VIVA SHIPPING LINES VS.
KEPPEL It does not make sense to hold, suspend, or continue to devalue
G.R. No. 177382, February 17, 2016
Corporate rehabilitation is a remedy for corporations, partnerships, and
associations "who [foresee] the impossibility of meeting [their] debts
when they respectively fall due." A corporation under rehabilitation
continues with its corporate life and activities to achieve solvency, or a
position where the corporation is able to pay its obligations as they fall
due in the ordinary course of business. Solvency is a state where the
businesses’ liabilities are less than its assets.
RATIONALE OF CORPORATE REHABILITATION:
The rationale in corporate rehabilitation is to resuscitate businesses in
financial distress because "assets . . . are often more valuable when so
maintained than they would be when liquidated." Rehabilitation assumes
that assets are still serviceable to meet the purposes of the business.
The corporation receives assistance from the court and a disinterested
rehabilitation receiver to balance the interest to recover and continue
ordinary business, all the while attending to the interest of its creditors to
be paid equitably. These interests are also referred to as
the rehabilitative and the equitable purposes of corporate rehabilitation.
NATURE OF CORPORATE REHABILITATION:
Philippine Bank of Communications v. Basic Polyprinters and Packaging
Corporation reiterates that courts "must endeavor to balance the
interests of all the parties that had a stake in the success of rehabilitating
the debtors." These parties include the corporation seeking
rehabilitation, its creditors, and the public in general. The public’s
interest lies in the court’s ability to effectively ensure that the obligations
of the debtor, who has experienced severe economic difficulties, are
fairly and equitably served. The alternative might be a chaotic rush by all
creditors to file separate cases with the possibility of different trial courts
issuing various writs competing for the same assets. Rehabilitation is a
means to temper the effect of a business downturn experienced for
whatever reason. In the process, it gives entrepreneurs a second
chance. Not only is it a humane and equitable relief, it encourages
efficiency and maximizes welfare in the economy.
Clearly then, there are instances when corporate rehabilitation can no
longer be achieved. When rehabilitation will not result in a better present
value recovery for the creditors, the more appropriate remedy is
liquidation.106
outstanding credits of a business that has no chance of recovery. In
such cases, the optimum economic welfare will be achieved if the
corporation is allowed to wind up its affairs in an orderly manner.
Liquidation allows the corporation to wind up its affairs and equitably
distribute its assets among its creditors
REHABILITATION VS LIQUIDATION
Liquidation is diametrically opposed to rehabilitation. Both cannot be
undertaken at the same time. In rehabilitation, corporations have to
maintain their assets to continue business operations. In liquidation, on
the other hand, corporations preserve their assets in order to sell them.
Without these assets, business operations are effectively discontinued.
The proceeds of the sale are distributed equitably among creditors, and
surplus is divided or losses are re-allocated.
CREDITORS ARE INDISPENSABLE PARTIES TO A REHABILITATION
CASE, EVEN IF A REHABILITATION CASE IS NON-ADVERSARIAL.
The first rule breached by petitioner is the failure to implead all the
indispensable parties. Petitioner did not even interpose reasons why it
should be excused from compliance with the rule to "state the full names
of the parties to the case, without impleading the court . . . as . . .
respondents." Petitioner did exactly the opposite. It failed to state the full
names of its creditors as respondents. Instead, it impleaded the
Presiding Judge of the originating court.
The Rules of Court requires petitioner to implead respondents as a
matter of due process. Under the Constitution, "[n]o person shall be
deprived of life, liberty or property without due process of the law." An
appeal to a corporate rehabilitation case may deprive creditor-
stakeholders of property. Due process dictates that these creditors be
impleaded to give them an opportunity to protect the property owed to
them.
A corporate rehabilitation case cannot be decided without the creditors’
participation. The court’s role is to balance the interests of the
corporation, the creditors, and the general public. Impleading creditors
as respondents on appeal will give them the opportunity to present their
legal arguments before the appellate court. The courts will not be able to
balance these interests if the creditors are not parties to a case. Ruling
on petitioner’s appeal in the absence of its creditors will not result in
judgment that is effective, complete, and equitable.
This court cannot exercise its equity jurisdiction and allow petitioner to
circumvent the requirement to implead its creditors as respondents.
Tolerance of such failure will not only be unfair to the creditors, it is
contrary to the goals of corporate rehabilitation, and will invalidate the
cardinal principle of due process of law.
