SPECCOM DIGESTS
FRIA (RA 10142)
Xavier University College of Law
|AGOT GAID|
CASE FACTS
1. Metropolitan Bank vs. S.F. Nagulat, Spouses Naguiat and S.F. Naguiat Enter-
G.R. No. 178407, March 18, 2015 prises, Inc. executed a REM in favor of Me-
trobank to secure the P17 million loan. S.F.
Naguiat filed a Petition for Voluntary Insol-
vency with Application
plication for the Appointment of
a Receiver pursuant before the RTC Angeles
City.Among the assets declared in the Peti-
tion was the property mortgaged to Metro-
bank.
In lieu of a Comment, Metrobank filed a Ma-
nifestation and Motion to withdraw from the
insolvency proceedings because it intended
to extrajudicially foreclose the mortgaged
property. The property was foreclosed and
was sold to Phoenix Global Energy,
Inc.However, the Executive judge denied the
application for the Certificate of Sale in view
of the July 12, 2005 Order issued by the in-
solvency court. MB appealed via certiorari.
CA dismissed the petition for Metrobank’s
failure to “obtain the permission of the insol-
vency court to extrajudicially
extraj foreclose the
mortgaged property.”
erty.”
“It doesn’t matter how slowly you go as long as you do not stop.”
ISSUE
Whether or not the approval and
consent of the insolvency court is
required under Act No. 1956, other-
wise known as the Insolvency Law,
before a secured creditor like peti-
tioner Metropolitan Bank and Trust
Company can proceed with the ex-
trajudicial foreclosure of the mort-
gaged property.
FRIA RELATED-RULING
YES, the approval is needed. With the
declaration of insolvency of the debtor,
insolvency courts “obtain full and complete
jurisdiction over all property of the insol-
vent and of all claims by and against [it.]” It
follows that the insolvency court has ex-
clusive jurisdiction to deal with the proper-
ty of the insolvent. Consequently, after the
mortgagor-debtor has been declared in-
solvent and the insolvency court has ac-
quired control of his estate, a mortgagee
may not, without the permission of the in-
solvency court, institute proceedings to
enforce its lien. In so doing, it would inter-
fere with the insolvency court’s possession
and orderly administration of the insol-
vent’s properties.
The purpose of insolvency proceedings is
“to encourage debtors . . . and their credi-
tors to collectively and realistically resolve
and adjust competing claims and property
rights” while “maintain[ing] certainty and
predictability in commercial affairs, pre-
serv[ing] and maximiz[ing] the value of the
assets of these debtors, recogniz[ing]
creditor rights and respect[ing] priority of
claims, and ensur[ing] equitable treatment
of creditors who are similarly situated.” It
has also been provided that whenever
rehabilitation is no longer feasible, “it is in

