors is manifestly unreasonable.
which banks used to price their loan averages to 6.4% p.a. in 2005, has a certain state of facts  This is necessary to curb the majority creditors' natural tendency to
three-year average rate of 6.57% p.a. As such, the 6.75% p.a. interest rate  question of fact – the doubt centers on the truth or falsity of the alleged dictate their own terms and conditions to the rehabilitation, absent due
would be higher than the current market interest rates for time deposits facts. This being so, the findings of fact of the CA are final and conclusive regard to the greater long-term benefit of all stakeholders.
and benchmark commercial papers. Moreover, the CA pointed out that and the Court will not review them on appeal  It forces the creditors to accept the terms and conditions of the
should the prevailing market interest rates change as feared by BPI, the rehabilitation plan, preferring long-term viability over immediate but
latter may still move for the modification of the approved rehabilitation The issues raised therein involve questions of fact which are beyond the incomplete recovery.
plan. ambit of a Rule 45 petition for review. The determination of WON due regard
was given to the interests of BPI as a secured creditor in the approved Feasibility of Rehabilitation
BPI: rehabilitation plan partakes of a question of fact since it will require a review  a thorough examination and analysis of the distressed corporation's
o The approved rehabilitation plan did not give due regard to its interests of the sufficiency and weight of evidence presented by the parties — among financial data must be conducted.
as a secured creditor in view of the imposition of a fixed interest rate of others, the various financial documents and data showing Sarabia's capacity  Rehabilitation is feasible – If the results of such examination and analysis
6.75% p.a. and the extended loan repayment period. to pay and BPI's perceived cost of money — and not merely an application of show that there is a real opportunity to rehabilitate the corporation in
o Sarabia's misrepresentations in its rehabilitation petition remain law. Therefore, given the complexion of the issues which BPI presents, and view of the assumptions made and financial goals stated in the proposed
unresolved. finding none of the above-mentioned exceptions to exist, the Court is rehabilitation plan. In this accord, the rehabilitation court should not
o Sarabia's projections were "too optimistic," its management was constrained to dismiss its petition, and prudently uphold the factual findings hesitate to allow the corporation to operate as an on-going concern,
"extremely incompetent." It was even forced to pay a pre-termination of the courts a quo which are entitled to great weight and respect, and even albeit under the terms and conditions stated in the approved
penalty due to its previous loan with the Landbank of the Philippines. accorded with finality. This especially obtains in corporate rehabilitation rehabilitation plan.
(But TN: Bare allegations of fact should not be entertained as they are proceedings wherein certain commercial courts have been designated on  Rehabilitation is not feasible – If the results of the financial examination
bereft of any probative value. And even if it is assumed that the said account of their expertise and specialized knowledge on the subject matter, and analysis clearly indicate that there lies no reasonable probability that
allegations are substantiated by clear and convincing evidence, such as in this case. the distressed corporation could be revived and that liquidation would, in
matters of fact should be threshed out on a Rule 45 petition) fact, better subserve the interests of its stakeholders. In such case, the
Recognizing the volatile nature of every business, the rules on corporate rehabilitation court may convert the proceedings into one for liquidation.
Sarabia: rehabilitation have been crafted in order to give companies sufficient leeway
o the present petition improperly raises questions of fact; to deal with debilitating financial predicaments in the hope of restoring or Wonder Book Corporation v. Philippine Bank of Communications
 Rehabilitation is available to a corporation which, while illiquid, has assets
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that can generate more cash if used in its daily operations than sold. implementation; (d) the formation of Sarabia's new management team and Sarabia's projected rehabilitation; and (b) on the contrary, BPI's proposed
 Its liquidity issues can be addressed by a practicable business plan that the requirement that the latter shall be required to submit a comprehensive escalating interest rates remain hinged on the theoretical assumption of
will generate enough cash to sustain daily operations, has a definite business plan to support the generation of revenues as reported in the future fluctuations in the market, this notwithstanding the fact that its
source of financing for its proper and full implementation, and anchored Rehabilitation Plan, both short term and long term; (e) the maintenance of all interests as a secured creditor remain well-preserved.
on realistic assumptions and goals. Sarabia's existing REM over hotel properties as collaterals and securities in
 Rehabilitation should be denied to corporations whose insolvency favor of BPI until the former's full and final liquidation of its outstanding loan The following observations impel the foregoing conclusion:
appears to be irreversible and whose sole purpose is to delay the obligations with the latter; and (f) the reinstatement of the comprehensive o The 6.75% p.a. interest rate is actually higher than BPI's perceived cost of
enforcement of any of the rights of the creditors, which is rendered surety agreement of Sarabia's stockholders regarding the former's debt to money as evidenced by its published time deposit rate (for an amount of
obvious by [ABS CN]: BPI. With these terms and conditions in place, the subsisting obligations of P5M, with a term of 360-364 days) which is only set at 5.5% p.a.;
 the absence of a sound and workable business plan; Sarabia to its creditors would, more likely than not, be satisfied. o the 6.75% p.a. is also higher than the benchmark ninety one-day
 baseless and unexplained assumptions, targets and goals; commercial paper, which is used by banks to price their loan averages to
 speculative capital infusion or complete lack thereof for the Therefore, based on the above-stated reasons, the Court finds Sarabia's 6.4% p.a. in 2005, and has a 3-year average rate of 6.57% p.a.; and
execution of the business plan; rehabilitation to be feasible. o BPI's interests as a secured creditor are adequately protected by the
 cash flow cannot sustain daily operations; and maintenance of all Sarabia's existing REM over its hotel properties as
 negative net worth and the assets are near full depreciation or fully Manifest Unreasonable Opposition collateral as well as by the reinstatement of the comprehensive surety
depreciated.  If it counter-proposes unrealistic payment terms and conditions which agreement of Sarabia's stockholders, among other terms in the approved
would, more likely than not, impede rather than aid its rehabilitation rehabilitation plan.
(1) Sarabia has the financial capability to undergo rehabilitation.  if the rehabilitation plan, in fact, provides for adequate safeguards to
fulfill the majority creditor's claims, and yet the latter persists on Although undefined in the Interim Rules, it may be said that the opposition
Sarabia's financial history shows that it has the inherent capacity to generate speculative or unfounded assumptions that his credit would remain of a distressed corporation's majority creditor is manifestly unreasonable if
funds to repay its loan obligations if applied through the proper financial unfulfilled. it counterproposes unrealistic payment terms and conditions which would,
framework. The Receiver's examination and analysis of Sarabia's financial more likely than not, impede rather than aid its rehabilitation. oppositions
data reveals that the latter's business is not only an on-going but also a While Section 23, Rule 4 of the Interim Rules states that the rehabilitation which push for high interests rates are generally frowned upon in
growing concern. Despite its financial constraints, Sarabia likewise continues court shall consider certain incidents in determining whether the opposition is rehabilitation proceedings given that the inherent purpose of a
to be profitable with its hotelier business as its operations have not been manifestly unreasonable, BPI neither proposes Sarabia's liquidation over its rehabilitation is to 􀀾nd ways and means to minimize the expenses of the
disrupted. Hence, given its current fiscal position, the prospect of substantial rehabilitation nor questions the controlling interest of Sarabia's shareholders distressed corporation during the rehabilitation period.
and continuous revenue generation is a realistic goal. or owners. It only takes exception to: (a) the imposition of the fixed interest
rate of 6.75% p.a. as recommended by the Receiver and as approved by the Victorio Aquino v. Pacific Plans, Inc.
(2) Sarabia has the ability to have sustainable profits over a long period courts a quo, proposing that the original escalating interest rates of 7%, 8%, Insurance; tuition; dollar-peso conversion; procedural lapses forgiven;
of time. 10%, 12%, and 14%, over 17 years be applied instead; and (b) the fact that
Sarabia's misrepresentations in the rehabilitation petition, i.e., that it Pacific Plans, Inc. (now APEC) is engaged in the business of selling pre-need
Sarabia's projected revenues shall have a steady year-on-year growth from physically acquired additional property whereas in fact the increase was plans and educational plans, including traditional open-ended educational
the time that it applied for rehabilitation until the end of its rehabilitation mainly due to the recognition of Revaluation Increment and because of plans (PEPTrads). PEPTrads are educational plans where Pacific Plans
plan in 2018, albeit with decreasing growth rates (growth rate is at 26% in capital expenditures, were not taken into consideration by the courts a quo. guarantees to pay the planholder, without regard to the actual cost at the
2003, 5% in 2004-2007, 3% in 2008-2018). Should such projections come time of enrolment, the full amount of tuition and other school fees of a
through, Sarabia would have the ability not just to pay off its existing debts Objective of a rehabilitation proceeding designated beneficiary. Petitioner is a holder of 2 units of respondent's
but also to carry on with its intended expansion.  inherent purpose: to find ways and means to minimize the expenses of PEPTrads. Foreseeing the impossibility of meeting its obligations to the
the distressed corporation during the rehabilitation period availing planholders as they fall due, respondent filed a Petition for Corporate
(3) The interests of Sarabia's creditors are well-protected.  to provide the best possible framework for the corporation to gradually Rehabilitation on April 7, 2005. At the time of filing of the said Petition,
regain or achieve a sustainable operating form respondent had more or less 34,000 outstanding PEPTrads.
Adequate safeguards are found under the approved rehabilitation plan,
namely: (a) any deficiency in the required minimum payments to creditors Creditor's opposition is manifestly unreasonable Proposed rehabilitation plan
based on the presented amortization schedule shall be paid personally by - if a creditor, whose interests remain well-preserved under the existing o implementation of a "Swap" – will essentially give the planholder a means
Sarabia's stockholders; (b) the conversion of the advances from stockholders rehabilitation plan, still declines to accept interests pegged at reasonable to exit from the PEPTrads at terms and conditions relative to a
and deferred credits as of the December 31, 2002 tentative audited FS to rates during the period of rehabilitation, and, in turn, proposes rates termination value that is more advantageous than those provided under
stockholder's equity was granted; (c) all capital expenditures which are over which are largely counter-productive to the rehabilitation the educational plan in case of voluntary termination.
and above what is provided in the cash flow of the approved rehabilitation
plan which will materially affect the cash position of the hotel but which are In this case, the Court finds BPI's opposition on the approved interest rate to Alternative Rehabilitation Plan
deemed necessary in order to maintain the hotel's competitiveness in the be manifestly unreasonable considering that: (a) the 6.75% p.a. interest rate o The benefits under the PEPTrads shall be translated into fixed-value
industry shall be subject to the approval by the Court prior to already constitutes a reasonable rate of interest which is concordant with
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benefits as of December 31, 2004, which will be termed as Base Year-end appeals. Nevertheless, respondent commenced with the implementation of o Petition for Review under Rule 43 of the ROC is an improper mode to
2004 Entitlement, and shall be computed as follows: its ARP in coordination with, and with clearance from, the Rehabilitation question the Resolution approving the MRP, since the same constitutes
(a) for availing plan holders, based on 50% of Average School Fee of SY Receiver. In the meantime, the value of the Philippine Peso strengthened and merely as an interlocutory order and, therefore, a proper subject of a
2005-2006 for every remaining year of availment; appreciated. In view of this development, and considering that the trust fund certiorari case under Rule 65 of the Rules of Court
(b) for non-availing (Group 1) plan holders, based on the higher of Base of respondent is mainly composed of NAPOCOR bonds that are denominated
Year-end 2004 Entitlement under the Rehabilitation Proposal or 50% in US Dollars, respondent submitted a manifestation with the Rehabilitation WON the approval of the MRP is offensive to the non-impairment clause of
of Average School Fee of SY 2005-2006 for every year of availment; Court, stating that the continued appreciation of the Philippine Peso has the Constitution? NO
and grossly affected the value of the U.S. Dollar-denominated NAPOCOR bonds, The governing rule at the time respondent filed its petition for rehabilitation
(c) for non-availing (Group 2) plan holders, based on the planholders' which stood as security for the payment of the Net Translated Values of the (Apr 7, 2005) was the Interim Rules, which does not expressly state the mode
contributions with 7% net interest per annum from date of full PEPTrads. of appeal from the decisions, orders and resolutions of the Rehabilitation
payment on record to December 31, 2004. The Base Year-end Court, either prior or after the approval of the rehabilitation plan.
Entitlement will be covered by a Rehabilitation Plan Agreement in Modified Rehabilitation Plan (MRP)
lieu of a fixed-value plan. o suspension of the tuition support; A.M. No. 04-9-07-SC – proper mode of appeal in cases involving corporate
o Petitioner is entitled to receive an aggregate amount consisting of: (a) the o converting the Philippine Peso liabilities to U.S. Dollar liabilities by rehabilitation and intra-corporate controversies in order to prevent cluttering
value of her total contributions plus interest at the rate of 7% from the assigning to each planholder a share of the remaining asset in proportion the dockets of the courts with appeals and/or petitions for certiorari. It
date of full payment until December 31, 2005 (Net Translated Value); and to the share of liabilities in 2010; and provides:
(b) interest on the Net Translated Value at the annual rate of 7% from o payments of the trust fund assets in U.S. Dollars at maturity.
January 1, 2006 until 2010. All decisions and final orders in cases falling under the Interim Rules of
o Tuition support for each enrolment period until SY 2009-2010 depending Rehabilitation Court Corporate Rehabilitation and the Interim Rules of Procedure Governing Intra-
on the prevailing market rate of the NAPOCOR Bonds and Peso-Dollar o approved the MRP Corporate Controversies under RA 8799 shall be appealable to the CA
exchange rate. o In view of the "cram down" power of the rehabilitation court, courts through a petition for review under Rule 43 of the Rules of Court, regardless
o Tuition support = lesser of the remaining balance of Base Year-end 2004 have the power to approve a rehabilitation plan over the objection of of whether such decisions and final orders are issued before or after the
Entitlement, the last-term tuition or reimbursement on record and the creditors and even when such proposed rehabilitation plan involves the approval of the rehabilitation court.
following tuition support ceiling: impairment of contractual obligations.
Subsequently, the SC issued A.M. No. 00-8-10-SC (Rehabilitation Rules),
Availment Mode Ceiling CA which took effect on January 16, 2009, embodying the rehabilitation rules
Annual P20k o Petition for Review under Rule 43 is an improper remedy to question the applicable to petitions for rehabilitation of corporations, partnerships and
Semester 10k approval of an MRP associations pursuant to P.D. No. 902-A, as amended. Section 1, Rule 8
Trimester 6k o the approval of the MRP did not amount to an impairment of the contract thereof unequivocally states:
between petitioner and respondent
o These tuition support payments are considered advances from the Base A party may file an MR of any order issued by the court prior to the approval
Year-end 2004 Entitlement. Petitioner filed a petition for review under Rule 45. of the rehabilitation plan. No relief can be extended to the party aggrieved
o Source for the funding for the tuition support: by the court's order on the motion through a special civil action for certiorari
 Outright sale of the NAPOCOR bonds and conversion of Dollar Peitioner under Rule 65 of the Rules of Court. Such order can only be elevated to the
proceeds to Peso, up to the equivalent of the tuition support o The Resolution is a final order with respect to the approval of the MRP; CA as an assigned error in the petition for review of the decision or order
requirements. The payment of the tuition support will be dependent hence, her recourse to a Petition for Review under Rule 43 of the Rules of approving or disapproving the rehabilitation plan. An order issued after the
on the terms and exchange rate under which the bonds are Court was proper. approval of the rehabilitation plan can be reviewed only through a special civil
liquidated; OR o Such remedy is clearly in line with the directive of AM No. 04-9-07-SC, action for certiorari under Rule 65 of the Rules of Court.
 Forward sale of the underlying Dollars to a financial institution, which which took effect on October 15, 2004 and, therefore, was the correct
then issues notes credit linked with NAPOCOR Bonds. The notes can rule on appeals prevailing at the time petitioner filed her petition with the While the later rule states that orders issued after the approval of the
then be sold to interested financial institution to provide for liquidity CA. rehabilitation plan can be reviewed only through a special civil action for
to fund the requirements for tuition support. certiorari under Rule 65 of the Rules of Court, such rule DOES NOT apply to
Respondent the instant case as the same was not yet in effect at the time petitioner filed
The creditors/oppositors did not oppose/comment on the Rehabilitation o the assailed decision has become final and executory for failure of her Petition for Review with the CA. The prevailing law is the Interim Rules as
Receiver's ARP. But the Parents Enabling Parents Coalition, Inc. (PEPCI) filed petitioner to timely serve a copy of the Petition for Time upon the CA well as A.M. No. 04-9-07-SC. As such, the proper remedy of appeal from all
with the CA, a Petition for Certiorari with Application for a TRO/Writ of o The MR on the questioned decision raises no new arguments; thus, is decisions and final orders of the RTC was Rule 43 of the Rules of Court, and
Preliminary Injunction. merely pro forma and did not toll the running of the reglementary period; not Rule 65 thereof.
o petitioner failed to pay the appropriate amount of docket fees when she
The Court issued a Decision approving the ARP, which cradled several filed the Petition for Review with the CA. The approval of the MRP is not merely an interlocutory order. A final order is

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one that puts an end to the particular matter involved, or settles definitely the notary public and who personally knows the individual, or of two credible unclogging of court docket is a laudable objective, it nevertheless must not be
matter therein disposed of, as to leave nothing for the trial court to do other witnesses neither of whom is privy to the instrument, document or met at the expense of substantial justice. The rules of procedure are mere
than to execute the order. Here, it cannot be gainsaid that the Resolution transaction who each personally knows the individual and shows to the tools aimed at facilitating the attainment of justice, rather than its frustration.
approving the MRP is a final order with respect to the validity thereof, notary public documentary identification. A strict and rigid application of the rules must always be eschewed when it
specifically on the following issues: (1) the suspension of the tuition support; would subvert the primary objective of the rules, that is, to enhance fair trials
(2) conversion of Philippine Peso entitlements to U.S. Dollar entitlements; and While the Verification and Certification against Forum Shopping attached to and expedite justice.
(3) the payments in U.S. Dollars upon maturity in 2010. In this regard, the the petition is defective because the jurat thereof does not contain the
issue as to its alleged infringement on the non-impairment clause under the required competent evidence of identity of the affiant, such omission may Notwithstanding our liberal interpretation of the rules, the instant petition
Constitution has likewise been settled. be overlooked in the name of judicial leniency, in order to give this Court an must fail on substantive grounds.
avenue to dispose of the substantive issues of this case.
