1. Victorio-Aquino v Pacific Plans, Inc.

G.R. No. 193108, December 10, 2014

Facts:
Respondent Pacific Plans, Inc. is engaged in the business of selling pre-need plans and educational
plans or PEPTRADS. These are educational plans where respondent guarantees to pay the
planholder, without regard to actual cost at the time of enrolment, the full amount of tuition and other
school fees of a designated beneficiary.

Petitioner Marilyn Victorio-Aquino is a holder of 2 units of PEPTRADS.

On April 7, 2005, foreseeing its impossibility of meeting its obligation, respondent filed a petition for
Corporate Rehabilitation with the Regional Trial Court as Rehabilitation Court, praying that it be
placed under rehabilitation ad suspension of payments pursuant to PD No. 902-A.

On April 12, 2005, The Rehabilitation Court issued a Stay Order, directing the suspension of
payments of the obligations of respondent and ordering all creditors and interested parties to file their
comments/oppositions, respectively to the petition for corporate rehabilitation. Also, in the same
order, the Court appointed a rehabilitation receiver.

Pursuant to the prevailing Rules, respondent submitted “SWAP” its proposed rehabilitation plan
which will give the planholder a means to exit from the PEPTrads at terms and conditions relative to
a termination value that is more advantageous than those provided under the education plan in case
of voluntary termination.

Subsequently, Rehabilitation Receiver also submitted an Alternative Rehabilitation Plan (ARP) for
the approval of the rehabilitation court. Under such alternative plan, the benefits under the PEPTrads
shall be translated into fixed-value benefits. It shall also provide for tuition support for each
enrolment period until a particular time and the amount of which will depend on the prevailing
market rate of the NAPOCOR Bonds ( NOTE: BONDS ARE DENOMINATED IN U.S.
DOLLARS) and Peso-Dollar exchange rate.

Respondent commenced with the implementation of its ARP in coordination with, and clearance
from the Rehabilitation Receiver.

In the meantime, the value of the Philippine Peso strengthened and appreciated thereby decreasing
the value of the NAPOCOR bonds which is denominated in U.S. Dollars (Note: the effect of such
appreciation of value of Philippine Peso is that the creditors will receive less from amount computed
in the ARP). In view thereof, respondent submitted a manifestation with the Rehabilitation Court that
the continued appreciation of Peso Dollar had grossly affected the value of the U.S. Dollar-
denominated NAPOCOR bonds which stood as security for the payment of the PEPTrads.
The Rehabilitation Reciever filed a Manifestation with Motion to Admit echoing the tenor and
substance of respondent’s manifestation. It also prayed that the Modified Rehabilitation Plan (MRP)
be approved. Under the MRP, the ARP is modified as follows:
1) Suspension of the tution support;
2) Converting Philippine Peso liabilities to U.S. dollar liabilities; and
3) Payments of the trust fund assets in U.S. Dollar at maturity

After the submission of comments/opposition by the concerned parties, the Rehabilitation Court
issued a Resolution approving the MRP in view of its Cram Down power as a Rehabilitation Court
under Section 23 of the Interim Rules.

Petitioner questioned the approval of the MRP before the CA and prayed for the issuance of a TRO
and a writ of preliminary injunction to stay the execution of the Resolution.

Petitioner contends that the MRP is an ultra vires act insofar as it reduces the original claim and even
the original amount that the latter was to receive under the ARP. She also claimed that it was beyond
the authority of the Rehabilitation Court to sanction a rehabilitation plan, or the modification thereof,
when the essential feature of the plan involves forcing creditors to reduce their claims against
respondent.

Issue:
Whether or not the approval of the MRP is valid application of the “cram-down” power of
Rehabilitation Court.

Ruling:
Yes. The ‘cram-down” power of the Rehabilitation Court has long been established and even
codified under Section 23, Rule 4 of the Interim Rules, which provides, “the court may approve a
rehabilitation plan over the opposition of creditors, holding a majority of the total liabilities of the
debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the
creditors is manifestly unreasonable.”

Such prerogative is carried over in the Rehabilitation Rules, which maintains that the court may
approve a rehabilitation plan over the objection of the creditors if, in its judgment, the rehabilitation
of the debtors is feasible and the opposition of the creditors is manifestly unreasonable. This cram-
down clause is necessary to curb the majority creditors’ natural tendency to dictate their own terms
and conditions to the rehabilitation absent due regard to the long-term benefit of all stakeholders.

The criteria for manifest unreasonableness is spelled out in Sec. 11 which provides that the
opposition of the creditors is manifestly unreasonable if the following are present:
1) The rehabilitation plan complies with the requirements specified in Sec 18 of Rule 3;
2) The rehabilitation plan would provide the objecting class of creditors with payments whose
present value projected in the plan would be greater than that which they would have received if the
assets of the debtor were sold by a liquidator within a six (6) month period from the date of filling of
the petition; and
3) The rehabilitation receiver has recommended approval of the plan.

Petition is denied.

2. BPI Family Savings Bank, INC v. St. Michael Medical Center, Inc.
GR No. 205496, March 25, 2015
Perlas-Bernabe, J,

DOCTRINES
1. SMMCI, as admitted, was not yet operating nor earning revenues by the time their Petition for
Rehabilitation was filed, thus, there was nothing to “restore” or “rehabilitate”. Rehabilitation
assumes that the corporation has been operational but for some reasons like economic crisis or
mismanagement had become distressed or insolvent; that it is generally unable to pay its debts as
they fall due in the ordinary course of business or has liability that are greater than its assets.
Therefore, corporate rehabilitation is improper

2. St. Michael’s Hospital is separate entity from SMMCI, thus, SMMCI cannot submit the former’s
financial documents as its own to support its petition for Rehabilitation. It’s rehabilitation must be
determined from its own financial history, and not of St. Michael’s.

3. SMMCI’s Rehabilitation Plan failed to include (a) Material Financial Commitment to support the
rehabilitation and (b) Liquidation Analysis as required under Sec 18, Rule 3 of the Rules. The effect
being, the approval of the CA and RTC of the Plan was unwarranted and unsupported.