2. Viva Shipping Lines vs. Keppel
Phil. Mining, GR No. 177382, Feb-
ruary 17, 2016
“It doesn’t matter how slowly you go as long as you do not stop.”
Petitioner filed a Petition for Corporate Reha-
bilitation. Regional Trial Court found that res-
pondents Amended Petition to be “sufficient in
form and substance,” and issued a stay order.
Before the initial hearing, the City of Batan-
gas, Keppel Philippines Marine, Inc., and Me-
trobank filed their respective comments and
oppositions to Viva Shipping Lines’ Amended
Petition.
Whether or not creditors need to be
impleaded as respondents in the
appeal (PROCEDURAL)
Whether petitioner can be rehabili-
tated (SUBSTANTIVE)
the interest of the State to facilitate a
speedy and orderly liquidation of [the] deb-
tors’ assets and the settlement of their
obligations.”
The relevant proceedings in this case took
place prior to Republic Act No. 10142;
hence, the issue will be resolved Act No.
1956 impliedly requires a secured creditor
to ask the permission of the insolvent
court before said creditor can foreclose
the mortgaged property. When read to-
gether, the following provisions of Act No.
1956 reveal the necessity for leave of the
insolvency court:
Petitioner should have waited for the in-
solvency court to act on its Manifestation
and Motion before foreclosing the mort-
gaged property and its lien (assuming va-
lid) would not be impaired or its claim in
any way jeopardized by any reasonable
delay. There are mechanisms within Act
No. 1956 such as Section 59 that ensure
that the interests of the secured creditor
are adequately protected. Mortgage liens
are retained in insolvency proceedings.
What is merely suspended until court ap-
proval is obtained is the creditor’s en-
forcement of such preference.
Procedural Issue
YES. New Frontier Sugar doctrinally re-
quires compliance with the procedural
rules for appealing corporate rehabilitation
decisions. It is true that Rule 1, Section 6
of the Rules of Court provides that the
“[r]ules shall be liberally construed in order
to promote their objective of securing a
just, speedy and inexpensive disposition
 Metrobank filed a Motion for Production or
Inspection of relevant documents relating to
Viva Shipping Lines’ business operations.Viva
Shipping Lines filed its opposition. RTC
granted Metrobank’s Motion. Viva Shipping
Lines failed to comply with the Order to pro-
duce the documents, as well as with the Re-
gional Trial Court Order to submit a memo-
randum.
RTC lifted the stay order and dismissed Viva
Shipping Lines Amended Petition for failure to
show the company’s viability and the feasibili-
ty of rehabilitation. RTC found that Viva Ship-
ping Lines’ assets all appeared to be nonper-
forming. Further, it noted that Viva Shipping
Lines failed to show any evidence of consent
to sell real properties belonging to its sister
company.
Viva Shipping Lines filed a Petition for Review
under Rule 43 of the Rules of Court before
the CA. It only impleaded the Presiding Judge
of the trial court that rendered the assailed
decision. It did not implead any of its credi-
tors.
CA dismissed Viva Shipping Lines’ petition.
Viva Shipping Lines failed to comply with pro-
cedural requirements under Rule 43. CA ruled
that due to the failure of Viva Shipping Lines
to implead its creditors as respondents, “there
are no respondents who may be required to
file a comment on the petition, pursuant to
Section 8 of Rule 43.”
“It doesn’t matter how slowly you go as long as you do not stop.”
of every action and proceeding.” However,
this provision does not negate the entire
Rules of Court by providing a license to
disregard all the other provisions. Resort
to liberal construction must be rational and
well-grounded, and its factual bases must
be so clear such that they outweigh the
intent or purpose of an apparent reading
of the rules.Clearly then, there are in-
stances when corporate rehabilitation can
no longer be achieved. When rehabilita-
tion will not result in a better present value
recovery for the creditors, the more ap-
propriate remedy is liquidation.
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 argu-
ments 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.
Substantive issue
No.The Regional Trial Court correctly dis-
missed the Amended Petition for Corpo-
rate Rehabilitation. The dismissal of the
Amended Petition did not emanate from
petitioner’s failure to provide complete de-
tails on its assets and liabilities but on the
trial court’s finding that rehabilitation is no
longer viable for petitioner. Under the Inte-
rim Rules of Procedure on Corporate Re-
 habilitation, a “petition shall be dismissed
if no rehabilitation plan is approved by the
court upon the lapse of one hundred eigh-
ty (180) days from the date of the initial
hearing.” The proceedings are also
deemed terminated upon the trial court’s
disapproval of a rehabilitation plan, “or a
determination that the rehabilitation plan
may no longer be implemented in accor-
dance with its terms, conditions, restric-
tions, or assumptions.”

Petitioner’s RP 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 peti-
tioner’s main business cannot result in
rehabilitation. A business primarily en-
gaged 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 con-
trary 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.