The doctrine laid down in New Frontier Sugar Corp. v. Regional Trial Court Petitioner
Branch 39, Iloilo City, cannot be used to counter the foregoing because in that While it would appear that there is substantial identity of parties, since both o MRP is ultra vires insofar as it reduces the original claim and even the
case, the Court merely stressed that an original action for certiorari may be petitioner and PEPCI are creditors of respondent and both are questioning the original amount that petitioner was to receive under the ARP.
directed against an interlocutory order of the lower court prior to an appeal Rehabilitation Court's approval of the MRP, the identity of cause of action is o It was beyond the authority of the Rehabilitation Court to sanction a
from the judgment; or where there is no appeal or any plain, speedy or absent in the present case. No forum shopping exists when 2 groups of rehabilitation plan, or the modification thereof, when the essential
adequate remedy. New Frontier does not categorically preclude the filing of a oppositors in a rehabilitation case act independently of each other, even feature of the plan involves forcing creditors to reduce their claims
petition for review under Rule 43 for decisions or orders issued after the when they have sought relief from the same appellate court. There must be against respondent.
approval of the rehabilitation plan such as a modification thereof. identity of parties or interests represented, rights asserted and relief sought
in different tribunals. Private respondents represent different groups with The "cram-down" power of the Rehabilitation Court has long been
Any lapse on the filing of the MR with the CA is not grave enough to dismiss different interests — the minority stockholders' group, represented by established and even codified under Section 23, Rule 4 of the Interim Rules,
the instant petition on technical grounds. Moreover, it is settled that although private respondent Lim; the unsecured creditors group, Allied Leasing & to wit:
an MR may merely reiterate issues already passed upon by the court, that, by Finance Corporation; and the old management group. Each group has distinct Section 23. Approval of the Rehabilitation Plan. — The court may approve a
itself, does not make it pro forma. In fact, the CA did not declare said MR as rights to protect. rehabilitation plan over the opposition of creditors, holding a majority of the
pro forma when it denied the same. Hence, considering that the MR is not total liabilities of the debtor if, in its judgment, the rehabilitation of the
pro forma and a mere scrap of paper, its filing tolled the running period of The cases filed by private respondents should be consolidated. In any case, SC debtor is feasible and the opposition of the creditors is manifestly
appeal. resolves to condone any procedural lapse in the interest of substantial unreasonable.
justice given the nature of business of respondent and its overreaching
Anent the Verification and Certification against Forum Shopping of the instant implication to society. To deny this Court of its duty to resolve the substantive Such prerogative was carried over in the Rehabilitation Rules, which
petition, we recognize that petitioner failed to comply with the Notarial Rules, issues would be tantamount to judicial tragedy as planholders would be maintains that the court may approve a rehabilitation plan over the objection
which provides that in order for a jurat to be valid, the following placed in a state of limbo as to its remedies under existing laws and of the creditors if, in its judgment, the rehabilitation of the debtors is feasible
requirements should be present: jurisprudence. and the opposition of the creditors is manifestly unreasonable. The required
number of creditors opposing such plan under the Interim Rules (i.e., those
SEC. 6. Jurat. — "Jurat" refers to an act in which an individual on a single Indeed, where strong considerations of substantive justice are manifest in the holding the majority of the total liabilities of the debtor) was, in fact,
occasion: petition, the strict application of the rules of procedure may be relaxed, in the removed. Moreover, the criteria for manifest unreasonableness is spelled out,
(a) appears in person before the notary public and presents an instrument or exercise of its equity jurisdiction. Thus, a rigid application of the rules of to wit:
document; procedure will not be entertained if it will only obstruct rather than serve the
(b) is personally known to the notary public or identified by the notary public broader interests of justice in the light of the prevailing circumstances in the SEC. 11. Approval of Rehabilitation Plan. — The court may approve a
through competent evidence of identity as defined by these Rules; case under consideration. rehabilitation plan even over the opposition of creditors of the debtor if, in its
(c) signs the instrument or document in the presence of the notary; and judgment, the rehabilitation of the debtor is feasible and the opposition of
(d) takes an oath or affirmation before the notary public as to such Lapses in the literal observation of a procedural rule will be overlooked: the creditors is manifestly unreasonable. The opposition of the creditors is
instrument or document.  they do not involve public policy, manifestly unreasonable if the following are present: [CPA]
 they arose from an honest mistake or unforeseen accident, AND (a) The rehabilitation plan complies with the requirements specified in
as well as Section 12, Rule II of the Notarial Rules, which defines what  they have not prejudiced the adverse party or deprived the court of its Section 18 of Rule 3;
constitutes competent evidence of identity, to wit — authority. (b) The rehabilitation plan would provide the objecting class of creditors with
SEC. 12. Competent Evidence of Identity. — The phrase "competent evidence payments whose present value projected in the plan would be greater
of identity" refers to the identification of an individual based on: The aforementioned conditions are present in the case at bar. than that which they would have received if the assets of the debtor were
(a) at least one current identification document issued by an official agency sold by a liquidator within a 6-month period from the date of filing of the
bearing the photograph and signature of the individual; or The subsequent submission of the missing documents with the MR amounts petition; and
(b) the oath or affirmation of one credible witness not privy to the to substantial compliance. While it is true that the rules of procedure are (c) The rehabilitation receiver has recommended approval of the plan.
instrument, document or transaction who is personally known to the intended to promote rather than frustrate the ends of justice, and the swift
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their controlling interest as a result of the Rehabilitation Plan; and Second. The recommendation of the Rehabilitation Receiver cannot simply be
In approving the rehabilitation plan, the court shall ensure that the rights of  The Rehabilitation Plan would likely provide the objecting class of unsung without violating the basic tenet of Section 14, Rule 4 of the Interim
the secured creditors are not impaired. The court shall also issue the creditors with compensation/payment which has a net present value Rules, which provides the powers and functions of the Rehabilitation
necessary orders or processes for its immediate and successful greater than that which they would have received if the debtor were Receiver. The Rehabilitation Receiver shall NOT take over the management
implementation. It may impose such terms, conditions, or restrictions as the under liquidation. and control of the debtor but shall closely oversee and monitor the
effective implementation and monitoring thereof may reasonably require, or operations of the debtor during the pendency of the proceedings, and for this
for the protection and preservation of the interests of the creditors should While the voice and participation of the creditors is crucial in the purpose shall have the powers, duties and functions of a receiver under PD
the plan fail. determination of the viability of the rehabilitation plan, as they stand to 902-A, as amended, and the ROC. He shall have the following powers and
benefit or suffer in the implementation thereof, the interests of all functions, among others:
The "cram-down" clause, which is currently incorporated in the FRIA, is stakeholders is the ultimate and prime consideration.  To monitor the operations of the debtor and to immediately report to the
necessary to curb the majority creditors' natural tendency to dictate their court any material adverse change in the debtor's business;
own terms and conditions to the rehabilitation, absent due regard to the First. An examination of the changes proposed in the MRP would confirm that  To determine and recommend to the court the best way to salvage and
greater long-term benefit of all stakeholders. OW stated, it forces the the same is, in fact, an effective risk management tool intended to serve both protect the interests of the creditors, stockholders, and the general
creditors to accept the terms and conditions of the rehabilitation plan, the interests of respondent and its planholders/creditors. It is a matter of fact public;
preferring long-term viability over immediate but incomplete recovery. and record that the Philippine Peso unexpectedly and uncharacteristically  To recommend any modification of an approved rehabilitation plan as he
strengthened and appreciated from Php52.02 to USD1.00 at the time of the may deem appropriate;
Pryce Corporation v. China Banking Corporation approval of the ARP to Php40.63 to USD1.00 as of March 7, 2008, the day the  To bring to the attention of the court any material change affecting the
 Ipon approval by the court, the rehabilitation plan and its provisions "shall Rehabilitation Receiver filed his Manifestation with Motion to Admit praying debtor's ability to meet the obligations under the rehabilitation plan.
be binding upon the debtor and all persons who may be affected by it, for the approval of the MRP. There is no gainsaying that during this period,
including the creditors, WON such persons have participated in the the value of the U.S. Dollar-denominated NAPOCOR bonds — the assets The Rehabilitation Rules allow the modification and alteration of the
proceedings or opposed the plan or WON their claims have been covering the trust fund subject of the traditional education plan — has rehabilitation plan precisely because of conditions that may supervene or
scheduled." already been substantially diluted because of the stronger value of the affect the implementation thereof subsequent to its approval. In the case at
Philippine Peso vis-à-vis the U.S. Dollar from the time of the approval of the bar, to force through with the tuition support would surely jeopardize the
It is undeniable that there is a need to move to a regime of modern ARP. As of 15 July 2008, the exchange rate was Php45.35 to US$1.00, or an implementation of the ARP in the long-run since it would not be feasible to
restructuring, cram-down and court supervision in the matter of corporation appreciation of at least 14%. Since the NAPOCOR Bonds are denominated in keep on liquidating the NAPOCOR Bonds.
rehabilitation in order to address the greater interest of the public. This is US dollars, it means that the NAPOCOR Bonds have lost their original value by
clearly manifested in Section 64 of FRIA: at least 14% since the approval of the ARP on 27 April 2006. Ergo, the Third. There is a substantial likelihood for respondent to be successfully
continued payment of tuition support in Philippine Pesos will lead to the rehabilitated considering that its business remains viable and is operating on
Creditor Approval of Rehabilitation Plan certainty of the trust fund being substantially diluted when the planholders a going-concern premise.
 The rehabilitation receiver shall notify the creditors and stakeholders avail of the same upon maturity of the NAPOCOR Bonds in 2010.
that the Plan is ready for their examination. A careful reading of the records will show that respondent's liquidity
 Within 20 days from the said notification, the rehabilitation receiver shall This defense mechanism is reasonable because sustaining the current terms problems were mostly caused by the deregulation of the education sector,
convene the creditors, either as a whole or per class, for purposes of of the ARP would render the trust fund of no value given the high probability which triggered sharp increases in tuition fees of schools and universities
voting on the approval of the Plan. of its dilution. Resultantly, the very foundation of the rehabilitation plan, beyond what was projected by pre-need companies dealing with traditional
 The Plan shall be deemed rejected UNLESS approved by ALL CLASSES of which is to minimize the loss of all stakeholders, would be rendered in futile educational plans. Surely, we are mindful of the financial distress in 1997,
creditors whose rights are adversely modified or affected by the Plan. since the trust funds may no longer be sufficient to meet the basic terms of which has destroyed various institutions not only in the Philippines but across
 The Plan is deemed to have been approved by A CLASS of creditors if the ARP. Asia, further compromising the pre-need industry's ability to meet its
members of the said class holding more than 50% of the total claims of obligations under the PEPTrads. The surrounding circumstances of the time
the said class vote in favor of the Plan. The MRP merely establishes the planholders' claim on a percentage/pro rata was peculiar and may no longer be pertinent at present.
 The votes of the creditors shall be based solely on the amount of their share of the assets of the trust fund. It does not, in any way, diminish the
respective claims based on the registry of claims submitted by the value of their claims or their share in the proverbial pie. As can be gleaned Thus, pointing fingers to respondent at this point for its alleged
rehabilitation receiver pursuant to Section 44 hereof. from the foregoing, the modification guarantees that each planholder has an mismanagement of assets would be irrational, and even counter-productive,
adequate return on his/her investment regardless of changes in the surge of because the feasibility of respondent's rehabilitation has already been duly
Notwithstanding the rejection of the Rehabilitation Plan, the court may the Philippine economy. established by the Rehabilitation Court. Conversely, by virtue of the corporate
confirm the Rehabilitation Plan if all are present: rehabilitation, respondent will have enough breathing room to improve its
 The Rehabilitation Plan complies with the requirements specified in this Hence, the proposed modification seeks to establish a balance between operations in order to sustain its business operations and at the same time,
Act; adequate returns to the planholders/creditors, while ensuring that settle all its outstanding obligations in a just and fair manner, in accordance
 The rehabilitation receiver recommends the confirmation/approval of the respondent shall be an on-going concern that can eventually undergo normal with the MRP.
Rehabilitation Plan; operations after the implementation of the MRP.
 The shareholders, owners or partners of the juridical debtor lose at least Anent petitioner's argument that the approval of the MRP is offensive to the
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non-impairment clause of the Constitution, the same fails to persuade. As with which entity they planned to eventually consolidate St. Michael machinery amounting to P20M, in order to build up the hospital's medical
held in a plethora of cases, a rehabilitation plan may involve a reduction of Hospital's operations. SMMCI had an initial capital of P2M which was later capabilities. However, since SMMCI was neither operational nor earning
liability. Here, petitioner's claim is not cancelled or obliterated all together. increased to P53.5M, 94.49% of which OCS was subscribed and paid by Sps. revenues, it could only pay interest on the BPI using St. Michael Hospital's
Contrary to her view, petitioner's claim is in fact restructured in a way that Rodil. income, over a 2-year period. Further, it was averred that while St. Michael
would allow respondent to revive its financial health while offering the Hospital — whose operations were to be eventually absorbed by SMMCI —
optimal returns to its clients. It is undisputable that the corporation is in the In May 2004, construction of a new hospital building on the adjoining was operating profitably, it was saddled with the burden of paying the loan
process of corporate rehabilitation precisely because it is undergoing financial properties commenced, with Sps. Rodil contributing personal funds as initial obligation of SMMCI and Sps. Rodil to BPI Family, which it cannot service
distress. Petitioner cannot expect to receive the contracted amount owed by capital for the project which was estimated to cost at least P100M. To finance together with its current obligations to other persons and/or entities. The
respondent because a modification of the terms and conditions of the the costs of construction, SMMCI applied for a loan with BPI which gave a situation became even more difficult when the bank called the entire loan
contract is certainly foreseeable and reasonable in a corporate rehabilitation credit line of up to P35M, secured by a REM over 3 parcels of land belonging obligation. While several persons approached Sps. Rodil signifying their
case. to Sps. Rodil, on a portion of which stands the hospital building being interest to invest in the corporation, they needed enough time to complete
constructed. SMMCI was able to draw the aggregate amount of P23.7M, with their audit and due diligence of the company, hence, the Rehabilitation
The mere impairment of contracts is not a justification to question the interest at the rate of 10.25% per annum and a late payment charge of 3% per Petition.
modification of a rehabilitation plan because the very nature of rehabilitation month accruing on the overdue amount, for which Sps. Rodil, who agreed to
proceedings sometimes necessitates such a course of action. be co-borrowers on the loan, executed and signed a Promissory Note. Proposed Rehabilitation Plan:
o BPI Family: (a) to defer foreclosing on the mortgage and (b) to agree to a
Section 10, Article III of the Constitution mandates that no law impairing the In the meantime, after suffering financial losses due to problems with the first moratorium of at least 2 years during which SMMCI — either through St.
obligations of contract shall be passed. This case does not involve a law or an building contractor, Sps. Rodil temporarily deferred the original construction Michael Hospital or its successor — will retire all other obligations.
executive issuance declaring the modification of the contract among debtor, plans for the 11-storey hospital building and, instead, engaged the services of o SMMCI can then start servicing its loan obligation to the bank under a
its creditors and its accommodation mortgagors. Thus, the non-impairment another contractor for the completion of the remaining structural works of mutually acceptable restructuring agreement.
clause may not be invoked. Furthermore, even assuming that the same may the unfinished building up to the 5th floor. In this regard, they spent an o SMMCI intends to conclude pending negotiations for investments offered
be invoked, the non-impairment clause must yield to the police power of the additional P25M or a total of P55M for the construction. The lack of funds for by a group of medical doctors whose capital infusion shall be used (a) to
State. the finishing works of the 3rd, 4th and 5th floors, however, kept the new complete the finishing requirements for the 3rd and 5th floors of the new
building from becoming completely functional and, in turn, hampered the building; (b) to renovate the old 5-storey building where St. Michael
The non-impairment clause under the Constitution applies only to the plans for the physical transfer of St. Michael Hospital's operations to SMMCI. Hospital operates; and (c) to pay, in whole or in part, the bank loan with
exercise of legislative power. It does not apply to the Rehabilitation Court Nevertheless, using hospital-generated revenues, Sps. Rodil were still able to the view of finally integrating St. Michael Hospital with SMMCI.
which exercises judicial power over the rehabilitation proceedings. purchase new equipment and machinery for St. Michael Hospital valued in
excess of P20M. Receiver’s Report
In the case at bar, the modification of the rehabilitation plan is a risk o St. Michael Hospital, whose operations SMMCI will eventually absorb,
management tool to address the volatility of the exchange rate of the Although the finishing works were later resumed and some of the hospital registered outstanding revenue performance for the last 7 years of its
Philippine Peso vis- à-vis the U.S. Dollars, with the goal of ensuring that all operations were eventually transferred to the completed first 2 floors of the operation with an average growth rate of 42.21% annually.
planholders or creditors receive adequate returns regardless of the tides of new building, as of May 2006, SMMCI was still neither operational nor o SMMCI may be rehabilitated because it is a viable option but,
the Philippine market by making payment in U.S. Dollars. This plan would earning revenues. Hence, it was only able to pay the interest on its BPI Family nevertheless, opined that it will take more than what it had proposed to
prevent the trust fund of respondent from being diluted due to the loan from the income of St. Michael Hospital. successfully bring the company back to good financial health considering
appreciation of the Philippine Peso and assure that all planholders and the finding that its obligation actually extends beyond the bank, and also
creditors shall receive payment upon maturity of the NAPOCOR bonds in the On September 25, 2009, BPI demanded immediate payment of the entire loan includes accounts payable due to suppliers and informal lenders.
most equitable manner. obligation and, soon after, filed a petition for extrajudicial foreclosure of the o The 2-year moratorium period to pay the bank is not enough. Such should
real properties covered by the mortgage. be extended by another 3 years or a total of 5 years, at least.
o The bank, whose loan is secured by mortgages on 3 prime parcels of land
On August 11, 2010, SMMCI filed a Petition for Corporate Rehabilitation, with improvements should discuss restructuring the loan with the
with prayer for the issuance of a Stay Order as it foresaw the impossibility of creditors with the end in view of stretching the term and allowing for
meeting its obligation to BPI. SMMCI claimed that it had to defer the more flexible rate.
BPI Family Savings Bank, Inc. v. St. Michael Medical Center, Inc. construction of the projected 11-storey hospital building due to the problems o Obligations to other creditors such as the suppliers and lenders can be
Separate entities it had with its first contractor as well as the rise of the cost of construction serviced at once. Given the performance of the hospital, the undersigned
materials. Also, it was alleged that more than P66M had been spent for the reasonably believes that these obligations can be settled in next 3 years.
