Jurisprudence in Corpo Suspension. (Batch 1)

CORPORATE SUSPENSION OF PAYMENTS
REHABILITATION AND INSOLVENCY

THIRD DIVISION prohibition assailing the April 29, 2004 Resolution1 of
the Court of Appeals (CA) in CA-G.R. SP No. 83526.
G.R. No. 163156 December 10, 2008
The second is a petition for review on certiorari,
NEGROS NAVIGATION CO., INC., petitioner, contesting the October 6, 2004 Decision2and January 24,
vs. 2005 Resolution3 of the CA in the same case.
COURT OF APPEALS, SPECIAL TWELFTH
The Facts
DIVISION AND TSUNEISHI HEAVY
INDUSTRIES (CEBU), INC.,respondents. The undisputed facts are as follows:
x---------------------------------------------------x NNC is a shipping company that is primarily engaged in
the business of transporting through shipping vessels,
G.R. No. 166845 December 10, 2008
passengers and cargoes at various ports of call in the
TSUNEISHI HEAVY INDUSTRIES (CEBU), country.4 THI, on the other hand, is engaged in the
INC., petitioner, business of shipbuilding and repair.5 NNC engaged the
vs. services of THI for the repair of its vessels.
NEGROS NAVIGATION CO., INC., SULFICIO
On February 9, 2004, THI filed a case for sum of money
O. TAGUD, JR., AND THE REHABILITATION
and damages with prayer for issuance of writ of
RECEIVER FOR NEGROS NAVIGATION CO.,
attachment against NNC before the Regional Trial Court
INC., respondents.
of Cebu (Cebu RTC), docketed as Civil Case No. CEB-
DECISION 29899 entitled "Tsuneishi Heavy Industries (Cebu), Inc.
v. Negros Navigation Co., Inc." The action is based on
NACHURA, J.:
the unpaid services for the repair of NNC’s vessels,
Before us are two consolidated cases, docketed as G.R. otherwise known as repairman’s lien.
No. 163156 and G.R. No. 166845, which were filed by
petitioners Negros Navigation Co., Inc. (NNC) and On March 5, 2004, the Cebu RTC issued an
Order6 granting the issuance of a writ of preliminary
Tsuneishi Heavy Industries (Cebu), Inc. (THI),
respectively. The first is a petition for certiorari and attachment against the properties of NNC.7 It reasoned
that based on the affidavit in support of the application
for the writ, NNC committed fraud in contracting the obligations would not be met, complications and
debt or in incurring the obligation upon which the action problems will arise that will impair and affect the
was brought, thus, justifying the issuance of the writ8 as operation of the corporation and its effort to rehabilitate
mandated by Section 1(d) of Rule 57. It added that the its business; that one of its creditors, Tsuneishi Heavy
repairman’s lien of THI constituted a superior maritime Industries, Inc., already attached one shipping vessel of
lien that is enforceable by suit in rem, as decreed by the corporation; and other creditors are threatening to
Presidential Decree No. 1521 (PD 1521).9 sue; but despite the foregoing, petitioner still foresee the
prospect of paying its debts if only given a "breathing
On March 12, 2004, by virtue of the writ of preliminary
spell." Hence, it is presenting a Rehabilitation Plan for
attachment, Sheriff Rogelio T. Pinar levied on one of the
approval of its creditors as well as this Court.
vessels of NNC, the M/V St. Peter the Apostle.10
Finding the Petition, together with its annexes, sufficient
On March 29, 2004, NNC filed a Petition for Corporate
in form and substance, the Court hereby:
Rehabilitation with Prayer for Suspension of
Payments11 with the RTC of Manila (Manila RTC), 1. Appoints Mr. Sulficio O. Tagud, Jr. as Rehabilitation
Branch 46, which was docketed as Special Proceeding Receiver with a bond in the amount of PhP150,000.00;
No. 0409532. The Manila RTC granted the NNC’s
2. Stays the enforcement of all claims, whether for money
petition and issued a Stay Order12 on April 1, 2004. The
or otherwise and whether such enforcement is by court
said Order reads:
action or otherwise, against the petitioner, its guarantors
Petitioner Negros Navigation Co., Inc. filed a Petition and sureties not solidarily liable with the debtor;
alleging that it is a domestic corporation with principal
3. Prohibits petitioner from selling, encumbering,
place of business at Pier 2, North Harbor, Tondo,
transferring, or disposing in any manner any of its
Manila; that since its incorporation, it had been very
properties, except in the ordinary course of business;
viable and financially profitable; that because of the Asian
Currency Crisis and the devaluation of the Peso, it found 4. Prohibits petitioner from making any payment of its
itself in difficulty in paying its obligations with creditors; liabilities outstanding as of the date of filing of the
that as a consequence, petitioner foresees its inability to petition;
meet its obligations as they fall due; that since the
5. Prohibits the debtor’s suppliers of goods or services The Rehabilitation Receiver, Mr. Sulficio O. Tagud, Jr., is
from withholding supply of goods and services in the requested to submit his oath of office within ten (10) days
ordinary course of business for as long as the debtor from receipt of this Order.
makes payments for the services and goods supplied after
IT IS SO ORDERED.13
the issuance of the stay order;
Upon the issuance of the stay order by the Manila RTC,
6. Directs the payment in full of all administrative
NNC filed a Manifestation and Motion to Suspend
expenses incurred after the issuance of the stay order;
Proceedings and to Lift Preliminary Attachment with the
7. Fixes the initial hearing of the petition on May 7, 2004 Cebu RTC.14
at 8:30 A.M.;
On April 5, 2004, THI filed an Amended Complaint15 in
8. Directs petitioner to publish this Order in a newspaper the Cebu RTC. In the amended complaint, THI
of general circulation throughout the Philippines once a impleaded the following vessels of NNC as co-
week for two (2) consecutive weeks; defendants in the suit: M/V San Sebastian, M/S Princess
of Negros, M/V Nossa Senhora (Nuestra Señora) De
9. Directs all creditors and all interested parties (including
Fatima, M/V St. Peter the Apostle, M/V Santa Ana and
the Securities and Exchange Commission) to file and serve with
M/V San Paolo.16 THI prayed for the following in the
the court and on the petitioner a verified comment on or
amended complaint:
opposition to the petition, with supporting affidavits and
documents, not later than ten (10) days before the date WHEREFORE, it is respectfully prayed that:
of the initial hearing and putting them on notice that their
1. An ex-parte writ of preliminary attachment/arrest order
failure to do so will bar them from participating in the
be issued directing the sheriff to attach defendant’s
proceedings; and
properties not exempt from execution as security for the
10. Directing the creditors and interested parties to satisfaction of the judgment in this action, and/or arrest
secure from the court copies of the petition and its the defendant vessels, upon approval by the Court of an
annexes to enable them to file their comment on or appropriate attachment/arrest bond in accordance with
opposition to the petition and to prepare for the initial the Rules of Court.
hearing of the petition.
2. It is further respectfully prayed that after trial, TOTAL P104,464,00
judgment be rendered in favor of the plaintiff and against
the defendant, Negros Navigation ordering the latter to be issued ex-parte and, after hearing, judgment be
pay the amount of P104,464,000.00 plus interest and rendered ordering the sale at public action of the Vessels,
penalties, and in satisfaction thereof and/or to ensure the including all their accessories, equipments, riggings and
same: appurtenances, and, under the manner provided for by
a. In the in personam action, attaching the assets of law.
defendant Negros Navigation, including the vessel, M/V 3. Attorney’s fees in an amount not less
St. Joseph; and than P2,000,000.00 plus refund of docket fees, bond
b. In the in rem action, an order/warrant of arrest of the premiums and litigation expenses of no less
Vessels based on plaintiff’s lien which arose from repairs than P2,000,000.00.
and dry docking furnished by plaintiff to the following: 4. Costs of suit.
a) San Sebastian - Plaintiff prays for such other reliefs, cumulative and/or
P2,212,925.00
alternative, as this Honorable Court may deem just and
b) Princess of Negros - equitable under the premises.17
21,389,575.00
On April 6, 2004, the Cebu RTC issued two (2) Orders.
c) Nuestra Sra. De Fatima - 3,743,250.00
The first was an Order18 admitting the amended
complaint as a matter of right since NNC had not yet
d) St. Peter the Apostle - filed a responsive pleading when the same was filed. The
43,483,000.00
second was an Order19 for the arrest of the vessels of
e) Sta. Ana - NNC in the in rem aspect of the case. The fallo of the
264,000.00
Order reads:
f) San Paolo - 33,371,250.00
WHEREFORE, in view of the foregoing, the sheriff, or
other proper officers of this court and such other
person(s) as they may deputize, is/are hereby directed to
arrest and detain the following vessels: M/V San not to distinguish. So the stay order applies to all
Sebastian, M/S Princess of Negros, M/V Nossa Senhora CLAIMS.
de Fatima (Nuestra Senora de Fatima), M/V St. Peter the
SO ORDERED.22
Apostle, M/V Sta. Ana and M/V San Paolo. The
Philippine Ports Authority, the Philippine Coast Guard, On April 13, 2004, NNC filed a Motion to Suspend
the Maritime Industry Authority (MARINA), the Proceedings and to Lift the Writ of Attachment and
Philippine National Police, the National Bureau of Arrest Orders23 before the Cebu RTC by virtue of the
Investigation and other law enforcement agencies and all April 12, 2004 Order of the Manila RTC. However, on
other government agencies and instrumentalities are April 29, 2004, the CA issued the Resolution24 assailed in
hereby ordered to assist. Assistance shall include but not what is before this Court as G.R. No. 163156, wherein
be limited to preventing the vessel from sailing or trading the appellate court temporarily restrained the
except as this admiralty court shall direct. Keep the implementation of the Orders of the Manila RTC dated
vessels in custody until further order of this court, sitting April 1, 2004 and April 12, 2004. The pertinent portion
as an admiralty court. of the assailed Resolution reads:
IT IS SO ORDERED. To preserve the status quo and so as not to render
ineffectual and nugatory the judgment that will be
On April 12, 2004, NNC’s Rehabilitation Receiver filed
rendered in this petition, a temporary restraining order
with the Manila RTC a Motion20 for the clarification of
valid for sixty (60) days is issued enjoining respondents
the stay order. It sought to confirm whether the claim
and all persons acting for them and on their behalf or
sought to be enforced by THI against the vessels of NNC
third persons from enforcing or implementing the
is covered by the stay order. On the same date, the Manila
Orders dated April 1, 2004 and April 12, 2004 of the
RTC issued an Order21 addressing the said motion. The
public respondent.
pertinent portion of the Order reads:
SO ORDERED.25
The Interim Rules of Procedure on Corporate
Rehabilitation does not distinguish the kind of claims From this CA Resolution, NNC sought recourse before
covered, whether in rem or in personam, due or not due. us. On May 4, 2004, this Court in G.R. No. 163156 issued
Hence, when the law does not distinguish, courts ought
a Temporary Restraining Order,26 the pertinent portion enjoin the enforcement and implementation of the
of which reads: Orders of the Manila RTC dated April 1, 2004 and April
12, 2004. The fallo of the Decision reads:
NOW, THEREFORE, YOU, RESPONDENTS are
REQUIRED to file comment on the petition within ten WHEREFORE, in view of the foregoing, the instant
(10) days from notice, and RESTRAINED from petition is DENIED DUE COURSE and
implementing the Court of Appeals resolution dated 29 is DISMISSED for lack of merit.
April 2004, which issued a temporary restraining order in
SO ORDERED.28
CA-GR SP No. 83526 entitled "Tsuneishi Heavy
Industries (CEBU), Inc. vs. Hon. Artemio S. Tipon, THI filed a motion for reconsideration. The same was
Presiding Judge, Regional Trial Court, Manila, Br. 46, denied in a Resolution29 dated January 24, 2005. Hence,
Negros Navigation Co., Inc. and Sulficio O. Tagud, Jr." this petition in G.R. No. 166845.
enjoining the implementation of the Orders dated 1 April The Issues
2004 and 12 April 2004 of the Regional Trial Court of
Manila, Br. 46 in SP Proc. No. 04-109532, effective NNC, in G.R. No. 163156, presented the sole issue of
immediately and continuing until further orders from this whether the CA committed grave abuse of discretion
Court, and YOU, PETITIONER, are ordered to POST amounting to lack or excess of jurisdiction in issuing the
a BOND in the amount of FIVE HUNDRED Resolution dated April 29, 2004 embodying the
THOUSAND PESOS (P500,000.00) in cash or surety temporary restraining order which enjoined the
issued by a reputable bonding company of indubitable implementation of the Orders of the Manila RTC dated
solvency with terms and conditions acceptable to this April 1, 2004 and April 12, 2004.30
Court within five (5) days from notice hereof, otherwise On the other hand, THI, in G.R. No. 166845, assigned
this temporary restraining order shall be rendered of no the following errors in the decision and resolution of the
force and effect. CA:
On October 6, 2004, the CA issued the A. The CA Decision erred in ruling that neither THI’s
Decision27 assailed in what is now G.R. No. 166845, enforcement/the efficacy of its maritime liens against the
denying the petition of THI that sought to annul and Vessels nor the Admiralty Court’s jurisdiction over those
liens is impaired by the Stay Orders issued by the Manila proceeding in rem. THI cited various foreign
RTC.31 jurisprudence to the effect that maritime liens are
enforceable only by a suit in rem. 33 It further averred that
B. The CA Decision, it is respectfully submitted, gravely
the mere suspension of the in rem proceedings in the
erred in ruling that THI’s maritime liens are covered by,
admiralty case prejudiced its substantive rights under
and are subject to the Manila RTC’s jurisdiction in,
Presidential Decree (PD) 1521.34
[NNC’s] rehabilitation proceedings.32
The argument of THI is misplaced. There is no conflict
The Ruling of the Court
as to which law should apply to the case at bench. THI
In G.R. No. 163156 wishes to impress this Court that its claim for repairman’s
lien is a maritime lien and, accordingly, may be enforced
The issue presented by NNC in G.R. No. 163156 was
rendered moot and academic by the promulgation of the only in a proceeding in rem. The Court agrees that PD
CA Decision and Resolution dated October 6, 2004 and 1521 is the governing law concerning its maritime lien for
the services it rendered to NNC. However, when NNC
January 24, 2005, respectively. We find it unnecessary to
discuss it extensively because the arguments presented by filed a petition for corporate rehabilitation and
NNC and THI in support of their respective positions suspension of payments, and the Manila RTC found that
the petition was sufficient in form and in substance and
are, ultimately, the very same issues we now resolve in
G.R. No. 166845. appointed the rehabilitation receiver, the admiralty
proceeding was appropriately suspended in accordance
In G.R. No. 166845 with Section 6 of the Interim Rules on Corporate
On the first issue, THI maintains that its maritime liens Rehabilitation.35
against the vessels of NNC were impaired by the issuance Rehabilitation contemplates continuance of corporate
of the stay order. THI argues that the issuance of the stay life and activities in an effort to restore and reinstate the
order by the Manila RTC, acting as rehabilitation court, corporation to its former position of successful operation
was erroneous considering that maritime liens cannot be and solvency.36 The purpose of rehabilitation
enforced, divested, and otherwise affected or dealt with proceedings is precisely to enable the company to gain a
except by an admiralty court in an admiralty new lease on life and thereby allow creditors to be paid
their claims from its earnings. The rehabilitation of a PD 902-A38 mandates that upon appointment of a
financially distressed corporation benefits its employees, management committee, rehabilitation receiver, board or
creditors, stockholders and, in a larger sense, the general body, all actions for claims against corporations,
public.37 partnerships or associations under management or
receivership pending before any court, tribunal, board or
The governing law concerning rehabilitation and
body shall be suspended. PD 902-A does not make any
suspension of actions for claims against corporations is
distinction as to what claims are covered by the
PD 902-A, as amended. Republic Act No. 8799 (RA
suspension of actions for claims against corporations
8799), otherwise known as The Securities Regulation
under rehabilitation. No exception is made therein in
Code, amended Section 5 of PD 902-A, thereby
favor of maritime claims. Thus, since the law does not
transferring to the Regional Trial Courts the jurisdiction
make any exemptions or distinctions, neither should
of the Securities and Exchange Commission (SEC) over
we. Ubi lex non distinguit nec nos distinguere debemos.