The failure of petitioner to implead its creditors as respondents cannot
be cured by serving copies of the Petition on its creditors. Since the
creditors were not impleaded as respondents, the copy of the Petition
only serves to inform them that a petition has been filed before the
appellate court. Their participation was still significantly truncated.
Petitioner’s failure to implead them deprived them of a fair hearing. The
appellate court only serves court orders and processes on parties
formally named and identified by the petitioner. Since the creditors were
not named as respondents, they could not receive court orders
prompting them to file remedies to protect their property rights.
TEST TO HELP TRIAL COURTS EVALUATE THE ECONOMIC
FEASIBILITY OF A REHABILITATION PLAN:
In order to determine the feasibility of a proposed rehabilitation plan, it is
imperative that a thorough examination and analysis of the distressed
corporation’s financial data must be conducted. If the results of such
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 the proposed rehabilitation plan, then it may be
said that a rehabilitation is 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 conditions stated in the approved
rehabilitation plan. On the other hand, if the results of the financial
examination and analysis clearly indicate that there lies no reasonable
probability that the distressed corporation could be revived and that
liquidation would, in fact, better subserve the interests of its
stakeholders, then it may be said that a rehabilitation would not be
feasible. In such case, the rehabilitation court may convert the
proceedings into one for liquidation
a. The debtor has assets that can generate more cash if used in its daily
operations than if sold.
b. Liquidity issues can be addressed by a practicable business plan that
will generate enough cash to sustain daily operations.
c. The debtor has a definite source of financing for the proper and full
implementation of a Rehabilitation Plan that is anchored on realistic
assumptions and goals. These requirements put emphasis on liquidity:
the cash flow that the distressed corporation will obtain from
rehabilitating its assets and operations. A corporation’s assets may be
more than its current liabilities, but some assets may be in the form of
land or capital equipment, such as machinery or vessels. Rehabilitation
sees to it that these assets generate more value if used efficiently rather
than if liquidated.
On the other hand, this court enumerated the characteristics of a
rehabilitation plan that is infeasible:
(a) the absence of a sound and workable business plan;
(b) baseless and unexplained assumptions, targets and goals;
(c) speculative capital infusion or complete lack thereof for the execution
of the business plan;
(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full depreciation or fully
depreciated.
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.150 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.
The Regional Trial Court correctly dismissed petitioner’s rehabilitation
plan. It found that petitioner’s assets are non-performing. Petitioner
admitted this in its Amended Petition when it stated that its vessels were
no longer serviceable. In Wonder Book Corporation v. Philippine Bank of
Communications, a rehabilitation plan is infeasible if the assets are
nearly fully or fully depreciated. This reduces the probability that
rehabilitation may restore and reinstate petitioner to its former position of
successful operation and solvency.
Petitioner’s rehabilitation plan should have shown that petitioner has
enough serviceable assets to be able to continue its business. Yet, the
plan showed that the source of funding would be to sell petitioner’s old
vessels. Disposing of the assets constituting petitioner’s main business
cannot result in rehabilitation. A business primarily engaged as
a shipping line cannot operate without its ships. On the other hand, the
plan to purchase new vessels sacrifices the corporation’s cash flow. This
is contrary to the goal of corporate rehabilitation, which is to allow
present value recovery for creditors. The plan to buy new vessels after
selling the two vessels it currently owns is neither sound nor workable as
a business plan.
The other part of the rehabilitation plan entails selling properties of
petitioner’s sister company. As pointed out by the Regional Trial Court,
this plan requires conformity from the sister company. Even if the two
companies have the same directorship and ownership, they are still two
separate juridical entities.
PHILIPPINE BANK OF COMMUNICATIONS V. BASIC
POLYPRINTERS AND PACKAGING CORPORATION
G.R. No. 187581 October 20, 2014
Liquidity was not an issue in a petition for rehabilitation
The petitioner contends that the sole issue in corporate rehabilitation is
one of liquidity; hence, the petitioning corporation should have sufficient
assets to cover all its indebtedness because it only foresees the
impossibility of paying the indebtedness falling due. It claims that
rehabilitation became inappropriate because Basic Polyprinters was
insolvent due to its assets being inadequate to cover the outstanding
obligations.
We disagree with the contention of the petitioner.
