BPI FAMILY SAVINGS BANK, INC., vs.
the problems it had with its first contractor as well as the rise of the cost
ST. MICHAEL MEDICAL CENTER, INC.
G.R. No. 205469. March 25, 2015.
PERLAS-BERNABE, J.:
Facts:
Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole
proprietors of St. Michael Diagnostic and Skin Care Laboratory Services
and Hospital (St. Michael Hospital). With a vision to upgrade St. Michael
Hospital into a modern, well-equipped and full service tertiary 11-storey
hospital, Sps. Rodil incorporated SMMCI, with which entity they planned
to eventually consolidate St. Michael Hospital's operations.
In May 2004, construction of a new hospital building on the adjoining
properties commenced. To finance the costs of construction, SMMCI
applied for a loan with petitioner BPI Family Savings Bank. After
suffering financial losses due to problems with the first building
contractor, Sps. Rodil temporarily deferred the original construction
plans for the 11-storey hospital building and, instead, engaged the
services of another contractor for the completion of the remaining
structural works of the unfinished building.
The lack of funds for the finishing works of the 3rd, 4th and 5th floors,
however, kept the new building from becoming completely functional
and, in turn, hampered the plans for the physical transfer of St. Michael
Hospital's operations to SMMCI. As of May 2006, SMMCI was still
neither operational nor earning revenues. Hence, it was only able to pay
the interest on its BPI Family loan from the income of St. Michael
Hospital.
BPI Family demanded immediate payment of the entire loan obligation
and, soon after, filed a petition for extrajudicial foreclosure of the real
properties covered by the mortgage.
SMMCI filed a Petition for Corporate Rehabilitation before the RTC,
with prayer for the issuance of a Stay Order as it foresaw the impossibility
of meeting its obligation to BPI Family. SMMCI claimed that it had to
defer the construction of the projected 11-storey hospital building due to
of construction materials
In its proposed Rehabilitation Plan, SMMCI merely sought for BPI
Family (a) to defer foreclosing on the mortgage and (b) to agree to a
moratorium of at least two (2) years during which SMMCI either through
St. Michael Hospital or its successor will retire all other obligations. After
which, SMMCI can then start servicing its loan obligation to the bank
under a mutually acceptable restructuring agreement
Finding the Rehabilitation Petition to be sufficient in form and substance,
the RTC issued a Stay Order, the same was referred to the court-appointed
Rehabilitation Receiver, Dr. Uriel S. Halum
Dr. Halum gave credence to the feasibility study conducted by Mrs.
Nenita Alibangbang who was commissioned in 2008 to do a study on the
viability of the project, finding that the same was feasible given that St.
Michael Hospital, whose operations SMMCI will eventually absorb,
registered outstanding revenue performance for the last seven years of its
operation with an average growth rate of 42.21% annually. Accordingly,
Dr. Halum found that SMMCI may be rehabilitated because it is a viable
option but, nevertheless, opined that it will take more than what it had
proposed to successfully bring the company back to good financial health
considering the finding that its obligation actually extends beyond the
bank, and also includes accounts payable due to suppliers and informal
lenders the RTC approved the Rehabilitation Plan with the modifications
recommended by the Rehabilitation Receiver; the CA affirmed the RTC's
approval of the Rehabilitation Plan.
Issue:
Whether or not the CA correctly affirmed SMMCI’s Rehabilitation Plan
as approved by the RTC.
Held: NO.
I
Restoration is the central idea behind the remedy of corporate
rehabilitation. Rehabilitation assumes that the corporation has been
operational but for some reasons like economic crisis or mismanagement
had become distressed or insolvent, i.e., that it is generally unable to pay
its debts as they fall due in the ordinary course of business or has liability
that are greater than its assets. 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.
In this case, it cannot be said that the petitioning corporation, SMMCI,
had been in a position of successful operation and solvency at the time
the Rehabilitation Petition was filed on August 11, 2010. While it had
indeed "commenced business" through the preparatory act of opening a
credit line with BPI Family to finance the construction of a new hospital
building for its future operations, SMMCI itself admits that it has not
formally operated nor earned any income since its incorporation. This
simply means that there exists no viable business concern to be restored.
Perforce, the remedy of corporate rehabilitation is improper, thus
rendering the dispositions of the courts a quo infirm.
II
In fact, for the same reasons, the Court observes that SMMCI could not
have even complied with the form and substance of a proper rehabilitation
petition, and submit its accompanying documents, among others, the
required financial statements of a going concern. While SMMCI claims
that it would absorb St. Michael Hospital’s operations, there was dearth
of evidence to show that a merger was already agreed upon between them.
Accordingly, St. Michael Hospital’s financials cannot be utilized as basis
to determine the feasibility of SMMCI’s rehabilitation.
Note further that while it appears that Sps. Rodil effectively owned and
exercised control over the two entities, such fact does not, by and of itself,
warrant their singular treatment for to do so would only confuse the
objective of the proceedings which is to ascertain whether the petitioning
corporation, and not any other entity related thereto (except if joining as
a co-petitioning debtor), may be rehabilitated.