cases, among others, involving petitions of corporations,
partnerships or associations to be declared in the state of The justification for the suspension of actions or claims,
suspension of payments where the corporation, without distinction, pending rehabilitation proceedings is
partnership or association possesses property to cover all to enable the management committee or rehabilitation
its debts but foresees the impossibility of meeting them receiver to effectively exercise its/his powers free from
when they respectively fall due, or where the corporation, any judicial or extra-judicial interference that might
partnership or association has no sufficient assets to unduly hinder or prevent the "rescue" of the debtor
cover its liabilities, but is under the management of a company. To allow such other actions to continue would
rehabilitation receiver or a management committee. only add to the burden of the management committee or
rehabilitation receiver, whose time, effort and resources
The Court adopted the Interim Rules of Procedure on
would be wasted in defending claims against the
Corporate Rehabilitation on December 15, 2000, and
corporation instead of being directed toward its
these rules apply to petitions for rehabilitation filed by
restructuring and rehabilitation.39
corporations, partnerships, and associations pursuant to
PD 902-A. It is undisputed that THI holds a preferred maritime lien
over NNC’s assets by virtue of THI’s unpaid services.
The issuance of the stay order by the rehabilitation court rehabilitation receiver, board or body, or on its own
does not impair or in any way diminish THI’s preferred findings, determine that the continuance in business of
status as a creditor of NNC. The enforcement of its claim such corporation or entity would not be feasible or
through court action was merely suspended to give way profitable nor work to the best interest of the
to the speedy and effective rehabilitation of the distressed stockholders, parties-litigants, creditors, or the general
shipping company. Upon termination of the public, order the dissolution of such corporation entity
rehabilitation proceedings or in the event of the and its remaining assets liquidated accordingly. The
bankruptcy and consequent dissolution of the company, management committee or rehabilitation receiver, board
THI can still enforce its preferred claim upon NNC. or body may overrule or revoke the actions of the
previous management and board of directors of the
PD 902-A was designed not only to salvage an ailing
entity or entities under management notwithstanding any
corporation but also to protect the interest of investors,
provision of law, articles of incorporation or by-laws to
creditors and the general public. Section 6 (d) of PD 902-
the contrary."
A provides: "the management committee or
rehabilitation receiver, board or body shall have the When a distressed company is placed under
power to take custody of, and control over, all the rehabilitation, the appointment of a management
existing assets and property of such entities under committee follows to avoid collusion between the
management; to evaluate the existing assets and liabilities, previous management and creditors it might favor, to the
earnings and operations of such corporations, prejudice of the other creditors. The stay order is
partnerships or other associations; to determine the best effective on all creditors of the corporation without
way to salvage and protect the interest of the investors distinction, whether secured or unsecured. All assets of a
and creditors; to study, review and evaluate the feasibility corporation under rehabilitation receivership are held in
of continuing operations and restructure and rehabilitate trust for the equal benefit of all creditors to preclude one
such entities if determined to be feasible by the [court]. from obtaining an advantage or preference over another
It shall report and be responsible to the [court] until by the expediency of attachment, execution or otherwise.
dissolved by order of the [court]: Provided, however, As between the creditors, the key phrase is equality in
That the [court] may, on the basis of the findings and equity. Once the corporation threatened by bankruptcy
recommendation of the management committee, or is taken over by a receiver, all the creditors ought to stand
on equal footing. Not any one of them should be paid applicable provisions of the Civil Code will definitely
ahead of the others. This is precisely the reason for have preference over unsecured ones.42
suspending all pending claims against the corporation
On the second issue, THI argues that the Manila RTC, in
under receivership.40
granting the stay order, divested the Cebu RTC, which is
Rizal Commercial Banking Corporation v. Intermediate Appellate acting as an admiralty court, of its jurisdiction over the
Court,41 promulgated by the Court en banc before the maritime case of THI. It insists that its maritime liens
effectivity of the Interim Rules on Corporate over the vessels of NNC must be upheld,
Rehabilitation, is still valid case law up to the present. It notwithstanding NNC’s rehabilitation proceedings. It
enumerates the guidelines in the treatment of claims stresses that in in remproceedings to enforce maritime
involving corporations undergoing rehabilitation, viz.: liens, the vessels alone may be impleaded as defendants.
The vessels themselves answer for the liens, and
1. All claims against corporations, partnerships, or
lienholders like THI have the substantive statutory right
associations that are pending before any court, tribunal,
under PD 1521 to insist on the vessels’ responsibility
or board, without distinction as to whether or not a
because an action in rem is a proceeding against the ship
creditor is secured or unsecured, shall be suspended
itself. Furthermore, it emphasizes that a maritime lien is
effective upon the appointment of a management
not affected by bankruptcy or reorganization, citing
committee, rehabilitation receiver, board, or body in
Gilmore and Black as reference.43
accordance with the provisions of Presidential Decree
No. 902-A. True enough, a maritime lien is not affected by
bankruptcy or reorganization. However, in the instant
2. Secured creditors retain their preference over
case, we are not dealing with bankruptcy or
unsecured creditors, but enforcement of such preference
reorganization; rather, we are confronted with NNC’s
is equally suspended upon the appointment of a
rehabilitation. If we follow the argument of THI and
management committee, rehabilitation receiver, board,
allow the continued enforcement of its claims against
or body. In the event that the assets of the corporation,
NNC, we would, in effect, violate provisions of PD 902-
partnership, or association are finally liquidated,
A. To reiterate, the rationale behind PD 902-A is to effect
however, secured and preferred credits under the
a feasible and viable rehabilitation of an ailing
corporation.
There is no conflict between PD 1521 and PD 902-A.
FIRST DIVISION
The Manila RTC acting as a rehabilitation court merely
suspended the proceedings in the admiralty case in the G.R. No. 166197 February 27, 2007
Cebu RTC. It did not divest the Cebu RTC of its METROPOLITAN BANK & TRUST
jurisdiction over the maritime claims of THI against COMPANY, Petitioner
NNC. The preferred maritime lien of THI can still be
vs.
enforced upon the termination of the rehabilitation ASB HOLDINGS, INC., ASB REALTY
proceedings, or if it such be unsuccessful, upon the
CORPORATION, ASB DEVELOPMENT
dissolution of the corporation. CORPORATION, ASB LAND, INC., ASB
WHEREFORE, in view of the foregoing disquisitions, FINANCE, INC., MAKATI HOPE CHRISTIAN
judgment is rendered as follows: SCHOOL, INC., BEL-AIR HOLDINGS
CORPORATION, WINCHESTER TRADING,
(1) In G.R. No. 163156, the petition is DISMISSED for
INC., VYL DEVELOPMENT CORPORATION,
being moot and academic; and
GERICK HOLDINGS CORPORATION,
(2) In G.R. No. 166845, the petition is DENIED for NEIGHBORHOOD HOLDINGS, INC., and
lack of merit. ROSARIO S. BERNALDO,
Respondents. CAMERON GRANVILLE 3 ASSET
SO ORDERED.
MANAGEMENT, INC., Intervenor.
DECISION
SANDOVAL-GUTIERREZ, J.:
For our resolution is the instant Petition for Review on
Certiorari1 assailing the Decision dated August 16,
20042 of the Court of Appeals in CA-G.R. SP No. 77260 petitioner Group of Companies having a total liability in
and its Resolution dated December 1, 2004. the amount of Twelve Billion Seven Hundred Million
Pesos (₱12,700,000,000.00).
The facts borne by the records are:
The Metropolitan Bank and Trust Company, petitioner, 8. On account of the sudden non-renewal and/or the
is a creditor bank of respondent corporations, collectively massive withdrawal by creditors of their loans to
petitioner ASB Holdings, Inc., coupled with the recent
known as the ASB Group of Companies, owner and
developer of condominium and real estate projects. developments in the country, like, among others, (i) the
Specifically, the loans extended by petitioner bank to glut in the real estate market; (ii) the severe drop in the
respondents ASB Realty Corporation and ASB sale of real properties; (iii) the depreciation of the
peso vis-a-vis the dollar; and (iv) the decreased investor
Development Corporation amounted to ₱523.5 million
confidence in the economy, petitioner Group of
and ₱1.073 billion, respectively. These loans were
Companies was unable to complete and sell some of its
secured by real estate mortgages.
projects on schedule and, hence, was unable to service its
On May 2, 2000, the ASB Group of Companies filed with obligations as they fell due.
the Securities and Exchange Commission (SEC) a
9. Petitioner Group of Companies possesses sufficient
Petition For Rehabilitation With Prayer For Suspension
property to cover its obligations. However, petitioner
Of Actions And Proceedings Against
Group of Companies foresees its inability to pay its
Petitioners, pursuant to Presidential Decree (P.D.) No.
3
obligations within a period of one (1) year.
902-A, as amended, docketed as SEC Case No. 05-00-
6609. The pertinent portions of the petition allege: 10. Because of the inability of the Group of Companies
to pay its obligations as they respectively fall due, its
6. The total assets of petitioner ASB Group of
secured and non-secured creditors pressed for payments
Companies, together with petitioner ASB Allied
of due and maturing obligations and threatened to initiate
Companies, amount to Nineteen Billion Four Hundred
separate actions against it, which will adversely affect its
Ten Million Pesos (₱19,410,000,000.00).
operations and shatter its hope in rehabilitating itself for
7. The Projects were financed with loans or borrowings the benefit of its investors and creditors and the general
from bank and individual creditors which resulted in public.
11. There is a clear, present and imminent danger that the 15. The business of petitioner ASB Group of Companies
creditors of petitioner Group of Companies will institute is feasible and profitable. Petitioner Group of Companies
extrajudicial and judicial foreclosure proceedings and file will eventually be able to pay all its obligations given some
court actions unless restrained by this Honorable changes in its management, organization, policies,
Commission. strategies, operations, or finances.
12. The institution of extrajudicial and judicial 16. With the support of this Honorable Commission,
foreclosure proceedings and the filing of court actions petitioner Group of Companies is confident that it will
against petitioner Group of Companies will necessarily be able to embark on a sound and viable rehabilitation
result in the paralization of its business operation and its plan, with a built-in debt repayment schedule through the
assets being lost, dissipated or wasted. optimal use of their present facilities, assets and
resources. Although a proposed rehabilitation plan is
13. There is, therefore, a need for the suspension of
attached to this petition, a detailed and comprehensive
payment of all claims against petitioner Group of
rehabilitation proposal will be presented for the approval
Companies, in the separate and combined capacities of
of this Honorable Commission, with the foregoing
its member companies, while it is working for its
salient features:
rehabilitation.
a. Servicing and eventual full repayment of all debts and
14. Petitioner Group of Companies has at least seven
liabilities, focusing on debt restructure and possible
hundred twelve (712) creditors, three hundred seventeen
liquidation through dacion en pago, transfer and
(317) contractors/suppliers and four hundred ninety-two
assignment, or outright sale of assets, in order to lighten
(492) condominium unit buyers, who will certainly be
the debt burden of petitioner Group of Companies;
prejudiced by the disruption of the operations of
petitioner ASB Group of Companies which seeks to b. Forming of strategic alliances with third party
protect the interest of the parties from any precipitate investors, including joint ventures and similar
action of any person who may only have his individual arrangements;
interest in mind.
c. Contributing specified properties from petitioner ASB
Allied Companies;
d. Streamlining the operations of petitioner ASB Group On August 18, 2000, the ASB Group of Companies
of Companies, and the effective management of its submitted to the SEC for its approval a Rehabilitation
revenues and funds towards the strengthening of its Plan,4thus:
financial and business positions; and
Metropolitan Bank and Trust Co.
e. Stabilizing the operations of petitioner Group of
Principal Amount – Principal (amount) plus any interest
Companies, and preparing it to take advantage of future
due and unpaid as of April 30, 2000, less any prepaid
opportunities for growth and development.
interest, without any penalties and charges.
On May 4, 2000, the Hearing Panel of the SEC Securities
Form of Agreement – Dacion en Pago Agreement
Investigation and Clearing Department, finding the
petition for rehabilitation sufficient in form and Purpose – To retire existing loans.
substance, issued a sixty-day Suspension Order (a) Tenor – Immediate Dacion en Pago of related properties,
suspending all actions for claims against the ASB Group
subject to the approval of the Securities and Exchange
of Companies pending or still to be filed with any court, Commission (SEC).
office, board, body, or tribunal; (b) enjoining the ASB
Group of Companies from disposing of their properties Effective Date – September 1, 2000, subject to the
in any manner, except in the ordinary course of business, approval of the SEC.
and from paying their liabilities outstanding as of the date Dacion En Pago
of the filing of the petition; and (c) appointing Atty.
Monico V. Jacob as interim receiver of the ASB Group Arrangement – ASB will dacion the bank’s equity in St.
of Companies. Francis Square and apply the excess dacion value on its
BSA Twin Tower loan. Further, Makati Hope, Buendia
On May 22, 2000, the SEC Hearing Panel issued an cor. Malugay, 21 Annapolis (which is expected to be
Order appointing Mr. Fortunato Cruz as interim receiver released by PNB) and # 28 & 23 Eisenhower St., will be
of the ASB Group of Companies, replacing Atty. Monico dacioned to Metrobank, the excess of which will also be
Jacob. applied to Metrobank’s exposure on BSA Twin Towers.
In return, State Condominium will be freed up and
placed in the ASB creditors’ asset pool. Further, PREMISES CONSIDERED, the objections to the
Metrobank shall also undertake the completion of BSA rehabilitation plan raised by the creditors are hereby
Twin Towers. considered unreasonable.