Under the Interim Rules, rehabilitation is the process of restoring "the
debtor to a position of successful operation and solvency, if it is shown
that its continuance of operation is economically feasible and its
creditors can recover by way of the present value of payments projected
in the plan more if the corporation continues as a going concern that if it
is immediately liquidated." It contemplates a continuance ofcorporate life
and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency.
In Asiatrust Development Bank v. First Aikka Development, Inc., we said
that rehabilitation proceedings have a two-pronged purpose, namely: (a)
to efficiently and equitably distribute the assets of the insolvent debtor to
its creditors; and (b) to provide the debtor with a fresh start, 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 paidtheir claims from its earnings.
Consequently, the basic issues inrehabilitation proceedings concern the
viability and desirability of continuing the business operations of the
petitioning corporation. The determination of such issues was to be
carried out by the court-appointed rehabilitation receiver, who was
Cacho in this case.
Moreover, Republic Act No. 10142 (Financial Rehabilitation and
Insolvency Act (FRIA) of 2010), a law that is applicable hereto, has
defined a corporate debtor as a corporation duly organized and existing
under Philippine laws that has become insolvent. The term insolventis
defined in Republic Act No. 10142 as "the financial condition of a debtor
that is generally unable to pay its or his liabilities as they fall due in the
ordinary course of business or has liabilities that are greater than its or
his assets."
As such, the contention that rehabilitation becomes inappropriate
because of the perceived insolvency of BasicPolyprinters was incorrect.
STEEL CORPORATION OF THE PHILIPPINES VS. MAPFRE
INSULAR INSURANCE CORPORAYION
G.R. No. 201199 October 16, 2013
SCP claims that the RTC has jurisdiction over the subject matter of the
insurance claim. Thus, the Court of Appeals erred when it held that the
RTC acted with grave abuse of discretion amounting to lack or excess of
jurisdiction in issuing the 1 June 2011 Order. The Court disagrees. The
RTC, acting as rehabilitation court, has no jurisdiction over the subject
matter of the insurance claim of SCP against respondent insurers. SCP
must file a separate action for collection where respondent insurers can
properly thresh out their defenses. SCP cannot simply file with the RTC
a motion to direct respondent insurers to pay insurance proceeds.
Section 3 of Republic Act No. 10142 states that rehabilitation
proceedings are "summary and non-adversarial" in nature. They do not
include adjudication of claims that require full trial on the merits, like
SCP’s insurance claim against respondent insurers.
In Advent Capital and Finance Corporation v. Alcantara, the Court held
that:
Ultimately, the issue is what court has jurisdiction to hear and
adjudicate the conflicting claims of the parties over the
dividends that Belson held in trust for their owners. Certainly,
not the rehabilitation court which has not been given the power
to resolve ownership disputes between Advent Capital and third
parties. x x x. Advent Capital must file a separate action for
collection to recover the trust fees that it allegedly earned and,
with the trial court’s authorization if warranted, put the money in
escrow for payment to whoever it belongs. Having failed to
collect the trust fees at the end of each calendar quarter as
stated in the contract, all it had against the Alcantaras was a
claim for payment which is proper subject for an ordinary action
for collection. It cannot enforce its money claim by simply filing a
motion in the rehabilitation case for delivery of money belonging
to the Alcantaras but in the possession of a third party.
Rehabilitation proceedings are summary and non-adversarial in nature,
and do not contemplate adjudication of claims that must be threshed out
in ordinary court proceedings. Adversarial proceedings similar to that in
ordinary courts are inconsistent with the commercial nature of a
rehabilitation case. The latter must be resolved quickly and expeditiously
for the sake of the corporate debtor, its creditors and other interested
parties. Thus, the Interim Rules "incorporate the concept of prohibited
pleadings, affidavit evidence in lieu of oral testimony, clarificatory
hearings instead of the traditional approach of receiving evidence, and
the grant of authority to the court to decide the case, or any incident, on
the basis of affidavits and documentary evidence."
The Court agrees with the ruling of the Court of Appeals that the
jurisdiction of the rehabilitation courts is over claims against the debtor
that is under rehabilitation, not over claims by the debtor against its own
debtors or against third parties. In its 8 February 2012 Decision, the
Court of Appeals held that: x x x Said insurance claims cannot be
considered as "claims" within the jurisdiction of the trial court functioning
as a rehabilitation court. Rehabilitation courts only have limited
jurisdiction over the claims by creditors against the distressed company,
not on the claims of said distressed company against its debtors. The
interim rules define claim as referring to all claims or demands, of
whatever nature or character against a debtor or its property, whether for
money or otherwise.