III
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.50
In this case, aside from the harped on merger of St. Michael Hospital with
SMMCI, the only proposed source of revenue the Rehabilitation Plan
suggests is the capital which would come from SMMCI’s potential
investors, which negotiations are merely pending. Evidently, both
propositions commonly border on the speculative and, hence, hardly fit
the description of a material financial commitment which would inspire
confidence that the rehabilitation would turn out to be successful. In fact,
the Rehabilitation Receiver himself recognizes the ambiguity of the
proposition when he recommended that:
B. Lack of Liquidation Analysis.
SMMCI likewise failed to include any liquidation analysis in its
Rehabilitation Plan. The Court observes that as of November 16, 2009,
or about 9 months prior to the filing of the petition for rehabilitation, the
loan with BPI Family had already amounted to 52,784,589.34, with
interest at 10.25% p.a. or a daily interest of about 6,655.48 and late
payment charge of 36% p.a.53 However, with no SMMCI financial
statement on record, it is unclear to the Court what assets it possesses in
order to determine the values to be derived if liquidation has to be had
thereby. Accordingly, this prevents the Court from ascertaining 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, a crucial factor in a corporate
rehabilitation case.
At any rate, records disclose that St. Michael Hospital’s current cash
operating position54 is just enough to meet its own maturing
obligations.55 While it has substantial total assets, a large portion thereof
is comprised of fixed assets, while its current assets56 consist mostly of
inventory.57 Still, the total liquidation assets and the estimated
liquidation return to the creditors, as well as the fair market value vis-à-
vis the forced liquidation value of the fixed assets that would guide the
Court in assessing the feasibility of the Rehabilitation Plan were not
shown.

IV

While the Court recognizes the financial predicaments of upstart

corporations under the prevailing economic climate, it must nonetheless
remain forthright in limiting the remedy of rehabilitation only to
meritorious cases. As above-mentioned, 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.

In this case, not only has the petitioning debtor failed to show that it has
formally began its operations which would warrant restoration, but also
it has failed to show compliance with the key requirements under the
Rules, the purpose of which are vital in determining the propriety of
rehabilitation. Thus, for all the reasons hereinabove explained, the Court
is constrained to rule in favor of BPI Family and hereby dismiss
SMMCI’s Rehabilitation Petition.
PHILIPPINE BANK OF COMMUNICATIONS, vs.
BASIC POLYPRINTERS AND PACKAGING CORPORATION
G.R. No. 187581. October 20, 2014.
Bersamin, J.
Facts:
Respondent Basic Polyprinters and Packaging Corporation (Basic
Polyprinters) was a domestic corporation engaged in the business of
printing greeting cards, gift wrappers, gift bags, calendars, posters, labels
and other novelty items.
On February 27, 2004, Basic Polyprinters, along with the eight other
corporation, filed a joint petition for suspension of paymentswith
approval of the proposed rehabilitation in the RTC. The RTC issued a
stay order, and eventually approved the rehabilitation plan, but the CA
reversed the RTC on October 25, 2005,5 and directed the petitioning
corporations to file their individual petitions for suspension of payments
and rehabilitation in the appropriate courts.
Accordingly, Basic Polyprinters brought its individual petition, averring
therein that: (a) its business since incorporation had been very viable and
financially profitable; (b) it had obtained loans from various banks, and
had owed accounts payable to various creditors; (c) the Asian currency
crisis, devaluation of the Philippine peso, and the current state of affairs
of the Philippine economy; (d) its operations would be hampered and
would render rehabilitation difficult should its creditors enforce their
claims through legal actions, including foreclosure proceedings; (e)
included in its overall Rehabilitation Program was the full payment of its
outstanding loans in favor of petitioner PBCOM and other banks. The
RTC and CA approved.
PBCom contends that a petition filed pursuant to the Interim Rules of
Procedure on Corporate Rehabilitation presupposes that the petitioning
corporation has sufficient property to cover all its indebtedness — that
respondent is insolvent as its assets are less than its obligations. And that
the plan does not provide material financial commitments from
respondent or would-be investors.
Issues:
1.Whether or not liquidity is an issue in a petition for rehabilitation
2. Whether or not material financial commitment is required in a
rehabilitation plan
Held:
1. No.
The Court held that liquidity is not an issue in a petition for rehabilitation.
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 of corporate life
and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency.
Two-pronged purpose of rehabilitation proceedings
Equitable purpose: To efficiently and equitably distribute the assets of the
insolvent debtor to its creditors; and
Rehabilitative purpose: To provide the debtor with a fresh start
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.
Consequently, the basic issues in rehabilitation 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.
Moreover, Republic Act No. 10142 (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 insolvent is defined in said law 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.”
classification of the liability entry and had no effect on the shareholders’
deficit.
Basic Polyprinters’s rehabilitation plan likewise failed to offer any
proposal on how it intended to address the low demands for their products
and the effect of direct competition from stores like SM, Gaisano,
Robinsons, and other malls.