Outstanding Loan Balance Accordingly, the Rehabilitation Plan submitted by
petitioners is hereby APPROVED, except those
After Dacion En Pago – None51awphi1.net
pertaining to Mr. Roxas’ advances, and the ASB-Malayan
Petitioner bank, in its Comment/Opposition to the Towers. Finally, Interim Receiver Mr. Fortunato Cruz is
Rehabilitation Plan,6 objected to the above Plan, appointed as Rehabilitation Receiver.
specifically the arrangement concerning the mode of
SO ORDERED.
payment by respondents ASB Realty Corporation and
ASB Development Corporation of their loan obligations. On July 10, 2001, petitioner bank filed with the
SEC En Banc a Petition for Certiorari,8 docketed as
Petitioner bank claimed that the above arrangement "is
EB-725, alleging that the SEC Hearing Panel, in
not acceptable" because: (1) it does not agree with the
approving the Rehabilitation Plan, committed grave
valuation of the properties offered for dacion; (2) the
abuse of discretion amounting to lack or excess of
waiver of interests, penalties and charges after April 30,
jurisdiction; and praying for the issuance of a
2000 is not feasible considering that the bank continues
temporary restraining order and/or a writ of
to incur costs on the funds owed by ASB Realty
preliminary injunction to enjoin its implementation.
Corporation and ASB Development Corporation; and
Subsequently, the ASB Group of Companies filed
(3) since the proposed dacion is not acceptable to the
their Opposition9 to the petition, to which petitioner
bank, there is no basis to release the properties which
bank filed its Reply.10
serve as collateral for the loans. Petitioner thus prayed
that the Rehabilitation Plan be disapproved. In a Resolution11 dated April 15, 2003, the SEC En
Banc denied petitioner bank’s Petition for Certiorari
On April 26, 2001, the SEC Hearing Panel, finding
and affirmed the SEC Hearing Panel’s Order of
petitioner bank’s objections unreasonable, issued an
April 26, 2001.
Order7approving the Rehabilitation Plan and appointing
Mr. Fortunato Cruz as rehabilitation receiver, thus:
Petitioner bank then filed with the Court of Appeals Cameron Granville. In a Resolution dated June 5,
a Petition for Review.12 On August 16, 2004, the 2006,16 the Court granted the motion for
appellate court rendered its Decision13 denying due intervention. Accordingly, on August 28, 2006, the
course to the petition, thus: intervenor filed its Petition For Intervention17 and
manifested therein that it adopts as its own
WHEREFORE, finding the instant petition not
petitioner bank’s petition and all its other pleadings.
impressed with merit, the same is DENIED DUE
Thereafter, respondent ASB Group of Companies
COURSE. No pronouncement as to costs.
filed their Comment.18
SO ORDERED.
Now to the resolution of the instant petition.
Petitioner bank’s Motion for Reconsideration was
Petitioner bank contends that the Court of Appeals
likewise denied in a Resolution dated December 1,
erred:
2004.14
1. In not nullifying the SEC Resolution dated April
Hence, this petition for review on certiorari.
15, 2003 approving the Rehabilitation Plan. Such
In the meantime, or on June 1, 2006, Cameron approval illegally compels petitioner bank to accept,
Granville 3 Asset Management, Inc. (Cameron through a dacion en pago arrangement, the
Granville) filed a Motion For Intervention15 alleging mortgaged properties based on ASB Group of
that in September of 2003, petitioner bank assigned Companies’ transfer values and to release part of the
the loans and mortgages of ASB Realty Corporation collateral. This forced transfer of properties and
and ASB Development Corporation to Asset diminution of the bank’s right to enforce its lien on
Recovery Corporation (ARC). However, pursuant to the mortgaged properties violate its constitutional
its Service Agreement with ARC, petitioner right against impairment of contracts and right to
continued to pursue its action before the Court of due process.
Appeals in CA-G.R. SP No. 77260 and before this
2. In not finding that the Rehabilitation Plan
Court in the instant case. On March 31, 2006, ARC
compels petitioner bank to waive the interests,
in turn assigned the loans and mortgages of the said
penalties and other charges that accrued after the
two respondent corporations to herein intervenor,
SEC issued its Stay Order. Again, this is in violation pending before any court, tribunal, board or body
of the constitutional mandate on non-impairment of shall be suspended."
contracts and due process.
By that statutory provision, it is clear that the
3. In not finding that only respondent ASB approval of the Rehabilitation Plan and the
Holdings, Inc. suffered financial distress as stated in appointment of a rehabilitation receiver merely
the Rehabilitation Plan and, as such, the coercive suspend the actions for claims against respondent
reach of the SEC’s Stay Order under P.D. 902-A can corporations. Petitioner bank’s preferred status over
extend only to the enforcement of claims against this the unsecured creditors relative to the mortgage
distressed corporation. It cannot suspend the claims liens is retained, but the enforcement of such
and actions against its affiliate corporations. preference is suspended. The loan agreements
between the parties have not been set aside and
In their Comment, respondent corporations
petitioner bank may still enforce its preference when
comprising the ASB Group of Companies prayed for
the assets of ASB Group of Companies will be
the dismissal of the instant petition for being
liquidated. Considering that the provisions of the
unmeritorious.
loan agreements are merely suspended, there is no
The first two (2) assigned errors lack merit. We shall impairment of contracts, specifically its lien in the
discuss them jointly as they are closely interrelated. mortgaged properties.
We are not convinced that the approval of the As we stressed in Rizal Commercial Banking
Rehabilitation Plan impairs petitioner bank’s lien Corporation v. Intermediate Appellate Court,19 such
over the mortgaged properties. Section 6 [c] of P.D. suspension "shall not prejudice or render ineffective
No. 902-A provides that "upon appointment of a the status of a secured creditor as compared to a
management committee, rehabilitation receiver, totally unsecured creditor," for what P.D. No. 902-A
board or body, pursuant to this Decree, all actions merely provides is that all actions for claims against
for claims against corporations, partnerships or the distressed corporation, partnership or
associations under management or receivership association shall be suspended. This arrangement
provided by law is intended to give the receiver a
chance to rehabilitate the corporation if there should 2. Invite secured creditors to complete dacion en
still be a possibility for doing so, without being pago transactions, waiving all penalties; and
unnecessarily disturbed by the creditors’ actions
3. Invite unsecured creditors to purchase real estate
against the distressed corporation. However, in the
parcels and other assets and set-off the amount of
event that rehabilitation is no longer feasible and the
their outstanding claim against the purchase price.
claims against the distressed corporation would
eventually have to be settled, the secured creditors, The assets included in the above program include
like petitioner bank, shall enjoy preference over the all real estate assets.
unsecured creditors. In order to determine the feasibility of the above,
Likewise, there is no compulsion on the part of representatives of our financial advisors met with or
petitioner bank to accept a dacion en pago had discussions with most of the secured creditors.
arrangement of the mortgaged properties based on Preliminary discussions indicate support from the
ASB Group of Companies’ transfer values and to secured creditors towards the concepts of the
condone interests and penalties. The Rehabilitation program associated with them. The majority of
Plan itself, under item IV-A, explains the dacion en these secured creditors appear to want to complete
pago proposal, thus: dacion en pago transactions based on MUTUALLY
AGREED UPON TERMS. x x x. We continue to
IV. THE REVISED REHABILITATION PLAN
pursue discussions with secured creditors. Based on
A. The Total Approach the program, secured creditors’ claims amounting to
PhP5.192 billion will be paid in full including interest
It is apparent that ASB’s corporate indebtedness
up to April 30, 2000. Secured creditors have been
needs to be reduced as quickly as possible in order
asked to waive all penalties and other charges. This
to prevent rapid deterioration in equity. x x x. In
dacion en pago program is essential to eventually
order to reduce debt quickly, we must do the
pay all creditors and rehabilitate the ASB Group of
following:
Companies. If the dacion en pago herein
1. Complete or sell on-going projects; contemplated does not materialize for failure of the
secured creditors to agree thereto, this rehabilitation
plan contemplates to settle the obligations (without We do not agree. A cursory reading of the
interest, penalties, and other related charges Rehabilitation Plan debunks this assertion. The
accruing after the date of the initial suspension Plan provides that dacion en pago transaction will
order) to secured creditors with mortgaged be effected only if the secured creditors, like
properties at ASB selling prices for the general petitioner, agree thereto and under terms and
interest on the employees, creditors, unit buyers, conditions mutually agreeable to private
government, general public and the economy. respondents and the secured creditor concerned.
The dacion en pago program is essential to
x x x.20 (Underscoring supplied)
eventually pay all creditors and rehabilitate private
Indeed, based on the above explanation in the respondents. If the dacion en pago does not
Rehabilitation Plan, the dacion en pago program materialize in case secured creditors refuse to agree
and the intent of respondent ASB Group of thereto, the Rehabilitation Plan contemplates to
Companies to ask creditors to waive the interests, settle the obligations to secured creditors with
penalties and related charges are not compulsory in mortgaged properties at selling prices. This is for
nature. They are merely proposals for the creditors the general interest of the employees, creditors, unit
to accept. In fact, as explained, there was already an buyers, government, general public, and the
initial discussion on these proposals and the economy.21 (Underscoring supplied)
majority of the secured creditors showed their desire
With respect to the third assigned error, we note that
to complete dacion en pago transactions, but they
the same was not raised by petitioner bank in its
must be "based on MUTUALLY AGREED UPON
Comment/Opposition to the Rehabilitation Plan
TERMS." The SEC En Banc in its Resolution dated
filed with the SEC Hearing Panel. Such belated
April 15, 2003, affirming the SEC Hearing Panel’s
issue cannot be considered, especially because it
Order of April 26, 2001 approving the Rehabilitation
involves a question of fact, the resolution of which is
Plan, aptly declared:
normally beyond the authority of this Court as it is
x x x, petitioner asserts that the Rehabilitation Plan not a trier of facts.22
is not legally feasible because respondents cannot
dictate the terms of dacion.
At any rate, the SEC En Banc found that the SEC individually named as petitioners, not "ASB Group
Hearing Panel "acted within its legal authority in of Companies."
resolving this case. Neither it overstepped its lawful
One last word. The purpose of rehabilitation
authority nor acted whimsically in approving the
proceedings is to enable the company to gain new
Rehabilitation Plan. Hence, it cannot be faulted of
lease on life and thereby allows creditors to be paid
grave abuse of discretion."23 We find no reason to
their claims from its earnings.25 Rehabilitation
disturb such finding, it being a fundamental rule
contemplates a continuance of corporate life and
that factual findings of quasi-judicial agencies, like
activities in an effort to restore and reinstate the
the SEC, which have acquired expertise as their
financially distressed corporation to its former
jurisdiction is confined to special matters such as
position of successful operation and solvency.26 This
the subject of this case, are generally accorded great
is in consonance with the State’s objective to
respect and even finality, absent any showing that
promote a wider and more meaningful equitable
they arbitrarily disregarded evidence or
distribution of wealth to protect investments and the
misapprehended evidence to such an extent as to
public.27 The approval of the Rehabilitation Plan by
compel a contrary conclusion if such evidence had
the SEC Hearing Panel, affirmed by both the
been properly appreciated.24
SEC En Banc and the Court of Appeals, is precisely
Petitioner bank also argues that "ASB Group of in furtherance of the rationale behind P.D. No. 902-
Companies" is merely a generic name used to A, as amended, which is "to effect a feasible and
describe collectively various companies and as such, viable rehabilitation"28 of ailing corporations which
it is not a legal entity with juridical personality and affect the public welfare.
cannot be a party to a suit. True, "ASB Group of
WHEREFORE, we DENY the instant petition for
Companies" is merely used in this case as a generic
review on certiorari. The assailed Decision and
name, for brevity, to collectively describe the various
Resolution of the Court of Appeals in CA-G.R. SP
companies/corporations that filed a Petition For
No. 77260 are AFFIRMED.
Rehabilitation with the SEC. However, in their
petition, all the respondent corporations are Costs against intervenor Cameron Granville.
SO ORDERED. 17, 2007 and the Resolution2 dated October 30, 2007 of
the Court of Appeals (CA) in CA-G.R. SP No. 92695,
entitled "Export and Industry Bank v. Puerto Azul Land,
Inc."; and (2) G.R. No. 178768, assailing the
Decision3 dated March 16, 2007 and the
Resolution dated June 29, 2007 of the CA in CA-G.R.
4
THIRD DIVISION SP No. 91996, entitled "Puerto Azul Land, Inc. v. The
G.R. No. 178768 November 25, 2009 Regional Trial Court of Manila, Br. 24; Sheriff IV of
Pasay City Virgilio F. Villar; and Pacific Wide Realty &
PACIFIC WIDE REALTY AND Development Corporation (as substitute for Export and
DEVELOPMENT CORPORATION, Petitioner, Industry Bank, Inc.)."
vs.
PUERTO AZUL LAND, INC., Respondent. The Facts
x - - - - - - - - - - - - - - - - - - - - - - -x In G.R. No. 180893
G.R. No. 180893 Puerto Azul Land, Inc. (PALI) is the owner and
developer of the Puerto Azul Complex situated in
PACIFIC WIDE REALTY AND Ternate, Cavite. Its business involves the development of
DEVELOPMENT CORPORATION, Petitioner, Puerto Azul into a satellite city with residential areas,
vs. resort, tourism and retail commercial centers with
PUERTO AZUL LAND, INC., Respondent. recreational areas.5 In order to finance its operations, it
DECISION obtained loans from various banks, the principal amount
of which amounted to Six Hundred Forty Million Two
NACHURA, J.: Hundred Twenty-Five Thousand Three Hundred
Before the Court are the consolidated petitions for Twenty-Four Pesos (₱640,225,324.00). PALI and its
review on certiorari under Rule 45 of the Rules of Court: accommodation mortgagors, i.e., Ternate Development
(1) G.R. No. 180893, assailing the Decision1 dated May Corporation (TDC), Ternate Utilities, Inc. (TUI), and
Mrs. Trinidad Diaz-Enriquez, secured the loans.6
In the beginning, PALI’s business did very well. On April, 20, 2005, the rehabilitation receiver filed his
However, it started encountering problems when the rehabilitation report and recommendation, wherein he
Philippine Stock Exchange rejected the listing of its proposed that PALI should be rehabilitated rather than
shares in its initial public offering which sent a bad signal be dissolved and liquidated. On June 9, 2005, PALI filed
to the real estate market. This resulted in potential a revised rehabilitation plan.13
investors and real estate buyers shying away from the
EIB and the other creditors of PALI filed their respective
business venture. The situation was aggravated by the
comments/opposition to the report/recommendations
1997 Asian financial crisis and the decline of the real
of the rehabilitation receiver. On November 2, 2005,
estate market. Consequently, PALI was unable to keep
EIB, together with another creditor of PALI, Tranche I
up with the payment of its obligations, both current and
(SPV-MC), Inc., filed an urgent motion to disqualify the
those that were about to fall due. One of its creditors, the
appointed rehabilitation receiver. The RTC denied the
Export and Industry Bank7 (EIB), later substituted by
motion in an Order14dated December 9, 2005.15
Pacific Wide Realty and Development Corporation
(PWRDC), filed foreclosure proceedings on PALI’s On December 13, 2005, the RTC rendered a
mortgaged properties. Thrust to a corner, PALI filed a Decision16 approving PALI’s petition for suspension of
petition for suspension of payments and payments and rehabilitation. The pertinent portions of
rehabilitation,8 accompanied by a proposed rehabilitation the decision read:
plan and three (3) nominees for the appointment of a The rehabilitation of the petitioner, therefore, shall
rehabilitation receiver.9 proceed as follows:
On September 17, 2004, after finding that the petition 1. The creditors shall have, as first option, the right to be
was sufficient in form and substance, the Regional Trial
paid with real estate properties being offered by the
Court (RTC) issued a Stay Order10 and appointed Patrick petitioner in dacion en pago, which shall be implemented
V. Caoile as rehabilitation receiver.11 Dissatisfied, EIB under the following terms and conditions:
filed a motion to replace the appointed rehabilitation
receiver. On January 25, 2005, the RTC denied the a. The properties offered by the petitioner shall be
motion.12 appraised by three appraisers, one to be chosen by the
petitioner, a second to be chosen by the bank creditors
and the third to be chosen by the Receiver. The average b) One half (1/2) of the principal of the petitioner’s
of the appraisals of the three (3) chosen appraisers shall unsecured loan obligations to other creditors shall be
be the value to be applied in arriving at the dacion value settled through non-cash offsetting arrangements, with
of the properties. In case the dacion amount is less than the balance payable semi-annually over a period of 10
the total of the secured creditor’s principal obligation, the years, with 3-year grace period, with interest at the rate of
balance shall be restructured in accordance with the 2% p.a. for the first 5 years and 5% p.a. from the 6th year
schedule of payments under option 2, paragraph (a). In onwards until the obligations are settled in full. Accrued
case of excess, the same shall [be] applied in full or partial interest and penalties shall be condoned.
