Fria-cases.pdf

1. MARILYN VICTORIO-AQUINO v. PACIFIC PLANS, INC. and MAMERTO A. MARCELO, JR. (Court-Appointed Rehabilitation Receiver of Pacific Plans, Inc.) FACTS: Respondent Pacific Plans, Inc. (now Abundance Providers and Entrepreneurs Corporation or "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.4 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 (Rehabilitation Court), praying that it be placed under rehabilitation and suspension of payments pursuant to Presidential Decree (P.D.) No. 902-A, as amended, in relation to the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules).6 At the time of filing of the Petition for Corporate Rehabilitation, respondent had more or less thirty four thousand (34,000) outstanding PEPTrads. 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. As to the funding for the tuition support, the same shall be sourced from either two (2) ways: (1) Outright sale of the NAPOCOR bonds and conversion of Dollar proceeds to Peso, up to the equivalent of the tuition support requirements. The payment of the tuition support will be dependent on the terms and exchange rate under which the bonds are liquidated; or (2) Forward sale of the underlying Dollars to a financial institution, which then issues notes credit linked with NAPOCOR Bonds. The notes can then be sold to interested financial institution to provide for liquidity to fund the requirements for tuition support.

In the meantime, the value of the Philippine Peso strengthened and appreciated. In view of this development, and considering that the trust fund of respondent is mainly composed of NAPOCOR bonds that are denominated in US Dollars, respondent submitted a manifestation with the Rehabilitation Court on February 29, 2008, stating that the continued appreciation of the Philippine Peso has grossly affected the value of the U.S. Dollar-denominated NAPOCOR bonds, which stood as security for the payment of the Net TranslatedValues of the PEPTrads. Thereafter, the Rehabilitation Receiver filed a Manifestation with Motion to Admit dated March 7, 2008, echoing the earlier tenor and substance of respondent’s manifestation, and praying that the Modified Rehabilitation Plan (MRP) be approved by the Rehabilitation Court. Under the MRP, the ARP previously approved by the Rehabilitation Court is modified as follows: (a) suspension of the tuition support; (b) converting the Philippine Peso liabilities to U.S. Dollar liabilities by assigning to each planholder a share of the remaining asset in proportion to the share of liabilities in 2010; and (c) payments of the trust fund assets in U.S. Dollars at maturity. Petitioner questioned the approval of the MRP before the CA. It likewise prayed for the issuance of a TRO and a writ of preliminary injunction to stay the execution of the Resolution. ISSUE: Whether or not the Court may approve the Modified Rehabilitation Plan over and above the objections of the creditors. HELD: Yes. The "cram-down" power of the Rehabilitation 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 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. Such prerogative was carried over in the Rehabilitation Rules, which maintains that the court may approve a rehabilitation plan over the objection of the creditors if, in its judgment, the rehabilitation of the debtors is feasible and the opposition of the creditors is manifestly unreasonable. The required number of creditors opposing such plan under the Interim Rules (i.e.,those holding the majority of the total liabilities of the debtor) was, in fact, removed. Also known as the "cram-down" clause, this provision, which is currently

incorporated in the FRIA, is necessary to curb the majority creditors’ natural tendency to dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the rehabilitation plan, preferring long-term viability over immediate but incomplete recovery It is undeniable that there is a need to move to a regime of modern restructuring, cramdown and court supervision in the matter of corporation rehabilitation in order to address the greater interest of the public. This is clearly manifested in 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, thus: Section 64. Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify the creditors and stakeholders that the Plan is ready for their examination. Within twenty (20) days from the said notification, the rehabilitation receiver shall convene the creditors, either as a whole or per class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected unless approved by all classes of creditors w hose rights are adversely modified or affected by the Plan. For purposes of this section,the Plan is deemed tohave been approved by a class of creditors if members of the said class holding more than fifty percent (50%) of the total claims of the said class vote in favor of the Plan. The votes of the creditors shall be based solely on the amount of their respective claims based on the registry of claims submitted by the rehabilitation receiver pursuant to Section 44 hereof. Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the Rehabilitation Plan if all of the following circumstances are present: (a)The Rehabilitation Plan complies with the requirements specified in this Act; (b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan; (c) The shareholders, owners or partners of the juridical debtor lose at least their controlling interestas a result of the Rehabilitation Plan; and (d) 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. While the voice and participation of the creditors is crucial in the determination of the viability of the rehabilitation plan, as they stand to benefit or suffer in the implementation thereof, the interests of all stakeholders is the ultimate and prime consideration. Thus,

while we recognize the predisposition of the planholders in vacillating on the enforcement of the MRP, since the terms and conditions stated therein have been fundamentally changed from those stated in the Original and Amended Rehabilitation Plan, the MRP cannot be considered an abrogation of rights to the planholders/creditors. First, there is in tr[u]th no quibble that the Philippine Peso has behaved in an uncharacteristic mannerby appreciating significantly vis-àvis the United States Dollar. This fact is not disputed by any of the parties. Further, the Court takes cognizance that at the time the Alternative Rehabilitation Plan was approved on 27 April 2006, the exchange rate was Php52.02/US$1.00. As of 15 July 2008, the exchange rate was Php45.35/US$1.00, or an appreciation of atleast fourteen percent (14%). Since the NAPOCOR Bonds are denominated in United States dollars, it means that the NAPOCOR Bonds have losttheir original value by at least fourteen percent (14%) since the approval of the Alternative Rehabilitation Plan on 27 April 2006. Ergo, the continued payment of tuition support in Philippine Pesos will lead to the certainty of the trust fund being substantially diluted when the planholders avail of the same upon maturity of the NAPOCOR Bonds in 2010. Second, the conversion of the Philippine Peso entitlements into United States Dollar entitlements would not diminish the pro rata share of the planholders. Each planholder would still receive his proportionate share of the pie, so to speak, albeitin United States Dollars. The said conversion would merely ensure that regardless of the performance of the Philippine Pesos, planholders of petitioner PPI are guaranteed payment upon maturity of the NAPOCOR Bonds, without fear that their share will be substantially diluted. In fact, the planholders may even benefit from this modification in the rehabilitation plan if the United States dollars appreciates in 2010. A final note. The evolving times of corporate rehabilitation, owing to the rise and fall of economic activity over time, calls on the Judiciary to take an active role in filling in the gaps of the law pertaining to this issue as the inimitable factual milieu of each case would require a different approach in the application of prevailing laws, rules and regulations on corporate rehabilitation. In the case at bar, we hold that the modification of the rehabilitation plan is a risk management tool to address the volatility of the exchange rate of the Philippine Peso vis-à-vis the U.S. Dollars, with the goal of ensuring that all planholders or creditors receive adequate returns regardless of the tides of the Philippine market by making payment in U.S. Dollars. This plan would prevent the trust fund of respondent from being diluted due to the appreciation of the Philippine Peso and assure that all planholders and creditors shall receive payment upon maturity of the NAPOCOR