As such, the contention that rehabilitation becomes inappropriate because Basic Polyprinters’s proposal to enter into the dacion en pago to create a
of the perceived insolvency of Basic Polyprinters was incorrect. source of “fresh capital” was not feasible because the object thereof
would not be its own property but one belonging to its affiliate, TOL
2. Yes. Realty and Development Corporation, a corporation also undergoing
rehabilitation.
The Court held that a material financial commitment is significant in a
rehabilitation plan. Hence, the Court held that the rehabilitation plan for Basic Polyprinters
is not genuine and in good faith, for it was, in fact, unilateral and
A material financial commitment becomes significant in gauging the detrimental to its creditors and the public.
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.

However, the Court held that Basic Polyprinters commitment was

insufficient for the following reasons:

The commitment to add P10,000,000.00 working capital appeared to be

doubtful considering that the insurance claim from which said working
capital would be sourced had already been written-off by Basic
Polyprinters’s affiliate, Wonder Book Corporation.

The conversion of all deposits for future subscriptions to common stock

and the treatment of all payables to officers and stockholders as trade
payables was hardly constituting material financial commitments. Such
“conversion” of cash advances to trade payables was, in fact, a mere re-
BUREAU OF INTERNAL REVENUE vs.
LEPANTO CERAMICS, INC.
G.R. No. 224764. April 24, 2017.
Perlas-Bernabe, J.:
Facts:
Lepanto Ceramics, Inc. (LCI) filed a petition for corporate rehabilitation
under RA 10142 with the RTC in Calamba City. Aside from financial
difficulties, the petition for rehab also alleged LCI's tax liability at 6.3
million pesos. The Rehabilitation (Rehab Court) issued a Commencement
Order (Order).
The Order declared LCI under rehab and suspended all actions or
proceedings, in court or otherwise, for the enforcement of claims against
LCI. It also directed the BIR to file and serve on LCI its comment or
opposition to the petition, or its claims against LCI.
Despite this, petitioners, acting as Assistant Commissioner, Group
Supervisor, and Examiner, sent LCI a notice of informal conference,
informing the latter of its tax liabilities for the fiscal year ending June 30,
2010. Despite receiving LCI's letter-reply regarding the pendency of a
rehab proceeding, the BIR sent LCI a Formal Letter of Demand.
A petition for indirect contempt of court was filed by LCI against
petitioners for defying the Order. In their defense, petitioners insist that
the issue has already become moot and academic because, in the
meantime, LCI had already been declared rehabilitated. Also, petitioners
argue that 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, that 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 that the indirect contempt proceedings interferes with the exercise of
their functions to collect taxes due to the government.
Issue:
Whether or not the RTC correctly found petitioners to have defied the
Commencement Order and, accordingly, cited them for indirect
contempt.
Held: YES.
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.
In order to achieve such objectives, Section 16 of RA 10142 provides that
upon the issuance of a Commencement Order - which includes a Stay or
Suspension Order - all actions or proceedings, in court or otherwise, for
the enforcement of "claims" against the distressed company shall be
suspended.
Under the same law, claim "shall refer to all claims or demands of
whatever nature or character against the debtor or its property, whether
for money or otherwise, liquidated or unliquidated, fixed or contingent,
matured or unmatured, disputed or undisputed, including, but not limited
to; (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."
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.
In the present case, petitioners' act of issuing a notice of informal
conference and later a formal letter of demand, all despite the written
reminder by LCI regarding the pendency of the rehab proceeding, is in
clear defiance of the Commencement Order.
LEONARDO S. UMALE vs.
ASB REALTY CORPORATION
G.R. No. 181126, June 15, 2011.
Del Castillo, J:
Facts:
Lot 7, located in Amethyst Street, Ortigas Center, Pasig City was
originally owned by Amethyst Pearl Corporation (AP), a company that
is, in turn, wholly-owned by respondent ASB Realty Corporation (ASB).
AP executed a Deed of Assignment in Liquidation of the subject premises
in favor of ASB in consideration of the full redemption of AP’s
outstanding capital stock from ASB, making ASB the owner of the
subject premises.
In 2003, ASB Realty commenced an action in the MTC for unlawful
detainer against petitioner Leonardo S. Umale. ASB Realty alleged that
it entered into a lease contract with Umale for the period June 1, 1999-
May 31, 2000. Their agreement was for Umale to conduct a pay-parking
business on the property and pay a monthly rent of P60,720.00. Upon the
contract's expiration on continued occupying the premises and paying
rentals. On June 2003, ASB Realty served on Umale a Notice of
Termination of Lease and Demand to Vacate and Pay. ASB Realty stated
that it was terminating the lease effective midnight of June 30, 2003.
Umale failed to comply with ASB Realty's demands and continued in
possession of the subject premises, even constructing commercial
establishments thereon.