Even under the new Rules of Procedure on Corporate Rehabilitation,
claim is defined under Section 1, Rule 2 as "all claims or demands of
whatever nature or character against a debtor or its property, whether for
money or otherwise." This is also the definition of a claim under Republic
Act No. 10142. Section 4(c) thereof reads:
"(c) 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 the 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."
SITUS DEVELOPMENT CORPORATION, DAILY SUPERMARKET,
INC. and COLOR LITHOGRAPHIC PRESS, INC VS. ASIATRUST
BANK, ALLIED BANKING CORPORATION, METROPOLITAN BANK
AND TRUST COMPANY, and CAMERON GRANVILLE II ASSET
MANAGEMENT, INC. (CAMERON)
G.R. No. 180036 July 25, 2012
WHETHER THE DISMISSAL OF THE PETITION FOR
REHABILITATION IS IN ORDER
The Rules provide that "the petition shall be dismissed if no rehabilitation
plan is approved by the court upon the lapse of one hundred eighty
(180) days from the date of the initial hearing." While the Rules
expressly provide that the 180-day period may be extended, such
extension may be granted only "if it appears by convincing and
compelling evidence that the debtor may successfully be rehabilitated."
In this case, the Second Amended Rehabilitation Program was approved
by the trial court beyond the 180-day period counted from the date of the
initial hearing. However, the evidence on record does not support the
lower court’s finding that the debtor corporations may still be
successfully rehabilitated.
The trial court’s only justification for approving the Second Amended
Rehabilitation Program is that "the creditor banks are fully aware that the
real property on which the building structure of Situs Development sits is
more than sufficient to answer for all the outstanding obligations of the
petitioners." It then went on to conclude that "[t]his fact alone should be
enough to afford the petitioners a sporting chance at business
resuscitation."
We do not agree. It is a fundamental principle in corporate law that a
corporation is a juridical entity with a legal personality separate and
distinct from the people comprising it. Hence, the rule is that assets of
stockholders may not be considered as assets of the corporation, and
vice-versa. The mere fact that one is a majority stockholder of a
corporation does not make one’s property that of the corporation, since
the stockholder and the corporation are separate entities.
In this case, the parcels of land mortgaged to respondent banks are
owned not by petitioners, but by spouses Chua. Applying the doctrine of
separate juridical personality, these properties cannot be considered as
part of the corporate assets. Even if spouses Chua are the majority
stockholders in petitioner corporations, they own these properties in their
individual capacities. Thus, the parcels of land in question cannot be
included in the inventory of assets of petitioner corporations.
The fact that these properties were mortgaged to secure corporate debts
is of no moment. A mortgage is an accessory undertaking to secure the
fulfillment of a principal obligation. In a third-party mortgage, the
mortgaged property stands as security for the loan obtained by the
principal debtor; but until the mortgaged property is foreclosed,
ownership thereof remains with the third-party mortgagor.
Here, the properties owned by spouses Chua were mortgaged as
security for the debts contracted by petitioner corporations. However,
ownership of these properties remained with the spouses
notwithstanding the fact that these were mortgaged to secure corporate
debts. We have ruled that "when a debtor mortgages his property, he
merely subjects it to a lien but ownership thereof is not parted with." This
leads to no other conclusion than that, notwithstanding the mortgage,
the real properties in question belong to spouses Chua; hence, these
properties should not be considered as assets of petitioner corporations.
Since the real properties in question cannot be considered as corporate
assets, the trial court’s pronouncement that petitioners were susceptible
of rehabilitation was bereft of any basis. Based on the rehabilitation
court’s narration of facts, Situs Development Corporation has total
assets of P54,176,149.22 with total liabilities of P74,304,188.01; Daily
Supermarket, Inc. has total assets of P43,986,412.33 with total liabilities
of P114,219,462.00; and Color Lithographic Press, Inc. has total assets
of P7,618,006.69 and total liabilities of P6,588,534.99.17 Clearly, the
aggregate total liabilities of petitioner corporations far exceed their
aggregate total assets.