payment of the accrued interest on the obligations. The
c) Similarly, one half (1/2) of the petitioner’s obligations
balance of the accrued interest, if any, together with the
to trade creditors shall be settled through non-cash
penalties shall [be] condoned.
offsetting arrangements. The cash payments shall be
2. Creditors who will not opt for dacion shall be paid in made semi-annually over a period of 10 years on a pari
accordance with the restructuring of the obligations as passu basis with the bank creditors, without interest,
recommended by the Receiver as follows: penalties and other charges of similar kind.
a) The obligations to secured creditors will be subject to WHEREFORE, the rehabilitation of petitioner Puerto
a 50% haircut of the principal, and repayment shall be Azul Land, Inc. is hereby approved in accordance with
semi-annually over a period of 10 years, with 3-year grace the foregoing pronouncements by the Court. Subject to
period. Accrued interests and penalties shall be the following terms and conditions:
condoned. Interest shall be paid at the rate of 2% p.a. for
1. Immediately upon the implementation of the
the first 5 years and 5% p.a. thereafter until the
rehabilitation of the petitioner, the Rehabilitation
obligations are fully paid. The petitioner shall allot 50%
Receiver shall inform the Court thereof;
of its cash flow available for debt service for secured
creditors. Upon completion of payments to government 2. The Rehabilitation Receiver, creditors, and the
and employee accounts, the petitioner’s cash flow petitioner shall submit to the Court at the end of the first
available for debt service shall be used until the year of the petitioner’s rehabilitation, and annually
obligations are fully paid. thereafter until the termination of the rehabilitation, their
respective reports on the progress of the petitioner’s "u) To be notified of, and to attend all meetings of the
rehabilitation, specially the petitioner’s compliance with board of directors and stockholders of the debtors";
the provisions of the plan as modified by the
"v) To recommend any modification of an approved
Rehabilitation Receiver;
rehabilitation plan as he may deem appropriate";
3. The Rehabilitation Receiver shall report to the Court
"w) To bring to the attention of the court any material
any change in the assumptions used in the Rehabilitation
change affecting the debtor’s ability to meet the
Plan, its projections, and forecasts, that may be brought
obligations under the rehabilitation plan";
about by the settlement through dacion en pago of any
of the obligations and to recommend corresponding [x x x x]
changes, if any, in such assumptions, projections, and
"y) To recommend the termination of the proceedings
forecasts; and the dissolution of the debtor if he determines that
4. The rehabilitation of the petitioner is binding upon the the continuance in business of such entity is no longer
creditors and all persons who may be affected by it, feasible or profitable or no longer works to the best
including the creditors, whether or not they have interest of the stockholders, parties- litigants, creditors,
participated in the proceedings or opposed the plan or or the general public."
whether or not their claims have been scheduled. SO ORDERED.17
The petitioner is hereby strictly enjoined to abide by the
Finding the terms of the rehabilitation plan and the
terms and conditions set forth in this Order and the qualifications of the appointed rehabilitation receiver
provisions of the Interim Rules on Corporate unacceptable, EIB filed with the CA a petition for review
Rehabilitation.
under Rule 42 of the Rules of Court. The case was
The Rehabilitation Receiver is hereby directed to entitled, "Export and Industry Bank v. Puerto Azul Land,
perform his functions and responsibilities pursuant to Inc."
Section 14 of the Interim Rules, with particular emphasis On May 17, 2007, the CA rendered a Decision,18 the fallo
on the following:
of which reads:
WHEREFORE, in view of the forgoing, the petition for auction by the Treasurer’s Office of Pasay City for non-
review is hereby DISMISSED. The assailed December payment of realty taxes. Hence, EIB prayed that PALI or
13, 2005 decision of the court a quo is hereby TUI be ordered to pay the realty taxes due on TCT No.
AFFIRMED in toto.19 133164.23
EIB filed a motion for reconsideration. However, the PALI opposed the motion, arguing that the rehabilitation
same was denied in a Resolution20 dated October 30, court’s stay order stopped the enforcement of all claims,
2007. whether for money or otherwise, against a debtor, its
guarantors, and its sureties not solidarily liable to the
In G.R. No. 178768
debtor; thus, TCT No. 133164 was covered by the stay
On September 21, 2004, EIB entered its appearance order.24
before the rehabilitation court and moved for the
On March 31, 2005, the RTC issued an Order,25 the
clarification of the stay order dated September 17, 2004
dispositive portion of which reads:
and/or leave to continue the extrajudicial foreclosure of
the real estates owned by PALI’s accommodation Accordingly, and as being invoked by the creditor
mortgagors. In opposition, PALI argued that the movant, this Court hereby modifies the Stay Order of
foreclosure sought would preempt the rehabilitation September 17, 2004, in such a manner that TCT No.
proceedings and would give EIB undue preference over 133614 which is mortgaged with creditor movant Export
PALI’s other creditors. On November 10, 2004, the RTC and Industry Bank, Inc. is now excluded from the Stay
issued an Order,21 denying EIB’s motion.22 Order. As such, Export and Industry Bank, Inc. may
settle the above-stated realty taxes of third party
On March 3, 2005, EIB filed an urgent motion to order
mortgagor with the local government of Pasay City. In
PALI and/or the mortgagor TUI/rehabilitation receiver
return, and to adequately protect the creditor movant
to pay all the taxes due on Transfer Certificate of Title
Export and Industry Bank, Inc., the latter may foreclose
(TCT) No. 133164. EIB claimed that the property
on TCT No. 133614.
covered by TCT No. 133164, registered in the name of
TUI, was one of the properties used to secure PALI’s SO ORDERED.26
loan from EIB. The said property was subject to a public
On April 12, 2005, PALI filed an urgent motion for a part of the rehabilitation court in allowing the foreclosure
status quo order, praying that the stay order be of a mortgage constituted over the property of an
maintained and that the enforcement of the claim of accommodation mortgagor, to secure the loan
Pasay City be held in abeyance pending the hearing of its obligations of a corporation seeking relief in a
motion.27 On April 13, 2005, the RTC, so as not to render rehabilitation proceeding. The case was entitled, "Puerto
moot PALI’s motion, issued an Order,28 directing EIB to Azul Land, Inc. v. The Regional Trial Court of Manila,
refrain from taking any steps to implement the March 31, Br. 24; Sheriff IV of Pasay City Virgilio F. Villar; and
2005 Order. The City Treasurer of Pasay City was, Export and Industry Bank, Inc."
likewise, directed to respect the stay order dated
On March 16, 2007, the CA rendered a Decision,32 the
September 17, 2004 insofar as TCT No. 133164 was
fallo of which reads:
concerned, until further orders from the court.29
WHEREFORE, above premises considered, the instant
On August 16, 2005, the RTC issued an
Petition is GRANTED. The October 19, 2005 Order of
Order30 addressing the April 12, 2005 urgent motion of
the Regional Trial Court of Manila, Br. 24, in Civil Case
PALI. In the said order, the rehabilitation court
No. 04-110914 is hereby declared NULL and VOID and
maintained its March 31, 2005 Order. The court
the properties covered by TCT No. 133164 are hereby
reiterated that TCT No. 133164, under the name of TUI,
DECLARED subject to and covered by the September
was excluded from the stay order. In order to protect the
17, 2004 stay order. Accordingly, Public Respondent
interest of EIB as creditor of PALI, it may foreclose TCT
Sheriff Virgilio F. Villar, or his substitute or equivalent, is
No. 133164 and settle the delinquency taxes of third-
ORDERED to immediately cease and desist from
party mortgagor TUI with the local government of Pasay
enforcing the Amended Notice of Sheriff’s Sale, dated
City.
February 8, 2007, and from conducting the sale at public
PALI filed an urgent motion to modify the Order dated auction of the parcels of land covered by TCT No.
August 16, 2005. The same was denied by the RTC in an 133164 on March 20, 2007 or at anytime thereafter. No
Order31 dated October 19, 2005. Aggrieved, PALI filed costs.
with the CA a petition for certiorari under Rule 65 of the
SO ORDERED.33
Rules of Court, ascribing grave abuse of discretion on the
EIB filed a motion for reconsideration. The CA denied corporation benefits its employees, creditors,
the same in a Resolution34 dated June 29, 2007. stockholders and, in a larger sense, the general public.36
Hence, this petition for review on certiorari under Rule Under the Rules of Procedure on Corporate
45 of the Rules of Court. Rehabilitation,37 "rehabilitation" is defined as the
restoration of the debtor to a position of successful
On July 27, 2009, the Court ordered the consolidation of
operation and solvency, if it is shown that its continuance
the two petitions.
of operation is economically feasible and its creditors can
The Issues recover by way of the present value of payments
The issues for resolution are the following: (1) whether projected in the plan, more if the corporation continues
as a going concern than if it is immediately liquidated.
the terms of the rehabilitation plan are unreasonable and
in violation of the non-impairment clause; and (2) An indispensable requirement in the rehabilitation of a
whether the rehabilitation court erred when it allowed the distressed corporation is the rehabilitation plan, and
foreclosure of the accommodation mortgagee’s property Section 5 of the Interim Rules of Procedure on
and excluded the same from the coverage of the stay Corporate Rehabilitation provides the requisites thereof:
order.
SEC. 5. Rehabilitation Plan. — The rehabilitation plan
The Ruling of the Court shall include (a) the desired business targets or goals and
the duration and coverage of the rehabilitation; (b) the
I
terms and conditions of such rehabilitation which shall
Rehabilitation35 contemplates a continuance of corporate include the manner of its implementation, giving due
life and activities in an effort to restore and reinstate the regard to the interests of secured creditors; (c) the
corporation to its former position of successful operation material financial commitments to support the
and solvency. The purpose of rehabilitation proceedings rehabilitation plan; (d) the means for the execution of the
is to enable the company to gain a new lease on life and rehabilitation plan, which may include conversion of the
thereby allow creditors to be paid their claims from its debts or any portion thereof to equity, restructuring of
earnings. The rehabilitation of a financially distressed the debts, dacion en pago, or sale of assets or of the
controlling interest; (e) a liquidation analysis that
estimates the proportion of the claims that the creditors debts of PALI would not be prejudicial to the interest of
and shareholders would receive if the debtor’s properties PWRDC as a secured creditor. Enlightening is the
were liquidated; and (f) such other relevant information observation of the CA in this regard, viz.:
to enable a reasonable investor to make an informed
There is nothing unreasonable or onerous about the 50%
decision on the feasibility of the rehabilitation plan.
reduction of the principal amount when, as found by the
In G.R. No. 180893, the rehabilitation plan is contested court a quo, a Special Purpose Vehicle (SPV) acquired the
on the ground that the same is unreasonable and results credits of PALI from its creditors at deep discounts of as
in the impairment of the obligations of contract. much as 85%. Meaning, PALI’s creditors accepted only
PWRDC contests the following stipulations in PALI’s 15% of their credit’s value. Stated otherwise, if PALI’s
rehabilitation plan: fifty percent (50%) reduction of the creditors are in a position to accept 15% of their credit’s
principal obligation; condonation of the accrued and value, with more reason that they should be able to
substantial interests and penalty charges; repayment over accept 50% thereof as full settlement by their debtor. x x
a period of ten years, with minimal interest of two x. 38
percent (2%) for the first five years and five percent (5%)
We also find no merit in PWRDC’s contention that there
for the next five years until fully paid, and only upon
is a violation of the impairment clause. Section 10, Article
availability of cash flow for debt service.
III of the Constitution mandates that no law impairing
We find nothing onerous in the terms of PALI’s the obligations of contract shall be passed. This case does
rehabilitation plan. The Interim Rules on Corporate not involve a law or an executive issuance declaring the
Rehabilitation provides for means of execution of the modification of the contract among debtor PALI, its
rehabilitation plan, which may include, among others, the creditors and its accommodation mortgagors. Thus, the
conversion of the debts or any portion thereof to equity, non-impairment clause may not be invoked.
restructuring of the debts, dacion en pago, or sale of Furthermore, as held in Oposa v. Factoran, Jr.39 even
assets or of the controlling interest.1 a vv p h i 1 assuming that the same may be invoked, the non-
impairment clause must yield to the police power of the
The restructuring of the debts of PALI is part and parcel
State. Property rights and contractual rights are not
of its rehabilitation. Moreover, per findings of fact of the
absolute. The constitutional guaranty of non-impairment
RTC and as affirmed by the CA, the restructuring of the
of obligations is limited by the exercise of the police No. 902-A). Section 6(c) of P.D. No. 902-A mandates
power of the State for the common good of the general that, upon appointment of a management committee,
public. rehabilitation receiver, board, or body, all actions for
claims against corporations, partnerships or associations
Successful rehabilitation of a distressed corporation will
under management or receivership pending before any
benefit its debtors, creditors, employees, and the
court, tribunal, board, or body shall be suspended. Stated
economy in general. The court may approve a
differently, all actions for claims against a corporation
rehabilitation plan even over the opposition of creditors
pending before any court, tribunal or board shall ipso jure
holding a majority of the total liabilities of the debtor if,
be suspended in whatever stage such actions may be
in its judgment, the rehabilitation of the debtor is feasible
found.42
and the opposition of the creditors is manifestly
unreasonable.40 The rehabilitation plan, once approved, The justification for the suspension of actions or claims
is binding upon the debtor and all persons who may be pending rehabilitation proceedings is to enable the
affected by it, including the creditors, whether or not management committee or rehabilitation receiver to
such persons have participated in the proceedings or effectively exercise its/his powers free from any judicial
have opposed the plan or whether or not their claims or extrajudicial interference that might unduly hinder or
have been scheduled.41 prevent the "rescue" of the debtor company. To allow
such other action to continue would only add to the
II
burden of the management committee or rehabilitation
On the issue of whether the rehabilitation court erred receiver, whose time, effort and resources would be
when it allowed the foreclosure by PWRDC of the wasted in defending claims against the corporation
property of the accommodation mortgagor and excluded instead of being directed toward its restructuring and
the same from the coverage of the stay order, we rule in rehabilitation.43
the negative.