“It doesn’t matter how slowly you go as long as you do not stop.”
3. Wonder Book Corp. Vs. Phil. Bank
of Communications, GR No.
187316, July 16, 2012
4. BPI vs. Sarabia Manor Hotel, GR
No. 175844, July 29, 2013
“It doesn’t matter how slowly you go as long as you do not stop.”
Wonder Book filed a petition for rehabilitation.
Wonder Book cited the following as causes
for its inability to pay its debts as they fall due:
(a) high interest rates, penalties and charges
imposed by its creditors; (b) low demand for
gift items and greeting cards due to the wide-
spread use of cellular phones and economic
recession; (c) competition posed by other
stores; and (d) the fire on July 19, 2002 that
destroyed its inventories worth P264 Million,
which are insured for P245 Million but yet to
be collected. Wonder Book’s rehabilitation
plan put forward a payment program that
guaranteed full payment of its loan from
PBCOM after fifteen (15) years at a reduced
interest.
RTC approved the RP.
PBCOM filed a petition for review of the ap-
proval of Wonder Book’s rehabilitation plan,
which the CA granted. According to the CA,
Wonder Book’s financial statements reveal
that it is not merely illiquid but in a state of
insolvency. The CA noted that Wonder Book
failed to support its petition with reassuring
“material financial commitments”. The CA al-
so noted that Wonder Book’s expected profits
during the rehabilitation period are not suffi-
cient to cover its liabilities and reverse its
dismal financial state.
Respondent Sarabia is a corporation duly or-
ganized for the primary purpose of owning,
leasing, managing and/or operating hotels,
restaurants, barber shops, beauty parlors,
sauna and steam baths, massage parlors and
such other businesses incident to or neces-
sary in the management or operation of ho-
tels.
Whether or not Wonder Book’s peti-
tion for rehabilitation is impressed
with merit and this Court rules in the
negative.
Whether or not the CA correctly af-
firmed Sarabia’s rehabilitation plan
as approved by the RTC, with the
modification on the reinstatement of
the surety obligations of Sarabia’s
stockholders.
NO. Rehabilitation contemplates a conti-
nuance of corporate life and activities in
an effort to restore and reinstate the cor-
poration to its former position of success-
ful operation and solvency. 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. The rehabilitation
of a financially distressed corporation
benefits its employees, creditors, stock-
holders and, in a larger sense, the general
public.
Rehabilitation is therefore available to a
corporation who, while illiquid, has assets
that can generate more cash if used in its
daily operations than sold. Its liquidity is-
sues can be addressed by a practicable
business plan that will generate enough
cash to sustain daily operations, has a
definite source of financing for its proper
and full implementation, and anchored on
realistic assumptions and goals.
The figures appearing on Wonder Book’s
financial documents and the nature and
value of its assets are indeed discouraging

YES. Records show that Sarabia has
been in the hotel business for over thirty
years, tracing its operations back to 1972.
Its hotel building has been even consi-
dered a landmark in Iloilo, being one of its
kind in the province and having helped
bring progress to the community. Since
then, its expansion was continuous which
led to its decision to commence with the
 Sarabia obtained a P150,000,000.00 special
loan package from Far East Bank and Trust
Company (FEBTC), now merged with BPI.
However, largely because of the delayed
completion of the New Building, Sarabia in-
curred various cash flow problems. Thus, de-
spite the fact that it had more assets than lia-
bilities at that time, it, nevertheless, filed, for
corporate rehabilitation.
RTC approved the rehabilitation petition. It
found to be viable since, based on the extra-
polations made by the Receiver, Sarabia’s
revenue projections, albeit projected to slow
down, remained to have a positive busi-
ness/profit outlook altogether.
CA affirmed RTC with the modification of
reinstating the surety obligations of Sarabia’s
stockholders to BPI as an additional safe-
guard for the effective implementation of the
approved rehabilitation plan.
BPI mainly argues that the approved rehabili-
tation plan did not give due regard to its inter-
ests as a secured creditor in view of the im-
position of a fixed interest rate of 6.75% p.a.
and the extended loan repayment period. It
likewise avers that Sarabia’s misrepresenta-
tions in its rehabilitation petition remain unre-
solved.
On the contrary, Sarabia essentially maintains
that: (a) the present petition improperly raises
questions of fact; (b) the approved rehabilita-
tion plan takes into consideration all the inter-
ests of the parties and the terms and condi-
tions stated therein are more reasonable than
what BPI proposes; and (c) BPI’s allegations
of misrepresentation are mere desperation
moves to convince the Court to overturn the
“It doesn’t matter how slowly you go as long as you do not stop.”
construction of a new hotel building. Un-
fortunately, its contractor defaulted which
impelled Sarabia to take-over the same.
This significantly skewed its projected rev-
enues and led to various cash flow difficul-
ties, resulting in its incapacity to meet its
maturing obligations.
Recognizing the volatile nature of every
business, the rules on corporate rehabilita-
tion have been crafted in order to give
companies sufficient leeway to deal with
debilitating financial predicaments in the
hope of restoring or reaching a sustaina-
ble operating form if only to bestaccom-
modate the various interests of all its
stakeholders, may it be the corporation’s
stockholders, its creditors and even the
general public.
Interim Rules states that a rehabilitation
plan may be approved even over the
opposition of the creditors holding a
majority of the corporation’s total liabil-
ities if there is a showing that rehabili-
tation is feasible and the opposition of
the creditors is manifestly unreasona-
ble. Also known as the “cram-down”
clause, this provision, which is currently
incorporated in the FRIA, is necessary to
curb the majority creditors’ natural tenden-
cy to dictate their own terms and condi-
tions to the rehabilitation, absent due re-
gard to the greater long-term benefit of all
stakeholders.