FACTS:
● Spouses Rodil are the sole proprietor and owner of St Michael Dignostic and Skin Care
Laboratory Services and Hospital (St. Michael Hospital), built and located on their property
in Molino, Bacoor, Cavite.
● They want to upgrade their hospital from 5 storeys to an 11 storeys tertiary hospital so they
bought additional 2 parcels of land adjoining their property
● On May 22, 2003, they incorporated SMMCI with plans of consolidating the operations of
the St. Michael Hospital
○ SMMCI had initial capital of P2M, increased to P53,500,000
 ○ 94.4% or P50,553,000.00 as outstanding capital stock was subscribed and paid by
Sps. Rodil
● The new hospital bldg. began construction with Sps. Rodil contributing personal funds as
initial capital
○ Estimated cost for new building: P100M
● To finance the costs of construction, SMMCI applied for a loan w/ BPI Family Savings Bank
○ Credit line: P35M
○ Loan was secured by real estate mortgage over 3 parcels of land belonging to Sps.
Rodil, including the portion where the hospital building was being constructed
● SMMCI drew P23,700,000.00, with Sps. Rodil as co-borrowers and they executed a
Promissory note
○ Interest rate: 10.25% per annum
○ Late payment charge: 3% per month
● Sps. Rodil encountered problems with their first contractor, so they deferred the original 11-
storey building
● They engaged the services of another contractor to complete the remaining structural works
of the unfinished building, up to the 5th floor spending an additional P25M
● Since they lacked funds to complete floors 3-5, the new building was not completely
operational, thus, the operations of St. Michael’s Hospital could not be transferred to SMMCI
● Using hospital generated revenues, Sps. Rodil purchased new equipment and machinery for
St. Michael’s Hospital valued in excess of P20M
● Since SMMCI was not operational nor earning revenues, only the interest on the loan, P3M
was paid over the 2 yr period, from the income of St. Michael Hospital
○ Note: only the first 2 floors were completed on the new building, and some of the
hospital operations were eventually transferred to the completed floors
● BPI: demanded payment of the entire loan, and filed a petition for extrajudicial foreclosure
● SMMCI: filed a Petition for Corporate Rehabilitiation w/ the RTC w/ prayer for issuance of
Stay Order
○ SMMCI foresaw the impossibility of meeting its obligation to BPI, its sole creditor
due to problems with contractor, increasing cost, non-operational building, among
others
○ However, since SMMCI was neither operational nor earning revenues, it could only
pay interest on the BPI Family loan, using St. Michael Hospital’s income, over a two-
year period. (so income from St. Michael’s Hospital was used to pay SMMCI loan)
○ Their situation become more difficult since the bank called the entire loan obligation
consisting of the principal, interest, charges
● In SMMCI’s proposed Rehabilitation Plan, they ask BPI Family:
○ To defer foreclosing on mortgage
○ To agree to a moratorium (suspension) of at least 2 years during which, SMMCI
through St. Michael’s Hospital or its successor, will retire all other obligations
○ SMMCI can then start servicing its loan obligation to BPI under a mutually acceptable
restructuring agreement
 ○ SMMCI intends to conclude pending negotiations for investments offered by a group
of medical doctors whose capital infusion shall be used (a) to complete the finishing
requirements for the 3rd and 5th floors of the new building; (b) to renovate the old 5-
storey building where St. Michael Hospital operates; and (c) to pay, in whole or in
part, the bank loan with the view of finally integrating St. Michael Hospital with
SMMCI.
● RTC: Found the Rehabilitation Petition to be sufficient in form and substance
○ Issued stay order and referred the matter to Dr. Halum (court appointed Rehabilitation
Receiver)
● RECEIVER’S REPORT
○ Dr. Halum gave credence to the feasibility study conducted by Mrs. Nenita
Alibangbang, a CPA and Dean of the College of Accountancy at the UPH-Dalta
■ She was was commissioned in 2008 to do a study on the viability of the
project
○ Dr. Alibangbang found that the plan was feasible since St. Michael Hospital, whose
operations SMMCI will eventually absorb, registered outstanding revenue
performance for the last 7 years
■ Ave. growth: 42.21% annually
○ Dr. Halum opines that SMMCI may be rehabiltated BUT it will take more than what it
had initially proposed for it to be successful since SMMCI has outstanding obligations
not just with BPI, but it also has accounts payable to suppliers and informal lenders
● Dr. Halum’s recommendations:
○ The 2-yr moratorium period to pay the bank is not enough
■ Court shall consider extending it to a total of 5 yrs
○ The bank and the creditors should restructure the loans
■ Stretch and term of loan and give flexible rates
○ Obligations to other creditors such as the suppliers and lenders can be serviced at
once.
■ These can be settled in the next three years since St Michael’s Hospital’s
financial performance is good
■ These account can be paid proportionately provided that SMMCI is allowed to
re-structure these accounts for a longer and more convenient payment terms
○ SMMCI should be allowed to spend for the improvement of the building but not
necessarily continue with the planned 11-storey building.
■ It should make do with what it has, but it should be allowed to spend a part of
the hospital revenues to improve its facilities
● The 5th floor should be completed to provide for an ICU
● An elevator should be added for convenient access
■ these improvements should be programmed for the next two to three years
since due to budget constraints, to do them all at once is impossible.
○ SMMCI should provide for details on its statements regarding the prospective
investors.
 ■ This fresh capital should be used to partly pay the bank, and partly to improve
the hospital
● RTC: approved the Rehabilitation Plan with the modifications recommended by the
Rehabilitation Receiver (as stated above, Dr. Halum’s Recommendations)
○ Justifications for approval:
■ (1) the Rehabilitation Plan is endorsed by the Rehabilitation Receiver subject
to certain recommendations;
■ (2) the plan ensures preservation of assets and orderly payment of debts;
■ (3) the plan provides for recovery rates on operating mode as opposed to
liquidation values;
■ (4) it contains details for a business plan which will restore profitability and
solvency of petitioner;
■ (5) the projected cash flow can support the continuous operation of the debtor
as a going concern;
■ (6) the plan did not ask for a waiver of the principal;
■ (7) the plan preserves the security of the secured creditor;
■ (8) the plan has provisions to ensure that future income will inure to the
benefit of the creditors; and
■ (9) the rehabilitation of the debtor benefits its employees, creditors,
stockholders and, in a large sense, the general public as it will generate
employment and is a potential source of revenue for the government
● BPI: appealed to CA
○ the approval of the Plan violated its rights as an unpaid creditor/mortgagee and that
the same was submitted without prior consultation with creditors
● CA: affirmed RTC’s confirmation
○ (a) the rehabilitation of SMMCI is feasible considering the outstanding revenue
performance of St. Michael Hospital, which it shall absorb, showing its gross profit
exceeding its operating expenses and the large probability of increased profitability
due to the favorable economic conditions of the locality;
○ (b) the approval of the Plan did not amount to an impairment of contract since there
was no directive for the release of the mortgaged properties to which BPI Family is
entitled to as a secured creditor but only a suspension of the provisions of the loan
agreements;
○ (c) it is not mandatory for the validity of the Rehabilitation Plan that the
Rehabilitation Receiver should consult with the creditors; and
○ (d) the approval of the Rehabilitation Plan was not made arbitrarily since it was done
only after a review of the pleadings filed and the report submitted by the
Rehabilitation Receiver, and its approval was anchored on valid considerations

ISSUE: w/n CA correctly affirmed SMMCI’s Rehabilitation Plan as approved by the RTC.

HELD: NO.
(1) SMMCI was not yet operating by the time their Petition for Rehabilitation was filed, thus, there
was nothing to “restore” or “rehabilitate”.
● Restoration is the central idea behind the remedy of corporate rehabilitation. It is to bring
back, or put back into a former or original state
● Corporate rehabilitation contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful operation
and solvency, the purpose being to enable the company to gain a new lease on life and allow
its creditors to be paid their claims out of its earnings
● under FRIA
○ (gg) Rehabilitation shall refer to the restoration of the debtor to a condition of
successful operation and solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if
it is immediately liquidated
● In other words, rehabilitation assumes that the corporation has been operational but for some
reasons like economic crisis or mismanagement had become distressed or insolvent
○ that it is generally unable to pay its debts as they fall due in the ordinary course of
business or has liability that are greater than its assets.
■ Thus, the basic issues in rehabilitation proceedings concern the viability and
desirability of continuing the business operations of the distressed corporation,
all with a view of effectively restoring it to a state of solvency or to its former
healthy financial condition through the adoption of a rehabilitation plan.
● In this case, it cannot be said that SMMCI, had been in a position of successful operation and
solvency at the time the Rehabilitation Petition was filed
○ SMMCI did commence business through the preparatory act of opening a credit line
w/ BPI family but as admitted by SMMCI, it has not formally operator nor earned any
income since its incorporation
■ Thus, there exists no viable business concern to be restored.
● Corporate rehabilitation is improper

(2) St. Michael’s Hospital is separate entity from SMMCI, thus, SMMCI cannot submit the former’s
financial documents as its own to support its petition for Rehabilitation.
● SMMCI could not have even complied with the form and substance of a proper rehabilitation
petition, and submit its accompanying documents, among others, the required financial
statements of a going concern.
● The Rules on Procedure of Corporate Rehabilitation requires that an Audited financial
statement and Interim Financial Statments be submitted (Sec 2)
○ In this case, What SMMCI did is to submit St. Michael Hospital’s financial
documents which was improper because it is a separete and distinct entity from
SMMCI
■ Although St. Michael is profitable, they are not the petitioner nor a co-
petitioning debtor. It is SMMCI who is the sole petitioning debtor
 ● Claim for absorption were made but no proof was shown that a merger has been agreed upon
or even commenced
○ Thus, St. Michael’s financial performance cannot be used as basis to determine the
feasibility of SMMCI’s rehabilitation.
○ SMMCI’s rehabilitation must be based on its own financial history.
● Even though Sps. Rodil effectively owned and exercised control over SMMCI and St.
Michael’s Hospital, such fact does not, by itself, warrant their singular treatment
○ To do so would confuse the object of the proceedings which is to determine w/n
petitioning corporation, and not any other party may be rehabilitated
■ Thus, the petition should not have been given due course, nor should a Stay
Order should have been issued

