BPI FAMILY SAVINGS v.
ST MICHAEL MEDICAL CENTER The failure of the rehabilitation to set forth the said items means that
SPOUSES RODIL – owner of St. Michael Hospital; sole proprietor
• Purchased 2 parcels of land, incorporated SMMCI
o They planned to eventually consolidate St.
Michael Hospital’s operations
• SMMCI – loaned 35M from BPI to finance costs of
construction of the new hospital building (building
estimated to cost 100M)
o Secured by a REM over 3 parcels of land
belonging to Sps. Rodil
• SMMCI and Sps. Rodil agreed to be co-borrowers on the
loan, executed & signed a promissory note
• BPI – filed for foreclosure; auction sale was postponed
• 2010 – SMMCI filed a petition for Corporate Rehabilitation
• SMMCI claims:
o Had to defer construction due to problems with
contractor and rise of cost of materials
o More than 66M had been spent for the
construction; amount came from personal funs
of Sps. Rodil and/or income generated by St.
Michael
§ Since SMMCI was neither operational
nor earning revenues, it can only pay
interest on the BPI family loan
o St. Michael was saddled with the burden of
paying the loan obligation to BPI
• SMMCI sought to defer foreclosure and agree to a
moratorium of at least 2 years
• RTC: approved rehabilitation plan – ordered 5 year
moratorium, restructuring and payment of obligations,
programmed spending, use of fresh capital
• CA: affirmed RTC
ISSUE: W/N CA correctly affirmed SMMCI’s Rehabilitation Plan
HELD:
Rehabilitation assumes that the corporation has been operational but
for some reasons had become distressed or insolvent. In this case it
cannot be said that SMMCI had been in a position of successful
operation and solvency at the time the Rehabilitation Petition was
filed. SMMCI admits that it has not formally operated nor earned any
income since its incorporation – This means that THERE IS NO
VIABLE BUSINESS TO BE RESTORED – REMEDY OF
REHABILITATION IS IMPROPER.
SMMCI did not comply with the form and substance of a proper
rehabilitation petition – did not submit the required financial
statements. While SMMCI claims that it would absorb St. Michael’s
operations – there was no evidence that a merger was already
agreed upon. The petition should not have been given due course.
SMMCI failed to comply with the fundamental requisites of a
MATERIAL FINANCIAL COMMITMENT TO SUPPORT THE
REHABILITATION PLAN AND A LIQUIDATION ANALYSIS.
§ Material financial commitment – includes 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 CONTINUES SUCCESSFUL OPERATION OF THE
DEBTOR CORPORATION DURING THE PERIOD OF
REHABILITATION
§ Liquidation analysis – With no SMMCI financial statement
of record, it is unclear to the Court what assets it
possesses in order to determine the values to be derived if
liquidation had to be had. This prevents the court from
ascertaining if the petitioning debtor’s creditors can
recover by way of present value of payments projected in
the plan, more if the debtor continues as going concern
than if its immediately liquidated.
the Rehabilitation Plan was unsubstantiated – insufficient to decree
SMMCI’s rehabilitation
Not only has the petitioning debtor failed to show that it has formally
began its operations, but also it has failed to show compliance with
the key requirements under the Rules
WONDER BOOK CORP. v. PH BANK OF COMMUNICATIONS
Wonder book – domestic corp, engaged in business of retailing
books and school and office supplies and other related items
§ Together with 8 other corporations, collectively known as
Limtong Group of Companies (LGC) – filed a petition for
rehabilitation
o Approved
Wonder book filed its own petition for rehabilitation because of:
§ High interest rates and charges imposed by creditors
§ Low demand for gift items and greeting cards due to
cellular phones and economic recession
§ Competition posed by other stores
§ Fire that destroyed its inventories worth 246M, insured but
not yet collected
PBCOM filed opposition
§ Wonder Book is insolvent and cannot be rehabilitated
§ No guaranty that the insurance claim will be paid
§ Sales and marketing plan does not discuss how sales and
marketing will be carried out that strategies might not