We take this opportunity to point out that 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. However, if the continued existence of the corporation is
no longer viable, rehabilitation can no longer be an option. The purpose
of rehabilitation proceedings is to enable the company to gain a new
lease on life, and not to prolong its inevitable demise.
WHETHER THE STAY ORDER AFFECTS FORECLOSURE
PROCEEDINGS INVOLVING PROPERTIES MORTGAGED BY
STOCKHOLDERS TO SECURE CORPORATE DEBTS
The Stay Order does not suspend the foreclosure of a mortgage
constituted over the property of a third-party mortgagor.
Petitioners insist that the Stay Order covers the mortgaged properties,
citing the Interim Rules on Corporate Rehabilitation (the Rules). Under
the Rules, one of the effects of a Stay Order is the stay of the
"enforcement of all claims, whether for money or otherwise and whether
such enforcement is by court action or otherwise, against the debtor, its
guarantors and sureties not solidarily liable with the debtor."
Based on a reading of the Rules, we rule that the Stay Order cannot
suspend foreclosure proceedings already commenced over properties
belonging to spouses Chua. The Stay Order can only cover those claims
directed against petitioner corporations or their properties, against
petitioners’ guarantors, or against petitioners’ sureties who are not
solidarily liable with them.
Spouses Chua may not be considered as "debtors." The Interim Rules
on Corporate Rehabilitation (the Rules) define the term "debtor" as
follows:
"Debtor" shall mean any corporation, partnership, or association,
whether supervised or regulated by the Securities and Exchange
Commission or other government agencies, on whose behalf a petition
for rehabilitation has been filed under these Rules.
Likewise, the enforcement of the mortgage lien cannot be considered as
a claim against a guarantor or a surety not solidarily liable with the
debtor corporations. While spouses Chua executed Continuing Guaranty
and Comprehensive Surety undertakings in favor of Allied Bank, the
bank did not proceed against them as individual guarantors or sureties.
Rather, by initiating extrajudicial foreclosure proceedings, the bank was
directly proceeding against the property mortgaged to them by the
spouses as security. The Civil Code provides that the property upon
which a mortgage is imposed directly and immediately subjected to the
fulfillment of the obligation for whose security the mortgage was
constituted. As such, a real estate mortgage is a lien on the property
itself, inseparable from the property upon which it was constituted.
In this case, we find that the undertaking of spouses Chua with respect
to the loans of petitioner corporations is the sale at public auction of
certain real properties belonging to them to satisfy the indebtedness of
petitioner corporations in case of a default by the latter. This undertaking
is properly that of a third-party mortgagor or an accommodation
mortgagor, whereby one mortgages one’s property to stand as security
for the indebtedness of another.
In Pacific Wide Realty and Development Corporation v. Puerto Azul
Land, Inc., we ruled that the issuance of a Stay Order cannot suspend
the foreclosure of accommodation mortgages, because the Stay Order
may only cover the suspension of the enforcement of all claims against
the debtor, its guarantors, and sureties not solidarily liable with the
debtor. Thus, the suspension of enforcement of claims does not extend
to the foreclosure of accommodation mortgages.
Moreover, the intent of the Rules is to exclude from the scope of the
Stay Order the foreclosure of properties owned by accommodation
mortgagors. The newly adopted Rules of Procedure on Corporate
Rehabilitation provides for one of the effects of a Stay Order:
SEC. 7. Stay Order. –
(b) staying enforcement of all claims, whether for money or otherwise
and whether such enforcement is by court action or otherwise, against
the debtor, its guarantors and persons not solidarily liable with the
debtor; provided, that the stay order shall not cover claims against letters
of credit and similar security arrangements issued by a third party to
secure the payment of the debtor's obligations; provided, further, that the
stay order shall not cover foreclosure by a creditor of property not
belonging to a debtor under corporate rehabilitation; provided, however,
that where the owner of such property sought to be foreclosed is also a
guarantor or one who is not solidarily liable, said owner shall be entitled
to the benefit of excussion as such guarantor.
From the foregoing, we therefore hold that foreclosure proceedings over
the properties in question are not suspended by the trial court’s issuance
of the Stay Order.
Furthermore, even assuming that the properties in question fall under
the ambit of the Stay Order, the issuance thereof should not affect the
execution of the Certificate of Sale.
