ALLIED BANKING CORPORATION, PETITIONER,[1]  Apart from the foregoing agreements, Allied Banking Corporation (ABC)
granted SCP with a revolving credit facility denominated as a letter of
V.
IN THE MATTER OF THE PETITION TO HAVE STEEL CORPORATION OF
THE PHILIPPINES PLACED UNDER CORPORATE REHABILITATION
WITH PRAYER FOR THE APPROVAL OF THE PROPOSED
REHABILITATION PLAN, EQUITABLE PCI BANK, INC., RESPONDENT.
DECISION
MARTIRES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the 22 July 2008 Decision [2] and 12 April 2010 Resolution[3] of the
Court of Appeals (CA) in CA-G.R. SP No. 97206. The CA affirmed the 22
November 2006 Resolution of the Regional Trial Court (RTC or the
rehabilitation court), Branch 2, Batangas City, in Spec. Proc. No. 06-7993,
which ordered the bank creditors of Steel Corporation of the Philippines (SCP)
to unfreeze and restore the latter's bank accounts to the possession, control,
and custody of the rehabilitation receiver.
THE FACTS
On 11 September 2006, Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a
petition for the corporate rehabilitation of its debtor SCP with the RTC.
EPCIB alleged, among others, that due to the onslaught of the 1997 Asian
Financial Crisis, SCP began experiencing a downward trend in its financial
condition which prompted various banks and financial institutions to grant it
with term loan facilities and working capital lines; that SCP failed to make
timely payments on its term loan facilities; that SCP also defaulted on its loan
obligations under the December 2002 Omnibus Agreement,[4] where lending
banks and other financial institutions agreed to reschedule and restructure
SCP's payments on the principal loan and interest, reinstate its working
capital lines and establish a new trade financing line; and that the petition for
corporate rehabilitation is grounded on Section 1, Rule 4 of the Interim Rules
of Corporate Rehabilitation, which 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."
credit/trust receipt line in the amount of P100 million, which SCP availed of
to finance the importation of its raw materials. Pursuant to this arrangement,
SCP executed a trust receipt (TR),[5] which authorizes ABC to charge SCP's
account in its possession under instances specified in paragraph 9 thereof,
viz:
In the event of any bankruptcy, insolvency, suspension of payment, or failure,
or assignment for the benefit of creditors, on my/our part, or of the non-
fulfillment of any obligation, or of the non-payment at maturity of any
acceptance specified hereon or under any credit issued by the ALLIED
BANKING CORPORATION for my/our account, or of the non-payment of any
indebtedness on my/our part to the said bank, all obligations, acceptances,
indebtedness, and liabilities whatsoever shall thereupon (with or without
notice) mature and become due and payable. The ALLIED BANKING
CORPORATION is hereby constituted my/our attorney-in-fact, with authority
to examine my/our books and records, to charge my/our account or to sell
any other property of mine/ours in its possession, and to liquidate any or all
of my/our obligations under this Trust Receipt.
The RTC Ruling
On 12 September 2006, the RTC issued an Order [6] (the subject order)
granting EPCIB's petition, the dispositive portion of which reads:
WHEREFORE, finding the petition to be sufficient in form and substance,
this Order is hereby issued—
(a) Appointing Santiago T. Gabionza Jr., with address at Villanueva Gabionza
and De Santos Law Offices, 20/F 139 Corporate Center, Valero Street,
Salcedo Village, Makati City, as Rehabilitation Receiver of Steel Corporation of
the Philippines, directing him to assume his position as such upon the taking
of an oath before the Branch Clerk of this Court and after posting a bond in
the amount of P300,000.00 to guarantee the faithful discharge of his duties
and obedience to the Orders of this Court;
(b) Upon acceptance by Santiago T. Gabionza, Jr. of his appointment as
Rehabilitation Receiver, directing him:
[i] to take possession, control and custody of the assets of the debtor Steel
Corporation of the Philippines;
[ii] to closely oversee and monitor the operations of the said debtor
corporation during the pendency of the proceedings and to immediately
report to this Court any material adverse change in its business;
[iii] to ensure that the value of the properties of Steel Corporation of the
Philippines are reasonably maintained pending the termination of whether or
not it should be rehabilitated;
[iv] to investigate the acts, conduct, properties, liabilities, and financial
condition of the debtor-corporation, the operation of its business and the
desirability of the continuance thereof, and any matter relevant to the
proceedings or to the formulation of a rehabilitation plan;
[v] to report to this Court any fact ascertained by him pertaining to the causes
of the debtor's problems, fraud, preferences, dispositions, encumbrances,
misconduct, mismanagement, and irregularities committed by the
stockholders, directors, management, or any other person against the debtor;
[vi] to evaluate the existing assets and liabilities, earnings and operations of
the said debtor-corporation;
[vii] to determine and recommend to this Court the best way to salvage and
protect the interests of the creditors, stockholders and the general public;
[viii] to exercise such powers and prerogatives stated above as may be
necessary and proper under the law and the Interim Rules of Procedure on
Corporate Rehabilitation over all other corporations, persons or entities as
may be affected by these proceedings;
[ix] to apply to this Court for any order or directive that he may deem
necessary or desirable to aid him in the exercise of his powers and
performance of his duties and functions.
(c) Staying all claims against SCP, by all other corporations, persons or
entities insofar as they may be affected by the present proceedings,
until further notice from this Court, pursuant to Sec. 6, of Rule 4 of the
Interim Rules of Procedure on Corporate Rehabilitation. Steel
Corporation of the Philippines is hereby prohibited from selling, encumbering,
transferring or disposing in any manner of its assets and properties except in
the ordinary course of its business and as may be approved by the
Rehabilitation Receiver.
The suppliers of goods or services of Steel Corporation of the Philippines are
prohibited from withholding supply of goods and services in the ordinary
course of business for as long as it is able to make payment for the services
and goods supplied after the issuance of this Order.
Steel Corporation of the Philippines is directed to pay in full the
administrative expenses incurred after the issuance of this Order.
The petitioner is directed to publish this Order in a newspaper of general
circulation in the Philippines once a week for two (2) consecutive weeks.
All other creditors and all interested parties, including the Securities and
Exchange Commission, are directed to file and serve on the petitioner, thru
their counsels on record, Divina and Uy Law Offices, 8th Floor, Pacific Star
Building, Makati Avenue corner Sen. Gil Puyat Ave., Makati City, a verified
comment on the petition, with supporting affidavits and documents, not later
than ten (10) days before the date of the initial hearing. Failure to do so will
constitute a bar on such creditors and all interested parties from participating
in the proceedings.
xxx
SO ORDERED. (emphasis supplied)
On 15 September 2006, petitioner applied the remaining proceeds of SCP's
Current Account No. 1801-004-87-6 (subject account) in the amount of
P6,750,000.00, maintained with its Aguirre Branch, to its obligations under
the TR.
On 29 October 2006, SCP filed an urgent omnibus motion alleging that
petitioner violated the rehabilitation court's stay order when it applied the
proceeds of its current account to the payment of obligations covered by the
stay order. Consequently, it prayed for ABC to immediately restore its current
account, credit back to said account the amount of P6,750,000.00, and
honor any and all transactions of SCP in said account.
On 2 November 2006, ABC filed an opposition, mainly contending that SCP's
obligations with it had become due and demandable, rendering legal
compensation valid and proper; that petitioner did not violate the stay order,
as it had no notice of its issuance at the time of the legal compensation; and
that petitioner cannot be legally compelled to extend credit to SCP against its
will.
On 22 November 2006, the RTC issued a resolution (the subject resolution),
finding merit in SCP's position, to wit:
WHEREFORE, in view of all the foregoing, the Court hereby orders as follows:
xxx
3. ABC to restore SCP's Current Account No. 1801-004-87-6 at Aguirre
Branch, Makati City, and to credit back to the said account the entire deposit
balance therein of P6,750,000.00 and to honor any and all transactions of
SCP in said account as may be approved by the Rehabilitation Receiver.
xxx
Aggrieved, ABC filed a petition for review under Rule 43 with the CA.
The CA Ruling
The CA affirmed the resolution of the RTC, viz:
WHEREFORE, the November 22, 2006 Resolution of the Regional Trial
Court, Branch 2, Batangas City, in Sp. Proc. No. 06-7993, is AFFIRMED.