In G.R. No. 178768, the rehabilitation court, in its Orders
The governing law concerning rehabilitation and dated March 31, 2005 and August 16, 2005, removed
suspension of actions for claims against corporations is TCT No. 133164 from the coverage of the stay order.
Presidential Decree (P.D.) No. 902-A, as amended (P.D. The property covered by TCT No. 133164 is owned by
TUI. TCT No. 133164 was mortgaged to PWRDC by proprio, terminate, modify, or set conditions for the
TUI as an accommodation mortgagor of PALI by virtue continuance of the stay order, or relieve a claim from the
of the Mortgage Trust Indenture (MTI) dated February coverage thereof upon showing that (a) any of the
1995. allegations in the petition, or any of the contents of any
attachment, or the verification thereof has ceased to be
The MTI was executed among TDC, TUI and Mrs.
true; (b) a creditor does not have adequate protection
Trinidad Diaz- Enriquez, as mortgagors; PALI, as
over property securing its claim; or (c) the debtor’s
borrower; and Urban Bank, as trustee. Under Section
secured obligation is more than the fair market value of
4.04 thereof, the mortgagors and the borrower
the property subject of the stay and such property is not
guaranteed to pay and discharge on time all taxes,
necessary for the rehabilitation of the debtor.
assessments and governmental charges levied or assessed
on the collateral and immediately surrender to the trustee For purposes of this section, the creditor shall lack
copies of the official receipts for such payments. It was adequate protection if it can be shown that:
also agreed therein that should the borrower fail to pay
a. the debtor fails or refuses to honor a pre-existing
such uncontested taxes, assessments and charges within
agreement with the creditor to keep the property insured;
sixty (60) calendar days from due date thereof, the
trustee, at its option, shall declare the mortgagors and the b. the debtor fails or refuses to take commercially
borrower in default under Section 6.01(d) of the MTI, or reasonable steps to maintain the property; or
notify all the lenders of such failure.44 c. the property has depreciated to an extent that the
In excluding the property from the coverage of the stay creditor is undersecured.
order and allow PWRDC to foreclose on the mortgage
Upon showing of a lack of adequate protection, the court
and settle the realty tax delinquency of the property with shall order the rehabilitation receiver to (a) make
Pasay City, the rehabilitation court used as justification arrangements to provide for the insurance or
Section 12, Rule 4 of the Interim Rules on Corporate
maintenance of the property, or (b) to make payments or
Rehabilitation. The said section provides: otherwise provide additional or replacement security
SEC. 12. Relief from, Modification, or Termination of such that the obligation is fully secured. If such
Stay Order. — The court may, on motion or motu arrangements are not feasible, the court shall modify the
stay order to allow the secured creditor lacking adequate has the intention of paying the real property taxes on
protection to enforce its claim against the debtor; TCT No. 133614, which inaction will naturally result in
Provided, however, that the court may deny the creditor the auctioning of [the] subject land to the prejudice and
the remedies in this paragraph if such remedies would damage of creditor movant being the mortgagee thereof.
prevent the continuation of the debtor as a going concern Likewise, it is uncontested that the failure of the
or otherwise prevent the approval and implementation of petitioner or Ternate Utilities, Inc. to pay the realty
a rehabilitation plan. property taxes violate[d] the pre-existing agreement of
the petitioner [PALI] and Ternate Utilities, Inc. to the
In its March 31, 2005 Order, the rehabilitation court
creditor movant.45
ratiocinated that PALI violated the terms of the MTI by
failing to take reasonable steps to protect the security In the August 16, 2005 Order, the rehabilitation court
given to PWRDC, viz.: reaffirmed its decision to remove TCT No. 133164 from
the coverage of the stay order in order to protect the
It is crystal clear that Ternate Utilities, Inc. being the
secured claim of PWRDC, viz.:
owner of TCT No. 133614 is the one liable to pay the
realty taxes to the local government of Pasay City. The Considering that the auction sale of TCT No. 133614 by
petitioner [PALI], not being the owner of the subject land the local government of Pasay City without the Ternate
does not owe the local government of Pasay City in the Utilities, Inc., or the petitioner [PALI] redeeming or
same way [as] the local government of Pasay City is not a paying the corresponding due taxes and penalties totaling
creditor of petitioner [PALI]. The local government of to ₱7,523,257.50 as indicated in the aforesaid Certificate
Pasay City is pursuing directly the tax obligation of of Sale of Delinquent Real Property, the interest of
Ternate Utilities, Inc. which company is not the creditor EIB is greatly prejudiced.
petitioner [PALI] in this case. Hence, for all intents and
Lastly, even assuming that the value of the PALI property
purposes, the Stay Order does not cover the tax
covered by the MTI [Mortgage Trust Indenture] is indeed
obligations of Ternate Utilities, Inc. to the local
government of Pasay City.1avvphi1 ₱1.877 Billion, however, the total claim of EIB against
the petitioner [PALI] is more than ₱1.4 Billion Pesos (By
In [petitioner PALI’s] Comment, it can be gleaned that statement of Asset attached by EIB in its
neither Ternate Utilities, Inc. nor the petitioner [PALI] Comment/Opposition to the petition for rehabilitation
dated November 10, 2004) as of October 31, 2004 which the debtor, its guarantors and persons not solidarily liable
total obligation is still counting as to date. Hence, not with the debtor; provided, that the stay order shall not
redeeming the auctioned TCT No. 133614 from the cover claims against letters of credit and similar security
Pasay City Government definitely renders creditor EIB arrangements issued by a third party to secure the
not possessing adequate protection over [the] property payment of the debtor’s obligations; provided, further,
securing its claim against petitioner [PALI].46 that the stay order shall not cover foreclosure by a
creditor of property not belonging to a debtor under
Accordingly, the rehabilitation court committed no
corporate rehabilitation; provided, however, that where
reversible error when it removed TCT No. 133164 from
the owner of such property sought to be foreclosed is
the coverage of the stay order. The Interim Rules of
also a guarantor or one who is not solidarily liable, said
Procedure on Corporate Rehabilitation is silent on the
owner shall be entitled to the benefit of excussion as such
enforcement of claims specifically against the properties
guarantor[.]47
of accommodation mortgagors. It only covers the
suspension, during the pendency of the rehabilitation, of Thus, there is no question that the action of the
the enforcement of all claims against the debtor, its rehabilitation court in G.R. No. 178768 was justified.
guarantors and sureties not solidarily liable with the
WHEREFORE, in view of the foregoing, (1) the
mortgagor.
Decision dated May 17, 2007 and the Resolution dated
Furthermore, the newly adopted Rules of Procedure on October 30, 2007 of the Court of Appeals in CA-G.R. SP
Corporate Rehabilitation has a specific provision for this No. 92695 are hereby AFFIRMED; and (2) the Decision
special arrangement among a debtor, its creditor and its dated March 16, 2007 and the Resolution dated June 29,
accommodation mortgagor. Section 7(b), Rule 3 of the 2007 of the Court of Appeals in CA-G.R. SP No. 91996
said Rules explicitly allows the foreclosure by a creditor are hereby SET ASIDE. The October 19, 2005 Order of
of a property not belonging to a debtor under corporate the Regional Trial Court of Manila in Civil Case No. 04-
rehabilitation, as it provides: 110914 is hereby AFFIRMED. The property covered by
TCT No. 133164 is hereby declared excluded from the
SEC. 7. Stay Order.— x x x (b) staying enforcement of
coverage of the September 17, 2004 Stay Order.
all claims, whether for money or otherwise and whether
such enforcement is by court action or otherwise, against No costs.
SO ORDERED. Electronique), and Fastech Properties, Inc. (Fastech
Properties; collectively, respondents); (b) enjoined
petitioner Planters Development Bank (PDB) from
FIRST DIVISION effecting the foreclosure of respondents' properties
G.R. No. 206528, June 28, 2016 during the implementation thereof; and (c) remanded the
case to the Regional Trial Court (RTC) of Makati City,
PHILIPPINE ASSET GROWTH TWO, INC. Branch 149 (RTC-Makati) to supervise its
(SUCCESSOR-IN-INTEREST OF PLANTERS implementation.
DEVELOPMENT BANK) AND PLANTERS
DEVELOPMENT BANK, Petitioners, v. FASTECH The Facts
SYNERGY PHILIPPINES, INC. (FORMERLY
FIRST ASIA SYSTEM TECHNOLOGY, INC.), On April 8, 2011, respondents filed a verified Joint
FASTECH MICROASSEMBLY & TEST, INC., Petition5 for corporate rehabilitation (rehabilitation
FASTECH ELECTRONIQUE, INC., AND petition) before the RTC-Makati, with prayer for the
FASTECH PROPERTIES, INC., Respondents. issuance of a Stay or Suspension Order,6 docketed as SP
Case No. M-7130. They claimed that: (a) their business
DECISION
operations and daily affairs are being managed by the
PERLAS-BERNABE, J.: same individuals;7 (b) they share a majority of their
For the Court's resolution is a petition for review common assets;8 and (c) they have common creditors and
on certiorari1 assailing the Decision2 dated September 28, common liabilities.9chanrobleslaw
2012 and the Resolution3 dated March 5, 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 122836 Among the common creditors listed in the rehabilitation
which: (a) approved the Rehabilitation Plan4 of petition was PDB,10 which had earlier filed a
respondents Fastech Synergy Philippines, Inc. (formerly petition11 for extrajudicial foreclosure of mortgage over
First Asia System Technology, Inc.) (Fastech Synergy), the two (2) parcels of land, covered by Transfer
Fastech Microassembly & Test, Inc. (Fastech Certificate of Title (TCT) Nos. T-45810212 and T-
Microassembly), Fastech Electronique, Inc. (Fastech 45810313 and registered in the name of Fastech
Properties (subject properties),14 listed as common assets After the initial hearing on May 18, 2011, and the filing
of respondents in the rehabilitation petition.15 The of the comments/oppositions on the rehabilitation
foreclosure sale was held on April 13, 2011, with PDB petition,23 the RTC-Makati gave due course to the said
emerging as the highest bidder.16 Respondents claimed petition, and, thereafter, referred the same to the court-
that this situation has impacted on their chance to appointed Rehabilitation Receiver, who submitted in due
recover from the losses they have suffered over the years, time her preliminary report,24 opining that respondents
since the said properties are being used by Fastech may be rehabilitated, considering that their assets appear
Microassembly and Fastech Electronique17 in their to be sufficient to cover their liabilities, but reserved her
business operations, and a source of significant revenue comment to the Rehabilitation Plan's underlying
for their owner-lessor, Fastech Properties.18Hence, assumptions, financial goals, and procedures to
respondents submitted for the court's approval their accomplish said goals after the submission of a revised
proposed Rehabilitation Plan,19 which sought: (a) a rehabilitation plan as directed by the RTC-
waiver of all accrued interests and penalties; (b) a grace Makati,25cralawred which respondents subsequently
period of two (2) years to pay the principal amount of complied.26chanrobleslaw
respondents' outstanding loans, with the interests
accruing during the said period capitalized as part of the After the creditors had filed their respective comments
principal, to be paid over a twelve (12)-year period after and/or oppositions to the revised Rehabilitation Plan,
the grace period; and (c) an interest rate of four percent and respondents had submitted their consolidated
(4%) and two percent (2%) per annum (p.a.) for creditors reply27 thereto, the court-appointed Rehabilitation
whose credits are secured by real estate and chattel Receiver submitted her comments,28 opining that
mortgages, respectively.20chanrobleslaw respondents may be successfully rehabilitated,
considering the sufficiency of their assets to cover their
On April 19, 2011, the RTC-Makati issued a liabilities and the underlying assumptions, financial
Commencement Order with Stay Order,21 and appointed projections and procedures to accomplish said goals in
Atty. Rosario S. Bernaldo as Rehabilitation Receiver, their Rehabilitation Plan.29chanrobleslaw
which the latter subsequently accepted.22chanrobleslaw
The RTC-Makati Ruling
In a Resolution30 dated December 9, 2011, the RTC- In a Resolution dated January 24, 2012, the CA issued a
Makati dismissed the rehabilitation petition despite the TRO37 so as not to render moot and academic the case
favorable recommendation of its appointed before it in view of PDB's pending Ex-Parte Petition for
Rehabilitation Receiver. It found the facts and figures Issuance of a Writ of Possession over the subject
submitted by respondents to be unreliable in view of the properties before the RTC of Biñan, Laguna, docketed as
disclaimer of opinion of the independent auditors who LRC Case No. B-5141.38 Thereafter, the CA issued a
reviewed respondents' 2009 financial statements,31 which WPI39 on March 22, 2012.
it considered as amounting to a "straightforward
unqualified adverse opinion."32 In the same vein, it did On April 30, 2012, the court-appointed Rehabilitation
not give credence to the unaudited 2010 financial Receiver submitted a manifestation40 before the CA,
statements as the same were mere photocopied maintaining that the rehabilitation of respondents is
documents and unsigned by any of respondents' viable since the financial projections and procedures set
responsible officers.33 It also observed that respondents forth to accomplish the goals in their Rehabilitation Plan
added new accounts and/or deleted/omitted certain are attainable.41chanrobleslaw
accounts.34 Furthermore, it rejected the revised financial
projections as the bases for which were not submitted for After the creditors and respondents had filed their
its evaluation on the ground of respective comments and reply to the manifestation, the
confidentiality. chanrobleslaw
35
CA rendered a Decision42 dated September 28, 2012
(September 28, 2012 Decision), reversing and setting
Aggrieved, respondents appealed36 to the CA, with aside the RTC-Makati ruling.43 It ruled that the RTC-
prayer for the issuance of a temporary restraining order Makati grievously erred in disregarding the
(TRO) and/or a writ of preliminary injunction (WPI), report/opinion of the Rehabilitation Receiver that
docketed as CA-G.R. SP No. 122836. respondents may be successfully rehabilitated, despite
being highly qualified to make an opinion on accounting
The Proceedings Before the CA
in relation to rehabilitation matters.44 It likewise observed
that the RTC-Makati failed to distinguish the difference
between an adverse or negative opinion and a disclaimer new lead counsel of PDB, in collaboration51 and with the
or when an auditor cannot formulate an opinion with conformity of its counsel of record, Janda Asia &
exactitude for lack of sufficient data.45 Finally, the CA Associates.52 On April 3, 2013, DivinaLaw, on behalf of
declared that the Rehabilitation Plan is feasible and petitioner Philippine Asset Growth Two, Inc. (PAGTI),
should be approved, finding that respondents would be filed a Motion for Substitution of Parties (motion for
able to meet their obligations to their creditors within substitution),53 averring that PAGTI had acquired PDB's
their operating cash profits and other assets without claims and interests in the instant case, hence, should be
disrupting their business operations, which will be substituted as a party therein.
beneficial to their creditors, employees, stockholders, and
The Proceedings Before the Court
the economy.46chanrobleslaw
Accordingly, the CA reinstated the rehabilitation petition, On April 18, 2013, PAGTI and PDB (petitioners),
approved respondents' Rehabilitation Plan, and represented by DivinaLaw, filed the instant petition,
remanded the case to the RTC-Makati to supervise its claiming that PDB received a copy of the March 5, 2013
implementation. Considering that respondents' creditors Resolution on April 3, 2013.54chanrobleslaw
are placed in equal footing as a necessary consequence, it
permanently enjoined PDB from "effecting the On July 10, 2013, respondents filed their Urgent Motion
foreclosure" of the subject properties during the to Dismiss Petition for Review on Certiorari for Being
implementation of the Rehabilitation Filed Out of Time55 (urgent motion), positing that
Plan. chanrobleslaw
47 contrary to petitioners' claim that PDB received notice of
the March 5, 2013 Resolution on April 3, 2013, its
Dissatisfied, PDB filed a motion for counsel, Janda Asia & Associates, already received a
reconsideration which was, however, denied in a
48 Copy of the said resolution on March 12, 2013. Thus,
Resolution49 dated March 5, 2013 (March 5, 2013 petitioners only had until March 27, 2013 to file a petition
Resolution). for review on certiorari before the Court, and the petition
filed on April 18, 2013 was filed out of
In the interim, DivinaLaw entered50 its appearance as the time.56chanrobleslaw
the case of Home Guaranty Corporation v. R-II Builders,
Meanwhile, the Court required respondents to file their Inc.;64 and (b) the CA erred in not upholding the dismissal
comment57 to the petition, and subsequently directed of the rehabilitation petition despite the insufficiency of
petitioners to submit their comment on respondents' the Rehabilitation Plan which was based on financial
urgent motion, and reply to the latter's statements that contained misleading statements, and
comment.58chanrobleslaw financial projections that are mere unfounded
assumptions/speculations.65chanrobleslaw
In their Comment,59 respondents prayed for the
dismissal of the petition and reiterated their stand that the Thereafter, respondents filed a Manifestation and Update
same was filed out of time, arguing that the receipt of the (Re: Compliance to [the CA] Decision dated September
March 5, 2013 Resolution on March 12, 2013 by Janda 28, 2012)66 before the Court, stating that it had achieved
Asia & Associates, which remained as collaborating the EBITDA67 requirement of the Rehabilitation Plan
counsel of PDB, binds petitioners and started the and made quarterly payments in favor of the bank and
running of the fifteen (15)-day period within which to file non-bank creditors from December 28, 2014 to
a petition for review on certiorari before the Court. Thus, September 28, 2015, totalling
the petition filed on April 18, 2013 was filed beyond the P27,119,481.79. However,
68
the amount of
reglementary period.60 Respondents likewise maintained P8,364,836.53 in favor of PDB was not accepted, and is
the viability of the rehabilitation plan, which will benefit being held by respondents.69chanrobleslaw
not only their employees, but their stockholders,
The Issues Before the Court
creditors, and the general public.61chanrobleslaw
For their part, petitioners contended62 that: (a) the date The essential issues for the Court's resolution are: (a)
of receipt of petitioners' lead counsel, i.e., DivinaLaw's whether or not the petition for review on certiorariwas
receipt of the March 5, 2013 Resolution, should be the timely filed; and (b) the Rehabilitation Plan is feasible.
reckoning point of the fifteen (15)-day period within
The Court's Ruling
which to file the instant petition, since only the lead
counsel is entitled to service of court processes,63 citing I.
The Court first resolves the procedural issue anent the remained bound by the proceedings and the judgment
timeliness of the petition's filing. rendered against its transferor, PDB.
It is a long-standing doctrine that where a party is Generally, the failure to perfect an appeal in the manner
represented by several counsels, notice to one is and within the period provided for by law renders the
sufficient, and binds the said party.70 Notice to any one decision appealed from final and executory,74 and beyond
of the several counsels on record is equivalent to notice the competence of the Court to review. However, the
to all, and such notice starts the running of the period to Court has repeatedly relaxed this procedural rule in the
appeal notwithstanding that the other counsel on record higher interest of substantial justice. In Barnes v.
has not received a copy of the decision or Padilla,75 it was held that:ChanRoblesVirtualawlibrary
resolution.71chanrobleslaw
[A] final and executory judgment can no longer be
attacked by any of the parties or be modified, directly or
In the present case, PDB was represented by both Janda
indirectly, even by the highest court of the land.
Asia & Associates and DivinaLaw. It was not disputed
that Janda Asia & Associates, which remained a counsel
However, this Court has relaxed this rule in order to
of record, albeit, as collaborating counsel, received notice
serve substantial justice[,] considering (a) matters of life,
of the CA's March 5, 2013 Resolution on March 12, 2013.
liberty, honor or property, (b) the existence of special or
As such, it is from this date, and not from DivinaLaw's
compelling circumstances, (c) the merits of the case, (d)
receipt of the notice of said resolution on April 3, 2013
a cause not entirely attributable to the fault or negligence
that the fifteen (15)-day period72 to file the petition for
of the party favored by the suspension of the rules, (e) a
review on certiorari before the Court started to run.
lack of any showing that the review sought is merely
frivolous and dilatory, and (f) the other party will not be
Hence, petitioners only had until March 27, 2013 to file
unjustly prejudiced thereby.76chanroblesvirtuallawlibrary
a petition for review on certiorari before the Court, and
the petition filed on April 18, 2013 was filed out of time. After a meticulous scrutiny of this case, the Court finds
Notably, there is no showing that the CA had already that the unjustified rehabilitation of respondents, by
resolved PAGTI's motion for substitution;73 hence, it virtue of the CA ruling if so allowed to prevail, warrants
the relaxation of the procedural rule violated by creditors to be paid their claims out of its
petitioners in the higher interest of substantial justice. earnings.78 Thus, the basic issues in rehabilitation
The reasons therefor are hereunder explained. proceedings concern the viability and desirability of
continuing the business operations of the distressed
II.
corporation,79 all with a view of effectively restoring it to
a state of solvency or to its former healthy financial
Rehabilitation is statutorily defined under Republic Act condition through the adoption of a rehabilitation plan.
No. 10142,77 otherwise known as the "Financial
III.
Rehabilitation and Insolvency Act of 2010" (FRIA), as
follows:ChanRoblesVirtualawlibrary
In the present case, however, the Rehabilitation Plan
Section 4. Definition of Terms. - As used in this Act, the
failed to comply with the minimum requirements, i.e.: (a)
term: x x x x
material financial commitments to support the
rehabilitation plan; and (b) a proper liquidation analysis,
(gg) Rehabilitation shall refer to the restoration of the
under Section 18, Rule 3 of the 2008 Rules of Procedure
debtor to a condition of successful operation and
on Corporate Rehabilitation80 (Rules), which Rules were
solvency, if it is shown that its continuance of operation
in force at the time respondents' rehabilitation petition
is economically feasible and its creditors can recover by
was filed on April 8, 2011:ChanRoblesVirtualawlibrary
way of the present value of payments projected in the
plan, more if the debtor continues as a going concern Section 18. Rehabilitation Plan. - The rehabilitation
than if it is immediately liquidated. (Emphasis supplied) plan shall include (a) the desired business targets or goals
and the duration and coverage of the rehabilitation; (b)
Case law explains that corporate rehabilitation
the terms and conditions of such rehabilitation which
contemplates a continuance of corporate life and
shall include the manner of its implementation, giving
activities in an effort to restore and reinstate the
due regard to the interests of secured creditors such as,
corporation to its former position of successful
but not limited, to the non-impairment of their security
operation and solvency, the purpose being to enable
liens or interests; (c) the material financial
the company to gain a new lease on life and allow its
commitments to support the rehabilitation plan; (d)
the means for the execution of the rehabilitation plan, continued successful operation of the debtor-
which may include debt to equity conversion, corporation during the period of
restructuring of the debts, dacion en pago or sale or rehabilitation. chanrobleslaw
81
exchange or any disposition of assets or of the interest of

shareholders, partners or members; (e) a liquidation In this case, respondents' Chief Operating Officer, Primo
analysis setting out for each creditor that the present D. Mateo, Jr., in his executed Affidavit of General
value of payments it would receive under the plan is Financial Condition82 dated April 8, 2011, averred that
more than that which it would receive if the assets of respondents will not require the infusion of additional
the debtor were sold by a liquidator within a six- capital as he, instead, proposed to have all accrued
month period from the estimated date of filing of the penalties, charges, and interests waived, and a reduced
petition; and (f) such other relevant information to interest rate prospectively applied to all respondents'
enable a reasonable investor to make an informed obligations, in addition to the implementation of a two
decision on the feasibility of the rehabilitation plan. (2)-year grace period.83 Thus, there appears to be no
(Emphases supplied) concrete plan to build on respondents' beleaguered
financial position through substantial investments as the
The Court expounds.
plan for rehabilitation appears to be pegged merely on
A. Lack of Material Financial Commitment to financial reprieves. Anathema to the true purpose of
Support the Rehabilitation Plan. rehabilitation, a distressed corporation cannot be
restored to its former position of successful operation
and regain solvency by the sole strategy of delaying
A material financial commitment becomes significant in
gauging the resolve, determination, earnestness, and payments/waiving accrued interests and penalties at the
expense of the creditors.
good faith of the distressed corporation in financing the
proposed rehabilitation plan. This commitment may
include the voluntary undertakings of the stockholders The Court also notes that while respondents have
substantial total assets, a large portion of the assets of
or the would-be investors of the debtor-corporation
indicating their readiness, willingness, and ability to Fastech Synergy84 and Fastech Properties85 is comprised
contribute funds or property to guarantee the of noncurrent assets,86 such as advances to affiliates
which include Fastech Microassembly,87 and investment immediately liquidated. This is a crucial factor in a
properties which form part of the common assets of corporate rehabilitation case, which the CA,
Fastech Properties, Fastech Electronique, and Fastech unfortunately, failed to address.
Microassembly.88 Moreover, while there is a claim
C. Effect of Non-Compliance.
that unnamed customers have made investments by way
of consigning production equipment, and advancing
money to fund procurement of various equipment The failure of the Rehabilitation Plan to state any material
intended to increase production capacity,89 this can financial commitment to support rehabilitation, as well as
hardly be construed as a material financial commitment to include a liquidation analysis, renders the CA's
which would inspire confidence that the rehabilitation considerations for approving the same, i.e., that: (a)
would turn out to be successful. Case law holds that respondents would be able to meet their obligations to
nothing short of legally binding investment their creditors within their operating cash profits and
commitment/s from third parties is required to qualify as other assets without disrupting their business operations;
a material financial commitment.90 Here, no such binding (b) the Rehabilitation Receiver's opinion carries great
investment was presented. weight; and (c) rehabilitation will be beneficial for
respondents' creditors, employees, stockholders, and the
B. Lack of Liquidation Analysis.
economy,91 as actually unsubstantiated, and hence,
insufficient to decree the feasibility of respondents'
Respondents likewise failed to include any liquidation rehabilitation. It is well to emphasize that the remedy of
analysis in their Rehabilitation Plan. The total liquidation rehabilitation should be denied to corporations that do
assets and the estimated liquidation return to the not qualify under the Rules. Neither should it be allowed
creditors, as well as the fair market value vis-a-vis the to corporations whose sole purpose is to delay the
forced liquidation value of the fixed assets were not enforcement of any of the rights of the creditors.
shown. As such, the Court could not ascertain if the
petitioning debtor's creditors can recover by way of the Even if the Court were to set aside the failure of the
present value of payments projected in the plan, more if Rehabilitation Plan to comply with the fundamental
the debtor continues as a going concern than if it is requisites of material financial commitment to support
the rehabilitation and an accompanying liquidation better subserve the interests of its stakeholders, then it
analysis, a review of the financial documents presented may be said that a rehabilitation would not be feasible. In
by respondents fails to convince the Court of the such case, the rehabilitation court may convert the
feasibility of the proposed plan. proceedings into one for
liquidation. chanroblesvirtuallawlibrary
93
IV.
In the recent case of Viva Shipping Lines, Inc. v. Keppel
Philippines Mining, Inc.,94 the Court took note of the
The test in evaluating the economic feasibility of the plan
characteristics of an economically feasible rehabilitation
was laid down in Bank of the Philippine Islands v. Sarabia
plan as opposed to an infeasible rehabilitation
Manor Hotel Corporation92 (Bank of the Philippine Islands), to
plan:ChanRoblesVirtualawlibrary
wit:ChanRoblesVirtualawlibrary
Professor Stephanie V. Gomez of the University of the
In order to determine the feasibility of a proposed
Philippines College of Law suggests specific
rehabilitation plan, it is imperative that a thorough
characteristics of an economically feasible rehabilitation
examination and analysis of the distressed corporation's
plan:
financial data must be conducted. If the results of such
examination and analysis show that there is a real a. The debtor has assets that can generate more cash
opportunity to rehabilitate the corporation in view of the if used in its daily operations than if sold.
assumptions made and financial goals stated in the
b. Liquidity issues can be addressed by a practicable
proposed rehabilitation plan, then it may be said that a
business plan that will generate enough cash to
rehabilitation is feasible. In this accord, the rehabilitation
sustain daily operations.
court should not hesitate to allow the corporation to
operate as an on-going concern, albeit under the terms c. The debtor has a definite source of financing for
and conditions stated in the approved rehabilitation plan. the proper and full implementation of a
On the other hand, if the results of the financial Rehabilitation Plan that is anchored on realistic
examination and analysis clearly indicate that there lies no assumptions and goals.
reasonable probability that the distressed corporation
could be revived and that liquidation would, in fact,
These requirements put emphasis on liquidity: the cash
flow that the distressed corporation will obtain from
rehabilitating its assets and operations. A corporation's
(d) cash flow cannot sustain daily operations; and
assets may be more than its current liabilities, but some
assets may be in the form of land or capital equipment,
such as machinery or vessels. Rehabilitation sees to it that
these assets generate more value if used efficiently rather
than if liquidated. (e) negative net worth and the assets are near full
depreciation or fully depreciated.
On the other hand, this court enumerated the
characteristics of a rehabilitation plan that is infeasible:
In addition to the tests of economic feasibility, Professor
chanRoblesvirtualLawlibrary Stephanie V. Gomez also suggests that the Financial and
Rehabilitation and Insolvency Act of 2010 emphasizes on
(a) the absence of a sound and workable business rehabilitation that provides for better present value
plan; recovery for its creditors.
Present value recovery acknowledges that, in order to

pave way for rehabilitation, the creditor will not be paid
by the debtor when the credit falls due. The court may
(b) baseless and unexplained assumptions, targets
order a suspension of payments to set a rehabilitation
and goals;
plan in motion; in the meantime, the creditor remains
unpaid. By the time the creditor is paid, the financial and
economic conditions will have been changed. Money
paid in the past has a different value in the future. It is
(c) speculative capital infusion or complete lack unfair if the creditor merely receives the face value of the
thereof for the execution of the business plan; debt. Present value of the credit takes into account the
interest that the amount of money would have earned if and March 2011 were unaccompanied by any notes or
the creditor were paid on time. explanation on how the figures were arrived at. Besides,
respondents' cash operating position remained
Trial courts must ensure that the projected cash flow insufficient to meet their maturing obligations as their
from a business' rehabilitation plan allows for the closest current assets are still substantially lower than their
present value recovery for its creditors. If the projected current liabilities.100 The Court also notes the RTC-
cash flow is realistic and allows the corporation to meet Makati's observation that respondents added new
all its obligations, then courts should favor rehabilitation accounts and/or deleted/omitted certain accounts,101 but
over liquidation. However, if the projected cash flow is failed to explain or justify the same.
unrealistic, then courts should consider converting the
proceedings into that for liquidation to protect the Verily, respondents' Rehabilitation Plan should have
creditors.95chanroblesvirtuallawlibrary shown that they have enough serviceable assets to be able
to continue its business operation. In fact, as opposed to
A perusal of the 2009 audited financial statements shows
this objective, the revised Rehabilitation Plan still
that respondents' cash operating position96 was not even
requires "front load Capex spending" to replace common
enough to meet their maturing obligations. Notably, their
equipment and facility equipment to ensure sustainability
current assets were materially lower than their current
of capacity and capacity robustness,102 thus, further
liabilities,97 and consisted mostly of advances to related
sacrificing respondents' cash flow. In addition, the Court
parties in the case of Fastech Microassembly, Fastech
is hard-pressed to see the effects of the outcome of the
Electronique, and Fastech Properties.98 Moreover, the
streamlining of respondents' manufacturing operations
independent auditors recognized the absence of available
on the carrying value of their existing properties and
historical or reliable market information to support the
equipment.
assumptions made by the management to determine the
recoverable amount (value in use) of respondents'
In fine, the Rehabilitation Plan and the financial
properties and equipment.99chanrobleslaw
documents submitted in support thereof fail to show the
feasibility of rehabilitating respondents' business.
On the other hand, respondents' unaudited financial
statements for the year 2010, and the months of February V.
invoked to escape every position of distress.104 Thus, the
The CA's reliance on the expertise of the court-appointed remedy of rehabilitation should be denied to
Rehabilitation Receiver, who opined that respondents' corporations whose insolvency appears to be irreversible
rehabilitation is viable, in order to justify its finding that and whose sole purpose is to delay the enforcement of
the financial statements submitted were reliable, any of the rights of the creditors, which is rendered
overlooks the fact that the determination of the validity obvious by: (a) the absence of a sound and workable
and the approval of the rehabilitation plan is not the business plan; (b) baseless and unexplained assumptions,
responsibility of the rehabilitation receiver, but remains targets, and goals; and (c) speculative capital infusion or
the function of the court. The rehabilitation receiver's complete lack thereof for the execution of the business
duty prior to the court's approval of the plan is to study plan,105 as in this case.
the best way to rehabilitate the debtor, and to ensure that
VI.
the value of the debtor's properties is reasonably
maintained; and afterapproval, to implement the
rehabilitation plan.103 Notwithstanding the credentials of In view of all the foregoing, the Court is therefore
the court-appointed rehabilitation receiver, the duty to constrained to grant the instant petition, notwithstanding
determine the feasibility of the rehabilitation of the the preliminary technical error as above-discussed. A
debtor rests with the court. While the court may consider distressed corporation should not be rehabilitated when
the receiver's report favorably recommending the the results of the financial examination and analysis
debtor's rehabilitation, it is not bound thereby if, in its clearly indicate that there lies no reasonable probability
judgment, the debtor's rehabilitation is not feasible. that it may be revived, to the detriment of its numerous
stakeholders which include not only the corporation's
The purpose of rehabilitation proceedings is not only to creditors but also the public at large. In Bank of the
enable the company to gain a new lease on life, but also Philippine Islands:106
to allow creditors to be paid their claims from its earnings Recognizing the volatile nature of every business, the
when so rehabilitated. Hence, the remedy must be
rules on corporate rehabilitation have been crafted in
accorded only after a judicious regard of all stakeholders' order to give companies sufficient leeway to deal with
interests; it is not a one-sided tool that may be graciously debilitating financial predicaments in the hope of
restoring or reaching a sustainable operating form if only the Regional Trial Court of Makati City, Branch 149 in
to best accommodate the various interests of all its SP Case No. M-7130 is DISMISSED.
stakeholders, may it be the corporation's stockholders, its
creditors, and even the general SO ORDERED
public. chanroblesvirtuallawlibrary
107
Thus, the higher interest of substantial justice will be

FIRST DIVISION
better subserved by the reversal of the CA Decision.
Since the rehabilitation petition should not have been G.R. No. 205469, March 25, 2015
granted in the first place, it is of no moment that the BPI FAMILY SAVINGS BANK,
Rehabilitation Plan is currently under implementation.
INC., Petitioner, v. ST. MICHAEL MEDICAL
While payments in accordance with the Rehabilitation CENTER, INC., Respondent.
Plan were already made, the same were only possible
because of the financial reprieves and protracted DECISION
payment schedule accorded to respondents, which, as PERLAS-BERNABE, J.:
above-intimated, only works at the expense of the
creditors and ultimately, do not meet the true purpose of Before the Court is a petition for review
rehabilitation. on certiorari1 assailing the Decision2 dated August 30,
2012 and the Resolution3 dated January 18, 2013 of the
WHEREFORE, the petition is GRANTED. The Court of Appeals (CA) in CA-G.R. SP No. 121004 which
Decision dated September 28, 2012 and the Resolution affirmed the approval of the Rehabilitation Plan of
dated March 5, 2013 of the Court of Appeals in CA-G.R. respondent St. Michael Medical Center, Inc. (SMMCI) by
SP No. 122836 are hereby REVERSED and SET the Regional Trial Court of Imus, Cavite, Branch 21
ASIDE. Accordingly, the Joint Petition for corporate (RTC) through its Order4 dated August 4, 2011 in SEC
rehabilitation filed by respondents Fastech Synergy Case No. 086-10.chanroblesvirtuallawlibrary
Philippines, Inc. (formerly First Asia System Technology, The Facts
Inc.), Fastech Microassembly & Test, Inc., Fastech
Electronique, Inc., and Fastech Properties, Inc., before
land9 belonging to Sps. Rodil, on a portion of which
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the stands the hospital building being constructed. SMMCI
owners and sole proprietors of St. Michael Diagnostic was able to draw the aggregate amount of
and Skin Care Laboratory Services and Hospital (St. P23,700,000.00,10 with interest at the rate of 10.25% per
Michael Hospital), a 5-storey secondary level hospital annum (p.a.) and a late payment charge of 3% per month
built on their property located in Molino 2, Bacoor, accruing on the overdue amount, for which Sps. Rodil,
Cavite. With a vision to upgrade St. Michael Hospital into who agreed to be co-borrowers on the loan, executed and
a modern, well-equipped and full service tertiary 11- signed a Promissory Note.11cralawred
storey hospital, Sps. Rodil purchased two (2) parcels of
land adjoining their existing property and, on May 22, In the meantime, after suffering financial losses due to
2003, incorporated SMMCI, with which entity they problems with the first building contractor,12 Sps. Rodil
planned to eventually consolidate St. Michael Hospital’s temporarily deferred the original construction plans for
operations. SMMCI had an initial capital of the 11-storey hospital building and, instead, engaged the
P2,000,000.00 which was later increased to services of another contractor for the completion of the
P53,500,000.00, 94.49% of which outstanding capital remaining structural works of the unfinished building up
stock, or P50,553,000.00, was subscribed and paid by to the 5th floor. In this regard, they spent an additional
Sps. Rodil.5cralawred P25,000,000.00, or a total of P55,000,000.00 for the
construction. The lack of funds for the finishing works
In May 2004, construction of a new hospital building on of the 3rd, 4th and 5thfloors, however, kept the new
the adjoining properties commenced, with Sps. Rodil building from becoming completely functional and, in
contributing personal funds as initial capital for the turn, hampered the plans for the physical transfer of St.
project which was estimated to cost at least Michael Hospital’s operations to SMMCI. Nevertheless,
P100,000,000.00.6 To finance the costs of construction, using hospital-generated revenues, Sps. Rodil were still
SMMCI applied for a loan with petitioner BPI Family able to purchase new equipment and machinery for St.
Savings Bank, Inc. (BPI Family) which gave a credit line Michael Hospital valued in excess of
of up to P35,000,000.00,7 secured by a Real Estate P20,000,000.00.13cralawred
Mortgage8 (mortgage) over three (3) parcels of
Although the finishing works were later resumed and contractor as well as the rise of the cost of construction
some of the hospital operations were eventually materials. As of date, only two (2) floors of the new
transferred to the completed first two floors of the new building are functional, in which some of the operations
building, as of May 2006, SMMCI was still neither of St. Michael had already been transferred.20cralawred
operational nor earning revenues. Hence, it was only able
to pay the interest on its BPI Family loan, or the amount Also, it was alleged that more than P66,000,000.00 had
of P3,000,000.00 over a two-year period, from the been spent for the construction of the existing structure
income of St. Michael Hospital.14cralawred (in excess of its proportionate share of the original
estimated cost for the entire project), said amount having
On September 25, 2009, BPI Family demanded come from the personal funds of Sps. Rodil and/or
immediate payment of the entire loan obligation15 and, income generated by St. Michael Hospital, aside from the
soon after, filed a petition for extrajudicial drawings from the credit line with BPI Family. At the
foreclosure16 of the real properties covered by the same time, Sps. Rodil continued to shoulder the costs of
mortgage. The auction sale was scheduled on December equipment and machinery amounting to P20,000,000.00,
11, 2009, which was postponed to February 15, 2010 with in order to build up the hospital’s medical capabilities.
the conformity of BPI Family.17cralawred However, since SMMCI was neither operational nor
earning revenues, it could only pay interest on the BPI
On August 11, 2010, SMMCI filed a Petition for Family loan, using St. Michael Hospital’s income, over a
Corporate Rehabilitation18 (Rehabilitation Petition), two-year period.21cralawred
docketed as SEC Case No. 086-10, before the RTC, with
prayer for the issuance of a Stay Order as it foresaw the Further, it was averred that while St. Michael Hospital –
impossibility of meeting its obligation to BPI Family, its whose operations were to be eventually absorbed by
purported sole creditor.19cralawred SMMCI – was operating profitably, it was saddled with
the burden of paying the loan obligation of SMMCI and
In the said petition, SMMCI claimed that it had to defer Sps. Rodil to BPI Family, which it cannot service
the construction of the projected 11-storey hospital together with its current obligations to other persons
building due to the problems it had with its first and/or entities. The situation became even more difficult
when the bank called the entire loan obligation which, as The Proceedings Before the RTC
of November 16, 2009, amounted to P52,784,589.34 (net
of unapplied payment), consisting of: (a) the principal of
Finding the Rehabilitation Petition to be sufficient in
P23,700,000.00; (b) accrued interest of P7,048,152.74;
form and substance, the RTC issued a Stay Order26on
and (c) late payment charges amounting to
August 16, 2010. After the initial hearing on October 5,
P23,510,400.00. While several persons approached Sps.
2010, and the filing of comments to the said
Rodil signifying their interest to invest in the corporation,
petition,27 the same was referred to the court-appointed
they needed enough time to complete their audit and due
Rehabilitation Receiver, Dr. Uriel S. Halum (Dr. Halum),
diligence of the company,22 hence, the Rehabilitation
who submitted in due time his Report and
Petition.
Recommendations28 (Receiver’s Report) to the RTC on
February 17, 2011.29cralawred
In its proposed Rehabilitation Plan,23 SMMCI merely
sought for BPI Family (a) to defer foreclosing on the
In the said report, Dr. Halum gave credence to the
mortgage and (b) to agree to a moratorium of at least two
feasibility study conducted by Mrs. Nenita Alibangbang
(2) years during which SMMCI – either through St.
(Mrs. Alibangbang), a certified public accountant and
Michael Hospital or its successor – will retire all other
Dean of the College of Accountancy at the University of
obligations. After which, SMMCI can then start servicing
Perpetual Help Dalta, who was commissioned in 2008 to
its loan obligation to the bank under a mutually
do a study on the viability of the project, finding that the
acceptable restructuring agreement.24 SMMCI declared
same was feasible given that St. Michael Hospital, whose
that it intends to conclude pending negotiations for
operations SMMCI will eventually absorb, registered
investments offered by a group of medical doctors whose
outstanding revenue performance for the last seven years
capital infusion shall be used (a) to complete the finishing
of its operation with an average growth rate of 42.21%
requirements for the 3rd and 5th floors of the new
annually.30 Accordingly, Dr. Halum found that SMMCI
building; (b) to renovate the old 5-storey building where
may be rehabilitated because it is a viable option but,
St. Michael Hospital operates; and (c) to pay, in whole or
nevertheless, opined that it will take more than what it
in part, the bank loan with the view of finally integrating
had proposed to successfully bring the company back to
St. Michael Hospital with SMMCI.25cralawred
good financial health considering the finding that its
obligation actually extends beyond the bank, and also permitted to spend reasonable part of the
includes accounts payable due to suppliers and informal hospital’s revenues to improve the facilities. For
lenders.31 Thus, he made the following instance, we recommend that the fifth floor of the
recommendations:chanRoblesvirtualLawlibrary building should be finished to provide for an
intensive care unit or ICU with equipments (sic)
1. The two-year moratorium period to pay the bank
and required facilities. [SMMCI] should also
is not enough. The Court should seriously
consider spending (sic) an elevator to make access
consider extending it by another three years or a
to and from the higher floors convenient to
total of five (5) years, at least. The bank, whose
patients, doctors, nurses and guests. Incidentally,
loan is secured by mortgages on three prime
these improvements should be programmed for
parcels of land with improvements should discuss
the next two to three years. Given the budgetary
restructuring the loan with the creditors with the
constraints of the hospital, doing all these
end in view of stretching the term and allowing for
improvements all at once would be impossible.
more flexible rate.
4. Finally, [SMMCI] should provide for details on its
2. Obligations to other creditors such as the
statements regarding the prospective investors. It
suppliers and lenders can be serviced at once.