In Rizal Commercial Banking Corporation v. Intermediate Appellate
Court and BF Homes, Inc., the debtor corporation filed a Petition for
Rehabilitation and Declaration of Suspension of Payments before the
Securities and Exchange Commission (SEC). Prior to the SEC’s
appointment of a management committee and during the pendency of
the case, the mortgagee-bank foreclosed on the real estate mortgage
over some of the corporation’s mortgaged properties. An auction sale
was conducted, and the mortgagee-bank emerged as the highest bidder.
However, because of the pendency of the rehabilitation case before the
SEC, the Sheriff withheld the delivery of the Certificate of Sale. Ruling
on the validity of the foreclosure proceedings, we held that the conduct
of the foreclosure sale was valid, because it was carried out prior to the
issuance of the SEC’s order appointing a management committee. We
held that the appointment of a management committee, rehabilitation
receiver, board or body pursuant to Presidential Decree No. 902-A is the
operative act that suspends all actions or claims against a distressed
corporation.
In the case at bar, the auction sale for the parcels of land covered by
TCT Nos. RT-13620 and RT-13621 and mortgaged to respondent Allied
Bank was conducted on 6 February 2001, while the foreclosure sale for
the parcel of land covered by TCT No. 79916 and mortgaged to
Metrobank was conducted on 18 September 2001. Clearly, the
foreclosure proceedings commenced and the auction sale was
conducted before the issuance of the Stay Order and the appointment of
the Rehabilitation Receiver on 17 June 2002. In fact, the public auctions
took place almost a year before petitioner corporations filed the Petition
for Rehabilitation with the court a quo on 11 June 2002. Therefore, the
execution of the Certificate of Sale may no longer be suspended by the
trial court’s issuance of the Stay Order, even if the questioned properties
are assumed to fall under the ambit of the Stay Order, since the
foreclosure proceedings and the auction sale were conducted prior to
the appointment of the Rehabilitation Receiver.
JOSE MARCEL PANLILIO VS. REGIONAL TRIAL COURT, BRANCH
51, CITY OF MANILA, represented by HON. PRESIDING JUDGE
ANTONIO M. ROSALES; PEOPLE OF THE PHILIPPINES; and the
SOCIAL SECURITY SYSTEM
G.R. No. 173846 February 2, 2011
WHETHER THE STAY ORDER ISSUED BY THE RTC COMMERCIAL
COURT, BRANCH 24 INCLUDES CRIMINAL CASES (violations of
Section 28 (h) of Republic Act 8282, or the Social Security Act of 1997
(SSS law), in relation to Article 315 (1) (b) of the Revised Penal Code, or
Estafa)
The Court shares the view of the private complainants and the SSS that
the said stay order does not include the prosecution of criminal offenses.
Precisely, the law "criminalizes" the non-remittance of SSS contributions
by an employer to protect the employees from unscrupulous employers.
Clearly, in these cases, public interest requires that the said criminal
acts be immediately investigated and prosecuted for the protection of
society.
From the foregoing, the inescapable conclusion is that the stay order
issued by RTC Branch 24 does not include the above-captioned cases
which are criminal in nature corporate rehabilitation connotes the
restoration of the debtor to a position of successful operation and
solvency, if it is shown that its continued operation is economically
feasible and its creditors can recover more, by way of the present value
of payments projected in the rehabilitation plan, if the corporation
continues as a going concern than if it is immediately liquidated. 17 It
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.
the Interim Rules of Procedure on Corporate Rehabilitation, Section 6,
Rule 4 of which provides a stay order on all claims against the
corporation, thus:
Stay Order. - If the court finds the petition to be sufficient in form and
substance, it shall, not later than five (5) days from the filing of the
petition, issue an Order x x x; (b) staying enforcement of all claims,
whether for money or otherwise and whether such enforcement is by
court action or otherwise, against the debtor, its guarantors and sureties
not solidarily liable with the debtor; x x x
In Finasia Investments and Finance Corporation v. Court of Appeals, the
term "claim" has been construed to refer to debts or demands of a
pecuniary nature, or the assertion to have money paid. The purpose for
suspending actions for claims against the corporation in a rehabilitation
proceeding is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or
extrajudicial interference that might unduly hinder or prevent the rescue
of the debtor company.
