SMMCI's bank loan and improve St.
Michael Hospital's
1. BPI FAMILY SAVINGS BANK, INC V ST. MICHAEL
MEDICAL CENTER
FACTS: Spouses Virgilio and Yolanda Rodil are the owners and
sole proprietors of St. Michael Diagnostic and Skin Care
Laboratory Services and Hospital (St. Michael Hospital), 5-
storey secondary level hospital built on their property in Bacoor,
Cavite. Sps. Rodil purchased two parcels of land adjoining their
existing property with a vision to upgrade the hospital into a
modern, well-equipped and full service tertiary 11-storey
building.
May 22, 2003: Incorporated SMMCI, with which entity they
planned to eventually consolidate St. Michael Hospital’s
operations.
May 2004: Commencement of the construction of a new hospital
building on the adjoining properties, the Sps. Rodil contributing
personal funds as initial capital for the project amounting to
P100,000,000. To finance the costs of construction, SMMCI
applied for a loan with petitioner which gave credit line of up to
P35,000,000 secured by a Real Estate Mortgage over 3 parcels
of land belonging to Sps. Rodil. Respondent was able to draw
the amount P23,700,000 with interest rate at 10.25% per annum
and late payment charge of 3% per month accruing on the
overdue amount, for which Sps. Rodil, whoa greed to be co-
borrowers on the loan, executed and signed a PN.
Sps. Rodil temporarily deferred the original construction plans
for the building and engaged the services of another contractor
for the completion of the remaining structural works of the
unfinished building up to the 5th floor. They spent a total of
P55,000,000.
May 2006: SMMCI was still neither operational nor earning
revenues. It was only able to pay the interest on its BPI Family
Loan of P3,000,000 over a two-year period from the income of
St. Michael Hospital.
September 25, 2009: Petitioner 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.
August 11, 2010: SMMCI filed a Petition for Corporate
Rehabilitation before the RTC with prayer for the issuance of a
Stay Order as it foresaw the impossibility of meeting its
obligation to BPI Family.
RESPONDENT’S CONTENTION: Deferred from the original 11-
storey to 5-storey building due to problems it had with its first
contractor and the rise of the cost of construction materials.
More than P66,000,000 had been spent for the construction of
the existing structure, the said amount having come from the
personal funds of Sps. Rodil and/or income from the St. Michael
Hospital, aside from the drawings from the credit line with BPI
Family.
RTC: Approved the Rehabilitation Plan with modifications
recommended by the Rehabilitation Receiver and thus, ordered:
(a) a five-year moratorium on SMMCI's bank loan;
( b ) a restructuring and payment of obligations to other creditors
such as suppliers and lenders;
(c) a programmed spending of a reasonable part of the hospital's
revenues for the finishing of the 5th floor and the improvement
of hospital facilities in the next two or three years; and
(d) use of fresh capital from prospective investors to partly pay
competitiveness.
CA: Affirmed the RTC’s approval of the Rehabilitation Plan.
ISSUE: WON the CA correctly affirmed SMMCI’s Rehabilitation
Plan as approved by the RTC.
HELD: NO. The failure of the Rehabilitation Plan to state any
material financial commitment to support rehabilitation, as well
as to include a liquidation analysis, translates to the conclusion
that the RTC's stated considerations for approval... are actually
unsubstantiated, and hence, insufficient to decree SMMCI's
rehabilitation. It is well to... emphasize that the remedy of
rehabilitation should be denied to corporations that do not qualify
under the Rules. Neither should it be allowed to corporations
whose sole purpose is to delay the enforcement of any of the
rights of the creditors, which is rendered obvious by:
(a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets, and goals;
and
(c) speculative capital infusion or complete lack thereof for the
execution of the business plan.
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.
Restoration is the central idea behind the remedy of corporate
rehabilitation. 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.
Rehabilitation assumes that the corporation has been
operational but for some reasons like economic crisis or
mismanagement had become distressed or insolvent. 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. 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. Rehabilitation
is improper, for the same reasons the Court observes that
SMMCI could not have even complied with the form and
substance of a proper rehabilitation petition, and submit its
accompanying documents, the required financial statements of
a going concern.
2. VIVA SHIPPING LINESV KEPPEL PHILIPPINES
FACTS: October 4, 2005: Petitioner filed a Petition for Corporate
Rehabilitation before the RTC of Lucena City.
October 17: Petitioner filed an Amended Petition, in this petition
claimed to own and operate 19 maritime vessels and Ocean
Palace Mall, a shopping mall in downtown Lucena City.
Petitioner also declared its total properties’ assessed value at
about P45,172,790. However, these allegations were contrary
to the attached documents in the Amended Petition. One of the
attachement, the Property Inventory List, showed that petitioner
owned only two maritime vessels: M/V Viva Penafrancia and
M/V Marian Queen. The list also stated that the fair market value
all of petitioner’s assets amounted to P447,860,000. P400
million more than what was alleged in its Amended Petition. Only
17, 6330,000 of real property and its vessels were marked as
“free assets”.
In its Company Rehabilitation Plan, petitioner enumerated
possible sources of funding such as the sale of old vessels and
commercial lots of its sister company, Sto. Domingo Shipping
Lines. It also proposed the conversion of the Ocean Palace Mall
into hotel, the acquisition of 2 new vessels for shipping
operations, and the “re-operation” of an oil mill. Petitioner also
nominated two individuals to be appointed as rehabilitation
receiver: Armando F. Ragundo, a businessman from Tayabas,
Quezon and Atty. Calizto Ferdinand B. Dauz III, a lawyer from
Lucena City.
Before the initial hearing, the City of Batangas, Keppel
Philippines Marine Inc., and Metrobank filed their respective
comments and oppositions to Viva Shipping Lines’ Amended
Petition. During the initial hearing, Pilipinas Shell Petroleum
Corporation moved for additional time to write its opposition to
Viva Shipping Lines’ Amended Petition. Pilipinas Shell later filed
its Comment/Opposition with Formal Notice of Claim.
PETITIONER’S CONTENTION: They argued that the CA should
have given due course to its Petition and excused its non-
compliance with procedural rules.
RESPONDENT’S CONTENTION: Argue that the dismissal of
petitioner’s Petition for Review was proper for its failure to
implead any of its creditors. Pilipinas Shell points out that
petitioner did not even try to explain why it failed to implead its
creditors in its Petition. Respondents note that because
petitioner repeatedly defied procedural rules, it was no longer
entitled to the relaxation of these rules.