(3) SMMCI’s Rehabilitation Plan failed to include (a) Material Financial Commitment to support the
rehabilitation and (b) Liquidation Analysis as required under Sec 18, Rule 3 of the Rules
● A liquidation analysis is a setting out for each creditor that the present value of payments it
would receive under the plan is more than that which it would receive if the assets of the
debtor were sold by a liquidator within a six-month period from the estimated date of filing of
the petition
● Lack of Material Financial Commitment
○ This becomes significant in gauging the determination, earnestness and good faith of
the petitioning corporation in financing the proposed rehabilitation plan
○ This may include the ff
■ Voluntary undertakings of stockholders or would-be investors
■ Their willingness and ability to contribute funds or property to guarantee the
continued successful operation of the debtor corporation during the
rehabilitation period
○ In this case, aside from an alleged merger with St. Michael Hospital, the only
proposed source of revenue suggested by the Plan is the capital coming from potential
investors, but in fact, the negotiations are merely pending
■ Being speculative, it cannot be considered as a material financial commitment
plan
■ Dr. Halum even pointed out such ambiguity since he recommended that
SMMCI provide details regarding prospective investors for such fresh capital
can be used to pay its obligations and hospital improvements (see Dr. Halum’s
Reccomendations)
○ Also, the fact the St. Michael’s previously shouldered SMMCI payment of the loan,
this is not enough assurance that the arrangement would prospectively apply incase
the rehabilitation is granted
● Lack of Liquidation Analysis
○ Nine months prior to the filing of the Petition for Rehabiliation, the loan w/ BPI had
already amounted to almost P52M plus interest and late payment charge
 ○ SMMCI did not submit its own financial statement, thus, the Court has not way of
knowing if it has assets that can be liquidated
■ In effect, the Court cannot ascertain if the creditors can recover by way of the
present value of payments projected in the plan, more if the debtor continues
as a going concern than if it is immediately liquidated, a crucial factor in a
corporate rehabilitation case.
○ As stated, the financial records of St. Michael’s, being a separate entity, whose merger
is a mere probability, cannot be used as a substitute to fulfill the requirement. The
Court needs SMMCI’s financial statements, since it is the only debtor to be
rehabilitated or liquidated
■ The records of St. Michael’s show that it has enough to meet its own
obligations, and not of SMMCI’s
● Effect of Non-Compliance
○ The approval of the Plan was unsubstantiated and thus, CA was wrong to decree its
rehabilitation
○ RTC’s considerations/justifications in approving the plan were also without basis
○ the remedy of rehabilitation should be denied to corporations that do not qualify under
the Rules.
■ It should not be allowed to corporations whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered obvious
by: (a) the absence of a sound and workable business plan; (b) baseless and
unexplained assumptions, targets, and goals; and (c) speculative capital
infusion or complete lack thereof for the execution of the business plan.

(4) The Court recognizes the financial predicaments of corporations, however, it must only limit the
remedy of rehabilitation in meritorious cases
● the purpose of rehabilitation proceedings is not only to enable the company to gain a new
lease on life but also to allow creditors to be paid their claims from its earnings, when so
rehabilitated.
○ the remedy must be accorded only after a judicious regard of all stakeholders’
interests; it is not a one-sided tool that may be graciously invoked to escape every
position of distress.
● In this case, not only has the petitioning debtor failed to show that it has formally began its
operations which would warrant restoration, but also it has failed to show compliance with
the key requirements under the Rules, the purpose of which are vital in determining the
propriety of rehabilitation.
o Therefore, SC rules in favor of BPI, dismiss the Rehab Plan
4. Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc.

Doctrine: Rule 43 of the Rules of Court prescribes the procedure to assail the final orders and decisions
in corporate rehabilitation cases filed under the Interim Rules of Procedure on Corporate
Rehabilitation

FACTS:

Viva Shipping Lines filed a Petition for Corporate Rehabilitation before the RTC Lucena City- initially denied
the Petition for failure to comply with the requirements in Rule 4, Sections 2 and 3 of the Interim Rules of
Procedure on Corporate Rehabilitation. Thereafter Viva filed an Amended Petition- claimed to own and
operate 19 maritime vessels5 and Ocean Palace Mall, a shopping mall in downtown Lucena City. Viva
Shipping Lines also declared its total properties' assessed value at about P45,172,790.00. However, these
allegations were contrary to the attached documents in the Amended Petition.

The Property Inventory List, showed that Viva Shipping Lines owned only two (2) maritime vessels: M/V
Viva Penafrancia V and M/V Marian Queen. The list also stated that the fair market value of all of Viva
Shipping Lines' assets amounted to P447,860,000.00, P400 million more than what was alleged in its
Amended Petition. Some of the properties listed in the Property Inventory List were already marked as
"encumbered" by its creditors; hence, only PI47,630,000.00 of real property and its vessels were marked as
"free assets.

According to Viva Shipping Lines, the devaluation of the Philippine peso, increased competition, and
mismanagement of its businesses made it difficult to pay its debts as they became due. In its Company
Rehabilitation Plan, Viva Shipping Lines enumerated possible sources of funding such as the sale of old
vessels and commercial lots of its sister company, Sto. Domingo Shipping Lines. It also proposed the
conversion of the Ocean Palace Mall into a hotel, the acquisition of two (2) new vessels for shipping op-
erations, and the "re-operation"16 of an oil mill in Buenavista, Quezon.

Viva Shipping Lines nominated two individuals to be appointed as rehabilitation receiver: Armando F.
Ragudo, a businessman from Tayabas, Quezon, and Atty. Calixto Ferdinand B. Dauz III, a lawyer from
Lucena City. A day after filing the Amended Petition, Viva Shipping Lines submitted the name of a third
nominee, Former Judge Jose F. Mendoza (Judge Mendoza).

RTC- found the petition to be "sufficient in form and substance," and issued a stay order, before the initial
hearing Keppel Phil and Metrobank, during- Pilipinas Shell opposed and Cueto- former employee filed money
claims
- the RTC was notified on the pending claims of other former employees filed in the NLRC
- RTC lifted the stay order and dismissed Viva Shipping Lines' Amended Petition for failure to show the
company's viability and the feasibility of rehabilitation. The Regional Trial Court summarized Viva
Shipping Lines' creditors and debts
- Viva filed a Petition for Review under Rule 43 of the ROC before the CA
- CA dismissed the petition for failure to comply with the procedural requirements under 43- due to the
failure of Viva Shipping Lines to implead its creditors as respondents, "there are no respondents who
may be required to file a comment on the petition, pursuant to Section 8 of Rule 43,
 - Viva’s argument: its procedural misstep was cured when it served copies of the Petition on the Re-gional
Trial Court and on its former employees.

ISSUE:
(1) First, whether the Court of Appeals erred in dismissing petitioner Viva Shipping Lines' Petition
for Review on procedural grounds
(2) whether petitioner was denied substantial justice when the Court of Appeals did not give due
course to its petition

HELD:

1. Corporate rehabilitation is a remedy for corporations, partnerships, and associations "who [foresee] the
impossibility of meeting [their] debts when they respectively fall due."94 A corporation under rehabilita-tion
continues with its corporate life and activities to achieve solvency,95 or a position where the corpora-tion is
able to pay its obligations as they fall due in the ordinary course of business. Solvency is a state where the
businesses' liabilities are less than its assets. In 2000, the jurisdiction of the Securities and Ex-change
Commission over thesis cases was transferred to the Regional Trial Court,113 by operation of Sec-tion 5.2 of
the Securities Regulation Code. In the same year, this court approved the Interim Rules of Pro-cedure on
Corporate Rehabilitation. The Interim Rules of Procedure on Corporate Rehabilitation provides a summary
and non-adversarial proceeding to expedite the resolution of cases for the benefit of the corpo-ration in need of
rehabilitation, its creditors, and the public in general. Currently, the prevailing law and procedure for corporate
rehabilitation is the Financial Rehabilitation and Insolvency Act of 2010 (FRIA). 116 FRIA provides
procedures for the different types of rehabilitation and liquidation proceedings. The Financial Rehabilitation
Rules of Procedure was issued by this court on August 27, 2013.117

However, since the Regional Trial Court acted on petitioner's Amended Petition before FRIA was enacted,
Presidential Decree No. 902-A and the Interim Rules of Procedure on Corporate Rehabilitation were ap-plied
to this case.

2. Petitioner did not comply with some of these requirements. First, it did not implead its creditors as re-
spondents. Instead, petitioner only impleaded the Presiding Judge of the Regional Trial Court, contrary to
Section 6(a) of Rule 43. Second, it did not serve a copy of the Petition on some of its creditors, specifical-ly,
its former employees. Finally, it did not serve a copy of the Petition on the Regional Trial Court. Peti-tioner
justified its failure to furnish its former employees with copies of the Petition by stating that the former
employees were late in filing their opposition before the trial court.126 It also stated that its failure to furnish
the Regional Trial Court with a copy of the Petition was unintentional. The Court of Appeals correctly
dismissed petitioner's Rule 43 Petition as a consequence of non-compliance with procedural rules. Rule 43,
Section 7 of the Rules of Court states:

Sec. 7. Effect of failure to comply with requirements. - The failure of the petitioner to comply with any of the
foregoing requirements regarding the payment of the docket and other lawful fees, the deposit of costs, proof
of service of the petition, and the contents of and the documents which should accompany the petition shall be
sufficient ground for the dismissal thereof.

