1. ASIATRUST DEVELOPMENT BANK- versus -FIRST AIKKA 7.
7. FIXES the initial hearing on the petition on June 29, 2006 at 11:00 oclock (sic) in
DEVELOPMENT, INC. and UNIVAC DEVELOPMENT, INC. G.R. No.
179558 June 11, 2011
Facts:Respondents First Aikka Development, Inc. (FADI) and Univac Development,
Inc. (UDI) are domestic corporations engaged in the construction and/or development
of roads, bridges, infrastructure projects, subdivisions, housing, land, memorial parks,
and other industrial and commercial projects for the government or any private entity
or individual.
In the course of their business, FADI and UDI availed of separate loan
accommodations or credit lines with petitioner Asiatrust Development Bank. The
aggregate amount of the loan obtained by respondents was P114,000,000.00.
Respondents religiously and faithfully complied with their loan obligations, but during
the Asian Financial Crisis, which directly and adversely affected mainly the
construction and real estate industry, respondents could not pay their obligations in
cash.This prompted respondents to negotiate with petitioner for different modes of
payment that the former might avail of. Petitioner thus agreed that respondents assign
the receivables of their various contracts to sell involving the lots in the residential
subdivision projects they were developing, instead of paying in cash.
Notwithstanding the above agreement, petitioner insisted on collecting the loan per
the loan documents. Petitioner claimed that respondents were already in default and
demanded the payment of P145,830,220.95. Respondents denied that they were in
default because of the assignment of their receivables to petitioner. Respondents
contested petitioners claim and demanded for an accounting to determine the correct
and true amount of their obligations.
On May 10, 2006, respondents filed a consolidated Petition for Corporate
Rehabilitation with Prayer for Suspension of Payments with the Regional Trial Court
(RTC) of Baguio City, Branch 59. Respondents alleged that they were unable to pay
their loan based on the claim of petitioner. Though they have sufficient assets to pay
their loan, respondents averred that they were not liquid. They also stated that they
were threatened by petitioner with various cases aimed at disrupting the operations of
respondents which might eventually lead to the cessation of their
business.Respondents prayed that an order be issued staying the enforcement of any
and all claims of their creditors, investors, and suppliers, whether for money or
otherwise, against petitioner, their guarantors, and sureties. By way of rehabilitation,
respondents also sought the determination of the true and correct amount of their
loan obligation with petitioner.
The Court (RTC) hereby:
1. ORDERS STAYING enforcement of all claims whether for money or
otherwise and whether such enforcement is by court action or otherwise, against the
debtors (herein petitioners)[, their] guarantors and [sureties] not solidarily liable with
the debtors. In particular[,] ASIATRUST BANK BE STAYED from proceeding with the
foreclosure and auction sale of the mortgaged properties;
2. APPOINTS PATRICK V. CAOILE as interim rehabilitation receiver with a bond of
two million (P2,000,000.00) pesos;
the morning
On the day of the initial hearing, petitioner, through its counsel Atty. Mario C. Lorenzo
(Atty. Lorenzo), went to court with a Motion for Leave of Court to Admit Opposition to
Rehabilitation Petition with the attached Opposition to Petition for Rehabilitation. In an
Order dated July 17, 2006, the RTC denied the motion and explained:
Under par. 9 of the Stay Order[,] all creditors, etc., were given ten (10) days before
the initial hearing to file their comment or opposition to the petition and putting them
on notice that failure to do so will bar them from participating in the proceedings.
On July 31, 2006, when the case was called for hearing, Enrico J. Ong (Ong)
appeared as representative of petitioner because the latters counsel could not go to
court due to the cancellation of his flight as a result of bad weather. The rehabilitation
court recognized the appearance of Ong only to inform the court that the counsel for
petitioner could not attend the hearing. There being no other oppositors or creditors in
court despite due notices, the rehabilitation court terminated the initial hearing and
directed the rehabilitation receiver to evaluate respondents rehabilitation plan and
then report the results thereof to the court.
On October 13, 2006, the rehabilitation receiver called for a conference and
presented the draft of the rehabilitation report to petitioner, represented by Atty.
Lorenzo and Ong, and to respondents. Petitioner filed a manifestation and motion in
court calling its attention to the alleged refusal of the receiver to hear its side.
Petitioner thus asked for judicial assistance to enable it to actively participate in the
rehabilitation proceedings and protect its interest. The receiver finalized and later on
filed his evaluation report in court. He recommended the approval of the rehabilitation
plan.
On December 5, 2006, the RTC issued an Order, the Motion of Oppositor Asiatrust to
participate in the Rehabilitation Proceedings is DENIED. As to the Rehabilitation
Report and the Integrated Revised Rehabilitation Plan and Schedule of the
petitioners, the court, after a careful and thorough examination and review of the
report, it is its considered judgment that the rehabilitation of the debtor is feasible and
hereby APPROVES the Rehabilitation Report and the REVISED REHABILITATION
PLAN.
ISSUE: 1. WON the court has jurisdiction( Venue) ?