Sps. Rodil are the owners and sole proprietors of St. Michael Hospital, a 5- construction of the existing structure (in excess of its proportionate share of These accounts can be paid proportionately provided that SMMCI should
storey secondary level hospital built on their property located in Cavite. With the original estimated cost for the entire project), said amount having come be allowed to re-structure these accounts to allow for longer and more
a vision to upgrade St. Michael Hospital into a modern, well-equipped and full from the personal funds of Sps. Rodil and/or income generated by St. convenient payment terms.
service tertiary 11-storey hospital, Sps. Rodil purchased 2 parcels of land Michael Hospital, aside from the drawings from the credit line with BPI. At o SMMCI should be allowed to spend for the improvement of the building
adjoining their existing property and, on May 22, 2003, incorporated SMMCI, the same time, Sps. Rodil continued to shoulder the costs of equipment and
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but not necessarily continuing with the planned 11-storey building. For Rehabilitation Receiver should consult with the creditors; and
instance, we recommend that the 5th floor of the building should be o the approval of the Rehabilitation Plan was not made arbitrarily since it This defect is not negated by the submission of the financial documents
finished to provide for an ICU with equipment and required facilities. was done only after a review of the pleadings filed and the report pertaining to St. Michael Hospital, which is a separate and distinct entity from
SMMCI should also consider spending an elevator to make access to and submitted by the Rehabilitation Receiver, and its approval was anchored SMMCI. SMMCI stands as the sole petitioning debtor in this case; as such, its
from the higher floors convenient to patients, doctors, nurses and guests. on valid considerations. rehabilitation should have been primarily examined from the lens of its own
o Incidentally, these improvements should be programmed for the next 2-3 Restoration financial history. While SMMCI claims that it would absorb St. Michael
years. Given the budgetary constraints of the hospital, doing all these  the central idea behind the remedy of corporate rehabilitation. Hospital's operations, there was dearth of evidence to show that a merger
improvements all at once would be impossible.  to "restore" means "to bring back to or put back into a former or original was already agreed upon between them.
o SMMCI should provide for details on its statements regarding the state."
prospective investors. This fresh capital should be used partly to pay the  Case law explains that corporate rehabilitation contemplates a While it appears that Sps. Rodil effectively owned and exercised control over
bank and the rest to improve the hospital to make it more competitive continuance of corporate life and activities in an effort to restore and the 2 entities, such fact does not, by and of itself, warrant their singular
with the nearby medical service providers. reinstate the corporation to its former position of successful operation treatment for to do so would only confuse the objective of the proceedings
and solvency, the purpose being to enable the company to gain a new which is to ascertain whether the petitioning corporation, and not any other
RTC: lease on life and allow its creditors to be paid their claims out of its entity related thereto (except if joining as a co-petitioning debtor), may be
o approved the Rehabilitation Plan with modifications earnings. rehabilitated. Neither is the proceeding the proper forum to pierce the
o 5-year moratorium on SMMCI's bank loan corporate fictions of both entities for it involves no creditor claiming to be a
o programmed spending of a reasonable part of the hospital's revenues for Section 4 (gg), FRIA victim of fraud, an essential requisite for the application of such doctrine.
the finishing of the 5th floor and the improvement of hospital facilities in Rehabilitation shall refer to the restoration of the debtor to a condition of
the next 2 or 3 years successful operation and solvency, if it is shown that its continuance of Rehabilitation Plan (Sec 18, Rule 3) (SMMCI failed to comply)
o use of fresh capital from prospective investors to partly pay SMMCI's operation is economically feasible and its creditors can recover by way of the  the desired business targets or goals and the duration and coverage of
bank loan and improve St. Michael Hospital's competitiveness. present value of payments projected in the plan, more if the debtor continues the rehabilitation;
o the plan ensures preservation of assets and orderly payment of debts; as a going concern than if it is immediately liquidated.  the terms and conditions of such rehabilitation which shall include the
provides for recovery rates on operating mode as opposed to liquidation manner of its implementation, giving due regard to the interests of
values; contains details for a business plan which will restore profitability IOW, rehabilitation assumes that the corporation has been operational but secured creditors such as, but not limited, to the non-impairment of their
and solvency of petitioner; did not ask for a waiver of the principal; for some reasons like economic crisis or mismanagement had become security liens or interests;
preserves the security of the secured creditor; has provisions to ensure distressed or insolvent, i.e., that it is generally unable to pay its debts as they  the material financial commitments to support the rehabilitation plan;
that future income will inure to the benefit of the creditors; the projected fall due in the ordinary course of business or has liability that are greater than  the means for the execution of the rehabilitation plan (debt to equity
cash flow can support the continuous operation of the debtor as a going its assets. Thus, the basic issues in rehabilitation proceedings concern the conversion, restructuring of the debts, dacion en pago or sale exchange
concern; and the rehabilitation of the debtor benefits its employees, viability and desirability of continuing the business operations of the or any disposition of assets or of the interest of shareholders, partners or
creditors, stockholders and, in a large sense, the general public as it will distressed corporation, all with a view of effectively restoring it to a state of members);
generate employment and is a potential source of revenue for the solvency or to its former healthy financial condition through the adoption of a  a liquidation analysis setting out for each creditor that the present value
government. rehabilitation plan. 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
BPI Family In this case, it cannot be said that SMMCI had been in a position of a 6-month period from the estimated date of filing of the petition; and
o the approval of the Rehabilitation Plan violated its rights as an unpaid successful operation and solvency at the time the Rehabilitation Petition was  such other relevant information to enable a reasonable investor to make
creditor/mortgagee and that the same was submitted without prior filed. While it had indeed "commenced business" through the preparatory act an informed decision on the feasibility of the rehabilitation plan.
consultation with creditors of opening a credit line with BPI to finance the construction of a new hospital
building for its future operations, SMMCI itself admits that it has not formally Lack of Material Financial Commitment to Support the Rehabilitation Plan
CA: operated nor earned any income since its incorporation. This simply means  Significance of a material financial commitment : gauging the resolve,
o the rehabilitation of SMMCI is feasible considering the outstanding that there exists no viable business concern to be restored. Perforce, the determination, earnestness and good faith of the distressed corporation
revenue performance of St. Michael Hospital, which it shall absorb, remedy of corporate rehabilitation is improper. SMMCI could not have even in financing the proposed rehabilitation plan.
showing its gross profit exceeding its operating expenses and the large complied with the form and substance of a proper rehabilitation petition, and  This commitment may include the voluntary undertakings of the
probability of increased profitability due to the favorable economic submit its accompanying documents, among others, the required FS of a stockholders or the would-be investors of the debtor-corporation
conditions of the locality; going concern. indicating their readiness, willingness and ability to contribute funds or
o the approval of the Rehabilitation Plan did not amount to an impairment property to guarantee the continued successful operation of the debtor
Documents accompanying the petition (Sec. 2 (b), Rule 4 of the 2008 Rules corporation during the period of rehabilitation.
of contract since there was no directive for the release of the mortgaged
of Procedure on Corporate Rehabilitation)  In this case, aside from the harped on merger of St. Michael Hospital with
properties to which BPI Family is entitled to as a secured creditor but only
a suspension of the provisions of the loan agreements;  An AFS of the debtor at the end of its last fiscal year; SMMCI, the only proposed source of revenue the Rehabilitation Plan
o it is not mandatory for the validity of the Rehabilitation Plan that the  Interim FS as of the end of the month prior to the filing of the petition suggests is the capital which would come from SMMCI's potential
investors, which negotiations are merely pending. Evidently, both
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propositions commonly border on the speculative and, hence, hardly fit distress. In this case, not only has the petitioning debtor failed to show that it Domingo Shipping Lines
the description of a material financial commitment which would inspire has formally began its operations which would warrant restoration, but also it o conversion of the Ocean Palace Mall into a hotel
confidence that the rehabilitation would turn out to be successful. has failed to show compliance with the key requirements under the Rules, the o acquisition of 2 new vessels for shipping operations
 The fact that St. Michael Hospital had previously made payments for the purpose of which are vital in determining the propriety of rehabilitation. o "re-operation" of an oil mill in Buenavista, Quezon.
benefit of SMMCI is not enough assurance that the arrangement would
prospectively apply in the event that rehabilitation is granted. As case law Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc. RTC:
intimates, nothing short of legally binding investment commitment/s October 4, 2005, Viva Shipping Lines filed a Petition for Corporate o Amended Petition is "sufficient in form and substance"
from third parties is required to qualify as a material financial Rehabilitation. The RTC initially denied the Petition for failure to comply with o issued a stay order
commitment. However, no such binding investment was presented in this the requirements in Rule 4, Sections 2 and 3 of the Interim Rules of Procedure o stayed the enforcement of all monetary and judicial claims against Viva
case. on Corporate Rehabilitation. Shipping Lines
o prohibited Viva Shipping Lines from selling, encumbering, transferring, or
Lack of Liquidation Analysis Amended Petition disposing of any of its properties except in the ordinary course of
 About 9 months prior to the filing of the petition for rehabilitation, the o Viva Shipping Lines claimed to own and operate 19 maritime vessels and business.
loan with BPI had already amounted to P52,784,589.34, with interest at Ocean Palace Mall, a shopping mall in downtown Lucena City. (One of the
10.25% p.a. or a daily interest of about P6,655.48 and late payment attachments, the Property Inventory List, showed that Viva Shipping Lines Before the initial hearing scheduled on December 5, 2005, the City of
charge of 36% p.a. However, with no SMMCI FS on record, it is unclear to owned only 2 maritime vessels: M/V Viva Peñafrancia V and M/V Marian Batangas, Keppel Philippines Marine, Inc., and Metropolitan Bank and Trust
the Court what assets it possesses in order to determine the values to be Queen.) Company (Metrobank) filed their respective comments and oppositions to
derived if liquidation has to be had thereby. Accordingly, this prevents the o Viva Shipping Lines also declared its total properties' assessed value at Viva Shipping Lines' Amended Petition. During the initial hearing, Pilipinas
Court from ascertaining if the petitioning debtor's creditors can recover about P45,172,790.00. (The Property Inventory List stated that the FMV Shell Petroleum Corporation (Pilipinas Shell) moved for additional time to
by way of the present value of payments projected in the plan, more if of all of Viva Shipping Lines' assets amounted to P447,860,000.00, P400 write its opposition to Viva Shipping Lines' Amended Petition. Pilipinas Shell
the debtor continues as a going concern than if it is immediately million more than what was alleged in its Amended Petition.) later filed its Comment/Opposition with Formal Notice of Claim.
liquidated, a crucial factor in a corporate rehabilitation case. (di ma-
compute ang PV) Some of the properties listed in the Property Inventory List were already Luzviminda C. Cueto, a former EE of Viva Shipping Lines, also filed a
 The financial records of St. Michael Hospital, being a separate and distinct marked as "encumbered" by its creditors; hence, only P147,630,000.00 of real Manifestation and Registration of Monetary Claim stating that Viva Shipping
entity whose merger with SMMCI only exists in the realm of probability, property and its vessels were marked as "free assets." Lines owes her P232k as separation and 13th month pay. The SEC filed a
cannot be taken as a substitute to fulfill the requirement. Comment informing the RTC that Viva Shipping Lines violated certain laws
 St. Michael Hospital’s current cash operating position is just enough to Viva Shipping Lines also declared the following debts: and rules of the Commission.
meet its own maturing obligations. While it has substantial total assets, a
large portion thereof is comprised of fixed assets, while its current assets Amount of RTC
consist mostly of inventory. Still, the total liquidation assets and the Name of Creditor Nature of Debts
Obligation o Viva Shipping Lines' assets all appeared to be non-performing.
estimated liquidation return to the creditors, as well as the FMV vis-à-vis Metropolitan Bank & Loan secured by Real P176,428,745.50 o Viva Shipping Lines failed to show any evidence of consent to sell real
the forced liquidation value of the fixed assets that would guide the Court Trust Company Estate Mortgage properties belonging to its sister company
in assessing the feasibility of the Rehabilitation Plan were not shown. Keppel Philippines Charges for Repair of 9,000,000.00 +
Marine, Inc. Vessels Aggrieved, Viva Shipping Lines filed a Petition for Review under Rule 43 of the
Effect of Non-Compliance. Rules of Court before the Court of Appeals. It only impleaded Hon. Adolfo V.
Province of Quezon, Realty Taxes and 35,000,000.00
 The remedy of rehabilitation should be denied to corporations that do Encomienda, the Presiding Judge of the trial court that rendered the assailed
Lucena City, and Assessments
not qualify under the Rules. Neither should it be allowed to corporations decision. It did not implead any of its creditors, but served copies of the
Province of Batangas,
whose sole purpose is to delay the enforcement of any of the rights of the Petition on counsels for Metrobank, Keppel Philippines Marine, Inc., Pilipinas
Batangas City
creditors, which is rendered obvious by: (a) the absence of a sound and Shell, City of Batangas, Province of Quezon, and City of Lucena. Viva Shipping
Total P220,428,745.50 +
workable business plan; (b) baseless and unexplained assumptions, Lines neither impleaded nor served a copy of the Petition on its former
targets, and goals; and (c) speculative capital infusion or complete lack employees or their counsels.
According to Viva Shipping Lines, the devaluation of the Philippine peso,
thereof for the execution of the business plan. Unfortunately, these
increased competition, and mismanagement of its businesses made it difficult
negative indicators have all surfaced to the fore, much to SMMCI's CA:
to pay its debts as they became due. It also stated that "almost all its vessels
chagrin. o dismissed Viva Shipping Lines' Petition for Review.
were rendered unserviceable either because of age and deterioration that it
can no longer compete with modern made vessels owned by other o Viva Shipping Lines failed to comply with procedural requirements under
The purpose of rehabilitation proceedings is not only to enable the company
operators." Rule 43.
to gain a new lease on life but also to allow creditors to be paid their claims
o Due to the failure to implead its creditors as respondents, "there are no
from its earnings, when so rehabilitated. Hence, the remedy must be
Company Rehabilitation Plan respondents who may be required to file a comment on the petition,
accorded only after a judicious regard of all stakeholders' interests; it is not a
o sale of old vessels and commercial lots of its sister company, Sto. pursuant to Section 8 of Rule 43.
one-sided tool that may be graciously invoked to escape every position of
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o Rule 43, Section 7 states that non-compliance with any of the Corporate rehabilitation
Viva Shipping Lines moved for reconsideration. requirements of proof of service of the Petition, and the required This is the remedy for corporations, partnerships, and associations "who
contents, shall be sufficient ground for the dismissal of the Petition. foresee the impossibility of meeting their debts when they respectively fall
Viva Shipping Lines: o Compliance with Rule 43 is required under the Interim Rules of Procedure due.” A corporation under rehabilitation continues with its corporate life and
o its procedural misstep was cured when it served copies of the Petition on on Corporate Rehabilitation because it is the prescribed mode of activities to achieve solvency, or a position where the corporation is able to
the RTC and on its former EEs. appealing trial court decisions and final orders in corporate rehabilitation pay its obligations as they fall due in the ordinary course of business. This is a
cases. type of proceeding available to a business that is insolvent. In general,
Court of Appeals denied Viva Shipping Lines' Motion for Reconsideration. Viva o The policy of liberality in construction of the Interim Rules of Procedure insolvency proceedings provide for predictability that commercial obligations
Shipping Lines filed before this court a Petition for Review on Certiorari on Corporate Rehabilitation are limited to proceedings in the RTC, and will be met despite business downturns. Stability in the economy results
assailing the January 5, 2007 and March 30, 2007 CA Resolutions. It prayed not with respect to procedural rules in elevating appeals relating to when there is assurance to the investing public that obligations will be
that the case be remanded to the CA for adjudication on the merits. corporate rehabilitation. reasonably paid. It is considered state policy to encourage debtors, both
o Because petitioner repeatedly defied procedural rules, it therefore was juridical and natural persons, and their creditors to collectively and
SC: no longer entitled to the relaxation of these rules. realistically resolve and adjust competing claims and property rights.
o On September 1, 2011, Atty. Vicente M. Joyas (Atty. Joyas) entered his o There were also defects in the verification, certification of non-forum Rehabilitation or liquidation shall be made with a view to ensure or maintain
appearance as Viva Shipping Lines' new counsel. 65 Atty. Joyas moved for shopping, and attachments of petitioner in its Petition before this court. certainty and predictability in commercial affairs, preserve and maximize the
several extensions of time to comply with this court's order to le a o ROC are promulgated to facilitate the adjudication of cases. Petitioner value of the assets of these debtors, recognize creditor rights and respect
consolidated reply. This court allowed Atty. Joyas' Motions, and Viva should not be afforded equitable considerations as it acted in bad faith by priority of claims, and ensure equitable treatment of creditors who are
Shipping Lines' consolidated reply was noted in our Resolution dated concealing material information during the rehabilitation proceedings. similarly situated.
December 7, 2011. 66 This court then ordered the parties to submit their o Even if the CA gave due course to the Petition, it would still have
respective memoranda. 67 dismissed the case on the merits. When rehabilitation is not feasible, it is in the interest of the State to facilitate
Viva Shipping Lines, Inc. 68 and respondents Pilipinas Shell, 69 Keppel o Petitioner failed to provide material facts with sufficient particularity in its a speedy and orderly liquidation of these debtors' assets and the settlement
Philippines Marine, Inc., 70 and Metrobank 71 submitted their respective Amended Petition for Corporate Rehabilitation. of their obligations.
memoranda. This court dispensed with the filing of the other respondents' o Petitioner also failed to disclose some of its creditors, as well as the
memoranda. several pending cases relating to its financial liabilities. It failed to Rationale in corporate rehabilitation
describe with specificity the cause of its inability to pay its debts. It also - To resuscitate businesses in financial distress because "assets . . . are
WON the CA erred in dismissing Viva Shipping Lines' Petition for Review on failed to clarify which vessels were still under its ownership, and which often more valuable when so maintained than they would be when
procedural grounds? vessels had maritime liens. Petitioner merely estimated its liabilities liquidated."
WON petitioner was denied substantial justice when the CA did not give due against its creditors.
course to its petition? o Petitioner nominated rehabilitators who are professionally connected Rehabilitation assumes that assets are still serviceable to meet the purposes
of the business. The corporation receives assistance from the court and a
with its counsel despite the existence of conflict of interest.
Petitioner disinterested rehabilitation receiver to balance the interest to recover and
o Petitioner's admission that almost all its vessels are rendered
o CA should have given due course to its Petition and excused its non- continue ordinary business, all the while attending to the interest of its
unserviceable suggests that rehabilitation is no longer viable.
compliance with procedural rules. creditors to be paid equitably. These interests are also referred to as the
o Former EEs also mention that despite petitioner's desire to rehabilitate,
o Interim Rules of Procedure on Corporate Rehabilitation mandates a rehabilitative and the equitable purposes of corporate rehabilitation.
after the RTC’s final order, petitioner began disposing of some of its
liberal construction of procedural rules, which must prevail over the strict assets.
application of Rule 43 of the Rules of Court. Nature of corporate rehabilitation (Pryce Corporation v. China Banking
o Selling some of petitioner's sister company's properties cannot be relied
o The court disfavors dismissals based on pure technicalities and adopts a Corporation)
on; even petitioner's plan of converting its mall to a hotel/restaurant
policy stating that rules on appeal are "not iron-clad and must yield to  It is one of many statutorily provided remedies for businesses that
because it had no such experience.
loftier demands of substantial justice and equity." experience a downturn.
o They characterize Viva Shipping Lines' rehabilitation plan as "unrealistic,
o The immediate dismissal of its Petition for Review is contrary to the  Rather than leave the various creditors unprotected, legislation now
untested, and improbable."
purpose of corporate rehabilitation to rescue and rehabilitate financially provides for an orderly procedure of equitably and fairly addressing their
J. Leonen: concerns.
distressed companies. Rule 43 of the ROC prescribes the procedure to assail the final orders and  This allows a court-supervised process to rejuvenate a corporation. It
decisions in corporate rehabilitation cases filed under the Interim Rules of provides a corporation's owners a sound chance to re-engage the market,
Respondents: Procedure on Corporate Rehabilitation. Liberality in the application of the
o The dismissal of petitioner's Petition for Review was proper for its failure hopefully with more vigor and enlightened services, having learned from
rules is not an end in itself. It must be pleaded with factual basis and must be a painful experience.
to implead any of its creditors. This resulted in the denial of the creditors' allowed for equitable ends. There must be no indication that the violation of
right to due process as they could not file a comment on the Petition.  Necessarily, a business in the red and about to incur tremendous losses
the rule is due to negligence or design. Liberality is an extreme exception, may not be able to pay all its creditors. Rather than leave it to the
o Petitioner did not even try to explain why it failed to implead its justifiable only when equity exists.
creditors in its Petition. strongest or most resourceful amongst all of them, the state steps in to
equitably distribute the corporation's limited resources.
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 Rather than let struggling corporations slip and vanish, the better option due, may file a petition before the court to be declared in a state of
is to allow commercial courts to come in and apply the process for suspension of payments. This allows time for the debtor to organize its Any final order or decision of the RTC may be subject of an appeal. SC clarified
corporate rehabilitation. affairs in order to achieve a state where it can comply with its obligations. that all decisions and final orders falling under the Interim Rules of Procedure
on Corporate Rehabilitation shall be appealable to the CA through a petition
Philippine Bank of Communications v. Basic Polyprinters and Packaging Sec 5 (d), PD No. 902-A states that the SEC has jurisdiction to decide: for review under Rule 43 of the Rules of Court.
Corporation Petitions of corporations, partnerships or associations to be declared in the
 Courts "must endeavor to balance the interests of all the parties that had state of suspension of payments in cases where: New Frontier Sugar Corporation v. RTC
a stake in the success of rehabilitating the debtors." These parties include  the corporation, partnership or association possesses sufficient property  An appeal from a final order or decision in corporate rehabilitation
the corporation seeking rehabilitation, its creditors, and the public in to cover all its debts but foresees the impossibility of meeting them when proceedings may be dismissed for being filed under the wrong mode of
general. they respectively fall due or appeal.
 The public's interest lies in the court's ability to effectively ensure that the  in cases where the corporation, partnership or association has no  Compliance with the procedural rules for appealing corporate
obligations of the debtor, who has experienced severe economic sufficient assets to cover its liabilities, but is under the management of a rehabilitation decisions is required. It is true that Rule 1, Section 6 of the
difficulties, are fairly and equitably served. The alternative might be a Rehabilitation Receiver or Management Committee created pursuant to Rules of Court provides that the "rules shall be liberally construed in
chaotic rush by all creditors to file separate cases with the possibility of this Decree. order to promote their objective of securing a just, speedy and
different trial courts issuing various writs competing for the same assets. inexpensive disposition of every action and proceeding." However, this
 Rehabilitation is a means to temper the effect of a business downturn In 2000, the jurisdiction of the SEC over these cases was transferred to the provision does not negate the entire ROC by providing a license to
experienced for whatever reason. In the process, it gives entrepreneurs a RTC, by operation of Section 5.2 of the SRC. In the same year, this court disregard all the other provisions.
second chance. approved the Interim Rules of Procedure on Corporate Rehabilitation. The  Resort to liberal construction must be rational and well-grounded, and its
 Not only is it a humane and equitable relief, it encourages efficiency and Interim Rules provides a summary and non-adversarial proceeding to factual bases must be so clear such that they outweigh the intent or
maximizes welfare in the economy. expedite the resolution of cases for the benefit of the corporation in need of purpose of an apparent reading of the rules.