The CA ruled that the RTC's stay order was effective from the date of its
issuance on 12 September 2006, on the basis of Section 11, Rule 4, and
Section 5, Rule 3, of the Interim Rules of Corporate Rehabilitation; thus, ABC
was bound to comply with it on said date. The CA also ruled that the subject
account was already under custodia legis by virtue of the stay order,
rendering ABC's unilateral application of the proceeds in the subject account
improper. On the issue of impairment of contractual rights, the CA held that
no impairment exists because no changes were made in the amount or rate
of SCP's debt to ABC. Only the enforcement of the latter's claims is being
stayed or suspended.
Unconvinced, ABC filed a motion for reconsideration of the CA decision,
which was denied by the CA in its resolution; hence, the instant petition.
The present petition
ABC contends that it was deprived of its right to due process when the RTC
ordered ABC to restore SCP's current account and to credit back the amount
previously set off. ABC asserts that it was not yet bound by the 12 September
2006 stay order when it made the setoff on 15 September 2006 because
jurisdiction over it had not yet been acquired by the rehabilitation court; the
stay order was only published on 16 September 2006.
ABC further contends that when it offset the proceeds in the subject account,
it merely applied the provisions of law on legal compensation, since SCP had
already incurred a default in its obligations rendering operative the terms of
the TR it had issued.
ISSUES
ABC raises the following issues:
I. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE
LOWER COURT'S DECISION THAT PETITIONER ABC IS BOUND BY THE
SEPTEMBER 12, 2006 STAY ORDER THEREBY UNLAWFULLY
DEPRIVING THE PETITIONER OF ITS RIGHT TO DUE PROCESS OF
LAW.
II. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE
LOWER COURT'S DECISION THAT PETITIONER ABC IS PROHIBITED
FROM APPLYING THE PROCEEDS OF THE DEPOSIT ACCOUNT OF
STEEL CORPORATION TO ITS OUTSTANDING OBLIGATIONS FROM
THE DATE OF THE ISSUANCE OF THE STAY ORDER ON 12
SEPTEMBER 2006, AS THE SAID PROCEEDS ARE ALREADY UNDER
CUSTODIA LEGIS, BY VIRTUE OF THE STAY ORDER.
THE COURT'S RULING
The central argument to the present petition is that the RTC could not
invalidate an act already consummated prior to the date that the subject
order was published, since it was only on said date that the court acquired
jurisdiction over ABC. ABC primarily bases its assertion on Section 1, Rule 3
of the Interim Rules,[7] which considers rehabilitation proceedings as in
rem and jurisdiction over all those affected acquired only upon publication of
the notice commencing proceedings.
This Court is thus tasked to determine when the subject order took effect for
purposes of compliance, and whether the rehabilitation court can reverse or
invalidate acts that are inconsistent with its stay order and are made after its
issuance but prior to its publication.
Applying the provisions of the
present Rehabilitation Rules, the
rehabilitation court properly
invalidated ABC's action.
The rehabilitation petition was filed by EPCIB under A.M. No. 00-8-10-SC
dated 21 November 2000, or the 2000 Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules).
On 27 August 2013, however, the Court enacted A.M. No. 12-12-11-SC, or
the Financial Rehabilitation Rules of Procedure (Rehabilitation Rules), which
amended and revised the Interim Rules and the subsequent 2008 Rules of
Procedure on Corporate Rehabilitation (2008 Rules), in order to incorporate
the significant changes brought about by Republic Act No. 10142 (R.A. No.
10142), otherwise known as the Financial Rehabilitation and Insolvency Act
of 2010 (FRIA).[8]
The Rehabilitation Rules provides that the court shall issue a commencement
order once it finds the petition for rehabilitation sufficient in form and
substance.[9] This commencement order primarily contains: a declaration that
the debtor is under rehabilitation, the appointment of a rehabilitation
receiver, a directive for all creditors to file their verified notices of claim, and an
order staying claims against the debtor.[10] The rehabilitation proceedings
shall be deemed to have commenced from the date of filing of the petition,
[11]
 which is also termed the commencement date.
Under the same Rules, the effects of such commencement order shall retroact
to the date that the petition was filed, and renders void any attempt to collect
on or enforce a claim against the debtor or to set off any debt by the debtor's
creditors, after the commencement date, to wit:
SEC. 9. EFFECTS OF THE COMMENCEMENT ORDER. - The effects of the
court's issuance of a Commencement Order shall retroact to the date of the
filing of the petition and, in addition to the effects of a Stay or Suspension
Order described in the foregoing section, shall
xxx
(B) prohibit or otherwise serve as the legal basis for rendering null and
void the results of any extrajudicial activity or process to seize
property, sell encumbered property, or otherwise attempt to collect on
or enforce a claim against the debtor after the commencement date
unless otherwise allowed under these Rules, subject to the provisions of
Section 49 of this Rule;
(C) serve as legal basis for rendering null and void any set-off after the
commencement date of any debt owed to the debtor by any of the
debtor's creditors; (emphasis supplied)
xxx
The order issued by the RTC on 12 September 2006, which effectively
initiated rehabilitation proceedings and included a suspension of all claims
against SCP, is akin to the commencement order under the Rehabilitation
Rules.
Clearly, therefore, if the Rehabilitation Rules were to be applied, the directive
of the rehabilitation court restoring SCP's current account and crediting back
the offset amount is valid and proper, since the offsetting was made on 15
September 2006, after the commencement date on 11 September 2006,
when the petition for rehabilitation was filed.
The question thus arises: May the Rehabilitation Rules be applied to resolve
the present petition, when the subject petition for rehabilitation was filed
under the Interim Rules.
The Court rules in the affirmative.
Section 2, Rule 1 of the Rehabilitation Rules governs rehabilitation cases
already pending, except when its application would not prove feasible or
would work injustice, to wit:
SEC. 2. SCOPE. - These Rules shall apply to petitions for rehabilitation of
corporations, partnerships, and sole proprietorships, filed pursuant to
Republic Act No. 10142, otherwise known as the Financial Rehabilitation and
Insolvency Act (FRIA) of 2010.
These Rules shall similarly govern all further proceedings in suspension
of payments and rehabilitation cases already pending, except to the
extent that, in the opinion of the court, its application would not be
feasible or would work injustice, in which event the procedures
originally applicable shall continue to govern. (emphasis supplied)
The above provision is consistent with the mandate under R.A. No.
10142, viz:
SEC. 146. Application to Pending Insolvency, Suspension of Payments and
Rehabilitation Cases. - This Act shall govern all petitions filed after it has
taken effect. All further proceedings in insolvency, suspension of
payments and rehabilitation cases then pending, except to the extent
that in the opinion of the court their application would not be feasible
or would work injustice, in which event the procedures set forth in prior
laws and regulations shall apply. (emphasis supplied)
The soundness of upholding the retroactive effect of a commencement order
is easily discernible.
In Philippine Bank of Communications v. Basic Polyprinters and Packaging
Corporation,[12] the Court said that rehabilitation proceedings seek to give
insolvent debtors the opportunity to reorganize their affairs and to efficiently
and equitably distribute its remaining assets, viz:
Rehabilitation proceedings in our jurisdiction have equitable and
rehabilitative purposes. On the one hand, they attempt to provide for the
efficient and equitable distribution of an insolvent debtor's remaining assets
to its creditors; and on the other, to provide debtors with a "fresh start" by
relieving them of the weight of their outstanding debts and permitting them to
reorganize their affairs. The purpose of rehabilitation proceedings is to
enable the company to gain a new lease on life and thereby allow
creditors to be paid their claims from its earnings. (emphasis supplied)
The filing of a petition for the rehabilitation of a debtor, when the court finds
that it is sufficient in form and substance, is both (1) an acknowledgment that
the debtor is presently financially distressed; and (2) an attempt to conserve
and administer its assets in the hope that it will eventually return to its
former state of successful financial operation and liquidity. [13] The inherent
purpose of rehabilitation is to find ways and means to minimize the expenses
of the distressed corporation during the rehabilitation period by providing the
best possible framework for the corporation to gradually regain or achieve a
sustainable operating form.[14]
Certainly, when a petition for rehabilitation is filed and subsequently granted
by the court, its purpose will be defeated if the debtors are still allowed to
arbitrarily dispose of their property and pay their liabilities, outside of the
ordinary course of business and what is allowed by the court, after the filing
of the said petition. Such a scenario does not promote an environment where
the debtor could regain its operational footing, contrary to the dictates of
rehabilitation.