2. Whether the rehabilitation court, as affirmed by the CA, correctly denied
petitioners prayer to participate in the rehabilitation proceedings because of the
belated filing of its Comment/Opposition to respondents petition for rehabilitation
3. WHAT IS REHABLITATION AND ITS PURPOSE?
HELD: 1. NO.Records show that the Petition for Corporate Rehabilitation with Prayer
for Suspension of Payments was filed by two corporations, namely, FADI and UDI.
Respondent FADI is a real estate corporation duly organized and existing under and
by virtue of Philippine laws, with principal place of business
in Baguio City. Respondent UDI, on the other hand, is a real estate corporation with
principal place of business in Pasig City.Respondents explain in their petition that
they filed the consolidated petition because they availed of separate but intertwined
loan obligations or credit lines, and that they have interlocking directors, owners, and
officers. As such, a full and complete settlement of the loan obligations will involve the
two corporations and, consequently, the rehabilitation of one will entail the
rehabilitation of the other.
We find that the consolidation of the petitions involving these two separate entities is
not proper.
Although FADI and UDI have interlocking directors, owners, and officers and
intertwined loans, the two corporations are separate, each with a personality distinct
from the other. To be sure, in determining the feasibility of rehabilitation, the court
evaluates the assets and liabilities of each of these corporations separately and not
jointly with other corporations.
Sec. 2. Venue. Petitions for rehabilitation pursuant to these Rules shall be filed in the
Regional Trial Court having jurisdiction over the territory where the debtors principal
office is located.
Considering that UDIs principal office is located in Pasig City, the petition should
have been filed with the RTC in Pasig City and not in Baguio City. The latter court
cannot, therefore, take cognizance of the rehabilitation petition insofar as UDI is
concerned for lack of jurisdiction.
This error, however, will not result in the dismissal of the entire petition since the RTC
of Baguio City had jurisdiction over the petition of FADI in accordance with the above-
quoted provision of the Rules.
2. No. The Court promulgated the Rules in order to provide a remedy for summary
and non-adversarial rehabilitation proceedings of distressed but viable
corporations. These Rules are to be construed liberally to obtain for the parties a just,
expeditious, and inexpensive disposition of the case.To be sure, strict compliance
with the rules of procedure is essential to the administration of justice. Nonetheless,
technical rules of procedure are mere tools designed to facilitate the attainment of
justice. Their strict and rigid application should be relaxed when they hinder rather
than promote substantial justice. Otherwise stated, strict application of technical rules
of procedure should be shunned when they hinder rather than promote substantial
justice.
In this case, instead of filing its opposition to the petition for rehabilitation at least ten
days before the date of the initial hearing as required by the Rules, petitioner filed
a Motion for Leave of Court to Admit Opposition to Rehabilitation Petition with the
attached Opposition to Petition for Rehabilitation on the date of the initial hearing.
Because the pleading was not filed on time, the RTC denied the motion. While the
court has the discretion whether or not to admit the opposition belatedly filed by
petitioner, it is our considered opinion that the RTC gravely abused its discretion
when it refused to grant the motion, even as the factual circumstances of the case
require that the Rules be liberally construed in the interest of justice.
3. Corporate rehabilitation connotes the restoration of the debtor to a position of
successful operation and solvency, if it is shown that its continued operation is
economically feasible and its creditors can recover by way of the present value of
payments projected in the rehabilitation plan, more if the corporation continues as a
going concern than if it is immediately liquidated.
Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative
purposes. On the one hand, they attempt to provide for the efficient and equitable
distribution of an insolvent debtors remaining assets to its creditors; and on the other,
to provide debtors with a fresh start by relieving them of the weight of their
outstanding debts and permitting them to reorganize their affairs.The purpose of
rehabilitation proceedings is to enable the company to gain a new Lease on life and
thereby allow creditors to be paid their claims from its earnings.
2. ALFREDO L. VILLAMOR, JR., Petitioner, v. JOHN S. UMALE, IN
SUBSTITUTION OF HERNANDO F. BALMORES, Respondent. G.R. No.
172843, September 24, 2014
RODIVAL E. REYES, HANS M. PALMA AND DOROTEO M.
PANGILINAN, Petitioners, v. HERNANDO F. BALMORES, Respondent. G.R. NO.
172881
FACTS: MC Home Depot occupied a prime property (Rockland area) in Pasig. The
property was part of the area owned by Mid-Pasig Development Corporation (Mid-
Pasig). Pasig Printing Corp. (PPC) obtained an option to lease portions of Mid-Pasig's
property, including the Rockland area.
On November 11, 2004, PPC's board of directors issued a resolution waiving all its
rights, interests, and participation in the option to lease contract in favor of the law
firm of Atty. Alfredo Villamor, Jr. (Villamor), petitioner in G.R. No. 172843. PPC
received no consideration for this waiver in favor of Villamor's law firm.