RTC: initially denied the petition for failure to comply with the
requirements. But on October 19, 2005, found that petitioner’s
Amended Petition to be “sufficient in form and substance” and
issued a stay order.
CA: dismissed Viva Shipping Lines’ petition for Review. It found
that Viva Shipping lines failed to comply with procedural
requirements under Rule 43.
ISSUE: WON the CA erred in dismissing petitioner’s Petition for
Review on procedural grounds
HELD: Petition is Denied.
Corporate rehabilitation is a remedy for corporations,
partnerships, and associations “who [foresee] the impossibility
of meeting [their] debts when they respectively fall due”. A
corporation under rehabilitation continues with its corporate life
and activities to achieve solvency, or a position where the
corporation is able to pay its obligations as they fall due in the
ordinary course of business.
Any final order or decision of the Regional Trial Court may be
subject of an appeal. n Re: Mode of Appeal in Cases Formerly
Cognizable by the Securities and Exchange Commission, this
court clarified that all decisions and final orders falling under the
Interim Rules of Procedure on Corporate Rehabilitation shall be
appealable to the Court of Appeals through a petition for review
under Rule 43 of the Rules of Court. It is true that Rule 1, Section
6 of the Rules of Court provides that the "[r]ules shall be liberally
construed in order to promote their objective of securing a just,
speedy and inexpensive disposition of every action and
proceeding." However, this provision does not negate the entire
Rules of Court by providing a license to disregard all the other
provisions. Resort to liberal construction must be rational and
well-grounded, and its factual bases must be so clear such that
they outweigh the intent or purpose of an apparent reading of
the rules.
Petitioner did not comply with some of these requirements. First,
it did not implead its creditors as respondents. Instead, petitioner
only impleaded the Presiding Judge of the Regional Trial Court,
contrary to Section 6(a) of Rule 43. Second, it did not serve a
copy of the Petition on some of its creditors, specifically, its
former employees. Finally, it did not serve a copy of the Petition
on the Regional Trial Court.
3. JUANITO GARCIA V PHILIPPINE AIRLINES INC.
FACTS: Petitioners were employed by respondent as Aircraft
Furnishers Master “C” (Alberto J. DUmago) and Aircraft
Inspector (Juanito Garcia)
PAL filed an administrative case against petitioners after they
were allegedly caught in the act of sniffing shabu when a team
of company security personnel and law enforcers raided PAL
Technical Center’s Toolroom Section on July 24, 1995.
October 9, 1995: PAL dismissed petitioners for transgressing
the PAL Code of Discipline, prompting petitioners to file a
complaint for illegal dismissal and damages which was resolved
by the Labor Arbiter in favour of petitioners ordering PAL to
immediately comply with the reinstatement aspect of the
decision on Jan. 11, 1999.
Prior to the decision of the Labor Arbiter, SEC placed PAL which
was suffering from severe financial losses, under an Interim
Rehabilitation Receiver, who was subsequently replaced by a
Permanent Rehabilitation Receiver on June 7, 1999.
NLRC: Reversed said decision and dismissed petitioners’
complaint for lack of merit.
CA: Nullified the NLRC resolutions.
October 5, 2000: The Labor Arbiter issued a Writ of Execution
respecting the reinstatement aspect of his 1999 decision and
issued a notice of garnishment on October 25, 2000.
Respondent moved to quash both writ and notice.
RESPONDENT’S CONTENTION: Insists that with the reversal
of the Labor Arbiter’s Decision, there is no more basis to enforce
the reinstatement aspect of the said decision.
ISSUE: WON petitioner may collect their wages during the
period between the Labor Arbiter’s order of reinstatement
pending appeal and the NLRC decision overturning that of the
Labor Arbiter, now that the respondent has exited from
rehabilitation proceedings
HELD: Partially denied. A dismissed employee whose case was
favourably decided by the Labor Arbiter is entitled to receive
wages pending appeal upon reinstatement, which is
immediately executor. Unless there is a restraining order, it is
ministerial upon the Labor Arbiter to implement the order of
reinstatement and it is mandatory on the employer to comply
with.
There are legal effects arising from a judicial order placing a
corporation under rehabilitation. Respondent was, during the
period material to the case, effectively deprived of the alternative
choices under Art 223 of the Labor Code, 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. The
obligation to pay employee’s salaries upon the employer’s
failure to exercise the alternative choices under the said article
is not a hard and fast rule, considering the inherent constraints
of corporate rehabilitation.
4. LINGKOD MANGGAGAWA SA RUBBERWORLD V
RUBBERWORLD
FACTS: Petitioner is a legitimate labor union whose members
were employees of the respondent; a domestic corporation
engaged in the manufacture of footwear, bags and garments.
August 26, 1994: Rubberworld filed with the DOLE a Notice of
Temporary Partial Shutdown due to severe financial crisis
announcing the formal actual company shutdown to take effect
on September 26, 1994. A copy of said notice was served on
the recognized labor union of Rubberworld, the Bisig
Pagkakaisa-NAFLU, the union with which the corporation had a
collective bargaining agreement.
September 1: Bisig Pagkakaisa- NAFLU staged a strike. It set
up a picket line in front of the premises of respondent and even
welded its gate. Respondent’s premises were closed
prematurely even before the date set for the start of its
temporary partial shutdown.
September 9: Petitioner union, represented by its President,
Sonia Esperanza, filed a complaint against respondent and its
Vice Chairperson, Mr. Antonio Yang, for unfair labor practice,
illegal shutdown and non-payment of salaries and separation
pay.
November 22: While the complaint was pending with Labor
Arbiter Dinopol, Rubberworld filed with the SEC a Petition for
Declaration of a State of Suspension of Payments with
Proposed Rehabilitation Plan.
December 28: SEC ordered the suspension of claims against
Rubberworld.
August 16, 1995: Labor Arbiter Dinopol went ahead with the ULP
case and rendered his decision despite Rubberworld’s
submission on January 10, 1995 of a Motion to Suspend
Proceedings. The decision is hereby rendered:
1) denying respondents motion to suspend proceedings;
2) declaring respondent Rubberworld Phils., Inc. to have
committed
unfair labor practice;
3) declaring the temporary shutdown to have been officially
ended as
of March 26, 1995;
4) ordering respondent Rubberworld Phils., Inc. to reinstate
complainant-Union's members who indicate their intention to be
so
reinstated within one month from the receipt of this decision by
complainants' counsel;
5) ordering respondent Rubberworld Phils., Inc. to pay the
members of
the complainant-Union their backwages computed from April 26,
1995 and separation pay if reinstatement is no longer possible
plus
10% of the total award of attorney's.
September 21, 1995: Respondent went in appeal to the NLRC,
posting a temporary appeal bond in the amount of P500,000 as
tentatively fixed by the Labor Arbiter.
October 10: Ricardo Atienza of the NLRC’s Research and
Information Unit submitted his report his report on the
computation of the monetary awards, as ordered by the Labor
Arbiter. He came out with the total of P27,506,255.70.
January 22, 1996: The NLRC required the corporation to post
an appeal bond in an amount equivalent to Mr. Atienza’s
computation, with a warning that failure to do so shall result in
the dismissal of its appeal for non-perfection.
PETITIONER’S CONTENTION: The doctrines laid down in the
cases before cannot be made to apply to the instant controversy
because the SEC only mandates that all pending cases against
Rubberworld Phil. should be deemed suspended. Petitioners
said that the decision of the Labor Arbiter in the case at bar,
have become final and executor bby reason of Rubberworld’s
failure to perfect its appeal by not upgrading or completing the
required cash or surety bond as ordained by the NLRC.
RESPONDENT’S CONTENTION: Pursuant to the SEC Order
on Dec 28, 1994, the proceedings before the Labor Arbiter
should have been suspended,
CA: Granted respondent’s petition on the finding that the Labor
Arbiter had indeed committed grave abuse of discretion when it
proceeded with the ULP case despite the SEC’s suspension
order and the proceedings before it as null and void.
ISSUE: WON the proceedings and decisions of the labor arbiter
are null and void.
HELD: YES. The Labor Arbiter completely disregarded and
violated Section 6 ( c ) of PD 902-A categorically mandates the
suspension of all actions for claims against a corporation placed
under a management committee by the SEC. The proceedings
before the Labor Arbiter and the order and writ subsequently
issued by the NLRC are all null and void for having been
undertaken or issued in violation of the SEC suspension order.
A bond is only mandatory from an appeal of the decision itself
on the merits of the laborers’ money claims to ensure payment,
had the Labor Arbiter taken heed of Rubberworld’s motion to
suspend proceedings when that motion was filed, and ruled
upon it separately, no bond would have been required for a
review of his resolution.
5. JOSE MARCEL PANLILIO v. RTC OF MANILA
FACTS: On October 15, 2004, Jose Marcel Panlilio, Erlinda
Panlilio, Nicole Morris and Mario Cristobal (petitioners), as
corporate officers of Silahis International Hotel, Inc. filed with
RTC of Manila Branch 24, a petition for Suspension of
Payments and Rehabilitation.
On October 18, 2004, RTC Branch 24 issued an Order staying
all claims against SIHI upon finding the petition sufficient in form
and substance.
At the time, however, of the filing of the petition for rehabilitation,
there were a number of criminal charges pending against
petitioners.
These criminal charges were initiated by respondent Social
Security System (SSS) and involved charges of violations of
the Social Security Act of 1997 (SSS law), in relation to
Estafa.
Petitioners: Filed with the RTC Branch 51 a Manifestation and
Motion to Suspend Proceedings.
-argued that the stay order issued by Branch 24 should also
apply to the criminal charges pending in Branch 51.
-prayed that Branch 51 suspend its proceedings until the petition
for rehabilitation was finally resolved.
RTC Branch 51: issued an Order denying petitioners' motion to
suspend the proceedings.
-ruled that the stay order issued by Branch 24 did not cover
criminal proceedings;
-and that the law “criminalizes” the non-remittance of SSS
contributions by an employer to protect the employees from
unscrupulous employers. Hence, public interest requires that
said criminal acts be immediately investigated and prosecuted.
-Branch 51 denied the motion for reconsideration.
CA: Denied the petition for certiorari filed by petitioners.
Ruled that the violation of the provisions of the SSS was a
criminal liability and was, thus, personal to the offender.
Held that criminal proceedings against petitioners should not be
considered a claim against the corporation, and consequently,
not covered by the stay order issued by Branch 24.
Also denied the motion for reconsideration of petitioners.
ISSUE: WON the suspension of “all claims” as an incident to a
corporate rehabilitation also contemplate the suspension of
criminal charges filed against the corporate officers of the
distressed corporation?
HELD: NO. 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 more, by way of the
present value of payments projected in the rehabilitation plan, if
the corporation continues as a going concern than if it is
immediately liquidated. 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. A principal feature of
corporate rehabilitation is the suspension of claims against
the distressed corporation.
Sec. 6 (c) of PD 902-A, as amended, provides for suspension
of claims against corporations undergoing rehabilitation. This
Court En Banc promulgated the Interim Rules of Procedure on
Corporate Rehabilitation, Sec. 6, Rule 4 of which provides a
stay order on all claims against the corporation.
Claim has been construed to refer to debts or demands of a
pecuniary nature, or the assertion to have money paid.
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. As such, 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.
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. 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.
Moreover, Sec. 18 of the Financial Rehabilitation and
Insolvency Act provides that criminal actions against the
individual officer of a corporation are not subject to the stay or
suspension order in rehabilitation proceedings.
6. SPS EDUARDO & FIDELA SOBREJUANITE & ASB
DEVELOPMENT CORPORATION
FACTS: On March 7, 2001, spouses Eduardo and Fidela
Sobrejuanite filed a Complaint for rescission of contract and
refund of payments and damages, against ASB Development
Corporation (ASBDC) before the Housing and Land Use
Regulatory Board (HLURB).
Petitioners Sobrejuanite: alleged that they entered into a
Contract to Sell with ASBDC over a condominium unit and a
parking space in the BSA Twin Tower-B Condominium.
-averred that despite full payment and demands, ASBDC failed
to deliver the property on or before December 1999 as agreed.
-prayed for the rescission of the contract; refund of payments
amounting to P2,674,637.10; payment of moral and exemplary
damages, attorney's fees, litigation expenses, appearance fee
and costs of the suit.
Respondent ASBDC: filed a motion to dismiss or suspend
proceedings in view of the approval by the Securities and
Exchange Commission on April 26, 2001 of the
rehabilitation plan of ASB Group of Companies, which includes
ASBDC, and the appointment of a rehabilitation receiver.
HLURB Arbiter: denied the motion and ordered the
continuation of the proceedings.
-found that under the Contract to Sell, ASBDC should have
delivered the property to Sobrejuanite in December 1999; that
the latter had fully paid their obligations except the P50,000.00
which should be paid upon completion of the construction; and
that rescission of the contract with damages is proper.
HLURB Board of Commissioners: Affirmed the ruling of the
arbiter that the approval of the rehabilitation plan and the
appointment of a rehabilitation receiver by the SEC did not
have the effect of suspending the proceedings before the
HLURB.
-held that the HLURB could properly take cognizance of the
case since whatever monetary award that may be granted by
it will be ultimately filed as a claim before the rehabilitation
receiver.
Office of the President: dismissed the appeal filed by ASBDC
for lack of merit. Hence, petitioners filed before the CA.
CA: Rendered a decision granting the petition. Held that the
approval by the SEC of the rehabilitation plan and the
appointment of the receiver caused the suspension of the
HLURB proceedings.
-Noted that the complaint for rescission and damages is a claim
under PD 902-A or the Interim Rules of Procedure on
Corporate Rehabilitation because it sought to enforce a
pecuniary demand.
-Denied Sobrejuanite’s motion for reconsideration. Hence, this
petition.
ISSUE: WON the CA erred when it ruled that the approval of the
corporate rehabilitation plan and the appointment of a receiver
had the effect of suspending the proceeding in the HLURB?
HELD: NO. The purpose for the suspension of the proceedings
is:
1. to prevent a creditor from obtaining an advantage or
preference over another and;
2. to protect and preserve the rights of party litigants; as well as
the interest of the investing public or creditors.
The suspension would enable the management committee or
rehabilitation receiver to effectively exercise its/his powers
free from any judicial or extra-judicial interference that might
unduly hinder or prevent the "rescue" of the debtor company.
To allow such other action to continue would only add to the
burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in
defending claims against the corporation instead of being
directed toward its restructuring and rehabilitation. Thus, it
is necessary to determine whether the complaint for rescission
of contract with damages is a claim within the contemplation of
PD No. 902-A.
Claim, as used in Sec. 6(c) of PD 902-A, refers to debts or
demands of a pecuniary nature. It means the assertion of a right
to have money paid.
It is also defined as: right to payment, whether or not such right
is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, or unsecured; or right to an equitable
remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured, unsecured.
A receiver may be appointed in any state which has jurisdiction
over the defendant who owes a claim.
The Interim Rules define a claim as referring to all claims or
demands, of whatever nature or character against a debtor or its
property, whether for money or otherwise. The definition is all-
encompassing as it refers to all actions whether for money or
otherwise.
Although the petition for rehabilitation with prayer for suspension
of actions and proceedings was filed before the SEC on May 2,
2000, or prior to the effectivity of the interim rules, the same
would still apply pursuant to Sec. 1, Rule 1 thereof.
Clearly, the complaint filed by Sobrejuanite is a claim as defined
under the Interim Rules. As such, the HLURB arbiter should
have suspended the proceedings upon the approval by the
SEC of the ASB Group of Companies' rehabilitation plan
and the appointment of its rehabilitation receiver.
It is well to note that even the execution of final judgments
may be held in abeyance when a corporation is under
rehabilitation. By allowing the proceedings to proceed, the
HLURB arbiter unwittingly gave undue preference to
Sobrejuanite over the other creditors and claimants of
ASBDC, which is precisely the vice sought to be prevented by
Sec. 6(c) of PD 902-A.
7. METROPOLITAL WATERWORKS & SEWERAGE SYSTEM
V RTC JUDGE REYNALDO DAWAY
FACTS: On February 21, 1997, MWSS granted Maynilad under
a Concession Agreement a twenty-year period to manage,
operate, repair, decommission and refurbish the existing
MWSS water delivery and sewerage services in the West
Zone Service Area.
Maynilad undertook to pay the corresponding concession fees
which, among other things, consisted of payments of
petitioner's mostly foreign loans. Maynilad was required
under Section 6.9 of said contract to put up a bond, bank
guarantee or other security acceptable to MWSS.
In compliance with this requirement, Maynilad arranged on July
14, 2000 for a three- year facility with a number of foreign
banks, led by Citicorp International Limited, for the issuance of
an Irrevocable Standby Letter of Credit in the amount of
US$120,000,000 in favor of MWSS for the full and prompt
performance of Maynilad's obligations.
Maynilad requested MWSS for a mechanism by which it hoped
to recover the losses it had allegedly incurred and would be
incurring as a result of the depreciation of the Philippine Peso
against the US Dollar.
Failing to get what it desired, Maynilad issued a Force Majeure
Notice and unilaterally suspended the payment of the
concession fees. In an effort to salvage the Concession
Agreement, the parties entered into a MOA wherein Maynilad
was allowed to recover foreign exchange losses under a
formula agreed upon between them.
Sometime in August 2001, Maynilad again filed another Force
Majeure Notice and, since MWSS could not agree with the
terms of said Notice, the matter was referred to the Appeals
Panel for arbitration. The parties agreed to resolve the issues
through an amendment of the Concession Agreement known as
Amendment No. 1.
As part of the agreement, Maynilad committed to:
1. infuse the amount of UD$80.0 million as additional funding
support from its stockholders;
2. resume payment of the concession fees; and
3. mutually seek the dismissal of the cases pending before the
Court of Appeals and with Minor Dispute Appeals Panel.
However, on November 5, 2002, Maynilad served upon MWSS
a Notice of Event of Termination, claiming that MWSS failed
to comply with its obligations under the Concession Agreement
and Amendment No. 1.
On December 9, 2002, Maynilad filed a Notice of Early
Termination of the concession, which was challenged by
MWSS. This matter was eventually brought before the Appeals
Panel by MWSS.
Appeals Panel: ruled that there was no Event of Termination as
defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession
Agreement. Therefore, Maynilad should pay the concession
fees that had fallen due.
MWSS, thereafter, submitted a written notice to Citicorp
International Limited that it was drawing on the Irrevocable
Standby Letter of Credit and thereby demanded payment in the
amount of US$98,923,640.15. Prior to this, however, Maynilad
had filed on November 13, 2003, a petition for rehabilitation
before the RTC.
RTC: made a determination that the Petition for Rehabilitation
with Prayer for Suspension of Actions and Proceedings
conformed substantially to the provisions of Sec. 2, Rule 4 of
the Interim Rules of Procedure on Corporate Rehabilitation
(Interim Rules).
It forthwith issued a Stay Order, which states:
xxx xxx xxx
 2. Staying enforcement of all claims, whether for
money or otherwise and whether such enforcement is
by court action or otherwise, against the petitioner, its
guarantors and sureties not solidarily liable with the
petitioner;
3. Prohibiting the petitioner from selling, encumbering,
transferring, or disposing in any manner any of its
properties except in the ordinary course of business;
4. Prohibiting the petitioner from making any payment
of its liabilities, outstanding as at the date of the filing
of the petition;
- Subsequently, on November 27, 2003, public
respondent, acting on two Urgent Ex Parte motions
filed by respondent Maynilad, issued the herein
questioned Order, which stated that it:
1. DECLARES that the act of MWSS in
commencing on November 24, 2003 the process for
the payment by the banks of US$98 million out of
the US$120 million standby letter of credit so the
banks have to make good such call/drawing of
payment of US$98 million by MWSS not later than
November 27, 2003 at 10:00 P.M. or any similar act for
that matter, is violative of the above- quoted sub-
paragraph 2.) of the dispositive portion of this Court's
Stay Order.
2. ORDERS MWSS through its officers/officials to
withdraw under pain of contempt the written
certification/notice of draw to Citicorp International
Limited dated November 24, 2003 and DECLARES
void any payment by the banks to MWSS in the event
such written certification/notice of draw is not
withdrawn by MWSS and/or MWSS receives payment
by virtue of the aforesaid standby letter of credit."
Hence, MWSS filed this petition.
Petitioner: Maintains that the US$120 Million Standby Letter of
Credit and Performance Bond are not property of the estate of
the debtor Maynilad. Therefore, not subject to the in rem
rehabilitation jurisdiction of the RTC.
-A call on the Standby Letter of Credit cannot also be considered
a claim falling under the purview of the stay order.
Respondent: Argues that public respondent never considered
that the performance bond or assets of the issuing banks are
part of the estate of Maynilad subject to rehabilitation.
-What is relevant is whether the act of petitioner in commencing
the process for the payment by the banks is prohibited under
sub-par. 2 and 4 of the stay order.
ISSUE: WON the RTC erred when it enjoined petitioner from
seeking the payment of the concession fees from the banks that
issued the Irrevocable Standby Letter of Credit in its favor and
for the account of respondent Maynilad?
HELD: YES.The claim is not one against the debtor but against
an entity that respondent Maynilad has procured to answer for
its non-performance of certain terms and conditions of the
Concession Agreement, particularly the payment of concession
fees.
Sec. 6(b) of Rule 4 of the Interim Rules does not enjoin the
enforcement of all claims against guarantors and sureties, but
only those claims against guarantors and sureties who are
not solidarily liable with the debtor. Respondent Maynilad's
claim that the banks are not solidarily liable with the debtor does
not find support in jurisprudence.
In Feati Bank & Trust Company v. CA, the concept of guarantee
vis-à-vis the concept of an irrevocable letter of credit are
inconsistent with each other. In contracts of guarantee, the
guarantor's obligation is merely collateral and it arises only upon
the default of the person primarily liable.
On the other hand, in an irrevocable letter of credit, the bank
undertakes a primary obligation. Letter of credit is defined as
an engagement by a bank or other person made at the request
of a customer that the issuer shall honor drafts or other demands
of payment upon compliance with the conditions specified in the
credit. They are in effect absolute undertakings to pay the
money advanced or the amount for which credit is given on the
faith of the instrument. They are primary obligations and not
accessory contracts.
What distinguishes letters of credit from other accessory
contracts, is the engagement of the issuing bank to pay the
seller once the draft and other required shipping
documents are presented to it.
The prohibition under Sec. 6(b) of Rule 4 of the Interim Rules
does not apply to herein petitioner as the prohibition is on the
enforcement of claims against guarantors or sureties of the
debtors whose obligations are not solidary with the debtor.
The participating banks' obligation are solidary with respondent
Maynilad in that it is a primary, direct, definite and an absolute
undertaking to pay and is not conditioned on the prior exhaustion
of the debtor's assets. These are the same characteristics of a
surety or solidary obligor.
Being solidary, the claims against them can be pursued
separately from and independently of the rehabilitation
case.
The property of the surety cannot be taken into custody by the
rehabilitation receiver (SEC) and said surety can be sued
separately to enforce his liability as surety for the debts or
obligations of the debtor. The debts or obligations for which a
surety may be liable include future debts, an amount which may
not be known at the time the surety is given.
We hold that except when a letter of credit specifically stipulates
otherwise, the obligation of the banks issuing letters of
credit are solidary with that of the person or entity
requesting for its issuance, the same being a direct, primary,
absolute and definite undertaking to pay the beneficiary upon
the presentation of the set of documents required therein.
8. BIR, ASST COMM. ALFREDO MISAJON V LEPANTO
CERAMICS INC
FACTS: On December 23, 2011, respondent Lepanto
Ceramics, Inc. (LCI) filed a petition for corporate
rehabilitation pursuant to RA 10142, otherwise known as the
"FRIA of 2010," before the RTC. LCI had entered into a state of
insolvency considering its inability to pay its obligations as
they become due and that its total liabilities amounting to
P4,213,682,715.00 far exceed its total assets worth
P1,112,723,941.00. Notably, LCI admitted its tax liabilities to the
national government in the amount of at least P6,355,368.00.

RTC (Rehabilitation Court): issued a Commencement Order,
which, inter alia:
1. declared LCI to be under corporate
rehabilitation;
2. suspended all actions or proceedings, in court
or otherwise, for the enforcement of claims
against LCI;
3. prohibited LCI from making any payment of its
liabilities outstanding as of even date, except
as may be provided under RA 10142; and
4. directed the BIR to file and serve on LCI its
comment or opposition to the petition, or its
claims against LCI.
Accordingly, the Commencement Order was published in a
newspaper of general circulation and the same, together with
the petition for corporate rehabilitation, were personally served
upon LCI's creditors, including the BIR. Despite the foregoing,
Misajon, et al., acting as Assistant Commissioner, Group
Supervisor, and Examiner, respectively, of the BIR's Large
Taxpayers Service, sent LCI a notice of informal conference
informing the latter of its deficiency internal tax liabilities for
the Fiscal Year ending June 30, 2010. In response, LCI's court-
appointed receiver, Roberto L. Mendoza, sent BIR a letter-reply,
reminding the latter of the pendency of LCI's corporate
rehabilitation proceedings, as well as the issuance of a
Commencement Order.
Undaunted, the BIR sent LCI a Formal Letter of Demand
requiring LCI to pay deficiency taxes in the amount of
P567,519,348.39. This prompted LCI to file a petition for indirect
contempt against petitioners before RTC Branch 35.
Respondent: asserted that petitioners' act of pursuing the BIR's
claims for deficiency taxes against LCI is a clear defiance of the
Commencement Order. As such, petitioners must be cited for
indirect contempt.
Petitioner: RTC Br. 35 had no jurisdiction to cite them in
contempt as it is only the Rehabilitation Court, being the one that
issued the Commencement Order, which has the authority to
determine WON such Order was defied.
-Maintained that the petition had been mooted by the RTC’s
Order which declared LCI to have been successfully
rehabilitated resulting in the termination of the corporate
rehabilitation proceedings.
-Their acts of sending a Notice of Informal Conference and
Formal Letter of Demand do not amount to a “legal action or
other recourse” against LCI outside of the rehabilitation
proceedings.
RTC Br. 35: Found Misajon, et. al. guilty of indirect contempt.
-Found that the supervening termination of the rehabilitation
proceedings and the lifting of the Commencement Order did not
render moot the petition for indirect contempt as the acts
complained of were already consummated.
-Petitioners’ act of sending LCI a notice of informal conference
and formal letter of demand are covered by the Commencement
Order as they were for the purpose of pursuing and enforcing a
claim for deficiency taxes, and thus, are in defiance of the Order.
-Denied the motion for reconsideration of Misajon, et al. Hence,
this petition.
ISSUE: WON RTC Br. 35 correctly found Misajon, et al. to have
defied the CO?
HELD: YES. Section 4 (gg) of RA 10142 states:
Section 4. Definition of Terms. — As used in this Act,
the term:
xxx xxx xxx
(gg) Rehabilitation shall refer to the restoration of the
debtor to a condition of successful operation and
solvency, if it is shown that its continuance of operation
is economically feasible and its creditors can recover
by way of the present value of payments projected in
the plan, more if the debtor continues as a going
concern than if it is immediately liquidated.
xxx xxx xxx
Corporate rehabilitation is an attempt to conserve and
administer the assets of an insolvent corporation in the hope of
its eventual return from financial stress to solvency. It
contemplates the continuance of corporate life and activities in
an effort to restore and reinstate the corporation to its former
position of successful operation and liquidity. It enables the
company to gain a new lease in life and thereby allow creditors
to be paid their claims from its earnings.
Section 16 of RA 10142 provides, inter alia, that upon the
issuance of a Commencement Order — which includes a
Stay or Suspension Order — all actions or proceedings, in
court or otherwise, for the enforcement of "claims" against the
distressed company shall be suspended.
Under the same law, claim "shall refer to all claims or demands
of whatever nature or character against the debtor or its
property, whether for money or otherwise, liquidated or
unliquidated, fixed or contingent, matured or unmatured,
disputed or undisputed, including, but not limited to;
5. all claims of the government, whether
national or local, including taxes, tariffs and
customs duties; and
6. claims against directors and officers of the
debtor arising from acts done in the
discharge of their functions falling within the
scope of their authority: Provided, That, this
inclusion does not prohibit the creditors or
third parties from filing cases against the
directors and officers acting in their personal
capacities.
Creditors of the distressed corporation are not without remedy
as they may still submit their claims to the rehabilitation court for
proper consideration so that they may participate in
proceedings.
The acts of sending a notice of informal conference and a
Formal Letter of Demand are part and parcel of the entire
process for the assessment and collection of deficiency
taxes from a delinquent taxpayer— an action or proceeding
for the enforcement of a claim which should have been
suspended pursuant to the Commencement Order.
Unmistakably, Misajon,et al.'s foregoing acts are in clear
defiance of the Commencement Order.
9. LEONARDO S. UMALE (Rep. by Clarissa Victoria), ET AL.
V ASB REALTY CORPORATION
FACTS: In 1996 – Amethyst Pearl executed a Deed of
Assignment in Liquidation of a parcel of land identified as Lot 7,
Block 5, Amethyst St., Ortigas Center, Pasig City (originally
owned by Amethyst Pearl Corp, a company wholly-owned by
respondent ASB Realty), in favor of ASB Realty in consideration
of full redemption of Amethyst Pearl’s outstanding capital stock.
ASB Realty became the owner of the subject land and
subsequently obtained a TCT in its name, registered in 1997
with the RD of Pasig.
2003 – ASB Realty commenced an action in MTC of Pasig for
unlawful detainer of the subject land against petitioner Leonardo
Umale. ASB alleged that it entered into a lease contract with
Umale for the period June 1,1999 to May 31, 2000. The
agreement was for Umale to conduct a pay-parking business on
the property and pay a monthly rent of P60,720 to ASB.
May 31, 2000 – upon expiry, Umale continued occupying said
land and paying rentals although at an increased monthly rent
of P100K. The last payment made was for June 2001 to May
20002 as evidenced by an OR.
June 23, 2003, ASB served on Umale a Notice of Termination
of Lease and Demand to Vacate and Pay stating that the lease
is terminated effective midnight of June 30, 2003; that Umale
should vacate the premises and pay the rental arrears
amounting to P1.3M by July 15, 2003. However, Umale failed to
comply with such demands and continued possession of the
premises, even constructing commercial establishments.
MTC: dismissed ASB’s complaint holding that it had no cause to
seek Umale’s ouster for it was not his lessor.
RTC: reversed MTC ruling. It found sufficient evidence to
support that it was ASB that entered into a lease contract with
Umale, hence, the proper party to seek the latter’s ouster. On
the other hand, ASB retained all its corporate powers, including
power to sue despite the appointment of a rehabilitation receiver
Umale filed a Motion for Reconsideration but was denied, while
ASB moved for the issuance of a Writ of Execution.
CA: affirmed RTC ruling in toto. Umale’s claim that the lease
should be extended until the end of the year is untenable. The
rent payments were made on a monthly basis, not annually, as
evidenced by receipts and his admission. Thus, his failure to pay
the monthly rent gave ASB the right to terminate the lease at the
end of the month.
UMALE’s contention: Sec 6, Rule 59 of the Rules of Court
states that a receiver has the power to bring actions in his own
name and to collect debts due to the corporation. Under PD 902-
A and the Interim Rules, the rehabilitation receiver has the
power to take custody and control of the assets of the
corporation. Since the receiver did not file the complaint for
unlawful detainer, the trial court did not acquire jurisdiction over
the subject property.
ASB Realty’s contention: There is no provision under PD 902-
A, the Interim Rules or in Rule 59 of the Rules of Court that
divests corporate officers of their power to sue upon the
appointment of a rehabilitation receiver. In fact, the Interim Rules
expressly limits the receiver’s power by providing that the
rehabilitation receiver does not take over the management and
control of the corporation but shall closely oversee and monitor
the operations of the debtor. And that the SEC Rules do not
include among the receiver’s powers the exclusive right to file
suits for the corporation.
ISSUE: WON a corporate officer of ASB Realty file suit to
recover an unlawfully detained corporate property despite being
placed under rehabilitation
HELD: YES. Corporatios, such as ASB Realty, are juridical
entities that exist by operation of law. As such, the powers and
attributes of a corporation are those set out, expressly or
impliedly, in the law. Among the general powers is the power to
sue in its own name. This power is granted unless specifically
revoked by another law.
Corporation rehabilitation is defined as “the restoration of 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 than if it is immediately liquidated.
The intention of the 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 (DEBTOR-
IN-POSSESSION or DEBTOR-IN-PLACE) The debtor
corporation, through its BOD and corporate officers, remains in
control of its business and properties, subject only to the
monitoring of the appointed rehabilitation receiver. The SEC
Rules also provides that the interim rehabilitation receiver of the
debtor corporation does not take over the control and
management of the debtor corporation. Likewise, the
rehabilitation receiver that will replace the interim receiver is
tasked only to monitor the successful implementation of the
rehabilitation plan. There is nothing in the concept of
rehabilitation that would ipso facto deprive the BOD and corp
officers of a debtor corporation, such as ASB, of control such
that it can no longer enforce its right to recover its property from
an errant lessee.
10. BANK OF THE PHILIPPINE ISLANDS V SARABIA
MANOR HOTEL CORPORATION
FACTS: Sarabia is a corporation duly organized and existing
under PH laws, with principal place of business at 101 General
Luna St., Iloilo City; incorporated on February 22, 1982, with an
authorized capital stock of P10M 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.
1997 – Sarabia obtained a P150M special loan package from
Far East Bank & Trust Co (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 P20M
stand-by credit line was approved by FEBTC in the same year.
Such debts were secured by real estate mortgages over several
parcels of land owned by Sarabia and a comprehensive surety
agreement dated Sept 1, 1997 signed by its stockholders. By
virtue of a merger, petitioner BPI assumed all of FEBTC’s right
against Sarabia.
July 26, 2002 – Despite the fact that Sarabia had more assets
than liabilities, it filed a Petition for Corporate Rehabilitation with
prayer for the issuance of a Stay Order before the RTC
foreseeing the impossibility to meet its maturing obligations to
its creditors when they fall due.
Sarabia claimed that its cash position suffered when it was
forced to take-over the construction of the new building due to
the recurring default of its contractor, Santa Ana – AJ
Construction Corp, and its subsequent abandonment of said
project and that the new building was completed only in 2000,
two years past the original target date of August 1998 thus
skewing its projected revenues; it became difficult when the
grace period for the payment of principal loan amounts ended in
2000 resulting in higher amortizations; and external events
adversely affecting the hotel industry such as the 9/11 terrorist
attack, which contributed to their financial difficulties. Thus,
Sarabia failed to generate enough cash flow to service its
maturing obligations to its creditors (BPI, Rural Bank of Pavia,
Vic Imperial Appliance Corp, various suppliers, and
governments taxes, among others)
In its proposed rehabilitation plan, Sarabia sought for
restructuring of all its outstanding loans (7% per annum for
2002-2005; 8% per annum for 2006-2010; 10% per annum for
2011-2013; 12% per annum for 2014-2015; and 14% per annum
for 2018. Sarabia also sought to make annual payments on the
principal loans starting in 2004 and further proposed that it
should pay off its outstanding obligations to the government and
its suppliers on their respective due dates, for its daily
operations.
August 2, 2002 – RTC issued a Stay Order and appointed
Liberty Valderrama as Rehabilitation Receiver. BPI filed its
opposition. After several hearing, RTC gave due course and
referred the proposed rehabilitation plan to the receiver for
evaluation. In a recommendation, the receiver’s report found
that Sarabia may be rehabilitated.
RTC: Approved Sarabia’s rehabilitation plan as recommended
by the Receiver, finding it feasible. It served that the plan was
realistic since Sarabia has the inherent capacity to generate
funds to pay its loan obligations given the proper perspective;
that such plan was practical in terms of interest rate pegged at
6.75% per annum since it is based on its ability to pay and the
creditors’ perceived cost of money; and was likewise found to be
viable since its revenue projections remained to have a positive
business/profit outlook altogether.
CA: Affirmed RTC ruling with the modification of reinstating
surety obligations of Sarabia’s stockholders to BPI as an
additional safeguard for the effective implementation of the
approved rehabilitation plan.
BPI’s contention: the approved plan did not give due regard to
its interests as secured creditor in view of a fixed interest rate of
6.75% per annum and the extended loan repayment period. It
further avers that Sarabia’s misrepresentations in its
rehabilitation petition remain unsolved.
Sarabia’s contention: the approved rehabilitation plan takes
into consideration all the interests of the parties and the terms
and conditions stated therein are more reasonable than what
BPI proposes and that BPI’s allegations of misrepresentations
are mere desperation moves to convince the Court to overturn
the rulings of the lower courts.
