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FRIA CASES

1. Wonder Book Corporation vs. Philippine Bank of Communications, 676 SCRA 489, G.R. No. 187316 July 16, 2012;
2. Viva Shipping Lines, Inc. vs. Keppel Philippines Marine, Inc., 784 SCRA 173, G.R. No. 177382 February 17, 2016;
3. Ao-As v. CA, G.R. No. 128464, June 20, 2006, 491 SCRA 339;
4. Lingkod Manggagawa sa Rubberworld. v. Rubberworld [Phils.] Inc., G.R. No. 153882, January 29, 2007, 513 SCRA 208;
5. Negros Navigation v. CA, G.R. No. 163156, December 10, 2008, 573 SCRA 434;
6. Garcia, v. PAL, G.R. No. 164856, August 29, 2007, 576 SCRA 479;
7. Sobrejuanite v. ASB, G.R. No. 165675, September 30, 2005, 471 SCRA 763;
8. Garcia vs. Philippine Airlines, Inc., 576 SCRA 479, G.R. No. 164856 January 20, 2009;
9. MWSS v. Daway, G.R. No. 160732, June 21, 2004, 432 SCRA 559

WONDER BOOK CORPORATION, v. PHILIPPINE BANK OF COMMUNICATIONS,Respondent.
pay its debts as they fall due: (a) high interest rates, penalties and charges
FACTS: 1. Wonder Book Corporation is a corporation engaged in the imposed by its creditors; (b) low demand for gift items and greeting cards
business of retailing books, school and office supplies, greeting cards and due to the widespread use of cellular phones and economic recession; (c)
other related items. It operates the chain of stores known as the Diplomat competition posed by other stores; and (d) the fire on July 19, 2002 that
Book Center. destroyed its inventories worth P264 Million, which are insured for P245
2. Wonder Book and eight other corporations, known as Limtong Group of Million but yet to be collected. Wonder Book proposed to pay its creditors
Companies filed a joint petition for rehabilitation with the RTC. On March 2, with interest during the two-year moratorium within ten years from the
2004, a Stay Order was issued. approval of its rehabilitation plan. The RTC issued a Stay Order.
3. On April 30, 2004, Equitable PCI Bank, one of the creditors of LGC, filed 7. PBCOM filed an Opposition stating that the petition is vague and
an opposition raising the impropriety of nine corporations with separate and anchored on baseless presumptions, that Wonder Book is insolvent and can
distinct personalities seeking joint rehabilitation under one proceeding. no longer be rehabilitated, the capital infusion is speculative at best, and that
4. The RTC issued an Order approving the petition for rehabilitation, Wonder Book's proposed payment program is too onerous.
granting the LGC a moratorium of two years in the payment of all its 8. On September 17, 2007, Wonder Book filed what it described as its
obligations, together with the corresponding interests, to its creditor banks. detailed rehabilitation plan. The RTC issued an Order, approving the
After the two-year grace period, the LGC shall pay its existing obligations rehabilitation plan.
with its creditor banks monthly within a period of fifteen years. 9. PBCOM filed a Petition for Review which the CA granted on the ground
5. The foregoing was questioned by EPCI Bank and PBCOM before the CA. that Wonder Book's financial statements reveal that it is not merely illiquid
The CA dismissed LGC's petition for rehabilitation. but in a state of serious insolvency. In effect, the debt ratio of Wonder Book
6. On September 5, 2006, Wonder Book filed a petition for Rehabilitation is 2.11 to 1. This means that Wonder Book has P2.11 pesos in debt for
with the RTC. Wonder Book cited the following as causes for its inability to every peso of asset. Obviously, Wonder Book is in terrible financial condition

as it does not have enough assets to pay its obligations. For a good financial which may include conversion of the debts or any portion thereof to equity,
status, the total debt ratio should be 1 or less, it is also noted that Wonder restructuring of the debts, dacion en pago, or sale of assets or of the
Book's expected profits during the rehabilitation period are not sufficient to controlling interest; (e) a liquidation analysis that estimates the proportion of
cover its liabilities and reverse its dismal financial state. the claims that the creditors and shareholders would receive if the debtor s
properties were liquidated; and (f) such other relevant information to enable
ISSUE: Whether Wonder Book's petition for rehabilitation is impressed with a reasonable investor to make an informed decision on the feasibility of the
merit? rehabilitation plan. It is imperative for a distressed corporation seeking
rehabilitation to present "material financial commitments" as this is critical in
HELD: No. This remedy should be denied to corporations whose insolvency determining its resolve, determination, earnestness and good faith in
appears to be irreversible and whose sole purpose is to delay the financing its proposed rehabilitation plan.
enforcement of any of the rights of the creditors, which is rendered obvious 4. While Wonder Book mentioned that there are individuals who have
by the following: (a) the absence of a sound and workable business plan; (b) expressed their interest in investing and financing its business plans, their
baseless and unexplained assumptions, targets and goals; (c) speculative identities were not disclosed nor were the evidence of the existence of these
capital infusion or complete lack thereof for the execution of the business funds proved.
plan; (d) cash flow cannot sustain daily operations; and (e) negative net
worth and the assets are near full depreciation or fully depreciated. The foregoing only goes to show that rehabilitation is a vain waste of effort
1. Foremost of all, it appears that the petitioner does not really have enough and resources and a mere exercise in futility. Worse, that Wonder Book will
assets, net worth and earning to meet and settle its outstanding liabilities. still post a negative net worth after its rehabilitation plan is fully implemented
2. Secondly, this Court is not really prepared to give full faith to the financial suggests that the remedy of rehabilitation is availed without a reasonable
projections of the petitioner. The assumption that petitioner s gross sales will expectation that Wonder Book will regain its prior status of viability and
increase by 25% to 30% within the next five years is without adequate basis. profitability but with a mere crapshoot that the value of its present pool of
It is too speculative and unrealistic. It is not borne by petitioner s historical assets will increase during the rehabilitation period.
operations.
3. Another reason for this Court s denial of Wonder Book s petition is its
failure to comply with Section 5 of the Interim Rules, which enumerates the
minimum requirements of an acceptable rehabilitation plan:
Sec. 5. Rehabilitation Plan. The rehabilitation plan shall include: (a) the
desired business targets or goals and the duration and coverage of the
rehabilitation; (b) the terms and conditions of such rehabilitation which shall
include the manner of its implementation, giving due regard to the interests
of secured creditors; (c) the material financial commitments to support the
rehabilitation plan; (d) the means for the execution of the rehabilitation plan,