Thereafter,PPC, represented by Villamor, entered into a memorandum of agreement
(MOA) with MC Home Depot. Under the MOA, MC Home Depot would continue to
occupy the area as PPC's sublessee for four (4) years, renewable for another four (4)
years, at a monthly rental of P4,500,000.00 plus goodwill of P18,000,000.00. MC
Home Depot issued 20 post-dated checks representing rental payments for one year
and the goodwill money. The checks were given to Villamor who did not turn these or
the equivalent amount over to PPC, upon encashment.
Hernando Balmores, a stockholder and director of PPC, wrote a letter addressed to
PPJC's directors,informed them that Villamor should be made to deliver to PPC and
account for MC Home Depot's checks or their equivalent value.
Due to the alleged inaction of the directors, respondent Balmores filed with the
Regional Trial Court an intra-corporate controversy complaint against petitioners for
their alleged devices or schemes amounting to fraud or misrepresentation
"detrimental to the interest of the Corporation and its stockholders."He also alleged
that because of petitioners' actions, PPC's assets were ". . . not only in imminent
danger, but have actually been dissipated, lost, wasted and destroyed." And prayed
that a receiver be appointed from his list of nominees. He also prayed for petitioners'
prohibition from "selling, encumbering, transferring or disposing in any manner any of
[PPC's] properties, including the MC Home [Depot] checks and/or their proceeds." He
prayed for the accounting and remittance to PPC of the MC Home Depot checks or
their proceeds and for the annulment of the board's resolution "vaiving PPC's rights in
favor of Villamor's law firm.
RTC denied the motion of Balmores, however CA gave due course to respondent
Balmores' petition. Placing Pasig Printing Corporation (PPC) under receivership and
appointed an interim management committee for the corporation.
ISSUE: Whether the Court of Appeals may exercise the power to appoint a
management committee.
HELD: NO. The Court of Appeals has no power to appoint a receiver or management
committee. The Regional Trial Court has original and exclusive jurisdiction to hear
and decide intra-corporate controversies, including incidents of such
controversies. These incidents include applications for the appointment of receivers or
management committees.
"The receiver and members of the management committee . . . are considered
officers of the court and shall be under its control and supervision." They are required
to report to the court on the status of the corporation within sixty (60) days from their
appointment and every three (3) months after.
When respondent Balmores filed his petition for certiorari with the Court of Appeals,
there was still a pending action in the trial court. No less than the Court of Appeals
stated that it allowed respondent Balmores' petition under Rule 65 because the order
or resolution in question was an interlocutory one. This means that jurisdiction over
the main case was still lodged with the trial court.
The court making the appointment controls and supervises the appointed receiver or
management committee. Thus, the Court of Appeals' appointment of a management
committee would result in an absurd scenario wherein while the main case is still
pending before the trial court, the receiver or management committee reports' to the
Court of Appeals.
3. PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, v. BASIC
POLYPRINTERS AND PACKAGING CORPORATION, Respondent. G.R.
No. 187581, October 20, 2014
FACTS: Respondent Basic Polyprinters and Packaging Corporation (Basic
Polyprinters) was a domestic corporation engaged in the business of printing greeting
cards, gift wrappers, gift bags, calendars, posters, labels and other novelty items.
Basic Polyprinters, along with the eight other corporations belonging to the Limtong
Group of Companies (namely: Cuisine Connection, Inc., Fine Arts International,
Gibson HP Corporation, Gibson Mega Corporation, Harry U. Limtong Corporation,
Main Pacific Features, Inc., T.O.L. Realty & Development Corp., and Wonder Book
Corporation), filed a joint petition for suspension of payments with approval of the
proposed rehabilitation in the RTC .The RTC issued a stay order, and eventually
approved the rehabilitation plan, but the CA reversed the RTC on October 25,
2005, and directed the petitioning corporations to file their individual petitions for
suspension of payments and rehabilitation in the appropriate courts.
Finding the petition sufficient in form and substance, the RTC issued the stay order
dated August 31, 2006. It appointed Manuel N. Cacho III as the rehabilitation receiver,
and required all creditors and interested parties, including the Securities and
Exchange Commission (SEC), to file their comments.
After the initial hearing and evaluation of the comments and opposition of the
creditors, including PBCOM, the RTC gave due course to the petition and referred it
to the rehabilitation receiver for evaluation and recommendation.The rehabilitation
receiver submitted his report recommending the approval of the rehabilitation plan.
On December 19, 2007, the rehabilitation receiver submitted his clarifications and
corrections to his report and recommendations.
RTC issued an order approving the rehabilitation plan, CA affirmed the questioned
order of the RTC, agreeing with the finding of the rehabilitation receiver that there
were sufficient evidence, factors and actual opportunities in the rehabilitation plan
indicating that Basic Polyprinters could be successfully rehabilitated in due time.
ISSUE: 1.sole issue in corporate rehabilitation is one of liquidity
2. WON Basic Polyprinters present any material financial commitment in the
rehabilitation plan?
HELD: 1. NO. Under the Interim Rules, rehabilitation is the process of restoring “the
debtor to a position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover by way
of the present value of payments projected in the plan more if the corporation
continues as a going concern that if it is immediately liquidated.” It contemplates a
continuance of corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency.