(sic) true, or in case it happens, then this fresh
Given the performance of the hospital, the
capital should be used partly to pay the bank and
undersigned reasonably believes that these
the rest to improve the hospital to make it more
obligations can be settled in next three (3) years.
competitive with the nearby medical service
These accounts can be paid proportionately
providers.32cralawred
provided that [SMMCI] should be allowed to re-
structure these accounts to allow for longer and cralawlawlibrary
more convenient payment terms.
3. [SMMCI] should be allowed to spend for the On May 26, 2011, the RTC issued an order requiring the
improvement of the building but not necessarily counsels of the creditors/oppositors to file their
continuing with the planned 11-storey building. It comments to the Receiver’s Report within ten (10) days
should make do with what it has but should be
from notice, but only counsel for South East Star continuous operation of the debtor as a going concern;
Enterprises complied. 33cralawred (6) the plan did not ask for a waiver of the principal; (7)
the plan preserves the security of the secured creditor; (8)
The RTC Ruling
the plan has provisions to ensure that future income will
inure to the benefit of the creditors; and (9) the
In an Order34dated August 4, 2011, the RTC approved rehabilitation of the debtor benefits its employees,
the Rehabilitation Plan with the modifications creditors, stockholders and, in a large sense, the general
recommended by the Rehabilitation Receiver and thus, public as it will generate employment and is a potential
ordered: (a) a five-year moratorium on SMMCI’s bank source of revenue for the government.36cralawred
loan; (b) a restructuring and payment of obligations to
other creditors such as suppliers and lenders; (c) a Aggrieved, BPI Family elevated the matter before the
programmed spending of a reasonable part of the CA, mainly arguing that the approval of the
hospital’s revenues for the finishing of the 5th floor and Rehabilitation Plan violated its rights as an unpaid
the improvement of hospital facilities in the next two or creditor/mortgagee and that the same was submitted
three years; and (d) use of fresh capital from prospective without prior consultation with creditors.37cralawred
investors to partly pay SMMCI’s bank loan and improve
The CA Ruling
St. Michael Hospital’s competitiveness.35cralawred
It cited the following considerations which had justified In a Decision38 dated August 30, 2012, the CA affirmed
its approval: (1) the Rehabilitation Plan is endorsed by the RTC’s approval of the Rehabilitation Plan.39cralawred
the Rehabilitation Receiver subject to certain
recommendations; (2) the plan ensures preservation of It found that: (a) the rehabilitation of SMMCI is feasible
assets and orderly payment of debts; (3) the plan provides considering the outstanding revenue performance of St.
for recovery rates on operating mode as opposed to Michael Hospital, which it shall absorb, showing its gross
liquidation values; (4) it contains details for a business profit exceeding its operating expenses and the large
plan which will restore profitability and solvency of probability of increased profitability due to the favorable
petitioner; (5) the projected cash flow can support the economic conditions of the locality; (b) the approval of
the Rehabilitation Plan did not amount to an impairment
of contract since there was no directive for the release of Restoration is the central idea behind the remedy of
the mortgaged properties to which BPI Family is entitled corporate rehabilitation. In common parlance, to
to as a secured creditor but only a suspension of the “restore” means “to bring back to or put back into a
provisions of the loan agreements; (c) it is not mandatory former or original state.”42 Case law explains that
for the validity of the Rehabilitation Plan that the corporate rehabilitation contemplates a continuance of
Rehabilitation Receiver should consult with the creditors; corporate life and activities in an effort to restore and
and (d) the approval of the Rehabilitation Plan was not reinstate the corporation to its former position of
made arbitrarily since it was done only after a review of successful operation and solvency, the purpose
the pleadings filed and the report submitted by the being to enable the company to gain a new lease on
Rehabilitation Receiver, and its approval was anchored life and allow its creditors to be paid their claims out
on valid considerations.40cralawred of its earnings.43 Consistent therewith is the term’s
statutory definition under Republic Act No.
Dissatisfied, BPI Family moved for reconsideration 10142,44 otherwise known as the “Financial
which was denied in a Resolution41 dated January 18, Rehabilitation and Insolvency Act of 2010” (FRIA),
2013, hence, this petition. which provides:chanRoblesvirtualLawlibrary
The Issue Before the Court Section 4. Definition of Terms. – As used in this Act, the
term:
The essential issue in this case is whether or not the CA
x x x x
correctly affirmed SMMCI’s Rehabilitation Plan as
approved by the RTC.
(gg) Rehabilitation shall refer to the restoration of the
The Court’s Ruling debtor to a condition of successful operation and
solvency, if it is shown that its continuance of operation
The petition is meritorious. is economically feasible and its creditors can recover by
way of the present value of payments projected in the
I. plan, more if the debtor continues as a going concern
than if it is immediately liquidated.chanrobleslaw viable business concern to be restored. Perforce, the
remedy of corporate rehabilitation is improper, thus
x x x x (Emphasis supplied)cralawlawlibrary rendering the dispositions of the courts a
quo infirm.chanroblesvirtuallawlibrary
In other words, rehabilitation assumes that the II.
corporation has been operational but for some
reasons like economic crisis or mismanagement had
In fact, for the same reasons, the Court observes that
become distressed or insolvent, i.e., that it is generally
SMMCI could not have even complied with the form and
unable to pay its debts as they fall due in the ordinary
substance of a proper rehabilitation petition, and submit
course of business or has liability that are greater than its
its accompanying documents, among others, the required
assets.45 Thus, the basic issues in rehabilitation
financial statements of a going concern. Section 2, Rule
proceedings concern the viability and desirability of
4 of the 2008 Rules of Procedure on Corporate
continuing the business operations of the distressed
Rehabilitation47 (Rules), which were in force at the time
corporation,46 all with a view of effectively restoring it to
SMMCI’s rehabilitation petition was filed on August 11,
a state of solvency or to its former healthy financial
2010, pertinently provides:chanRoblesvirtualLawlibrary
condition through the adoption of a rehabilitation plan.
SEC. 2. Contents of Petition. -
In this case, it cannot be said that the petitioning xxxx
corporation, SMMCI, had been in a position of
(b) The petition shall be accompanied by the following
successful operation and solvency at the time the documents:
Rehabilitation Petition was filed on August 11, 2010.
While it had indeed “commenced business” through the (1) An audited financial statement of the debtor at the
preparatory act of opening a credit line with BPI Family end of its last fiscal year;ChanRoblesVirtualawlibrary
to finance the construction of a new hospital building for
its future operations, SMMCI itself admits that it has not (2) Interim financial statements as of the end of the
formally operated nor earned any income since its month prior to the filing of the petition;
incorporation. This simply means that there exists no
the proper forum to pierce the corporate fictions of both
Note that this defect is not negated by the submission of entities for it involves no creditor claiming to be a victim
the financial documents pertaining to St. Michael of fraud, an essential requisite for the application of such
Hospital, which is a separate and distinct entity from doctrine.49cralawred
SMMCI. While the CA gave considerable weight to St.
Michael Hospital’s supposed “profitability,” as explicated In fine, the petition should not have been given due
in its own financial statements, as well as the feasibility course, nor should a Stay Order have been issued.
study conducted by Mrs. Alibangbang,48 in affirming the
III.
RTC, it has unwittingly lost sight of the essential fact that
SMMCI stands as the sole petitioning debtor in this case;
as such, its rehabilitation should have been primarily To compound its error, the CA even disregarded the fact
examined from the lens of its own financial history. that SMMCI’s Rehabilitation Plan, an indispensable
While SMMCI claims that it would absorb St. Michael requisite in corporate rehabilitation proceedings, failed to
Hospital’s operations, there was dearth of evidence to comply with the fundamental requisites outlined in
show that a merger was already agreed upon between Section 18, Rule 3 of the Rules, particularly, that of a
them. Accordingly, St. Michael Hospital’s financials material financial commitment to support the
cannot be utilized as basis to determine the feasibility of rehabilitation and an accompanying liquidation analysis,
SMMCI’s rehabilitation. all of the petitioning debtor:chanRoblesvirtualLawlibrary
SEC. 18. Rehabilitation Plan. - The rehabilitation
Note further that while it appears that Sps. Rodil
plan shall include (a) the desired business targets or goals
effectively owned and exercised control over the two and the duration and coverage of the rehabilitation; (b)
entities, such fact does not, by and of itself, warrant their
the terms and conditions of such rehabilitation which
singular treatment for to do so would only confuse the shall include the manner of its implementation, giving
objective of the proceedings which is to ascertain due regard to the interests of secured creditors such as,
whether the petitioning corporation, and not any other
but not limited, to the non-impairment of their security
entity related thereto (except if joining as a co-petitioning liens or interests; (c) the material financial
debtor), may be rehabilitated. Neither is the proceeding commitments to support the rehabilitation plan; (d)
the means for the execution of the rehabilitation plan, continued successful operation of the debtor
which may include debt to equity conversion, corporation during the period of
restructuring of the debts, dacion en pago or sale exchange rehabilitation. cralawred
50
or any disposition of assets or of the interest of

shareholders, partners or members; (e) a liquidation In this case, aside from the harped on merger of St.
analysis setting out for each creditor that the present Michael Hospital with SMMCI, the only proposed source
value of payments it would receive under the plan is of revenue the Rehabilitation Plan suggests is the capital
more than that which it would receive if the assets of which would come from SMMCI’s potential investors,
the debtor were sold by a liquidator within a six- which negotiations are merely pending. Evidently, both
month period from the estimated date of filing of the propositions commonly border on the speculative and,
petition; and (f) such other relevant information to hence, hardly fit the description of a material financial
enable a reasonable investor to make an informed commitment which would inspire confidence that the
decision on the feasibility of the rehabilitation plan. rehabilitation would turn out to be successful. In fact, the
(Emphases supplied)cralawlawlibrary Rehabilitation Receiver himself recognizes the ambiguity
of the proposition when he recommended
that:chanRoblesvirtualLawlibrary
A. Lack of Material Financial Commitment
[T]he petitioner should provide for details on its
to Support the Rehabilitation Plan.
statements regarding the prospective investors. If true or
in case it happens, then this fresh capital should be used
A material financial commitment becomes significant in partly to pay the bank and the rest, to improve the
gauging the resolve, determination, earnestness and good hospital to make it more competitive with the nearby
faith of the distressed corporation in financing the medical service providers.51cralawred
proposed rehabilitation plan. This commitment may cralawlawlibrary
include the voluntary undertakings of the stockholders
or the would-be investors of the debtor-corporation
In the same manner, the fact that St. Michael Hospital
indicating their readiness, willingness and ability to
had previously made payments for the benefit of SMMCI
contribute funds or property to guarantee the
is not enough assurance that the arrangement would Michael Hospital, being a separate and distinct entity
prospectively apply in the event that rehabilitation is whose merger with SMMCI only exists in the realm of
granted. As case law intimates, nothing short of legally probability, cannot be taken as a substitute to fulfill the
binding investment commitment/s from third parties is requirement. What remains pertinent are the financial
required to qualify as a material financial statements of SMMCI for it solely stands as the debtor
commitment.52 However, no such binding investment to be rehabilitated, or liquidated in this case.
was presented in this case.
At any rate, records disclose that St. Michael Hospital’s
B. Lack of Liquidation Analysis.
current cash operating position54 is just enough to meet
its own maturing obligations.55 While it has substantial
SMMCI likewise failed to include any liquidation analysis total assets, a large portion thereof is comprised of fixed
in its Rehabilitation Plan. The Court observes that as of assets, while its current assets56 consist mostly of
November 16, 2009, or about 9 months prior to the filing inventory.57 Still, the total liquidation assets and the
of the petition for rehabilitation, the loan with BPI estimated liquidation return to the creditors, as well as the
Family had already amounted to P52,784,589.34, with fair market value vis-à-vis the forced liquidation value of
interest at 10.25% p.a. or a daily interest of about the fixed assets that would guide the Court in assessing
P6,655.48 and late payment charge of 36% the feasibility of the Rehabilitation Plan were not shown.
p.a.53 However, with no SMMCI financial statement on
C. Effect of Non-Compliance.
record, it is unclear to the Court what assets it possesses
in order to determine the values to be derived if
liquidation has to be had thereby. Accordingly, this The failure of the Rehabilitation Plan to state any material
prevents the Court from ascertaining if the petitioning financial commitment to support rehabilitation, as well as
debtor’s creditors can recover by way of the present to include a liquidation analysis, translates to the
value of payments projected in the plan, more if the conclusion that the RTC’s stated considerations for
debtor continues as a going concern than if it is approval, i.e., that (a) the plan provides for recovery rates
immediately liquidated, a crucial factor in a corporate on operating mode as opposed to liquidation values; (b)
rehabilitation case. Again, the financial records of St. it contains details for a business plan which will restore
profitability and solvency on petitioner; (c) the projected their claims from its earnings, when so
cash flow can support the continuous operation of the rehabilitated. Hence, the remedy must be accorded only
debtor as a going concern; and (d) the plan has after a judicious regard of all stakeholders’ interests; it is
provisions to ensure that future income will inure to the not a one-sided tool that may be graciously invoked to
benefit of the creditors,58 are actually unsubstantiated, escape every position of distress.
and hence, insufficient to decree SMMCI’s rehabilitation.
It is well to emphasize that the remedy of rehabilitation In this case, not only has the petitioning debtor failed to
should be denied to corporations that do not qualify show that it has formally began its operations which
under the Rules. Neither should it be allowed to would warrant restoration, but also it has failed to show
corporations whose sole purpose is to delay the compliance with the key requirements under the Rules,
enforcement of any of the rights of the creditors, which the purpose of which are vital in determining the
is rendered obvious by: (a) the absence of a sound and propriety of rehabilitation. Thus, for all the reasons
workable business plan; (b) baseless and unexplained hereinabove explained, the Court is constrained to rule in
assumptions, targets, and goals; and (c) speculative capital favor of BPI Family and hereby dismiss SMMCI’s
infusion or complete lack thereof for the execution of the Rehabilitation Petition. With this pronouncement, it is
business plan.59 Unfortunately, these negative indicators now unnecessary to delve on the other ancillary issues
have all surfaced to the fore, much to SMMCI’s chagrin. raised herein.
IV.
WHEREFORE, the petition is GRANTED. The
Decision dated August 30, 2012 and the Resolution dated
While the Court recognizes the financial predicaments of January 18, 2013 of the Court of Appeals in CA-G.R. SP
upstart corporations under the prevailing economic No. 121004 upholding the Order dated August 4, 2011
climate, it must nonetheless remain forthright in limiting of the Regional Trial Court of Imus, Cavite, Branch 21
the remedy of rehabilitation only to meritorious cases. As approving the Rehabilitation Plan of respondent St.
above-mentioned, the purpose of rehabilitation Michael Medical Center, Inc. (SMMCI) are
proceedings is not only to enable the company to gain a hereby REVERSED and SET ASIDE.Accordingly,
new lease on life but also to allow creditors to be paid SMMCI’s Petition for Corporate Rehabilitation
is DISMISSED.
SO ORDERED

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x - - - - - - - - - - - - - - - - - - - - - - -x In G.R. No. 180893

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Present value recovery acknowledges that, in order to

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