and the "re-operation" 16 of an oil for failure to comply with the requirements in Rule 4. 13 It also stated that "almost all SHELL PETROLEUM CORPORATION. the acquisition of two Court of Lucena City. 17 Interim Rules of Procedure on Corporate Rehabilitation. 2005. and mismanagement of its businesses made it MINING. showed that Viva a stay order. the City of Batangas. the Regional Trial Court found that Viva Shipping Lines' Amended Petition to be "sufficient in form and substance. 20 It stayed the enforcement of all monetary and judicial claims Shipping Lines owned only two (2) maritime vessels: M/V Viva Peñafrancia against Viva Shipping Lines. petitioner. a lawyer from Lucena City.630. METROPOLITAN BANK & TRUST COMPANY. only P147. Calixto Ferdinand B. Viva Shipping Lines also declared the following debts: During the initial hearing.000.172." comments and oppositions to Viva Shipping Lines' Amended Petition.00. CITY OF [its] vessels were rendered unserviceable either because of age and LUCENA.. Viva Shipping Lines also declared its total properties' assessed Mendoza). 2 The Regional Trial Court initially denied the Petition (2) new vessels for shipping operations. rehabilitation receiver: Armando F. the devaluation of the Philippine peso. Keppel Philippines Marine. or disposing of any of its properties except in the all of Viva Shipping Lines' assets amounted to P447. 15 It also proposed Lines) filed a Petition for Corporate Rehabilitation before the Regional Trial the conversion of the Ocean Palace Mall into a hotel. Viva Shipping Lines claimed to own and operate 18 A day after filing the Amended Petition. value at about P45. 2005. In the Amended Petition. Mendoza (Judge Lucena City. the Property Inventory List.R. respondents. The Regional Trial Court also appointed Judge million more than what was alleged in its Amended Petition. INC. Viva Shipping Lines nominated two individuals to be appointed as 2005. a shopping mall in downtown the name of a third nominee. (Viva Shipping lots of its sister company. these allegations were contrary to the attached documents in the Amended Petition. vs. and HARLAN owned by other operators. Before the initial hearing scheduled on properties listed in the Property Inventory List were already marked as December 5. Viva Shipping Lines.. KEPPEL PHILIPPINES increased competition. Ragudo. PILIPINAS difficult to pay its debts as they became due. 3 On October 17. Viva Shipping Lines submitted 19 maritime vessels and Ocean Palace Mall. 177382." 14 BACALTOS. INC. However.. On October 19.00. February 17. Some of the Mendoza as rehabilitation receiver. EUGENIO BACULO. Inc. NIDA deterioration that [it] can no longer compete with modern made vessels MONTILLA. Domingo Shipping Lines. Quezon. Sto.790. CITY OF BATANGAS. 2016. Former Judge Jose F. Inc. a businessman from Tayabas. Viva Shipping Lines enumerated possible sources of funding such as the sale of old vessels and commercial FACTS: On October 4. P400 ordinary course of business. 2005. In its Company Rehabilitation Plan.860. PROVINCE OF QUEZON. Quezon. Dauz III. The list also stated that the fair market value of encumbering.] According to Viva Shipping Lines. Sections 2 and 3 of the mill in Buenavista. Viva Shipping Lines filed an Amended Petition. V and M/V Marian Queen. 10 hence.00 of real and Metropolitan Bank and Trust Company (Metrobank) filed their respective property and its vessels were marked as "free assets. transferring. VIVA SHIPPING LINES. and Atty.[G.000." and issued One of the attachments. No. Pilipinas Shell Petroleum Corporation (Pilipinas Shell) moved for additional time to write its opposition to Viva Shipping . and prohibited Viva Shipping Lines from selling. ALEJANDRO OLIT. "encumbered" by its creditors. PIO HERNANDEZ.

2006. Regional Trial Court summarized Viva Shipping Lines' creditors and debts: Luzviminda C. Viva Shipping Lines failed debtors. The Securities and Exchange Commission filed a Comment informing the ISSUE: WON rehabilitation is proper Regional Trial Court that Viva Shipping Lines violated certain laws and rules of the Commission. 33 . It is considered state policy to encourage Regional Trial Court granted Metrobank's Motion. Regional Trial Court Order to submit a memorandum. However. preserve and Olit. . Corporate rehabilitation is a remedy for corporations. Stability in such as board resolutions. Keppel Philippines Marine. Pilipinas Shell later filed its Comment/Opposition to show the company's viability and the feasibility of rehabilitation. the economy results when there is assurance to the investing public that and contracts. and Harlan Bacaltos 34 maximize the value of the assets of these debtors.000. . also filed a The Regional Trial Court also noted the following as Viva Shipping Lines’ Manifestation and Registration of Monetary Claim stating that Viva Shipping free assets: Lines owes her P232. HELD: NO. recognize creditor rights (Alejandro Olit. and associations "who [foresee] the impossibility of meeting On March 24.00 as separation and 13th month pay. Solvency is a state where nomination. a former employee of Viva Shipping Lines. tax returns. the obligations will be reasonably paid. Corporate rehabilitation is a type of proceeding available to a business that On April 4. Inc." A corporation under appointment as rehabilitation receiver. Pio Hernandez. Viva Shipping Lines rehabilitation continues with its corporate life and activities to achieve nominated Atty. As replacement. and ensure equitable treatment of creditors informing the Regional Trial Court of their pending complaint against Viva who are similarly situated. 2006. 2006. both juridical and natural persons. [R]ehabilitation or liquidation shall be made with a view to ensure or On September 27. interest of the State to facilitate a sp In the Order dated October 30. The with Formal Notice of Claim.Lines' Amended Petition. Viva Shipping Lines filed its opposition. Judge Mendoza withdrew his acceptance of [their] debts when they respectively fall due. Metrobank filed a Motion for Production or Inspection of is insolvent. Bernaldo.) filed their comment on the Amended Petition. Viva Shipping Lines' former employees Alejandro maintain certainty and predictability in commercial affairs. partnerships. . or a position where the corporation is able to pay its obligations as S. while Metrobank nominated Atty. Antonio Acyatan. In general. the businesses' liabilities are less than its assets. When rehabilitation is not feasible. Rosario solvency. et al. and their creditors to collectively to comply with the Order to produce the documents. 2006. bank accounts." 98 Rehabilitation assumes .] . are often more valuable when so maintained than they would be when liquidated. accounting ledgers. Nida Montilla. Cueto. and respect priority of claims. 36 the Regional Trial Court lifted the The rationale in corporate rehabilitation is to resuscitate businesses in stay order and dismissed Viva Shipping Lines' Amended Petition for failure financial distress because "assets . 32 as well as with the and realistically resolve and adjust competing claims and property rights[. Eugenio Baculo. it is in the Shipping Lines before the National Labor Relations Commission. adopted Metrobank's they fall due in the ordinary course of business. insolvency proceedings provide for predictability that relevant documents relating to Viva Shipping Lines' business operations commercial obligations will be met despite business downturns.