In Asiatrust Development Bank v. First Aikka Development, Inc.:
Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative
purposes. On the one hand, they attempt to provide for the efficient and equitable
distribution of an insolvent debtor's remaining assets to its creditors; and on the other,
to provide debtors with a "fresh start" by relieving them of the weight of their
outstanding debts and permitting them to reorganize their affairs. The purpose of
rehabilitation proceedings is to enable the company to gain a new lease on life and
thereby allow creditors to be paid their claims from its earnings.24
Consequently, the basic issues in rehabilitation proceedings concern the viability and
desirability of continuing the business operations of the petitioning corporation. The
determination of such issues was to be carried out by the court-appointed
rehabilitation receiver, who was Cacho in this case.
Moreover, Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act
(FRIA) of 2010), a law that is applicable hereto, has defined a corporate debtor as a
corporation duly organized and existing under Philippine laws that has become
insolvent. The term insolvent is defined in Republic Act No. 10142 as “the financial
condition of a debtor that is generally unable to pay its or his liabilities as they fall due
in the ordinary course of business or has liabilities that are greater than its or his
assets.” As such, the contention that rehabilitation becomes inappropriate because of
the perceived insolvency of Basic Polyprinters was incorrect.
2. NO. Basic Polyprinters presented financial commitments were insufficient for the
purpose. A material financial commitment becomes significant in gauging the resolve,
determination, earnestness and good faith of the distressed corporation in financing
the proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness and ability to contribute funds or property to
guarantee the continued successful operation of the debtor corporation during the
period of rehabilitation.
4. METROPOLITAN BANK AND TRUST COMPANY, Petitioner, v. S.F. NAGUIAT
ENTERPRISES, INC., Respondent. G.R. No. 178407, March 18, 2015
FACTS: Sometime in April 1997, Spouses Rommel Naguiat and Celestina Naguiat
and S.F. Naguiat Enterprises, Inc. (S.F. Naguiat) executed a real estate mortgage in
favor of Metropolitan Bank and Trust Company (Metrobank) to secure certain credit
accommodations obtained from the latter amounting to P17 million. The mortgage
was constituted over the following properties:
(1) TCT No. 586767 - a parcel of land in the Barrio of Pulung Bulu, Angeles,
Pampanga, with an area of 489 square meters; and
(2) TCT No. 310523 - a parcel of land in Marikina, Rizal, with an area of 1,200.10
square meters.8
On March 3, 2005, S.F. Naguiat represented by Celestina T. Naguiat, Eugene T.
Naguiat, and Anna N. Africa obtained a loan from Metrobank in the amount of
P1,575,000.00. The loan was likewise secured by the 1997 real estate mortgage by
virtue of the Agreement on Existing Mortgage(s) executed between the parties on
March 15, 2004.
S.F. Naguiat filed a Petition for Voluntary Insolvency with Application for the
Appointment of a Receiver pursuant to Act No. 1956, as amended, before the RTC of
Angeles City and which was raffled to Branch 56. Among the assets declared in the
Petition was the property covered by TCT No. 58676 (one of the properties
mortgaged to Metrobank).
Presiding Judge Irin Zenaida S. Buan (Judge Buan) issued the Order dated July 12,
2005, declaring S.F. Naguiat insolvent; directing the Deputy Sheriff to take
possession of all the properties of S.F. Naguiat until the appointment of a
receiver/assignee; and forbidding payment of any debts due, delivery of properties,
and transfer of any of its properties.
Pending the appointment of a receiver, Judge Buan directed the creditors, including
Metrobank, to file their respective Comments on the Petition. In lieu of a Comment,
Metrobank filed a Manifestation and Motion informing the court of Metrobank's
decision to withdraw from the insolvency proceedings because it intended to
extrajudicially foreclose the mortgaged property to satisfy its claim against S.F.
Naguiat.
Subsequently, S.F. Naguiat defaulted in paying its loan. Metrobank instituted an
extrajudicial foreclosure proceeding against the mortgaged property covered by TCT
No. 58676 and sold the property at a public auction held on December 9, 2005 to
Phoenix Global Energy, Inc., the highest bidder. Afterwards, Sheriff Claude B.
Balasbas prepared the Certificate of Sale and submitted it for approval to Clerk of
Court Vicente S. Fernandez, Jr. and Executive Judge Bernardita Gabitan-Erum.
However, Executive Judge Gabitan-Erum issued the Order dated December 15,
2005 denying her approval of the Certificate of Sale in view of the July 12, 2005 Order
issued by the insolvency court. Metrobank's subsequent Motion for Reconsideration
was also denied in the Orderdated April 24, 2006.
Aggrieved by both Orders of Executive Judge Gabitan-Erum, Metrobank filed a
Petition for certiorari and mandamus before the Court of Appeals on June 22, 2006.
S.F. Naguiat filed its Manifestation stating that it was not interposing any objection to
the Petition and requested that the issues raised in the Petition be resolved without
objection and argument on its part.