5. Victorio-Aquino vs. Pacific Plans
Inc., GR No. 193108, December
10, 2014
“It doesn’t matter how slowly you go as long as you do not stop.”
rulings of the courts a quo.
Respondent Pacific Plans, Inc. Is engaged in
the business of selling pre-need plans and
educational plans, including traditional open-
ended educational plans (PEPTrads). Peti-
tioner is a holder of 2 units of respondent’s
PEPTrads. Respondent then filed a Petition
for Corporate Rehabilitation. The Rehabilita-
tion Court issued a Stay Order, directing the
suspension of payments of the obligations of
respondent and ordering all creditors and in-
terested parties to file their com-
ments/oppositions, respectively, to the Peti-
tion for Corporate Rehabilitation.
Respondent proposed the implementation of
a “Swap,” which will essentially give the plan-
holder 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. Because of the ap-
preciation of the value of Peso affecting the
US denominated bonds of the respondent,
they submitted a Modified Rehabilitation
Plan.Petitioner questioned the MRP.
CA dismissed petition for review : (a) petition-
er did not pay the proper amount of docket
fees; (b) a Petition for Review under Rule 43
is an improper remedy to question the ap-
proval of a modified rehabilitation plan; (c)
contrary to petitioner’s claim, the alterations in
the MRP are consistent with the goals of the
ARP; and (d) the approval of the MRP did not
amount to an impairment of the contract be-
tween petitioner and respondent.
Whether or not it was beyond the
authority of the Rehabilitation Court
to sanction a rehabilitation plan, or
the modification thereof, when the
essential feature of the plan involves
forcing creditors to reduce their
claims against respondent.
NO. Petitioner’s argument is misplaced.
The “cram-down” power of the Rehabilita-
tion Court has long been established and
even codified under Section 23, Rule 4 of
the Interim Rules, to wit:
Section 23. Approval of the Rehabilitation
Plan.—The court may approve a rehabili-
tation plan over the opposition of creditors,
holding a majority of the total liabilities of
the debtor if, in its judgment, the rehabilita-
tion of the debtor is feasible and the oppo-
sition of the creditors is manifestly unrea-
sonable.
Also known as the “cram-down” clause,
this provision, which is currently incorpo-
rated in the FRIA, is necessary to curb the
majority creditors’ natural tendency to dic-
tate their own terms and conditions to the
rehabilitation, absent due regard to the
greater long-term benefit of all stakehold-
ers. Otherwise stated, it forces the credi-
tors to accept the terms and conditions of
the rehabilitation plan, preferring long-term
viability over immediate but incomplete
recovery.
This defense mechanism is reasonable
because sustaining the current terms of
the ARP would render the trust fund of no
value given the high probability of its dilu-
tion. Resultantly, the very foundation of
the rehabilitation plan, which is to minim-
ize the loss of all stakeholders, would be
rendered in futile since the trust funds may
no longer be sufficient to meet the basic
terms of the ARP.
6. Phil. Bank of Communications vs.
Basic Polyprinters, GR No. 187581,
October 20, 2014
“It doesn’t matter how slowly you go as long as you do not stop.”
Respondent was a domestic corporation en-
gaged in the business of printing greeting
cards, gift wrappers, gift bags, calendars,
posters, labels and other novelty items.
Respondent, along with the 8 other corpora-
tions belonging to the Limtong Group of
Companies (along with WonderBook Corp. in
case no. 3) filed a joint petition for suspension
of payments. The RTC issued a stay order,
and eventually approved the RP, but the CA
reversed the RTC directed the petitioning
corporations to file their individual petitions for
suspension of payments and rehabilitation in
the appropriate courts.
Basic Polyprinters brought its individual peti-
tion, averring that:.. (c) the Asian currency
crisis, devaluation of the Philippine peso, and
the current state of affairs of the Philippine
economy, coupled with: (i) high interest rates,
penalties and charges by its creditors; (ii) low
demand for gift items and cards due to the
economic recession and the use of cellular
phones; (iii) direct competition from stores like
SM, Gaisano, Robinsons, and other malls, fire
etc.. (e) included in its overall RP was the full
payment of its outstanding loans in favor of
petitioner, And other banks via repayment
over 15 years with moratorium of two years
for the interest and five years for the principal
at 5% interest p.a.
RTC approved the RP. PBCOM appealed to
the CA in due course. CA affirmed RTC.
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 indeb-
tedness because it only foresees the impos-
Whether or not the approval of the
rehabilitation plan was proper de-
spite: (a) the alleged insolvency of
Basic Polyprinters; and (b) absence
of a material financial commitment
pursuant to Section 5, Rule 4 of the
Interim Rules.
NO. The approval was improper, but li-
quidity was not an issue in a petition for
rehabilitation. 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.24 Consequently, the basic is-
sues in rehabilitation proceedings concern
the viability and desirability of continuing
the business operations of the petitioning
corporation.
Moreover, FRIA 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 R.A.No. 10142 as “the financial
condition of a debtor that is generally una-
ble 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.”28 As such, the contention that
rehabilitation becomes inappropriate be-
cause of the perceived insolvency of Basic
Polyprinters was incorrect.
A material financial commitment is signifi-
cant in a rehabilitation plan. A material
financial commitment becomes significant
in gauging the resolve, determination,
earnestness and good faith of the dis-
tressed corporation in financing the pro-
posed rehabilitation plan.
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.34 A claim that has been writ-
 sibility of paying the indebtedness falling due. ten off is considered a bad debt or a
worthless asset,35 and cannot be deemed
The petitioner also argues that respondent did a material financial commitment for pur-
not present any material financial commitment poses of rehabilitation.
in the rehabilitation plan.
Basic Polyprinters’s rehabilitation plan
likewise failed to offer any proposal on
how it intended to address the low de-
mands for their products and the effect of
direct competition from stores like SM,
Gaisano, Robinsons, and other malls.
Even the P245 million insurance claim that
was supposed to cover the destroyed in-
ventories worth P264 million appears to
have been written off with no probability of
being realized later on.