The petition itself, when granted by the court, is already a recognition of the
debtor's distressed financial status not only at the time the order is issued,
but also at the time the petition is filed. It is, therefore, more consistent with
the objectives of rehabilitation to recognize that the effects of an order
commencing rehabilitation proceedings and staying claims against the debtor
should retroact to the date the petition is filed.
Accordingly, the Court finds that application of the Rehabilitation Rules to the
case at bar is proper, insofar as it clarifies the effect of an order staying claims
against a debtor sought to be rehabilitated.
Such application promotes a just and sound resolution to the present
controversy, bearing in mind the inherent purpose of rehabilitation
proceedings. It is also feasible, considering the subject resolution was within
the Rehabilitation Court's powers, wielded for the same purpose identified in
both the Interim Rules and the Rehabilitation Rules which is to promote a
timely, fair, transparent, effective, and efficient rehabilitation of debtors.[15]
Even the Interim Rules provides for
the immediate effectivity of a stay
order.
Even if the retroactive effect under the Rehabilitation Rules is inapplicable to
the case at bar, the Interim Rules expressly provides that the stay order is
effective upon its issuance, viz:
Sec. 11. Period of the Stay Order. - The stay order shall be effective from the
date of its issuance until the dismissal of the petition or the
termination of the rehabilitation proceedings. (emphasis supplied)
xxx
The foregoing provision finds support in Section 5, Rule 3, of the Interim
Rules, to wit:
Sec. 5. Executory Nature of Orders. - Any order issued by the court under
these Rules is immediately executory. A petition for review or an appeal
therefrom shall not stay the execution of the order unless restrained or
enjoined by the appellate court. The review of any order or decision of the
court or an appeal therefrom shall be in accordance with the Rules of
Court: Provided, however, that the reliefs ordered by the trial or appellate
courts shall take into account the need for resolution of proceedings in a just,
equitable, and speedy manner. (emphasis supplied)
This Court quotes with approval the CA's disquisition on this matter:
From the above provisions, a stay order issued by the court in a corporate
rehabilitation proceeding is effective from the date of its issuance until the
dismissal of the petition or the termination of the rehabilitation proceedings.
In fact, it is immediately executory.
In the case at bar, there is no doubt that the rehabilitation court correctly
held that the appellant is bound by the September 12, 2006 Stay Order as of
the date of its issuance, the same being  immediately executory and
effective without any further act, event, or condition being necessary to
compel compliance therewith as expressly provided in Sec. 11, Rule IV and
Sec. 5, Rule III of the Interim Rules of Procedure on Corporate Rehabilitation.
xxx
It should be stressed that the Interim Rules was enacted to provide for a
summary and non-adversarial rehabilitation proceedings. This is in
consonance with the commercial nature of a rehabilitation case, which is
aimed to be resolved expeditiously for the benefit of all the parties concerned
and the economy in general.
It is true that under the Interim Rules, similar to the Rehabilitation Rules,
publication of the notice of the commencement of the proceedings is
necessary to acquire jurisdiction over all persons affected, viz:
Section 1. Nature of Proceedings. - Any proceeding initiated under these
Rules shall be considered in rem. Jurisdiction over all those affected by the
proceedings shall be considered as acquired upon publication of the notice of
the commencement of the proceedings in any newspaper of general
circulation in the Philippines in the manner prescribed by these Rules.
xxx
The question posed herein is whether the immediate effectivity of the stay
order is inconsistent with the publication requirement under the Rules, such
that the rehabilitation court cannot invalidate acts made after its issuance
but prior to its publication. The Court rules in the negative.
Taking into consideration the laudable objectives of rehabilitation
proceedings, the immediate effectivity of the stay order means that the RTC,
through an order commencing rehabilitation and staying claims against the
debtor, acknowledges that the debtor requires rehabilitation immediately and
therefore it can not only prohibit but also nullify acts made after its effectivity,
when such acts are violative of the stay order, to prevent any irreparable
detriment to the debtor's successful restoration.
The foregoing is validated by the Interim Rules, where the court can declare
void any transaction made in violation of the stay order, viz:
Sec. 8. Voidability of Illegal Transfers and Preferences. - Upon motion or motu
proprio, the court may declare void any transfer of property or any other
conveyance, sale, payment, or agreement made in violation of its stay
order or in violation of these Rules. (emphasis supplied)
The publication requirement only means that all affected persons must, to
satisfy the requirements of due process, be notified that as of a particular
date, the debtor in question requires rehabilitation and should temporarily be
exempt from paying its obligations, unless allowed by the court. Once due
notice is made, the rehabilitation court may nullify actions inconsistent with
the stay order but which may have been taken prior to publication, precisely
because prior to publication, creditors may not yet be aware that they are to
desist from pursuing claims against the insolvent debtor.
Again, the immediate effectivity of the stay order can be traced to the purpose
of rehabilitation: once the necessity of rehabilitating the debtor is recognized,
through a petition duly granted, it is imperative that the necessary steps to
preserve its assets are taken at the earliest possible time.
It is thus apparent that the RTC properly invalidated petitioner's action made
on 15 September 2006, after the subject order was issued.
There was no impairment of
contract or deprivation of due
process.
According to ABC, the subject resolution constituted an impairment of its
contract with SCP because under the TR it executed in ABC's favor, ABC had
the right to charge SCP's account in case of nonpayment of any indebtedness.
ABC also claims lack of due process because the rehabilitation court directed
ABC to restore SCP's account even when the offsetting was made prior to
publication of the subject order, when ABC was not yet deemed notified of the
order.
Anent the alleged impairment of contract, basic is the principle that the law is
deemed written into every contract, such that while a contract is the law
between the parties, the provisions of positive law which regulate contracts
shall limit and govern their relations.[16] At the time the Trust Receipt
Agreement was entered into by ABC and SCP, the law expressly allowed
corporations to be declared in a state of suspension of payments under
specific instances.[17]
Consequently, said law and its implementing rules are deemed incorporated
in the Trust Receipt Agreement, thereby limiting ABC's right to enforce its
claim against SCP once a stay or suspension order is issued. Clearly, the
principle on inviolability of contracts was not violated.
It must also be noted that the subject order did not eliminate or reduce SCP's
obligations to ABC, but merely suspended its enforcement while
rehabilitation is being undertaken. In fact, one of the purposes of
rehabilitation is to ensure the efficient and equitable distribution of the
insolvent debtor's remaining assets to its creditors.[18]
In Golden Merchandising Corporation v. Equitable PCI Bank,[19] which involved
the question of whether the shorter redemption period, provided under R.A.
No. 8791 and applied to a real mortgage contract executed prior to the
enactment of said law, constitutes a violation against the constitutional
proscription on impairment of contracts, the Court ruled that there was no
impairment because the provision in question did not divest juridical persons
of their right to redeem but merely modified the time for the exercise of such
right.
Similarly, ABC was not deprived of its right to enforce its claim against SCP.
The creditor's right to enforce his claim despite the issuance of a stay order is
even validated by Section 8 of the Rehabilitation Rules, to wit:
SEC. 8. COMMENCEMENT OF PROCEEDINGS AND ISSUANCE OF
COMMENCEMENT ORDER. - The rehabilitation proceedings shall be
deemed to have commenced from the date of filing of the petition.
xxx
The issuance of a stay order does not affect the right to commence
actions or proceedings in order to preserve   ad cautelam a claim
against the debtor and to toll the running of the prescriptive period to
file the claim. For this purpose, the plaintiff may file the appropriate court
action or proceedings by paying the amount of One Hundred Thousand
Pesos (P100,000.00) or one-tenth (1/10) of the prescribed filing fee, whichever
is lower. The payment of the balance of the filing fee shall be a jurisdictional
requirement for the reinstatement or revival of the case. (emphasis supplied)
It is also clear from the previous discussion that ABC was not deprived of due
process when the RTC issued the subject resolution.
The essence of procedural due process is one which hears before it
condemns, which proceeds upon inquiry and renders judgment only upon
trial. It contemplates notice and opportunity to be heard before judgment is
rendered affecting one's person or property.[20]
The Court has consistently held that in actions in personam, jurisdiction over
the parties is required since they seek to impose personal liability. On the
other hand, courts need not acquire jurisdiction over the person of the
defendant in actions in rem because they are not directed against a specific
person. The court need only acquire jurisdiction over the res.[25] Nonetheless,
some form of notice to all affected parties is required to satisfy the
requirements of due process. Under both the Rehabilitation Rules and the
Interim Rules, publication of the notice of the commencement of
rehabilitation proceedings is the operative act which vests the court with
jurisdiction over all affected parties. As discussed earlier, once jurisdiction is
acquired, the court can subject all those affected to orders consistent with the
rehabilitation of the insolvent debtor, including the reversal of any transfer,
payment, or sale made after the filing of the petition.