On November 15, 2006, the Court of Appeals rendered its Decision dismissing the
Petition on the basis of Metrobank's failure to "obtain the permission of the insolvency
court to extrajudicially foreclose the mortgaged property." The Court of Appeals
declared that "a suspension of the foreclosure proceedings is in order, until an
assignee [or receiver,] is elected or appointed [by the insolvency court] so as to afford
the insolvent debtor proper representation in the foreclosure [proceedings]."
ISSUE: whether the Court of Appeals erred in ruling that prior leave of the insolvency
court is necessary before a secured creditor, like petitioner Metropolitan Bank and
Trust Company, can extrajudicially foreclose the mortgaged property.
HELD: Act No. 1956 continued to remain in force and effect until its express repeal on
July 18, 2010 when Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act of 2010, took effect. Republic Act No. 10142 now
provides for court proceedings in the rehabilitation or liquidation of debtors, both
juridical and natural persons, in a "timely, fair, transparent, effective and
efficient"manner. The purpose of insolvency proceedings is "to encourage debtors . . .
and their creditors to collectively and realistically resolve and adjust competing claims
and property rights" while "maintaining] certainty and predictability in commercial
affairs, preserving] and maximizing] the value of the assets of these debtors,
recognizing] creditor rights and respecting] priority of claims, and ensuring] equitable
treatment of creditors who are similarly situated." It has also been provided that
whenever rehabilitation is no longer feasible, "it is in the interest of the State to
facilitate a speedy and orderly liquidation of [the] debtors' assets and the settlement of
their obligations."
Unlike Act No. 1956, Republic Act No. 10142 provides a broad definition of the term,
"insolvent":
SEC. 4. Definition of Terms. - As used in this Act, the term:(p) Insolvent shall refer to
the financial condition of a debtor that is generally unable to pay its or his liabilities as
they fall due in the ordinary course of business or has liabilities that are greater than
its or his assets.
Republic Act No. 10142 also expressly categorizes different forms of debt relief
available to a corporate debtor in financial distress. These are out-of-court
restructuring agreements; pre-negotiated rehabilitation; court-supervised
rehabilitation; and liquidation (voluntary and involuntary). An insolvent individual
debtor can avail of suspension of payments,or liquidation.
During liquidation proceedings, a secured creditor may waive its security or lien,
prove its claim, and share in the distribution of the assets of the debtor, in which case
it will be admitted as an unsecured creditor; or maintain its rights under the security or
lien, in which case:
1. [T]he value of the property may be fixed in a manner agreed upon by the creditor
and the liquidator. When the value of the property is less than the claim . . . the
[creditor] will be admitted ... as a creditor for the balance. If its value exceeds the
claim . . . the liquidator may convey the property to the creditor and waive the debtor's
right of redemption upon receiving the excess from the creditor;
2. [T]he liquidator may sell the property and satisfy the secured creditor's entire claim
from the proceeds of the sale; or
3. [T]he secured creditor may enforce the lien or foreclose on the property pursuant to
applicable laws.90
A secured creditor, however, is subject to the temporary stay of foreclosure
proceedings for a period of 180 days, upon the issuance by the court of the
Liquidation Order.
Republic Act No. 10142 was to govern all petitions filed after it had taken effect, and
all further proceedings in pending insolvency, suspension of payments, and
rehabilitation cases, except when its application "would not be feasible or would work
injustice, in which event the procedures set forth in prior laws and regulations shall
apply."
The relevant proceedings in this case took place prior to Republic Act No. 10142;
hence, the issue will be resolved according to the provisions of Act No. 1956.
5. PHILIPPINE NATIONAL BANK and EQUITABLE PCI BANK,- versus -
HONORABLE COURT OF APPEALS G.R. No. 165571, January 20, 2009
FACTS: Petitioners Philippine National Bank (PNB) and Equitable PCI Bank are
members of the consortium of creditor banks constituted pursuant to the Mortgage
Trust Indenture (MTI) dated May 29, 1989, as amended, by and between Rizal
Commercial Banking Corporation-Trust and Investments Division, acting as trustee
for the consortium, and ASB Development Corporation (ASBDC, formerly Tiffany
Tower Realty Corporation). Other members of the consortium include Metropolitan
Bank and Trust Company (Metrobank), Prudential Bank, Union Bank of
the Philippines, and United Coconut Planters Bank. Private respondents ASB
Holdings, Inc., ASBDC, ASB Land, Inc., ASB Finance, Inc., Makati Hope Christian
School, Inc., Bel-Air Holdings Corporation, Winchester Trading, Inc., VYL Holdings
Corporation, and Neighborhood Holdings, Inc. (ASB Group) are corporations engaged
in real estate development. The ASB Group is owned by Luke C. Roxas. Under the
MTI, petitioners granted a loan of PhP 1,081,000,000 to ASBDC secured by a
mortgage of five parcels of land with improvements.