bonds in the most equitable manner. 2. BPI FAMILY SAVINGS BANK, INC., vs. ST. MICHAEL MEDICAL CENTER, INC., 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), a 5-storey secondary level hospital built on their property located in Molino , Bacoor, Cavite. Later on, with a vision to upgrade St. Michael Hospital into a modern, well-equipped and full service tertiary 11storey hospital,Sps. Rodil purchased two (2) parcels of land adjoining their existing property and incorporated SMMCI, with which entity they planned to eventually consolidate St. Michael Hospital’s operations. SMMCI had an initial capital of P2,000,000.00 which was later increased to P53,500,000.00. The construction of new hospital building on the adjoining properties commenced with Sps. Rodil contributing personal funds as an initial capital for the project. To finance the costs of construction, SMMCI applied for a loan with petitioner BPI Family Savings Bank, Inc. (BPI Family) which gave a credit line of up to P35,000,000.00, secured by a REM over 3 parcels of land belonging to Sps. Rodil, on a portion of which stands the hospital building being constructed. SMMCI was able to draw the aggregate amount of P23,700,000.00,with interest at the rate of 10.25% per annum (p.a.) and a late payment charge of 3% per month accruing on the overdue amount, for which Sps. Rodil, who agreed to be co-borrowers on the loan, executed and signed a Promissory Note. After suffering financial losses due to problems with first contractor, Sps. Rodil engaged with the services of another contractor. This cost them another 25M or a total of 55M for the construction. 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. Nevertheless, using hospital-generated revenues, Sps. Rodil were still able to purchase new equipment and machinery for St. Michael Hospital valued in excess of P20,000,000.00. Although the finishing works were later resumed and some of the hospital operations were eventually transferred to the completed first two floors of the new building, as of May 2006, SMMCI was still neither operational nor earning revenues. On Sept. 25, 2009, BPI demanded for immediate payment of the entire obligation and soon after, it filed a petition for extrajudicial foreclosure. The auction sale was postponed to February 15, 2010.

However, on August 11, 2010, SMMCI filed a Petition for Corporate Rehabilitation (Rehabilitation Petition), before the RTC, with prayer for the issuance of a Stay Order as it foresaw the impossibility of meeting its obligation to BPI Family, its purported sole creditor. RTC issued a Stay Order. The same was referred to the court-appointed Rehabilitation Receiver, Dr. Uriel Halum. Dr. Halum gave credence to the feasibility study conducted by Mrs. Nenita Alibangbang (Mrs. Alibangbang), a certified public accountant , 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. Later on, RTC approved the Rehabilitation Plan. Aggrieved, BPI Family elevated the matter before the CA, arguing that the approval of the Rehabilitation Plan violated its rights as an unpaid creditor/mortgagee and that the same was submitted without prior consultation with creditors. CA affirmed the RTC’s approval of rehabilitation Plan. ISSUE: 1. Is the approval of SMMCI’s Rehabilitation proper ? 2. Did SMMCI comply with the form and substance of a proper rehabilitation petition? RULING: 1.No. The Court dismissed SMMCI’s Rehabilitation Petition. Restoration is the central idea behind the remedy of corporate rehabilitation. In common parlance, to “restore” means “to bring back to or put back into a former or original state.” Under Section 4(gg) of FRIA, “Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated.” In other words, rehabilitation assumes that the corporation has been operational but for some reasons like economic crisis or mismanagement had become distressed or insolvent. 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. Thus, the remedy of corporate rehabilitation is improper. 2. No. Section 2, Rule 4 of the 2008 Rules of Procedure on Corporate Rehabilitation (Rules), which were in force at the time SMMCI’s rehabilitation petition was filed on August 11, 2010, pertinently provides: SEC. 2. Contents of Petition.— x x x x (b) The petition shall be accompanied by the following documents: (1) An audited financial statement of the debtor at the end of its last fiscal year; In this case, there is a defect when SMMCI submitted the financial documents of St. Michael Hospital, which is a separate and distinct entity, It has lost sight of the essential fact that SMMCI stands as the sole petitioning debtor in this case; as such, its rehabilitation should have been primarily examined. from the lens of its own financial history. 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. Furthermore, SMMCI’s Rehabilitation Plan, an indispensable requisite in corporate rehabilitation proceedings, failed to comply with the fundamental requisites outlined in Section 18, Rule 3 of the Rules, particularly, that of a material financial commitment to support the rehabilitation and an accompanying liquidation analysis. A material financial commitment becomes significant in gauging the resolve, determination, earnestness and good faith of the distressed corporation in financing the proposed rehabilitation plan. This commitment may include the voluntary undertakings of the stockholders or the would-be investors of the debtor-corporation indicating their readiness, willingness and ability to contribute funds or property to guarantee the continued successful operation of the debtor corporation during the period of rehabilitation. In this case, 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. As case law intimates, nothing short of legally binding investment commitment/s from third parties is required to qualify as a material financial commitment. However, no such binding investment was presented in this case. Therefore, 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. This Court hereby dismissed SMMCI’s Rehabilitation Plan.