It is not disputed that the 12 September 2006 Order of the rehabilitation
court was duly published on 16 September 2006; that said order contained a
directive for all creditors to file their verified comment on the petition within a
stated period; and that ABC filed its verified comment on 17 October 2006.
It is therefore evident that petitioner was notified of the rehabilitation
proceedings and given an opportunity to be heard, as in fact it filed a
comment thereon, thereby satisfying due process requirements. Moreover, as
previously discussed, there was no undue deprivation of property because
SCP's obligation to ABC remains.
WHEREFORE, the petition is DENIED. The 22 July 2008 Decision and 12
April 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 97206
are AFFIRMED.
SO ORDERED.

Rehabilitation proceedings are considered in rem.[21] In rem actions are

against the thing itself and they are binding upon the whole world,
[22]
 unlike in personam actions, which are against a person on the basis of his
personal liability.[23] "Against the thing" means that the resolution of the case
affects the direct or indirect interests of others and assumes that those
interests attach to the thing which is the subject matter of the litigation.[24]
 [ G.R. No. 206150, August 09, 2017 ] Creditors Peso debts Dollar debts
LAND BANK OF THE PHILIPPINES, PETITIONER, VS. FASTECH 1. Planters P55,175.00  N/A
SYNERGY PHILIPPINES, INC. (FORMERLY FIRST ASIA SYSTEM Development Bank
TECHNOLOGY, INC.), FASTECH MICROASSEMBLY & TEST, INC., (Planters Bank)
FASTECH ELECTRONIQUE, INC., AND FASTECH PROPERTIES, INC.,
RESPONDENTS. 2. Penta Capita], P10,260,00.00 US$1,638,669.00
Investment
Corporation (Penta
DECISION Capital)
LEONEN, J.: 3. Union Bank of the P9,000,000.00 US$370,000.00
Courts will not render judgment on a moot and academic case unless any of Philippines
the following circumstances exists: "(1) [g]rave constitutional violations; (2) (UnionBank)
[e]xceptional character of the case; (3) [p]aramount public interest; (4) [t]he 4. Bank of the P54,653,431.00  N/A
case presents an opportunity to guide the bench, the bar, and the public; or
Philippine Islands
(5) [t]he case is capable of repetition yet evading review." [1] (BPI)

This is a Petition for Review on Certiorari[2] under Rule 45 of the 1997 Rules 5. Land Bank of the N/A US$340,000.00
of Civil Procedure, praying that the Court of Appeals September 28, 2012 Philippines
Decision[3] and March 5, 2013 Resolution [4] be modified to consider the (Landbank)
concerns raised by Land Bank of the Philippines (petitioner). [5] These
concerns pertain to the rehabilitation of respondents Fastech Synergy TOTAL: P73,968,606.00 US$2,348,669,00[13]
Philippines, Inc. (Fastech Synergy),[6] Fastech Microassembly & Test, Inc.
(Fastech Microassembly), Fastech Electronique, Inc. (Fastech Electronique),
and Fastech Properties, Inc, (Fastech Properties) (collectively, Fastech
Corporations). In its September 28, 2012 Decision, the Court of Appeals set They prayed for the approval of their Rehabilitation Plan, which they
aside the December 9, 2011 Resolution [7] of Branch 149, Regional Trial submitted together with their Rehabilitation Petition. The terms and
Court, Makati City (Rehabilitation Court), which dismissed respondents' Joint conditions of the Rehabilitation Plan provided for a two (2)-year grace period
Petition for corporate rehabilitation (Rehabilitation Petition).[8] In this Decision, for the payment of the Fastech Corporations' outstanding loans and a waiver
the Court of Appeals approved respondents' Rehabilitation Plan, which was of accumulated interests and penalties. Likewise, they indicated a 12-year
attached to their Rehabilitation Petition filed under Republic Act No. 10142, period from the end of the grace period for the payment of interests accrued
[9]
 on April 8, 2011,[10] and remanded the case back to the Rehabilitation during the grace period. Finally, they stipulated an interest of four percent
Court.[11] (4%) per annum for real estate-secured creditors and two percent (2%) per
annum for chattel mortgage-secured creditors.[14]
The Fastech Corporations claimed that they filed a joint petition since they
have common managers, assets, and creditors. [12] Due to financial losses, On April 19, 2011, the Rehabilitation Court acted on the Rehabilitation
their assets would not be enough to pay their peso and dollar debts from the Petition by issuing a Commencement Order with Stay Order. It appointed
following creditors: Atty. Rosario Bernaldo (Atty. Bernaldo) as Rehabilitation Receiver. [15]

  On May 18, 2011, the Rehabilitation Petition was heard and the
Rehabilitation Court eventually gave it due course to it. The creditors—
Planters Bank, UnionBank, BPI, and Landbank—later filed their respective
Notices of Claims and Comments.[16]
After the Fastech Corporations' presentation of their Rehabilitation Plan to
Atty. Bernaldo and their creditors, the Rehabilitation Court issued its June
22, 2011 Order requiring them to submit a revised rehabilitation plan. The
Fastech Corporations submitted their Revised Rehabilitation Plan and their
creditors filed their respective comments and oppositions to it.[17]
In the meantime, Atty. Bernaldo submitted her Preliminary Report and
opined that the Fastech Corporations' original Rehabilitation Plan was viable.
[18]
 She stated that the Fastech Corporations "may be successfully
rehabilitated, considering the sufficiency of their assets to cover their liabilities
and the underlying assumptions, financial projections and procedures to
accomplish said goals in their Rehabilitation Plan."[19]
External auditors of the Fastech Corporations gave comments on the
financial statements.[20] They issued qualified audit opinions on the 2008
financial statements of Fastech Microassembly and Fastech Electronique but
noted that these companies were unable to prove financial support from their
respective major stockholders.[21] However, the auditors were unable to
provide opinions on Fastech Synergy's and Fastech Properties' 2008 financial
statements due to insufficient audit evidence.[22] Finally, they were also
unable to give audit opinions on the 2009 financial statements of the Fastech
Corporations for lack of appropriate audit evidence.[23]
The Rehabilitation Court directed the Fastech Corporations to submit their
Reply on the comments and oppositions presented by their creditors, to
which they complied with on September 30, 2011.[24]
On December 9, 2011, the Rehabilitation Court issued a
Resolution[25] dismissing the Rehabilitation Petition based on the following:
1. The Singapore Stock Exchange has already deleted one of the
petitioners. Yet, petitioners did not even bother to explain and/or
inform this court the status of such deletion; or the steps being
taken by the petitioners to resolve the incident.
It must be noted here, then and now, that listed corporations in the
stock exchange has an easy access to the public for their
contributions to the capital built up to finance corporate business
transactions including CAPEX and working capital. Thus, the public
is always a very good source of money for business ventures of
corporations. Petitioners had lost such good source of cheap money.
2. Petitioners miserably failed to overcome the unqualified adverse
opinions of their external auditors. Petitioners did not explain what
had happened to those adverse observations of the auditors. Thus,
petitioners submitted before this court unreliable financial
statements amounting to non-compliance of the basic requirements
of the Law and the Rules for rehabilitation purposes.
3. Petitioners denied this court of its fair determination of the feasibility
of the submitted rehabilitation plan by withholding from this court
its basic assumptions of its rehabilitation plan.
4. Petitioners miserably failed to demonstrate before this court that
they will have a better future business financial results [sic] of
operation after their failures to meet the various restructuring plans
they have secured from these creditors' banks.
5. The new way of doing business, i.e. niche manner of manufacturing
its products or customers built design and needs, will be
experimental, hence it will be completely and entirely dependent
upon the number of customers petitioners may have. There is a
great deal of competition in the petitioners' field of business, hence
such new business venture becomes unreliable and uncertain.