 There are instances when corporate rehabilitation can no longer be rehabilitation, its creditors, and the public in general.
achieved. When rehabilitation will not result in a better present value Rule 43 prescribes the mode of appeal for corporate rehabilitation cases:
recovery for the creditors, the more appropriate remedy is Financial Rehabilitation and Insolvency Act of 2010 (FRIA)  Sec. 5. How appeal taken. — Appeal shall be taken by filing a verified
LIQUIDATION.  Currently, this is the prevailing law and procedure for corporate petition for review in 7 legible copies with the CA, with proof of service of
 It does not make sense to hold, suspend, or continue to devalue rehabilitation. a copy thereof on the adverse party and on the court or agency a quo.
outstanding credits of a business that has no chance of recovery. In such  This provides procedures for the different types of rehabilitation and The original copy of the petition intended for the CA shall be indicated as
cases, the optimum economic welfare will be achieved if the corporation liquidation proceedings. such by the petitioner.
is allowed to wind up its affairs in an orderly manner.  The Financial Rehabilitation Rules of Procedure was issued by the SC on  Sec. 6. Contents of the petition:
August 27, 2013.  full names of the parties to the case, without impleading the court or
LIQUIDATION agencies either as petitioners or respondents
o allows the corporation to wind up its affairs and equitably distribute its However, since the RTC acted on petitioner's Amended Petition before FRIA  concise statement of the facts and issues involved and the grounds
assets among its creditors was enacted, PD No. 902-A and the Interim Rules of Procedure on Corporate relied upon for the review
o diametrically opposed to rehabilitation; both cannot be undertaken at the Rehabilitation were applied to this case.  accompanied by a clearly legible duplicate original or a certified true
same time copy of the award, judgment, final order or resolution appealed
o corporations preserve their assets in order to sell them. Without these Liberal Construction from, together with certified true copies of such material portions of
assets, business operations are effectively discontinued (in rehabilitation, the record referred to therein and other supporting papers; and
corporations have to maintain their assets to continue business The controversy in this case arose from petitioner's failure to comply with  sworn certification against forum shopping as provided in the last
operations) appellate procedural rules in corporate rehabilitation cases. Petitioner now paragraph of section 2, Rule 42.
o The proceeds of the sale are distributed equitably among creditors, and pleads this court to apply the policy of liberality in constructing the rules of  specific material dates showing that it was filed within the period
surplus is divided or losses are re-allocated. procedure. In this case, during the corporate rehabilitation proceedings, the fixed herein.
RTC already exercised the liberality contemplated by the Interim Rules of
Proceedings in case of insolvency are not limited to rehabilitation. Our laws Procedure on Corporate Rehabilitation. It initially dismissed Viva Shipping Petitioner did not comply with some of these requirements. First, it did not
have evolved to provide for different procedures where a debtor can undergo Lines' Petition but allowed the filing of an amended petition. Later on, the implead its creditors as respondents. Instead, petitioner only impleaded the
judicially supervised reorganization or liquidation of its assets. same court issued a stay order when there were sufficient grounds to believe Presiding Judge of the RTC. Second, it did not serve a copy of the Petition on
that the Amended Petition complied with Rule 4, Section 2 of the Interim some of its creditors, specifically, its former EEs. Finally, it did not serve a
Insolvency Law (Act No. 1956) Rules of Procedure on Corporate Rehabilitation. Petitioner was not penalized copy of the Petition on the RTC.
 Corporate rehabilitation traces its roots to this law for its non-compliance with the court's order to produce relevant
 Under this law, a debtor in possession of sufficient properties to cover all documents or for its non-submission of a memorandum. Even with these Petitioner:
its debts but foresees the impossibility of meeting them when they fall accommodations, the trial court still found basis to dismiss the plea for o justified its failure to furnish its former EEs with copies of the Petition by
rehabilitation. stating that the former EEs were late in filing their opposition before the
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trial court. Courts exercise liberality in line with their equity jurisdiction; hence, it may Petitioner admitted its failure to furnish its former EEs with copies of the
o Its failure to furnish the RTC with a copy of the Petition was unintentional. only be exercised if it will result in fairness and justice. Petition because they belatedly filed their claims before the RTC. This
argument is specious at best; at worst, it foists a fraud on this court. The
Effect of failure to comply with requirements (Sec. 7, Rule 43, ROC) The first rule breached by petitioner is the failure to implead all the former EEs were unable to raise their claims on time because petitioner did
The failure of the petitioner to comply with any of the foregoing requirements indispensable parties. Petitioner did not even interpose reasons why it not declare them as creditors. The Amended Petition did not contain any
regarding the payment of the docket and other lawful fees, the deposit of should be excused from compliance with the rule. Petitioner did exactly the information regarding pending litigation between petitioner and its former
costs, proof of service of the petition, and the contents of and the documents opposite. It failed to state the full names of its creditors as respondents. EEs. The only way the former employees could become aware of the
which should accompany the petition shall be sufficient ground for the Instead, it impleaded the Presiding Judge of the originating court. corporate rehabilitation proceedings was either through the required
dismissal thereof. publication or through news informally circulated among their colleagues.
The ROC requires petitioner to implead respondents as a matter of due Clearly, it was petitioner who caused the belated filing of its former EE’s
2 kinds of "liberality" with respect to the construction of provisions of law. process. An appeal to a corporate rehabilitation case may deprive creditor- claims when it failed to notify its EEs of the corporate rehabilitation
1. Liberality that requires ambiguity in the text of the provision and usually stakeholders of property. Due process dictates that these creditors be proceedings. Petitioner's failure was conveniently and disreputably hidden
pertains to a situation where there can be two or more viable meanings impleaded to give them an opportunity to protect the property owed to from this court.
given the factual context presented by a case. Liberality here means a them.
presumption or predilection to interpret the text in favor of the cause of Creditors are indispensable parties to a rehabilitation case, even if a Former employee Luzviminda C. Cueto filed her Manifestation and
the party requesting for "liberality." rehabilitation case is non-adversarial. Registration of Monetary Claim as early as November 25, 2005. Alejandro Olit,
2. "Liberality" that actually means a request for the suspension of the et al., the other employees, filed their Comment on September 27, 2006. By
operation of a provision of law, whether substantive or procedural. This Indispensable Party (Boston Equity Resources, Inc. v. CA) the time petitioner filed its Petition for Review dated November 21, 2006
liberality requires equity. There may be some rights that are not  He has interest in the controversy or subject matter of a case that a final before the CA, it was well aware that these individuals had expressed their
recognized in law, and if courts refuse to recognize these rights, an unfair adjudication cannot be made in his or her absence, without injuring or interest in the corporate rehabilitation proceedings. Petitioner and its counsel
situation may arise. Specifically, the case may be a situation that was not affecting that interest. had no excuse to exclude these former EEs as respondents on appeal.
contemplated on or was not possible at the time the legal norm was  He is a party who has not only an interest in the subject matter of the
drafted or promulgated. (This is what the petitioner pleads) controversy, but "an interest of such nature that a final decree cannot be Petitioner's belated compliance with the requirement to serve the Petition for
made without affecting that interest or leaving the controversy in such a Review on its former EEs did not cure the procedural lapse. There were 2 sets
Our courts are not only courts of law, but are also courts of equity. Equity condition that its final determination may be wholly inconsistent with of EEs with claims against petitioner: Luzviminda C. Cueto and Alejandro Olit,
jurisdiction aims to do complete justice in cases where a court of law is equity and good conscience. et al. When the CA dismissed petitioner's appeal, petitioner only served a
unable to adapt its judgments to the special circumstances of a case because  a person in whose absence, there cannot be a determination between the copy on Alejandro Olit, et al. Petitioner still did not serve a copy on
of the in exibility of its statutory or legal jurisdiction. Equity is the principle by parties already before the court which is effective, complete or Luzviminda C. Cueto.
which substantial justice may be attained in cases where the prescribed or equitable."
customary forms of ordinary law are inadequate.  One who must be included in an action before it may properly proceed. We do not see how it will be in the interest of justice to allow a petition that
fails to inform some of its creditors that the final order of the corporate
Liberality lies within the bounded discretion of a court to allow an equitable This court cannot exercise its equity jurisdiction and allow petitioner to rehabilitation proceeding was appealed. By not declaring its former EEs as
result when the proven circumstances require it. Liberality acknowledges a circumvent the requirement to implead its creditors as respondents. creditors in the Amended Petition for Corporate Rehabilitation and by not
lacuna in the text of a provision of law. This may be because those who Tolerance of such failure will not only be unfair to the creditors, it is contrary notifying the same EEs that an appeal had been filed, petitioner consistently
promulgated the rule may not have foreseen the unique circumstances of a to the goals of corporate rehabilitation, and will invalidate the cardinal denied the due process rights of these EEs.
case at bar. Human foresight as laws and rules are prepared is powerful, but principle of due process of law.
not perfect. Petitioner also pleaded to be excused from the requirement under Rule 6,
The failure of petitioner to implead its creditors as respondents cannot be Section 5 of the Rules of Court to serve a copy of the Petition on the
Liberality is not an end in itself. OW, it becomes a backdoor disguising the cured by serving copies of the Petition on its creditors. Since the creditors originating court.
arbitrariness or despotism of judges and justices. In North Bulacan Corp. v. were not impleaded as respondents, the copy of the Petition only serves to
PBCom, the RTC ignored several procedural rules violated by the petitioning inform them that a petition has been filed before the appellate court. Their Petitioner:
corporation and allowed rehabilitation in the guise of liberality. This court participation was still significantly truncated. Petitioner's failure to implead o the annexes for the Petition for Review filed before the CA arrived from
found that the RTC grossly abused its authority when it allowed rehabilitation them deprived them of a fair hearing. The appellate court only serves court Lucena City on the last day of filing the petition.
despite the corporation's blatant non-compliance with the rules. orders and processes on parties formally named and identified by the o Petitioner's representative from Lucena City and petitioner's counsel
petitioner. Since the creditors were not named as respondents, they could rushed to compile and reproduce all the documents, and in such rush,
The factual antecedents of a plea for the exercise of liberality must be clear. not receive court orders prompting them to file remedies to protect their failed to send a copy to the RTC.
There must also be a showing that the factual basis for a plea for liberality is property rights. o When petitioner realized that it failed to furnish the originating court with
not one that is due to the negligence or design of the party requesting the a copy of the Petition, a copy was immediately sent by registered mail.
suspension of the rules. Likewise, the basis for claiming an equitable result — The next procedural rule that petitioner pleaded to suspend is the rule
for all the parties — must be clearly and sufficiently pleaded and argued. requiring it to furnish all parties with copies of the Rule 43 Petition.
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Petitioner's excuse is unacceptable. Petitioner had 15 days to file a Rule 43 Test to help trial courts evaluate the economic feasibility of a rehabilitation remains unpaid. By the time the creditor is paid, the financial and economic
petition, which should include the proof of service to the originating court. plan Bank of the Philippine Islands v. Sarabia Manor Hotel Corp) conditions will have been changed. Money paid in the past has a different
Rushing the compilation of the pleading with the annexes has nothing to do A thorough examination and analysis of the distressed corporation's financial value in the future. It is unfair if the creditor merely receives the face value of
with being able to comply with the requirement to submit a proof of service data must be conducted. If the results of such examination and analysis show the debt. Present value of the credit takes into account the interest that the
of the copy of the petition for review to the originating court. If at all, it that there is a real opportunity to rehabilitate the corporation in view of the amount of money would have earned if the creditor were paid on time.
further reflects the unprofessional way that petitioner and its counsel treated assumptions made and financial goals stated in the proposed rehabilitation
our rules. plan, then it may be said that a rehabilitation is feasible. In this accord, the Trial courts must ensure that the projected cash flow from a business'
rehabilitation court should not hesitate to allow the corporation to operate as rehabilitation plan allows for the closest present value recovery for its
The right to appeal is not a natural right, nor a part of due process; it is merely an on-going concern, albeit under the terms and conditions stated in the creditors. If the projected cash flow is realistic and allows the corporation to
a statutory privilege, and may be exercised only in the manner and in approved rehabilitation plan. meet all its obligations, then courts should favor rehabilitation over
accordance with the provisions of the law. In line with this, liberality in liquidation. However, if the projected cash flow is unrealistic, then courts
corporate rehabilitation procedure only generally refers to the trial court, not On the other hand, if the results of the financial examination and analysis should consider converting the proceedings into that for liquidation to protect
to the proceedings before the appellate court. The Interim Rules of Procedure clearly indicate that there lies no reasonable probability that the distressed the creditors.
on Corporate Rehabilitation covers petitions for rehabilitation filed before the corporation could be revived and that liquidation would, in fact, better
RTC. Thus, Rule 2, Section 2 of the Interim Rules of Procedure on Corporate subserve the interests of its stakeholders, then it may be said that a RTC correctly dismissed petitioner's rehabilitation plan. Petitioner's assets are
Rehabilitation, which refers to liberal construction, is limited to the RTC. The rehabilitation would not be feasible. In such case, the rehabilitation court may non-performing. Petitioner admitted this in its Amended Petition when it
liberality was given "to assist the parties in obtaining a just, expeditious, and convert the proceedings into one for liquidation. stated that its vessels were no longer serviceable. In Wonder Book
inexpensive disposition of the case." Corporation v. Philippine Bank of Communications, a rehabilitation plan is
Professor Stephanie V. Gomez of the UP College of Law suggests specific infeasible if the assets are nearly fully or fully depreciated. This reduces the
Spouses Ortiz v. Court of Appeals characteristics of an economically feasible rehabilitation plan: probability that rehabilitation may restore and reinstate petitioner to its
 The party who seeks to avail itself of an appeal must comply with the a. The debtor has assets that can generate more cash if used in its daily former position of successful operation and solvency.
requirements of the rules. Failing to do so, the right to appeal is lost. operations than if sold.
 Rules of procedure are required to be followed, EXCEPT only when for the b. Liquidity issues can be addressed by a practicable business plan that will Petitioner's rehabilitation plan should have shown that petitioner has
most persuasive of reasons, they may be relaxed to relieve a litigant of an generate enough cash to sustain daily operations. enough serviceable assets to be able to continue its business. Yet, the plan
injustice not commensurate with the degree of his thoughtlessness in not c. The debtor has a definite source of financing for the proper and full showed that the source of funding would be to sell petitioner's old vessels.
complying with the procedure prescribed. implementation of a Rehabilitation Plan that is anchored on realistic Disposing of the assets constituting petitioner's main business cannot result in
 Petitioner’s excuses do not trigger the application of the policy of assumptions and goals. rehabilitation. A business primarily engaged as a shipping line cannot
liberality in construing procedural rules. For the courts to exercise operate without its ships. On the other hand, the plan to purchase new
liberality, petitioner must show that it is suffering from an injustice not These requirements put emphasis on liquidity: the cash flow that the vessels sacrifices the corporation's cash flow. This is contrary to the goal of
commensurate to the thoughtlessness of its procedural mistakes. Not distressed corporation will obtain from rehabilitating its assets and corporate rehabilitation, which is to allow present value recovery for
only did petitioner exercise injustice towards its creditors, its Rule 43 operations. A corporation's assets may be more than its current liabilities, but creditors. The plan to buy new vessels after selling the 2 vessels it currently
Petition for Review did not show that the RTC erred in dismissing its some assets may be in the form of land or capital equipment, such as owns is neither sound nor workable as a business plan.
Amended Petition for Corporate Rehabilitation. machinery or vessels. Rehabilitation sees to it that these assets generate
more value if used efficiently rather than if liquidated. The other part of the rehabilitation plan entails selling properties of
Petitioner: petitioner's sister company. This plan requires conformity from the sister
 RTC should have allowed petitioner to clarify its Amended Petition with SC enumerated the characteristics of a rehabilitation plan that is infeasible: company. Even if the 2 companies have the same directorship and ownership,
respect to details regarding its assets and its liabilities to its creditors a. the absence of a sound and workable business plan; they are still 2 separate juridical entities. In BPI Family Savings Bank v. St.
instead of dismissing the Petition outright. b. baseless and unexplained assumptions, targets and goals; Michael Medical Center, SC refused to include in the financial and liquidity
c. speculative capital infusion or complete lack thereof for the execution of assessment the FS of another corporation that the petitioning-corporation
The dismissal of the Amended Petition did not emanate from petitioner's the business plan; plans to merge with.
failure to provide complete details on its assets and liabilities but on the trial d. cash flow cannot sustain daily operations; and
court's finding that rehabilitation is no longer viable for petitioner. Under the e. negative net worth and the assets are near full depreciation or fully Finally, petitioner argues that after Judge Mendoza's withdrawal as
Interim Rules of Procedure on Corporate Rehabilitation, a "petition shall be depreciated. rehabilitation receiver, the RTC should have appointed a new rehabilitation
dismissed if no rehabilitation plan is approved by the court upon the lapse of receiver to evaluate the rehabilitation plan. We rule OW. It is not solely the
180 days from the date of the initial hearing." The proceedings are also In addition to the tests of economic feasibility, Professor Gomez also suggests responsibility of the rehabilitation receiver to determine the validity of the
deemed terminated upon the trial court's disapproval of a rehabilitation plan, that the FRIA emphasizes on rehabilitation that provides for better present rehabilitation plan. The Interim Rules allows the trial court to disapprove a
"or a determination that the rehabilitation plan may no longer be value recovery for its creditors. Present value recovery acknowledges that, in rehabilitation plan and terminate proceedings or, should the instances
implemented in accordance with its terms, conditions, restrictions, or order to pave way for rehabilitation, the creditor will not be paid by the warrant, to allow modifications to a rehabilitation plan.
assumptions." 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
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Phil. Bank of Communications v. Basic Polyprinters and Packaging Corp. o The petitioner has a positive net worth and inventory that can be satisfaction of the requirements of Section 5, Rule 4 of the Interim Rules.
Basic Polyprinters was a DC engaged in the business of printing greeting cards, converted into resources.
gift wrappers, gift bags, calendars, posters, labels and other novelty items. On o The Plan ensures preservation of assets, optimizes recovery of creditors' WON the approval of the rehabilitation plan was proper despite: (a) the
February 27, 2004, Basic Polyprinters, along with the 8 other corporations claims and provides of an orderly payment of debts. alleged insolvency of Basic Polyprinters; and (b) absence of a material
belonging to the Limtong Group of Companies, filed a joint petition for o The plan will restore petitioner to profitability and solvency and maintain financial commitment pursuant to Section 5, Rule 4 of the Interim Rules?
suspension of payments with approval of the proposed rehabilitation in the it as an on-going concern to the benefit of the stockholders, investors and Under the Interim Rules, rehabilitation is the process of restoring "the debtor
RTC. creditors. to a position of successful operation and solvency, if it is shown that its
o The rehabilitation and the continuous operation of the company will continuance of operation is economically feasible and its creditors can
RTC: issued a stay order, and eventually approved the rehabilitation plan generate employment. recover by way of the present value of payments projected in the plan more if
CA: reversed and directed the petitioning corporations to file their individual o The plan is endorsed by the Rehabilitation Receiver. the corporation continues as a going concern that if it is immediately
petitions for suspension of payments and rehabilitation in the appropriate liquidated." It contemplates a continuance of corporate life and activities in
courts. CA: an effort to restore and reinstate the corporation to its former position of
o agreed with the finding of the rehabilitation receiver that there were successful operation and solvency.
Basic Polyprinters individual petition sufficient evidence, factors and actual opportunities in the rehabilitation
 its business since incorporation had been very viable and financially plan indicating that Basic Polyprinters could be successfully rehabilitated Asiatrust Development Bank v. First Aikka Development, Inc.
profitable; in due time.  Rehabilitation proceedings have a 2-pronged purpose, namely: (a) to
 it had obtained loans from various banks, and had owed accounts payable o Presidential Decree No. 902-A, as amended, sought to "effect a feasible efficiently and equitably distribute the assets of the insolvent debtor to its
to various creditors; and viable rehabilitation by preserving a foundering business as going creditors (equitable purpose); and (b) to provide the debtor with a fresh
 the Asian currency crisis, devaluation of the Philippine peso, and the concern" because it would be more valuable to preserve the assets of the start by relieving them of the weight of their outstanding debts and
current state of affairs of the Philippine economy, coupled with: (i) high corporation rather than to pursue its liquidation; and observed in closing permitting them to reorganize their affairs (rehabilitative purpose)
interest rates, penalties and charges by its creditors; (ii) low demand for  Rehabilitation proceedings in our jurisdiction have equitable and
gift items and cards due to the economic recession and the use of cellular Petitioner rehabilitative purposes. On the one hand, they attempt to provide for the
phones; (iii) direct competition from stores like SM, Gaisano, Robinson o Rehabilitation became inappropriate because Basic Polyprinters was efficient and equitable distribution of an insolvent debtor's remaining
and other malls; and (iv) the fire of July 19, 2002 that had destroyed its insolvent due to its assets being inadequate to cover the outstanding assets to its creditors; and on the other, to provide debtors with a "fresh
warehouse containing inventories worth P264M, resulting in difficulty of obligations start".
meeting its obligations; o A petition for rehabilitation presupposed that the petitioning corporation  The purpose of rehabilitation proceedings is to enable the company to
 its operations would be hampered and would render rehabilitation had sufficient property to cover all its indebtedness, but Basic gain a new lease on life and thereby allow creditors to be paid their
difficult should its creditors enforce their claims through legal actions, Polyprinters did not show so because its assets were much less than its claims from its earnings.
including foreclosure proceedings; outstanding obligations
 included in its overall Rehabilitation Program was the full payment of its o Basic Polyprinters had under-declared its outstanding loans The basic issues in rehabilitation proceedings concern the viability and
outstanding loans in favor of PBCOM, RCBC, Land Bank, EPCIBank and o The independent appraisal by the Professional Asset Valuers, Inc. (PAVI) desirability of continuing the business operations of the petitioning
AUB via repayment over 15 years with moratorium of 2-years for the on Basic Polyprinters' machineries and printing equipment mortgaged to corporation. The determination of such issues was to be carried out by the
interest and 5 years for the principal at 5% interest per annum and a it (PBCOM) had an FMV of only P6,531,000.00, and a prompt sale value of court-appointed rehabilitation receiver.
dacion en pago of its affiliate property in favor of EPCIBank; and only P4,572,000.00, as compared to the FMV of P15,110,000.00 declared
 its assets worth P15,374,654.00 with net liabilities amounting to by Basic Polyprinters; FRIA:
P13,031,438.00. o the proposed repayment scheme did not constitute a material financial  corporate debtor – a corporation duly organized and existing under
Philippine laws that has become insolvent
commitment, and the proposed dacion en pago was not proper because
RTC  insolvent – the financial condition of a debtor that is generally unable to
the property subject thereof had been mortgaged in its favor
o Petitioner's primary business is in the printing business. Based on its pay its or his liabilities as they fall due in the ordinary course of business
o the absence of capital infusion rendered impossible the proposal to invest
updated financial report, the financial condition has greatly improved. OR has liabilities that are greater than its or his assets.
in new machineries that would increase sales and improve quality and
However, because of the indebtedness and the slowdown in sales
capacity
brought about by a depressed economy, the present income from the As such, the contention that rehabilitation becomes inappropriate because
operations will be insufficient to pay off its maturing obligations. Thus, of the perceived insolvency of Basic Polyprinters was incorrect.
Basic Polyprinters
the success of the rehabilitation plan largely depends on its ability to
o Petitioner raises factual issues improper under Rule 45
reduce its debt obligation to a manageable level by the suspension of A material financial commitment is significant in a rehabilitation plan
o as long as the rehabilitation court found that the petitioning corporation
payments of obligations and the proposed "dacion en pago."  Basic Polyprinters made no commitment in relation to the infusion of
could still be rehabilitated, its findings of fact should be binding when
o The projected cash flow attached to the report and the repayment fresh capital by its stakeholders, and presented only a "lopsided"
they were supported by substantial evidence;
program demonstrates the ability of the company to settle its debt protracted repayment schedule that included the dacion en pago
o the independent appraisal report by PAVI was unauthorized by the RTC;
liability. involving an asset mortgaged to the petitioner itself in favor of another
o the validity of the rehabilitation plan could be upheld for its complete
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creditor. plans. As a result, the commitments by Basic Polyprinters could not be THE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN
 A material financial commitment becomes significant in gauging the considered as firm assurances that could convince creditors, future investors UPHOLDING THE FINDINGS OF THE SPECIAL COMMERCIAL COURT (RTC BR.
resolve, determination, earnestness and good faith of the distressed and the general public of its financial and operational viability. 39, ILOILO CITY), PREMATURELY EXCLUDING THE FORECLOSED PROPERTY OF
corporation in financing the proposed rehabilitation plan. PETITIONER AND DECLARING THAT PETITIONER HAS NO SUBSTANTIAL
 This commitment may include the voluntary undertakings of the Due to the rehabilitation plan being an indispensable requirement in PROPERTY LEFT TO MAKE CORPORATE REHABILITATION FEASIBLE AS THERE IS
stockholders or the would-be investors of the debtor-corporation corporate rehabilitation proceedings, Basic Polyprinters was expected to AN ONGOING LITIGATION FOR THE ANNULMENT OF SUCH FORECLOSURE IN
indicating their readiness, willingness and ability to contribute funds or exert a conscious effort in formulating the same, for such plan would spell the ANOTHER PROCEEDING.
property to guarantee the continued successful operation of the debtor future not only for itself but also for its creditors and the public in general.
corporation during the period of rehabilitation. The contents and execution of the rehabilitation plan could not be taken (b)
lightly.
Basic Polyprinters’ Financial commitments were insufficient for the purpose. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION FOR
 The commitment to add P10M working capital appeared to be doubtful We must endeavor to balance the interests of all the parties that had a stake CERTIORARI FILED BEFORE IT AS "IMPROPER," APPEAL BEING AN AVAILABLE
considering that the insurance claim from which said working capital in the success of rehabilitating the debtors. In doing so here, we cannot find REMEDY.
would be sourced had already been written-off by Basic Polyprinters's the rehabilitation plan for Basic Polyprinters to be genuine and in good faith, Rehabilitation contemplates a continuance of corporate life and activities in
affiliate, Wonder Book Corporation. A claim that has been written-off is for it was, in fact, unilateral and detrimental to its creditors and the public. an effort to restore and reinstate the corporation to its former position of
considered a bad debt or a worthless asset, and cannot be deemed a successful operation and solvency. Presently, the applicable law on
material financial commitment for purposes of rehabilitation. At any rate, New Frontier Sugar Corporation v. RTC, Br. 39, Iloilo City rehabilitation petitions filed by corporations, partnerships or associations,
the proposed additional P10M working capital was insufficient to cover New Frontier Sugar Corporation is a DC engaged in the business of raw sugar including rehabilitation cases transferred from the SEC to the RTCs pursuant
at least half of the shareholders' deficit that amounted to P23,316,044.00 milling. Foreseeing that it cannot meet its obligations with its creditors as to SRC, is the Interim Rules of Procedure on Corporate Rehabilitation (2000).
as of June 30, 2006 (so not material?). they fell due, petitioner filed a Petition for the Declaration of State of
Suspension of Payments with Approval of Proposed Rehabilitation Plan under Interim Rules
Wonder Book Corporation v. Philippine Bank of Communications the Interim Rules of Procedure on Corporate Rehabilitation (2000). The RTC, within 5 days from the filing of the petition for rehabilitation and
 The conversion of all deposits for future subscriptions to common stock after finding that the petition is sufficient in form and substance, shall issue a
and the treatment of all payables to officers and stockholders as trade RTC: Stay Order appointing a Rehabilitation Receiver, suspending enforcement of
payables was hardly constituting material financial commitments. o issued a Stay Order, appointing Clemente as rehabilitation receiver, all claims, prohibiting transfers or encumbrances of the debtor's properties,
 Such "conversion" of cash advances to trade payables was, in fact, a mere ordering the latter to put up a bond, and setting the initial hearing on the prohibiting payment of outstanding liabilities, and prohibiting the withholding
re-classification of the liability entry and had no effect on the petition of supply of goods and services from the debtor. Any transfer of property or
shareholders' deficit. any other conveyance, sale, payment, or agreement made in violation of the
 On the other hand, we cannot determine the effect of the "conversion" of Equitable PCI Bank (respondent bank): Stay Order or in violation of the Rules may be declared void by the court upon
the directors' and shareholders' deposits for future subscription to o petitioner is not qualified for corporate rehabilitation, as it can no longer motion or motu proprio.
common stock and substituted liabilities on the shareholders' deficit operate because it has no assets left.
because their amounts were not reflected in the FS contained in the rollo. o The FS, schedule of debts and liabilities, inventory of assets, affidavit of Further, the Stay Order is effective both against secure and unsecured
general financial condition, and rehabilitation plan submitted by creditors. This is in harmony with the principle of "equality is equity" first
Basic Polyprinters's rehabilitation plan likewise failed to offer any proposal on petitioner are misleading and inaccurate since its properties have already enunciated in Alemar's Sibal & Sons, Inc. v. Elbinias, thus:
how it intended to address the low demands for their products and the effect been foreclosed and transferred to respondent bank before the petition During rehabilitation receivership, the assets are held in trust for the equal
of direct competition from stores like SM, Gaisano, Robinsons, and other for rehabilitation was filed, and petitioner, in fact, still owes respondent benefit of all creditors to preclude one from obtaining an advantage or
malls. Even the P245M insurance claim that was supposed to cover the bank deficiency liability. preference over another by the expediency of an attachment, execution or
destroyed inventories worth P264M appears to have been written-off with no otherwise. For what would prevent an alert creditor, upon learning of the
probability of being realized later on. CA: receivership, from rushing posthaste to the courts to secure judgments for
o Since petitioner no longer has sufficient assets and properties to continue the satisfaction of its claims to the prejudice of the less alert creditors. As
Basic Polyprinters's proposal to enter into the dacion en pago to create a with its operations and answer its corresponding liabilities, it is no longer between creditors, the key phrase is "equality is equity." When a corporation
source of "fresh capital" was not feasible because the object thereof would eligible for rehabilitation. threatened by bankruptcy is taken over by a receiver, all the creditors should
not be its own property but one belonging to its affiliate, TOL Realty and o The CA also ruled that even if the RTC erred in dismissing the petition, the stand on an equal footing. Not anyone of them should be given any
Development Corporation, a corporation also undergoing rehabilitation. same could not be corrected anymore because what petitioner filed preference by paying one or some of them ahead of the others. This is
Moreover, the negotiations (for the return of books and magazines from Basic before the CA was a special civil action for certiorari under Rule 65 of the precisely the reason for the suspension of all pending claims against the
Polyprinters's trade creditors) did not partake of a voluntary undertaking Rules of Court instead of an ordinary appeal. 8 corporation under receivership. Instead of creditors vexing the courts with
because no actual financial commitments had been made thereon. Hence, herein petition based on the following reasons: suits against the distressed firm, they are directed to file their claims with the
(a) receiver who is a duly appointed officer of the SEC.
Wonder Book Corporation was a sister company of Basic Polyprinters. Both of
them submitted identical commitments in their respective rehabilitation
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Nevertheless, the suspension of the enforcement of all claims against the court shall issue a Stay Order, which shall provide, among others, for the Interim Rules Relative to the Implementation of Batas Pambansa Blg. 129 for
corporation is subject to the rule that it shall commence only from the time appointment of a Rehabilitation Receiver; the fixing of the initial hearing special proceedings shall apply. Under said paragraph 19 (b), the period of
the Rehabilitation Receiver is appointed. Thus, in Rizal Commercial Banking on the petition; a directive to the petitioner to publish the Order in a appeal shall be 30 days, a record of appeal being required.
Corporation v. Intermediate Appellate Court, the Court upheld the right of newspaper of general circulation in the Philippines once a week for 2
RCBC to extrajudicially foreclose the mortgage on some of BF Homes' consecutive weeks; and a directive to all creditors and all interested However, it should be noted that the Court issued A.M. No. 04-9-07-SC on
properties, and reinstated the trial court's judgment ordering the sheriff to parties (including the SEC) to file and serve on the debtor a verified September 14, 2004, clarifying the proper mode of appeal in cases involving
execute and deliver to RCBC the certificate of auction sale involving the comment on or opposition to the petition, with supporting affidavits and corporate rehabilitation and intra-corporate controversies. It is provided
properties. The Court vacated its previous Decision rendered on September documents. therein that all decisions and final orders in cases falling under the Interim
14, 1992 in the same case, finding that RCBC can rightfully move for the (3) Publication of the Stay Order; Rules of Corporate Rehabilitation and the Interim Rules of Procedure
extrajudicial foreclosure of the mortgage since it was done on October 16, (4) Initial hearing on any matter relating to the petition or on any comment Governing Intra-Corporate Controversies under RA 8799 shall be appealed to
1984, while the management committee was appointed only on March 18, and/or opposition led in connection therewith. If the trial court is satis ed the CA through a petition for review under Rule 43 of the Rules of Court to
1985. The Court also took note of the SEC's denial of the petitioner's that there is merit in the petition, it shall give due course to the petition; be filed within 15 days from notice of the decision or final order of the RTC.
consolidated motion to cite the sheriff and RCBC for contempt and to annul (5) Referral for evaluation of the rehabilitation plan to the rehabilitation
the auction proceedings and sale. receiver who shall submit his recommendations to the court; The Omnibus Order dated January 13, 2003 issued by the RTC is a nal order
(6) Modifications or revisions of the rehabilitation plan as necessary; since it terminated the proceedings and dismissed the case before the trial
In this case, respondent bank instituted the foreclosure proceedings against (7) Submission of final rehabilitation plan to the trial court for approval; court; it leaves nothing more to be done. As such, petitioner's recourse is to
petitioner's properties on March 13, 2002 and a Certificate of Sale at Public (8) Approval/disapproval of rehabilitation plan by the trial court; le an appeal from the Omnibus Order. In this regard, A.M. No. 00-8-10-SC
Auction was issued on May 6, 2002, with respondent bank as the highest promulgated by the Court on September 4, 2001 provides that a petition for
bidder. The mortgage on petitioner's chattels was likewise foreclosed and the In the present case, the petition for rehabilitation did not run its full course rehabilitation is considered a special proceeding given that it seeks to
Certificate of Sale was issued on May 14, 2002. It also appears that titles over but was dismissed by the RTC after due consideration of the pleadings filed establish the status of a party or a particular fact. Accordingly, the period of
the properties have already been transferred to respondent bank. before it. On this score, the RTC cannot be faulted for its summary dismissal, appeal provided in paragraph 19 (b) of the Interim Rules Relative to the
as it is tantamount to a finding that there is no merit to the petition. This is in Implementation of Batas Pambansa Blg. 129 for special proceedings shall
On the other hand, the petition for corporate rehabilitation was filed only on accord with the trial court's authority to give due course to the petition or not apply. Under said paragraph 19 (b), the period of appeal shall be thirty (30)
August 14, 2002 and the Rehabilitation Receiver appointed on August 20, under Rule 4, Section 9 of the Interim Rules. Letting the petition go through days, a record of appeal being required.
2002. Respondent bank, therefore, acted within its prerogatives when it the process only to be dismissed later on because there are no assets to be However, it should be noted that the Court issued A.M. No. 04-9-07-SC on
foreclosed and bought the property, and had title transferred to it since it was conserved will not only defeat the reason for the rules but will also be a waste September 14, 2004, clarifying the proper mode of appeal in cases involving
made prior to the appointment of a rehabilitation receiver. of the trial court's time and resources. corporate rehabilitation and intra-corporate controversies. It is provided
therein that all decisions and nal orders in cases falling under the Interim
The fact that there is a pending case for the annulment of the foreclosure Petitioner availed of the wrong remedy when it filed a special civil action for Rules of Corporate Rehabilitation and the Interim Rules of Procedure
proceedings and auction sales is of no moment. Until a court of competent certiorari with the CA under Rule 65 of the Rules of Court. Certiorari is a Governing Intra-Corporate Controversies under Republic Act No. 8799 shall
jurisdiction annuls the foreclosure sale of the properties involved, petitioner remedy for the correction of errors of jurisdiction, not errors of judgment. It is be appealed to the CA through a petition for review under Rule 43 of the
is bereft of a valid title over the properties. In fact, it is the trial court's an original and independent action that was not part of the trial that had Rules of Court to be led within fteen (15) days from notice of the decision
ministerial duty to grant a possessory writ over the properties. resulted in the rendition of the judgment or order complained of. More or nal order of the RTC.
importantly, since the issue is jurisdiction, an original action for certiorari may
Consequently, the CA was correct in upholding the RTC's dismissal of the be directed against an interlocutory order of the lower court prior to an Spouses Sobrejuanite v. ASB Development Corp.
petition for rehabilitation in view of the fact that the titles to petitioner's appeal from the judgment; or where there is no appeal or any plain, speedy HLURB; rescission of contract with claim to damages; final judgment held in
properties have already passed on to respondent bank and petitioner has no or adequate remedy. A petition for certiorari should be filed not later than 60 abeyance
more assets to speak of, specially since petitioner does not dispute the fact days from the notice of judgment, order, or resolution, and an MR is generally
that the properties which were foreclosed by respondent bank comprise the required prior to the filing of a petition for certiorari, in order to afford the Sps Sobrejuanite
bulk, if not the entirety, of its assets. tribunal an opportunity to correct the alleged errors. o They entered into a Contract to Sell with ASBDC over a condominium unit
and a parking space in Mandaluyong City.
It should be stressed that the Interim Rules was enacted to provide for a The Omnibus Order dated January 13, 2003 issued by the RTC is a final order o Despite full payment and demands, ASBDC failed to deliver the property
summary and non-adversarial rehabilitation proceedings. This is in since it terminated the proceedings and dismissed the case before the trial on the date agreed.
consonance with the commercial nature of a rehabilitation case, which is court; it leaves nothing more to be done. As such, petitioner's recourse is to o On March 7, 2001, they filed a complaint and prayed for the rescission of
aimed to be resolved expeditiously for the benefit of all the parties concerned file an appeal from the Omnibus Order. the contract; refund of payments amounting to P2,674,637.10; payment
and the economy in general. of moral and exemplary damages, attorney's fees, litigation expenses,
In this regard, A.M. No. 00-8-10-SC promulgated by the Court on September appearance fee and costs of the suit before the HLURB.
As provided in the Interim Rules, the basic procedure is as follows: 4, 2001 provides that a petition for rehabilitation is considered a special
(1) The petition is filed with the appropriate RTC; proceeding given that it seeks to establish the status of a party or a particular The petition for rehabilitation with prayer for suspension of actions and
(2) If the petition is found to be sufficient in form and substance, the trial fact. Accordingly, the period of appeal provided in paragraph 19 (b) of the
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proceedings was filed before the SEC on May 2, 2000. suspended accordingly.
Incidentally, although the petition for rehabilitation with prayer for
ASBDC filed an MTD or suspend proceedings in view of the approval by the Purpose for the suspension of the proceedings suspension of actions and proceedings was filed before the SEC on May 2,
SEC of the rehabilitation plan of ASB Group of Companies, which includes  to prevent a creditor from obtaining an advantage or preference over 2000, or prior to the effectivity of the interim rules, the same would still
ASBDC, and the appointment of a rehabilitation receiver. another and to protect and preserve the rights of party litigants as well as apply pursuant to Section 1, Rule 1 thereof which provides that these Rules
the interest of the investing public or creditors. shall apply to petitions for rehabilitation filed by corporations, partnerships,
HLURB arbiter:  to give enough breathing space for the management committee or and associations pursuant to PD No. 902-A, as amended (date of effectivity:
o denied the motion and ordered the continuation of the proceedings. rehabilitation receiver to make the business viable again, without having March 11, 1976).
o Under the Contract to Sell, ASBDC should have delivered the property to to divert attention and resources to litigations in various fora.
Sobrejuanite in December 1999; that the latter had fully paid their  would enable the management committee or rehabilitation receiver to Clearly then, the complaint filed by the spouses is a claim as defined under
obligations except the P50k which should be paid upon completion of the effectively exercise its/his powers free from any judicial or extra-judicial the Interim Rules. Even under jurisprudence, the complaint for rescission
construction; and that rescission of the contract with damages is proper. interference that might unduly hinder or prevent the "rescue" of the with damages would fall under the category of claim considering that it is for
debtor company. pecuniary considerations. In their complaint, Sobrejuanite pray for the
HLURB Board of Commissioners:  To allow other action to continue would only add to the burden of the rescission of the contract and the refund representing their total payments to
o The approval of the rehabilitation plan and the appointment of a management committee or rehabilitation receiver, whose time, effort ASBDC; moral damages; exemplary damages; attorney's fees; litigation
rehabilitation receiver by the SEC did not have the effect of suspending and resources would be wasted in defending claims against the expenses; appearance fees; and costs of the suit.
the proceedings before the HLURB. corporation instead of being directed toward its restructuring and
o HLURB could properly take cognizance of the case since whatever rehabilitation. In the decision of the HLURB arbiter, ASBDC was ordered to pay. As such, the
monetary award that may be granted by it will be ultimately filed as a HLURB arbiter should have suspended the proceedings upon the approval by
claim before the rehabilitation receiver. To resolve WON the proceedings before the HLURB should be suspended: the SEC of the ASB Group of Companies' rehabilitation plan and the
determine whether the complaint for rescission of contract with damages is a appointment of its rehabilitation receiver. By the suspension of the
ASBDC filed an appeal before the Office of the President which was dismissed claim within the contemplation of PD No. 902-A. proceedings, the receiver is allowed to fully devote his time and efforts to the
for lack of merit. Hence, ASBDC filed a petition under Section 1, Rule 43 of the rehabilitation and restructuring of the distressed corporation.
Rules of Court before the CA. CLAIM (Finasia Investments and Finance Corp. v. Court of Appeals and
Arranza v. B.F. Homes, Inc.) Even the execution of final judgments may be held in abeyance when a
CA:  refers only to debts or demands pecuniary in nature. corporation is under rehabilitation. Hence, there is more reason in the instant
o The approval by the SEC of the rehabilitation plan and the appointment of  means "the assertion of a right to have money paid. It is used in special case for the HLURB arbiter to order the suspension of the proceedings as the
the receiver caused the suspension of the HLURB proceedings. proceedings like those before administrative court, on insolvency." motion to suspend was filed soon after the institution of the complaint. By
o Sobrejuanite's complaint for rescission and damages is a claim under the  defined as right to payment, WON not such right is reduced to judgment, allowing the proceedings to proceed, the HLURB arbiter unwittingly gave
contemplation of PD No. 902-A or the SEC Reorganization Act and A.M. liquidated, unliquidated, fixed, contingent, matured, unmatured, undue preference to Sobrejuanite over the other creditors and claimants of
No. 00-8-10-SC or the Interim Rules of Procedure on Corporate disputed, undisputed, legal, equitable, secured, or unsecured; or right to ASBDC, which is precisely the vice sought to be prevented by Section 6(c) of PD
Rehabilitation, because it sought to enforce a pecuniary demand. an equitable remedy for breach of performance if such breach gives rise 902-A.
Therefore, jurisdiction lies with the SEC and not HLURB. to a right to payment, WON such right to an equitable remedy is reduced
o ASBDC was obliged to deliver the property in December 1999 but its to judgment, fixed, contingent, matured, unmatured, disputed, As between creditors, the key phrase is "equality is equity." When a
financial reverses warranted the extension of the period. undisputed, secured, unsecured. corporation threatened by bankruptcy is taken over by a receiver, all the
 TN: In conflicts of law, a receiver may be appointed in any state which has creditors should stand on equal footing. Not anyone of them should be given
WON the SEC has jurisdiction over the complaint? jurisdiction over the defendant who owes a claim (debtor). any preference by paying one or some of them ahead of the others. This is
WON the approval of the corporate rehabilitation plan and the appointment  generally construed to mean debts or demands of a pecuniary nature precisely the reason for the suspension of all pending claims against the
of a receiver had the effect of suspending the proceeding in the HLURB? NO which could have been enforced against the deceased in his lifetime and corporation under receivership. Instead of creditors vexing the courts with
WON the respondent is justified in extending the agreed date of delivery by could have been reduced to simple money judgments; and among these suits against the distressed firm, they are directed to file their claims with the
invoking as ground the financial constraints it experienced? NO are those founded upon contract. receiver who is a duly appointed officer of the SEC.
Section 6(c) of PD No. 902-A empowers the SEC to appoint one or more  These doctrines enunciated in the cited cases were promulgated prior to
receivers of the property, real and personal, which is the subject of the action the effectivity of the Interim Rules of Procedure on Corporate Arranza v. B.F. Homes, Inc
pending before it whenever necessary in order to preserve the rights of the Rehabilitation (date of effectivity: December 15, 2000)  not applicable
parties-litigants and/or protect the interest of the investing public and  In this case, HLURB retained its jurisdiction despite the rehabilitation
creditors. Provided, That upon appointment of a management committee, Interim rules proceedings since the claim filed by the homeowners did not involve
rehabilitation receiver, board or body, pursuant to this Decree, all actions for Claim refers to all claims or demands, of whatever nature or character against pecuniary considerations. The claim therein was for specific performance
claims against corporations, partnerships or associations under management a debtor or its property, whether for money or otherwise. The definition is all- to enforce the homeowners' rights as regards right of way, open spaces,
or receivership pending before any court, tribunal, board or body shall be encompassing as it refers to all actions whether for money or otherwise. road and perimeter wall repairs, and security. What petitioners seek to
There are no distinctions or exemptions. enforce are respondent's obligations as a subdivision developer.
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 Their claim for reimbursement should be viewed in the light of working for rehabilitation with the help of the SEC. Private respondents'
respondent's alleged failure to observe its statutory and contractual petition to the SEC was accompanied by documentary requirements in SEC Hearing Panel DENIED the opposition
obligations to provide petitioners a "decent human settlement" and accordance with Section 4-2 in relation to Sec. 3-2 of the Rules of Procedure  ASB Group complied with the requirements of Sec. 4-1 of the Rules of
"ample opportunities for improving their quality of life." The HLURB, not on Corporate Recovery. Procedure on Corporate Recovery, which allows debtors who are
the SEC, is equipped with the expertise to deal with that matter. technically insolvent to file a petition for rehabilitation.
SEC Hearing Panel  Since the ASB Group foresees its inability to meet its obligations within 1
PNB v. CA o The petition is sufficient in form and substance year, it was considered technically insolvent and, thus, qualified for
Technical insolvency; petition for suspension of payments; petition fo o issued on May 4, 2000 an order suspending for 60 days all actions for rehabilitation under Sec. 4-1.
rehabilitation; interim receiver claims against the ASB Group, enjoining the latter from disposing its  Under Sec. 4-4, suspension of payments is necessarily an effect of the
properties in any manner except in the ordinary course of business and filing of the petition.
PNB and Equitable PCI Bank are members of the consortium of creditor banks from paying outstanding liabilities, and appointing Atty. Monico V. Jacob  The appointment of an Interim Receiver as well as the issuance of a 60-
constituted pursuant to the Mortgage Trust Indenture (MTI) dated May 29, as interim receiver of the ASB Group. Atty. Jacob was later replaced by day suspension order is mandatory under Sec. 4-4, Rule IV.
1989, as amended, by and between Rizal Commercial Banking Corporation- Atty. Fortunato Cruz as interim receiver.  The ASB corporations are not precluded from jointly filing the petition for
Trust and Investments Division, acting as trustee for the consortium, and ASB rehabilitation since these are beneficially owned by Roxas, their
Development Corporation (ASBDC, formerly Tiffany Tower Realty Creditor banks: businesses and finances are intertwined such that they made advances to
Corporation). Other members of the consortium include Metrobank, o ASB Group failed to state a valid cause of action; each other and secured their obligations with each other's properties.
Prudential Bank, Union Bank of the Philippines, and United Coconut Planters o They failed to comply with the requirements of the Rules of Procedure on  Joint filing of petition is allowed under Secs. 6 and 7, Rule 3 of the 1997
Bank. Private respondents (ASB Group) are corporations engaged in real Corporate Recovery; Rules of Civil Procedure and under case law.
estate development, owned by Roxas. Under the MTI, petitioners granted a o The Rehabilitation Plan has no basis and offers no solution to address the  As regards the regulatory jurisdiction of the HLURB and the Department
loan of P1.081B to ASBDC secured by a mortgage of 5 parcels of land with financial difficulties of petitioners; of Education, Culture and Sports (now the DepEd) over the business of
improvements. o There is no need for a Receiver as ASB Group claim that they are solvent; selling real estate and academic activities of the school, that said
o The filing of the Petition does not warrant the issuance of a suspension jurisdiction does not extend to the petitioning corporations as juridical
On May 2, 2000, private respondents filed with the SEC a verified petition for order; entities by themselves.
rehabilitation with prayer for suspension of actions and proceedings o The Petition should cover only 1 corporation and should not include the  With regard to ASB Holdings, the consent of the Central Bank is not
pending rehabilitation pursuant to PD 902-A, as amended. affiliates and subsidiaries; required since said corporation is not engaged in quasi-banking
o ASB Group are under the regulatory supervision of various governmental operations.
ASB Group: agencies and their respective consents to the filing of the instant Petition  The Creditors Committee was created to address the concerns of the
o They possess sufficient properties to cover their obligations but foresee have not been obtained; investors of ASB Holdings and did not include the creditor banks.
inability to pay them within a period of 1 year. o The circumstances surrounding the filing of the Petition are replete with  The filing of the petition for suspension of payments and rehabilitation is
o There were a sudden non-renewal and/or massive withdrawal by a sign of good faith on the part of ASB Group to settle their obligations.
evidence of fraud and bad faith; and
creditors of their loans to ASB Holdings, a glut in the real estate market,  The majority ruling in our 1992 decision that preferred creditors of
o ASB Group do not appear to have sufficient properties to cover their
severe drop in the sale of real properties, peso devaluation, and distressed corporations shall, in a way, stand on equal footing with all
liabilities.
decreased investor confidence in the economy which resulted in the non- other creditors, must be read and understood in the light of the foregoing
completion of and failure to sell their projects and default in the servicing rulings. All claims of both a secured or unsecured creditor, without
On August 18, 2000, the ASB Group submitted a rehabilitation plan to enable
of their credits as they fell due. distinction on this score, are suspended once a management committee is
it to meet all of its obligations.
o In March 2000 and immediately after ASB Holdings incurred financial appointed.
problems, they agreed to constitute a Creditor's Committee composed of  It is only when the assets are finally liquidated, that the secured and
Creditor banks on Rehabilitation Plan:
representatives of individual creditors, and to appoint a Comptroller. The preferred creditors under the applicable provisions of the Civil Code will
o It is not viable; the proposals are unrealistic; and it collides with the
Comptroller, upon instruction from the Creditor's Committee, withheld apply.
freedom of contract and the constitutional right against non-impairment
approval of payments of obligations in the ordinary course of business  As to the creditors' contention that the plan did not explain or provide for
of contracts, particularly the release of portions of mortgaged properties
such as those due to contractors, unless Roxas agrees to the payment of the basis of the selling values and the net realizable values of the
and waiver of interest, penalties, and other charges.
interest and other arrangements. They believed that said conditions property, a reading of the plan as well as the explanation made by the
o It does not explain the basis of the selling values and the net realizable
would eventually harm the general body of their creditors. Petitioners, show that the computation was shown as to the manner
values of the properties
upon which the petitioners derived the NRV.
o It irregularly nets out inter-corporation transactions and offsets the
The ASB Group had assets worth PhP19.41B and liabilities worth P12.7B.  Interim Receiver
receivables amounting to P5.23B from Roxas
Faced with at least 712 creditors, 317 contractors/suppliers, and 492 o recommended the approval of the Plan.
o It shows that the ASB Group is insolvent and should be subjected to
condominium unit buyers, and the prospect of having secured and non- o The fixed assets of Petitioners are mortgaged to banks and that the
liquidation proceedings.
secured creditors press for payments and threaten to initiate foreclosure bank loans are mostly over collateralized. If the Plan is not approved,
o It opposed the extension of the suspension order sought by the ASB
proceedings, the ASB Group pleaded for suspension of payments while the secured creditors will foreclose on the mortgages and will acquire
Group.
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these properties at a value much less than the FMV.  As regards the Rehabilitation Plan, such disapproval will greatly prejudice suspension of payments while the latter falls under the rules on
o When the Petitioners lose these fixed properties, it will not be able to all the other creditors who will be left unpaid. rehabilitation. Hence, a solvent corporation, such as private respondents,
pay their obligation to the individual unsecured creditors and  The approval of the Rehabilitation Plan does not violate the right against cannot file a petition for rehabilitation.
contractors, and will not be able to deliver sold units to buyers. IOW, impairment of contracts since the legal consequence of rehabilitation o Also, the ASB Group cannot be considered technically insolvent under
the disapproval of the Plan will greatly prejudice all the other creditors proceedings is merely a temporary suspension of such payments of Secs. 3-12 and 3-13 which state:
who will be left unpaid. obligations falling due and not cancellation or repudiation of those  Section 3-12. Technical insolvency of petitioner. — If it is established
 The Panel should balance the interests between the secured creditors contractual obligations. that the inability of the petitioner to pay, although temporary, will
and the unsecured who may not have any recourse if the Plan is not  Petitioners were afforded the opportunity to be heard through the last for a period longer than 1 year from the filing of the petition, the
approved. comments and oppositions they filed. petitioner shall be considered technically insolvent and the petition
 Public interest aspect of this rehabilitation proceeding should be  The SEC en banc may rely on the factual findings of the Hearing Officer; shall be dismissed accordingly.
considered wherein there are about 725 individually affected creditors thus, it need not make its own independent findings unless clear error has  Section 3-13. Supervening insolvency or violation of Suspension
with a total stakes of P4B, more than the stake of the bank creditors. been committed. Order. — If at anytime during the pendency of the proceedings, the
 The approval of the Plan will not deprive the secured creditors of their petitioner has become or is shown to be insolvent, whether actual or
right to the mortgaged assets. If there is a subsequent failure of On April 25, 2007, PNB sold the account of ASBDC to Golden Dragon Star technical, or that it has violated any of the conditions of the
rehabilitation, the availment of their suspended rights over the Equities, Inc. and its assignee, Opal Portfolio Investments, Inc. (Opal). PNB suspension order or has failed to make payments on its obligations in
mortgaged assets will be restored. On the other hand, as earlier stated, then requested this Court to be substituted by Opal. Meanwhile, respondents accordance with the approved Repayment Schedule, the Commission
the unjustified disapproval of the Plan will greatly prejudice the ASB Holdings, ASB Realty Corporation, ASB Development Corporation, and shall terminate the proceedings and dismiss the petition. Instead of
unsecured creditors who will be left unable to recover their investments ASB Land have changed their corporate names to St. Francis Square Holdings, terminating the proceedings, however, the Commission may, upon
or collect their claims. Inc., St. Francis Square Realty Corporation, St. Francis Square Development motion, treat the petition as one for rehabilitation of the debtor.
 However, adjustments and set off with regard to the advances made by Corporation, and St. Francis Square Land, Inc., respectively. Thereupon, the pertinent provisions of the succeeding Rule shall
Mr. Roxas should not be allowed. govern the proceedings.
On February 27, 2007, the First Division of this Court promulgated its Decision o The rules prescribe a determination by the SEC that the ailing
SEC en Banc (The creditors filed a Supplemental Petition for Review on in Metropolitan Bank & Trust Company v. ASB Holdings, Inc. under G.R. No. corporation's inability to pay will last more than 1 year from the filing of
Certiorari) 166197. This case dealt with the petition filed by Metrobank, a member of the the petition for suspension of payments. Technical insolvency only arises
 affirmed the decision consortium of creditor banks. 1 year after the petition for suspension of payments had been filed;
 As of 31 December 2002, 54% of the total obligations have been settled. therefore, the SEC committed a serious error when it entertained the ASB
That constitutes majority of the total obligations owned by private RULE III, Section 3-1. Suspension of Payments Group's petition for rehabilitation without a previous finding of technical
respondents to secured creditors. Any debtor which possesses sufficient property to cover all its debts but insolvency.
foresees the impossibility of meeting them when they respectively fall due o Sec. 4-2 (g) provides that the petition filed by the debtor must be verified
may petition the Commission that it be declared in a state of suspension of and must set forth with sufficient particularity all the following material
CA: (Rule 65) payments. facts, one of which is the status of any Repayment Schedule if one has
 Allegation: SEC did not make its own independent findings much less been approved by the Commission
come up with substantial evidence to support its resolution, thus violating RULE IV, Section 4-1. Who may petition (with the SEC to be placed under o The mere mention of a Repayment Schedule under Rule IV on
petitioners' right to due process and ignoring the constitutional rights of rehabilitation) Rehabilitation only proves that technical insolvency can only arise from or
the banks against non-impairment of contracts. Petitioners also  A debtor which is insolvent because its assets are not sufficient to cover initiated by the filing of a petition for suspension of payments under Rule
questioned the remedy availed of by the ASB Group since a solvent its liabilities, or III.
corporation cannot file a petition for rehabilitation nor be placed under  A debtor which is technically insolvent under Section 3-12 of these Rules, o It was erroneous on the part of the SEC in appointing an interim receiver
receivership. but which may still be rescued or revived through the institution of some since, allegedly, the requirements for it have not been met
 The Rules of Procedure on Corporate Recovery allows financially changes in its management, organization, policies, strategies, operations, o There are 2 kinds of receivers that can be appointed: a rehabilitation
distressed corporations to file for either (1) suspension of payments (Rule or finances. receiver or an interim receiver. A rehabilitation receiver under PD 902-A,
III, Sec. 3-1) or (2) rehabilitation (Rule IV, Sec. 4-1). Sec. 6 may only be appointed when there is a showing that (1) the
 The Rules does not preclude a solvent corporation to file a petition for Petitioners: receiver is necessary in order to preserve the rights of the parties-
rehabilitation instead of just a petition for suspension of payments o a petition for rehabilitation and suspension of payments cannot be filed litigants; and/or (2) in order to protect the interest of the investing public
because such temporary inability to pay obligations may extend beyond 1 without previously filing a petition for suspension of payments since and creditors. In contrast, the appointment of an interim receiver is
year or the corporation may become insolvent in the interim. these refer to different reliefs under the Rules. automatic from the time the petition for rehabilitation is filed; there are
 The determination of the sufficiency of the petition and the question of o Sec. 3-1 refers to debtors with sufficient property to cover its debts; thus, no other standards that need to be met.
propriety of the petition filed by the ASB Group are matters within the it refers to solvent debtors. Sec. 4-1, on the other hand, refers to debtors o A petition for rehabilitation does not necessarily result in the
technical competence and administrative discretion of the SEC. with insufficient assets to cover its liabilities, that is, debtors who are appointment of a rehabilitation receiver. Prior to the appointment of a
 There was no grave abuse of discretion on the part of the Hearing Panel insolvent or technically insolvent. The former falls under the rules on rehabilitation receiver or management committee, as the case may be,
in appointing an interim receiver because such is prescribed by the Rules.
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the right of secured creditors to foreclose mortgages cannot be denied. anytime during the pendency of the proceedings (supervening technical
o Since PD 902-A does not provide for the appointment of an interim insolvency), the SEC may either terminate the proceedings or it may, Effect of filing of the petition (Section 4-4)
receiver, then the Rules of Procedure on Corporate Recovery, an upon motion, treat the petition as one for rehabilitation (Sec. 3-13); Immediately upon the filing of the petition for rehabilitation, the SEC shall
administrative issuance, went beyond the law it seeks to implement  If from the start, a corporation which has enough assets foresees its issue an Order:
o The Rehabilitation Plan should not have been approved by the SEC over inability to meet its obligations for more than 1 year, i.e., existing a. appointing an Interim Receiver and fixing his bond;
the objection by the secured creditors without the filing of a motion to technical insolvency, it may file a petition for rehabilitation under Rule IV, b. suspending all actions and proceedings for claims against the debtor;
override the objections filed by private respondents. This is in accordance Sec. 4-1. c. prohibiting the debtor from selling, encumbering, transferring or
with Sec. 4-20 which provide: Approval of the Rehabilitation Plan. — No disposing in any manner any of its properties except in the normal course
Rehabilitation Plan shall be approved by the Commission if opposed by a A reading of Sec. 4-1 shows that there are 2 kinds of insolvency contemplated of business in which the debtor is engaged;
majority of any class of creditors. The Commission may, upon motion, in it: d. prohibiting the debtor from making any payment of its liabilities
however, override said disapproval if such is manifestly unreasonable. The o actual insolvency - the corporation's assets are not enough to cover its outstanding as of the date of filing of the petition;
Rehabilitation Plan shall be deemed ipso facto disapproved and the liabilities; and e. directing the payment in full of all administrative expenses incurred after
petition dismissed if the Commission fails to grant the motion to override o technical insolvency – the corporation has enough assets but it foresees the filing of the petition;
within 30 days from the time it is submitted for resolution. its inability to pay its obligations for more than 1 year. f. fixing the initial hearing on the petition not later than 45 days from the
o The SEC's approval of the Rehabilitation Plan impairs the MTI by forcing filing thereof;
them to release the real properties secured in their favor to become part In the case at bar, the ASB Group filed with the SEC a petition for g. directing the debtor to publish the Order once a week for 2 consecutive
of the asset pool. rehabilitation with prayer for suspension of actions and proceedings weeks in a newspaper of general circulation in the Philippines; and
o The SEC's approval of the Rehabilitation Plan is a state action that impairs pending rehabilitation. The mere fact that the ASB Group averred that it has h. directing the debtor to serve on each of the parties on the list of creditors
the remedies available to petitioners under the MTI, which essentially sufficient assets to cover its obligations does not make it "solvent" enough to the following documents at least 10 days before the date of the said
abrogates the contract itself. prevent it from filing a petition for rehabilitation. A corporation may have hearing:
o In another case, Metrobank likewise questioned the approval of the considerable assets but if it foresees the impossibility of meeting its 1. A copy of the Order;
Rehabilitation Plan by the SEC and the CA, particularly the provisions obligations for more than 1 year, it is considered as technically insolvent. 2. A copy of the petition;
relating to the payment by dacion en pago and waiver of interests and Thus, at the first instance, a corporation may file a petition for rehabilitation 3. A copy of the Schedule of Debts and Liabilities; and
penalties. Metrobank asserted that the Rehabilitation Plan compelled it — a remedy provided under Sec. 4-1. 4. A notification that copies of the other documents filed with the
to release part of the collateral and accept the mortgaged properties as Commission may be obtained therefrom or from the Interim
payment by dacion en pago based on the ASB Group's transfer values, When Sec. 4-1 mentioned technical insolvency under Sec. 3-12, it was Receiver.
violating the constitutional right to non-impairment of contracts. referring to the definition of technical insolvency in the said section; it was
o Private respondents were not entitled to the suspension order and its not requiring a previous filing of a petition for suspension of payments. The The appointment of an interim receiver should be understood as a necessary
extension if opposed by a majority class of creditors. The consortium, period mentioned under Sec. 3-12, "longer than 1 year from the filing of the and urgent step to protect the interests of both creditors and stockholders of
which has a total exposure of P1.8B, was allegedly deprived of petition," does not refer to a year-long waiting period when the SEC can the petitioning corporations, particularly the assets and business operations
substantive due process when the SEC issued and extended the finally say that the ailing corporation is technically insolvent to qualify for during the pendency of the proceedings, and to ensure the viability and
suspension order despite the objection of the creditor banks. The right to rehabilitation. The inability to pay obligations may be established from the success of the rehabilitation plan as eventually implemented.
due process was again allegedly violated when the Hearing Panel set the start by way of a petition for rehabilitation, or it may be proved during the
Rehabilitation Plan for hearing without ruling on the issues raised in proceedings for suspension of payments, if the latter was the first remedy Motion to Override the Creditors' Objections
petitioners' Comment/Opposition. chosen by the ailing corporation. If the corporation opts for a direct petition The filing of a motion is a precondition for the SEC to resolve the objections
o ASBDC, the borrower in the MTI, is not insolvent; thus, its inclusion in the for rehabilitation on the ground of technical insolvency, it should show in its filed by the creditors, despite the word "may". This is essential in enabling the
petition for rehabilitation was not proper. petition and later prove during the proceedings that it will not be able to SEC to decide on the proposed rehabilitation plan. The words "upon motion"
o As regards the SEC en banc, the 3-year delay in acting on the petition for meet its obligations for longer than 1 year from the filing of the petition. were deliberately added to emphasize this requirement. In the case at bar,
review filed by the consortium amounted to a denial of due process and while ASB Group failed to file a motion to override the creditors' objections,
caused undue damage to the creditors. As regards the status of the Repayment Schedule required to be attached to nevertheless, they were able to file a reply to the opposition of the
Petitioners raise issues which mainly relate to technical insolvency. the petition for rehabilitation (Sec. 4-2 [g]), this requirement is conditioned on consortium of creditor banks. Presumably, this reply addressed the objections
 A corporation which has sufficient assets to cover its liabilities but whether one was approved by the SEC in the first place. If there is none, as in of the consortium. Considering that procedural rules should be liberally
foresees its inability to pay its obligations as they fall due may file a the case of a petition for rehabilitation due to technical insolvency directly interpreted, we find said pleading as tantamount to filing a motion required
petition for suspension of payments under Rule III of the Rules (Sec. 3-1); filed under Rule IV, Sec. 4-1, then there is no status report to submit with the by Sec. 4-20.
 If the SEC finds that the corporation's inability to pay will last more than 1 petition.
year from the filing of the petition for suspension of payments, that is, Right Against Non-Impairment of Contracts
the corporation becomes technically insolvent, the petition shall be Appointment of an Interim Receiver First Division in Metropolitan Bank & Trust Company
dismissed (Sec. 3-12); Once the petition for rehabilitation is filed, the appointment of an interim The approval of the Rehabilitation Plan does not impair petitioner bank's lien
 If the corporation is shown or actually becomes technically insolvent receiver becomes automatic. over the mortgaged properties. Section 6 [c] of P.D. No. 902-A provides that
"upon appointment of a management committee, rehabilitation receiver,
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board or body, pursuant to this Decree, all actions for claims against the SEC opted to proceed decisively and promptly in approving the petition o It has jurisdiction over LCI's petition for indirect contempt as it is
corporations, partnerships or associations under management or receivership for rehabilitation filed by private respondents in order to continue the docketed, heard, and decided separately from the principal action.
pending before any court, tribunal, board or body shall be suspended". By rehabilitation process and keep the companies’ financial afloat, a measure o The supervening termination of the rehabilitation proceedings and the
that statutory provision, it is clear that the approval of the Rehabilitation Plan ultimately aimed at protecting the interest of the larger number of unsecured consequent lifting of the Commencement Order did not render moot the
and the appointment of a rehabilitation receiver merely suspend the actions creditors. The view has been expressed that the power of the SEC to issue petition for indirect contempt as the acts complained of were already
for claims against respondent corporations. Petitioner bank's preferred status injunctive relief in these cases should be upheld by the courts as otherwise "a consummated
over the unsecured creditors relative to the mortgage liens is retained, but distressed company would be exposed to grave danger that may precipitate o petitioners' acts of sending LCI a notice of informal conference and
the enforcement of such preference is suspended until the assets will be its untimely demise, the very evil sought by a suspension of payments". Formal Letter of Demand are covered by the Commencement Order as
liquidated. they were for the purpose of pursuing and enforcing a claim for
BIR v. Lepanto Ceramics, Inc. deficiency taxes, and thus, are in clear defiance of the Commencement
Rizal Commercial Banking Corporation v. Intermediate Appellate Court Contempt; BIR; effect of issuance of commencement order Order
Such suspension "shall not prejudice or render ineffective the status of a o petitioners could have tolled the prescriptive period to collect deficiency
secured creditor as compared to a totally unsecured creditor", for what P.D. On December 23, 2011, LCI filed a petition for corporate rehabilitation before taxes without violating the Commencement Order by simply ventilating
No. 902-A merely provides is that all actions for claims against the distressed the RTC. It alleged that due to the financial difficulties it has been their claim before the rehabilitation proceedings, which they were
corporation, partnership or association shall be suspended. This arrangement experiencing dating back to the Asian financial crisis, it had entered into a adequately notified of.
provided by law is intended to give the receiver a chance to rehabilitate the state of insolvency considering its inability to pay its obligations as they o While the BIR is a juridical entity which can only act through its
corporation if there should still be a possibility for doing so, without being become due and that its total liabilities amounting to P4,213,682,715.00 far authorized intermediaries, it cannot be concluded that it authorized the
unnecessarily disturbed by the creditors' actions against the distressed exceed its total assets worth P1,112,723,941.00. LCI admitted in the annexes latter to commit the contumacious acts complained of, i.e., defiance of
corporation. However, in the event that rehabilitation is no longer feasible attached to the aforesaid Petition its tax liabilities to the national government the Commencement Order. Thus, absent any contrary evidence, only
and the claims against the distressed corporation would eventually have to be in the amount of at least P6,355,368.00. those individuals who performed such acts, namely, Misajon, et al.,
settled, the secured creditors, like petitioner bank, shall enjoy preference should be cited for indirect contempt of court.
over the unsecured creditors. The Commencement Order issued by the Rehabilitation Court was published
in a newspaper of general circulation and the same, together with the WON it was proper for Misajon, et al. to collect, or attempt to collect,
Due Process and the Regulatory Power of the SEC petition for corporate rehabilitation, were personally served upon LCI's deficiency taxes from LCI outside of the rehabilitation proceedings concerning
Petitioners were given the opportunity to be heard. They filed their creditors, including the BIR. Despite such, the Assistant Commissioner, Group the latter? NO
Comment/Opposition and a petition for review before the SEC en banc. Due Supervisor, and Examiner of the BIR's Large Taxpayers Service, sent LCI a Section 4 (gg) of RA 10142 (FRIA)
process is satisfied when the parties are afforded fair and reasonable notice of informal conference, informing the latter of its deficiency internal Rehabilitation – restoration of the debtor to a condition of successful
opportunity to explain their side of the controversy or an opportunity to tax liabilities. In response, LCI's court-appointed receiver sent BIR a letter- operation and solvency, if it is shown that its continuance of operation is
move for a reconsideration of the action or ruling complained of. Also, the reply, reminding the latter of the pendency of LCI's corporate rehabilitation economically feasible and its creditors can recover by way of the present
SEC en banc is not required to come up with its own findings since findings of proceedings, as well as the issuance of a Commencement Order in connection value of payments projected in the plan, more if the debtor continues as a
the Hearing Officer shall remain undisturbed unless the SEC en banc finds therewith. Undaunted, the BIR sent LCI a Formal Letter of Demand, requiring going concern than if it is immediately liquidated.
manifest errors. Sec. 16-7 of the Rules also states that proceedings before the LCI to pay deficiency taxes. This prompted LCI to file a petition for indirect
SEC en banc shall be summary in nature. contempt against petitioners. Corporate rehabilitation (jurisprudence) – an attempt to conserve and
administer the assets of an insolvent corporation in the hope of its eventual
Rehabilitation proceedings Petitioners return from financial stress to solvency. It contemplates the continuance of
The purpose of which is to enable the company to gain new lease on life and o RTC had no jurisdiction to cite them in contempt as it is only the corporate life and activities in an effort to restore and reinstate the
thereby allow creditors to be paid their claims from its earnings. Rehabilitation Court, being the one that issued the Commencement corporation to its former position of successful operation and liquidity.
Rehabilitation contemplates a continuance of corporate life and activities in Order, which has the authority to determine WON such Order was defied;
an effort to restore and reinstate the financially distressed corporation to its o the instant petition had already been mooted by the Rehabilitation Purpose of rehabilitation
former position of successful operation and solvency. This is in consonance Court's Order which declared LCI to have been successfully rehabilitated  to find ways and means to minimize the expenses of the distressed
with the State's objective to promote a wider and more meaningful equitable resulting in the termination of the corporate rehabilitation proceedings corporation during the rehabilitation period by providing the best
distribution of wealth to protect investments and the general public. o their acts do not amount to a defiance of the Commencement Order as it possible framework for the corporation to gradually regain or achieve a
was done merely to toll the prescriptive period in collecting deficiency sustainable operating form
Compared to the creditor banks who have existing mortgages with the ASB taxes, and thus, sanctioned by the Rules of Procedure of the FRIA  to gain a new lease in life and thereby allow creditors to be paid their
Group, there were 725 individually affected unsecured creditors with a much o the indirect contempt proceedings interferes with the exercise of their claims from its earnings
higher stake in their combined claims of P4B. Hence, it would be prejudicial to functions to collect taxes due to the government.  undertaken when it is shown that the continued operation of the
disapprove the Rehabilitation Plan and thereby allow the creditor banks to corporation is economically more feasible and its creditors can recover,
foreclose the mortgages and sell the fixed assets at prices lower than the RTC by way of the present value of payments projected in the plan, more, if
market value. In view of the urgency of the situation and the serious prejudice o Misajon, et al. guilty of indirect contempt the corporation continues as a going concern than if it is immediately
that will result to other investors and creditors and to the public in general,
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liquidated. bidder. Respondents claimed that this situation has impacted on their chance PDB, in collaboration and with the conformity of its counsel of record, Janda
to recover from the losses they have suffered over the years, since the said Asia & Associates. On April 3, 2013, DivinaLaw, on behalf of PAGTI, filed a
To achieve such objectives, Section 16 of RA 10142 provides that upon the properties are being used in their business operations, and a source of Motion for Substitution of Parties, averring that PAGTI had acquired PDB's
issuance of a Commencement Order — which includes a Stay or Suspension significant revenue for their owner-lessor, Fastech Properties. Hence, claims and interests in the instant case, hence, should be substituted as a
Order — all actions or proceedings, in court or otherwise, for the respondents submitted for the court's approval of their proposed party therein.
enforcement of "claims" against the distressed company shall be Rehabilitation Plan, which sought:
suspended. Under the same law, claim "shall refer to all claims or demands of  a waiver of all accrued interests and penalties; Respondents:
whatever nature or character against the debtor or its property, whether for  a grace period of 2 years to pay the principal amount of respondents' o March 12, 2013 – Associates received a copy of the March 5, 2013
money or otherwise, liquidated or unliquidated, fixed or contingent, matured outstanding loans, with the interests accruing during the said period Resolution. (Thus, petitioners only had until March 27, 2013 to file a
or unmatured, disputed or undisputed, including, but not limited to: (1) all capitalized as part of the principal, to be paid over a 12-year period after petition for review on certiorari before the SC, and the petition filed on
claims of the government, whether national or local, including taxes, tariffs the grace period; and April 18, 2013 was filed out of time)
and customs duties; and (2) claims against directors and officers of the debtor  an interest rate of 4% and 2% per annum for creditors whose credits are o Dismiss the petition for such was filed out of time; the receipt of the
arising from acts done in the discharge of their functions falling within the secured by real estate and chattel mortgages, respectively. Resolution on March 12, 2013 by Janda Asia & Associates, which
scope of their authority: Provided, That, this inclusion does not prohibit the remained as collaborating counsel of PDB, binds petitioners and started
creditors or third parties from filing cases against the directors and officers Rehabilitation Receiver: respondents may be rehabilitated, considering that the running of the 15-day period within which to file a petition for review
acting in their personal capacities." their assets appear to be sufficient to cover their liabilities, but reserved her on certiorari before the Court.
comment to the Rehabilitation Plan's underlying assumptions, financial goals,
To clarify, however, creditors of the distressed corporation are not without and procedures to accomplish said goals after the submission of a revised Petitioners:
remedy as they may still submit their claims to the rehabilitation court for rehabilitation plan. o the date of receipt of petitioners' lead counsel should be the reckoning
proper consideration so that they may participate in the proceedings, keeping point since only the lead counsel is entitled to service of court processes
in mind the general policy of the law "to ensure or maintain certainty and RTC: o CA erred in not upholding the dismissal of the rehabilitation petition
predictability in commercial affairs, preserve and maximize the value of the o dismissed the rehabilitation petition despite the favorable despite the insufficiency of the Rehabilitation Plan which was based on FS
assets of these debtors, recognize creditor rights and respect priority of recommendation of its appointed Rehabilitation Receiver. that contained misleading statements, and financial projections that are
claims, and ensure equitable treatment of creditors who are similarly o It found the facts and figures submitted by respondents to be unreliable mere unfounded assumptions/speculations.
situated.” IOW, the creditors must ventilate their claims before the in view of the disclaimer of opinion of the independent auditors who
rehabilitation court, and any attempts to seek legal or other resource against reviewed respondents' 2009 FS, which it considered as amounting to a Respondents:
the distressed corporation shall be sufficient to support a finding of indirect "straightforward unqualified adverse opinion." o filed a Manifestation and Update (Re: Compliance to the CA Decision
contempt of court. o It did not give credence to the unaudited 2010 FS as the same were mere dated September 28, 2012) before the SC, stating that it had achieved the
photocopied documents and unsigned by any of respondents' responsible EBITDA requirement of the Rehabilitation Plan and made quarterly
It is improper for the BIR to collect or even attempt to collect deficiency taxes officers. payments in favor of the bank and non-bank creditors from December 28,
from a corporation that is covered by the Commencement Order, outside of o Respondents added new accounts and/or deleted/omitted certain 2014 to September 28, 2015, totalling P27,119,481.79. (However, the
the rehabilitation proceedings, which act constitute indirect contempt against accounts. amount of P8,364,836.53 in favor of PDB was not accepted, and is being
the RTC acting as a rehabilitation court. o rejected the revised financial projections as the bases for which were not held by respondents)
submitted for its evaluation on the ground of confidentiality.