3. Philippine Bank of Communications vs. Basic Polyprinters and Packaging Corporation 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. Basic Polyprinters, along with the eight other corporations belonging to the Limtong Group of Companies filed a joint petition for suspension of payments with approval of the proposed rehabilitation in the RTC. 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. After the initial hearing and evaluation of the comments and opposition of the creditors, including PBCOM, the RTC gave due course to the petition and referred it to the rehabilitation receiver for evaluation and recommendation. The RTC then approved the rehabilitation plan with the appointment of receiver. On appeal, the CA affirmed the questioned order of the RTC, agreeing with the finding of the rehabilitation receiver that there were sufficient evidence, factors and actual opportunities in the rehabilitation plan indicating that Basic Polyprinters could be successfully rehabilitated in due time. Emphasizing the equitable and rehabilitative purposes of rehabilitation proceedings, the CA stated that Presidential Decree No. 902-A, as amended, sought to “effect a feasible and viable rehabilitation by preserving a foundering business as going concern” because it would be more

valuable to preserve the assets of the corporation rather than to pursue its liquidation. In the present petition, petitioner claims that the CA did not pass upon the issues presented in its petition, particularly Basic Polyprinters’ liquidity that was material in proceedings for corporate rehabilitation. ISSUE: 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. 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.”21 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. In Asiatrust Development Bank v. First Aikka Development, Inc.,23 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 paid their claims from its earnings.24 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,25cralawred 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,26 has defined a corporate debtor as a corporation duly organized and existing under Philippine laws that has become insolvent.27 The term insolvent is 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.”28 As such, the contention that rehabilitation becomes inappropriate because of the perceived insolvency of Basic Polyprinters was incorrect. 2. YES. 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.30 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.31 Basic Polyprinters presented financial commitments, as follows: (a) Additional P10 million working capital to be sourced from the insurance claim;cralawlawlibrary (b) Conversion of the directors’ and shareholders’ deposit for future subscription to common stock;32 (c) Conversion of substituted liabilities, if any, to additional paid-in capital to increase the company’s equity; and (d) All liabilities (cash advances made by the stockholders) of the company from the officers and stockholders shall be treated as trade payables. However, these financial commitments were insufficient for the purpose. We explain. 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 writtenoff by Basic Polyprinters’s affiliate, Wonder Book Corporation.34 A claim that has been writtenoff is considered a bad debt or a worthless asset,35 and cannot be deemed a material financial commitment for purposes of rehabilitation. At any rate, the proposed additional P10,000,000.00 working capital was insufficient to cover at least half of the shareholders’ deficit that amounted to P23,316,044.00 as of June 30, 2006. We also declared in Wonder Book Corporation v. Philippine Bank of Communications (Wonder Book)36 that 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-classification of the liability entry and had no effect on the shareholders’ deficit. On the other hand, we cannot determine the effect of the “conversion” of the directors’ and shareholders’ deposits for future subscription to common stock and substituted liabilities on the shareholders’ deficit because their amounts were not reflected in the financial statements contained in the rollo. 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. Even the P245 million insurance claim that was supposed to cover the destroyed inventories worth P264 million appears to have been written-off with no probability of being realized later on. We observe, too, that Basic Polyprinters’s proposal to enter into the dacion en pago to create a source of “fresh capital” was not feasible because the object thereof would not be its own property but one belonging to its affiliate, TOL Realty and Development Corporation, a corporation also undergoing rehabilitation. Moreover, the negotiations (for the return of books and magazines from Basic Polyprinters’s trade creditors) did not partake of a voluntary undertaking because no actual financial commitments had been made thereon. Worthy of note here is that Wonder Book Corporation was a sister company of Basic Polyprinters, being one of the corporations that had filed the joint petition for suspension of payments and rehabilitation in SEC Case No. 031-04 adverted to earlier. Both of them submitted identical commitments in their respective rehabilitation plans. As a result, as the Court observed in Wonder Book,37 the commitments by Basic Polyprinters could not be considered as firm assurances that could convince creditors, future investors and the general public of its financial and operational viability. Due to the rehabilitation plan being an indispensable requirement in corporate rehabilitation proceedings,38 Basic Polyprinters was expected to exert a conscious effort in formulating the same, for such plan would spell the future not only for itself but also for its creditors and the public in general. The contents and execution of the rehabilitation plan could not be taken lightly.

4. VIVA SHIPPING LINES, INC., Petitioner, v. KEPPEL PHILIPPINES MINING, INC., METROPOLITAN BANK & TRUST COMPANY, PILIPINAS SHELL PETROLEUM CORPORATION, CITY OF BATANGAS, CITY OF LUCENA, PROVINCE OF QUEZON, ALEJANDRO OLIT, NIDA MONTILLA, PIO HERNANDEZ, EUGENIO BACULO, AND HARLAN BACALTOS, Respondents. FACTS: Viva Shipping Lines filed a Petition for Corporate Rehabilitation before the Regional Trial Court of Lucena City.2 The Regional Trial Court initially denied the Petition for failure to comply with the requirements in Rule 4, Sections 2 and 3 of the Interim Rules of Procedure on Corporate Rehabilitation. According to Viva Shipping Lines, the devaluation of the Philippine peso, increased competition, and mismanagement of its businesses made it difficult to pay its debts as they became due.13 It also stated that "almost all [its] vessels were rendered unserviceable either because of age and deterioration that [it] can no longer compete with modern made vessels owned by other operators." In its Company Rehabilitation Plan, Viva Shipping Lines enumerated possible sources of funding such as the sale of old vessels and commercial lots of its sister company, Sto. Domingo Shipping Lines. It also proposed the conversion of the Ocean Palace Mall into a hotel, the acquisition of two (2) new vessels for shipping operations, and the "re-operation"16 of an oil mill in Buenavista, Quezon. RTC Lucena City issued a stay order, which stayed the enforcement of all monetary and judicial claims against Viva Shipping Lines, and prohibited Viva Shipping Lines from selling, encumbering, transferring, or disposing of any of its properties except in the ordinary course of business. The City of Batangas, Keppel Philippines Marine, Inc., and Metropolitan Bank and Trust Company (Metrobank) filed their respective comments and oppositions to Viva Shipping Lines' Amended Petition. Thereafter, the Regional Trial Court lifted the stay order and dismissed Viva Shipping Lines' Amended Petition for failure to show the company's viability and the feasibility of rehabilitation. Respondents point out that petitioner's admission that almost all its vessels are rendered

unserviceable suggests that rehabilitation is no longer viable.91 Former employees also mention that despite petitioner's desire to rehabilitate, after the Regional Trial Court's final order (affirmed by CA), petitioner began disposing of some of its assets.92 Respondents also cannot rely on the plan to sell some of petitioner's sister company's properties. They also express doubts regarding petitioner's plan of converting its mall to a hotel/restaurant because it had no such experience. Respondents thus characterize Viva Shipping Lines' rehabilitation plan as "unrealistic, untested, and improbable." Respondents further argue that even if the Court of Appeals gave due course to the Petition, it would still have dismissed the case on the merits. Respondents cite petitioner's failure to provide material facts with sufficient particularity in its Amended Petition for Corporate Rehabilitation.85 Petitioner also failed to disclose some of its creditors, as well as the several pending cases relating to its financial liabilities.86 It failed to describe with specificity the cause of its inability to pay its debts.87 It also failed to clarify which vessels were still under its ownership, and which vessels had maritime liens.88 Petitioner merely estimated its liabilities against its creditors.89 Respondents also allege that petitioner nominated rehabilitators who are professionally connected with its counsel despite the existence of conflict of interest. ISSUE: Is petitioner entitled to undergo corporate rehabilitation. HELD: NO. Corporate rehabilitation is a remedy for corporations, partnerships, and associations "who [foresee] the impossibility of meeting [their] debts when they respectively fall due."94 A corporation under rehabilitation continues with its corporate life and activities to achieve solvency,95 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. 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."98 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.99

The nature of corporate rehabilitation was thoroughly discussed in Pryce Corporation v. China Banking Corporation: Corporate rehabilitation is one of many statutorily provided remedies for businesses that experience a downturn. Rather than leave the various creditors unprotected, legislation now provides for an orderly procedure of equitably and fairly addressing their concerns. Corporate rehabilitation allows a court-supervised process to rejuvenate a corporation.... It provides a corporation's owners a sound chance to re-engage the market, hopefully with more vigor and enlightened services, having learned from a painful experience. Necessarily, a business in the red and about to incur tremendous losses may not be able to pay all its creditors. Rather than leave it to the strongest or most resourceful amongst all of them, the state steps in to equitably distribute the corporation's limited resources. .... Rather than let struggling corporations slip and vanish, the better option is to allow commercial courts to come in and apply the process for corporate rehabilitation. 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,105 the more appropriate remedy is liquidation.106 It does not make sense to hold, suspend, or continue to devalue 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. 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. In BPI Family Savings Bank v. St. Michael Medical Center,155 this court refused to include in the financial and liquidity assessment the financial statements of another corporation that the petitioning-corporation plans to merge with. As pointed out by respondents, petitioner's rehabilitation plan is almost impossible to implement. Even an ordinary individual with no business acumen can discern the groundlessness of petitioner's rehabilitation plan. Petitioner should have presented a more realistic and practicable rehabilitation plan within the time periods allotted after initiatory hearing, or otherwise, should have opted for liquidation.

5. LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-ANGLO, its officers and members as represented by SONIA ESPERANZA, vs. RUBBERWORLD (PHILS.) INC. FACTS: Petitioner Lingkod Manggagawa sa Rubberworld, Adidas-Anglo (Lingkod, for brevity) is a legitimate labor union whose members were employees of the principal respondent, Rubberworld Philippines, Inc. (Rubberworld, for short), a domestic corporation engaged in the manufacture of footwear, bags and garments. On August 26, 1994, Rubberworld filed with the DOLE a Notice of Temporary Partial Shutdown due to severe financial crisis, therein announcing the formal actual company shutdown to take effect on September 26, 1994. On September 1, 1994, Bisig Pagkakaisa-NAFLU, the union with which the corporation had a collective bargaining agreement, staged a strike. On September 9, 1994, herein petitioner union, Lingkod, 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. Petitioner union alleged that it had filed a petition for certification election during the freedom period, which petition was granted by the DOLE Regional Director. On November 22, 1994, while the aforementioned complaint was pending with Labor Arbiter Ernesto Dinopol, Rubberworld filed with the SEC a Petition for Declaration of a State of Suspension of Payments with Proposed Rehabilitation Plan. The petition, docketed as SEC Case No. 11-94-4920, was granted by the SEC in its Order dated December 28, 1994, to wit:

Accordingly, with the creation of the Management Committee, all actions for claims against Rubberworld Philippines, Inc. pending before any court, tribunal, office, board, body, Commission or sheriff are hereby deemed SUSPENDED. Consequently, all pending incidents for preliminary injunctions, writ of attachments, foreclosures and the like are hereby rendered moot and academic. 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, among others (1) denying respondents motion to suspend proceedings; x x x (4) ordering respondent Rubberworld Phils., Inc. to reinstate complainant-Union's members who indicate their intention to be so reinstated and to pay the members of the complainant-Union their backwages computed from April 26, 1995 and separation pay if reinstatement is no longer possible plus 10% of the total award of attorney's. Rubberworld went on appeal to the NLRC, posting therefor a temporary appeal bond in the amount of P500,000.00 as tentatively fixed by the Labor Arbiter. However, Rubberworld failed to post the upgraded appeal bond amounting to 27.5M. On account thereof, NLRC dismissed the appeal. Owing to this development, Rubberworld filed with the Court a Supplemental Petition for Certiorari, therein incorporating its challenge to the said dismissal order of the NLRC, contending that the labor tribunal acted without or in excess of jurisdiction. On April 22, 1998, the SEC issued an Order declaring Rubberworld as dissolved and lifting its earlier suspension order and ordering Laya Mananghaya Salgado & Co., CPAs is hereby appointed as liquidator to effect the dissolution of the petitioner. On August 18, 1995, a writ of execution was issued by the NLRC in favor of the petitioner union with a copy thereof served on the respondent corporation. Faced with this dilemma, Rubberworld moved to declare null and void the execution/garnishment made pursuant to the same writ. On February 8, 1999, Rubberworld filed with the Court a Petition for Certiorari and its Supplement, alleging therein that pursuant to the SEC Order dated December 28, 1994, supra, the proceedings before the Labor Arbiter should have been suspended. Hence, since the Labor Arbiter disregarded the SECs suspension order, the subsequent proceedings before it were null and void. CA granted Rubberworlds petition in CAG.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 SECs suspension order of December 28, 1994, and accordingly declared the proceedings before it,

including the subsequent orders by the NLRC dismissing Rubberworlds appeal and the writ of execution, null and void. Hence this Petition.

ISSUE: Whether or not LA committed grave abuse of discretion when it proceeded with the labor case despite the pendency of the insolvency proceedings filed by Rubberworld? RULING: YES. At the time the SEC issued its suspension Order of December 28, 1994, the proceedings before the Labor Arbiter were still very much pending. As such, nofinal and executory decision could have validly emanated therefrom. Like the CA, we do not see any reason why the doctrine of stare decisis will not apply to this case. Section 6 (c) of P.D. No. 902-A, empowers the SEC 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. Given the factual milieu obtaining in this case, 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 Arbiters decision, including the dismissal by the NLRC of Rubberworls appeal, could not have achieved a final and executory status. In fact, it is immaterial whether an appeal from the Labor Arbiter's decision was perfected or not, since a judgment void ab initio is non-existent and cannot acquire finality.[25] The judgment is vulnerable to attack even when no appeal has been taken. Hence, such judgment does not become

final in the sense of depriving a party of his right to question its validity. Hence, no grave abuse of discretion attended the CA's taking cognizance of the petition in CA-G.R. SP No. 53356. This Court in its earlier decisions in Rubberworld (Phils.), Inc., or Julie Yap Ong v. NLRC, Marilyn F. Arellano, et. al. and Rubberworld (Phils.), Inc. and Julie Y. Ong v. NLRC, Aquino, Magsalin, et. al, upheld the applicability of PD 902-A to labor cases pursuant to Section 5(d) and Section 6(c) thereof, with the following pronouncements: It is plain from the foregoing provisions of the law that upon the appointment [by the SEC] of a management committee or a rehabilitation receiver, all actions for claims against the corporation pending before any court, tribunal or board shall ipso jure be suspended. The justification for the automatic stay of all pending actions for claims is to enable the management committee or 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 debtor company. To allow such other actions 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. 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. xxx xxx xxx Article 217 of the Labor Code should be construed not in isolation but in harmony with PD 902-A, according to the basic rule in statutory construction that implied repeals are not favored. Indeed, it

is axiomatic that each and every statute must be construed in a way that would avoid conflict with existing laws. True, the NLRC has the power to hear and decide labor disputes, but such authority is deemed suspended when PD 902-A is put into effect by the Securities and Exchange Commission. [Emphasis supplied]

6. JUANITO A. GARCIA and ALBERTO J. DUMAGO vs. PHILIPPINE AIRLINES, INC., FACTS: Petitioners Alberto J. Dumago and Juanito A. Garcia were employed by respondent Philippine Airlines, Inc. (PAL) as Aircraft Furnishers Master "C" and Aircraft Inspector, respectively. They were assigned in the PAL Technical Center. On July 24, 1995, a combined team of the PAL Security and National Bureau of Investigation (NBI) Narcotics Operatives raided the Toolroom They found petitioners, with four others, near the said section at that time. When the PAL Security searched the section, they found shabu paraphernalia inside the company-issued locker of Ronaldo Broas who was also within the vicinity. The six employees were later brought to the NBI for booking and proper investigation. 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 and required to submit their written explanation. Petitioners vehemently denied the allegations claiming that they were in another place at that time and challenged PAL to show proof that they were indeed "caught in the act of sniffing shabu." Later on, petitioners were dismissed for violation of Chapter II, Section 6, Article 46 (Violation of Law/Government Regulations) and Chapter II, Section 6, Article 48 (Prohibited Drugs) of the PAL Code of Discipline.5 Both simultaneously filed a case for illegal dismissal and damages. In the meantime, the Securities and Exchange Commission (SEC)placed PAL under an Interim Rehabilitation Receiver due to severe financial losses. On January 11, 1999, the Labor Arbiterrendered a decision in petitioners’ favor, and PAL was ordered to reinstate the petitioners and pay backwages, 13thmonth pay, moral and exemplary damages, and attorneys fees. Meanwhile, the SECreplaced the Interim Rehabilitation Receiver with a Permanent Rehabilitation Receiver.

On appeal, the NLRCreversed the Labor Arbiter’s decision and dismissed the case for lack of merit. Reconsideration having been denied, an Entry of Judgmentwas issued. On October 5, 2000, the Labor Arbiter issued a Writ of Execution commanding the sheriff to proceed to the principal office of PAL or to any of its offices in the Philippines to cause the collection of the amount of P 549, 309.60 representing the backwages on the reinstatement aspect, or to levy on the office equipment and other movables and garnish its deposits with any bank in the Philippines, subject to the limitation that equivalent amount of such levied movables and/or the amount garnished in your own judgment, shall be equivalent to [₱]549,309.60. If still insufficient, levy against immovable properties of PAL not otherwise exempt from execution. Although PAL filed an Urgent Motion to Quash Writ of Execution, the Labor Arbiter issued a Notice of Garnishment addressed to the President/Manager of the Allied Bank Head Office in Makati City for the amount of ₱549,309.60. PAL moved to lift the Notice of Garnishment, while petitioners moved for the release of the garnished amount. PAL opposed petitioners’ motion. It also filed an Urgent Petition for Injunction which the NLRC resolved that the Notice of Granishment is valid, however, the instant action is suspended and referred to the Receiver of PAL for appropriate action. The appellate court ruled that the Labor Arbiter issued the writ of execution and the notice of garnishment without jurisdiction. Hence, the NLRC erred in upholding its validity. Since PAL was under receivership, it could not have possibly reinstated petitioners due to retrenchment and cashflow constraints. The appellate court declared that a stay of execution may be warranted by the fact that PAL was under rehabilitation receivership. Hence, the instant petition. ISSUE:In the light of new developments concerning PAL’s rehabilitation, are petitioners entitled to execution of the Labor Arbiter’s order of reinstatement even if PAL is under receivership? RULING: NO. Section 6(c) of PD 902-A, as amended, provides that 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. No exception in favor of labor claims is mentioned in the law. 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. The instant proceedings herein are SUSPENDED until further notice from this Court. Accordingly, respondent Philippine Airlines, Inc. is hereby directed to quarterly update the Court as to the status of its ongoing rehabilitation. 7. PANLILIO VS. RTC FACTS: On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal (petitioners), as corporate officers of Silahis International Hotel, Inc. (SIHI), filed with the RTC of Manila, Branch 24, a petition for Suspension of Payments and Rehabilitation in SEC Corp. Case No. 04-111180. RTC of Manila, Branch 24, issued an Order staying all claims against SIHI upon finding the petition sufficient in form and substance. The pertinent portions of the Order read: Stays 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. 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 initiated by SSS and

involved charges of violations of the Social Security Act of 1997 (SSS law), in relation to Article 315 (1) (b) of the Revised Penal Code, or 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. This motion was denied. The CA discussed that violation of the provisions of the SSS law was a criminal liability and was, thus, personal to the offender. As such, the CA held that the criminal proceedings against the petitioners should not be considered a claim against the corporation and, consequently, not covered by the stay order issued by Branch 24. ISSUE: Does the suspension of all claims as an incident to a corporate rehabilitation also contemplate the suspension of criminal charges filed against the corporate officers of the distressed corporation? HELD: NO. 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 and prosecuted for the protection of society. 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. 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. Withal, based on the foregoing discussion, this Court rules that there is no legal impediment for Branch 51 to proceed with the cases filed against petitioners.

8. SPOUSES EDUARDO SOBREJUANITE and FIDELA SOBREJUANITE vs. ASB DEVELOPMENT CORPORATION FACTS: Spouses 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). They 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 Condominium at Mandaluyong City. Despite full payment and demands, ASBDC failed to deliver the property on the agreed date. ASBDC filed a motion to dismiss or suspend proceedings due to the approval of the SEC of the rehabilitation plan of ASB Group of Companies, which included ASBDC, and the appointment of a rehabilitation receiver. The HLURB denied the motion. The arbiter ordered the rescission of the contract to sell between the parties since it was the obligation of ASBDC to deliver the property upon the full payment of the obligation of the Spouses. The HLURB Board of Commissioners affirmed the ruling 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 Office of the President denied the appeal of ASBDC. 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. ISSUE/s: 1. Whether or not a complaint for rescission of contract with damages is a claim within the contemplation of P.D. 902-A? 2. Whether or not the proceedings before the HLURB should be suspended? RULING: 1. YES. SEC HAS JURISDICTION OVER THIS COMPLAINT AND NOT THE HLURB. 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." 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.

In the decision of the HLURB arbiter, ASBDC was ordered to pay P2,674,637.10 plus 12% interest from the date of actual payment of each amortization, representing the refund of all the amortization payments made by Sobrejuanite; P200,000.00 as moral damages; P100,000.00 as exemplary damages; P100,000.00 as attorney’s fees; and P50,000.00 as litigation expenses. 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. 2. YES. The HLURB arbiter should have suspended the proceedings upon the approval by the SEC of the ASB Group of Companies’ rehabilitation plan and the appointment of its rehabilitation receiver. By the suspension of the proceedings, the receiver is allowed to fully devote his time and efforts to the rehabilitation and restructuring of the distressed corporation. It is well to note that even the execution of final judgments may be held in abeyance when a corporation is under rehabilitation. Hence, there is more reason in the instant case for the HLURB arbiter to order the suspension of the proceedings as the motion to suspend was filed soon after the institution of the complaint. By allowing the proceedings to proceed, the HLURB arbiter unwittingly gave undue preference to Sobrejuanite over the other creditors and claimants of ASBDC, which is precisely the vice sought to be prevented by Section 6(c) of PD 902-A. Finally, we agree with the Court of Appeals that under the Contract to Sell, ASBDC was obliged to deliver the property to Sobrejuanite on or before December 1999. Nonetheless, the same was deemed extended due to the financial reverses experienced by the company. Section 7 of the Contract to Sell allows the developer to extend the period of delivery on account of causes beyond its control, such as financial reverses.

9. MWSS (METROPOLITAN WATERWORKS AND SEWERAGE SYSTEM) VS DAWAY FACTS: MWSS granted Maynilad under a Concession Agreement a twenty-year period to manage, operate, repair, decommission and refurbish the existing MWSS water delivery and sewerage services in the West Zone Service Area, for which Maynilad undertook to pay the corresponding concession fees on the dates agreed upon in said agreement which, among other things, consisted of payments of petitioners mostly foreign loans. To secure the concessionaires performance of its obligations under the Concession Agreement, Maynilad was required under Section 6.9 of said contract to put up a bond, bank guarantee or other security acceptable to MWSS. In compliance with this requirement, Maynilad arranged on July 14, 2000 for a three-year facility with a number of foreign banks, led by Citicorp International Limited, for the issuance of an Irrevocable Standby Letter of Credit in the amount of US$120,000,000 in favor of MWSS for the full and prompt performance of Maynilads obligations to MWSS as aforestated. Sometime in September 2000, respondent Maynilad requested MWSS for a mechanism by which it hoped to recover the losses it had allegedly incurred and would be incurring as a result of the depreciation of the Philippine Peso against the US Dollar. Failing to get what it desired, Maynilad issued a Force Majeure Notice on and unilaterally suspended the payment of the concession fees. In an effort to salvage the Concession Agreement, the parties entered into a Memorandum of Agreement (MOA) on wherein Maynilad was allowed to recover foreign exchange losses under a formula agreed upon between them. Sometime in August 2001 Maynilad again filed another Force Majeure Notice and, since MWSS could not agree with the terms of said Notice, the matter was referred on August 30, 2001 to the Appeals Panel for arbitration. This resulted in the parties agreeing to resolve the issues through an amendment of the Concession Agreement on October 5, 2001, known as Amendment No. 1, which was based on the terms set down in MWSS Board of Trustees, which provided inter alia for a formula that would allow Maynilad to recover foreign exchange losses it had incurred or would incur under the terms of the Concession Agreement. As part of this agreement, Maynilad committed, among other things, to: a) infuse the amount of UD$80.0 million as additional funding support from its stockholders; b) resume payment of the concession fees; and c) mutually seek the dismissal of the cases pending before the Court of Appeals and with Minor Dispute Appeals Panel.

However, on November 5, 2002, Maynilad served upon MWSS a Notice of Event of Termination, claiming that MWSS failed to comply with its obligations under the Concession Agreement and Amendment No. 1 regarding the adjustment mechanism that would cover Maynilads foreign exchange losses. On December 9, 2002, Maynilad filed a Notice of Early Termination of the concession, which was challenged by MWSS. This matter was eventually brought before the Appeals Panel on January 7, 2003 by MWSS. On November 7, 2003, the Appeals Panel ruled that there was no Event of Termination as defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession Agreement and that, therefore, Maynilad should pay the concession fees that had fallen due. The award of the Appeals Panel became final on November 22, 2003. MWSS, thereafter, submitted a written notice on November 24, 2003, to Citicorp International Limited, as agent for the participating banks, that by virtue of Maynilads failure to perform its obligations under the Concession Agreement, it was drawing on the Irrevocable Standby Letter of Credit and thereby demanded payment in the amount of US$98,923,640.15. Prior to this, however, Maynilad had filed on November 13, 2003, a petition for rehabilitation before the court a quo which resulted in the issuance of the Stay Order of November 17, 2003 and the disputed Order of November 27, 2003. ISSUE: WON the MWSS may demand payment from the security/bond ( Irrevocable Standby Letter of Credit) guaranteed by CITICORP. HELD: YES. Respondent Maynilads Financial Statement as of December 31, 2001 and 2002 do not show the Irrevocable Standby Letter of Credit as part of its assets or liabilities, and by respondent Maynilads own admission it is not. In issuing the clarificatory order of November 27, 2003, enjoining petitioner from claiming from an asset that did not belong to the debtor and over which it did not acquire jurisdiction, the rehabilitation court acted in excess of its jurisdiction. 1. The claim is not one against the debtor but against an entity that respondent Maynilad has procured to answer for its non-performance of certain terms and conditions of the Concession Agreement, particularly the payment of concession fees. 2. Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement of all claims against guarantors and sureties, but only those claims against guarantors and sureties who are not solidarily liable with the debtor. Respondent Maynilads claim that the banks are not solidarily liable with the debtor does not find support in jurisprudence.

10. BUREAU OF INTERNAL REVENUE, ASSISTANT COMMISSIONER ALFREDO V. MISAJON, GROUP SUPERVISOR ROLANDO M. BALBIDO, and EXAMINER REYNANTE DP. MARTIREZ vs. LEPANTO CERAMICS, INC. FACTS: Lepanto Ceramics, Inc. (LCI) filed a petition for corporate rehabilitation pursuant to Republic Act No. (RA) 10142, otherwise known as the "Financial Rehabilitation and Insolvency Act (FRIA) of 2010 docketed before the RTC of Calamba City, Branch 34, the designated Special Commercial Court in Laguna (Rehabilitation Court) . LCI alleged that due to the financial difficulties it has been experiencing dating back to the Asian financial crisis, it had entered into a state of insolvency considering its inability to pay its obligations as they become due and that its total liabilities amounting to ₱4,213 ,682, 715. 00 far exceed its total assets worth ₱1,112,723,941.00. Notably, LCI admitted in the annexes attached to the aforesaid Petition its tax liabilities to the national government in the amount of at least ₱6,355,368.00 The Rehabilitation Court issued a Commencement Order which (a) declared LCI to be under corporate rehabilitation; (b) suspended all actions or proceedings, in court or otherwise, for the enforcement of claims against LCI; (c) prohibited LCI from making any payment of its liabilities; and (d) directed the BIR to file and serve on LCI its comment or opposition to the petition, or its claims against LCI. Despite the foregoing, Misajon, et al., acting as Assistant Commissioner, Group Supervisor, and Examiner of the BIR's Large Taxpayers Service, sent LCI a notice if informal conference informing the latter of its deficiency internal tax liabilities for the Fiscal Year ending June 30, 2010. In response, LCI's court - appointed receiver, Roberto L. Mendoza, sent BIR a letter-reply, reminding the latter of the pendency of LCI's corporate rehabilitation proceedings as well as the issuance of a Commencement Order. Undaunted, BIR sent LCI a Formal Letter of Demand requiring LCI to pay deficiency taxes. This prompted LCI to file a petition for indirect contempt against petitioners. LCI asserted that petitioners' act is a clear defiance of the aforesaid Commencement Order. Petitioners maintained that: (a) RTC Br. 35 had no jurisdiction to cite them in contempt as it is only the Rehabilitation Court, being the one that issued the Commencement Order, which has the authority to determine whether or not such Order was defied; (b) the instant petition had already been mooted by the Rehabilitation Court's Order dated August 28, 2014 which declared LCI to have been successfully rehabilitated resulting in the termination of the corporate rehabilitation

proceedings; (c) their acts do not amount to a defiance of the Commencement Order as it was done merely to toll the prescriptive period in collecting deficiency taxes, and thus, sanctioned by the Rules of Procedure of the FRIA; (d) their acts of sending a Notice of Informal Conference and Formal Letter of Demand do not amount to a "legal action or other recourse" against LCI outside of the rehabilitation proceedings; and (e) the indirect contempt proceedings interferes with the exercise of their functions to collect taxes due to the government.

RTC Br. 35 found Misajon, et al. guilty of indirect contempt and, accordingly, ordered them to pay a fine of ₱5,000.00 each. The RTC Br. 35 ruled that it has jurisdiction over LCI's petition for indirect contempt as it is docketed, heard, and decided separately from the principal action. Going to petitioners' other contentions, the RTC found that: (a) the supervening termination of the rehabilitation proceedings and the consequent lifting of the Commencement Order did not render moot the petition for indirect contempt as the acts complained of were already consummated; (b) petitioners' acts of sending LCI a notice of informal conference and Formal Letter of Demand are covered by the Commencement Order as they were for the purpose of pursuing and enforcing a claim for deficiency taxes, and thus, are in clear defiance of the Commencement Order; and (c) petitioners could have tolled the prescriptive period to collect deficiency taxes without violating the Commencement Order by simply ventilating their claim before the rehabilitation proceedings, which they were adequately notified of. In this relation, the RTC Br. 35 held that while the BIR is a juridical entity which can only act through its authorized intermediaries, it cannot be concluded that it authorized the latter to commit the contumacious acts complained of, i.e., defiance of the Commencement Order. Thus, absent any contrary evidence, only those individuals who performed such acts, namely, Misajon, et al., should be cited for indirect contempt of court. ISSUE: Whether or not the RTC correctly found Misajon, et al. to have defied the Commencement Order and, accordingly, cited them for indirect contempt. HELD: YES. 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. Section 16 of RA 10142 provides, inter alia, that upon the issuance of a Commencement Order - all actions or proceedings, in court or otherwise, for the enforcement of "claims" against the distressed