Umale admitted occupying the property since 1999 by virtue of a verbal
lease contract but vehemently denied that ASB Realty was his lessor. He
was adamant that his lessor was the original owner, Amethyst Pearl.
Umale challenged ASB Realty's personality to recover the subject
premises considering that ASB Realty had been placed under receivership
by SEC and a rehabilitation receiver had been duly appointed. Under the
Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules),
it is the rehabilitation receiver that has the power to "take possession,
control and custody of the debtor's assets." Since ASB Realty claims that
it owns the subject premises, it is its duly-appointed receiver that should
sue to recover possession of the same.
ASB Realty replied that it was impossible for Umale to have entered into
a Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl
had been liquidated in 1996.
MTC dismissed ASB Realty's complaint against Umale without
prejudice. It held that ASB Realty had no cause to seek Umale's ouster
from the subject property because it was not Umale's lessor. MTC agreed
with Umale that only the rehabilitation receiver could file suit to recover
ASB Realty's property. Having been placed under receivership, ASB
Realty had no more personality to file the complaint for unlawful
detainer.
RTC reversed decision of the MTC. It found sufficient evidence to
support the conclusion that it was indeed ASB Realty that entered into a
lease contract with Umale. With respect to ASB Realty's personality to
file the unlawful detainer suit, the RTC ruled that ASB Realty retained all
its corporate powers, including the power to sue, despite the appointment
of a rehabilitation receiver. Citing the Interim Rules, the RTC noted that
the rehabilitation receiver was not granted therein the power to file
complaints on behalf of the corporation. Moreover, the retention of its
corporate powers by the corporation under rehabilitation will advance the
objective of corporate rehabilitation, which is to conserve and administer
the assets of the corporation in the hope that it may eventually be able to
go from financial distress to solvency. CA affirmed RTC decision in toto.
Issue:
Whether or not a corporate officer of ASB Realty (duly authorized by the
Board of Directors) can file suit to recover an unlawfully detained
corporate property despite the fact that the corporation had already been
placed under rehabilitation?
Held: YES.
Corporate rehabilitation is defined as "the restoration of the debtor to a
position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan
more if the corporation continues as a going concern than if it is
immediately liquidated." This concept of preserving the corporation's
business as a going concern while it is undergoing rehabilitation is called
debtor-in-possession or debtor-in-place. This means that the debtor
corporation (the corporation undergoing rehabilitation), through its Board
of Directors and corporate officers, remains in control of its business and
properties, subject only to the monitoring of the appointed rehabilitation
receiver. The concept of debtor-in-possession, is carried out more
particularly in the SEC Rules, the rule that is relevant to the instant case.
It states therein that the interim rehabilitation receiver of the debtor
corporation "does not take over the control and management of the debtor
corporation." Likewise, the rehabilitation receiver that will replace the
interim receiver is tasked only to monitor the successful implementation
of the rehabilitation plan. There is nothing in the concept of corporate
rehabilitation that would ipso facto deprive the Board of Directors and
corporate officers of a debtor corporation, such as ASB Realty, of control
such that it can no longer enforce its right to recover its property from an
errant lessee.

To be sure, corporate rehabilitation imposes several restrictions on the

debtor corporation. The rules enumerate the prohibited corporate actions
and transactions 64 (most of which involve some kind of disposition or
encumbrance of the corporation's assets) during the pendency of the
rehabilitation proceedings but none of which touch on the debtor
corporation's right to sue.

While the Court rules that ASB Realty and its corporate officers retain
their power to sue to recover its property and the back rentals from Umale,
the necessity of keeping the receiver apprised of the proceedings and its
results is not lost upon this Court. Tasked to closely monitor the assets of
ASB Realty, the rehabilitation receiver has to be notified of the
developments in the case, so that these assets would be managed in
accordance with the approved rehabilitation plan.
LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-
ANGLO vs.
RUBBERWOLD (Phils.) Inc.
G.R. No. 153882. January 29, 2007.
GARCIA, J:
Facts:
On August 26, 1994, Rubberworld filed with the Department of Labor
and Employment (DOLE) a Notice of Temporary Partial Shutdown due
to severe financial crisis, therein announcing the formal actual company
shutdown a copy of which was served on the recognized labor union of
Rubberworld, the Bisig Pagkakaisa-NAFLU, the union with which the
corporation had a collective bargaining agreement.
On September 1, 1994, Bisig Pagkakaisa-NAFLU staged a strike. It set
up a picket line in front of the premises of Rubberworld and even welded
its gate. As a result, Rubberworld's premises closed prematurely even
before the date set for the start of its temporary partial shutdown.
On September 9, 1994, herein petitioner union, the Lingkod Manggagawa
Sa Rubberworld, Adidas-Anglo (Lingkod, for brevity), represented by its
President, Sonia Esperanza, filed a complaint against Rubberworld and
its Vice Chairperson, Mr. Antonio Yang, for unfair labor practice (ULP),
illegal shutdown, and non-payment of salaries and separation pay. The
said complaint was referred to Labor Arbiter Ernesto Dinopol for
appropriate action.