7. Phil. Asset Growth vs. Fastech
Synergy Phil., GR No. 206528,
June 28, 2016
Respondents filed a verified Joint Petition for Whether or not the Rehabilitation
corporate rehabilitation. Among the common Plan is feasible.
creditors listed in the rehabilitation petition
was Planters Development Bank (PDB),
which had earlier filed a petition for extrajudi-
cial foreclosure of mortgage over the two (2)
parcels of land and registered in the name of
Fastech Properties (subject properties), listed
as common assets of respondents in the re-
habilitation petition. PDB was the highest bid-
der. Respondents claimed that this situation
has impacted on their chance to recover from
the losses they have suffered over the years,
since the said properties are being used by
Fastech Microassembly and Fastech Electro-
nique17 in their business operations, and a
source of significant revenue for their owner-
lessor, Fastech Properties.
RTC Makati dismissed the rehabilitation peti-
tion despite the favourable recommendation
of its appointed Rehabilitation Receiver. It
found the facts and figures submitted by res-
pondents to be unreliable in view of the dis-
NO. Rehabilitation shall refer to the resto-
ration of the debtor to a condition of
successful operation and solvency, if it
is shown that its continuance of operation
is economically feasible and its creditors
can recover by way of the present value of
payments projected in the plan, more if the
debtor continues as a going concern than
if it is immediately liquidated. Thus, the
basic issues in rehabilitation proceedings
concern the viability and desirability of
continuing the business operations of the
distressed corporation,79 all with a view of
effectively restoring it to a state of solven-
cy or to its former healthy financial condi-
tion through the adoption of a rehabilita-
tion plan.
In the present case, however, the Rehabil-
itation Plan failed to comply with the mini-
mum requirements, i.e.: (a) material finan-
cial commitments (same with Basic Poly-
printers case) to support the rehabilitation
plan; and (b) a proper liquidation analysis.