company shall be suspended. Claim "shall refer to all claims or demands of whatever nature 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…” To clarify, however, creditors of the distressed corporation are not without remedy as they may still submit their claims to the rehabilitation court for proper consideration. In other words, the creditors must ventilate their claims before the rehabilitation court, and any "attempt to seek legal or other resource against the distressed corporation shall be sufficient to support a finding of indirect contempt of court." In the case at bar, it is undisputed that LCI filed a petition for corporate rehabilitation and the Rehabilitation Court issued a Commencement Order. Despite such, the BIR, through Misajon, et al., still opted to send LCI: (a) a notice of informal conference and (b) a Formal Letter of Demand requiring LCI to pay deficiency taxes notwithstanding the written reminder coming from LCI's receiver of the pendency of rehabilitation proceedings. Notably, these acts are part and parcel of the entire process for the assessment and collection of deficiency taxes from a delinquent taxpayer, an action or proceeding for the enforcement of a claim, which should have been suspended pursuant to the Commencement Order. Unmistakably, Misajon, et al. 's foregoing acts are in clear defiance of the Commencement Order. Petitioners' insistence that: (a) Misajon, et al. only performed such acts to toll the prescriptive period for the collection of deficiency taxes; and (b) to cite them in indirect contempt would unduly interfere with their function of collecting taxes due to the government, cannot be given any credence. As aptly put by the RTC Br. 35, they could have easily tolled the running of such prescriptive period, and at the same time, perform their functions as officers of the BIR, without defying the Commencement Order and without violating the laudable purpose of RA 10142 by simply ventilating their claim before the Rehabilitation Court. After all, they were adequately notified of the LCI's corporate rehabilitation and the issuance of the corresponding Commencement Order. In sum, it was improper for Misajon, et al. to collect, or even attempt to collect, deficiency taxes from LCI outside of the rehabilitation proceedings concerning the latter, and in the process, willfully disregard the Commencement Order lawfully issued by the Rehabilitation Court. Hence, the RTC Br. 35 correctly cited them for indirect contempt. WHEREFORE, the petition is DENIED.

11. Leonardo Umale v. ASB Realty Corp FACTS: This case involves a parcel of land in Pasig City originally owned by Amethyst Pearl Corporation (Amethyst Pearl), a company that is, in turn, wholly-owned by respondent ASB Realty Corporation (ASB Realty). In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation of the subject premises in favor of ASB Realty in consideration of the full redemption of Amethyst Pearls outstanding capital stock from ASB Realty. Thus, ASB Realty became the owner of the subject premises. In 2003, ASB Realty commenced an action in the MTC for unlawful detainer alleging that petitioner Leonardo S. Umale entered into a lease contract with ASB Realty 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 to ASB Realty. Upon the contracts expiration on May 31, 2000, Umale continued occupying the premises and paying rentals albeit at an increased monthly rent of P100,000.00. The last rental payment made by Umale to ASB Realty was for the June 2001 to May 2002 period, as evidenced by the Official Receipt. On June 23, 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; that Umale should vacate the premises, and pay to ASB Realty the rental arrears amounting to P1.3 million by July 15, 2003. Umale failed to comply with ASB Realtys demands and continued in possession of the subject premises, 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. Since there was no contract between himself and ASB Realty, the latter had no cause of action to file the unlawful detainer complaint against him.Umale also challenged ASB Realtys personality to recover the subject premises considering that ASB Realty had been placed under receivership by the Securities and Exchange Commission (SEC) and a rehabilitation receiver had been duly appointed. Under Section 14(s), Rule 4 of the Administrative Memorandum No. 00-8-10SC, otherwise known as 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 debtors 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. ISSUE:Can a corporate officer of ASB Realty (duly authorized by the Board of Directors) file suit to recover an unlawfully detained corporate property despite the fact that the corporation had already been placed under rehabilitation?

HELD: YES. The Court resolves the issue in favor of ASB Realty and its officers. There is no denying that ASB Realty, as the owner of the leased premises, is the real party-in-interest in the unlawful detainer suit.[51] Real party-in-interest is defined as the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. What petitioners argue is that the corporate officer of ASB Realty is incapacitated to file this suit to recover a corporate property because ASB Realty has a duly-appointed rehabilitation receiver. Allegedly, this rehabilitation receiver is the only one that can file the instant suit.Corporations, such as ASB Realty, are juridical entities that exist by operation of law. As a creature of law, the powers and attributes of a corporation are those set out, expressly or impliedly, in the law. Among the general powers granted by law to a corporation is the power to sue in its own name.[mThis power is granted to a duly-organized corporation, unless specifically revoked by another law. The question becomes: Do the laws on corporate rehabilitation particularly PD 902-A, as amended, and its corresponding rules of procedure forfeit the power to sue from the corporate officers and Board of Directors? 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. It was first introduced in the Philippine legal system through PD 902-A, as amended. The intention of the law is to effect a feasible and viable rehabilitation by preserving a floundering business as a going concern, because the assets of a business are often more valuable when so maintained than they would be when liquidated. This concept of preserving the corporations 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 (most of which involve some kind of disposition or encumbrance of the corporations assets) during the pendency of the rehabilitation proceedings but none of which touch on the debtor corporations right to sue. The implication therefore is that our concept of rehabilitation does not restrict this particular power, save for the caveat that all its actions are monitored closely by the receiver, who can seek an annulment of any prohibited or anomalous transaction or agreement entered into by the officers of the debtor corporation. Petitioners insist that the rehabilitation receiver has the power to bring and defend actions in his own name as this power is provided in Section 6 of Rule 59 of the Rules of Court.Indeed, PD 902A, as amended, provides that the receiver shall have the powers enumerated under Rule 59 of the Rules of Court. But Rule 59 is a rule of general application. It applies to different kinds of receivers rehabilitation receivers, receivers of entities under management, ordinary receivers, receivers in liquidation and for different kinds of situations. While the SEC has the discretionto authorize the rehabilitation receiver, as the case may warrant, to exercise the powers in Rule 59, the SECs exercise of such discretion cannot simply be assumed. There is no allegation whatsoever in this case that the SEC gave ASB Realtys rehabilitation receiver the exclusive right to sue.

Petitioners cite Villanueva,[ Yam, and Abacus Real Estate[68] as authorities for their theory that the corporate officers of a corporation under rehabilitation is incapacitated to act. In Villanuevathe Court nullified the sale contract entered into by the Philippine Veterans Bank on the ground that the banks insolvency restricted its capacity to act. Yam, on the other hand, nullified the compromise agreement that Manphil Investment Corporation entered into while it was under receivership by the Central Bank. In Abacus Real Estate, it was held that Manila Banks president had no authority to execute an option to purchase contract while the bank was under liquidation. These jurisprudence are inapplicable to the case at bar because they involve banking and financial institutions that are governed by different laws. In the cited cases, the applicable banking law was Section 29of the Central Bank Act. In stark contrast to rehabilitation where the corporation retains control and management of its affairs, Section 29 of the Central Bank Act, as amended, expressly forbids the bank or the quasi-bank from doing business in the Philippines.

Moreover, the nullified transactions in the cited cases involve dispositions of assets and claims, which are prohibited transactions even for corporate rehabilitation because these may be prejudicial to creditors and contrary to the rehabilitation plan. The instant case, however, involves the recovery of assets and collection of receivables, for which there is no prohibition in PD 902-A. 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.