On November 22, 1994, while the aforementioned complaint was
pending with Labor Arbiter Dinopol, Rubberworld filed with the SEC a
Petition for Declaration of a State of Suspension of Payments with
Proposed Rehabilitation Plan.
Notwithstanding the SEC's aforementioned suspension order and despite
Rubberworld's submission on January 10, 1995 of a Motion to Suspend
Proceedings, Labor Arbiter Dinopol went ahead with the ULP case and
rendered his decision denying respondents motion to suspend
proceedings and declaring respondent Rubberworld Phils., Inc. to have
committed unfair labor practice.
Its motion for reconsideration of the same Order having been denied by
the NLRC in its Resolution 7 of March 29, 1996, Rubberworld directly
went to the Supreme Court on a Petition for Certiorari.
On April 22, 1998, the SEC issued an Order finding that the continuance
in business [of Rubberworld] would neither be feasible/profitable nor
work to the best of interest of the stockholders, parties-litigants, creditors,
or the general public, xxx Rubberworld Philippines, Inc. was hereby
declared as DISSOLVED under Section 6(d) of P.D. 902-A. Accordingly,
the suspension Order is LIFTED.
Eventually, in the herein assailed Decision dated January 18, 2002, the
CA granted Rubberworld’s petition in CA–G.R. SP. No. 53356 on the
finding that the Labor Arbiter had indeed committed grave abuse of
discretion when it proceeded with the ULP case despite the SEC’s
suspension order of December 28, 1994, and accordingly declared the
proceedings before it, including the subsequent orders by the NLRC
dismissing Rubberworld’s appeal and the writ of execution, null and void.
Hence, the petition was filed.
Issue:
1) Whether the CA had committed grave abuse of discretion
amounting to lack of jurisdiction or an excess in the exercise
thereof when it gave due course to the petition filed by
Rubberworld (Phils.), Inc. and annulled and set aside the decisions
rendered by the labor arbiter a quo and the NLRC, when the said
decisions had become final and executory warranting the outright
dismissal of the aforesaid petition;
2) Whether the CA had committed grave abuse of discretion and
reversible error when it applied Section 5(d) and Section 6 (c) of
P.D. No. 902-A, as amended, to the case at bar;
Facts: NO.
I
It cannot be said that the decision of the Labor Arbiter, or the
decision/dismissal order and writ of execution issued by the NLRC, could
ever attain final and executory status. The Labor Arbiter completely
disregarded and violated Section 6(c) of Presidential Decree 902-A, as
amended, which categorically 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 all null and void for having
been undertaken or issued in violation of the SEC suspension Order dated
December 28, 1994. As such, the Labor Arbiter’s decision, including the
dismissal by the NLRC of Rubberworld’s appeal, could not have
achieved a final and executory status.
The Labor Arbiter's decision in this case is void ab initio, and therefore,
non-existent. A void judgment is in effect no judgment at all. No rights
are divested by it nor obtained from it. Being worthless in itself, all
proceedings upon which the judgment is founded are equally worthless.
It neither binds nor bars anyone. All acts performed under it and all claims
flowing out of it are void. In other words, a void judgment is regarded as
a nullity, and the situation is the same as it would be if there were no
judgment. It accordingly leaves the party-litigants in the same position
they were in before the trial.
II
The Court addressed the more substantial issue in this case, namely, the
applicability of the provisions of Section 5 (d) and Section 6 (c) of P.D.
No. 902-A, as amended, reorganizing the SEC, vesting it with additional
powers and placing it under the Office of the President, which
respectively read:
Section 5. In addition to the regulatory adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships and
other forms of associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive jurisdiction
to hear and decide cases involving:
xxx xxx xxx
d) Petitions of corporations, partnerships or associations to be declared in
the state of suspension of payments in cases where the corporation,
partnership or association possesses sufficient property to cover all its
debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the
management of a rehabilitation receiver or management committee
created pursuant to this Decree.
Section 6. In order to effectively exercise such jurisdiction, the
Commission shall possess the following powers:
xxx xxx xxx
c) To appoint one or more receivers of the property, real or personal,
which is the subject of the action pending before the Commission in
accordance with the pertinent provisions of the Rules of Court in such
other cases whenever necessary in order to preserve the rights of the
parties-litigants and/or protect the interest of the investing public and
creditors: x x x Provided, finally, That upon appointment of a
management committee, the rehabilitation receiver, board or body,
pursuant to this Decree, all actions for claims against corporations,
partnerships, or associations under management or receivership pending
before any court, tribunal, board or body shall be suspended accordingly.
xxx xxx xxx
x x x The law is clear: upon the creation of a management committee or
the appointment of a rehabilitation receiver, all claims for actions "shall
be suspended accordingly." No exception in favor of labor claims is
mentioned in the law. Since the law makes no distinction or exemptions,
neither should this Court. Ubi lex non distinguit nec nos distinguere
debemos. Allowing labor cases to proceed clearly defeats the purpose of
the automatic stay and severely encumbers the management committee's
time and resources. The said committee would need to defend against
these suits, to the detriment of its primary and urgent duty to work
towards rehabilitating the corporation and making it viable again. To rule
otherwise would open the floodgates to other similarly situated claimants
and forestall if not defeat the rescue efforts. Besides, even if the NLRC
awards the claims of private respondents, its ruling could not be enforced
as long as the petitioner is under the management committee.