“It doesn’t matter how slowly you go as long as you do not stop.”

8. Bustos vs, Millians Shoe Inc., GR
No. 185024, April 4, 2017
“It doesn’t matter how slowly you go as long as you do not stop.”
claimer of opinion of the independent auditors
who reviewed respondents’ 2009 financial
statements, which it considered as amounting
to a “straightforward unqualified adverse opi-
nion.
CA reversed RTC. It ruled that the RTC-
Makati grievously erred in disregarding the
report/opinion of the Rehabilitation Receiver
that respondents may be successfully rehabi-
litated, despite being highly qualified to make
an opinion on accounting in relation to reha-
bilitation matters.
Considering that respondents’ creditors are
placed in equal footing as a necessary con-
sequence, it permanently enjoined PDB from
“effecting the foreclosure” of the subject prop-
erties during the implementation of the Reha-
bilitation Plan.
Petitioners are now claiming that the CA erred
in not upholding the dismissal of the rehabili-
tation petition despite the insufficiency of the
RP which was based on financial statements
that contained misleading statements, and
financial projections that are mere unfounded
assumptions/speculations.
Spouses Cruz owned a 464- square-meter
lot. The City Government of Marikina levied
the property for nonpayment of real estate
taxes. The Notice of Levy was annotated on
the title on. On 14 October 2004, the City
Treasurer of Marikina auctioned off the prop-
erty, with petitioner emerging as the winning
bidder.
Petitioner then applied for the cancellation of
TCT. The RTC Marikina ordered the cancella-
tion of the previous title and the issuance of a
Whether or not the CA correctly con-
sidered the properties of Spouses
Cruz answerable for the obligations
of MSI. If yes, then it is properly in-
cluded in the Stay Order.
The Court also notes that while respon-
dents have substantial total assets, a large
portion of the assets of Fastech Synergy
and Fastech Properties is comprised of
noncurrent assets. Respondents likewise
failed to include any liquidation analysis in
their Rehabilitation Plan. The total liquida-
tion assets and the estimated liquidation
return to the creditors, as well as the fair
market value vis-à-vis the forced liquida-
tion value of the fixed assets were not
shown.
(The test in evaluating the economic fea-
sibility was mentioned; it was laid down in
BPI v. Sarabia Manor Hotel Corporation,
case no. 4) In order to determine the fea-
sibility of a proposed rehabilitation plan, it
is imperative that a thorough examination
and analysis of the distressed corpora-
tion’s financial data must be conducted.
NO. In rehabilitation proceedings, claims
of creditors are limited to demands of
whatever nature or character against a
debtor or its property, whether for mon-
ey or otherwise. In several cases, we have
already held that stay orders should only
cover those claims directed against corpo-
rations or their properties, against their
guarantors, or their sureties who are not
solidarily liable with them, to the exclusion
of accommodation mortgagors.
 new one under the name of petitioner. Mean- Properties merely owned by stockholders
while, notices of lis pendens were annotated cannot be included in the inventory of as-
on the TCT. It involved the rehabilitation pro- sets of a corporation under rehabilitation.
ceedings for MSI, covered the subject proper- Given that the true owner the subject
ty and included it in the Stay Order issued by property is not the corporation, petitioner
the RTC dated 25 October 2004. cannot be considered a creditor of MSI but
a holder of a claim against respondent
Petitioner moved for the exclusion of the sub- spouses.
ject property from the Stay Order. He claimed
that the lot belonged to Spouses Cruz who
were mere stockholders and officers of MSI.
He further argued that since he had won the
bidding of the property on 14 October 2004,
or before the annotation of the title on 9 Feb-
ruary 2005, the auctioned property could no
longer be part of the Stay Order.