Thus, the possibility of success is quite uncertain, hence it is not
feasible. There is [sic] no historical reliable facts and figures for this
court to begin with for evaluation and study![26]
The Rehabilitation Court noted that there were no credible bases to determine
if the Fastech Corporations could be rehabilitated since they failed to submit
the bases for their positive financial projections due to confidentiality. [27] The
dispositive portion of its December 9, 2011 Resolution read:
WHEREFORE, premises considered, the petition is hereby DISMISSED for
unreliable facts and figures submitted for evaluation and study by this court,
hence this court could not arrive at the feasibility that petitioners could be
rehabilitated. Thus, the petition is being DISMISSED for reason that its
attachments, i.e. the financial statements and balance sheets of the
petitioners contained materially false and misleading facts and figures.
(Section 25, (b), (3) of R.A. No. 10142).
Moreover, considering that the facts and figures submitted by petitioners are
unreliable and not credible, this court could not also declare that petitioners
be placed under liquidation.
SO ORDERED.[28]
The Fastech Corporations elevated the case before the Court of Appeals by
filing a Petition for Review[29] under Rule 43 of the 1997 Rules of Civil
Procedure. The case was docketed as CA-G.R. SP No. 122836. The Fastech
Corporations prayed that a Writ of Preliminary Injunction and/or a
Temporary Restraining Order be issued.[30] They argued that their
rehabilitation was feasible and that the Rehabilitation Court erred in ruling
that they "[would] not have a better future due to their failures to meet
various restructuring plans."[31]
On January 24, 2012, the Court of Appeals issued a Temporary Restraining
Order to prevent the case from being moot and academic considering the Ex
Parte Petition for Issuance of a Writ of Possession filed by Planters Bank over
the properties of the Fastech Corporations.[32] A Writ of Preliminary Injunction
was issued by the Court of Appeals on March 22, 2012.[33]
On April 30, 2012, Atty. Bernaldo filed her Manifestation before the Court of
Appeals.[34] She maintained that the Fastech Corporations' rehabilitation was
viable as "the financial projections and procedures set forth to accomplish the
goals in their Rehabilitation Plan [were] attainable."[35]
On September 28, 2012, the Court of Appeals issued a Decision, [36] granting
the Fastech Corporations' Petition for Review, which it found to have "serve[d]
the purpose of corporate rehabilitation."[37] The rehabilitation would allow the
continued employment of its more than 100 employees and would assure
payment to creditors, which would all equally participate in the Fastech
Corporations' rehabilitation. Further, stockholders would benefit in the long
run if the Rehabilitation Plan was successful. Finally, the general public
would likewise gain considering that the Fastech Corporations would open
the Philippine market to new opportunities.[38]
The Court of Appeals ruled that the Rehabilitation Court erred in disregarding
the opinion of Atty. Bernaldo that the Fastech Corporations "may be
successfully rehabilitated."[39] The Rehabilitation Court "failed to distinguish
the difference between an adverse or negative opinion and a disclaimer or
when an auditor [could not] formulate an opinion with exactitude for lack of
sufficient data."[40]
The dispositive portion of the Court of Appeals September 28, 2012 Decision
read:
WHEREFORE, the instant petition is GRANTED. The assailed issuance
is REVERSED and SET ASIDE. The Joint Petition in SP Case No. M-7130
is REINSTATED and the Rehabilitation Plan attached thereto
is APPROVED. Respondent Planters Development Bank is
permanently ENJOINED from effecting the foreclosure of [the Fastech
Corporations'] property during the pendency of the implementation of the
Rehabilitation Plan.
The petition is REMANDED to the Regional Trial Court, National Capital
Judicial Region, Br. 149, Makati City, for its supervision in the
implementation of the Rehabilitation Plan.
SO ORDERED.[41] (Emphasis in the original)
Landbank and Planters Bank separately moved for reconsideration.
Landbank argued that the Rehabilitation Plan should not have been
approved since it would not benefit the Fastech Corporations' creditors, while
Planters Bank averred that the rehabilitation of the Fastech Corporations
could no longer be obtained.[42]
On March 5, 2013, the Court of Appeals issued a Resolution[43] denying both
motions. It added that Atty. Bernaldo's Manifestation bolstered its finding that
the rehabilitation was possible if "implemented in accordance with the
Rehabilitation Plan."[44]
On April 18, 2013, Planters Bank and its successor-in-interest, Philippine
Asset Growth Two, Inc. (PAGTI), filed a Petition for Review before this Court.
This Petition assailed the September 28, 2012 Decision and March 5, 2013
Resolution of the Court of Appeals. The case, docketed as G.R. No. 206528,
was entitled Philippine Asset Growth Two, Inc. (Successor-In-Interest of
Planters Development Bank) and Planters Development Bank v. Fastech
Synergy Philippines, Inc. (Formerly First Asia System Technology, Inc.), Fastech
Microassembly & Test, Inc., Fastech Electronique, Inc., and Fastech Properties,
Inc.[45]
On April 25, 2013, Landbank also filed a Petition for Review before this Court
against the Fastech Corporations. Petitioner likewise assails the September
28, 2012 Decision and March 5, 2013 Resolution of the Court of Appeals.[46] It
questions the correctness of the Court of Appeals' application of Republic Act
No. 10142 without considering the issues put forward by the creditors,
petitioner included.[47]
Petitioner argues that respondents' creditors raised valid issues that should
be addressed before declaring that rehabilitation was viable. [48] It maintains
that it does not agree with the period of the repayment plan, which could take
almost 20 years, or with the waiver of interest and penalties incurred prior to
the filing of rehabilitation.[49]
Petitioner points out that the Rehabilitation Receiver's opinion is subjective
and possibly partial in favor of rehabilitation. [50] There are also some concerns
which are beyond the Rehabilitation Receiver's competence and must be
directly addressed by respondents to show petitioner that they are sincere in
gaining the benefits of rehabilitation and are "not simply hiding behind its
protective mantle to evade [their] obligations."[51]
Petitioner prays that the assailed Decision and Resolution of the Court of
Appeals be modified to take its concerns into account.[52]
On October 7, 2013, respondents filed their Comment.[53] They counter that
petitioner raised questions of fact, which could not be entertained by this
Court. The resolution of petitioner's concerns would involve an examination of
the records and evidence of the case.[54] Further, petitioner did not object to
respondents' rehabilitation. Its opposition is merely on the stipulations in the
Rehabilitation Plan.[55]
On February 3, 2014, petitioner filed its Reply. [56] It reiterates that the
approval of the Rehabilitation Plan, without resolving the issues it has raised,
"violates the very essence and policy behind the enactment of the [Financial
Rehabilitation Plan and Insolvency Act]." Thus, the question on the
correctness of the rehabilitation's approval is not a question of fact but of law.
[57]
On March 12, 2014, this Court issued a Resolution,  giving due course to
the petition and requiring the parties to file their respective memoranda.
Petitioner submitted its Memorandum[58] on May 19, 2014, while respondents
submitted their Memorandum[59] on May 29, 2014. Both Memoranda
contained a rehash of their arguments in their previous pleadings.
On January 4, 2016, respondents filed their Manifestation and
Update[60] regarding their compliance with the September 28, 2012 Decision
of the Court of Appeals. They report that "[i]n accordance with the
Rehabilitation Plan, [respondents] had made four (4) quarterly payments with
a total amount of Thirty Five Million Four Hundred Eighty Four Thousand
Three Hundred Eighteen and Thirty Two Centavos (Php
35,484,318.32)."[61] The payment consisted of both principal and interest
payments. They also paid their non-bank creditors. These show that the
approved Rehabilitation Plan is viable.[62]
On April 1, 2016, respondents filed another Manifestation and Update,
[63]
 attaching in it the Compliance[64] submitted by Atty. Bernaldo.
Respondents emphasize the conclusion of Atty. Bernaldo that respondents
"generally performed better than the projections in the approved rehabilitation
plan."[65]
On November 25, 2016, PAGTI and Planters Bank filed their Manifestation,
[66]
 stating that this Court already issued a Decision on June 28, 2016 in G.R.
No. 206528. This Court granted PAGTI and Planters Bank's petition and
reversed the September 28, 2012 Decision and March 5, 2013 Resolution of
the Court of Appeals in CA-G.R. SP No. 122836.[67]
On June 16, 2017, PAGTI and Planters Bank filed another Manifestation,
[68]
 stating that this Court's June 28, 2016 Decision in G.R. No. 206528
became final and executory on March 17, 2017.[69]
Thus, this Court resolves the issue of whether the Court of Appeals erred in
approving the Rehabilitation Plan of respondents.