JUANITO A. GARCIA vs.
PHILIPPINE AIRLINES, INC.
G.R. No. 164856. January 20, 2009.
Carpio-Morales, J:
Facts:
Petitioners Alberto J. Dumago and Juanito A. Garcia were employed by
respondent PAL as Aircraft Furnishers Master "C" and Aircraft Inspector,
respectively. They were assigned in the PAL Technical Center.
A Notice of Administrative Charge was served on petitioners. They were
allegedly "caught in the act of sniffing shabu inside the Toolroom
Section," then placed under preventive suspension. Petitioners
vehemently denied the allegations.
Petitioners were dismissed for violation of the PAL Code of Discipline.
Both simultaneously filed a case for illegal dismissal and damages.
In the meantime, the SEC placed PAL under an Interim Rehabilitation
Receiver due to severe financial losses.
The Labor Arbiter rendered a decision in petitioners’ favor finding PAL
guilty of illegal suspension and illegal dismissal and ordering them to
reinstate complainants to their former position without loss of seniority
rights and other privileges and to pay jointly and severally unto the
complainants backwages, 13th month pay and damages and attorney’s
fees.
Meanwhile, the SEC replaced the Interim Rehabilitation Receiver with a
Permanent Rehabilitation Receiver.
The Labor Arbiter issued a Writ of Execution and a Notice of
Garnishment. PAL moved to quash the Writ of Execution and to lift the
Notice of Garnishment. NLRC declared the Writ of Execution and Notice
of Garnishment valid but suspended the said proceedings and referred the
same to the Receiver of PAL for appropriate action.
Issue:
Whether or not PAL being under corporate rehabilitation suspends any
monetary claims to it.
Held: YES.
Since petitioners’ claim against PAL is a money claim for their wages
during the pendency of PAL’s appeal to the NLRC, the same should have
been suspended pending the rehabilitation proceedings. The Labor
Arbiter, the NLRC, as well as the Court of Appeals should have abstained
from resolving petitioners’ case for illegal dismissal and should instead
have directed them to lodge their claim before PAL’s receiver.
Upon appointment by the SEC of a rehabilitation receiver, all actions for
claims against the corporation pending before any court, tribunal or board
shall ipso jure be suspended. The purpose of the automatic stay of all
pending actions for claims is to enable the rehabilitation receiver to
effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the rescue of the
corporation.
More importantly, the suspension of all actions for claims against the
corporation embraces all phases of the suit, be it before the trial court or
any tribunal or before this Court. No other action may be taken, including
the rendition of judgment during the state of suspension. It must be
stressed that what are automatically stayed or suspended are the
proceedings of a suit and not just the payment of claims during the
execution stage after the case had become final and executory.
Furthermore, the actions that are suspended cover all claims against the
corporation whether for damages founded on a breach of contract of
carriage, labor cases, collection suits or any other claims of a pecuniary
nature.19 No exception in favor of labor claims is mentioned in the law.
JOSE MARCEL PANLILIO, vs.
REGIONAL TRIAL COURT, BRANCH 51, CITY OF MANILA.
G.R. No. 173846. February 2, 2011.
Peralta, J:
Facts:
Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal
(petitioners), as corporate officers of Silahis International Hotel, Inc.
(SIHI), filed with the Regional Trial Court (RTC) of Manila, Branch 24,
a petition for Suspension of Payments and Rehabilitation. The RTC of
Manila, Branch 24, issued an Order staying all claims against SIHI upon
finding the petition sufficient in form and substance.
At the time, however, of the filing of the petition for rehabilitation, there
were a number of criminal charges pending against petitioners in Branch
51 of the RTC of Manila. These criminal charges were initiated by
respondent Social Security System (SSS) and involved charges of Estafa.
Consequently, petitioners filed with the RTC of Manila, Branch 51, a
Manifestation and Motion to Suspend Proceedings. Petitioners argued
that the stay order issued by Branch 24 should also apply to the criminal
charges pending in Branch 51.
Petitioners, thus, prayed that Branch 51 suspend its proceedings until the
petition for rehabilitation was finally resolved but Branch 51 issued an
Order denying petitioners’ motion to suspend the proceedings. It ruled
that the stay order issued by Branch 24 did not cover criminal
proceedings. Branch 51 then denied the motion for reconsideration filed
by petitioners. Petitioners filed a petition for certiorari with the CA
assailing the Order of Branch 51 but the CA issued a Decision denying
the petition. Hence petitioners filed before the Supreme Court a petition
for review on certiorari.
