GARCIA v. PAL
173846;
Garcia and Dumago v. Philippine Airlines (G.R. No. 164856)
Facts:
Petitioners-employees filed a complaint for illegal dismissal against
respondent PAL who dismissed them after they were allegedly caught
in the act of sniffing shabu within its premises. The Labor Arbiter ruled
for the petitioners and ordered immediately for their reinstatement. Prior
to this decision, SEC had placed PAL under an Interim Rehabilitation
Receiver, and subsequently under a Permanent Rehabilitation
Receiver. PAL appealed and the Labor Tribunal ruled in their favor.
Subsequently, the Labor Arbiter issued a writ of execution for the
reinstatement and issued a notice of garnishment. The Labor Tribunal
affirmed the writ and notice but suspended and referred the action to
the Rehabilitation Receiver of PAL. On appeal, CA found for respondent
PAL.
Issue:
Whether or not PAL being under corporate rehabilitation suspends any
monetary claims to it.
Ruling: YES.
It is settled that upon appointment by the SEC of a rehabilitation
receiver, all actions for claims before any court, tribunal or board
against the corporation shall ipso jure be suspended. As stated early
on, during the pendency of petitioners’ complaint before the Labor
Arbiter, the SEC placed respondent under an Interim Rehabilitation
Receiver. After the Labor Arbiter rendered his decision, the SEC
replaced the Interim Rehabilitation Receiver with a Permanent
Rehabilitation Receiver.
While reinstatement pending appeal aims to avert the continuing threat
or danger to the survival or even the life of the dismissed employee and
his family, it does not contemplate the period when the employer-
corporation itself is similarly in a judicially monitored state of being
resuscitated in order to survive.
Sps. Sobrejuanite vs. ASB Development Corporation
Facts:
The spouses Sobrejuanite and ASB Development Corporation
(ASBDC) entered into a contract to sell a condominium located in
Mandaluyong. After full payment and after repeated demands, the
ASBDC failed to make good of its obligation due to the rehabilitation
plan of ASB Group of Companies, which includes ASBDC. The spouses
resorted the intervention of the Housing and Land Use Regulatory
Board (HLURB). HLURB resolved the complaint in favor of the spouses
Sobrejuanite. This was affirmed by the Office of the President. On
appeal, the Court of Appeals reversed and set aside the decision of the
Office of the President. It ratiocinated that the Sobrejuanite’s complaint
for rescission and damages is a claim under the contemplation of
Presidential Decree (PD) No. 902-A or the SEC Reorganization Act and
A.M. No. 00-8-10-SC or the Interim Rules of Procedure on Corporate
Rehabilitation. Therefore, the Securities and Exchange Commission
(SEC) has jurisdiction over the complaint, not HLURB.
Issue:
Whether claim of spouses Sobrejuanite lies with the jurisdiction of SEC.
Held:
Yes.
As provided under Section 6(c) of PD No. 902-A, all actions for claims
against corporations, partnerships or associations under management
or receivership pending before any court, tribunal, board or body shall
be suspended accordingly. The afore cited law defines claim as the
debts or demands of a pecuniary nature. In settled jurisprudence, claim
means actions involving monetary considerations or all claims or
demands, of whatever nature or character against a debtor or its
property, whether for money or otherwise. It is evident that the
spouses claim falls within the definition of PD 902-A and settled
jurisprudence. Hence, jurisdiction, as correctly held by the Court of
Appeals, lies with SEC and not HLURB. The ratio behind is "equality is
equity." When a corporation threatened by bankruptcy is taken over by
a receiver, all the creditors should stand on equal footing. Not anyone of
them should be given any preference by paying one or some of them
ahead of the others. This is precisely the reason for the suspension of
all pending claims against the corporation under receivership. Instead
of creditors vexing the courts with suits against the distressed firm, they
are directed to file their claims with the receiver who is a duly appointed
officer of the SEC.
Moreover, Section 7 of the Contract to Sell allows the developer to
extend the period of delivery on account of causes beyond its control,
such as financial reverses.
Jose Marcel Panlilio, et. al. v. RTC Br. 51, et. al. G.R. No.
February 2, 2011
Petitioners were corporate officers of Silahis International Hotel Inc.
(SIHI) who were charged with violation of the SSS law in relation to the
Revised Penal Code. The criminal case was raffled in RTC Br 51.
Meanwhile, a petition for suspension of payments and rehabilitation
was pending in RTC Br 24. SIHI's petition was granted and a
suspension order was issued by RTC Br 24, staying all claims against
SIHI. On the basis of RTC 24's order, petitioners now claim that the
proceeding before RTC Br 51 should be suspended. RTC Br 51 denied
the petitioners' motion and ruled that the stay order does not include the
suspension of criminal proceedings. This decision was affirmed by the
CA. Hence, this case.