The sole issue raised by petitioner has already been ruled upon by this Court.
One (1) of the issues resolved in G.R. No. 206528 was whether the
rehabilitation of respondents was feasible. This Court found that
rehabilitation was not possible and thoroughly explained:
II.
Rehabilitation is statutorily defined under Republic Act No. 10142, otherwise
known as the "Financial Rehabilitation and Insolvency Act of 2010" (FRIA), as
follows:
Section 4. Definition of Terms. — As used in this Act, the term:
....
(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. (Emphasis supplied)
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. Thus, the
basic issues in rehabilitation proceedings concern the viability and desirability
of continuing the business operations of the distressed corporation, all with a
view of effectively restoring it to a state of solvency or to its former healthy
financial condition through the adoption of a rehabilitation plan.
III.
In the present case, however, the Rehabilitation Plan failed to comply with the
minimum requirements, i.e.: (a)  material financial commitments to support
the rehabilitation plan; and (b) a proper liquidation analysis, under Section
18, Rule 3 of the 2008 Rules of Procedure on Corporate Rehabilitation 80
(Rules), which Rules were in force at the time respondents' rehabilitation
petition was filed on April 8, 2011:
Section 18. 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 such as, but not limited, to the non-impairment of their
security liens or interests; (c) the material financial commitments to
support the rehabilitation plan; (d) the means for the execution of the
rehabilitation plan, which may include debt to equity conversion,
restructuring of the debts, dacion en pago  or sale or exchange or any
disposition of assets or of the interest of shareholders, partners or members;
(e) a liquidation analysis setting out for each creditor that the present
value of payments it would receive under the plan is more than that
which it would receive if the assets of the debtor were sold by a
liquidator within a six-month period from the estimated date of filing of
the petition; and (f) such other relevant information to enable a reasonable
investor to make an informed decision on the feasibility of the rehabilitation
plan. (Emphases supplied)
The Court expounds.
A. Lack of Material Financial Commitment
to Support the Rehabilitation Plan.
A material financial commitment becomes significant in gauging the resolve,
determination, earnestness, and good faith of the distressed corporation in
financing the proposed rehabilitation plan. This commitment may include
the voluntary undertakings of the stockholders or the would-be investors of
the debtor-corporation indicating their readiness, willingness, and ability to
contribute funds or property to guarantee the continued successful
operation of the debtor-corporation during the period of rehabilitation.
In this case, respondents' Chief Operating Officer, Primo D. Mateo, Jr., in his
executed Affidavit of General Financial Condition dated April 8, 2011, averred
that respondents will not require the infusion of additional capital as he,
instead, proposed to have all accrued penalties, charges, and interests
waived, and a reduced interest rate prospectively applied to all respondents'
obligations, in addition to the implementation of a two (2)-year grace period.
Thus, there appears to be no concrete plan to build on respondents'
beleaguered financial position through substantial investments as the plan
for rehabilitation appears to be pegged merely on financial reprieves.
Anathema to the true purpose of rehabilitation, a distressed corporation
cannot be restored to its former position of successful operation and regain
solvency by the sole strategy of delaying payments/waiving accrued interests
and penalties at the expense of the creditors.
The Court also notes that while respondents have substantial total assets, a
large portion of the assets of Fastech Synergy and Fastech Properties is
comprised of noncurrent assets, such as advances to affiliates which include
Fastech Microassembly, and investment properties which form part of the
common assets of Fastech Properties, Fastech Electronique, and Fastech
Microassembly. Moreover, while there is a claim that unnamed customers
have made investments by way of consigning production equipment, and
advancing money to fund procurement of various equipment intended to
increase production capacity, this can hardly be construed as a material
financial commitment which would inspire confidence that the rehabilitation
would turn out to be successful. Case law holds that nothing short of legally
binding investment commitment/s from third parties is required to qualify as
a material financial commitment. Here, no such binding investment was
presented.
B. Lack of Liquidation Analysis.
Respondents likewise failed to include any liquidation analysis in their
Rehabilitation Plan. The total liquidation assets and the estimated liquidation
return to the creditors, as well as the fair market value vis-a-vis the forced
liquidation value of the fixed assets were not shown. As such, the Court could
not ascertain if the petitioning debtor's 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. This is a crucial factor
in a corporate rehabilitation case, which the CA, unfortunately, failed to
address.
 C. Effect of Non-Compliance.

The failure of the Rehabilitation Plan to state any material financial In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining,
commitment to support rehabilitation, as well as to include a liquidation Inc., the Court took note of the characteristics of an economically feasible
analysis, renders the CA's considerations for approving the rehabilitation plan as opposed to an infeasible rehabilitation plan.
same, i.e.,  that: (a) respondents would be able to meet their obligations to
their creditors within their operating cash profits and other assets without Professor Stephanie V. Gomez of the University of the Philippines College of
disrupting their business operations; (b) the Rehabilitation Receiver's Law suggests specific characteristics of an economically feasible rehabilitation
opinion carries great weight; and (c)  rehabilitation will be beneficial for plan.
respondents' creditors, employees, stockholders, and the economy, as
actually unsubstantiated, and hence, insufficient to decree the feasibility of a. The debtor has assets that can generate more cash if used in its daily
respondents' rehabilitation. It is well to emphasize that the remedy of operations than if sold.
rehabilitation should be denied to corporations that do not qualify under the
b. Liquidity issues can be addressed by a practicable business plan  that will
Rules. Neither should it be allowed to corporations whose sole purpose is to
generate enough cash to sustain daily operations.
delay the enforcement of any of the rights of the creditors.
c. The debtor has a definite source of financing for the proper and full
Even if the Court were to set aside the failure of the Rehabilitation Plan to
implementation of a Rehabilitation Plan that is anchored on realistic
comply with the fundamental requisites of material financial commitment to
assumptions and goals.
support the rehabilitation and an accompanying liquidation analysis, a review
of the financial documents presented by respondents fails to convince the
Court of the feasibility of the proposed plan.
These requirements put emphasis on liquidity: the cash flow that the
IV.
distressed corporation will obtain from rehabilitating its assets and
The test in evaluating the economic feasibility of the plan was laid down operations. A corporation's assets may be more than its current liabilities, but
in Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation (Bank of some assets may be in the form of land or capital equipment, such as
the Philippine Islands),  to wit; machinery or vessels. Rehabilitation sees to it that these assets generate more
value if used efficiently rather than if liquidated.
In order to determine the feasibility of a proposed rehabilitation plan, it is
imperative that a thorough examination and analysis of the distressed On the other hand, this court enumerated the characteristics of a
corporation's financial data must be conducted. If the results of such rehabilitation plan that is infeasible:
examination and analysis show that there is a real opportunity to rehabilitate
the corporation in view of the assumptions made and financial goals stated in (a) the absence of a sound and workable business plan;
the proposed rehabilitation plan, then it may be said that a rehabilitation is (b) baseless and unexplained assumptions, targets and goals;
feasible. In this accord, the rehabilitation court should not hesitate to allow
the corporation to operate as an on-going concern, albeit under the terms and (c) speculative capital infusion or complete lack thereof for the execution of
conditions stated in the approved rehabilitation plan. On the other hand, if the business plan;
the results of the financial examination and analysis clearly indicate that
there lies no reasonable probability that the distressed corporation could be (d) cash flow cannot sustain daily operations; and
revived and that liquidation would, in fact, better subserve the interests of its (e) negative net worth and the assets are near full depreciation or fully
stakeholders, then it may be said that a rehabilitation would not be feasible. depreciated.
In such case, the rehabilitation court may convert the proceedings into one
for liquidation.
In addition to the tests of economic feasibility,  Professor Stephanie V. Gomez
also suggests that the Financial and Rehabilitation and Insolvency Act of
2010 emphasizes on rehabilitation that provides for better present value
recovery  for its creditors.
Present value recovery acknowledges that, in order to pave way for
rehabilitation, the creditor will not be paid by the debtor when the credit falls
due. The court may order a suspension of payments to set a rehabilitation
plan in motion; in the meantime, the creditor remains unpaid. By the time
the creditor is paid, the financial and economic conditions will have been
changed. Money paid in the past has a different value in the future. It is
unfair if the creditor merely receives the face value of the debt. Present value
of the credit takes into account the interest that the amount of money would
have earned if the creditor were paid on time.
Trial courts must ensure that the projected cash flow from a business'
rehabilitation plan allows for the closest present value recovery for its
creditors. If the projected cash flow is realistic and allows the corporation to
meet all its obligations, then courts should favor rehabilitation over
liquidation. However, if the projected cash flow is unrealistic, then courts
should consider converting the proceedings into that for liquidation to protect
the creditors.
A perusal of the 2009 audited financial statements shows that respondents'
cash operating position was not even enough to meet their maturing
obligations. Notably, their current assets were materially lower than their
current liabilities, and consisted mostly of advances to related parties in the
case of Fastech Microassembly, Fastech Electronique, and Fastech
Properties. Moreover, the independent auditors recognized the absence of
available historical or reliable market information to support the assumptions
made by the management to determine the recoverable amount (value in use)
of respondents' properties and equipment.
On the other hand, respondents' unaudited financial statements for the year
2010, and the months of February and March 2011 were unaccompanied by
any notes or explanation on how the figures were arrived at. Besides,
respondents' cash operating position remained insufficient to meet their
maturing obligations as their current assets are still substantially lower than
their current liabilities. The Court also notes the RTC-Makati's observation
that respondents added new accounts and/or deleted/omitted certain
accounts, but failed to explain or justify the same.
Verily, respondents' Rehabilitation Plan should have shown that they have
enough serviceable assets to be able to continue its business operation. In
fact, as opposed to this objective, the revised Rehabilitation Plan still requires
"front load Capex spending" to replace common equipment and facility
equipment to ensure sustainability of capacity and capacity robustness, thus,
further sacrificing respondents' cash flow. In addition, the Court is hard-
pressed to see the effects of the outcome of the streamlining of respondents'
manufacturing operations on the carrying value of their existing properties
and equipment.
In fine, the Rehabilitation Plan and the financial documents submitted in
support thereof fail to show the feasibility of rehabilitating respondents'
business.
V.
The CA's reliance on the expertise of the court-appointed Rehabilitation
Receiver, who opined that respondents' rehabilitation is viable, in order to
justify its finding that the financial statements submitted were reliable,
overlooks the fact that the determination of the validity and the approval of
the rehabilitation plan is not the responsibility of the rehabilitation receiver,
but remains the function of the court. The rehabilitation receiver's
duty prior  to the court's approval of the plan is to study the best way to
rehabilitate the debtor, and to ensure that the value of the debtor's properties
is reasonably maintained; and after  approval, to implement the
rehabilitation plan. Notwithstanding the credentials of the court-appointed
rehabilitation receiver, the duty to determine the feasibility of the
rehabilitation of the debtor rests with the court. While the court may consider
the receiver's report favorably recommending the debtor's rehabilitation, it is
not bound thereby if, in its judgment, the debtor's rehabilitation is not
feasible.
The purpose of rehabilitation proceedings is not only to enable the company
to gain a new lease on life, but also to allow creditors to be paid their claims
from its earnings when so rehabilitated. Hence, the remedy must be accorded
only after a judicious regard of all stakeholders' interests; it is not a one-sided
tool that may be graciously invoked to escape every position of distress. Thus,
the remedy of rehabilitation should be denied to corporations whose
insolvency appears to be irreversible and whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered obvious
by: (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, as in
this case.
VI.
In view of all the foregoing, the Court is therefore constrained to grant the
instant petition, notwithstanding the preliminary technical error as above-
discussed. A distressed corporation should not be rehabilitated when the
results of the financial examination and analysis clearly indicate that there
lies no reasonable probability that it may be revived, to the detriment of its
numerous stakeholders which include not only the corporation's creditors
but also the public at large. In Bank of the Philippine Islands;
Recognizing the volatile nature of every business, the rules on corporate
rehabilitation have been crafted in order to give companies sufficient leeway to
deal with debilitating financial predicaments in the hope of restoring or
reaching a sustainable operating form if only to best accommodate the
various interests of all its stakeholders, may it be the corporation's
stockholders, its creditors, and even the general public.
Thus, the higher interest of substantial justice will be better subserved by the
reversal of the CA Decision. Since the rehabilitation petition should not have
been granted in the first place, it is of no moment that the Rehabilitation Plan
is currently under implementation. While payments in accordance with the
Rehabilitation Plan were already made, the same were only possible because
of the financial reprieves and protracted payment schedule accorded to
respondents, which, as above-intimated, only works at the expense of the
creditors and ultimately, do not meet the true purpose of rehabilitation.
[70]
 (Emphasis in the original, citations omitted)
The dispositive portion of the June 28, 2016 Decision in G.R. No. 206528
read:
WHEREFORE, the petition is GRANTED. The Decision dated September
28, 2012 and the Resolution dated March 5, 2013 of the Court of Appeals in
CA-G.R. SP No. 122836 are hereby REVERSED and SET ASIDE.
Accordingly, the Joint Petition for corporate rehabilitation filed by respondents
Fastech Synergy Philippines, Inc. (formerly First Asia System Technology,
Inc.), Fastech Microassembly & Test, Inc., Fastech Electronique, Inc., and
Fastech Properties, Inc., before the Regional Trial Court of Makati City,
Branch 149 in SP Case No. M-7130 is DISMISSED.
SO ORDERED.[71]
This Court arrived at the above conclusion after a careful scrutiny of the case
records. The decision is comprehensive enough that to rule on the issue
raised by petitioner will be futile and is a waste of this Court's time and
resources. Moreover, petitioner did not advance any other issue that could
have been resolved by this Court. Therefore, with the promulgation of the
June 28, 2016 Decision in G.R. No. 206528, the present case has been
rendered moot and academic.
In Timbol v. Commission on Elections:[72]
A case is moot and academic if it "ceases to present a justiciable controversy
because of supervening events so that a declaration thereon would be of no
practical use or value." When a case is moot and academic, this court
generally declines jurisdiction over it.
There are recognized exceptions to this rule. This court has taken cognizance
of moot and academic cases when:
(1) there was a grave violation of the Constitution; (2) the case involved a
situation of exceptional character and was of paramount public interest; (3)
the issues raised required the formulation of controlling principles to guide
the Bench, the Bar and the public; and (4) the case was capable of repetition
yet evading review.[73] (Citations omitted)
In Republic v. Moldex Realty, Inc.:[74]
A case becomes moot and academic when, by virtue of supervening events,
the conflicting issue that may be resolved by the court ceases to exist. There
is no longer any justiciable controversy that may be resolved by the court.
This court refuses to render advisory opinions and resolve issues that would
provide no practical use or value. Thus, courts generally "decline jurisdiction
over such case or dismiss it on ground of mootness."[75]
This Court is generally constrained to rule upon moot and academic cases
since "[our] power of judicial review is limited to actual cases and
controversies"[76] under Article VIII, Section 1 of the Constitution; thus:
ARTICLE VIII
Judicial Department
SECTION 1. The judicial power shall be vested in one Supreme Court and in
such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable and enforceable,
and to determine whether or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.

An actual case or controversy exists "when the case presents conflicting or

opposite legal rights that may be resolved by the court in a judicial
proceeding."[77] Courts will not decide a case unless there is "a real and
substantial controversy admitting of specific relief."[78]

WHEREFORE, the Petition for Review is DENIED for being moot and

academic.

SO ORDERED.
 G.R. No. 224764
BUREAU OF INTERNAL REVENUE, ASSISTANT COMMISSIONER
ALFREDO V. MISAJON, GROUP SUPERVISOR ROLANDO M. BALBIDO,
and EXAMINER REYNANTE DP. MARTIREZ, Petitioners,
vs.
LEPANTO CERAMICS, INC., Respondent.
DECISION
PERLAS-BERNABE,, J.:
This is a direct recourse to the Court from the Regional Trial Court (RTC) of
Calamba City, Province of Laguna, Branch 35 (RTC Br. 35), through a
petition for review on certiorari,  1 raising a pure question of law. In
particular, petitioners Bureau of Internal Revenue (BIR), Assistant
Commissioner Alfredo V. Misajon (Misajon), Group Supervisor Rolando M.
Balbido (Balbido ), and Examiner Reynante DP. Martirez (Martirez;
collectively, petitioners) assail the Decision2 dated June 1, 2015 and the
Order3 dated October 26, 2015 of the RTC Br. 35 in Civil Case No. 4813-
2014-C, which found Misajon, Balbido, and Martirez (Misajon, et al.) guilty
of indirect contempt and, accordingly, ordered them to pay a fine of
₱5,000.00 each.
The Facts
On December 23, 2011, respondent Lepanto Ceramics, Inc. (LCI) - a
corporation duly organized and existing under Philippine Laws with principal
office address in Calamba City, Laguna - filed a petition 4 for corporate
rehabilitation pursuant to Republic Act No. (RA) 10142, 5 otherwise known
as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010," docketed
before the RTC ofCalamba City, Branch 34, the designated Special
Commercial Court in Laguna (Rehabilitation Court). Essentially, LCI alleged
that due to the financial difficulties it has been experiencing dating back to
the Asian financial crisis, it 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 ₱4,213 ,682, 715. 00 far exceed its total assets worth
₱1,112,723,941.00. Notably, LCI admitted in the annexes attached to the
aforesaid Petition its tax liabilities to the national government in the amount
of at least ₱6,355,368.00.6
On January 13, 2012, the Rehabilitation Court issued a Commencement
Order,7 which, inter alia: (a)  declared LCI to be under corporate
rehabilitation; (b) suspended all actions or proceedings, in court or
otherwise, for the enforcement of claims against LCI; (c) prohibited LCI from
making any payment of its liabilities outstanding as of even date, except as
may be provided under RA 10142; and (d) directed the BIR to file and serve
on LCI its comment or opposition to the petition, or its claims against
LCI. 8 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.9
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 10 dated May 27, 2013,
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 in connection therewith. Undaunted, the BIR sent LCI
a Formal Letter of Demand 11 dated May 9, 2014, requiring LCI to pay
deficiency taxes in the amount of P567,519,348.39. 12 This prompted LCI to
file a petition 13 for indirect contempt dated August 13, 2014 against
petitioners before RTC Br. 35. In said petition, LCI asserted that petitioners'
act of pursuing the BIR's claims for deficiency taxes against LCI outside of the
pending rehabilitation proceedings in spite of the Commencement Order
issued by the Rehabilitation Court is a clear defiance of the aforesaid Order.
As such, petitioners must be cited for indirect contempt in accordance with
Rule 71 of the Rules of Court in relation to Section 16 of RA 10142.14
For their part, petitioners maintained that: (a) 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 whether or not such Order was defied; (b) the instant petition
had already been mooted by the Rehabilitation Court's Order15 dated August
28, 2014 which declared LCI to have been successfully rehabilitated resulting
in the termination of the corporate rehabilitation proceedings; (c) their acts
do not amount to a defiance of the Commencement Order as it was done
merely to toll the prescriptive period in collecting deficiency taxes, and thus,
sanctioned by the Rules of Procedure of the FRIA; (d) 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; and (e)  the indirect contempt proceedings interferes with the
exercise of their functions to collect taxes due to the govemment.16
The RTC Br. 35 Ruling
In a Decision17 dated June 1, 2015, the RTC Br. 35 found Misajon, et
al. guilty of indirect contempt and, accordingly, ordered them to pay a fine of
₱5,000.00 each. 18 Preliminarily, the RTC Br. 35 ruled that it has jurisdiction
over LCI's petition for indirect contempt as it is docketed, heard, and decided
separately from the principal action. 19 Going to petitioners' other
contentions, the RTC found that: (a)  the supervening termination of the
rehabilitation proceedings and the consequent lifting of the Commencement
Order did not render moot the petition for indirect contempt as the acts
complained of were already consummated; (b) petitioners' acts 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 clear defiance of the
Commencement Order; and (c)  petitioners could have tolled the prescriptive
period to collect deficiency taxes without violating the Commencement Order
by simply ventilating their claim before the rehabilitation proceedings, which
they were adequately notified of. In this relation, the RTC Br. 35 held that
while the BIR is a juridical entity which can only act through its authorized
intermediaries, it cannot be concluded that it authorized the latter to commit
the contumacious acts complained of, i.e., defiance of the Commencement
Order. Thus, absent any contrary evidence, only those individuals who
performed such acts, namely, Misajon, et al., should be cited for indirect
contempt of court.20
Aggrieved, Misaj on, et al. moved for reconsideration, 21 which was, however,
denied in an Order22 dated October 26, 2015; hence, this petition.
The Issue Before the Court
The issue for the Court's resolution is whether or not the RTC Br. 35 correctly
found Misajon, et al.  to have defied the Commencement Order and,
accordingly, cited them for indirect contempt.
The Court's Ruling
The petition is without merit.
Section 4 (gg) of RA 10142 states:
Section 4. Definition of Terms.  - As used in this Act, the term:
xxxx
(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.
xxxx
"[C]ase law has defined corporate rehabilitation as 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."23
Verily, the inherent purpose of rehabilitation is to find ways and means to
minimize the expenses of the distressed corporation during the rehabilitation
period by providing the best possible framework for the corporation to
gradually regain or achieve a sustainable operating form. 24 "[It] enable[s] the
company to gain a new lease in life and thereby allow creditors to be paid
[t]heir claims from its earnings. Thus, rehabilitation shall be undertaken
when it is shown that the continued operation of the corporation is
economically more feasible and its creditors can recover, by way of the
present value of payments projected in the plan, more, if the corporation
continues as a going concern than if it is immediately liquidate d.25
In order to achieve such objectives, 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.26 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; (1) all
claims of the government, whether national or local, including taxes,
tariffs and customs duties; and (2) 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."27
To clarify, however, 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 the proceedings, keeping
in mind the general policy of the law "to ensure or maintain certainty and
predictability in commercial affairs, preserve and maximize the value of the
assets of these debtors, recognize creditor rights and respect priority of
claims, and ensure equitable treatment of creditors who are similarly
situated."28 In other words, the creditors must ventilate their claims before
the rehabilitation court, and any "[a]ttempts to seek legal or other resource
against the distressed corporation shall be sufficient to support a finding of
indirect contempt of court."29
Commencement Order. In sum, it was improper for Misajon, et al. to collect,
or even attempt to collect, deficiency taxes from LCI outside of the
rehabilitation proceedings concerning the latter, and in the process, willfully
disregard the Commencement Order lawfully issued by the Rehabilitation
Court. Hence, the RTC Br. 35 correctly cited them for indirect contempt.35

In the case at bar, it is undisputed that LCI filed a petition for corporate WHEREFORE, the petition is DENIED. The Decision dated June 1, 2015
rehabilitation. Finding the same to be sufficient in form and substance, the and the Order dated October 26, 2015 of the Regional Trial Court of Calamba
Rehabilitation Court issued a Commencement Order30 dated January 13, City, Province of Laguna, Branch 35 in Civil Case No. 4813-2014- C are
2012 which, inter alia: (a) declared LCI to be under corporate rehabilitation; hereby AFFIRMED.
(b) suspended all actions or proceedings, in court or otherwise, for the
enforcement of claims against LCI; (c) prohibited LCI from making any SO ORDERED.
payment of its outstanding liabilities as of even date, except as may be
provided under RA 10142; and (d) directed the BIR to file and serve on LCI its
comment or opposition to the petition, or its claims against LCI. It is likewise
undisputed that the BIR - personally and by publication - was notified of the
rehabilitation proceedings involving LCI and the issuance of the
Commencement Order related thereto. Despite the foregoing, the BIR,
through Misajon, et al.,  still opted to send LCI: (a) a notice of informal
conference31 dated May 27, 2013, informing the latter of its deficiency
internal tax liabilities for the Fiscal Year ending June 30, 2010; and (b) a
Formal Letter of Demand32 dated May 9, 2014, requiring LCI to pay
deficiency taxes in the amount of P567,5 l 9,348.39, notwithstanding the
written reminder coming from LCI's court-appointed receiver of the pendency
of rehabilitation proceedings concerning LCI and the issuance of a
commencement order. Notably, 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,33 - 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.

Petitioners' insistence that: (a) Misajon, et al.  only performed such acts to toll
the prescriptive period for the collection of deficiency taxes; and (b) to cite
them in indirect contempt would unduly interfere with their function of
collecting taxes due to the government, cannot be given any credence. As
aptly put by the RTC Br. 35, they could have easily tolled the running of such
prescriptive period, and at the same time, perform their functions as officers
of the BIR, without defying the Commencement Order and without violating
the laudable purpose of RA 10142 by simply ventilating their claim before the
Rehabilitation Court.34 After all, they were adequately notified of the LCI's
corporate rehabilitation and the issuance of the corresponding