RTC denied the entreaty of petitioner: the pe-

riod of redemption up to 15 October 2005 had
not yet lapsed at the time of the issuance of
the Stay Order on 25 October 2004, the own-
ership thereof had not yet been transferred to
petitioner.

CA : The Cruz Spouses were still the owners

of the land at the time of the issuance of the
stay order. The said parcel of land which se-
cured several mortgage liens for the account
of MSI remains to be an asset of the Cruz
Spouses, who are the stockholders and/or
officers of MSI, a close corporation. As an
exception to the general rule, in a close cor-
poration, the stockholders and/or officers
usually manage the business of the corpora-
tion and are subject to all liabilities of direc-
tors, i.e., personally liable for corporate debts
and obligations. Thus, the Cruz Spouses be-
ing stockholders of MSI are personally liable
for the latter’s debt and obligations.

9. Allied Banking Corp. vs. Equitable Respondent Equitable PCI Bank, Inc., as Whether or not the rehabilitation YES. The petition itself, when granted by

“It doesn’t matter how slowly you go as long as you do not stop.”
 PCI Bank, GR No. 191939, March
14, 2018
creditor, filed a petition for the corporate
rehabilitation of its debtor Steel Corporation of
the Phil. with the RTC. It alleged that due to
the onslaught of the 1997 Asian Financial Cri-
sis, ....; that SCP also defaulted on its loan
obligations and that the petition for corporate
rehabilitation is grounded on the Interim Rules
of Corporate Rehabilitation, which provides
that “.....or any creditor or creditors holding at
least 25% of the debtor’s total liabilities, may
petition the proper Regional Trial Court to
have the debtor placed under rehabilitation.”
On the other hand, petitionerAllied Banking
Corporation (ABC) granted SCP with a revolv-
ing credit facility denominated as a letter of
credit/trust receipt line in the amount of P100
million, which SCP availed of to finance the
importation of its raw materials.
RTC issued an Order granted EPCIB’s peti-
tion.
court can reverse or invalidate acts
that are inconsistent with its stay
order and are made after its is-
suance but prior to its publication.
the court, is already recognition of the
debtor’s distressed financial status not
only at the time the order is issued, but
also at the time the petition is filed. It is,
therefore, more consistent with the objec-
tives of rehabilitation to recognize that the
effects of an order commencing rehabilita-
tion proceedings and staying claims
against the debtor should retroact to the
date the petition is filed.
The immediate effectivity of the stay order
means that the RTC, through an order
commencing rehabilitation and staying
claims against the debtor, acknowledges
that the debtor requires rehabilitation im-
mediately and therefore it can not only
prohibit but also nullify acts made after its
effectivity, when such acts are violative of
the stay order, to prevent any irreparable
detriment to the debtor’s successful resto-
ration.