A corporate rehabilitation case cannot be decided without the creditors' participation. The court's role
is to balance the interests of the corporation, the creditors, and the general public. Impleading
creditors as re-spondents on appeal will give them the opportunity to present their legal arguments
before the appellate court. The courts will not be able to balance these interests if the creditors are
not parties to a case. Ruling on petitioner's appeal in the absence of its creditors will not result in
judgment that is effective, complete, and equitable.

As pointed out by respondents, petitioner's rehabilitation plan is almost impossible to implement. Even an
ordinary individual with no business acumen can discern the groundlessness of petitioner's rehabilitation plan.
Petitioner should have presented a more realistic and practicable rehabilitation plan within the time periods
allotted after initiatory hearing, or otherwise, should have opted for liquidation.

* Professor Stephanie V. Gomez of the University of the Philippines College of Law suggests specific
characteristics of an economically feasible rehabilitation plan:

a The debtor has assets that can generate more cash if used in its daily operations than if sold. b

c Liquidity issues can be addressed by a practicable business plan that will generate enough cash to
sustain daily operations.

e The debtor has a definite source of financing for the proper and full implementation of a Rehabili-
tation Plan that is anchored on realistic assumptions and goals.147 (Emhasis supplied)

These requirements put emphasis on liquidity: the cash flow that the distressed corporation will obtain from
rehabilitating its assets and operations. A corporation's assets may be more than its current liabilities, but some
assets may be in the form of land or capital equipment, such as machinery or vessels. Rehabili-tation sees to it
that these assets generate more value if used efficiently rather than if liquidated.

On the other hand, this court enumerated the characteristics of a rehabilitation plan that is infeasible:

(a) the absence of a sound and workable business plan;

(b) baseless and unexplained assumptions, targets and goals;

(c) speculative capital infusion or complete lack thereof for the execution of the business plan;

(d) cash flow cannot sustain daily operations; and

(e) negative net worth and the assets are near full depreciation or fully depreciated.

In addition to the tests of economic feasibility, Professor Stephanie V. Gomez also suggests that the Fi-nancial
and Rehabilitation and Insolvency Act of 2010 emphasizes on rehabilitation that provides for bet-ter present
value recovery for its creditors. Ruling: Petition denied- CA affirmed
5. Lingkod Manggagawa sa Rubberworld v. Rubberworld (Phils.) Inc.
G.R. No. 153882, January 29, 2007
Garcia, J.

DOCTRINE:

Upon the creation of a management committee or the appointment of a rehabilitation receiver, all
claims for actions shall be suspended accordingly. No exception in favor of labor claims is
mentioned in the law. Since the law makes no distinction or exemptions, neither should this Court.
Ubi lex non distinguit nec nos distinguere debemos. Allowing labor cases to proceed clearly defeats
the purpose of the automatic stay and severely encumbers the management committee's time and
resources. The said committee would need to defend against these suits, to the detriment of its
primary and urgent duty to work towards rehabilitating the corporation and making it viable again.
To rule otherwise would open the floodgates to other similarly situated claimants and forestall if not
defeat the rescue efforts. Besides, even if the NLRC awards the claims of private respondents, its
ruling could not be enforced as long as the petitioner is under the management committee.

FACTS:

Rubberworld filed with the DOLE a Notice of Temporary Partial Shutdown due to severe financial
crisis, therein announcing the formal actual company shutdown. A copy of said notice was served on
the recognized labor union of Rubberworld, the Bisig Pagkakaisa-NAFLU, the union with which the
corporation had a collective bargaining agreement.

Bisig Pagkakaisa-NAFLU staged a strike. It set up a picket line in front of the premises of
Rubberworld and even welded its gate. As a result, Rubberworld's premises closed prematurely even
before the date set for the start of its temporary partial shutdown.

Petitioner union, the Lingkod Manggagawa Sa Rubberworld, Adidas-Anglo, represented by its

President, Sonia Esperanza, filed a complaint against Rubberworld and its Vice Chairperson, Mr.
Antonio Yang, for unfair labor practice, illegal shutdown, and non-payment of salaries and
separation pay. In its complaint, petitioner union alleged that it had filed a petition for certification
election during the freedom period, which petition was granted by the DOLE Regional Director. In
the same complaint, petitioner union claimed that the strike staged by Bisig Pagkakaisa-NAFLU was
company-instigated/supported. The said complaint was referred to Labor Arbiter Ernesto Dinopol for
appropriate action.

While the aforementioned complaint was pending with Labor Arbiter Dinopol, Rubberworld filed
with the SEC a Petition for Declaration of a State of Suspension of Payments with Proposed
Rehabilitation Plan. The petition was granted by the SEC in its Order .
Notwithstanding the SEC's aforementioned suspension order and despite Rubberworld's submission
on January 10, 1995 of a Motion to Suspend Proceedings, Labor Arbiter Dinopol went ahead with
the ULP case and rendered his decision thereon.

Rubberworld went on appeal to the NLRC, posting therefor a temporary appeal bond in the amount
of P500,000.00 as tentatively fixed by the Labor Arbiter. Meanwhile, Ricardo Atienza of the NLRCs
Research and Information Unit submitted his report on the computation of the monetary awards, as
ordered by the Labor Arbiter. He came out with the total amount of P27,506,255.70. Despite
Rubberworlds vigorous opposition, the First Division of the NLRC, in its Order, required the
corporation to post an appeal bond in an amount equivalent to Mr. Atienzas computation, with a
warning that failure to do so shall result in the dismissal of its appeal for non-perfection.

Its motion for reconsideration of the same Order having been denied by the NLRC in its Resolution,
Rubberworld directly went to this Court on a Petition for Certiorari, interposing the sole issue of
whether or not the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction in requiring the corporation to post the upgraded appeal
bond of P27,506,255.70 based on the computation of Mr. Atienza.

Meanwhile, on account of Rubberworlds failure to upgrade or complete its appeal bond as indicated
in the NLRC’s Order, the Commission, in a decision, did dismiss Rubberworlds appeal. Owing to
this development, Rubberworld filed with the Court a Supplemental Petition for Certiorari, therein
incorporating its challenge to the said dismissal order of the NLRC, contending that the labor tribunal
acted without or in excess of jurisdiction.

The SEC issued an Order declaring Rubberworld as dissolved and lifting its earlier suspension order.

A writ of execution was issued by the NLRC in favor of the petitioner union with a copy thereof
served on the respondent corporation. Faced with this dilemma, Rubberworld filed with the Court an
Urgent Omnibus Motion to declare null and void the execution/garnishment made pursuant to the
same writ. The motion, however, was denied by the Court in its Resolution.

Rubberworld filed with the Court a Motion to Admit its Amended Petition for Certiorari and its
Supplement, alleging therein that pursuant to the SEC Order, supra, the proceedings before the Labor
Arbiter should have been suspended. Hence, since the Labor Arbiter disregarded the SECs
suspension order, the subsequent proceedings before it were null and void.

Consistent with its ruling in St. Martin Funeral Homes v. NLRC, the Court, in its Resolution of
February 29, 1999, referred Rubberworlds amended petition for certiorari and its supplement to the
CA for appropriate action, whereat it was docketed as CA- G.R. SP No. 53356.

For its part, the CA, in its Resolution, over the vehement opposition of the petitioner union, resolved
to admit Rubberworlds aforementioned amended petition and the supplement thereto in the interest
of justice.

Eventually, in the herein assailed Decision, the CA granted Rubberworlds petition in CAG.R. SP.
No. 53356 on the finding that the Labor Arbiter had indeed committed grave abuse of discretion
when it proceeded with the ULP case despite the SECs suspension order of December 28, 1994, and
accordingly declared the proceedings before it, including the subsequent orders by the NLRC
dismissing Rubberworlds appeal and the writ of execution, null and void.

With their motion for reconsideration having been denied in the CA in its Resolution are now with
the Court via the instant recourse.

ISSUE
1. Whether the CA had committed grave abuse of discretion amounting to lack of jurisdiction or an
excess in the exercise thereof when it gave due course to the petition filed by Rubberworld (Phils.),
Inc. and annulled and set aside the decisions rendered by the labor arbiter a quo and the NLRC, when
the said decisions had become final and executory warranting the outright dismissal of the aforesaid
petition

HELD:

While posting an appeal bond is indeed a requirement for the perfection of an appeal from the
decision of the Labor Arbiter to the NLRC, Rubberworlds failure to upgrade its appeal bond cannot
bar, in this particular instance, the review by the CA of the lower court proceedings.