Issue: Whether or not the stay order stays criminal cases
Held: No. Section 18 of FRIA explicitly provides that criminal actions
against the individual officer of a corporation are not subject to the Stay
or Suspension Order in rehabilitation proceedings. The prosecution of
the officers of the corporation has no bearing on the pending
rehabilitation of the corporation, especially since they are charged in
their individual capacities. Such being the case, the purpose of the law
for the issuance of the stay order is not compromised, since the
appointed rehabilitation receiver can still fully discharge his functions as
mandated by law. It bears to stress that the rehabilitation receiver is not
charged to defend the officers of the corporation. If there is anything
that the rehabilitation receiver might be remotely interested in is
whether the court also rules that petitioners are civilly liable. Such a
scenario, however, is not a reason to suspend the criminal proceedings,
because as aptly discussed in Rosario, should the court prosecuting the
officers of the corporation find that an award or indemnification is
warranted, such award would fall under the category of claims, the
execution of which would be subject to the stay order issued by the
rehabilitation court. The penal sanctions as a consequence of violation
of the SSS law, in relation to the revised penal code can therefore be
implemented if petitioners are found guilty after trial. However, any civil
indemnity awarded as a result of their conviction would be subject to
the stay order issued by the rehabilitation court. Only to this extent can
the order of suspension be considered obligatory upon any court,
tribunal, branch or body where there are pending actions for claims
against the distressed corporation.
Bank of the Philippine Islands vs Sarabia Manor Hotel Corporation
G.R. No. 175844 July 29, 2013
J. Perlas-Bernabe
Facts: Sarabia is a corporation duly organized and existing under
Philippine laws, with principal place of business at 101 General Luna
Street, Iloilo City. It was incorporated on February 22, 1982, with an
authorized capital stock of P10,000,000.00, fully subscribed and paid-
up, for the primary purpose of owning, leasing, managing and/or
operating hotels, restaurants, barber shops, beauty parlors, sauna and
steam baths, massage parlors and such other businesses incident to or
necessary in the management or operation of hotels.
In 1997, Sarabia obtained a P150,000,000.00 special loan package
from Far East Bank and Trust Company (FEBTC) in order to finance the
construction of a five-storey hotel building (New Building) for the
purpose of expanding its hotel business. An additional P20,000,000.00
stand-by credit line was approved by FEBTC in the same year.
The foregoing debts were secured by real estate mortgages over
several parcels of land owned by Sarabia and a comprehensive surety
agreement dated September 1, 1997 signed by its stockholders. By
virtue of a merger, Bank of the Philippine Islands (BPI) assumed all of
FEBTC’s rights against Sarabia. Sarabia started to pay interests on its
loans as soon as the funds were released in October 1997. However,
largely because of the delayed completion of the New Building, Sarabia
incurred various cash flow problems. Thus, despite the fact that it had
more assets than liabilities at that time, it, nevertheless, filed, on July
26, 2002, a Petition for corporate rehabilitation (rehabilitation petition)
with prayer for the issuance of a stay order before the RTC as it
foresaw the impossibility to meet its maturing obligations to its creditors
when they fall due.
In its proposed rehabilitation plan, Sarabia sought for the restructuring
of all its outstanding loans, submitting that the interest payments on the
same be pegged at a uniform escalating rate of: (a) 7% per annum
(p.a.) for the years 2002 to 2005; (b) 8% p.a. for the years 2006 to
2010; (c) 10% p.a. for the years 2011 to 2013; (d) 12% p.a. for the
years 2014 to 2015; and (e) 14% p.a. for the year 2018. Likewise,
Sarabia sought to make annual payments on the principal loans starting
in 2004, also in escalating amounts depending on cash flow. Further, it
proposed that it should pay off its outstanding obligations to the
government and its suppliers on their respective due dates, for the sake
of its day to day operations.
Finding Sarabia’s rehabilitation petition sufficient in form and substance,
the RTC issued a Stay Order on August 2, 2002. It also appointed
Liberty B. Valderrama as Sarabia’s rehabilitation receiver (Receiver).
Thereafter, BPI filed its Opposition.
Issue: Whether or not the BPI’s opposition proper.
Held: No. Recognizing the volatile nature of every business, the rules
on corporate rehabilitation have been crafted in order to give
companies sufficient leeway to deal with debilitating financial
predicaments in the hope of restoring or reaching a sustainable
operating form if only to best accommodate the various interests of all
its stakeholders, may it be the corporation’s stockholders, its creditors
and even the general public.