Petitioner applied the remaining proceeds of

SCP’s Current Account in the amount of
P6,750,000.00, maintained with its Aguirre
Branch, to its obligations under the TR. SCP
filed an urgent omnibus motion alleging that
petitioner violated the rehabilitation
court’s stay order when it applied the
proceeds of its current account to the pay-
ment of obligations covered by the stay order.
Petitioner ABC filed an opposition, mainly
contending that SCP’s obligations with it had
become due and demandable, rendering legal
compensation valid and proper;
RTC granted SCP’motion. CA affirmed RTC
and further ruled that the subject account was
already under custodia legis by virtue of the
stay order, rendering ABC’s unilateral applica-
tion of the proceeds in the subject account

“It doesn’t matter how slowly you go as long as you do not stop.”

10. Metropolitan Bank vs. Fortuna Pa-
per Mill, GR No. 190800, Novem-
ber 7, 2018
“It doesn’t matter how slowly you go as long as you do not stop.”
improper.
MBTC extended various credit accommoda- Whether or not the CA erred in af- YES, BUT CASE WAS DISMISSED FOR
tions and loan facilities to Fortuna. Fortuna, firming the Rehabilitation Plan ap- BEING MOOT AND ACADEMIC. The
before the closure of its business and cessa- proved by the RTC. RTC's Order terminating the rehabilitation
tion of its operations in 2006, was organized proceedings effectively puts an end to the
to manufacture special and craft papers from, judicial controversy between the parties.
waste and scrap materials, and which it used Nonetheless, this Court still considers it
to sell its products principally to manufactur- necessary to touch on the question of
ers of corrugated boxes, cement paper bags, whether or not a corporation in debt may
and other stationary paper products. qualify for coiporate rehabilitation, Fortuna
in this case, despite the finding of the low-
Fortuna mortgaged to MBTC its real and er court, belatedly brought to this Court's
movable properties as well as several pieces attention. Ruling on the merits despite a
of realty owned by several sister companies. ruling of the lower court rendering the
Fortuna defaulted on its obligations to MBTC, case moot and academic, is not novel.
and failed to pay said indebtedness despite
repeated demands on the part of MBTC. Fortuna is qualified to file for corporate
rehabilitation. Rehabilitation refers to the
Instead of paying the overdue obligations to restoration of the debtor to a condition of
MBTC, Fortuna filed a Petition for Corporate successful operation and solvency, if it is
Rehabilitation. Attached therein was Fortuna's shown that its continuance of operation is
proposed RP, which consisted mainly of (i) economically feasible and its creditors can
the resumption and continuance of its busi- recover by way of the present value of
ness, to be made possible by the entry of a payments projected in the plan, more if the
supposed investor and a debt moratorium on debtor continues as a going concern than
principal interest, and (ii) entry into the busi- if it is immediately liquidated.
ness condominium development.
A plain reading of the provision shows that
RTC approved the RP. The CA affirmed RTC the Interim Rules does not make any dis-
as it found that the rehabilitation was feasible, tinction between a corporation which is
and the opposition of the petitioning creditors already in debt and a corporation which
was manifestly unreasonable. foresees the possibility of debt, or which
would eventually yet surely fall into the
MBTC argues that a corporation may petition same, but may at present be free from any
that it be placed under rehabilitation only if it financial liability.
is in the financial condition of a debtor who
foresees the majority of its debts and its fail- Upon cursory reading of the report and
ure to meet them. recommendation of Atty. Teston, it can be
seen that Fortuna maintains a status of
solvency, having more assets than its lia-
 bilities with a 71M margin. However, even
hypothetically granting that Fortuna is al-
ready in a state of insolvency, the Court
finds that is not precluded from filing its
Rehabilitation Petition to facilitate its resto-
ration to its former business' stability. For-
tuna is seeking a fresh start to lift itself
from its present financial predicament.
Thus, the foreseen viable rehabilitation of
Fortuna would be more advantageous to
the business community and its creditors
rather than proceed with its liquidation
which may possibly lead to its eventual
corporate death.

“It doesn’t matter how slowly you go as long as you do not stop.”