Philippine Asset Growth Two, Inc. v. Fastech Synergy Philippines, Inc. WON the petition for review on certiorari was timely filed? NO
Service to counsel on record; audited 2009 FS (disclaimer); 2010 FS (no CA: WON the Rehabilitation Plan is feasible? NO
notes to FS); financial reprieves; protracted payment schedule  RTC grievously erred in disregarding the report/opinion of the Where a party is represented by several counsels, notice to one is sufficient,
Rehabilitation Receiver that respondents may be successfully and binds the said party. Notice to any one of the several counsels on record
On April 8, 2011, respondents filed a verified Joint Petition for corporate rehabilitated, despite being highly qualified to make an opinion on is equivalent to notice to all, and such notice starts the running of the period
rehabilitation before the RTC. They claimed that: (a) their business operations accounting in relation to rehabilitation matters. to appeal notwithstanding that the other counsel on record has not received
and daily affairs are being managed by the same individuals; (b) they share a  RTC failed to distinguish the difference between an adverse or negative a copy of the decision or resolution.
majority of their common assets; and (c) they have common creditors and opinion and a disclaimer or when an auditor cannot formulate an opinion
common liabilities. with exactitude for lack of sufficient data. Generally, the failure to perfect an appeal in the manner and within the
 Considering that respondents' creditors are placed in equal footing as a period provided for by law renders the decision appealed from final and
Among the common creditors listed in the rehabilitation petition was PDB, necessary consequence, it permanently enjoined PDB from "effecting the executory, and beyond the competence of the Court to review. However, the
which had earlier filed a petition for extrajudicial foreclosure of mortgage foreclosure" of the subject properties during the implementation of the Court has repeatedly relaxed this procedural rule in the higher interest of
over the 2 parcels of land registered in the name of Fastech Properties listed Rehabilitation Plan. substantial justice, considering: [SPAM FM]
as common assets of respondents in the rehabilitation petition. The (a) matters of life, liberty, honor or property
foreclosure sale was held on April 13, 2011, with PDB emerging as the highest In the interim, DivinaLaw entered its appearance as the new lead counsel of (b) the existence of special or compelling circumstances

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(c) the merits of the case Properties, Fastech Electronique, and Fastech Microassembly. Moreover,
(d) a cause not entirely attributable to the fault or negligence of the party while there is a claim that unnamed customers have made investments by A perusal of the 2009 audited FS shows that respondents' cash operating
favored by the suspension of the rules way of consigning production equipment, and advancing money to fund position was not even enough to meet their maturing obligations. Notably,
(e) a lack of any showing that the review sought is merely frivolous and procurement of various equipment intended to increase production capacity, their current assets were materially lower than their current liabilities, and
dilatory, and this can hardly be construed as a material financial commitment which consisted mostly of advances to related parties in the case of Fastech
(f) the other party will not be unjustly prejudiced thereby. would inspire confidence that the rehabilitation would turn out to be Microassembly, Fastech Electronique, and Fastech Properties. Moreover, the
successful. Case law holds that nothing short of legally binding investment independent auditors recognized the absence of available historical or
Rehabilitation shall refer to the restoration of the debtor to a condition of commitment/s from third parties is required to qualify as a material financial reliable market information to support the assumptions made by the
successful operation and solvency, if it is shown that its continuance of commitment. Here, no such binding investment was presented. management to determine the recoverable amount (value in use) of
operation is economically feasible and its creditors can recover by way of the respondents' properties and equipment.
present value of payments projected in the plan more if the debtor continues Lack of Liquidation Analysis
as a going concern than if it is immediately liquidated. The basic issues in The total liquidation assets and the estimated liquidation return to the On the other hand, respondents' unaudited FS for the year 2010, and the
rehabilitation proceedings concern the viability and desirability of continuing creditors, as well as the FMV vis-à-vis the forced liquidation value of the fixed months of February and March 2011 were unaccompanied by any notes or
the business operations of the distressed corporation, all with a view of assets were not shown. As such, the Court could not ascertain if the explanation on how the figures were arrived at. Besides, respondents' cash
effectively restoring it to a state of solvency or to its former healthy financial petitioning debtor's creditors can recover by way of the present value of operating position remained insufficient to meet their maturing obligations as
condition through the adoption of a rehabilitation plan. payments projected in the plan, more if the debtor continues as a going their current assets are still substantially lower than their current liabilities.
concern than if it is immediately liquidated. This is a crucial factor in a Respondents also added new accounts and/or deleted/omitted certain
In the present case, however, the Rehabilitation Plan failed to comply with corporate rehabilitation case, which the CA, unfortunately, failed to address. accounts, but failed to explain or justify the same.
the minimum requirements, i.e.: (a) material financial commitments to
support the rehabilitation plan; and (b) a proper liquidation analysis, which Effect of Non-Compliance The Rehabilitation Plan should have shown that they have enough serviceable
Rules were in force at the time respondents' rehabilitation petition was filed The failure of the Rehabilitation Plan to state any material financial assets to be able to continue its business operation. In fact, as opposed to this
on April 8, 2011. commitment to support rehabilitation, as well as to include a liquidation objective, the revised Rehabilitation Plan still requires "front load Capex
analysis, renders the CA's considerations for approving the same as actually spending" to replace common equipment and facility equipment to ensure
Lack of Material Financial Commitment to Support the Rehabilitation Plan unsubstantiated, and hence, insufficient to decree the feasibility of sustainability of capacity and capacity robustness, thus, further sacrificing
A material financial commitment becomes significant in gauging the resolve, respondents' rehabilitation. It is well to emphasize that the remedy of respondents' cash flow. In addition, the Court is hard-pressed to see the
determination, earnestness, and good faith of the distressed corporation in rehabilitation should be denied to corporations that do not qualify under the effects of the outcome of the streamlining of respondents' manufacturing
financing the proposed rehabilitation plan. This commitment may include the Rules. Neither should it be allowed to corporations whose sole purpose is to operations on the carrying value of their existing properties and equipment.
voluntary undertakings of the stockholders or the would-be investors of the delay the enforcement of any of the rights of the creditors.
debtor-corporation indicating their readiness, willingness, and ability to CA's reliance on the expertise of the court-appointed Rehabilitation Receiver,
contribute funds or property to guarantee the continued successful Even if the Court were to set aside the failure of the Rehabilitation Plan to who opined that respondents' rehabilitation is viable, in order to justify its
operation of the debtor-corporation during the period of rehabilitation. comply with the fundamental requisites of material financial commitment to finding that the FS submitted were reliable, overlooks the fact that the
support the rehabilitation and an accompanying liquidation analysis, a review determination of the validity and the approval of the rehabilitation plan is
In this case, respondents' Chief Operating Officer, Primo D. Mateo, Jr., in his of the financial documents presented by respondents fails to convince the not the responsibility of the rehabilitation receiver, but remains the function
executed Affidavit of General Financial Condition dated April 8, 2011, Court of the feasibility of the proposed plan. of the court. The rehabilitation receiver's duty prior to the court's approval
averred that respondents will not require the infusion of additional capital as of the plan is to study the best way to rehabilitate the debtor, and to ensure
he, instead, proposed to have all accrued penalties, charges, and interests Test in evaluating the economic feasibility of the plan (BPI v. Sarabia Manor that the value of the debtor's properties is reasonably maintained; and after
waived, and a reduced interest rate prospectively applied to all respondents' Hotel Corporation) approval, to implement the rehabilitation plan.
obligations, in addition to the implementation of a 2-year grace period. Thus, A thorough examination and analysis of the distressed corporation's financial
there appears to be no concrete plan to build on respondents' beleaguered data must be conducted. If the results of such examination and analysis show Purpose of rehabilitation proceedings:
financial position through substantial investments as the plan for that there is a real opportunity to rehabilitate the corporation in view of the  to enable the company to gain a new lease on life
rehabilitation appears to be pegged merely on financial reprieves. Anathema assumptions made and financial goals stated in the proposed rehabilitation  to allow creditors to be paid their claims from its earnings when so
to the true purpose of rehabilitation, a distressed corporation cannot be plan, then it may be said that a rehabilitation is feasible. In this accord, the rehabilitated
restored to its former position of successful operation and regain solvency by rehabilitation court should not hesitate to allow the corporation to operate as
the sole strategy of delaying payments/waiving accrued interests and an on-going concern, albeit under the terms and conditions stated in the Hence, the remedy must be accorded only after a judicious regard of all
penalties at the expense of the creditors. approved rehabilitation plan. On the other hand, if the results of the financial stakeholders' interests; it is not a one-sided tool that may be graciously
examination and analysis clearly indicate that there lies no reasonable invoked to escape every position of distress. Thus, the remedy of
While respondents have substantial total assets, a large portion of the assets probability that the distressed corporation could be revived and that rehabilitation should be denied to corporations whose insolvency appears to
of Fastech Synergy and Fastech Properties is comprised of noncurrent assets, liquidation would, in fact, better subserve the interests of its stakeholders, be irreversible and whose sole purpose is to delay the enforcement of any of
such as advances to affiliates which include Fastech Microassembly, and then it may be said that a rehabilitation would not be feasible. In such case, the rights of the creditors, which is rendered obvious by: [ABS]
investment properties which form part of the common assets of Fastech the rehabilitation court may convert the proceedings into one for liquidation. (a) the absence of a sound and workable business plan;
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(b) baseless and unexplained assumptions, targets, and goals; and With this development, PNB revived the foreclosure case, and emerged as the attended with bad faith.
(c) speculative capital infusion or complete lack thereof for the execution of highest winning bidder in the auction sale, and certificates of sale were issued
the business plan, as in this case. in its favor. WON the CA correctly dismissed the petition for failure to attach material
documents referred to in the petition? NO
A distressed corporation should not be rehabilitated when the results of the Petitioner WON PNB, as a secured creditor, can foreclose on the mortgaged properties
financial examination and analysis clearly indicate that there lies no o filed with the SEC a motion to nullify the auction sale. of a corporation under liquidation without the knowledge and prior approval
reasonable probability that it may be revived, to the detriment of its o all actions against companies which are under liquidation, like ARCAM, of the liquidator or the SEC? YES
numerous stakeholders which include not only the corporation's creditors but are suspended because liquidation is a continuation of the petition for WON PNB was barred from foreclosing on the mortgages? NO
also the public at large. suspension proceedings. A perusal of the petition for review filed with the CA, and as admitted by PNB,
o the prohibition against foreclosure subsisted during liquidation because reveals that certified true copies of the assailed SEC Resolution and the SEC
Recognizing the volatile nature of every business, the rules on corporate payment of all of ARCAM's obligations was proscribed except those Order appointing Atty. Yngson, Jr. as liquidator were annexed therein. The
rehabilitation have been crafted in order to give companies sufficient leeway authorized by the SEC. foregoing attached documents are sufficient for the appellate court to decide
to deal with debilitating financial predicaments in the hope of restoring or o the mortgaged assets should be included in the liquidation and the the case at bar considering that the SEC resolution contains statements of the
reaching a sustainable operating form if only to best accommodate the proceeds shared with the unsecured creditors. factual antecedents material to the case. The Resolution also contains the
various interests of all its stakeholders, may it be the corporation's SEC's findings on the legality of PNB's foreclosure of the mortgages.
stockholders, its creditors, and even the general public. PNB:
o neither P.D. No. 902-A nor the SEC rules prohibits secured creditors from The SEC held that when the rehabilitation proceeding was terminated, PNB
While payments in accordance with the Rehabilitation Plan were already foreclosing on their mortgages to satisfy the mortgagor's debt after the could already assert its preference over unsecured creditors, and the secured
made, the same were only possible because of the financial reprieves and termination of the rehabilitation proceedings and during liquidation asset and the proceeds need not be included in the liquidation and shared
protracted payment schedule accorded to respondents, which, as above- proceedings. with the unsecured creditors. Before the CA, petitioner raised only the same
intimated, only works at the expense of the creditors and ultimately, do not legal questions as there was no controversy involving factual matters.
meet the true purpose of rehabilitation. Petitioner: Petitioner claimed that the SEC erred in not applying the rules on concurrence
o SEC erred in failing to apply the rules of concurrence and preference of and preference of credits, and in denying its motion to nullify the auction sale
Yngson, Jr. v. Philippine National Bank credits under the Civil Code and jurisprudence when PD 902-A provides of the secured properties. Therefore, the assailed SEC Resolution is the only
About secured creditors; unpaid wages; preference vs liens that the same be applied in instances whereby an entity is ordered material portion of the record that should be annexed with the petition for
dissolved and placed under liquidation on account of failure to the CA to decide on the correctness of the SEC's interpretation of the law and
ARCAM is engaged in the operation of a sugar mill in Pampanga. Between rehabilitate due to insolvency jurisprudence on the matter before it.
1991 and 1993, it applied for and was granted a loan by PNB. To secure the o It was grossly erroneous for the SEC to have allowed PNB to foreclose the
loan, ARCAM executed a REM over a parcel of land and a Chattel Mortgage mortgage without first allowing the ARCAM liquidator to make a Consuelo Metal Corporation v. Planters Development Bank
over various personal properties consisting of machinery, generators, field determination of the liens over the ARCAM real properties, since the  The right of the secured creditor to foreclose the mortgages in its favor
transportation and heavy equipment. ARCAM, however, defaulted on its liquidator had initially determined that aside from PNB, some ARCAM during the liquidation of a debtor corporation should be upheld.
obligations to PNB. Thus, PNB initiated extrajudicial foreclosure proceedings. workers may also have a legal lien over the said property as regards their  CMC questioned the validity of the foreclosure because it was done
On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension claims for unpaid wages. These liens over the same movable or real without the knowledge and approval of the liquidator. The Court ruled
of Payments. property are to be satisfied pro-rata with the contractual liens pursuant that if rehabilitation is no longer feasible and the assets of the
to 2247 and 2249 of the Civil Code, in relation to 2241 and 2242, corporation are finally liquidated, secured creditors shall enjoy
SEC: respectively. preference over unsecured creditors, subject only to the provisions of
o issued a TRO and a writ of preliminary injunction, enjoining PNB and the o There may be some tax assessments that the liquidator does not know the Civil Code on concurrence and preference of credits. Creditors of
Sheriff of the RTC from proceeding with the foreclosure sale of the about and if there were, these could comprise tax liens, which under Art. secured obligations may (1) pursue their security interest or lien, or (2)
mortgaged properties. 2243 of the Civil Code are clearly given priority over other preferred abandon the preference and prove their credits as ordinary claims.
o An interim management committee was also created. claims since such are to be satisfied first, over other liens provided under Section 2248 of the Civil Code provides that those credits which enjoy
o Later, it decided that ARCAM can no longer be rehabilitated. Articles 2241 and 2242 of the Civil Code, such as mortgage liens. preference in relation to specific real property or real rights, exclude all
o The petition for suspension of payment was filed in December 1993 and 6 o After an entity is dissolved and placed under liquidation due to others to the extent of the value of the immovable or real right to which
years had passed but the potential "white knight" investor had not insolvency, secured creditors are not automatically allowed to foreclose the preference refers."
infused the much needed capital to bail out ARCAM from its financial or execute or otherwise make good on their credits against debtor  Planters Bank, as a secured creditor, enjoys preference over a specific
difficulties. o SEC’s holding that the foreclosure by PNB was not legal. Even assuming mortgaged property and has a right to foreclose the mortgage. The
o decreed that ARCAM be dissolved and placed under liquidation. that PNB is the sole and only lien holder, it still cannot foreclose unless creditor-mortgagee has the right to foreclose the mortgage over a specific
o also granted PNB's motion to dissolve the preliminary injunction and the loquidator agrees to such or that the SEC gave PNB prior permission real property WON the debtor-mortgagor is under insolvency or
appointed a Liquidator for ARCAM. to institute the separate foreclosure proceedings. liquidation proceedings.
o PNB should pay damages because the foreclosure proceedings were  The right to foreclose such mortgage is merely suspended (1) upon the

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appointment of a management committee or rehabilitation receiver or (2)
upon the issuance of a stay order by the trial court. However, the
creditor-mortgagee may exercise his right to foreclose the mortgage
upon the termination of the rehabilitation proceedings or upon the
JOSE GATCHALIAN, ET National Charity
lifting of the stay order.

Under FRIA, the right of a secured creditor to enforce his lien during
liquidation proceedings is retained.
AL. v THE COLLECTOR Sweeepstakes Office at
Rights of Secured Creditors (Sec. 114, FRIA)
The Liquidation Order shall NOT affect the right of a secured creditor to
enforce his lien in accordance with the applicable contract or law. A secured
OF INTERNAL REVENUE 2 pesos. The ticket was
creditor may:
(a) waive his rights under the security or lien, prove his claim in the
liquidation proceedings and share in the distribution of the assets of the
IMPERIAL, J p: personally purchased
debtor; or
(b) maintain his rights under his security or lien;

If the secured creditor maintains his rights under the security or lien (chooses
Co-ownership or Co- by Gatchalian and
(b)):
(1) the value of the property may be fixed in a manner agreed upon by the
creditor and the liquidator. When the value of the property is less than
the claim it secures, the liquidator may convey the property to the
possession registered it in the
secured creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance; if its value exceeds the claim
secured, the liquidator may convey the property to the creditor and
waive the debtor's right of redemption upon receiving the excess from
FACTS: name of Jose
the creditor;
(2) the liquidator may sell the property and satisfy the secured creditor's
entire claim from the proceeds of the sale; or
The plaintiffs, are a Gatchalian and
(3) the secured creditor may enforce the lien or foreclose on the property
pursuant to applicable laws.

In this case, PNB elected to maintain its rights under the security or lien;
group of 15 persons Company. Such ticket
hence, its right to foreclose the mortgaged properties should be respected. As
to petitioner's argument on the right of first preference as regards unpaid
wages, a distinction should be made between a preference of credit and a
lien. A preference applies only to claims which do not attach to specific
who consolidated their won the 3
money to purchase rd
properties. A lien creates a charge on a particular property. The right of first
preference as regards unpaid wages recognized by Article 110 of the Labor
Code, does not constitute a lien on the property of the insolvent debtor in
favor of workers. It is but a preference of credit in their favor, a preference in
prize in the amount of
application. It is a method adopted to determine and specify the order in
which credits should be paid in the final distribution of the proceeds of the
insolvent's assets. It is a right to a first preference in the discharge of the
funds of the judgment debtor. Consequently, the right of first preference for
one ticket from the
unpaid wages may not be invoked in this case to nullify the foreclosure sales
conducted pursuant to PNB's right as a secured creditor to enforce its lien on
specific properties of its debtor, ARCAM.

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P50,000. A check was the prize won. David ISSUE: WON the
drawn in favor of Jose made an assessment plaintiffs formed a
Gatchalian and requesting payment partnership or a
Company against the for the sum of community property
PNB and cashed by P1,499.94. HELD: The plaintiffs
Jose Gatchalian and The plaintiffs formed a partnership.
Company. requested for tax Partnership is defined
Thereafter, income tax exemption, but was as a situation where
examiner Alfredo denied. To prevent a two or more
David required levy from being made persons bound
Gatchalian to file the against themselves to
income tax return them, they paid the tax contribute money,
covering due under protest. property or industry to
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a common fund with ticket wins a prize. FACTS:

the intention Therefore, there was a The plaintiffs, are a
of dividing the profits partnership formed group of 15 persons
among themselves. In and, they are liable to who consolidated their
this case, 15 people, pay income tax for money to purchase
including Gatchalian, the profit the one ticket from the
pooled their partnership earned. National Charity
money to a common JOSE GATCHALIAN, ET Sweeepstakes Office at
fund to buy a AL. v THE COLLECTOR 2 pesos. The ticket was
sweepstakes ticket, OF INTERNAL REVENUE personally purchased
with the intention of IMPERIAL, J p: by Gatchalian and
dividing the prize in Co-ownership or Co- registered it in the
case the possession name of Jose
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Gatchalian and Thereafter, income tax exemption, but was

Company. Such ticket examiner Alfredo denied. To prevent a
won the 3 David required levy from being made
rd
Gatchalian to file the against
prize in the amount of
income tax return them, they paid the tax
P50,000. A check was
covering due under protest.
drawn in favor of Jose
the prize won. David ISSUE: WON the
Gatchalian and
made an assessment plaintiffs formed a
Company against the
requesting payment partnership or a
PNB and cashed by
for the sum of community property
Jose Gatchalian and
P1,499.94. HELD: The plaintiffs
Company.
The plaintiffs formed a partnership.
requested for tax Partnership is defined
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as a situation where money to a common

two or more fund to buy a
persons bound sweepstakes ticket,
themselves to with the intention of
contribute money, dividing the prize in
property or industry to case the
a common fund with ticket wins a prize.
the intention Therefore, there was a
of dividing the profits partnership formed
among themselves. In and, they are liable to
this case, 15 people, pay income tax for
including Gatchalian, the profit the
pooled their partnership earned
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