On May 2, 2000, private respondents filed with the SEC a verified petition for
rehabilitation with prayer for suspension of actions and proceedings pending
rehabilitation pursuant to Presidential Decree No. (PD) 902-A, as amended. The case
was docketed as SEC Case No. 05-00-6609. Private respondents stated that they
possess sufficient properties to cover their obligations but foresee inability to pay
them within a period of one year. They cited the sudden non-renewal and/or massive
withdrawal by creditors of their loans to ASB Holdings, the glut in the real estate
market, severe drop in the sale of real properties, peso devaluation, and decreased
investor confidence in the economy which resulted in the non-completion of and
failure to sell their projects and default in the servicing of their credits as they fell
due. The ASB Group had assets worth PhP 19,410,000,000 and liabilities worth PhP
12,700,000,000. Faced with at least 712 creditors, 317 contractors/suppliers, and 492
condominium unit buyers, and the prospect of having secured and non-secured
creditors press for payments and threaten to initiate foreclosure proceedings, the ASB
Group pleaded for suspension of payments while working for rehabilitation with the
help of the SEC.
Private respondents mentioned that in March 2000 and immediately after ASB
Holdings incurred financial problems, they agreed to constitute a Creditors Committee
composed of representatives of individual creditors, and to appoint a
Comptroller. Private respondents stated that the Comptroller, upon instruction from
the Creditors Committee, withheld approval of payments of obligations in the ordinary
course of business such as those due to contractors, unless Roxas agrees to the
payment of interest and other arrangements. Private respondents believed that said
conditions would eventually harm the general body of their creditors. Private
respondents prayed for the suspension of payments to creditors while working out the
final terms of a rehabilitation plan with all the parties concerned. Private respondents
petition to the SEC was accompanied by documentary requirements in accordance
with Section 4-2 in relation to Sec. 3-2 of the Rules of Procedure on Corporate
Recovery.
Finding the petition sufficient in form and substance, the SEC Hearing Panel issued
on May 4, 2000 an order suspending for 60 days all actions for claims against the
ASB Group, enjoining the latter from disposing its properties in any manner except in
the ordinary course of business and from paying outstanding liabilities, and appointing
Atty. Monico V. Jacob as interim receiver of the ASB Group. Atty. Jacob was later
replaced by Atty. Fortunato Cruz as interim receiver.
On August 18, 2000, the ASB Group submitted a rehabilitation plan to enable it to
meet all of its obligations. The consortium of creditor banks moved for its disapproval
on the ground that it is not viable; the proposals are unrealistic; and it collides with the
freedom of contract and the constitutional right against non-impairment of contracts,
particularly the release of portions of mortgaged properties and waiver of interest,
penalties, and other charges. The banks further asserted that the Rehabilitation Plan
does not explain the basis of the selling values and the net realizable values of the
properties; it irregularly nets out inter-corporation transactions and offsets the
receivables amounting to PhP 5.23 billion from Roxas; and it shows that the ASB
Group is insolvent and should be subjected to liquidation proceedings. The banks
opposed the extension of the suspension order sought by the ASB Group. The
consortium also prayed for the early resolution of their opposition to the petition.
ISSUE: WON Respondent court committed serious error in ruling that the Rules does
not preclude a solvent corporation or debtor to file a petition for rehabilitation instead
of just a petition for suspension of payments.
HELD: NO. Petitioners raise issues which mainly relate to technical insolvency;
hence, we will limit our interpretation of the rules based on the aforequoted
sections. Based on the foregoing, we can deduce the following:
(4) If from the start, a corporation which has enough assets foresees its inability to
meet its obligations for more than one year, i.e., existing technical insolvency, it may
file a petition for rehabilitation under Rule IV, Sec. 4-1.
A reading of Sec. 4-1 shows that there are two kinds of insolvency contemplated in it:
(1) actual insolvency, i.e., the corporations assets are not enough to cover its
liabilities; and (2) technical insolvency defined under Sec. 3-12, i.e., the corporation
has enough assets but it foresees its inability to pay its obligations for more than one
year.
In the case at bar, the ASB Group filed with the SEC a petition for rehabilitation with
prayer for suspension of actions and proceedings pending rehabilitation. Contrary to
petitioners arguments, the mere fact that the ASB Group averred that it has sufficient
assets to cover its obligations does not make it solvent enough to prevent it from filing
a petition for rehabilitation. A corporation may have considerable assets but if it
foresees the impossibility of meeting its obligations for more than one year, it is
considered as technically insolvent. Thus, at the first instance, a corporation may file
a petition for rehabilitation a remedy provided under Sec. 4-1.
When Sec. 4-1 mentioned technical insolvency under Sec. 3-12, it was referring to
the definition of technical insolvency in the said section; it was not requiring a
previous filing of a petition for suspension of payments which petitioners would have
us believe.