Thus, rehabilitation shall be undertaken when it is shown that the
continued operation of the corporation is economically more 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 than if it is immediately liquidated. Among other rules that
foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of
Procedure on Corporate Rehabilitation (Interim Rules) states that a
rehabilitation plan may be approved even over the opposition of the
creditors holding a majority of the corporation’s total liabilities if there is
a showing that rehabilitation is feasible and the opposition of the
creditors is manifestly unreasonable. Also known as the “cram-down”
clause, this provision, which is currently incorporated in the FRIA, is
necessary to curb the majority creditors’ natural tendency to dictate
their own terms and conditions to the rehabilitation, absent due regard
to the greater long-term benefit of all stakeholders. Otherwise stated, it
forces the creditors to accept the terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate but
incomplete recovery.
Although undefined in the Interim Rules, it may be said that the
opposition of a distressed corporation’s majority creditor is manifestly
unreasonable if it counter-proposes unrealistic payment terms and
conditions which would, more likely than not, impede rather than aid its
rehabilitation. The unreasonableness becomes further manifest if the
rehabilitation plan, in fact, provides for adequate safeguards to fulfill the
majority creditor’s claims, and yet the latter persists on speculative or
unfounded assumptions that his credit would remain unfulfilled. While
Section 23, Rule 4 of the Interim Rules states that the rehabilitation
court shall consider certain incidents in determining whether the
opposition is manifestly unreasonable, BPI neither proposes Sarabia’s
liquidation over its rehabilitation nor questions the controlling interest of
Sarabia’s shareholders or owners.
[ GR No. 181126, Jun 15, 2011 ] UMALE v. ASB REALTY
CORPORATION
FACTS:
ASB Realty commenced an action in the Metropolitan Trial
Court (MTC) of Pasig City for unlawful detainer [7] of the subject
premises against petitioner Leonardo S. Umale (Umale). Umale also
challenged ASB Realty's personality to recover the subject premises
considering that ASB Realty had been placed under receivership by the
Securities and Exchange Commission (SEC) and a rehabilitation
receiver had been duly appointed. Under Section 14(s), Rule 4 of the
Administrative Memorandum No. 00-8-10SC, otherwise known as the
Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules),
it is the rehabilitation receiver that has the power to "take possession,
control and custody of the debtor's assets." Since ASB Realty claims
that it owns the subject premises, it is its duly-appointed receiver that
should sue to recover possession of the same.
The MTC agreed with Umale that only the rehabilitation
receiver could file suit to recover ASB Realty's property. [18] Having
been placed under receivership, ASB Realty had no more personality to
file the complaint for unlawful detainer.
The RTC ruled that ASB Realty retained all its corporate
powers, including the power to sue, despite the appointment of a
rehabilitation receiver. Citing the Interim Rules, the RTC noted that the
rehabilitation receiver was not granted therein the power to file
complaints on behalf of the corporation. The CA affirmed the RTC.
ISSUE: Whether ASB Realty can file suit to recover an unlawfully
detained corporate property despite the fact that the corporation had
already been placed under rehabilitation?
HELD:
The intention of the law is "to effect a feasible and viable
rehabilitation by preserving a floundering business as a going concern,
because the assets of a business are often more valuable when so
maintained than they would be when liquidated." [58] This concept of
preserving the corporation's business as a going concern while it is
undergoing rehabilitation is called debtor-in-possession or debtor-in-
place. This means that the debtor corporation (the corporation
undergoing rehabilitation), through its Board of Directors and corporate
officers, remains in control of its business and properties, subject only
to the monitoring of the appointed rehabilitation receiver. [59] The
concept of debtor-in-possession, is carried out more particularly in the
SEC Rules, the rule that is relevant to the instant case. [60] It states
therein that the interim rehabilitation receiver of the debtor corporation
"does not take over the control and management of the debtor
corporation." [61] Likewise, the rehabilitation receiver that will replace
the interim receiver is tasked only to monitor the successful
implementation of the rehabilitation plan. [62] There is nothing in the
concept of corporate rehabilitation that would ipso facto deprive [63] the
Board of Directors and corporate officers of a debtor corporation, such
as ASB Realty, of control such that it can no longer enforce its right to
recover its property from an errant lessee.
To be sure, corporate rehabilitation imposes several
restrictions on the debtor corporation. The rules enumerate the
prohibited corporate actions and transactions [64] (most of which
involve some kind of disposition or encumbrance of the corporation's
assets) during the pendency of the rehabilitation proceedings but none
of which touch on the debtor corporation's right to sue. The implication
therefore is that our concept of rehabilitation does not restrict this
particular power, save for the caveat that all its actions are monitored
closely by the receiver, who can seek an annulment of any prohibited or
anomalous transaction or agreement entered into by the officers of the
debtor corporation.