should have opted for liquidation. Even if the two companies have the same directorship and ownership. As pointed out by the Regional Trial Court. Even an ordinary individual with no business the equitable purposes of corporate rehabilitation. The plan to buy new vessels after selling the two vessels it currently owns is neither sound nor workable as a business plan. St. rehabilitation receiver to balance the interest to recover and continue ordinary business. This reduces the probability that rehabilitation receiver. successful operation and solvency. the plan to purchase new the plea would cause more economic hardship and injustice to all those vessels sacrifices the corporation's cash flow. the plan showed plan 156 and terminate proceedings or. acumen can discern the groundlessness of petitioner's rehabilitation plan. 152 Petitioner admitted rehabilitation plan within the time periods allotted after initiatory hearing. We rule otherwise. The Interim Rules of Procedure on Petitioner's rehabilitation plan should have shown that petitioner has enough Corporate Rehabilitation allows the trial court to disapprove a rehabilitation serviceable assets to be able to continue its business. These interests are also referred to as the rehabilitative and impossible to implement. they are still two separate juridical entities. serviceable. A business primarily engaged as a shipping line cannot law. we deny the plea for liberalization of procedural rules. Michael Medical Center. corporate rehabilitation. 154 a rehabilitation plan is infeasible if the assets are Finally. It is not solely the responsibility of the rehabilitation receiver to determine the validity of the rehabilitation plan. which is to allow present value recovery for creditors.that assets are still serviceable to meet the purposes of the business. to that the source of funding would be to sell petitioner's old vessels. petitioner argues that after Judge Mendoza's withdrawal as nearly fully or fully depreciated. The other part of the rehabilitation plan entails selling properties of petitioner's sister company. Yet. Thus. Petitioner should have presented a more realistic and practicable It found that petitioner's assets are non-performing. or this in its Amended Petition when it stated that its vessels were no longer otherwise. 153 In Wonder Book Corporation v. Disposing allow modifications to a rehabilitation plan. the Regional Trial Court should have appointed a new rehabilitation may restore and reinstate petitioner to its former position of rehabilitation receiver to evaluate the rehabilitation plan. To grant operate without its ships. Philippine Bank of Communications. this plan requires conformity from the sister company. of the assets constituting petitioner's main business cannot result in The Regional Trial Court rendered a decision in accordance with facts and rehabilitation. The financial statements of another corporation that the petitioning-corporation corporation receives assistance from the court and a disinterested plans to merge with. petitioner's rehabilitation plan is almost paid equitably. The Regional Trial Court correctly dismissed petitioner's rehabilitation plan. all the while attending to the interest of its creditors to be As pointed out by respondents. In BPI Family Savings Bank v. 155 this court refused to include in the financial and liquidity assessment the . This is contrary to the goal of concerned. On the other hand. should the instances warrant.

Unliquidated cash advances and unaccounted funds. The governing body of LCP were composed of 7 Board of Directors (BOD) the proceeds whereof were allegedly unliquidated. On the other hand. Arsenio M. Mr. CA The Ao-as group filed SEC-SICD Case No. representing each district and the seventh member of the Board is the National President of the LCP who is elected at large in a national 2. Hon. was testiIed to by serving a term of 2 years. Its members are comprised of of a management committee are: Lutheran clergymen and local Lutheran congregations in the Philippines: the North Luzon District (NLD). LCP-BD-33-70 which The members of the Batong group . and explained The BOD managed the LCP without any challenge from the membership that the purchase in his name was upon advice of LCP's lawyers to comply until several years later when certain controversies arose involving the with the rulings in Republic of the Philippines v. accompanied by members of the LCP Board and about 15 armed security guards allegedly barged into the premises of the LCP in Old Sta. A0-AS V.PETITIONERS have served in various capacities as directors or officers of the LCP. Another resolution was passed creating another district. Leyte in his name. 3857 for accounting and damages with prayer for preliminary injunction and appointment of a FACTS: The Lutheran Church of the Philippines (LCP) is a religious MANAGEMENT COMMITTEE." 3857. Saquilayan allegedly Islands District (VLD). Respondent Batong. allegedly in violation of LCP Board Resolution No. The said 4. and the 1. using LCP funds. the South Luzon District (SLD). LCMS.000 of LCP funds. both located in La Trinidad. purchased a parcel of land in Albuera. Purchase of Leyte Land in the name of respondent Saquilayan with LCP 7 to 9. Excelsio Hipe before the SEC-SICD in a hearing separately in district conferences held in each district. A resolution was passed. Petitioners convention held in October of every even-numbered year. manager and corporate treasurer since 1979. Iglesia Ni Cristo. with two members conducted on 11 September 1990. Eclesio Hipe.000. 5. modified and changed by LCP in convention. Visayan funds. Respondent LCP Vice-President Victorio Y. The grounds relied upon for the appointment organization duly registered with the SEC. another land. dividing the NLD into two separate districts: NLD Highland District and NLD Lowland District thereby increasing the BOD from 3. The La Trinidad Land Transaction. and removed . The alleged anomaly concerning the sale of the land and the purchase of Mindanao district (MDD). of BOD provided in the AOI without it being amended to reflect the increase. presented evidence to prove the failure of respondent Batong to liquidate cash advances and account for P4. LCP-BD-28-90 the legality of the 11 BOD was put in issue for being in excess of the number severing all relations with the Lutheran Church-Missouri Synod (LCMS). Gonong resolutions of the Board terminating the services of the LCP business and Republic of the Philippines v. Respondent Saquilayan subsequently donated to the LCP.RESPONDENTS are the duly elected stated that "all actions taken by LCP in convention can only be amended. Six members of the LCP Board are elected petitioner Ao-As and Mr. Mesa. board of directors of the LCP at the time of the Iling of SEC-SICD Case No. Severance of partner-church relationship between the LCP and the termination sparked several intra corporate complaints and for the first time. Taking of LCP Books of Account .REVALIDA FRIA – 03. thereby increasing the number of BOD further to 11. the Ao-As group . Manila. Respondents issued LCP Board Resolution No.

and should not be employed when another remedy is available. will not justify in an action by a minority stockholder against corporate officers for an the appointment of a receiver for the corporation if appropriate relief can accounting where the corporation is solvent and going concern and a otherwise be had. . Refusal to allow stockholders (or members of a non-stock corporation) to examine books of the company is not a ground for appointing a receiver (or ISSUE: Whether the Ao-As group is entitled to an accounting and to the creating a management committee) since there are other adequate creation of a management committee due to the Batong group's alleged remedies. even before the creation of the management committee. Subsequently an order creating a management committee was issued to Even without delving into the analysis of the prosecution evidence undertake the management of the Lutheran Church until such time as the concerning the six causes of action and the alleged acts subsequent to new BOD shall have been elected. . the Batong group filed an Urgent Motion to Suspend positively shown that the said funds are unaccounted for. The creation of a management committee is not warranted as solvent. However. . these five causes of action. official receipts. receiver is not necessary to preserve the corporate property pending the accounting".all of the official records and documents of the LCP (including the books of when there was an adequate remedy available to private respondents for account. Misconduct of corporate directors or dissipation and waste of the assets of the LCP? other officers is not a ground for the appointment of a receiver where there are one or more adequate legal action against the officers. Relief by receivership is an extraordinary remedy and is never exercised if or at least in case of solvent corporation . "It is the general rule that a receiver (or a management committee) will not The appointment of a receiver for a going corporation is a last resort be appointed unless it appears that the appointment is necessary either to remedy. it is already appropriate for us to rule that the However. the LCP facts as they appear to us now do not warrant the creation of a management national convention called by the Batong group had already been called and committee. injunction or a restraining order. Furthermore. shown by the facts of the case. or even Similarly. a management committee should not be created . check and journal vouchers. or to save the property from fraud or threatened destruction. "which may be attributable to adjustment errors proceedings. where they are RULING: NO. held at the Lutheran Hospice. such as a writ of mandamus.572. the SEC did not suspend the funds were only P1. a receiver (or a management committee) should not be appointed unauthorized use and misapplication of the company's funds. titles to property) and had the same relocated to his residence in Caloocan City and to the offices of Immanuel Lutheran Church in Malabon. . ." and analyzed the the Proceedings in view of an amicable settlement between them entitled “A evidence presented by the Ao-As group to illustrate that the unaccounted FORMULA FOR CONCORD”. prevent fraud. Bad judgment by directors. ". but certainly not a case of misappropriation or misuse.43. or other remedies. The Court of Appeals ruled that the members of the Ao-As group "have not During the hearings. official papers and the liquidation of unaccounted funds. Quezon City. The burden of proof is a heavy there is an adequate remedy at law or if the harm can be prevented by an one which requires a clear showing that an emergency exists.