produce profits
RTC: approved plan; PBCOM filed petition for review
CA: granted petition for review
§ Total assets of Wonderbook is 144.9M while liabilities
totaled to 306M – Wonderbook was in terrible financial
condition; it has 2.11 pesos debt for every peso of asset
ISSUE: W/N the CA was correct in dismissing
HELD:
Yes, Rehabilitation is not the proper remedy for Wonder Book’s dire
financial condition. Rehabilitation contemplates a continuance of
corporate life in an effort to restore and reinstate it to its former
position of successful operation. Rehabilitation is available to a
corporation who, while illiquid, has assets that can generate more
cash if used in its daily operations than sold.
§ Liquidity issues can be addressed by a practicable
business plan
This remedy should be denied to corporations whose insolvency
seems to be irreversible and whose sole purpose is to delay the
enforcement of any rights of the creditors which is obvious in the
following:
§ Absence of (sound and workable) business plan
§ Baseless assumptions
§ Speculative capital infusion or complete lack thereof for
the execution of business plan
§ Cash flow cannot sustain daily operations
§ Negative net worth and assets near full depreciation
Wonder book financial statues:
1. Assets 144M; liabilities 306M
2. 72% of current assets turnover rate is 73 days; cannot be
relied on for quick cash flow
3. 77% of current assets comprised of deferred tax assets –
may only be used to decrease tax liability not increase of
capital
 4. Property and equipment only 2% of non-current assets
a. Consist largely of personal properties – certain to
depreciate over time
VIVA SHIPPING LINES v. KEPPEL PH MARINE
Viva Shipping lines filed a petition for CORPORATE
REHABILITATION before the RTC of Lucena City
In its amended petition –
§ Viva claimed to own and operate 19 maritime vessels and
Ocean Palace Mall
§ Total properties’ assessed value at about 45M
These allegations were contrary to the attached documents
§ Only 2 maritime vessels
§ FMV or assets amounted to 447M
§ Some properties already encumbered
§ Only 147M were free assets
§ Declared debts amounting to 220M
Viva stated that –
§ Devaluation of peso
§ Increased competition
§ Mismanagement of business
Made it difficult to pay its debts as they become due.
RTC: found petition sufficient in form and substance
October 2006 – RTC lifted the stay order and dismissed the amended
petition for failure to show the company’s viability and feasibility
of rehabilitation
CA: dismissed Viva’s petition for review –
§ Viva failed to implead its creditors as respondents
§ Impleaded only the presiding judge
§ Did not serve a copy of the petition to its former employees
or their counsels
ISSUE: Whether the denial of the petition for review was proper
HELD:
When rehabilitation will not result in a better value recovery for the
creditors, the more appropriate remedy is liquidation. Liquidation is
diametrically opposed to rehabilitation. Both cannot be undertaken at
the same time. In liquidation, corporations preserve their assets in
order to sell them. The proceeds of the sale are distributed equitable
among creditors, and surplus is divided or losses are re-allocated.
Since the RTC acted on Viva’s amended petition before FRIA was
enacted, PD 902-A and the Interim Rules of Procedure on Corporate
Rehabilitation were applied to this case.
The RTC already observed the liberality contemplated by the Interim
Rules. Viva was not penalized for its non-compliance with the court’s
order to produce relevant documents. On appeal, Viva still did not
comply with some of the requirements. The CA correctly dismissed
Viva’s petition as a consequence of non-compliance with procedural
rules.
A corporate rehabilitation cannot be decided without the creditors’
participation. The courts will not be able to balance the interests if
the creditors are not parties to the case. Liberality in corporate
rehabilitation generally refers to the trial court and not to the
proceedings before the appellate court.
The RTC correctly dismissed the amended petition for corporate
rehabilitation – finding that rehabilitation is no longer viable for Viva.
Proceedings are deemed terminated upon the trial court’s
disapproval of a rehabilitation plan.
FRIA emphasizes on rehabilitation that provides for better present
value recovery for its creditors. It is unfair if the creditor merely
receives the face value of the debt. Present value takes into account
the interest that the amount of money would have earned.
AO-AS v. CA
Ao-As group filed for accounting and damages with prayer for
preliminary injunction and appointment of a management committee
– it strongly pointed to evidence, which clearly showed dissipation,
wastage and loss of LCP funds and assets:
§ Anomaly concerning the sale of the land and the purchase
of another land in La Trinidad
o Proceeds were unliquidated
§ Unliquidated cash advances and unaccounted funds
§ Purchase of Leyte Land in the name of respondent
Saquilayan with LCP funds
§ Severance of partner0church relationship between the LCP
and the Lutheran Church
§ Taking of LCP Books of Account
o Respondnet Batong, members of the LCP Board
and about 15 armed guards barged into the
premises of the LCP in Sta. Mesa Manila and
removed all official records and documents of
LCP
SEC –
Sept: 1992: issued an order creating a management committee
Oct 1992: ordered issuance of a writ of preliminary injunction
prohibiting the Batong group from acting as board of directors or
officers of LCP & from holding any convention or membership
meeting as well as election of members of the board.
The Batong group alleges that the management committee carried
out ultra vires acts.
ISSUE: W/N the creation of a management committee is warranted
HELD:
No, all the grounds relied upon pertain to past delinquencies for
which there are other available remedies such as accounting and
reconveyance.
The Ao-As group did not allege any present or imminent loss or
destruction of LSP properties and assets. It merely expresses a
general apprehension for possible mismanagement by respondent on
the basis of the past transactions.
WHERE THE CORPORATION IS SOLVENT, A RECEIVER WILL
NOT BE APPOINTED BECAUSE OF PAST MISCONDUCT AND
APPREHENSION OF A FUTURE MISDOING – WHERE THE
PRESENT SITUATION AND THE PROSPECTS FOR THE FUTURE
ARE NOT SUCH AS TO WARRANT A RECEIVERSHIP
A management committee should not be created when there was an
adequate remedy available to private respondents for the liquidation
of unaccounted funds. Refusal to allow stockholders to examine
books of the company is not a ground for appointing a receiver since
there are other adequate remedies, such as a writ of mandamus.
Appointment of a receiver for a going corporation is a last remedy
and should not be employed when another remedy is available.
LINGKOD MANGGAGAWA SA RUBBERWORLD v.
RUBBERWORLD PH
Lingkod Manggagawa (LM) – labor union; employees of Rubberworld
PH
August 1994: Rubberworld filed with DOLE a notice of temporary
partial shutdown due to severe financial crisis – announcing
actual shutdown to take effect on September 1994
KM filed a complaint for ULP, illegal shutdown and non-payment of
salaries & separation pay
While the complaint was pending with the Labor Arbiter
§ Rubberworld filed with the SEC a petition for declaration
of a state of suspension of payments with proposed
rehabilitation plan
§ Granted
§ Notwithstanding the grant, Labor Arbiter went ahead with
the ULP case and rendered his decision in favor of the
union
Rubberworld appealed to the NLRC
§ Posted appeal bond of 500K but the bond was fixed at
27.5M
o Despite opposition, the NLRC required the
corporation to upgrade its bond
o With a warning that failure to do so shall result in
the dismissal of its appeal for non-perfection
April 1998: SEC declared Rubberworld as dissolved and lifted its
suspension order
August 1995: a writ of execution was issued in favor of petitioner
§ Rubberworld filed an Urgent Omnibus Motion to declare
null and void the execution/garnishment made pursuant to
the writ
§ CA admitted the petition and supplement thereto
Petitioners’ arguments:
§ Decision of the Labor Arbiter, affirmatory decision of the
NLRC and the dismissal of Rubberworld’s appeal, as well
as writ of execution – can no longer be annulled – final and
executory
§ No appeal from the decision of the Labor Arbiter was ever
perfected due to failure to upgrade bond
§ Hence, CA acted with grave abuse of discretion
§ It was also contended that the suspension order will not
apply because the proceedings were no longer pending as
they have attained finality by failure of respondents to
perfect an appeal
ISSUE: W/N the suspension order applies to pending proceedings in
the NLRC
HELD:
Upon the creation of a management committee, ALL CLAIMS FOR
ACTIONS SHALL BE SUSPENSED ACCORDINGLY no exception in
favor of labor claims.
The Labor Arbiter violated PD 902-A which mandates the suspension
of all actions for claims against a corporation placed under a
management committee by the SEC – thus, the proceedings before
the Labor Arbiter and the order and writ subsequently issued by the
NLRC are null and void. The decision of the Labor Arbiter & NLRC
could not have achieved a final and executory status.
NEGROS NAVIGATION v. CA
Negros Navigation Co. (NNC) – engaged in transporting through its
shipping vessels, persons and cargo within the country.
Tsuneishi Heavy Industries (THI) – builds ships and repairs
NNC engaged the services of THI for the repair of its vessels
§ NNC did not pay upon completion of the work
§ THI filed a case for collection of sum of money and
damages
o + Writ of preliminary attachment on the basis of
its repairman’s lien
RTC: ruled in favor THI – granted the attachment
§ NNC’s M/V St. Peter was levied upon by the Sheriff by
virtue of the attachment granted by the RTC Cebu
17 days after the levy, NCC filed a petition for Corporate
Rehabilitation with Prayer for Suspension of Payments (Manila
RTC)
§ Granted with a corresponding Stay Order
§ NNC filed a motion to suspend proceedings and to lift
PA
THI filed amended complaint – impleading more of the vessels to be
attached
§ RTC admitted the complaint
NNC’s receiver filed a motion for clarification to confirm if the claims
sought to be enforced are covered by the Stay Order
§ Since the law did not distinguish which claims would be
stayed, all claims are stayed
§ NNC filed a motion to suspend proceedings of Cebu RTC
§ CA: ordered suspension of the orders of the Manila RTC
ISSUE: W/N CA erred in restraining the orders of the Manila RTC
HELD:
The maritime lien of THI was not impaired by the stay order and the
rehabilitation NNC was going through
§ Rehabilitation being a process undertaken to rescue the
debtor company, necessitates that all debts be first
suspended to give way to rehabilitation
§ The preferred status of the maritime lien is not diminished,
it is merely suspended during the rehabilitation
proceedings
There is no error since no conflict arises between the law on the
maritime lien and the law on rehabilitation of companies
§ The Manila RTC merely suspended the proceedings of the
admiralty case in Cebu – it did not divest the RTC of Cebu
of its jurisdiction –Maritime lien may still be enforced upon
the termination of rehabilitation
THI’s argument is without merit since it cited cases upholding the
preference of maritime liens in cases of bankruptcy and
reorganization – which is not the case in rehabilitation
§ Allowing enforcement of the lien while rehabilitation is
ongoing is in direct violation of PD 902-A
GARCIA v. PAL
Dumago & Garcia – ees of PAL assigned in PAL Technical Center
§ 1995 – Pal Security & NBI raided the Toolroom of PAL
Technical Center – found petitioners, with 4 others
§ They found shabu inside the locker of Broas, who was also
within the vicinity
§ 6 ees were brought to the NBI – charged administratively
Petitioners denied the allegations
§ Dumago – he was there to request for an allen wrench
§ Garcia – he was there to inquire where he can take a tire
for vulcanizing
o Both were dismissed
§ Filed a case for illegal dismissal and
damages
SEC placed PAL under an Interim Rehabilitation Receiver due to
severe financial losses
Labor Arbiter – ruled in favor of petitioners; found respondents guilty
of illegal dismissal and ordered them to reinstate complainants and
pay backwages and damages
NLRC – reversed LA; dismissed the case for lack of merit

LA issued a writ of execution on the REINSTATEMENT ASPECT of
his decision and issued a notice of garnishment addressed to the
President of Allied Bank
§ PAL moved to lift the Notice of Garnishment wile
petitioners moved for the release of the garnished amount
o Writ of Execution and Notice of Garnishment
valid
o Instant action is suspended & referred to
Receiver of PAL
CA: LA issued writ of execution and the notice of garnishment
without jurisdiction
§ NLRC erred in upholding its validity
§ Since PAL was under receivership, it could not have
possible reinstated petitioners
§ Stay of execution warranted by the fact that PAL was
under rehabilitation
ISSUE: Are petitioners entitled to execution of the LA’s order? NO
Upon appointment by SEC of a rehabilitation receiver, ALL ACTIONS
FOR CLAIMS AGAINST THE CORPORATION PENDING BEFORE
ANY COURT ARE SUSPENDED
§ To enable the receiver to effectively exercise his powers
free from any judicial or extra-judicial interference
§ Suspension embraces all phases of the suit, be it before
the trial court or any tribunal
§ No action may be taken including the rendition of judgment
during the state of suspension
§ The actions that are suspended cover all claims against the
corporation – no exception in favor of labor claims
The LA, NLRC as well as CA should have abstained from resolving
petitioner’s case for illegal dismissal and should instead have
directed them before PAL’s receiver
SOBREJUANITE v. ASBDC
• Sps. Sobrejuanite filed against ASBDC before the HLURB
a complaint for:
o Rescission of contract
o Refund of payments
o Damages
• Sobrejuanite alleged that they entered into a CONTRACT
TO SELL with ASBDC over a Condominium unit and a
parking space
• Despite full payment, ABSDC failed to deliver the property
on the date agreed
• ABSDC filed a motion to dismiss or suspend proceedings
in view of the approval by the SEC of the REHABILITAION
PLAN of the ASB group of Companies
o HLURB denied the motion
• Arbiter fouund that:
o ABSDC should have delivered the property to
Sobrejuanitie in Dec 1999
o The latter had fully paid their obligations except
the 50K which should be paid upon completion
of the construction
o Rescission of the contract with damages is
proper
• HLURB Board of Commissioners: affirmed the ruling of the
arbiter – 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
o It also held that HLURB could properly take
cognizance of the case since whatever monetary
award that may be granted by it will be filed as a
claim before the rehabilitation receiver
• CA: Approval by the SEC of the rehabilitation plan and
appointment of receiver caused the suspension of the
proceedings
o Complaint for rescission and damages is a claim
under the SEC Reorganization Act or Interim
Rules of Procedure on Corporate Rehabilitation
– because it sought to enforce a pecuniary
demand, therefore:
§ Jurisdiction lies with the SEC
§ ASBDC was obliged to deliver the
property in December 1999 but its
financial reverses warranted the
extension of the period
ISSUES:
• W/N SEC has jurisdiction over the petitioner’s complaint –
YES
• W/N the corporate rehabilitation plan and appointment of
receiver had the effect of suspending the proceeding in the
HLURB – YES
• W/N CA committed reversible error in ruling that
respondent is justified in extending the date of delivery due
to financial constraints. – NO
HELD:
• Purpose of suspension: prevent a creditor from obtaining
an advantage or preference over another and to protect
and preserve rights of party litigants as well the interest of
the investing public or creditors
o Suspension is intended to give enough breathing
space for the rehabilitation receiver to make the
business viable again
o Suspension enables the rehabilitation receiver to
exercise his powers free from any judicial or
extra-judicial interference that might hinder the
rescue of the company
• It is necessary to determine whether the complaint is a
claim within the contemplation of PD 902-A
o 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. There are no
distinctions or exemptions
• Clearly then, the complaint is a claim as defined under the
Interim Rules of Procedure on Corporate Rehabilitation
o As such, HLURB arbiter should have suspended
the proceedings upon approval by the SEC of
the rehabilitation plan
o Even execution of final judgments may be held in
abeyance when a corporation is under
rehabilitation
o By allowing the proceedings to proceed, the
HLURB arbiter unwittingly gave undue
preference to Sobrejuanite over the other
creditors and claimants of ASBDC
• Finally, although ASBDC was obliged to deliver the
property to Sobrejuanite on or before December 1999., the
same was deemed extended due to the financial reverses
experienced by the company. Section 7 of the Contract to
Sell allows the developer to extend the period of delivery
on account of causes beyond its control, such as financial
reverses
MWSS v. DAWAY
Feb 1997 – MWSS granted Maynilad under a concession agreement
 § A 20 year period to manage, operate, repair,
decommission & refurbish existing MWSS water delivery &
sewerage services in the West Zone Service Area
§ To secure the concessionaire’s performance, Maynilad was
required to put up a bond, bank guarantee
o Maynilad arranged for a 3 year facility with a
number of foreign banks for the issuance of an
IRREVOCABLE STANDBY LETTER OF CREDIT
§ $120M
Maynilad then requested MWSS for a mechanism which would
recover the losses incurred and will be incurring as result of the
depreciation of the PH peso against US dollar
§ Failing to get such mechanism, Maynilad issued a Force
Majeure notice and unilaterally suspended the payment of
the concession fees
Parties entered into a MOA
§ Maynilad was allowed to recover foreign exchange losses
under a formula agreed upon
Maynilad again filed another Force Majeure Notice and since MWSS
could not agree – an amendment of the Concession Agreement was
made
November 2002: Maynilad served upon a MWSS a Ntocie of Event of
Termination
§ Claimed that MWSS failed to comply with its obligations
MWSS thereafter submitted a written notice to one of the
participating banks that by virtue of Maynilad’s failure to perform its
obligations under the Concession Agreement – it was drawing on the
Irrevocable Standby Letter of Credit – thereby demanded payment
§ Prior to this event, Maynilad filed a petition for rehabilitation
which resulted to a STAY ORDER
MWSS arguments:
§ Letter of credit and performance bond – not subject to
rehabilitation jurisdiction
§ Does not involve any asset of Maynilad but only assets of
the banks
Maynilad arguments:
§ Jurisdiction of the public respondent extends not only to
the assets of Maynilad but also over persons and assets of
all those affected by the proceedings
§ Obligations under the Standby Letter of Credit are not
solidary & are not exempt from the coverage of the stay
order
ISSUE: W/N the stay order applies to letters of credit
HELD:
The prohibition does not apply to petitioner as the prohibition is on
enforcement of claims against guarantors or sureties of debtors
whose obligations are NOT solidary with the debtor – the
participating banks’ obligation is SOLIDARY with Maynilad
§ The claim is against an entity that Maynilad procured to
answer for its non-performance, not against Maynilad
§ Respondent’s claim that the banks are not solidarily liable
with the debtor does not find support in jurisprudence
o In an irrevocable letter of credit, the bank
undertakes a primary obligation
Letters of credit – developed for the purpose of insuring to a seller
payment of a definite amount upon presentation of documents – 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 not accessory
§ Definite undertakings to pay at sight once the documents
are presented
Being solidary, the claims against them can be pursued separately
from and independently of the rehabilitation case
§ Terms of the Irrevocable Standby Letter of Credit do not
show that the obligations of the banks are not solidary with
Maynilad – on the contrary, it issued a bond in favor of
MWSS a bond for the full and prompt performance of the
obligations by the concessionaire
Except when a letter of credit specifically stipulates otherwise, the
obligation of banks issuing letters of credit are solidary with that of
the person requesting for its issuance – being solidary, the letter of
credit is excluded from the jurisdiction of the rehabilitation court
PANLILIO v. RTC
Petitioners – corporate officers of Silahis International Hotel (SIHI)
§ Filed a petition for suspension of payments and
rehabilitation
§ RTC – issued an order to stay all the claims against SIHI
o At the time of filing of the petition, there were a
number of criminal charges against the
petitioners – violation of Social Security Act in
relation to Estafa
Petitioners filed a manifestation and motion to suspend pleadings in
the criminal case
§ Stay order should apply to criminal cases
ISSUE: W/N the stay order issued in Rehabilitation cases applies to
criminal cases
HELD:
No. The term claim refers to DEBTS OR DEMANDS OF A
PECUNIARY NATURE, or the assertion to have money paid. There
is no reason why criminal proceedings should be suspended during
corporate rehabilitation – since the prime purpose of the criminal
action is to punish the offender in order to deter him and others
from committing the same or similar offense, to isolate him from
society, reform and rehabilitate him or in general to maintain
social order
The prosecution of officers has not bearing on the pending
rehabilitation of the corporation especially since they are charged in
their individual capacities. Such being the case, the purpose of the
law for the issuance of the stay order is not compromised – the
rehabilitation receiver is not charged to defend the officers of
the corporation
FRIA expressly provides that criminal actions against an
individual officer are not subject to the Stay/Suspension order
VICTORIO-AQUINO v. PACIFIC PLANS
Pacific Plans – engaged in the business of selling PRE-NEED PLANS
and educational plans – including PEPTrads (guaranty to pay the
planholder the full amount of tuition and other school fees of a
beneficiary)
§ Petitioner holder of 2 units of Peptrads
Foreseeing the impossibility of meeting its obligations, Pacific Plans
filed a Petition for Rehabilitation – praying that it be placed under
rehabilitation & suspension of payments pursuant to PD 902-A
§ Had more or less 32 peptrads
§ Rehabilitation Court issues a Stay order
o Directing suspension of payments of the
obligations of respondent
o Ordering all creditors and interested parties to
file their oppositions
o Appointed Marcelo as rehabilitation receiver
Respondent submitted its proposed rehabilitation plan
 § SWAP – essentially give the planholder a means to exit the
Peptrad at terms and conditions relative to a termination
value
§ Rehabilitation Receiver submitted an Alternative
Rehabilitation Plan (ARP_
o Respondent commenced with the
implementation of its ARP

In the mean time, the value of the PH Peso strengthened

§ Respondent submitted manifestation that the continued
appreciation of the PH Peso has grossly affected the value
of the US Dollar NAPOCOR bonds – which stood as
security for the payment of the Net Translated Values of
the Peptrads
§ Rehabilitation receiver manifested to admit the Modified
Rehabilitation Plan (MRP):
o Suspension of tuition support
o Converting PH peso liabilities to US dollar
liabilities
o Payments of the trust fund assets in US dollars
at maturity

Rehabilitation court approved the MRP

§ In view of the cram down power of the rehabilitation court,
courts have the power to approve a rehabilitation plan over
the objection of creditors and even when such
rehabilitation plan involves impairment of contractual
obligations

Petitioner contends that the MRP is ultra vires – reduces original

claim and it was beyond the authority of the court to sanction a
rehabilitation plan or the medication thereof

ISSUE: W/N the rehabilitation court has the authority to sanction a

rehabilitation plan or modification, notwithstanding the objection/s of
creditors

HELD:
Yes, the cram down power maintains that the court may approve a
rehabilitation plan over the objection of creditors if, in its judgment,
the rehabilitation of the debtors is feasible and the opposition is
unreasonable

Criteria for unreasonableness (may objections despite):

1. Rehabilitation plan complies with the requirements
2. RP would provide the objecting class whose present value
projected in the plan would be greater than that which they
would have received if the assets were sold by a liquidator
3. RReceiver recommended approval

Cram down rule is necessary to curb the majority creditors’ tendency

to dictate their own terms and conditions to the rehabilitation, absent
due regard to greater longer benefit of all stakeholders

Notwithstanding rejection by creditors, court may confirm the RP if

all are present:
1. RP complies with requirements
2. RR recommends confirmation
3. Shareholders, owners or partners of the juridical debtor
lose at least their controlling interest as a result of RP
4. RP would likely provide the objecting class of creditors
with compensation which has net present value greater
than that which they would receive in liquidation

Interest of all stakeholders is the ultimate and prime consideration