Given the factual milieu obtaining in this case, it cannot be said that the decision of the Labor
Arbiter, or the decision/dismissal order and writ of execution issued by the NLRC, could ever attain
final and executory status. The Labor Arbiter completely disregarded and violated Section 6(c) of
Presidential Decree 902-A, as amended, which categorically mandates the suspension of all actions
for claims against a corporation placed under a management committee by the SEC. Thus, the
proceedings before the Labor Arbiter and the order and writ subsequently issued by the NLRC are all
null and void for having been undertaken or issued in violation of the SEC suspension Order dated
December 28, 1994. As such, the Labor Arbiter’s decision, including the dismissal by the NLRC of
Rubberworld’s appeal, could not have achieved a final and executory status.

Acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the
law itself authorizes their validity. The Labor Arbiter's decision in this case is void ab initio, and
therefore, non-existent. A void judgment is in effect no judgment at all. No rights are divested by it
nor obtained from it. Being worthless in itself, all proceedings upon which the judgment is founded
are equally worthless. It neither binds nor bars anyone. All acts performed under it and all claims
flowing out of it are void. In other words, a void judgment is regarded as a nullity, and the situation
is the same as it would be if there were no judgment. It accordingly leaves the party-litigants in the
same position they were in before the trial.
In fact, it is immaterial whether an appeal from the Labor Arbiter's decision was perfected or not,
since a judgment void ab initio is non-existent and cannot acquire finality. The judgment is
vulnerable to attack even when no appeal has been taken. Hence, such judgment does not become
final in the sense of depriving a party of his right to question its validity. Hence, no grave abuse of
discretion attended the CA's taking cognizance of the petition in CA-G.R. SP No. 53356.

Besides, the Labor Arbiter, by simultaneously ruling in his decision of August 16, 1995 on both the
merits of the ULP case and the motion of Rubberworld to suspend the proceedings thereon,
effectively required the respondent corporation to post a surety bond before the same respondent
could have questioned the arbiters action in not suspending the proceedings before him.

A bond is only mandatory from an appeal of the decision itself on the merits of the laborers' money
claims to ensure payment thereof. Had the Labor Arbiter taken heed of Rubberworld’s motion to
suspend proceedings when that motion was filed, and ruled upon it separately, no bond would have
been required for a review of his resolution thereon. As it were, the Labor Arbiter chose to continue
to decide the main case, then to incorporate in his decision the denial of Rubberworlds motion to
suspend proceedings, thereby effectively requiring a bond on a question which would not have
ordinarily required one.

ISSUE
2. Whether the CA had committed grave abuse of discretion and reversible error when it applied
Section 5(d) and Section 6 (c) of P.D. No. 902-A, as amended, to the case at bar;

HELD:

We shall now address the more substantial issue in this case, namely, the applicability of the
provisions of Section 5 (d) and Section 6 (c) of P.D. No. 902-A, as amended, reorganizing the SEC,
vesting it with additional powers and placing it under the Office of the President, which respectively
read:

Section 5. In addition to the regulatory adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:

xxx xxx xxx

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of

payments in cases where the corporation, partnership or association possesses sufficient property to
cover all its debts but foresees the impossibility of meeting them when they respectively fall due or
in cases where the corporation, partnership or association has no sufficient assets to cover its
liabilities, but is under the management of a rehabilitation receiver or management committee created
pursuant to this Decree.

Section 6. In order to effectively exercise such jurisdiction, the Commission shall possess the
following powers:

xxx xxx xxx

c) To appoint one or more receivers of the property, real or personal, which is the subject of the
action pending before the Commission in accordance with the pertinent provisions of the Rules of
Court in such other cases whenever necessary in order to preserve the rights of the parties-litigants
and/or protect the interest of the investing public and creditors: x x x Provided, finally, That upon
appointment of a management committee, the rehabilitation receiver, board or body, pursuant to this
Decree, all actions for claims against corporations, partnerships, or associations under management
or receivership pending before any court, tribunal, board or body shall be suspended accordingly.
[Emphasis supplied]

As correctly ruled by the CA, the issue of applicability in labor cases of the aforequoted provisions of
PD 902-A, as amended, had already been resolved by this Court in its earlier decisions in
Rubberworld (Phils.), Inc., or Julie Yap Ong v. NLRC, Marilyn F. Arellano, et. al. and Rubberworld
(Phils.), Inc. and Julie Y. Ong v. NLRC, Aquino, Magsalin, et. al, supra.

In the first Rubberworld case, the Court upheld the applicability of PD 902-A to labor cases pursuant
to Section 5(d) and Section 6(c) thereof, with the following pronouncements:

It is plain from the foregoing provisions of the law that upon the appointment [by the SEC] of a
management committee or a rehabilitation receiver, all actions for claims against the corporation
pending before any court, tribunal or board shall ipso jure be suspended. The justification for the
automatic stay of all pending actions for claims is to enable the management committee or the
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the rescue of the debtor company. To allow such
other actions to continue would only add to the burden of the management committee or
rehabilitation receiver, whose time, effort and resources would be wasted in defending claims against
the corporation instead of being directed toward its restructuring and rehabilitation.

xxx xxx xxx

x x x The law is clear: upon the creation of a management committee or the appointment of a
rehabilitation receiver, all claims for actions shall be suspended accordingly. No exception in favor
of labor claims is mentioned in the law. Since the law makes no distinction or exemptions, neither
should this Court. Ubi lex non distinguit nec nos distinguere debemos. Allowing labor cases to
proceed clearly defeats the purpose of the automatic stay and severely encumbers the management
committee's time and resources. The said committee would need to defend against these suits, to the
detriment of its primary and urgent duty to work towards rehabilitating the corporation and making it
viable again. To rule otherwise would open the floodgates to other similarly situated claimants and
forestall if not defeat the rescue efforts. Besides, even if the NLRC awards the claims of private
respondents, its ruling could not be enforced as long as the petitioner is under the management
committee.

In Chua v. National Labor Relations Commission, we ruled that labor claims cannot proceed
independently of a bankruptcy liquidation proceeding, since these claims would spawn needless
controversy, delays, and confusion. With more reason, allowing labor claims to continue in spite of a
SEC suspension order in a rehabilitation case would merely lead to such results.

xxx xxx xxx

Article 217 of the Labor Code should be construed not in isolation but in harmony with PD 902-A,
according to the basic rule in statutory construction that implied repeals are not favored. Indeed, it is
axiomatic that each and every statute must be construed in a way that would avoid conflict with
existing laws. True, the NLRC has the power to hear and decide labor disputes, but such authority is
deemed suspended when PD 902-A is put into effect by the Securities and Exchange Commission.

The second Rubberworld case reiterates the above pronouncements of the Court:

Presidential Decree No. 902-A is clear that all actions for claims against corporations, partnerships or
associations under management or receivership pending before any court, tribunal, board or body
shall be suspended accordingly. The law did not make any exception in favor of labor claims.

xxx xxx xxx

Thus, when NLRC proceeded to decide the case despite the SEC suspension order, the NLRC acted
without or in excess of its jurisdiction to hear and decide cases. As a consequence, any resolution,
decision or order that it rendered or issued without jurisdiction is a nullity. [Emphasis supplied]

ISSUE
#3:Whether the CA had committed reversible error when it adopted and applied the rulings in the
cases of Rubberworld (Phils.), Inc., or Julie Yap Ong v. NLRC, Marilyn F. Arellano, et. al. and
Rubberworld (Phils.), Inc. and Julie Y. Ong v. NLRC, Aquino Magsalin, et. al. to the case at bar.

HELD:

It is incontrovertible that the denial of Rubberworlds motion to suspend proceedings in the principal
case was incorporated in the decision of the Labor Arbiter. Obviously, then, the Labor Arbiters
decision of August 16, 1995 was rendered at a time when Lingkods complaint against Rubberworld
in NLRC-NCR-Case No. 00-09-06637-94 ought to have been suspended.

In short, at the time the SEC issued its suspension Order of December 28, 1994, the proceedings
before the Labor Arbiter were still very much pending. As such, no final and executory decision
could have validly emanated therefrom. Like the CA, we do not see any reason why the doctrine of
stare decisis will not apply to this case.

For being well-grounded in fact and law, the assailed CA decision and resolution in CA-G.R. SP No.
53356 cannot be said to have been tainted with grave abuse of discretion or issued in excess or want
of jurisdiction. We find no reason to overturn such rulings.

6. JUANITO A. GARCIA and ALBERTO J. DUMAGO vs. PHILIPPINE

AIRLINES, INC. G.R. No. 164856, August 29, 2007, 576 SCRA 479;

DOCTRINE
The actions that are suspended cover all claims against the corporation whether for damages
founded on a breach of contract of carriage, labor cases, collection suits or any other claims of a
pecuniary nature. No exception in favor of labor claims is mentioned in the law.

FACTS
Petitioners Alberto J. Dumago and Juanito A. Garcia were employed by respondent
Philippine Airlines, Inc. (PAL) as Aircraft Furnishers Master "C" and Aircraft Inspector,
respectively. They were assigned in the PAL Technical Center.
After PAL Security and NBI Narcotics Operative raided the Toolroom Section of the PAL
Technical Center, shabu paraphernalia was discovered inside the locker of Ronaldo Broas. Ronaldo
and petitioners, together with four others, near the said section was brought to NBI for investigation.
Petitioners were suspended from work for allegedly being caught in the act of sniffing shabu
inside the toolroom, to which petitioners vehemently denied.
Petitioners were dismissed for violation of Chapter II, Section 6, Article 46 (Violation of
Law/Government Regulations) and Chapter II, Section 6, Article 48 (Prohibited Drugs) of the PAL
Code of Discipline. Both simultaneously filed a case for illegal dismissal and damages.
In the meantime, the Securities and Exchange Commission (SEC) placed PAL under an Interim
Rehabilitation Receiver due to severe financial losses.
Thereafter, Labor Arbiter found PAL guilty of illegal suspension and illegal dismissal and
ordered them to reinstate complainants to their former position.
Meanwhile, the SEC replaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation
Receiver.
Labor Arbiter issued a Writ of Execution to cause the reinstatement of complainants, and to
cause the collection of backwages.
PAL appealed on the grounds that: (1) by declaring the writ of execution and the notice of
garnishment valid, the NLRC gave petitioners undue advantage and preference over PAL's other
creditors and hampered the task of the Permanent Rehabilitation Receiver; and (2) there was no
longer any legal or factual basis to reinstate petitioners as a result of the reversal by the NLRC of the
Labor Arbiter's decision.

ISSUE:
In the light of new developments concerning PAL's rehabilitation, are petitioners entitled to
execution of the Labor Arbiter's order of reinstatement even if PAL is under receivership?

HELD.
NO.
We note that during the pendency of this case, PAL was placed by the SEC first, under an
Interim Rehabilitation Receiver and finally, under a Permanent Rehabilitation Receiver. The
pertinent law on this matter, Section 5 (d) of Presidential Decree (P.D.) No. 902-A, as amended,
provides that:
SECTION 5. In addition to the regulatory and adjudicative functions of the Securities
and Exchange Commission over corporations, partnerships and other forms of associations registered
with it as expressly granted under existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving:
xxx xxx xxx
d) Petitions of corporations, partnerships or associations to be declared in the state of
suspension of payments in cases where the corporation, partnership or association possesses property
to cover all of its debts but foresees the impossibility of meeting them when they respectively fall
due or in cases where the corporation, partnership or association has no sufficient assets to cover its
liabilities, but is under the [management of a rehabilitation receiver or] Management Committee
created pursuant to this Decree.

The same P.D., in Section 6 (c) provides that:

SECTION 6. In order to effectively exercise such jurisdiction, the Commission shall
possess the following powers:
xxx xxx xxx
c) To appoint one or more receivers of the property, real or personal, which is the
subject of the action pending before the Commission in accordance with the pertinent provisions of
the Rules of Court in such other cases whenever necessary in order to preserve the rights of the
parties-litigants and/or protect the interest of the investing public and creditors: . . . Provided, finally,
That upon appointment of a management committee, rehabilitation receiver, board or body, pursuant
to this Decree, all actions for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or body shall be suspended
accordingly.
xxx xxx xxx
Worth stressing, upon appointment by the SEC of a rehabilitation receiver, all actions for
claims against the corporation pending before any court, tribunal or board shall ipso jure be
suspended. The purpose of the automatic stay of all pending actions for claims is to enable the
rehabilitation receiver to effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the rescue of the corporation.
More importantly, the suspension of all actions for claims against the corporation embraces all
phases of the suit, be it before the trial court or any tribunal or before this Court. No other action may
be taken, including the rendition of judgment during the state of suspension. It must be stressed that
what are automatically stayed or suspended are the proceedings of a suit and not just the payment of
claims during the execution stage after the case had become final and executory.
Furthermore, the actions that are suspended cover all claims against the corporation whether
for damages founded on a breach of contract of carriage, labor cases, collection suits or any other
claims of a pecuniary nature. No exception in favor of labor claims is mentioned in the law.
This Court's adherence to the above-stated rule has been resolute and steadfast as evidenced
by its oft-repeated application in a plethora of cases involving PAL, the most recent of which is
Philippine Airlines, Inc. v. Zamora.
Since petitioners' claim against PAL is a money claim for their wages during the pendency of
PAL's appeal to the NLRC, the same should have been suspended pending the rehabilitation
proceedings. The Labor Arbiter, the NLRC, as well as the Court of Appeals should have abstained
from resolving petitioners' case for illegal dismissal and should instead have directed them to lodge
their claim before PAL's receiver.
However, to still require petitioners at this time to re-file their labor claim against PAL under
the peculiar circumstances of the case — that their dismissal was eventually held valid with only the
matter of reinstatement pending appeal being the issue — this Court deems it legally expedient to
suspend the proceedings in this case.
WHEREFORE, the instant petition is PARTIALLY GRANTED in that the instant
proceedings herein are SUSPENDED until further notice from this Court. Accordingly, respondent
Philippine Airlines, Inc. is hereby DIRECTED to quarterly update the Court as to the status of its
ongoing rehabilitation. No costs.
SO ORDERED.

7. PANLILIO v RTC

Doctrine: Stay Order under FRIA- Any criminal action against individual debtor or owner, partner, direc-tor
or officer of a debtor shall not be affected by any proceeding commenced under this Act.

FACTS:

Panlilio et al corporate officers of SIHI (Silahis International Hotel, Inc.) filed with RTC Manila
- RTC issued stay order
 - At the time of the filing of the rehabilitation order there were number of criminal charges pending against
petitions in RTC Manila- These criminal charges were initiated by respondent Social Security System
(SSS) and involved charges of violations of Section 28 (h)of Republic Act 8282, or the Social Security
Act of 1997 (SSS law), in relation to Article 315 (1) (b) of the Revised Penal Code, or Estafa.
Consequently, petitioners filed with the RTC of Manila, Branch 51, a Manifestation and Motion to
Suspend Proceedings.
- Petitioners argued that the stay order issued by Branch 24 should also apply to the criminal charges
pending in Branch 51. Petitioners, thus, prayed that Branch 51 suspend its proceedings until the peti-tion
for rehabilitation was finally resolved.- Motion was denied = The Court shares the view of the pri-vate
complainants and the SSS that the said stay order does not include the prosecution of criminal of-fenses.
Precisely, the law criminalises the non-remittance of SSS contributions by an employer to pro-tect the
employees from unscrupulous employers. Clearly, in these cases, public interest requires that the said
criminal acts be immediately investigated and prosecuted for the protection of society.
- CA dismissed petition for certiorari= The CA discussed that violation of the provisions of the SSS law
was a criminal liability and was, thus, personal to the offender

ISSUE: Does the suspension of all claims as an incident to a corporate rehabilitation also contemplate the
suspension of criminal charges filed against the corporate officers of the distressed corporation?

HELD:

A criminal action has a dual purpose, namely, the punishment of the offender and indemnity to the
offended party. The dominant and primordial objective of the criminal action is the punish-ment of
the offender. The civil action is merely incidental to and consequent to the conviction of the accused.
The reason for this is that criminal actions are primarily intended to vindicate an outrage against the
sovereignty of the state and to impose the appropriate penalty for the vindi-cation of the disturbance
to the social order caused by the offender. On the other hand, the ac-tion between the private
complainant and the accused is intended solely to indemnify the for-mer.[25]

Rosario is at fours with the case at bar. Petitioners are charged with violations of Section 28 (h) of
the SSS law, in relation to Article 315 (1) (b) of the Revised Penal Code, or Estafa. The SSS law
clearly criminalizes the non-remittance of SSS contributions by an employer to protect the em-
ployees from unscrupulous employers. Therefore, public interest requires that the said criminal acts
be immediately investigated and prosecuted for the protection of society.

The rehabilitation of SIHI and the settlement of claims against the corporation is not a legal ground
for the extinction of petitioners criminal liabilities. There is no reason why criminal pro-ceedings
should be suspended during corporate rehabilitation, more so, since the prime purpose of the
criminal action is to punish the offender in order to deter him and others from commit-ting the
same or similar offense, to isolate him from society, reform and rehabilitate him or, in general, to
maintain social order.[26] As correctly observed in Rosario,[27] it would be absurd for one who has
engaged in criminal conduct could escape punishment by the mere filing of a petition for
rehabilitation by the corporation of which he is an officer.

On a final note, this Court would like to point out that Congress has recently enacted Republic Act
No. 10142, or the Financial Rehabilitation and Insolvency Act of 2010.[30] Section 18 there-of
explicitly provides that criminal actions against the individual officer of a corporation are not subject
to the Stay or Suspension Order in rehabilitation proceedings, to wit:

The Stay or Suspension Order shall not apply: x x

xx
(g) any criminal action against individual debtor or owner, partner, director or officer of a debtor
shall not be affected by any proceeding commenced under this Act.

Withal, based on the foregoing discussion, this Court rules that there is no legal impediment for
Branch 51 to proceed with the cases filed against petitioners.

8. Sps. Sobrejuanite vs ABS Development Corporation

G.R. No. 165675, September 30, 2005
Ynares-Santiago, J

DOCTRINE:
1. The complaint filed by Sobrejuanite is a claim as defined under the Interim Rules of
Procedure on Corporate Rehabilitation and as defined under Finasia vs CA and Arranza vs
BF Homes, since it is a claim for pecuniary consideration.
2. The HLURB arbiter should have suspended the proceedings upon the approval by the SEC of
the ASB Group of Companies rehabilitation plan and the appointment of its rehabilitation
receiver. By the suspension of the proceedings, the receiver is allowed to fully devote his
time and efforts to the rehabilitation and restructuring of the distressed corporation. By
allowing the proceedings to proceed, the HLURB arbiter unwittingly gave undue preference
to Sobrejuanite over the other creditors and claimants of ASBDC, which is precisely the vice
sought to be prevented by Section 6(c) of PD 902-A.

FACTS:
● on March 7, 2001, Spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a Complaint
for rescission of contract, refund of payments and damages, against ASB Development
Corporation (ASBDC) before the HLURB.
● Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC over a
condominium unit and a parking space in the BSA Twin Tower-B Condominium located at
Bank Drive, Ortigas Center, Mandaluyong City.
○ that despite full payment and demands, ASBDC failed to deliver the property on or
before December 1999 as agreed.
 ● ASBDC: filed a MTD or suspend proceedings in view of the approval by SEC of the
rehabilitation plan of ASB Group of Companies, which includes ASBDC, and the
appointment of a rehabilitation receiver.
● HLURB: denied MTD and continued with the proceedings
● ARBITER: in favor of Spouses Sobrejuanite
○ Under the Contract to Sell, ASBDC should have delivered the property to Spouses
Sobrejuanite upon full payment of their obligation, thus, rescission was proper
● HLURB Board of Commissioners: affirm arbiter’s ruling
○ The approval of the Rehabilitation Plan and appointment of receiver did not suspend
proceedings with the HLURB
○ HLURB could properly take cognizance of the case since whatever monetary award
that may be granted by it will be ultimately filed as a claim before the rehabilitation
receiver.
○ That ASBDC failed to deliver the property to Sobrejuanite within the prescribed
period.
● Appeal to Office of the President: dismissed for lack of merit
● CA: reversed dismissal; HLURB proceedings should have been suspended
○ Sobrejuanites complaint for rescission and damages is a claim under PD No. 902-A or
the SEC Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of
Procedure on Corporate Rehabilitation, because it sought to enforce a pecuniary
demand.
■ Therefore, jurisdiction lies with the SEC and not HLURB.
○ that ASBDC was obliged to deliver the property in December 1999 but its financial
reverses warranted the extension of the period.

ISSUE:
(1) w/n the claim of the Spouses is a claim w/in contemplation of the law that will warrant
suspension of proceedings
(2) w/n the proceedings should be suspended
(3) w/n ASBDC’s obligation to deliver was extended

HELD:
(1) YES.
● Section 6(c) of PD No. 902-A (basically) empowers the SEC to appoint receivers of
properties whenever necessary to
○ All actions for claims against corporation, partnerships or associations under
management or receivership pending before any court, tribunal, board or body shall be
suspended accordingly
● Purpose for the suspension of the proceeding:
○ to prevent a creditor from obtaining an advantage or preference over another and to
protect and preserve the rights of party litigants as well as the interest of the investing
public or creditors.
 ○ to give enough breathing space for the management committee or rehabilitation
receiver to make the business viable again, without having to divert attention and
resources to litigations.
○ This would enable the management committee or rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extra-judicial interference that might
unduly hinder or prevent the rescue of the debtor company.
● To allow such other action to continue would only add to the burden of the management
committee or rehabilitation receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being directed toward its restructuring and
rehabilitation
○ Thus, to resolve whether the proceedings before the HLURB should be suspended, it
is necessary to determine whether the complaint for rescission of contract with
damages is a claim within the contemplation of PD No. 902-A. (it is!)
■ In Finasia Investments and Finance Corp. v. Court of Appeals
● claim refers to debts or demands pecuniary in nature; an assertion of a
right to have money paid
● It is also defined as right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured, or
unsecured;
● or right to an equitable remedy for breach of performance if such
breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment
● In conflicts of law, a receiver may be appointed in any state which has
jurisdiction over the defendant who owes a claim.
● As used in statutes requiring the presentation of claims against a
decedents estate, claim is generally construed to mean debts or
demands of a pecuniary nature which could have been enforced against
the deceased in his lifetime and could have been reduced to simple
money judgments; and among these are those founded upon contract.
■ In Arranza v. B.F. Homes, Inc.
● claim is defined as referring to actions involving monetary
considerations.
● The two cases were promulgated prior to the effectivity of the Interim Rules of Procedure on
Corporate Rehabilitation on December 15, 2000.
○ Such Rules now defines a claim as referring to all claims or demands, of whatever
nature or character against a debtor or its property, whether for money or otherwise.
■ This is all encompassing as it refers to all actions, for money or otherwise,
without any distinctions or exemptions
● Here, Although ASB Group of Companies filed their petition for rehabilitation before the
SEC on May 2, 2000, or prior to the effectivity of the interim rules, the same would still
apply since the Rules apply to petitions filed pursuant to PD 902-A (Sec 1, Rule 1)
 ○ Thus, the complaint filed by Sobrejuanite is a claim as defined under the Interim
Rules of Procedure on Corporate Rehabilitation and the two cases cited since it is for
pecuniary considerations

(2) YES
● the HLURB arbiter should have suspended the proceedings upon the approval by the SEC of
the ASB Group of Companies rehabilitation plan and the appointment of its rehabilitation
receiver.
○ By the suspension of the proceedings, the receiver is allowed to fully devote his time
and efforts to the rehabilitation and restructuring of the distressed corporation.
● even the execution of final judgments may be held in abeyance when a corporation is under
rehabilitation.
● By allowing the proceedings to proceed, the HLURB arbiter unwittingly gave undue
preference to Sobrejuanite over the other creditors and claimants of ASBDC, which is
precisely the vice sought to be prevented by Section 6(c) of PD 902-A. Thus:
○ As between creditors, the key phrase is equality is equity. When a corporation
threatened by bankruptcy is taken over by a receiver, all the creditors should stand on
equal footing.
○ Not anyone of them should be given any preference by paying one or some of them
ahead of the others. This is precisely the reason for the suspension of all pending
claims against the corporation under receivership.
○ Instead of creditors vexing the courts with suits against the distressed firm, they are
directed to file their claims with the receiver who is a duly appointed officer of the
SEC
● Petitioners reliance on Arranza v. B.F. Homes, Inc. is misplaced.
○ In Arranza, the homeowners claim does not involve pecuniary consideration but
rather, a claim for specific performance, thus, HLURB retained jurisdiction despite
the rehabilitation proceedings

(3) YES
● under the Contract to Sell, ASBDC was obliged to deliver the property to Sobrejuanite on or
before December 1999.
○ But due to financial reverses, such is deemed extended

9. METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM vs. HON.

REYNALDO B. DAWAY
G.R. No. 160732. June 21, 2004

DOCTRINE: The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to the
standby letter of credit issued by the bank as the former prohibition is on the enforcement of claims
against guarantors or sureties of the debtors whose obligations are not solidary with the debtor.
The participating bank’s obligation under the letter of credit are solidary with respondent Maynilad
in that it is a primary, direct, definite and an absolute undertaking to pay and is not conditioned on
the prior exhaustion of the debtors assets. These are the same characteristics of a surety or solidary
obligor. And being solidary, the claims against them can be pursued separately from and
independently of the rehabilitation case.

Issuing banks under the letters of credit are not equivalent to guarantors. The concept of guarantee
vis-à-vis the concept of an irrevocable letter of credit are inconsistent with each other. The guarantee
theory destroys the independence of the bank’s responsibility from the contract upon which it was
opened and the nature of both contracts is mutually in conflict with each other. In contracts of
guarantee, the guarantor’s obligation is merely collateral and it arises only upon the default of the
person primarily liable. On the other hand, in an irrevocable letter of credit, the bank undertakes a
primary obligation. We have also defined a letter of credit as an engagement by a bank or other
person made at the request of a customer that the issuer shall honor drafts or other demands of
payment upon compliance with the conditions specified in the credit.

FACTS: MWSS granted Maynilad under a Concession Agreement a twenty-year period to manage,
operate, repair, decommission and refurbish the existing MWSS water delivery and sewerage
services in the West Zone Service Area, for which Maynilad undertook to pay the corresponding
concession fees on the dates agreed upon in said agreement which, among other things, consisted of
payments of petitioners mostly foreign loans.

To secure the concessionaires performance of its obligations under the Concession Agreement,
Maynilad was required to put up a bond, bank guarantee or other security acceptable to MWSS.

In compliance with this requirement, Maynilad arranged for a three-year facility with a number of
foreign banks, led by Citicorp International Limited, for the issuance of an Irrevocable Standby
Letter of Credit in the amount of US$120,000,000 in favor of MWSS for the full and prompt
performance of Maynilads obligations to MWSS as aforestated.

Sometime in September 2000, respondent Maynilad requested MWSS for a mechanism by which it
hoped to recover the losses it had allegedly incurred and would be incurring as a result of the
depreciation of the Philippine Peso against the US Dollar. Failing to get what it desired, Maynilad
issued a Force Majeure Notice. Sometime in August 2001 Maynilad again filed another Force
Majeure Notice and, since MWSS could not agree with the terms of said Notice, the matter was
referred on August 30, 2001 to the Appeals Panel for arbitration. This resulted in the parties agreeing
to resolve the issues through an amendment of the Concession Agreement, which provided inter alia
for a formula that would allow Maynilad to recover foreign exchange losses it had incurred or would
incur under the terms of the Concession Agreement.
However, on November 5, 2002, Maynilad served upon MWSS a Notice of Event of Termination,
claiming that MWSS failed to comply with its obligations under the Concession Agreement and
Amendment No. 1 regarding the adjustment mechanism that would cover Maynilads foreign
exchange losses. Maynilad filed a Notice of Early Termination of the concession, which was
challenged by MWSS. This matter was eventually brought before the Appeals Panel by MWSS.

Appeals Panel: ruled that Maynilad should pay the concession fees that had fallen due. The award of
the Appeals Panel became final. MWSS, thereafter, submitted a written notice to Citicorp
International Limited, as agent for the participating banks, that by virtue of Maynilad’s failure to
perform its obligations under the Concession Agreement, it was drawing on the Irrevocable Standby
Letter of Credit and thereby demanded payment in the amount of US$98,923,640.15.

Prior to this, however, Maynilad had filed on November 13, 2003, a petition for rehabilitation
before the court a quo which resulted in the issuance of the Stay Order of November 17, 2003 and
the disputed Order of November 27, 2003.

PETITIONER MWSS’ CONTENTION: petitioner maintains that as a matter of law, the US$120 Million
Standby Letter of Credit and Performance Bond are not property of the estate of the debtor Maynilad
and, therefore, not subject to the in rem rehabilitation jurisdiction of the trial court.

Petitioner argues that a call made on the Standby Letter of Credit does not involve any asset of
Maynilad but only assets of the banks. Furthermore, a call on the Standby Letter of Credit cannot
also be considered a claim falling under the purview of the stay order as alleged by respondent as it is
not directed against the assets of respondent Maynilad.

RESPONDENT MAYNILAD’S CONTENTION: a) public respondent never considered nor held that the
Performance bond or assets of the issuing banks are part or property of the estate of respondent
Maynilad subject to rehabilitation and which respondent Maynilad has not and has never claimed to
be; b) what is relevant is not whether the performance bond or assets of the issuing banks are part of
the estate of respondent Maynilad but whether the act of petitioner in commencing the process for the
payment by the banks of US$98 million out of the US$120 million performance bond is covered
and/or prohibited under sub-paragraphs 2.) and 4.) of the stay order dated November 17, 2003; c) the
obligations under the Standby Letter of Credit are not solidary and are not exempt from the coverage
of the stay order.

ISSUE: Whether or not the payment of the standby of letter of credit can be stayed by filing of a
petition for rehabilitation.

HELD: NO. Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims
against guarantors and sureties, but only those claims against guarantors and sureties who are not
solidarily liable with the debtor. Respondent Maynilads claim that the banks are not solidarily liable
with the debtor does not find support in jurisprudence.
We held in Feati Bank & Trust Company v. Court of Appeals that the concept of guarantee vis--vis
the concept of an irrevocable letter of credit are inconsistent with each other. The guarantee theory
destroys the independence of the banks responsibility from the contract upon which it was opened
and the nature of both contracts is mutually in conflict with each other. In contracts of guarantee, the
guarantors obligation is merely collateral and it arises only upon the default of the person primarily
liable. On the other hand, in an irrevocable letter of credit, the bank undertakes a primary obligation.
We have also defined a letter of credit as an engagement by a bank or other person made at the
request of a customer that the issuer shall honor drafts or other demands of payment upon
compliance with the conditions specified in the credit.

Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount
upon the presentation of document and is thus a commitment by the issuer that the party in whose
favor it is issued and who can collect upon it will have his credit against the applicant of the letter,
duly paid in the amount specified in the letter. They are in effect absolute undertakings to pay the
money advanced or the amount for which credit is given on the faith of the instrument. They are
primary obligations and not accessory contracts and while they are security arrangements, they are
not converted thereby into contracts of guaranty. What distinguishes letters of credit from other
accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and other
required shipping documents are presented to it. They are definite undertakings to pay at sight once
the documents stipulated therein are presented.

The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to herein
petitioner as the prohibition is on the enforcement of claims against guarantors or sureties of
the debtors whose obligations are not solidary with the debtor. The participating banks
obligation are solidary with respondent Maynilad in that it is a primary, direct, definite and an
absolute undertaking to pay and is not conditioned on the prior exhaustion of the debtors
assets. These are the same characteristics of a surety or solidary obligor.

Being solidary, the claims against them can be pursued separately from and independently of the
rehabilitation case, as held in Traders Royal Bank v. Court of Appeals and reiterated in Philippine
Blooming Mills, Inc. v. Court of Appeals, where we said that property of the surety cannot be taken
into custody by the rehabilitation receiver (SEC) and said surety can be sued separately to enforce his
liability as surety for the debts or obligations of the debtor. The debts or obligations for which a
surety may be liable include future debts, an amount which may not be known at the time the surety
is given.

The terms of the Irrevocable Standby Letter of Credit do not show that the obligations of the banks
are not solidary with those of respondent Maynilad. On the contrary, it is issued at the request of and
for the account of Maynilad Water Services, Inc., in favor of the Metropolitan Waterworks and
Sewerage System, as a bond for the full and prompt performance of the obligations by the
concessionaire under the Concession Agreement[28] and herein petitioner is authorized by the banks
to draw on it by the simple act of delivering to the agent a written certification substantially in the
form Annex B of the Letter of Credit. It provides further in Sec. 6, that for as long as the Standby
Letter of Credit is valid and subsisting, the Banks shall honor any written Certification made by
MWSS in accordance with Sec. 2, of the Standby Letter of Credit regardless of the date on which the
event giving rise to such Written Certification arose.

Taking into consideration our own rulings on the nature of letters of credit and the customs and usage
developed over the years in the banking and commercial practice of letters of credit, we hold that
except when a letter of credit specifically stipulates otherwise, the obligation of the banks issuing
letters of credit are solidary with that of the person or entity requesting for its issuance, the same
being a direct, primary, absolute and definite undertaking to pay the beneficiary upon the
presentation of the set of documents required therein.

The public respondent, therefore, exceeded his jurisdiction, in holding that he was competent to act
on the obligation of the banks under the Letter of Credit under the argument that this was not a
solidary obligation with that of the debtor. Being a solidary obligation, the letter of credit is excluded
from the jurisdiction of the rehabilitation court and therefore in enjoining petitioner from proceeding
against the Standby Letters of Credit to which it had a clear right under the law and the terms of said
Standby Letter of Credit, public respondent acted in excess of his jurisdiction.

ADDITIONAL ISSUES
Respondent Maynilad argues that by commencing the process for payment under the Standby Letter
of Credit, petitioner violated an immediately executory order of the court and, therefore, comes to
Court with unclean hands and should therefore be denied any relief.

It is true that the stay order is immediately executory. It is also true, however, that the Standby Letter
of Credit and the banks that issued it were not within the jurisdiction of the rehabilitation court. The
call on the Standby Letter of Credit, therefore, could not be considered a violation of the Stay Order.