for unfair labor practice (ULP). 1994. required the corporation to post Labor and Employment (DOLE) a Notice of Temporary Partial Shutdown an appeal bond in an amount equivalent to Mr. the On September 1. 153882 payment. Bisig Pagkakaisa-NAFLU staged a strike. illegal should have been suspended pursuant to the SEC Order dated December shutdown. Rubberworld filed with the SEC a Petition for Declaration of a State of Suspension of Payments with Proposed Rehabilitation Plan. As such. NO. A copy of said notice was perfection. On November 28. 1996. 1994. the First Division of FACTS: On August 26. the As a result. Atienzas computation. 1994. Yes. 22. while the aforementioned complaint was pending with Labor 2. The RULING: 1. alleging therein that pursuant to the SEC Order dated December 28. RUBBERWORLD Labor Code has conferred upon them subject to the condition that awards. date set for the start of its temporary partial shutdown. 2007 ordering the respondent to reinstate the petitioners and pay their backwages. was granted by the SEC in said that the decision of the Labor Arbiter. Mr. Amended Petition for Certiorari and its Supplement. the Labor . which categorically Rubberworld's submission on January 10. 1999. 1995. could ever attain final and executory status. Whether or not PD 902-A is applicable to labor cases. the Bisig Pagkakaisa- NAFLU. picket line in front of the premises of Rubberworld and even welded its gate. 1994. Rubberworld filed with the Department of the NLRC. 1995 of a Motion to Suspend mandates the suspension of all actions for claims against a corporation Proceedings. Given the factual milieu obtaining in this case. herein petitioner union filed a complaint against Rubberworld and its ISSUES: 1. 11-94-4920. Antonio Yang. 1994.LINGKOD MANGGAGAWA SA RUBBERWORLD VS. it cannot be petition. 1994. docketed as SEC Case No. if INC. 1994. Rubberworld's premises closed prematurely even before the subsequent proceedings before it was null and void. should be presented to the Management Committee for processing and G. Despite Rubberworlds vigorous opposition. saying in part that the before the Labor Arbiter and the order and writ subsequently issued by the SEC Order notwithstanding. It set up a proceedings before the Labor Arbiter should have been suspended. any. supra. in its Order of January 22. with a due to severe financial crisis. On September 9. or the decision/dismissal order its Order dated December 28. 1994. as amended. and writ of execution issued by the NLRC.R. Thus. the union with which the corporation had a collective bargaining On February 8. Labor Arbiters and the National Labor Relations NLRC are all null and void for having been undertaken or issued in violation Commission should not abdicate the jurisdiction which Article 217 of the of the SEC suspension Order dated December 28. Whether or not the proceedings before the Labor Arbiter Vice Chairperson. served on the recognized labor union of Rubberworld. and non-payment of salaries and separation pay. The decision further stated that Rubberworld committed ULP and JANUARY 29. Hence. Labor Arbiter Dinopol went ahead with the ULP case and placed under a management committee by the SEC. Rubberworld filed with the Court a Motion to Admit its agreement. 1994. therein announcing the formal actual company warning that failure to do so shall result in the dismissal of its appeal for non- shutdown to take effect on September 26. since the Labor Arbiter disregarded the SECs suspension order. The Labor Arbiter completely disregarded and violated Notwithstanding the SEC's aforementioned suspension order and despite Section 6(c) of Presidential Decree 902-A. Arbiter Dinopol. the proceedings rendered his decision thereon on August 16.

Allowing labor cases to proceed clearly defeats the purpose of the automatic stay and severely encumbers the management committee's time and resources. the Labor Arbiter were still very much pending. Petitioners contend that the decision of the Labor Arbiter in the present case. Obviously. The law is clear: upon the creation of a management committee or do not see any reason why the doctrine of stare decisis will not apply to this the appointment of a rehabilitation receiver. 1994. 00-09- against the provisions of mandatory or prohibitory laws shall be void. the proceedings before this case is void ab initio. including the dismissal by the NLRC of Rubberworld’s the Labor Arbiters decision of August 16. In short. except 06637-94 ought to have been suspended. Acts executed Lingkods complaint against Rubberworld in NLRC-NCR-Case No. Like the CA. to the detriment of its primary and urgent duty to work towards rehabilitating the corporation and making it viable again. 1995 was rendered at a time when appeal. The Labor Arbiter's decision in issued its suspension Order of December 28. non-existent. Petitioners argue. should be deemed suspended. Besides. As such. even if the NLRC awards the claims of private respondents. all claims for actions shall be case. and therefore. we 2. . then. Inc. The said committee would need to defend against these suits. Petitioners thus conclude that the doctrine of stare decisis cannot apply to the instant case. Ubi lex non distinguit nec nos distinguere debemos. To rule otherwise would open the floodgates to other similarly situated claimants and forestall if not defeat the rescue efforts. No exception in favor of labor claims is mentioned in the law. Petitioners are in error. however. that the doctrines laid down in the two aforecited cases cannot be made to apply to the instant controversy because the SEC order therein only mandates that all pending cases against Rubberworld Philippines. Since the law makes no distinction or exemptions. at the time the SEC when the law itself authorizes their validity. could not have achieved a final and executory status. have become final and executory by reason of Rubberworlds failure to perfect its appeal by not upgrading or completing the required cash or surety bond as ordained by the NLRC. suspended accordingly. as well the order of dismissal and writ of execution issued by NLRC. Yes. its ruling could not be enforced as long as the petitioner is under the management committee. neither should this Court.Arbiters decision. nofinal and executory decision could have validly emanated therefrom. It is incontrovertible that the denial of Rubberworlds motion to suspend proceedings in the principal case was incorporated in the decision of the Labor Arbiter.

vs. No.R. denying REHABILITATION RECEIVER FOR NEGROS NAVIGATION CO. However.NEGROS NAVIGATION CO. admiralty proceeding in rem. wherein the appellate court TSUNEISHI HEAVY INDUSTRIES (CEBU). the petition of THI that sought to annul and enjoin the enforcement and G. NNC committed fraud in contracting was erroneous considering that maritime liens cannot be enforced. No. There is no conflict as to which law NNC filed a Petition for Corporate Rehabilitation with Prayer for Suspension should apply to the case at bench. No.. Section 6 of the Interim Rules on Corporate Rehabilitation. 163156. FACTS: NNC. Peter the Apostle. HELD: 1. a shipping company that is primarily engaged in the business ISSUES: 1. when NNC filed a petition for corporate rehabilitation and Proceedings and to Lift Preliminary Attachment with the Cebu RTC. The action is based Manila RTC’s jurisdiction in. Vs. and the Manila RTC found that the petition was sufficient in form and in substance and appointed the rehabilitation receiver. 163156 December 10. 2008 the Manila RTC. Whether or not THI’s maritime liens are covered by. 2008 implementation of the Orders of the Manila RTC.THI is engaged in the business of shipbuilding Admiralty Court’s jurisdiction over those liens is impaired by the Stay Orders and repair.R. the CA issued the Resolution assailed in what is x---------------------------------------------------x before this Court as G. AND THE CA issued the Decision assailed in what is now G. No.R. INC. and are subject to the writ of attachment against NNC before the Cebu RTC. Whether or not the CA Decision erred in ruling that neither THI’s of transporting through shipping vessels. However. NEGROS temporarily restrained the implementation of the Orders of the Manila.. Pinar levied on one of the vessels of NNC. [NNC’s] rehabilitation proceedings? NO on the unpaid services for the repair of NNC’s vessels. support of the application for the writ.. INC. INC. acting as rehabilitation court.R. suspension of payments. 166845 December 10.. TAGUD. the M/V St. and otherwise affected or dealt with except by an admiralty court in an Sheriff Rogelio T. Cebu RTC issued an Order for the arrest of the vessels of NNC in the in rem the admiralty proceeding was appropriately suspended in accordance with aspect of the case. THI maintains that its maritime liens against the vessels of NNC Cebu RTC issued an Order granting the issuance of a writ of preliminary were impaired by the issuance of the stay order and argues that the attachment against the properties of NNC since based on the affidavit in issuance of the stay order by the Manila RTC. The argument of THI is misplaced. SPECIAL NNC filed a Motion to Suspend Proceedings and to Lift the Writ of TWELFTH DIVISION AND TSUNEISHI HEAVY INDUSTRIES (CEBU). NNC filed a Manifestation and Motion to Suspend NNC. passengers and cargoes at various enforcement/the efficacy of its maritime liens against the Vessels nor the ports of call in the country. . COURT OF APPEALS. The Court agrees that PD 1521 is the of Payments with the Manila RTC. NNC engaged the services of THI for the repair of its vessels. The NAVIGATION CO. the debt or in incurring the obligation upon which the action was brought. INC. issued by the Manila RTC? NO THI filed a case for sum of money and damages with prayer for issuance of 2. SULFICIO O.. INC. Attachment and Arrest Orders before the Cebu RTC by virtue of the Order of G. 166845. Upon the issuance of the stay order by governing law concerning its maritime lien for the services it rendered to the Manila RTC. divested.. JR.

Rehabilitation contemplates continuance of corporate life and activities in an Thus. The issuance of the stay order by the the corporation. allow creditors to be paid their claims from its earnings. and control corporations. since the law does not make any exemptions or distinctions. in a larger sense. or rehabilitation receiver to effectively exercise its/his powers free from any stockholders and. partnerships It is undisputed that THI holds a preferred maritime lien over NNC’s assets or associations to be declared in the state of suspension of payments where by virtue of THI’s unpaid services. partnerships or associations under management or over. PD 902-A does not make any distinction as to what claims are operations of such corporations. all the existing assets and property of such entities under receivership pending before any court. and these rules apply to petitions for NNC. THI can still enforce its preferred claim upon Rehabilitation on December 15. rehabilitation filed by corporations. PD 902-A was designed not only to salvage an ailing corporation but also to protect the interest of investors. (d) of PD 902-A provides: "the management committee or rehabilitation rehabilitation receiver. Republic Act No. Section 6 PD 902-A mandates that upon appointment of a management committee. all actions for claims against receiver. board or body. or where the corporation. creditors and the general public. The rehabilitation of pending rehabilitation proceedings is to enable the management committee a financially distressed corporation benefits its employees. earnings and suspended. board or body shall have the power to take custody of. to study. No exception is made therein in favor of maritime claims. partnership or association possesses property to cover all rehabilitation court does not impair or in any way diminish THI’s preferred its debts but foresees the impossibility of meeting them when they status as a creditor of NNC. rehabilitation proceedings or in the event of the bankruptcy and consequent The Court adopted the Interim Rules of Procedure on Corporate dissolution of the company. and creditors. board or body shall be management. receiver. To allow such other actions to continue The governing law concerning rehabilitation and suspension of actions for would only add to the burden of the management committee or rehabilitation claims against corporations is PD 902-A. the general public. among others. but is under the management rehabilitation of the distressed shipping company. claims against the corporation instead of being directed toward its amended Section 5 of PD 902-A. partnership or association action was merely suspended to give way to the speedy and effective has no sufficient assets to cover its liabilities. whose time. The enforcement of its claim through court respectively fall due. neither effort to restore and reinstate the corporation to its former position of should we. as amended. Courts the jurisdiction of the Securities and Exchange Commission (SEC) over cases. otherwise known as The Securities Regulation Code. effort and resources would be wasted in defending 8799 (RA 8799). and associations pursuant to PD 902-A. 2000. without distinction. tribunal. judicial or extra-judicial interference that might unduly hinder or prevent the "rescue" of the debtor company. thereby transferring to the Regional Trial restructuring and rehabilitation. review and evaluate the feasibility of continuing . to evaluate the existing assets and liabilities. Ubi lex non distinguit nec nos distinguere debemos. partnerships. creditors. involving petitions of corporations. to covered by the suspension of actions for claims against corporations under determine the best way to salvage and protect the interest of the investors rehabilitation. partnerships or other associations. successful operation and solvency The purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby The justification for the suspension of actions or claims. Upon termination of the of a rehabilitation receiver or a management committee.

All claims against corporations. or association are accordingly. articles of incorporation or by-laws to 2. creditors. The management committee or rehabilitation receiver. the vessels management and creditors it might favor. it emphasizes that a benefit of all creditors to preclude one from obtaining an advantage or maritime lien is not affected by bankruptcy or reorganization. or on its own findings. or body in accordance with the provisions of Presidential Decree No. In the dissolution of such corporation entity and its remaining assets liquidated event that the assets of the corporation. 902-A. in granting the stay order. or board. All assets of a PD 1521 to insist on the vessels’ responsibility because an action in rem is a corporation under rehabilitation receivership are held in trust for the equal proceeding against the ship itself. board. notwithstanding NNC’s rehabilitation proceedings. on or not a creditor is secured or unsecured." Cebu RTC. As between the creditors. rather. notwithstanding any provision of law. Once the corporation threatened by bankruptcy is taken over by a receiver. execution or otherwise. whether secured or unsecured. however. parties-litigants. It shall report and be responsible to the [court] until pending before any court. The stay order is effective on all creditors of the corporation the liens. or rehabilitation receiver. This is precisely the reason for suspending all follow the argument of THI and allow the continued enforcement of its claims pending claims against the corporation under receivership. or associations that are feasible by the [court]. order the of a management committee. committee. of its jurisdiction over the maritime case of THI. divested the the contrary. we would. enumerates the guidelines in the treatment of claims involving corporations undergoing rehabilitation: . Furthermore. a maritime lien is not affected by bankruptcy or reorganization. which is acting as an admiralty court. the key phrase is equality in equity. the rationale behind PD 902-A is to effect a feasible and viable Rizal Commercial Banking Corporation v. Intermediate Appellate Court rehabilitation of an ailing corporation. against NNC. secured and preferred credits under the body may overrule or revoke the actions of the previous management and applicable provisions of the Civil Code will definitely have preference over board of directors of the entity or entities under management unsecured ones. board or body. rehabilitation receiver. we are not dealing with bankruptcy or all the creditors ought to stand on equal footing. It insists that its maritime liens over the vessels of When a distressed company is placed under rehabilitation. to the prejudice of the other alone may be impleaded as defendants. determine that the continuance in business of such corporation or entity 2. violate provisions of PD 902-A. or body. without distinction as to whether dissolved by order of the [court]: Provided. partnership. however. tribunal. preference over another by the expediency of attachment. However. That the [court] may. in effect. we are confronted with NNC’s rehabilitation. THI argues that the Manila RTC. Secured creditors retain their preference over unsecured creditors. board or finally liquidated. True enough. board. and lienholders like THI have the substantive statutory right under without distinction. It of a management committee follows to avoid collusion between the previous stresses that in in rem proceedings to enforce maritime liens. The vessels themselves answer for creditors. partnerships. Not any one of them should reorganization. If we be paid ahead of the others. but would not be feasible or profitable nor work to the best interest of the enforcement of such preference is equally suspended upon the appointment stockholders. rehabilitation receiver. the appointment NNC must be upheld. in the instant case. or the general public. shall be suspended effective upon the basis of the findings and recommendation of the management the appointment of a management committee. To reiterate.operations and restructure and rehabilitate such entities if determined to be 1.

R. No. . 163156.R. or if it such be unsuccessful. 166845.There is no conflict between PD 1521 and PD 902-A. It did not divest the Cebu RTC of its jurisdiction over the maritime claims of THI against NNC. The preferred maritime lien of THI can still be enforced upon the termination of the rehabilitation proceedings. The Manila RTC acting as a rehabilitation court merely suspended the proceedings in the admiralty case in the Cebu RTC. the petition is DENIED for lack of merit. No. Court Decision: G. the petition is DISMISSED for being moot and academic and G. upon the dissolution of the corporation.

be it before In the meantime. (PAL) as Aircraft Furnishers Master "C" and Aircraft Inspector.” reinstatement. They were assigned in the PAL NLRC: Reversed LA decision and dismissed the case for lack of merit. Garcia and proceedings of a suit and not just the payment of claims during the ordered PAL to pay the former back wages.GARCIA VS. the suspension of all actions for claims against the corporation embraces all phases of the suit. It must be stressed that what are automatically stayed or suspended are the LA: Decided in favour of Alberto J. The Section 6. before any court.R. 13th month pay. J: Meanwhile. Dumago and Juanito A. NO. However. Both simultaneously filed a case for illegal dismissal and judicial or extra-judicial interference that might unduly hinder or prevent the damages. respectively. all actions for claims against the corporation pending On October 9. Inc. On July 24. PAL hereby ordered. and attorney’s fees. the Securities and Exchange Commission (SEC) placed the trial court or any tribunal or before this Court. QUISAMBING. upon appointment by the SEC of a rehabilitation receiver. Judgement became final. respondent[s] are corporation whether for damages founded on a breach of contract of . When the PAL Security searched the section. 1995. in lieu thereof. Dumago and Juanito A. Worth stressing. to pay unto the complainants their separation G. moral and execution stage after the case had become final and executory. respondent Philippine Airlines. rescue of the corporation. No other action may be PAL under an Interim Rehabilitation Receiver due to severe financial losses. 164856 AUGUST 29. 1995. petitioners were dismissed for violation of Chapter II. they are petitioners entitled to execution of the Labor Arbiter's order of found shabu paraphernalia inside the company-issued locker of Ronaldo reinstatement even if PAL is under receivership? Broas who was also within the vicinity. PAL is directed to immediately comply with the reinstatement aspect of this Decision. 2007 pay computed at one month for [e]very year of service. petirioners are not entitled to execution of LA’s order of in the act of sniffing shabu. They found petitioners. including the rendition of judgment during the state of suspension. Technical Center. Moreover. Section 6. Article 48 (Prohibited Drugs) of the PAL Code of the rehabilitation receiver to effectively exercise its/his powers free from any Discipline. Petitioners vehemently denied the allegations and challenged PAL to show proof that they were indeed "caught HELD: No. with four others. the actions that are suspended cover all claims against the in the event that reinstatement is no longer feasible. tribunal or board shall ipso jure be suspended. a combined team of the PAL Security Motion for reconsideration was denied. exemplary damages. taken. Furthermore. Article 46 (Violation of Law/Government Regulations) and purpose of the automatic stay of all pending actions for claims is to enable Chapter II. Garcia were employed by Permanent Rehabilitation Receiver. the SEC replaced the Interim Rehabilitation Receiver with a FACTS: Alberto J. near the said ISSUE: In the light of new developments concerning PAL's rehabilitation. Toolroom Section — Plant Equipment Maintenance Division (PEMD) of the PAL Technical Center. More importantly. section at that time. Writ of and National Bureau of Investigation (NBI) Narcotics Operatives raided the execution was issued.

No exception in favor of labor claims is mentioned in the law. This Court's adherence to the above-stated rule has been resolute and steadfast as evidenced by its oft-repeated application in a plethora of cases involving PAL. the same should have been suspended pending the rehabilitation proceedings. to still require petitioners at this time to re-file their labor claim against PAL under the peculiar circumstances of the case — that their dismissal was eventually held valid with only the matter of reinstatement pending appeal being the issue — this Court deems it legally expedient to suspend the proceedings in this case. Zamora. Since petitioners' claim against PAL is a money claim for their wages during the pendency of PAL's appeal to the NLRC.carriage. the NLRC. collection suits or any other claims of a pecuniary nature. the most recent of which is Philippine Airlines. . The Labor Arbiter. However. Inc. v. as well as the Court of Appeals should have abstained from resolving petitioners' case for illegal dismissal and should instead have directed them to lodge their claim before PAL's receiver. labor cases.

2001. board or space for the management committee or rehabilitation receiver to make the body shall be suspended accordingly. Not anyone of them should be given any preference by paying nSobrejuanite alleged that they entered into a Contract to Sell with ASBDC one or some of them ahead of the others. and protect the interest of the investing public and creditors: … Provided. committee or rehabilitation receiver to effectively exercise its/his powers free . tribunal. ASB DEVELOPMENT CORPORATION money or otherwise. whether for vs. This is precisely the reason for the over a condominium unit and a parking space in the BSA Twin Tower-B suspension of all pending claims against the corporation under receivership. which is the motion to dismiss or suspend proceedings in view of the approval by the subject of the action pending before the Commission … whenever Securities and Exchange Commission (SEC) on April 26. finally. ASBDC filed a one or more receivers of the property. The afore cited law defines claim as business viable again.” (2) Whether the SEC’s approval of the corporate rehabilitation plan has the effect of suspending the proceeding before HLURB. Such suspension is intended to give enough breathing management or receivership pending before any court.637. The (Sobrejuanite) filed a Complaint for rescission of contract. without having to divert attention and resources to the debts or demands of a pecuniary nature. 902-A. pursuant to this Decree. partnerships or associations under public or creditors. refund of payments amounting to P2. claim litigations in various fora. Instead of creditors vexing the courts with suits against the distressed firm. board or body. attorney’s fees. 2001 of the necessary in order to preserve the rights of the parties-litigants and/or rehabilitation plan of ASB Group of Companies. the appointment of a rehabilitation receiver. Section 6(c) of PD No. real and personal. The suspension would enable the management means actions involving monetary considerations or all claims or demands. denied the motion and ordered the continuation of the proceedings. for the rescission of the contract. against ASB Development Corporation (ASBDC) bankruptcy is taken over by a receiver." When a corporation threatened by payments and damages.10. spouses Eduardo and Fidela Sobrejuanite correctly held by the Court of Appeals. ASBDC failed to they are directed to file their claims with the receiver who is a duly appointed deliver the property on or before December 1999 as agreed. all actions for claims against corporations. Condominum located at Bank Drive. of whatever nature or character against a debtor or its property. Hence. all the creditors should stand on before the Housing and Land Use Regulatory Board (HLURB).674. jurisdiction.SPOUSES EDUARDO SOBREJUANITE and FIDELA SOBREJUANITE. which includes ASBDC. As provided under Section 6(c) of PD No. refund of ratio behind is "equality is equity. appearance fee and costs of the suit. 902-A empowers the SEC: “c) To appoint litigation expenses. suspended accordingly. It is evident that the spouses claim falls within the definition of PD 902-A and settled jurisprudence. In settled jurisprudence. equal footing. (2) Yes. board or body shall be of SEC. Mandaluyong City. The HLURB arbiter however That upon appointment of a management committee. lies with SEC and not HLURB. payment of moral and exemplary damages. partnerships or associations under management or ISSUE: (1) Whether claim of spouses Sobrejuanite lies with the jurisdiction receivership pending before any court. as FACTS: On March 7. tribunal. rehabilitation receiver. Ortigas Center. They averred that despite full payment and demands. The purpose for the suspension of the proceedings is to prevent a creditor from obtaining an advantage or preference over another and to protect and HELD: (1) Yes. They prayed officer of the SEC. all actions preserve the rights of party litigants as well as the interest of the investing for claims against corporations.

. To allow such other action to continue would only add to the burden of the management committee or rehabilitation receiver.from any judicial or extra-judicial interference that might unduly hinder or prevent the “rescue” of the debtor company. whose time. effort and resources would be wasted in defending claims against the corporation instead of being directed toward its restructuring and rehabilitation.

On MR. now that respondent has exited from rehabilitation PAL filed an Urgent Petition for Injunction with the NLRC which affirmed the proceedings validity of the Writ and the Notice issued by the LA but suspended and referred the action to the Rehabilitation Receiver for appropriate action. 164856 January 20. it is obligatory on the part of . pendency of PAL's appeal to the NLRC. the status of its ongoing rehabilitation. SC: Partially granted the present petition and effectively reinstated the PAL dismissed petitioners for violation of PAL Code of Discipline. their department. PAL was directed to quarterly update the Court as to Receiver. Respondent. which well as the CA should have abstained from resolving petitioners case for was suffering from severe financial losses. DUMAGO. PAL appealed to the NLRC. J. by Manifestation and Compliance.: arbiters decision. Subsequently. NLRC reversed the LA decision. GARCIA and ALBERTO J. it was Later on. PAL was ordered to reinstate petitioners. and (2) the impossibility to comply with the reinstatement order due to corporate rehabilitation provides a reasonable justification for FACTS: An administrative charge was filed by PAL against its employees. the same should have been suspended pending the rehabilitation proceedings. Resolutions on two grounds: (1) a subsequent finding of a valid dismissal G. the failure to exercise the options under Article 223 of the Labor Code. It also issued a Notice of Garnishment. as Prior to the promulgation of the LA decision. 2009 removes the basis for implementing the reinstatement aspect of a labor CARPIO MORALES. SEC granted its request to exit from rehabilitation proceedings. the NLRC. proceeds to resolve the remaining issue for consideration. The prevailing principle is that even if the order of reinstatement of the LA is reversed on appeal.. Since the latter to file a complaint for illegal dismissal and damages to which the petitioners' claim against PAL is a money claim for their wages during the LA ruled in their favor. the LA order of reinstatement pending appeal and the NLRC decision overturning that of the LA. prompting NLRC Resolutions insofar as it suspended the proceedings.JUANITO A. under an Interim Rehabilitation illegal dismissal and should instead have directed them to lodge their claim Receiver. No. the Court now reinstatement aspect of its decision. The LA. INC. who was subsequently replaced by a Permanent Rehabilitation before PAL's receiver. herein petitioners after they were allegedly caught in the act of sniffing shabu when a team of company security personnel and law enforcers raided Hence. the SEC placed PAL. vs PAL elevated the case to the appellate court which nullified the NLRC PHILIPPINE AIRLINES. RULING: NO. the LA issued a Writ of Execution respecting the In view of the termination of the rehabilitation proceedings. informed the Court that the denied. Petitioners.R. PAL moved to quash the Writ and to lift the Notice while petitioners moved ISSUE: W/N petitioners may collect their wages during the period between to release the garnished amount. this petition. PAL.

as the normal effect of the the employer. the employee may failure to exercise the alternative options of actual reinstatement and payroll be barred from collecting the accrued wages. on the one hand. Nonetheless. of actual and imminent substantial losses as ground for retrenchment. The test is two-fold: (1) there must be actual delay or the fact that the order While reinstatement pending appeal aims to avert the continuing threat or of reinstatement pending appeal was not executed prior to its reversal. and that Rehabilitation Receiver. non-exercise of the options. reinstatement until they were able to secure a writ of execution after the reversal by the NLRC of the LA decision. the SEC placed PAL under an Interim prevailing prior to their dismissal.the employer to reinstate and pay the wages of the dismissed employee during the period of appeal until reversal by the higher court. It is settled that upon appointment by the SEC of a rehabilitation receiver. the strength of that the peculiar predicament of a corporate rehabilitation implementation of the order of reinstatement is ministerial and mandatory. but whether such omission was justified depends on the onset of the of corporate rehabilitation was judicially pre-determined by a competent exigency of corporate rehabilitation. nature of a restraining order that constitutes a legal justification for respondent's non-compliance with the reinstatement order. it does not contemplate the period when the employer-corporation itself is similarly in a judicially monitored state of being resuscitated in order In the case at bar. stops at the red line on the financial statements. Unlike the It is apparent that there was inaction on the part of respondent to reinstate ground of substantial losses contemplated in a retrenchment case. employer must pay the replaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation employees salaries. and a claim respondents unjustified act or omission. family. during the pendency of petitioners' has to either re-admit them to work under the same terms and conditions complaint before the LA. and danger to the survival or even the life of the dismissed employee and his (2) the delay must not be due to the employers unjustified act or omission. Here. there was still actual The parallelism between a judicial order of corporation rehabilitation as a delay which brings to the question of whether the delay was due to justification for the non-exercise of its options. court and not formulated for the first time in this case by respondent. did not attach. all actions for claims before any court. on the other hand. or to reinstate them in the payroll. the state them. the SEC failing to exercise the options in the alternative. rendered it impossible for PAL to exercise its option under the This injunction or suspension of claims by legislative fiat partakes of the circumstances. After the LA rendered its decision. Respondent's After the LA's decision is reversed by a higher tribunal. the issue in this case is resolved in the negative on the Case law recognizes that unless there is a restraining order. if it is shown that the delay in reinstatement was thus justified. tribunal or board against the corporation The LA's order of reinstatement is immediately executory and the employer shall ipso jure be suspended. petitioners exerted efforts to execute the LA order of to survive. respondents enforcing the reinstatement pending appeal was without fault on the part of obligation to pay the salaries pending appeal. Technically. Such being the case. Receiver. .

In sum. Respondent was. . not only by virtue of the statutory injunction but also in view of the interim relinquishment of management control to give way to the full exercise of the powers of the rehabilitation receiver. not to mention the subsistence of the injunction on claims. the obligation to pay the employees salaries upon the employer's failure to exercise the alternative options under Article 223 of the Labor Code is not a hard and fast rule. the rehabilitation receiver may decide otherwise. though the management may think this wise. Had there been no need to rehabilitate. considering the inherent constraints of corporate rehabilitation.There are legal effects arising from a judicial order placing a corporation under rehabilitation. Then again. during the period material to the case. effectively deprived of the alternative choices under Article 223 of the Labor Code. respondent may have opted for actual physical reinstatement pending appeal to optimize the utilization of resources.

Inc. for which Maynilad . 160732 June 21.G. 2003. US$98 million out of the US$120 million performance bond is covered and/or prohibited under sub-paragraphs 2. 2003. respondents for rehabilitation before the court a quo which resulted in the issuance of the Stay Order of November 17. 1 Standby Letter of Credit in its favor and for the account of respondent regarding the adjustment mechanism that would cover Maynilad’s foreign Maynilad? exchange losses. 2004 was eventually brought before the Appeals Panel on January 7. Concession Agreement. Maynilad should pay the HON. MWSS. repair. which was challenged by MWSS. however. FACTS: On February 21. Maynilad filed a Notice of Early Termination of the concession. Branch 90 and Maynilad Water Prior to this. Event of Termination as defined under Art. act in excess of its However. in his capacity as Presiding Judge of the concession fees that had fallen due. International Limited. led by Citicorp not exempt from the coverage of the stay order. Maynilad arranged on July 14. therefore. On December 9. the Appeals Panel ruled that there was no petitioner. claiming that MWSS failed to comply with its payment of the concession fees from the banks that issued the Irrevocable obligations under the Concession Agreement and Amendment No. 2003. for the issuance of an Irrevocable Standby Letter of Credit6 in the amount of US$120. operate. 1997. 2002. consisted of payments act of petitioner in commencing the process for the payment by the banks of of petitioner’s mostly foreign loans.the obligations under the Standby Letter of Credit are not solidary and are a three-year facility with a number of foreign banks. Maynilad served upon MWSS a Notice of authority or jurisdiction when it enjoined herein petitioner from seeking the Event of Termination.. No. Concession Agreement a twenty-year period to manage.) of the stay order dated To secure the concessionaire’s performance of its obligations under the November 17. ISSUE: WON the rehabilitation court sitting as such.3 (iii) of the vs. DAWAY.9 of said .15" and In compliance with this requirement. on November 5. 2003 by METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM.000 in favor of MWSS for the full and prompt performance of Maynilad’s obligations to MWSS as aforestated. bank guarantee or other security acceptable to respondent Maynilad but also over persons and assets of "all those affected MWSS. a petition Services.R. Regional Trial Court of Quezon City. decommission and refurbish the existing MWSS water delivery and Respondent Maynilad seeks to refute this argument by alleging that: sewerage services in the West Zone Service Area.what is relevant is not whether the performance bond or assets of the undertook to pay the corresponding concession fees on the dates agreed issuing banks are part of the estate of respondent Maynilad but whether the upon in said agreement5 which. 2000 for . by the proceedings x x x upon publication of the notice of commencement. MWSS granted Maynilad under a 2003.000. Concession Agreement and that.10 On November 7. 10. among other things. REYNALDO B.the jurisdiction of public respondent extends not only to the assets of contract to put up a bond. Maynilad had filed on November 13. Maynilad was required under Section 6. 2002. This matter . 2003 and the disputed Order of November 27.) and 4.2 (ii) or 10.

HELD: NO.19 They are in effect assets or liabilities. Secondly. section reads in part "that jurisdiction over those affected by the proceedings is considered acquired upon the publication of the notice of commencement We held in Feati Bank & Trust Company v. the bank undertakes a debtor under rehabilitation which should be reflected in its audited financial primary obligation. Rule 3 of the Interim claims against guarantors and sureties who are not solidarily liable with the Rules on Corporate Rehabilitation to support its jurisdiction over the debtor. the claim is not one against the debtor but against an entity that it is a primary. payment of concession fees. the debtors whose obligations are not solidary with the debtor. Respondent Maynilad’s claim that the banks are not solidarily liable Irrevocable Standby Letter of Credit and the banks that issued it. The guarantee theory destroys the consequence of the in rem nature of the proceedings. Court of Appeals16 that the of proceedings in a newspaper of general circulation" and goes further to concept of guarantee vis-à-vis the concept of an irrevocable letter of credit define rehabilitation as an in rem proceeding. in an irrevocable letter of credit. On creditors or such other persons or entities holding assets belonging to the the other hand. These are the certain terms and conditions of the Concession Agreement. This provision is a logical are inconsistent with each other. particularly the same characteristics of a surety or solidary obligor. but only those . In contracts of guarantee. definite and an absolute undertaking to pay and is not respondent Maynilad has procured to answer for its non-performance of conditioned on the prior exhaustion of the debtor’s assets. the rehabilitation court acted in excess of its prohibition is on the enforcement of claims against guarantors or sureties of jurisdiction. The public respondent relied on Sec. enjoining petitioner credit is given on the faith of the instrument. where jurisdiction is independence of the bank’s responsibility from the contract upon which it acquired by publication and where it is necessary that the assets of the was opened and the nature of both contracts is mutually in conflict with each debtor come within the court’s jurisdiction to secure the same for the benefit other. The prohibition under Sec 6 (b) from claiming from an asset that did not belong to the debtor and over which of Rule 4 of the Interim Rules does not apply to herein petitioner as the it did not acquire jurisdiction. In absolute undertakings to pay the money advanced or the amount for which issuing the clarificatory order of November 27. and by respondent Maynilad’s own admission it is not. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims against guarantors and sureties. payment of a definite amount upon the presentation of documents18 and is thus a commitment by the issuer that the party in whose favor it is issued Respondent Maynilad’s Financial Statement as of December 31. the guarantor’s obligation is merely of creditors. duly paid in the amount specified in the letter. 1. 2001 and and who can collect upon it will have his credit against the applicant of the 2002 do not show the Irrevocable Standby Letter of Credit as part of its letter. The reference to "all those affected by the proceedings" covers collateral and it arises only upon the default of the person primarily liable. direct. The banks do not hold any assets of respondent Maynilad that would be material to the rehabilitation proceedings nor is Maynilad liable to Letters of credit were developed for the purpose of insuring to a seller the banks at this point. The participating banks’ obligation are solidary with respondent Maynilad in that First. The with the debtor does not find support in jurisprudence. Sec. 2003. statements.