Petitioners harp on the SECs failure to examine whether the ASB Group is
technically insolvent. They contend that the SEC should wait for a year after the filing
of the petition for suspension of payments when technical insolvency may or may not
arise. This is erroneous. The period mentioned under Sec. 3-12, longer than one year
from the filing of the petition, does not refer to a year-long waiting period when the
SEC can finally say that the ailing corporation is technically insolvent to qualify for
rehabilitation. The period referred to the corporations inability to pay its obligations;
when such inability extends beyond one year, the corporation is considered
technically insolvent. Said inability may be established from the start by way of a
petition for rehabilitation, or it may be proved during the proceedings for suspension
of payments, if the latter was the first remedy chosen by the ailing corporation. If the
corporation opts for a direct petition for rehabilitation on the ground of technical
insolvency, it should show in its petition and later prove during the proceedings that it
will not be able to meet its obligations for longer than one year from the filing of the
petition.
6. BPI FAMILY SAVINGS BANK, INC., Petitioner, v. ST. MICHAEL
MEDICAL CENTER, INC., G.R. No. 205469, March 25, 2015
FACTS: Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole
proprietors of St. Michael Diagnostic and Skin Care Laboratory Services and Hospital
(St. Michael Hospital), a 5-storey secondary level hospital built on their property
located in Molino 2, Bacoor, Cavite. With a vision to upgrade St. Michael Hospital into
a modern, well-equipped and full service tertiary 11-storey hospital, Sps. Rodil
purchased two (2) parcels of land adjoining their existing property and, on May 22,
2003, incorporated St. Michael Medical Center, Inc. (SMMCI), with which entity they
planned to eventually consolidate St. Michael Hospital’s operations. SMMCI had an
initial capital of P2,000,000.00 which was later increased to P53,500,000.00, 94.49%
of which outstanding capital stock, or P50,553,000.00, was subscribed and paid by
Sps. Rodil.
In May 2004, construction of a new hospital building on the adjoining properties
commenced, with Sps. Rodil contributing personal funds as initial capital for the
project which was estimated to cost at least P100,000,000.00. To finance the costs of
construction, SMMCI applied for a loan with petitioner BPI Family which gave a credit
line of up to P35,000,000.00, secured by a REM over three (3) parcels of
land belonging to Sps. Rodil, on a portion of which stands the hospital building being
constructed. SMMCI was able to draw the aggregate amount of P23,700,000.00, with
interest at the rate of 10.25% per annum and a late payment charge of 3% per month
accruing on the overdue amount, for which Sps. Rodil, who agreed to be co-
borrowers on the loan, executed and signed a Promissory Note.
In the meantime, after suffering financial losses due to problems with the first building
contractor, Sps. Rodil temporarily deferred the original construction plans for the 11-
storey hospital building and, instead, engaged the services of another contractor for
the completion of the remaining structural works of the unfinished building up to the
5th floor. The lack of funds for the finishing works of the 3rd, 4th and 5th floors,
however, kept the new building from becoming completely functional and, in turn,
hampered the plans for the physical transfer of St. Michael Hospital’s operations to
SMMCI. Nevertheless, using hospital-generated revenues, Sps. Rodil were still able
to purchase new equipment and machinery for St. Michael Hospital valued in excess
of P20,000,000.00.
Although the finishing works were later resumed and some of the hospital operations
were eventually transferred to the completed first two floors of the new building, as of
May 2006, SMMCI was still neither operational nor earning revenues. Hence, it was
only able to pay the interest on its BPI Family loan, or the amount of P3,000,000.00
over a two-year period, from the income of St. Michael Hospital.cralawred
On September 25, 2009, BPI Family demanded immediate payment of the entire loan
obligation and, soon after, filed a petition for extrajudicial foreclosure of the real
properties covered by the mortgage. The auction sale was scheduled on December
11, 2009, which was postponed to February 15, 2010 with the conformity of BPI
Family.
On August 11, 2010, SMMCI filed a Petition for Corporate
Rehabilitation (Rehabilitation Petition), docketed as SEC Case No. 086-10, before the
RTC, with prayer for the issuance of a Stay Order as it foresaw the impossibility of
meeting its obligation to BPI Family, its purported sole creditor.
In the said petition, SMMCI claimed that it had to defer the construction of the
projected 11-storey hospital building due to the problems it had with its first contractor
as well as the rise of the cost of construction materials. As of date, only two (2) floors
of the new building are functional, in which some of the operations of St. Michael had
already been transferred.
Also, it was alleged that more than P66,000,000.00 had been spent for the
construction of the existing structure (in excess of its proportionate share of the
original estimated cost for the entire project), said amount having come from the
personal funds of Sps. Rodil and/or income generated by St. Michael Hospital, aside
from the drawings from the credit line with BPI Family. At the same time, Sps. Rodil
continued to shoulder the costs of equipment and machinery amounting to
P20,000,000.00, in order to build up the hospital’s medical capabilities. However,
since SMMCI was neither operational nor earning revenues, it could only pay interest
on the BPI Family loan, using St. Michael Hospital’s income, over a two-year period.
In its proposed Rehabilitation Plan, SMMCI merely sought for BPI Family (a) to defer
foreclosing on the mortgage and (b) to agree to a moratorium of at least two (2) years
during which SMMCI – either through St. Michael Hospital or its successor – will retire
all other obligations.
ISSUE: whether or not the CA correctly affirmed SMMCI’s Rehabilitation Plan as
approved by the RTC.
HELD: NO. Restoration is the central idea behind the remedy of corporate
rehabilitation. In common parlance, to “restore” means “to bring back to or put back
into a former or original state.” Case law explains that corporate rehabilitation
contemplates a continuance of corporate life and activities in an effort to restore and
reinstate the corporation to its former position of successful operation and solvency,
the purpose being to enable the company to gain a new lease on life and allow its
creditors to be paid their claims out of its earnings. Consistent therewith is the term’s
statutory definition under Republic Act No. 10142, otherwise known as the “Financial
Rehabilitation and Insolvency Act of 2010” (FRIA)
In other words, rehabilitation assumes that the corporation has been operational but
for some reasons like economic crisis or mismanagement had become distressed or
insolvent, i.e., that it is generally unable to pay its debts as they fall due in the
ordinary course of business or has liability that are greater than its assets. Thus, the
basic issues in rehabilitation proceedings concern the viability and desirability of
continuing the business operations of the distressed corporation, all with a view of
effectively restoring it to a state of solvency or to its former healthy financial condition
through the adoption of a rehabilitation plan.
In this case, it cannot be said that the petitioning corporation, SMMCI, had been in a
position of successful operation and solvency at the time the Rehabilitation Petition
was filed on August 11, 2010. While it had indeed “commenced business” through the
preparatory act of opening a credit line with BPI Family to finance the construction of
a new hospital building for its future operations, SMMCI itself admits that it has not
formally operated nor earned any income since its incorporation. This simply means
that there exists no viable business concern to be restored. Perforce, the remedy of
corporate rehabilitation is improper, thus rendering the dispositions of the courts a
quo infirm.
7. WONDER BOOK CORPORATION vs. PHILIPPINE BANK OF
COMMUNICATIONS G.R. No. 187316 July 16, 2012
FACTS: Wonder Book Corporation (Wonder Book) is a corporation engaged in the
business of retailing books, school and office supplies, greeting cards and other
related items. It operates the chain of stores known as the Diplomat Book Center.
Wonder Book and eight (8) other corporations,collectively known as the Limtong
Group of Companies (LGC), filed a joint petition for rehabilitation with the RTC. After
the rehabilitation plan was approved, Wonder Book filed its own petition for
Rehabilitation with the RTC, which was docketed as SEC Case No. 058-06 and
raffled to Branch 21. Wonder Book cited the following as causes for its inability to pay
its debts as they fall due: (a) high interest rates, penalties and charges imposed by its
creditors; (b) low demand for gift items and greeting cards due to the widespread use
of cellular phones and economic recession; (c) competition posed by other stores;
and (d) the fire on July 19, 2002 that destroyed its inventories worth P264 Million,
which are insured for P245 Million but yet to be collected.
Under Section 23, Rule 4 of the Interim Rules, a rehabilitation plan may be approved
if there is a showing that rehabilitation is feasible and the opposition entered by the
creditors holding a majority of the total liabilities is unreasonable. In determining
whether the objections to the approval of a rehabilitation plan are reasonable or
otherwise, the court has the following to consider: (a) that the opposing creditors
would receive greater compensation under the plan than if the corporate assets would
be sold; (b) that the shareholders would lose their controlling interest as a result of the
plan; and (c) that the receiver has recommended approval.
Rehabilitation is therefore available to a corporation who, while illiquid, has assets
that can generate more cash if used in its daily operations than sold. Its liquidity
issues can be addressed by a practicable business plan that will generate enough
cash to sustain daily operations, has a definite source of financing for its proper and
full implementation, and anchored on realistic assumptions and goals. This remedy
should be denied to corporations whose insolvency appears to be irreversible and
whose sole purpose is to delay the enforcement of any of the rights of the creditors,
which is rendered obvious by the following: (a) the absence of a sound and workable
business plan; (b) baseless and unexplained assumptions, targets and goals; (c)
speculative capital infusion or complete lack thereof for the execution of the business
plan; (d) cash flow cannot sustain daily operations; and (e) negative net worth and the
assets are near full depreciation or fully depreciated.

PBCOM filed an Opposition stating that: (a) Wonder Book’s petition cannot be
granted on the basis of proposals that are vague and anchored on baseless
presumptions; (b) it is clear from Wonder Book’s financial statements that it is
insolvent and can no longer be rehabilitated.

ISSUE: whether Wonder Book’s petition for rehabilitation is impressed with merit

HELD: NO. Rehabilitation is not the proper remedy for Wonder Book’s dire financial
condition. Given that it is actually insolvent and not just suffering from temporary
liquidity problems, rehabilitation is not a viable option.

Rehabilitation contemplates a continuance of corporate life and activities in an effort

to restore and reinstate the corporation to its former position of successful operation
and solvency. The purpose of rehabilitation proceedings is to enable the company to
gain a new lease on life and thereby allow creditors to be paid their claims from its
earnings. The rehabilitation of a financially distressed corporation benefits its
employees, creditors, stockholders and, in a larger sense, the general public.