Issue:
Whether or not the suspension of “all claims” as an incident to a
corporate rehabilitation also includes the suspension of criminal
charges filed against the corporate officers of the distressed corporation.
Held: NO.
Criminal charges are not included in the “claims” contemplated in the
suspension of claims in corporate rehabilitation proceedings.
In Rosario v. Co (Rosario), a case of recent vintage, the issue resolved by
the Court was whether or not during the pendency of rehabilitation
proceedings, criminal charges for violation of Batas Pambansa Bilang 22
should be suspended and it was ruled that 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.
The rehabilitation of SIHI and the settlement of claims against the
corporation is not a legal ground for the extinction of petitioners’ criminal
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.
SPOUSES EDUARDO SOBREJUANITE vs.
ASB DEVELOPMENT CORPORATION
G.R. No. 165675. September 30, 2005.
Ynares-Santiago, J:
Facts:
On March 7, 2001, spouses Eduardo and Fidela Sobrejuanite
(Sobrejuanite) filed a Complaint for rescission of contract, refund of
payments and damages, against ASB Development Corporation
(ASBDC) before the Housing and Land Use Regulatory Board (HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC
over a condominium unit and a parking space in the BSA Twin Tower-B
Condominum located at Bank Drive, Ortigas Center, Mandaluyong City.
They averred that despite full payment and demands, ASBDC failed to
deliver the property on or before December 1999 as agreed. They prayed
for the rescission of the contract; refund of payments amounting to
P2,674,637.10; payment of moral and exemplary damages, attorney’s
fees, litigation expenses, appearance fee and costs of the suit.
ASBDC filed a motion to dismiss or suspend proceedings in view of the
approval by the Securities and Exchange Commission (SEC) on April 26,
2001 of the rehabilitation plan of ASB Group of Companies, which
includes ASBDC, and the appointment of a rehabilitation receiver. The
HLURB arbiter however denied the motion and ordered the continuation
of the proceedings.
The arbiter found that under the Contract to Sell, ASBDC should have
delivered the property to Sobrejuanite in December 1999; that the latter
had fully paid their obligations except the P50,000.00 which should be
paid upon completion of the construction; and that rescission of the
contract with damages is proper.
The HLURB Board of Commissioners affirmed the ruling of the arbiter
that the approval of the rehabilitation plan and the appointment of a
rehabilitation receiver by the SEC did not have the effect of suspending
the proceedings before the HLURB. The board held that the HLURB
could properly take cognizance of the case since whatever monetary
award that may be granted by it will be ultimately filed as a claim before
the rehabilitation receiver. The board also found that ASBDC failed to
deliver the property to Sobrejuanite within the prescribed period.
ASBDC filed an appeal before the Office of the President which was
dismissed for lack of merit. Hence, ASBDC filed a petition under Section
1, Rule 43 of the Rules of Court before the Court of Appeals, which
granted the petition. The Court of Appeals held that the approval by the
SEC of the rehabilitation plan and the appointment of the receiver caused
the suspension of the HLURB proceedings. The appellate court noted that
Sobrejuanite’s complaint for rescission and damages is a claim under the
contemplation of Presidential Decree (PD) No. 902-A or the SEC
Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of
Procedure on Corporate Rehabilitation, because it sought to enforce a
pecuniary demand. Therefore, jurisdiction lies with the SEC and not
HLURB. It also ruled that ASBDC was obliged to deliver the property in
December 1999 but its financial reverses warranted the extension of the
period.
Issue:
Whether or not the claim of petitioner is within the jurisdiction of SEC
Held: YES.
Yes. Section 6(c) of PD No. 902-A empowers the SEC:
c) To appoint one or more receivers of the property, real and personal,
which is the subject of the action pending before the Commission …
whenever necessary in order to preserve the rights of the parties-litigants
and/or protect the interest of the investing public and creditors: …
Provided, finally, That upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all actions
for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or
body shall be suspended accordingly.
The purpose for the suspension of the proceedings is to prevent a creditor
from obtaining an advantage or preference over another and to protect
and preserve the rights of party litigants as well as the interest of the
investing public or creditors. Such suspension is intended to give enough
breathing space for the management committee or rehabilitation receiver
to make the business viable again, without having to divert attention and
resources to litigations in various fora. The suspension would enable the
management committee or rehabilitation receiver to effectively exercise
its/his powers free from any judicial or extra-judicial interference that
might unduly hinder or prevent the "rescue" of the debtor company. To
allow such other action to continue would only add to the burden of the
management committee or rehabilitation receiver, whose time, effort and
resources would be wasted in defending claims against the corporation
instead of being directed toward its restructuring and rehabilitation.
Thus, in order to resolve whether the proceedings before the HLURB
should be suspended, it is necessary to determine whether the complaint
for rescission of contract with damages is a claim within the
contemplation of PD No. 902-A.
In Finasia Investments and Finance Corp. v. Court of Appeals, we
construed claim to refer only to debts or demands pecuniary in nature.