ISSUE: WON the CA correctly affirmed Sarabia’s rehabilitation
plan as approved by RTC, with the modification on the
reinstatement of the surety obligations of Sarabia’s stockholders
HELD: YES. Corporate rehabilitation is an attempt to
conserve and administer assets of an insolvent corporation in
the hope of its eventual return from financial stress to solvency.
It contemplates the continuance of corporate life and activities in
an effort to restore and reinstate the corporation to its former
position of successful operation and liquidity. The purpose of
which is to enable the company to gain a new lease on life and
thereby allow creditors to be paid their claims from its earnings.
Thus, it should 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.
The CRAM-DOWN Clause, as provided under Sec 23, Rule 4
of the Interim Rules, states that a rehabilitation plan may be
approved over to 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. This provision, as incorporated in
the FRIA, is necessary to curb the majority creditors’ natural
tendency to dictate their own terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate
but incomplete recovery.
While, in order to determine the feasibility of a proposed
rehabilitation plan, it is imperative that a thorough examination
and analysis of the distressed corporation’s financial data must
be conducted. The Court observes that:
1. Sarabia has the financial capability to undergo
rehabilitation – it has the inherent capacity to generate funds
to repay its loan obligations and that despite its financial
constraints, it likewise continues to be profitable with its hotelier
business as its operations have not been disrupted. Thus, the
prospect of substantial and continuous revenue generation is a
realistic goal.
2. Sarabia has the ability to have sustainable profits over a
long period of time – its projected revenues shall have a steady
year-on-year growth from the time that it applied for
rehabilitation until the end of its plan in 2018. Should it come
through, it would have the ability not just to pay off its existing
debts but also to carry on with its intended expansion.
3. The interests of Sarabia’s creditors are well-protected –
adequate safeguards are found under the approved
rehabilitation plan that any deficiency in the required minimum
payments to creditors shall be paid personally by Sarabia’s
stockholders and all capital expenditures shall be subject to the
Court’s approval, among others.
Thus, the Court finds Sarabia’s rehabilitation feasible.
Lastly, Opposition of a distressed corporation’s majority
creditor is manifestly unreasonable if it counter-proposes
unrealistic payment terms and conditions which would impede
rather than aid its rehabilitation. The unreasonableness
becomes further manifest if the rehabilitation plan, as in this
case, provides for adequate safeguards to fulfill the majority
creditor’s claim, and yet the latter persists on speculative or
unfounded assumptions that his credit would remain unfulfilled.
11. METROPOLITAN BANK & TRUST COMPANY V LIBERTY
CORRUGATED BOXES MANUFACTURING CORP
FACTS: Respondent Liberty is a domestic corp. that produces
corrugated packaging boxes. It obtained various credit
accommodations and loan facilities from petitioner Metrobank
amounting to P19,940,000. To secure its loans, Liberty
mortgaged 12 lots in Valenzuela City. Liberty thereafter
defaulted on the loans.
June 21, 2007 – Liberty filed a Petition for Corporate
Rehabilitation before the RTC of Malabon claiming that it could
not meet its obligations to Metrobank because of the Asian
Financial Crisis and the serious sickness of its Founder and
President Ki Kiao Koc
Its plan consisted of debt moratorium, renewal of marketing
efforts, resumption of operations and entry into condominium
development.
June 27, 2001 – RTC issued a Stay Order and set an initial
hearing. Metrobank filed its opposition arguing that Liberty was
not qualified for corporate rehabilitation. RTC subsequently gave
due course to the petition and referred the rehabilitation plan to
its Receiver, Rafael Chris Teston, who recommended the
approval of the plan provided that Liberty would initiate
construction on the property in Valenzuela within 12 months
from approval.

RTC: approved the rehabilitation plan finding that Liberty was

capable of being rehabilitated and that the plan was feasible and
viable.
CA: Affirmed RTC ruling finding that debtor corp could still avail
themselves of the remedy of rehabilitation under the Interim
Rules.

Metrobank’s contention: Liberty can no longer file a petition.

Under Sec 1, Rule 4 of the Interim Rules, petitioner should be
one who foresees the impossibility of meeting its debts when
they respectively fall due. An element of foresight is required and
as such, the debts should not have matured; Further, the RTC’s
approval is contrary to Sec 23, Rule 4 of the Interim Rules which
provides that the court may approve the rehabilitation plan over
the opposition of the creditors only when: (a) the court finds
that the rehabilitation of the debtor is feasible; and (b) when
the opposition of the creditors is “manifestly
unreasonable”; That the rehabilitation plan lacked material
financial commitments for it did not claim that new money would
be invested in the corporation.

Liberty’s contention: Metrobank’s reading of Sec 1 Rule 4 is

restrictive merely indicating the minimum conditions for a debtor
to be able to file a petition for rehabilitation; It avers that the
finding of the rehabilitation plan as feasible is well-grounded
since the receiver deemed it viable; and contrary to Metrobank’s
arguments, the plan contains material financial commitments.

ISSUE: WON Liberty is qualified to file a petition for

rehabilitation under PD 902-A and Sec 1, Rule 4 of the Interim
Rules

HELD: YES. Sec 1, Rule 4 provides that any debtor who

foresees the impossibility of meeting its debts when they
respectively fall due, or any creditor or creditors holding at least
twenty-five percent (25%) of the debtor's total liabilities, may
petition the proper Regional Trial Court to have the debtor
placed under rehabilitation.

The Interim Rules provide for a liberal construction of its

provisions. There is no reason why corporations with debts that
may have already matured should not be given the opportunity
to recover and pay their debtors in an orderly fashion. Thus, the
condition that triggers rehabilitation is not the maturation of a
corporation’s debts but the inability of the debtor to pay these.

Further, the Interim Rules does not specify what kind of debtor
may seek rehabilitation. It allows creditors holding 25% of the
debtor corporation’s total liabilities to petition for the corporate’s
rehabilitation.
Lastly, the phrase “any debtor who foresees the impossibility of
meeting its debts…” need not refer to a specific period or point
in time when the debts mature. “when they respectively fall due”
is construed to mean that the debtor must already be in default
defeats the clear purpose of the lawmakers for it unjustly limits
rehabilitations to corporations with matured obligations.