G.R. No. 165571 January 20, 2009 PHILIPPINE NATIONAL BANK
and EQUITABLE PCI BANK, Petitioners, vs. HONORABLE COURT
OF APPEALS, SECURITIES AND EXCHANGE COMMISSION EN
BANC
FACTS:
ASB Realty 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 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.
Petitioners contend that the SEC’s approval of the
Rehabilitation Plan impairs the Mortgage Trust Indenture by forcing
them to release the real properties secured in their favor to become part
of the asset pool. They argue that the SEC’s approval of the
Rehabilitation Plan is a state action that impairs the remedies available
to petitioners under the MTI, which essentially abrogates the contract
itself.
Upon appointment of a management committee, rehabilitation
receiver, board or body, pursuant to this Decree, all actions for claims
against corporations, partnerships or associations under management
or receivership pending before any court, tribunal, board or body shall
be suspended." By that statutory provision, it is clear that the approval
of the Rehabilitation Plan and the appointment of a rehabilitation
receiver merely suspend the actions for claims against respondent
corporations. Petitioner bank’s preferred status over the unsecured
creditors relative to the mortgage liens is retained, but the enforcement
of such preference is suspended. The loan agreements between the
parties have not been set aside and petitioner bank may still enforce its
preference when the assets of ASB Group of Companies will be
liquidated. Considering that the provisions of the loan agreements are
merely suspended, there is no impairment of contracts, specifically its
lien in the mortgaged properties.
Such suspension "shall not prejudice or render ineffective the
status of a secured creditor as compared to a totally unsecured
creditor," for what P.D. No. 902-A merely provides is that all actions for
claims against the distressed corporation, partnership or association
shall be suspended. This arrangement provided by law is intended to
give the receiver a chance to rehabilitate the corporation if there should
still be a possibility for doing so, without being unnecessarily disturbed
by the creditors’ actions against the distressed corporation. However, in
the event that rehabilitation is no longer feasible and the claims against
the distressed corporation would eventually have to be settled, the
secured creditors, like petitioner bank, shall enjoy preference over the
unsecured creditors.
PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, unilateral and detrimental to its creditors and the
vs. BASIC POLYPRINTERS AND PACKAGING public.
CORPORATION, Respondent. G.R. No. 187581 October
20, 2014 FACTS: FACTS: Basic Polyprinters, along with
the eight other corporations belonging to the Limtong
Group of Companies 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 and
directed the petitioning corporations to file their
individual petitions for suspension of payments and
rehabilitation in the appropriate courts. Accordingly,
Basic Polyprinters brought its individual petition,
averring therein that: (a) its business since
incorporation had been very viable and financially
profitable; (b) it had obtained loans from various
banks, and had owed accounts payable to various
creditors; (c) the Asian currency crisis, devaluation of
the Philippine peso, and the current state of affairs of
the Philippine economy; (d) its operations would be
hampered and would render rehabilitation difficult
should its creditors enforce their claims through legal
actions, including foreclosure proceedings; (e)
included in its overall Rehabilitation Program was the
full payment of its outstanding loans in favor of
petitioner PBCOM and other banks

ISSUES: Whether or not material financial

commitment is required in a rehabilitation plan.

HELD: Yes. The Court held that a material financial

commitment is significant in a rehabilitation plan. 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.

However, the Court held that Basic Polyprinters

commitment was insufficient for the following
reasons: The commitment to add P10,000,000.00
working capital appeared to be doubtful considering
that the insurance claim from which said working
capital would be sourced had already been written-
off by Basic Polyprinters’s affiliate, Wonder Book
Corporation. The conversion of all deposits for future
subscriptions to common stock and the treatment of
all payables to officers and stockholders as trade
payables was hardly constituting material financial
commitments. Such “conversion” of cash advances
to trade payables was, in fact, a mere re-
classification of the liability entry and had no effect
on the shareholders’ deficit. Basic Polyprinters’s
rehabilitation plan likewise failed to offer any
proposal on how it intended to address the low
demands for their products and the effect of direct
competition from stores like SM, Gaisano, Robinsons,
and other malls. Basic Polyprinters’s proposal to
enter into the dacion en pagoto create a source of
“fresh capital” was not feasible because the object
thereof would not be its own property but one
belonging to its affiliate, TOL Realty and
Development Corporation, a corporation also
undergoing rehabilitation. Hence, the Court held that
the rehabilitation plan for Basic Polyprinters to be
genuine and in good faith, for it was, in fact,