Thus:
[T]he word ‘claim’ as used in Sec. 6(c) of P.D. 902-A refers to debts or
demands of a pecuniary nature. It means "the assertion of a right to have
money paid. It is used in special proceedings like those before
administrative court, on insolvency."
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured; or right to an
equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, unsecured.
In Arranza v. B.F. Homes, Inc., claim is defined as referring to actions
involving monetary considerations.
Finasia Investments and Finance Corp. v. Court of Appeals and Arranza
v. B.F. Homes, Inc. were promulgated prior to the effectivity of
the Interim Rules of Procedure on Corporate Rehabilitation on
December 15, 2000. 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.
Incidentally, although the petition for rehabilitation with prayer for
suspension of actions and proceedings was filed before the SEC on May
2, 2000, or prior to the effectivity of the interim rules, the same would
still apply pursuant to Section 1, Rule 1 thereof which provides:
Section 1. Scope – These Rules shall apply to petitions for rehabilitation
filed by corporations, partnerships, and associations pursuant to
Presidential Decree No. 902-A, as amended.
Clearly then, the complaint filed by Sobrejuanite is a claim as defined
under the Interim Rules of Procedure on Corporate Rehabilitation. Even
under our rulings in Finasia Investments and Finance Corp. v. Court of
Appeals and Arranza v. B.F. Homes, Inc., the complaint for rescission
with damages would fall under the category of claim considering that it
is for pecuniary considerations.
In this case, under the complaint for specific performance before the
HLURB, petitioners do not aim to enforce a pecuniary demand. Their
claim for reimbursement should be viewed in the light of respondent’s
alleged failure to observe its statutory and contractual obligations to
provide petitioners a "decent human settlement" and "ample opportunities
for improving their quality of life." The HLURB, not the SEC, is
equipped with the expertise to deal with that matter.
VICTORIO-AQUINO vs.
PACIFIC PLANS, INC
G.R. No. 193108 December 10, 2014
Peralta, J:
Facts:
Respondent Pacific Plans, Inc. (now “APEC”) is engaged in the business
of selling pre-need plans and educational plans, including traditional
open-ended educational plans (PEPTrads). PEPTrads are educational
plans where respondent guarantees to pay the planholder, without regard
to the actual cost at the time of enrolment, the full amount of tuition and
other school fees of a designated beneficiary. Petitioner is a holder of two
(2) units of respondent’s PEPTrads.
On April 7, 2005, foreseeing the impossibility of meeting its obligations
to the availing planholders as they fall due, respondent filed a Petition for
Corporate Rehabilitation with the Regional Trial Court, praying that it be
placed under rehabilitation and suspension of payments. At the time of
filing of the Petition for Corporate Rehabilitation, respondent had more
or less 34,000 outstanding PEPTrads.
On April 12, 2005, the Rehabilitation Court issued a Stay Order, directing
the suspension of payments of the obligations of respondent and ordering
all creditors and interested parties to file their comments/oppositions,
respectively, to the Petition for Corporate Rehabilitation. The same Order
also appointed respondent Marcelo as the rehabilitation receiver.
Pursuant to the prevailing rules on corporate rehabilitation, respondent
submitted to the Rehabilitation Court its proposed rehabilitation plan.
Under the terms thereof, respondent proposed the implementation of a
“Swap,” which will essentially give the planholder a means to exit from
the PEPTrads at terms and conditions relative to a termination value that
is more advantageous than those provided under the educational plan in
case of voluntary termination.
The rehabilitation receiver submitted an Alternative Rehabilitation Plan
and was approved by the Court. However due to the fact that the value of
the Philippine Peso strengthened and appreciated, the rehabilitation
receiver submitted a Modified Rehabilitation Plan.
Issue:
Whether or not the Rehabilitation Court has the authority to sanction a
rehabilitation plan, or the modification thereof, even when the essential
feature of the plan involves forcing creditors to reduce their claims
against respondent.
Held: YES.
The Court upheld the “cram-down” power of the Rehabilitation Court
pursuant to Sec. 23 of FRIA which states that the court may approve a
rehabilitation plan over the opposition of creditors, holding a majority of
the total liabilities of the debtor if, in its judgment, the rehabilitation of
the debtor is feasible and the opposition of the creditors is manifestly
unreasonable.
Under Section 64 of Republic Act (R.A.) No. 10142, otherwise known as
Financial Rehabilitation and Insolvency Act of 2010 (FRIA), the latest
law on corporate rehabilitation and insolvency, states that
notwithstanding the rejection of the Rehabilitation Plan by the creditors,
the court may confirm the Rehabilitation Plan if all of the following
circumstances are present: 1) The Rehabilitation Plan complies with
the requirements specified in this Act; 2) The rehabilitation receiver
recommends the confirmation of the Rehabilitation Plan; 3) The
shareholders, owners or partners of the juridical debtor lose at least
their controlling interest as a result of the Rehabilitation Plan; and 4) The
Rehabilitation Plan would likely provide the objecting class
of creditors with compensation which has a net present value greater than
that which they would have received if the debtor were under liquidation.