In Rosario v. Co, a case of recent vintage, the issue resolved by this
Court was whether or not during the pendency of rehabilitation
proceedings, criminal charges for violation of Batas Pambansa Bilang 22
should be suspended, was disposed of as follows:
x x x the gravamen of the offense punished by B.P. Blg. 22 is
the act of making and issuing a worthless check; that is, a check
that is dishonored upon its presentation for payment. It is
designed to prevent damage to trade, commerce, and banking
caused by worthless checks. In Lozano v. Martinez, this Court
declared that it is not the nonpayment of an obligation which the
law punishes. The law is not intended or designed to coerce a
debtor to pay his debt. The thrust of the law is to prohibit, under
pain of penal sanctions, the making and circulation of worthless
checks. Because of its deleterious effects on the public interest,
the practice is proscribed by the law. The law punishes the act
not as an offense against property, but an offense against public
order. 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, to reform
and rehabilitate him or, in general, to maintain social order.
Hence, the criminal prosecution is designed to promote the
public welfare by punishing offenders and deterring others.
Consequently, the filing of the case for violation of B.P. Blg. 22
is not a "claim" that can be enjoined within the purview of P.D.
No. 902-A. True, although conviction of the accused for the
alleged crime could result in the restitution, reparation or
indemnification of the private offended party for the damage or
injury he sustained by reason of the felonious act of the
accused, nevertheless, prosecution for violation of B.P. Blg. 22
is a criminal action.
A criminal action has a dual purpose, namely, the punishment of the
offender and indemnity to the offended party. The dominant and
primordial objective of the criminal action is the punishment of the
offender. The civil action is merely incidental to and consequent to the
conviction of the accused. The reason for this is that criminal actions are
primarily intended to vindicate an outrage against the sovereignty of the
state and to impose the appropriate penalty for the vindication of the
disturbance to the social order caused by the offender. On the other
hand, the action between the private complainant and the accused is
intended solely to indemnify the former.
Rosario is at fours with the case at bar. Petitioners are charged with
violations of Section 28 (h) of the SSS law, in relation to Article 315 (1)
(b) of the Revised Penal Code, or Estafa. The SSS law clearly
"criminalizes" the non-remittance of SSS contributions by an employer to
protect the employees from unscrupulous employers. Therefore, public
interest requires that the said criminal acts be immediately investigated xxxx
and prosecuted for the protection of society. (g) any criminal action against individual debtor or owner, partner,
The rehabilitation of SIHI and the settlement of claims against the director or officer of a debtor shall not be affected by any proceeding
corporation is not a legal ground for the extinction of petitioners’ criminal commenced under this Act.
liabilities. There is no reason why criminal proceedings should be
suspended during corporate rehabilitation, more so, 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. As correctly observed in Rosario, it would be absurd for one
who has engaged in criminal conduct could escape punishment by the
mere filing of a petition for rehabilitation by the corporation of which he is
an officer.
The prosecution of the officers of the corporation has no bearing on the
pending rehabilitation of the corporation, especially since they are
charged in their individual capacities. Such being the case, the purpose
of the law for the issuance of the stay order is not compromised, since
the appointed rehabilitation receiver can still fully discharge his functions
as mandated by law. It bears to stress that the rehabilitation receiver is
not charged to defend the officers of the corporation. If there is anything
that the rehabilitation receiver might be remotely interested in is whether
the court also rules that petitioners are civilly liable. Such a scenario,
however, is not a reason to suspend the criminal proceedings, because
as aptly discussed in Rosario, should the court prosecuting the officers
of the corporation find that an award or indemnification is warranted,
such award would fall under the category of claims, the execution of
which would be subject to the stay order issued by the rehabilitation
court. The penal sanctions as a consequence of violation of the SSS
law, in relation to the revised penal code can therefore be implemented if
petitioners are found guilty after trial. However, any civil indemnity
awarded as a result of their conviction would be subject to the stay order
issued by the rehabilitation court. Only to this extent can the order of
suspension be considered obligatory upon any court, tribunal, branch or
body where there are pending actions for claims against the distressed
corporation.
On a final note, this Court would like to point out that Congress has
recently enacted Republic Act No. 10142, or the Financial Rehabilitation
and Insolvency Act of 2010. Section 18 thereof explicitly provides that
criminal actions against the individual officer of a corporation are not
subject to the Stay or Suspension Order in rehabilitation proceedings, to
wit:
The Stay or Suspension Order shall not apply: