FRIA Case Digests

94JOSE MARCEL PANLILIO, ET AL. VS. REGIONAL TRIAL COURT, PEOPLE OF THE PHILIPPINES AND SOCIAL SECURITY SYSTEM, G.R. NO. 173846, FEBRUARY 2, 2011 FACTS: The petitioners are corporate officers of Silahis International Hotel,Inc. (SIHI) who have filed a petition for Suspension of Payments and Rehabilitation before a commercial court. However, at the time of the filing of the petition for rehabilitation by the Silahis Hotel, there were a number of criminal charges pending against the corporate officers for violation of the SSS law. Subsequently, the officers filed with the criminal court a motion to suspend proceedings arguing that the stay order issued by the commercial court should also apply to the criminal cases then pending. The criminal court ruled against the petitioners on the ground that the Stay Order issued by the commercial court does not cover the prosecution of criminal offenses. On appeal, the Court of Appeals confirmed the criminal court’s ruling. Hence, the petitioners filed a petition for review on certiorari before the Supreme Court. 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. The petition is not meritorious. RATIO:  Corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continued operation is economically feasible and its creditors can recover more, by way of the present value of payments projected in the rehabilitation plan, if the corporation continues as a going concern than if it is immediately liquidated. It contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings  A principal feature of corporate rehabilitation is the suspension of claims against the distressed corporation.  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.  Congress has recently enacted Republic Act No. 10142, or the Financial Rehabilitation and Insolvency Act of 2010. Section 18 thereof explicitly provides that criminal actions against the individual officer of a corporation are not subject to the Stay or Suspension Order in rehabilitation proceedings.  Furthermore, the Court pointed out that Congress has recently enacted Republic Act No. 10142, or the Financial Rehabilitation and Insolvency Act of 2010 where Section 18 thereof explicitly provides that criminal actions against the individual officer of a corporation are not subject to the Stay or Suspension Order in rehabilitation proceedings. 95 SAMUEL U. LEE, ET. AL. VS. BANGKOK BANK PUBLIC COMPANY, LIMITED G.R. NO. 173349, FEB. 9, 2011 FACTS: The petitioner and some members of his family owned, controlled and managed Midas Diversified Export Corporation (MDEC) and Manila Home Textile, Inc. (MHI). The corporations are engaged in the manufacturing and export of garments, ladies’ bags and apparel. The said corporations secured two credit line agreements with the respondent bank and they also secured several loans with AsiaTrust. The Lee family made guarantees that they shall be principally liable to the indebtedness of MDEC and MHI with the respondent. The Bangkok Bank, however, did not set aside any of the Lee’s properties as collateral to the loans they granted the said corporations. The Lee family had, however, mortgaged several properties that Samuel and his wife owned in Antipolo, Rizal with AsiaTrust to secure their loans with AsiaTrust. In connection therewith, Samuel and his wife executed a new deed of mortgage covering the properties in Antipolo. Thereafter, the said corporations defaulted on their loans not only with the said banks but as well as with their other creditors. This prompted the corporations to file a consolidated petition for the Declaration of a State of Suspension of Payments and for Appointment of a Management Committee/Rehabilitation Receiver before the Securities and Exchange Commission (SEC). The petition for suspension of payment further stated that the Lee family and their corporations had more than sufficient properties to cover all liabilities to their creditors; and presented a list of all their properties including the subject properties located in Antipolo, Rizal. Notably, the list of properties attached to the petition indicated that the subject Antipolo properties of the spouses Lee had already been earmarked, or that they had already served as security, for MDEC’s unpaid obligation with Asiatrust. Subsequently, SEC issued a Suspension Order which enjoined the Lee corporations from disposing of their property in any manner except in the ordinary course of business, and from making any payments outside the legitimate expenses of their business during the pendency of the petition. A month after the Suspension Order, the respondent bank filed a civil case against the petitioner’s corporations to recover the loans it granted under the guarantees the Lee family had made. The lower court partially ruled in favour of the respondent Bank but the bank’s execution over several of Lee’s properties was not sufficient to cover their loans. The said court likewise granted the respondent bank a writ of preliminary attachment against the Lee’s properties in Baguio, Cavite, Quezon City and those including in Antipolo which were mortgaged to AsiaTrust. Meanwhile, AsiaTrust foreclosed the mortgage of the Lee family’s properties in Antipolo for failure to pay the loans granted to the family. AsiaTrust subsequently won as the highest bidder in the auction sale to own the said properties in Antipolo. The respondent bank did not redeem the said properties believing that the real estate mortgage and the foreclosure sale to be fraudulent. Based on this belief, the respondent bank filed an action to rescind the Real Estate Mortgage over the properties in Antipolo, nullify the foreclosure sale and cancel the TCTs issued in favour of AsiaTrust. The lower court dismissed the case on the ground that there was no proof of fraud in the transactions involved in the real estate mortgage and the foreclosure sale. Furthermore, the respondent bank failed to exercise its right of redemption over the subject properties. The lower court further stated that the SEC Suspension Order does not cover the subject properties which therefore did not preclude the Lee family to mortgage the said properties to Asia Trust. Upon appeal, the Court of Appeals reversed the lower court’s decision and granted the respondent bank’s petition. The Court of Appeals ruled on the ground that the subject Antipolo properties, though personal assets of the Lee family, are covered by the Suspension Order of the SEC, since they are included in the list submitted to SEC by the Lee family; and that Samuel is a guarantor of the loans incurred by MDEC and MHI from Bangkok Bank. It ruled that Samuel, being a guarantor, is jointly and severally liable to Bangkok Bank for the corporate debts of MDEC and MHI, as he divested himself from the protection of the limited liability doctrine, which was shown (1) through the inclusion of the said subject Antipolo properties in the list submitted to the SEC; and (2) by Samuel, through the guarantees that he executed, thus voluntarily binding himself to the payment of the loans incurred from Bangkok Bank. Hence, the petition for review on certiorari was filed before the Supreme Court assailing the Court of Appeal’s decision. ISSUE: Whether the subject Antipolo properties are covered under SEC Suspension Order? HELD: The subject properties are not under the purview of the SEC Suspension Order. The Court of Appeal’s decision shall be reversed and set aside. The lower court’s decision shall be reinstated. RATIO:  It can be clearly gleaned from the Secs. 3 and 5 of PD 902-A provisions that in cases of petitions for the suspension of payments, the SEC has jurisdiction over corporations, partnerships and associations, which are grantees of primary franchise or license or permit issued by the government to operate in the Philippines, and their properties. And it is indubitably clear from the aforequoted Sec. 5(d) that only corporations, partnerships and associations—NOT private individuals—can file with the SEC, petitions for declaration in a state of suspension of payments. Thus, it logically follows that the SEC does not have jurisdiction to entertain petitions for suspension of payments filed by parties other than corporations, partnerships or associations. Indeed, settled is the rule that it is axiomatic that jurisdiction is the authority to hear and determine a cause, which is conferred by law and not by the policy of any court or agency. v. this Court resolved in the negative the issue of whether private individuals can file with the SEC petitions for declaration in a state of suspension of payments. The fact. Inc. this could not confer jurisdiction on the SEC over the Lee family members—as private individuals—nor could this affect their privately owned properties. Court of Appeals. as such. Court of Appeals. such petitions are beyond the competence of the SEC. We pointed out that the SEC. even if they are the corporation’s officers or sureties. concluded that where no authority is granted to hear petitions of individuals for suspension of payments. Philippine Commercial International Bank. is a tribunal of limited jurisdiction and. being a mere administrative agency. Modern Paper Products. We have said time and again that the SEC’s “jurisdiction is limited only to corporations and corporate assets. still. and Union Bank of the Philippines v. can only exercise those powers. partnerships or associations. We. the SEC has no jurisdiction over private individuals relative to any petition for suspension of payments. Further. 1998 Suspension Order issued by the SEC did not and could not have included the subject properties.” Besides. which are specifically granted to them by their enabling statutes. whether the private individual is a petitioner or a co-petitioner.96      Private individuals and their privately owned properties cannot be placed under the jurisdiction of the SEC in a petition for suspension of payments In Chung Ka Bio v. We held that Sec. that the subject properties were included in the list submitted to the SEC does not confer jurisdiction on the SEC over such properties. it is undisputed that the petition for suspension of payments was collectively filed by the five corporations owned by the Lee family. however. thus. It is apparent that even if the members of the Lee family are joined as copetitioners with the five corporations. 5(d) of PD 902-A clearly does not allow a mere individual to file the petition. thus. It is likewise undisputed that together with the consolidated petition is a list of properties. which included the subject Antipolo properties owned by Samuel and Pauline Lee. Intermediate Appellate Court. We have. In short.” it has no jurisdiction over the properties of private individuals or natural persons. consistently applied this ruling to the subsequent Ong v. . the fact that the debts of MDEC and MHI to Bangkok Bank are secured by the Lee family through the guarantees will not likewise put the Lee family and their privately owned properties under the jurisdiction of the SEC through the consolidated petition for suspension of payments. the February 20. which is limited to “corporations. Therefore. Here. and financial condition of the debtor. The respondent Bank opposed the petition on the ground among others that the rehabilitation plan was unfeasible and prejudicial to its interest. Atty. Inc.  We have likewise observed that the court a quo made an unwarranted procedural shortcut as its finding that there was merit in respondent corporations’ petition for rehabilitation was made in the same Order approving their Rehabilitation Plan. 193872. is its failure to refer respondent corporations’ petition for rehabilitation and Rehabilitation Plan to the rehabilitation receiver despite the explicit and clear mandate of the Interim Rules that if the court is satisfied that there is merit in the petition. the RTC denied the rehabilitation receiver’s motion to issue an order directing petitioners and their creditors to attend a meeting. Inc. In the course of their business. the RTC hastily approved the rehabilitation plan in the same order giving due course to the petition. On appeal. The Court of Appeals’ decision is affirmed. OCTOBER 19. petitioners borrowed from respondent Bank of the Philippine Islands (BPI) and from Ayala Life Assurance. the operation of its business and the desirability of the continuance thereof. the RTC issued an order of approval of the petitioners’ rehabilitation plan. including its annexes such as the schedule of debts and liabilities and the inventory of assets submitted in support of the petition. and any other matter relevant to the proceedings or to the formulation of a rehabilitation plan. the Court of Appeals found:  The most glaring procedural infirmity committed by the court a quo. conduct. BANK OF PHILIPPINE ISLANDS G. RTC denied the motion. RATIO:  In the present case. Moreover. (2) accept and incorporate. VS. The petition is denied. petitioners’ total obligation amounted to P85. knowledge in management. however. (petitioners) are domestic corporations of the Siochi family. the court a quo committed serious error when it failed to refer the petition for rehabilitation and its annexes to the appointed receiver. (7) make available to the creditors documents and notices necessary for them to follow and participate in the .. (3) recommend to the court the disallowance of claims and rejection of amendments to the schedule of debts and liabilities that lack sufficient proof and justification. NO. ISSUE: Whether or not the RTC correctly gave due course in granting the petition for corporate rehabilitation? HELD: No. Inc. In its 20 October 2009 Decision. the Court of Appeals set aside the RTC’s Order on the ground that the lower court’s order of granting the petition was rife with procedural infirmities. In fact.R. The RTC granted the said petition and appointed Atty. prayed before the RTC to issue an order to call for a meeting between the petitioners and their creditor. Inc. (5) investigate the acts. “the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors.  As an officer of the court and an expert. Thus. the Court held that. The RTC confined the initial hearing to the issue of jurisdiction and failed to address other more important matters relating to the petition and comment. petitioners filed with the RTC a petition for corporate rehabilitation. Court of Appeals. On 15 July 2004.362. Thereafter. 2011 FACTS: Petitioners Siochi Fishery Enterprises. AL. liabilities. Hence. the rehabilitation receiver was unable to submit his recommendations and make modifications or revisions to the rehabilitation plan as necessary. his recommendation bears much weight as it is one of the factors which must be considered by the court if it were to approve the rehabilitation plan. the Interim Rules required the appointment of a rehabilitation receiver simultaneously with the issuance of the Stay Order and prescribed the following qualifications — expertise and acumen to manage and operate a business similar in size and complexity to that of the debtor. ET. Petitioners prayed that the RTC (1) issue a stay order. and rehabilitation of distressed companies. properties. For this reason. the rehabilitation receiver. In Pryce Corporation v. (6) examine under oath the directors and officers of the debtor and any other witnesses that he may deem appropriate. etc. the Interim Rules directed the rehabilitation receiver to evaluate the rehabilitation plan and submit his recommendations to the court.262. (4) submit to the court and make available for review by the creditors a revised schedule of debts and liabilities.05. Cruz as the petitioner’s rehabilitation receiver. finance. Petitioners are engaged in various businesses and have interlocking stockholders and directors. it must be emphasized that the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors.97 SIOCHI FISHERY ENTERPRISES. (2) declare petitioners in a state of suspension of payments. (3) approve petitioners’ proposed rehabilitation plan. More importantly. to further emphasize the significance of the role of the rehabilitation receiver in rehabilitation proceedings. Dede Fishing Corporation. Blue Crest AquaFarms. and (4) appoint a rehabilitation receiver. As of 30 June 2004. INC.” Section 14 of the Interim Rules of Procedure on Corporate Rehabilitation enumerates the powers and functions of the rehabilitation receiver: (1) verify the accuracy of the petition. it shall give due course to the petition and “immediately” refer the same and its annexes to the rehabilitation receiver x x x. Cesar C. The RTC also failed to refer for evaluation the rehabilitation plan to the rehabilitation receiver. Cruz.  It is discernible from the foregoing that there are serious matters which should be determined before rehabilitation may be had. and general familiarity with the rights of creditors in rehabilitation. and Iloilo Property Ventures. Jun-Jun Fishing Corporation. the rehabilitation receiver plays an important role in corporate rehabilitation proceedings. amendments to the schedule of debts and liabilities. when justified. the present petition. Thus. 98    proceedings. (24) recommend the appointment of a management committee in the cases provided for under Presidential Decree No. (e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtor’s properties were liquidated. directors. Section 5 of the Rules enumerates the essential requisites of a rehabilitation plan: The rehabilitation plan shall include (a) the desired business targets or goals and the duration and coverage of the rehabilitation. mismanagement. (12) determine and recommend to the court the best way to salvage and protect the interests of the creditors. (15) prohibit and report to the court any payments outside of the ordinary course of business. and staff as are necessary in performing his functions and duties as rehabilitation receiver. fraud. and to attend all meetings of the board of directors and stockholders of the debtor. photocopy. (10) monitor the operations of the debtor and to immediately report to the court any material adverse change in the debtor’s business. together with any comments made thereon. (21) be notified of. or letter. The Court notes that petitioners failed to include a liquidation analysis in their rehabilitation plan. encumbrances. stockholders. management. The rehabilitation plan is an indispensable requirement in corporate rehabilitation proceedings. parties-litigants. surveying. transfer. and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan. copy. earnings and operations of the debtor. (19) take possession. books. appraisers. (14) prohibit and report to the court any encumbrance. as amended. account. and irregularities committed by the stockholders. or sale of assets or of the controlling interest. or the general public. control. accountants. or photographing it or any designated relevant object or operation thereon. (18) gain entry into any property for the purpose of inspecting. 902-A. (13) study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings. (22) recommend any modification of an approved rehabilitation plan as he may deem appropriate. restructuring of the debts. (8) report to the court any fact ascertained by him pertaining to the causes of the debtor’s problems. misconduct. (11) evaluate the existing assets and liabilities. giving due regard to the interests of secured creditors. paper. (17) inspect. and the general public. whether in the possession of the debtor or other persons. and custody of the debtor’s assets. or disposition of the debtor’s property outside of the ordinary course of business or what is allowed by the court. (9) employ such person or persons such as lawyers. book. dispositions. and (26) apply to the court for any order or directive that he may deem necessary or desirable to aid him in the exercise of his powers. which may include conversion of the debts or any portion thereof to equity. premises. or photograph any document. (25) recommend the termination of the proceedings and the dissolution of the debtor if he determines that the continuance in business of such entity is no longer feasible or profitable or no longer works to the best interest of the stockholders. preferences. (16) have unlimited access to the debtor’s employees. (d) the means for the execution of the rehabilitation plan. (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation. or any other person. (20) notify the parties and the court as to contracts that the debtor has decided to continue to perform or breach. and financial documents during business hours. (c) the material financial commitments to support the rehabilitation plan. creditors. dacion en pago. . records. (23) bring to the attention of the court any material change affecting the debtor’s ability to meet the obligations under the rehabilitation plan. measuring. Atty. require to be conveyed to the rehabilitation receiver for his disposition? HELD: No. The CA rendered a decision. Prompted by this finding. the trustors-beneficiaries are the Alcantaras. Thus. Belson. The income and principal of the portfolio could only be withdrawn upon the Alcantaras’ written instruction or order to Advent Capital. its creditors and other interested parties. upon motion. The CA ruled that the Alcantaras owned those dividends. Concepcion requested Belson Securities. a third party. Advent Capital must file a separate action for collection to recover the trust fees that it allegedly earned and. (Belson) to deliver to him. with the trial court’s authorization if warranted. Alcantara. it neither had possession nor control of the money it wanted to apply to its claim.” with the corresponding duty to submit to the Alcantaras a quarterly accounting report within 20 days after. Concepcion’s motion. as Advent Capital’s rehabilitation receiver. Advent Capital could not dispose of the Alcantaras’ portfolio on its own. upon motion. seeking to annul the rehabilitation court’s order. citing the Alcantaras’ objections as well as the absence of an appropriate order from the rehabilitation court. Belson turned over the subject dividends to him. these should have been deducted as they became due. As it happened. Belson refused. Nicasio I. Its court appointed rehabilitation receiver. The latter must be resolved quickly and expeditiously for the sake of the corporate debtor. In this case. held the money in the Alcantaras’ names. 1803050. RATIO: Cash dividends held by Belson and claimed by both the Alcantaras and Advent Capital does not constitute corporate assets of the latter that the rehabilitation court may. Concepcion’s demand letter. it could automatically deduct its management fees from the Alcantaras’ portfolio that they entrusted to it. Advent Capital and Finance Corporation vs. Complying with the rehabilitation court’s order and Atty. Alcantara G. Paragraph 9 of the Trust Agreement provides that Advent Capital could automatically deduct its trust fees from the Alcantaras’ portfolio. “at the end of each calendar quarter. Hence. formed part of Advent Capital’s assets. They did not form part of Advent Capital’s assets as contemplated under the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules). the present petition. the P7. But the problem is that the trust fees that Advent Capital’s receiver was claiming were for past quarters. The real owner of the trust property is the trustor-beneficiary. The Alcantaras made a special appearance before the rehabilitation court to oppose Atty. Whether it should deliver the same to Advent Capital or to the Alcantaras is not clear. was subject to rehabilitation. Alcantara and Editha I. ISSUE: Whether or not the cash dividends held by Belson and claimed by both the Alcantaras and Advent Capital constitute corporate assets of the latter that the rehabilitation court may. Concepcion filed a motion before the rehabilitation court to direct Belson to release the money to him. Atty. January 25. Concepcion to account for the dividends and deliver them to the Alcantaras. The Court of Appeals’ decision is affirmed. put the money in escrow for payment to whoever it rightly belongs. as trust fees. the issue is what court has jurisdiction to hear and adjudicate the conflicting claims of the parties over the dividends that Belson held in trust for their owners. at the time Advent Capital made its move to collect its supposed management fees. subsequently found out that the respondent Alcantara couple had owned the Advent Capital P27. affidavit evidence in lieu of oral testimony.99 Advent Capital and Finance Corporation vs. Atty. Nicasio I. Certainly. the Interim Rules “incorporate the concept of prohibited pleadings. Adversarial proceedings similar to that in ordinary courts are inconsistent with the commercial nature of a rehabilitation case. All these are stipulated in the Trust Agreement. require to be conveyed to the rehabilitation receiver for his disposition. Thus. According to Advent Capital. all it had against the Alcantaras was a claim for payment which is a proper subject for an ordinary action for collection. They claimed that the money in the trust account belonged to them under their Trust Agreement with Advent Capital. Concepcion. Thus. Advent Capital asserts that the cash dividends in Belson’s possession formed part of its assets based on paragraph 9 of its Trust Agreement with the Alcantaras. clarificatory hearings . not the rehabilitation court which has not been given the power to resolve ownership disputes between Advent Capital and third parties. Having failed to collect the trust fees at the end of each calendar quarter as stated in the contract. representing trust fees that it supposedly earned for managing their several trust accounts. Based on the stipulation. Rehabilitation proceedings are summary and non-adversarial in nature. and do not contemplate adjudication of claims that must be threshed out in ordinary court proceedings. Inc. Ultimately. the Alcantaras filed a special civil action of certiorari before the Court of Appeals (CA).59. however. The rehabilitation court granted the motion despite the Alcantara couple’s opposition. Meanwhile. Concepcion claimed that the dividends.50 in cash dividends that Belson held under the Alcantaras’ Trust Account 95-013. Atty. Neither Belson nor the Alcantaras are its debtors or creditors with interest in the rehabilitation.R. Alcantara and Editha I. Danilo L. The latter could not also assign or encumber the portfolio or its income without the written consent of the Alcantara. It cannot enforce its money claim by simply filing a motion in the rehabilitation case for delivery of money belonging to the Alcantaras but in the possession of a third party. 2012 FACTS: The corporation petitioner. What is clear is that the issue as to who should get the same has been seriously contested. granting the petition and directing Atty.597.635. No. Advent Capital.398.026. or any incident. and the grant of authority to the court to decide the case.100 instead of the traditional approach of receiving evidence.” . on the basis of affidavits and documentary evidence. Under Section 23. The RTC granted the petition despite the respondent bank’s opposition. stockholders and. because the assets of a business are often more valuable when so maintained than they would be when liquidated. which is rendered obvious by the following: (a) the absence of a sound and workable business plan. . 187316 January 16. 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. 2012 FACTS: Petitioner Wonder Book Corporation (Wonder Book) is a corporation duly organized and existing under Philippine laws engaged in the business of retailing books. rehabilitation is not a viable option. 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 rationale of Presidential Decree No. It is imperative for a distressed corporation seeking rehabilitation to present “material financial commitments” as this is critical in determining its resolve. The Court of Appeals’ decision is affirmed. they attempt to provide for the efficient and equitable distribution of an insolvent debtor’s remaining assets to its creditors. Given that it is actually insolvent and not just suffering from temporary liquidity problems. This can be proven in Wonder Book’s financial statement. greeting cards and other related items. Philippine Bank of Communications G. which enumerates the minimum requirements of an acceptable rehabilitation plan. have equitable and rehabilitative purposes. is to “effect a feasible and viable rehabilitation. unfortunately. These. school and office supplies. while illiquid. (d) cash flow cannot sustain daily operations.101 Wonder Book Corporation vs. the present petition. do not qualify as sincere commitment and even betray Wonder Book’s intent to fund the implementation of its rehabilitation plan using whatever cash it will generate during the reprieve provided by the stay order and the moratorium on the principal and interest payments. It operates the chain of stores known as the Diplomat Book Center. the Court of Appeals reversed the lower court’s decision on the ground that Wonder Book as a corporation is not merely illiquid but in a state of insolvency. the general public. has a definite source of financing for its proper and full implementation. Hence.ensation under the plan than if the corporate assets would be sold. much like the bankruptcy laws of the United States. RATIO: Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. In determining whether the objections to the approval of a rehabilitation plan are reasonable or otherwise. and (e) negative net worth and the assets are near full depreciation or fully depreciated. a rehabilitation plan may be approved if there is a showing that rehabilitation is feasible and the opposition entered by the creditors holding a majority of the total liabilities is unreasonable. Wonder Book’s “material financial commitments” are limited to converting all deposits for future subscriptions to common stock and treating all its payables to its officers and stockholders as trade payables. The petitioner filed a petition for rehabilitation before the RTC. on appeal. Rehabilitation is therefore available to a corporation who. This scheme is certainly unfair as PBCOM or any of Wonder Book’s creditors cannot be compelled to finance Wonder Book’s rehabilitation by a delay in the payment of their claims or a considerable reduction in the amounts thereof. determination. in a larger sense. Rehabilitation is not the proper remedy for Wonder Book’s dire financial condition. The rehabilitation of a financially distressed corporation benefits its employees. No. The figures appearing on Wonder Book’s financial documents and the nature and value of its assets are indeed discouraging. opposed the petition for rehabilitation on the ground that the corporation is insolvent and can no longer be rehabilitated. The respondent. Its liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations.” by preserving a floundering business as going concern. (c) speculative capital infusion or complete lack thereof for the execution of the business plan. earnestness and good faith in financing its proposed rehabilitation plan. Philippine Bank of Communications. On one hand. Another reason for this Court’s denial of Wonder Book’s petition is its failure to comply with Section 5 of the Interim Rules. and anchored on realistic assumptions and goals. Rule 4 of the Interim Rules. and on the other. This remedy should be denied to corporations whose insolvency appears to be irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors. as amended. (b) that the shareholders would lose their controlling interest as a result of the plan. 902-A. targets and goals. (b) baseless and unexplained assumptions.R. creditors. and (c) that the receiver has recommended approval. has assets that can generate more cash if used in its daily operations than sold. The petitioner in the course of its business acquired a loan from the respondent Bank. Rehabilitation proceedings in our jurisdiction. ISSUE: Whether Wonder Book’s petition for rehabilitation is impressed with merit? HELD: No. However. the court has the following to consider: (a) that the opposing creditors would receive greater comp. Petitioner prayer for the appointment of a Rehabilitation Receiver from among the nominees named therein and the staying of the enforcement of all claims. We observe that in appointing Mr.86 million in 2003. the RTC issued an Order giving due course to the Rehabilitation Plan. The said rehabilitation plan. petitioner. 2004. Simply put. ISSUE: Was the serious test necessary in determining the appointment of a receiver for Pryce Properties? HELD: Yes.D. petitioner passed on to the creditors the burden of marketing and financing unwanted memorial lots. Thus. Mendoza as Rehabilitation Receiver. it did not specify any reason or ground to sustain such finding. and P125. It is clear that in the petition for rehabilitation does not allege that there is a clear and imminent danger that petitioner will lose its corporate assets if a receiver is not appointed. On July 25. Absent such danger. badly affected petitioner’s operations. Mendoza as Rehabilitation Receiver. the “serious situation test” laid down by Rizal Commercial Banking Corporation has not been met or at least substantially complied with. 2005. On July 13. respondent herein. petitioner filed with the Regional Trial Court of Makati acting as Commercial Court. on July 12. such as where there are sufficient assets to sustain the rehabilitation plan and both investors and creditors are amply protected. a petition for rehabilitation. the petition failed to comply with the “serious situation test” . however. Petitioner also prayed that after due hearing. alleged in its opposition that the petitioner is solvent and that it filed the petition to force its creditors to accept dacion payments. 2004. resulting in heavy losses. February 4. The Bank of the Philippine Islands claimed that the petition and the proposed Rehabilitation Plan are coercive and violative of the contract. 2008 FACTS: Pryce Corporation. The situations contemplated in these instances are serious in nature. operated a major hotel in Cagayan de Oro City. the RTC then appointed Gener T. It engaged in the development of memorial parks. among others include the payment to bank creditors through dacion en pago of assets already mortgaged to them and that any other debt not covered by mortgaged assets or not falling under the aforementioned categories shall be paid through dacion of memorial park lots. In other words. Moreover. Gener T. No. Its primary purpose was to develop real estate in Mindanao. The 1997 Asian financial crisis. the CA granted respondent’s petition and reversed the assailed Order of the RTC. all claims against petitioner be deferred.05 million in 2002.09 million in 2001. It incurred losses of P943. On September 13. the initial hearing of the petition for rehabilitation be set on September 1. the Court held in the case of Rizal Commercial Banking Corporation vs. Hence. the only basis of the lower court was its finding that “the petition is sufficient in form and substance”. Intermediate Appellate Court. and produced industrial gases. 2004. Consequently. this present petition. RATIO: Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation requires the petition must be sufficient in form and substance. among others. In effect. its proposed Rehabilitation Plan be approved. that the petition is unacceptable because of the unrealistic valuation of the properties subject of the dacion en pago. the need for appointing a receiver does not exist. There must exist a clear and imminent danger of losing the corporate assets if a receiver is not appointed. voided the contract stipulation and contravened the “avowed policy of the State” to maintain a competitive financial system. G. on February 23. the purpose of the law in directing the appointment of receiver is to protect the interests of the corporate investors and creditors. 2005.R. that under Section 6(c) of P. Court of Appeals. sitting as a Commercial Court for further proceedings with dispatch to determine the merits of the petition for rehabilitation. was incorporated under the Philippine laws. receivers may be appointed whenever: 1)necessary in order to preserve the rights of the parties-litigants. and/or 2)protect the interest of the investing public and creditors. In the same Order. P479. the RTC issued a Stay Order directing that. respondent filed with the Court of Appeals a petition for review alleging that in approving the Amended Rehabilitation Plan. The petition was opposed by petitioner’s bank-creditors. monetary or otherwise against it. The receiver made proposals to amend the rehabilitation plan and the same was approved by the RTC. 902-A. while exempting it (petitioner) from paying interests and penalties. The Land Bank of the Philippines contended. Clearly. However. The China Banking Corporation. The Court denies the petition and remanded the case to RTC. It could not meet its obligations as they became due.102 Pryce Corporation vs. the RTC impaired the obligation of contracts. 20044. 172302. and all creditors and interested parties should file their respective comments/oppositions to the petition. and appointed Atty. and 4)the constitutional question is the lis mota of the case. Consequently.. In addition. ordered the Rehabilitation receiver to submit its recommendation. On the question of the constitutionality of the Interim Rules of Procedure on Corporate Rehabilitation. 2010 FACTS: Respondent Shemberg Biotech Corporation (SBC). rather than on the substantial and jurisdictional issues raised.” Such exercise of power. the RTC issued the assailed October 12. 3)the exercise of judicial review is pleaded at the earliest possible opportunity. The RTC further said that it will reflect on the issue raised by SBC’s creditors that the rehabilitation plan is not feasible. A sufficient breathing spell. BPI also impliedly invoked the Interim Rules before the CA in seeking a modified rehabilitation plan considering that SBC’s petition for approval of its rehabilitation plan had been filed under the Interim Rules. And while Interim Rules and new Rules of Procedure on Corporate Rehabilitation contain provisions on termination of the corporate rehabilitation proceedings. the challenge on the constitutionality of the Interim Rules is a new and belated theory that we should not even entertain. To dismiss the petition for rehabilitation would be to reverse improperly the final course of that petition: the petition was granted by the RTC. BPI did not ask the CA to terminate the rehabilitation proceedings. 3)whether the rehabilitation plan may no longer be implemented in accordance with its terms. arbitrarily and despotically by eliminating penalties and reducing interests amounting to millions. the RTC decision was affirmed with finality. Relatedly. The CA found that the RTC did not commit an error or grave abuse of discretion in issuing the October 12. Rule 44 of the Interim Rules to support its prayer that the rehabilitation proceedings be declared terminated. referred the rehabilitation plan to the Rehabilitation Receiver for evaluation. i.R. upon submission by the Rehabilitation Receiver of his recommendation. Go as new Rehabilitation Receiver. The Court is not at liberty to consider these factual matters for the first time. 2001 Orders. No. In fact. recalled the appointment of the first Rehabilitation Receiver. a domestic corporation which manufactures carrageenan from seaweeds. August 11. After initial hearings. BPI laments that CA focused its discussion on the procedural matters. It was not raised before the CA. conditions. which approved its modification SBC’s rehabilitation plan. Well settled is the rule that issues not previously ventilated cannot be raised for the first time on appeal. . also amounts to taking of property without just compensation and due process of law that could not be justified under the police power. 2002 in Civil Case No. The Court cannot grant BPI’s prayer that the petition for rehabilitation be ordered dismissed and terminated. BPI adds that the Interim Rules of Corporate Recovery is unconstitutional insofar as it alters or modifies and expands the existing law on rehabilitation contrary to the principle that rules of procedure cannot modify or affect substantive rights. and petitioner Bank of the Philippine Islands (BPI) filed its opposition to SBC’s petition. 162291.e. BPI contends that the rehabilitation plan does not require “infusion of new capital from its guarantors and sureties” and that forcing creditors to transform their debt to equity amounts to taking private property without just compensation and due process of law. may help SBC settle its debts. its resolution involve factual matters such as: 1) Whether there was failure to achieve the desired targets or goals as set forth in the rehabilitation plan. BPI filed a petition for certiorari. and the rehabilitation plan is now being implemented. The RTC issued a stay order. 2)a personal and substantial interest. Its failure to so prove defeats the challenge.103 Bank of the Philippine Islands v. according to the RTC. Pio Y. In its assailed decision. ISSUE: Is the Interim Rules of Procedure on Corporate Rehabilitation unconstitutional? HELD: The Interim Rules of Procedure on Corporate Rehabilitation is constitutional. G. The rule is that when issues of constitutionality are raised. filed a petition for the approval of its rehabilitation plan and appointment of a rehabilitation receiver before the RTC. prohibition and mandamus before the CA. rendered the petition moot. or 4)whether there was successful implementation of the rehabilitation plan. We even note that BPI itself opposes its own stand by invoking Section 27. BPI further contends that the RTC exercised its rehabilitation power “whimsically. Aside from being another new issue. 2001 Order which gave due course to the SBC’s petition. BPI contends. The RTC found that SBC complied with the conditions necessary to give due course to its petition for rehabilitation.2001 and December 26. restrictions or assumptions. Shemberg Biotech Corporation and Benson Dakay. The CA ruled that the RTC’s decision dated April 22. on the propriety of the petition for certiorari. neither the RTC nor the CA rule on this point. The RTC was also satisfied of the merit of SBC’s petition and noted that SBC’s business appears viable since it has a market for its product. the Court can exercise its power of judicial review only if the following requisites are present: 1)the existence of an actual and appropriate case. the constitutional question was not raised at the earliest opportunity. BPI failed in its burden of clearly and unequivocally proving its assertion. CEB-26481-SRC. 2)whether there was failure of the debtor (SBC) to perform its obligations under the plan. the CA dismissed the petition. The CA also ruled that the issues against the rehabilitation plan should be raised in BPI’s appeal from the said RTC’s decision. exclusive of interests. Respondent Philippine Bank of Communication (PBCom) offered to finance the whole project of NBC and immediately provide it a loan facility. The RTC utterly disregarded the Rules on Corporate Rehabilitation in the guise of liberal construction and granted the petition for rehabilitation based on insufficient evidence. that it did not violated the rules on petition for rehabilitation because such rules allows extension under certain circumstances. G. It merely enumerated certain real properties and their respective sizes and market values. NBC executed a deed of assignment. Among the rules alleged to have been violated is a rule on prohibited pleadings on motion for extension in filing the required rehabilitation plan. August 2. Obviously. penalties. which NBC did in this case.213. ISSUE: Whether or not the RTC correctly gave due course on NBC’s action for corporate rehabilitation? HELD: No. 183140. The NBC inventory did not mention the condition of its listed assets. NBC’s total debts would balloon to P560. Philippine Bank of Communications. NBC accepted the bank’s offer. But the latter refused the offer. NBC’s construction eventually stopped for lack of funds. when the documentation of its assets were inadequate. assigning to PBCom its rights and interests over all payments that may be due from the Pag-IBIG. PBCom discontinued its financial support to NBC reportedly because Bangko Sentral ng Pilipinas (BSP) had issued a cease and desist order against the bank. No. NBC sought life from Cocolife and Land Bank which express their intention to finance the project by taking out NBC’s loan from PBCom.R.81. Further under. and other charges. After a time. Relying on PBCom’s commitment. When it became apparent that PBCom had no intention of complying with its commitment. The Court held that the RTC erred in giving due course to the petitioner’s action. The RTC issued an order giving due course to NBC’s petition for rehabilitation. Petitioner counters however. But there would be no need to go that far when the petitioning corporation declined to comply with the simpler rules of rehabilitation. The RTC of course claims that the rehabilitation plan would still have to be referred to the receiver for study and evaluation. . and c) to allow NBC to use the proceeds to make emergency repairs and restoration works. The Court holds that the RTC should have ruled on the creditors’ objections instead of merely treating them as premature. It filed with the court a manifestation and urgent motions a) to order PBCom to release 12 Transfer Certificates of Title of finished housing units. and the when the creditors’ opposition offered insurmountable basis for shelving the entire effort. the circumstances. however. insisting on the supposed BSP cease and desist order.5. PBCom challenges the RTC’s order alleging that NBC violated the several rules on corporate rehabilitation and that it had not met the requirements for the grant of the petition involved. its continued operation would no longer be viable.104 North Bulacan Corporation vs. NBC filed a petition for corporate rehabilitation with the Mandaluyong Regional Trial Court (RTC). 2010 FACTS: Petitioner North Bulacan Corporation (NBC) is engaged in the business of developing low medium-cost housing projects. b)to order Pag-IBIG to issue Letters of Guaranty to PBCom representing the take-out value of the finished units. The RTC should have dismissed the petition as it had not approved any rehabilitation plan within the period specified by law. that JAPRL had altered and falsified its financial statements. It ruled that. 2008 FACTS: After evaluating the financial statements of respondent JAPRL Development Corporation (JAPRL) for fiscal years 1998. 493. Respondents moved for the reconsideration but it was denied.105 Banco De Oro-EPCI. On August 30. Banks are entities engaged in the lending of funds obtained through deposits from the public. ISSUE: Whether the granting of the petition for corporate rehabilitation of JAPRL Dev’t. from borrowers proven to be guilty of fraud. RFC) filed a petition for rehabilitation in the RTC of Calamba. it demanded immediate payment of JAPRL’s outstanding obligations amounting to P194. 03-991 against the three respondents guided by Section 40 of the General Banking Law which gives banks the right to annul any credit accommodation or loan. respondents hastily moved to suspend the proceeding in Civil Case No.e. In this event. the proceedings against him should continue. Because the petition was sufficient in form and substance. banking is undeniable imbued with public interest. April 14. a stay order was issued. 03-991. Since banks deal with the public’s money. G. A creditor can demand payment from the surety solidarily liable with the corporation seeking rehabilitation. Because JAPRL ignored its demand for payment.98 and other appropriate damages. 1999.388. JAPRL’s financial adviser. Respondents Rapid Forming Corporation (RFC) and Jose U. RFC) filed a petition for rehabilitation in the Regional Trial Court (RTC) of Quezon City. deposits) and lend out the same.98. JAPRL defaulted in the payment of four trust receipts soon after the approval of its loan. It disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in 2002.493. Finding JAPRL’s petition sufficient in form and substance. Hence. petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC. The Makati RTC may proceed to hear Civil Case No. Arollado acted as JAPRL’s sureties. the latter denied petitioner’s appeal and subsequent motion for reconsideration. Banks therefore redistribute wealth in the economy by channelling idle savings to profitable investments. justice and fairness dictate that the Makati RTC.388. Corp. petitioner Banco de Oro-EPCI. In this case. They borrow the public’s excess money (i. The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable to substantiate its allegations.R. Inc. However. petitioner filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against respondents in the RTC of Makati docketed as Civil Case No. No. the proposed rehabilitation plan for JAPRL and RFC was eventually rejected by the Quezon City RTC. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as will later be discussed). . a stay order defers all actions or claims against the corporation seeking rehabilitation from the date of its issuance until the dismissal of the petition or termination of the rehabilitation proceeding. hear whether or not respondents indeed committed fraud in securing the credit accommodation. Petitioner would then be entitled to the immediate payment of P194. Nevertheless. considering that respondents failed to pay the four trust receipts. It is noteworthy to stress the role of bank in financial business. JAPRL (and its subsidiary. 03-991 pending in the Makati RTC. Inc. petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. On appeal before the Court of Appeals. Petitioner later learned from MRM management. Under the Interim Rules of Procedure on Corporate Rehabilitation. Despite its seemingly strong financial position. A finding of fraud will change the whole picture. Meanwhile. Citing relevant provisions of the Trust Receipt Agreement. extended credit facilities to it amounting to P 230. this petition. the Calamba RTC issued a stay order.000. JAPRL Development Corporation. RATIO: The Court withheld the judgment for the moment on the order of the Makati RTC suspending the proceedings in Civil Case 03-991 insofar as JAPRL and RFC are concerned. Finally. The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud. It allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to project itself as a viable investment.000. their viability depends largely on their ability to return those deposits on demand. Consequently. vs. much importance is given to sound lending practices and good corporate governance. Considering the amount of petitioners exposure in JAPRL. The Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. 2003. et. is proper which would necessarily cause the suspension of the proceedings due to a valid stay order? HELD: The petition is granted. On February 20. The information alarmed petitioner. it ordered the service of summons on respondents. Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial statements. For this reason.. the Makati RTC should proceed to hear the Civil Case No. and demand the immediate payment thereof.al. and 2000. the Makati City Prosecutor should investigate whether or not there is probable cause to indict respondents for violation of Section 13 of the Trust Receipt Law. In view of the said order. 2006. JAPRL (and its subsidiary. because he was jointly and solidarily liable with JAPRL and RFC. 179901. Faced with at least 712 creditors. ASB Holding. ASB Finance. The ASB Group is owned by Luke C. The SEC Hearing Panel denied the opposition of the banks and allowed the filing of the petition for rehabilitation. the proposals are unrealistic. Winchester Trading. It stated that the determination of the sufficiency of the petition and the question of propriety of the petition filed by the ASB Group are matters within the technical competence and administrative discretion of the SEC. it irregularly nets out inter-corporation transactions and offsets the receivables amounting to PhP 5. ASBDC. Monico V. On the onset. 165571. Private respondents stated that they possess sufficient properties to cover their obligations but foresee inability to pay them within a period of one year. and United Coconut Planters Bank. 317 contractors/suppliers. Inc.000. the Hearing Panel approved the Rehabilitation Plan... 4-1 of the Rules of Procedure on Corporate Recovery. the SEC Hearing Panel issued on May 4. G. Prudential Bank. Securities and Exchange Corporation. Petitioners also questioned the remedy availed of by the ASB Group since a solvent corporation cannot file a petition for rehabilitation nor be placed under receivership. particularly the release of portions of mortgaged properties and waiver of interest. Inc. Inc.000.al. penalties. the consortium of creditor banks prayed for the dismissal of the petition. ASB Land. The creditor banks appealed the October 10 and 27. Fortunato Cruz as interim receiver.081. thus. alleging grave abuse of discretion on the part of the SEC in dismissing the creditors’ petition for review on the ground that 54% of the total obligations of the ASB Group with creditor banks have been settled. qualified for rehabilitation under Sec. and the prospect of having secured and non-secured creditors press for payments and threaten to initiate foreclosure proceedings.23 billion from Roxas. to file a petition for rehabilitation instead of just a petition for suspension of payments because such temporary inability to pay obligations may extend beyond one year or the corporation may become insolvent in the interim. The consortium of creditor banks moved for its disapproval on the ground that it is not viable. and it collides with the freedom of contract and the constitutional right against nonimpairment of contracts. this present petition. the suspension period was extended through an order dated October 27. by and between Rizal Commercial Banking Corporation-Trust and Investments Division. Hence. 2009 FACTS: Petitioners Philippine National Bank (PNB) and Equitable PCI Bank are members of the consortium of creditor banks constituted pursuant to the Mortgage Trust Indenture (MTI) dated May 29. severe drop in the sale of real properties. 2000 orders by filing before the SEC en banc a Petition for Review on Certiorari with application for a temporary restraining order . 05-00-6609.000 and liabilities worth PhP 12. The CA upheld the ruling of the SEC en banc and explained that the Rules does not preclude a solvent corporation. Finding the petition sufficient in form and substance. January 20. Jacob was later replaced by Atty. Upon motion by the ASB Group.410. VYL Holdings Corporation. Jacob as interim receiver of the ASB Group. Union Bank of the Philippines.R.000. Petitioners went to the CA via a petition for certiorari under Rule 65. 2000. petitioners granted a loan of PhP 1. No. peso devaluation. The ASB Group had assets worth PhP 19. Under the MTI. Private respondents’ petition to the SEC was accompanied by documentary requirements in accordance with the Rules of Procedure on Corporate Recovery. They maintained that the SEC should not have approved the Rehabilitation Plan over the objection of the consortium of creditor banks. private respondents filed with the SEC a verified petition for rehabilitation with prayer for suspension of actions and proceedings pending rehabilitation pursuant to Presidential Decree No. The banks further asserted that the Rehabilitation Plan does not explain the basis of the selling values and the net realizable values of the properties. 2000 an order suspending for 60 days all actions for claims against the ASB Group. Inc. Atty. (PD) 902-A. Roxas. as amended. They cited the sudden non-renewal and/or massive withdrawal by creditors of their loans to ASB Holdings. and 492 condominium unit buyers. Court of Appeals. and other charges. and Neighborhood Holdings.. (ASB Group) are corporations engaged in real estate development. acting as trustee for the consortium. and ASB Development Corporation (ASBDC.700. ISSUE: Is the filing of a petition for suspension of payments necessary before a corporation which is technically insolvent may file a petition for rehabilitation? HELD: . 2000.. Makati Hope Christian School. Bel-Air Holdings Corporation. enjoining the latter from disposing its properties in any manner except in the ordinary course of business and from paying outstanding liabilities. The creditors filed a Supplemental Petition for Review on Certiorari with the SEC en banc to question the foregoing order but the SEC en banc dismissed the petition. and it shows that the ASB Group is insolvent and should be subjected to liquidation proceedings. Other members of the consortium include Metropolitan Bank and Trust Company (Metrobank). and appointing Atty. The consortium also prayed for the early resolution of their opposition to the petition. formerly Tiffany Tower Realty Corporation). the ASB Group submitted a rehabilitation plan to enable it to meet all of its obligations. Private respondents ASB Holdings. The case was docketed as SEC Case No. the ASB Group pleaded for suspension of payments while working for rehabilitation with the help of the SEC. On May 2..106 Philippine National Bank and Equitable PCI Bank vs.000 to ASBDC secured by a mortgage of five parcels of land with improvements.000. like the ASB Group. Inc. Inc. The banks opposed the extension of the suspension order sought by the ASB Group. 1989. Since he ASB Group foresees its inability to meet its obligations within one year. and decreased investor confidence in the economy which resulted in the non-completion of and failure to sell their projects and default in the servicing of their credits as they fell due. it was considered technically insolvent and. as amended. et.Subsequently. The panel also held that suspension of payment is necessarily an effect of the filing of the petition. the glut in the real estate market. existing technical insolvency.e. A reading of Sec. a corporation may file a petition for rehabilitation—a remedy provided under Sec. and (2) technical insolvency defined under Sec. treat the petition as one for rehabilitation (Sec. 3-12). the SEC may either terminate the proceedings or it may. The period referred to the corporation’s inability to pay its obligations. Sec. and (4) If from the start. Contrary to petitioners’ arguments.e.. RATIO: The Court affirms the ruling of the appellate court. it should show in its petition and later prove during the proceedings that it will not be able to meet its obligations for longer than one year from the filing of the petition. 4-1 mentioned technical insolvency under Sec. the petition shall be dismissed (Sec. the corporation becomes technically insolvent. i. They contend that the SEC should wait for a year after the filing of the petition for suspension of payments when technical insolvency may or may not arise. This is erroneous. Thus.” does not refer to a year-long waiting period when the SEC can finally say that the ailing corporation is technically insolvent to qualify for rehabilitation. 3-1). 3-12.107 The petition is denied. 3-12. Petitioners harp on the SEC’s failure to examine whether the ASB Group is technically insolvent. When Sec. or it may be proved during the proceedings for suspension of payments. 3-13). (2) If the SEC finds that the corporation’s inability to pay will last more than one year from the filing of the petition for suspension of payments. The period mentioned under Sec. The correct interpretation of these rules are the following: (1) A corporation which has sufficient assets to cover its liabilities but foresees its inability to pay its obligations as they fall due may file a petition for suspension of payments under Rule III of the Rules (Sec. a corporation which has enough assets foresees its inability to meet its obligations for more than one year. 4-1. “longer than one year from the filing of the petition. A corporation may have considerable assets but if it foresees the impossibility of meeting its obligations for more than one year. the corporation has enough assets but it foresees its inability to pay its obligations for more than one year.e.. 3-12. when such inability extends beyond one year. it is considered as technically insolvent. . 4-1 shows that there are two kinds of insolvency contemplated in it: (1) actual insolvency. it may file a petition for rehabilitation under Rule IV. it was not requiring a previous filing of a petition for suspension of payments which petitioners would have us believe. i. the corporation is considered technically insolvent. it was referring to the definition of technical insolvency in the said section. Said inability may be established from the start by way of a petition for rehabilitation. the corporation’s assets are not enough to cover its liabilities.. a petition for rehabilitation and suspension of payments can be filed without previously filing a petition for suspension of payments since these refer to different reliefs under the Rules. In cases of technical insolvency. (3) If the corporation is shown or actually becomes technically insolvent anytime during the pendency of the proceedings (supervening technical insolvency). the mere fact that the ASB Group averred that it has sufficient assets to cover its obligations does not make it “solvent” enough to prevent it from filing a petition for rehabilitation. the ASB Group filed with the SEC a petition for rehabilitation with prayer for suspension of actions and proceedings pending rehabilitation. that is. at the first instance. In the case at bar. upon motion. 4-1. If the corporation opts for a direct petition for rehabilitation on the ground of technical insolvency. i. if the latter was the first remedy chosen by the ailing corporation. unless the claimant were enforcing a credit for taxes that enjoy absolute priority. On the other hand. a dispute between two creditors will not enable the Court to ascertain the pro rata dividend corresponding to each. There being no insolvency or liquidation. did not acquire the character and rank of a statutory lien co-equal to the mortgagee's recorded encumbrance. that a purchaser in good faith and for value (as the appellant concededly is) takes registered property free from liens and encumbrances other than statutory liens and those recorded in the certificate of title. The preferences named in Articles 2241 and 2242 are to be enforced in accordance with the Involvency Law.108 De Barreto vs.” RTC: granted Cruzado’s motion that his lien be satisfied by the foreclosure proceeds. the conflict between the parties now before us must be decided pursuant to the well established principle concerning register lands. it becomes evident that one preferred creditor's third-party claim to the proceeds of a foreclosure sale (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preferences under Article 2242. In the absence of insolvency proceedings (or other equivalent general liquidation of the debtor's estate). the claim of the appellee.R. and must remain subordinate to the latter. De Barreto sued for foreclosure and won. Held: The question as to whether the Civil Code and the Insolvency Law can be harmonized is settled by Article 2243. On the one hand. because the rights of the other creditors likewise enjoying preference under Article 2242 can not be ascertained. is incorrect and must be reversed. as unpaid vendor. reversed RTC ruling. Villanueva G. L-14938 Facts: Cruzado sold land (which was foreclosed by RFC but later resold to Cruzado) to Villanueva with a stipulation that Villanueva will continue payment to RFC (for the reselling price). the order of the Court of First Instance of Manila now appealed from decreeing that the proceeds of the foreclosure sale be apportioned only between appellant and appellee. Villanueva failed to pay both Cruzado and De Barreto. If none of the claims is for taxes. . Civil Code. Villanueva mortgaged the land to De Barreto when it obtained a loan from the latter. But on MFR. Cruzado filed a motion in that foreclosure proceeding for the recognition of his “vendor’s lien. Wherefore. Thus. SC: affirmed RTC. R. ULP. A writ of execution was not satisfied (in 1984). The law is unequivocal and admits of no other construction. . Difontorum et al. filed with the Minister of Labor and Employment a “motion for delivery of properties of RMC in possession of DBP to MOLE for proper disposition” pursuant to Art.109 DBP vs.” What Article 110 of the Labor Code establishes is not a lien. This simply means that during bankruptcy. 110 of the Labor Code which gives employees 1st preference over properties of the employer. Held: SC: It is clear from the wording of the law that the preferential right accorded to employees and workers under Article 110 may be invoked only during bankruptcy or judicial liquidation proceedings against the employer. In 1983. Thus. insolvency or liquidation proceedings involving the existing properties of the employer. DBP foreclosed RMC’s premises. There is no “first automatic lien. the employees have the advantage of having their unpaid wages satisfied ahead of certain claims which may be proved therein. Secretary of Labor G. but a preference of credit in favor of employees. etc. 79351 Facts: Difontorum and other co-employees obtained a favorable judgment against RMC for illegal dismissal. CA G. i. that is. Bernardo Construction. CA reversed RTC. 105827 Facts: The Municipality of San Antonio failed to pay petitioners for the latter’s construction of the public market of San Antonio. such lien cannot be enforced in the present action for there is no way of determining whether or not there exist other preferred creditors with claims over the San Antonio Public Market. 2242 of the Civil Code).R. Petitioners then sued the municipality for breach of contract.L. there will be a need to determine which of the creditors will be paid ahead of the others. SC: affirmed CA Held: Article 2242 only finds application when there is a concurrence of credits. It is basically for specific performance and damages. The fact that no third party claims have been filed in the trial court will not bar other creditors from subsequently bringing actions and claiming that they also have preferred liens against the property involved. et al. or liens within the purview of legal provisions governing insolvency. vs. the question of preference will arise. In such a situation. This is made explicit by Article 2243 which states that the claims and liens enumerated in articles 2241 and 2242 shall be considered as mortgages or pledges of real or personal property. .e. such as insolvency proceedings. even if it is finally adjudicated that petitioners herein actually stand in the position of unpaid contractors and are entitled to invoke the contractor's lien granted under Article 2242. Thus.110 J. when the same specific property of the debtor is subjected to the claims of several creditors and the value of such property of the debtor is insufficient to pay in full all the creditors. The records do not contain any allegation that petitioners are the only creditors with respect to such property. etc. Fundamental tenets of due process will dictate that this statutory lien should then only be enforced in the context of some kind of a proceeding where the claims of all the preferred creditors may be bindingly adjudicated. The action filed by petitioners in the trial court does not partake of the nature of an insolvency proceeding. specific performance. RTC granted petitioners’ motion and awarded possession and use of the building to them. with a prayer for the enforcement of contractor’s lien (based on Art. On Nov. Spouses Ong G. The twin elements of good faith and valuable and sufficient consideration have been duly established. 1991. SEC 70 of the Insolvency Law specifically makes reference to conveyance of properties made by a “debtor” or by an “insolvent” who filed a petition. 1991. Spouses Ong sold to Lee their house and lot in Greenhills.R. as petitioner postulates.111 Union Bank of the Philippines vs. Respondent spouses Ong have doubtlessly not filed a petition for a declaration of their own insolvency. 22. or against whom a petition for insolvency has been filed. 22. however is that BMC is a different juridical person from the respondent spouses. Petitioner avers that the Ong-Lee sales contract partakes of a fraudulent transfer and is null and void in contemplation of the aforequoted provision. extend to the respondent spouses such that transaction of the latter comes within the purview of SEC 70 of the Insolvency Law. 152347 Facts: BMC (a corporation 70% of which is owned by Spouses Ong) obtained a Php 40M credit line facility from Union Bank wherein the Ongs assumed a solidary liability undertaking. Held: Petitioner's reliance on the afore-quoted provision is misplaced for the following reasons: First. there is simply no occasion to apply SEC 70 of the Insolvency Law to nullify the transaction subject of the instant case. It was never proven that respondent spouses are likewise insolvent. . SEC 70 of the Insolvency Law considers transfers made within a month after the date of cleavage void. The fact that the respondent spouses bound themselves to answer for BMC’s indebtedness under the surety agreement referred to at the outset is not reason enough to conclude that the spouses are themselves debtors of petitioner bank. Third. It may be that BMC had filed a petition for rehabilitation and suspension of payments with the SEC. On Oct. BMC filed a petition for rehabilitation with the SEC. Neither has one been filed against them. Given the validity and the basic legitimacy of the sale in question. the sale having occurred on October 22. 1991 or within thirty (30) days before BMC filed a petition for suspension of payments on November 22. the alleged insolvency of BMC cannot. 1991. except those made in good faith and for valuable pecuniary consideration. Second. the real debtor of petitioner bank in this case is BMC. The nagging fact. Accordingly. constitutes a lien in favor of the Government from the time an assessment therefor is made and until paid. No. 1987 Facts: The Republic of the Philippines seeks the review on certiorari on the order of the Court of First Instance of Manila in the voluntary insolvency case of Quality Tobacco Corporation (the Insolvent). preferred or non-preferred. “Worker preference in case of bankruptcy—In the event of bankruptcy or liquidation of an employer's business. It follows that language of a much higher degree of specificity than that exhibited in Article 110 of the Labor Code is necessary to set aside the intent and purpose of the legislator that shines through the precisely crafted provisions of the Civil Code. Such unsatisfied customs duties and taxes would fall within Article 2244. pari passu and pro rata." together with related interest. the use of the phrase "first preference" in Article 110 indicates that what Article 110 intended to modify is the order of preference found in Article 2244.e. under Section 315 of the National Internal Revenue Code ("old Tax Code"). 1. Peralta G. of the Civil Code only in respect of the articles importation of which by the Insolvent resulted in the assessment of the unpaid taxes and duties. Articles 2241 and 2242 jointly with Articles 2246 to 2249. Hon. Union paid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. Clearly. his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation." The claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees constitutes a claim for unpaid internal revenue taxes which gives rise to a tax lien upon all the properties and assets. would have to be paid out of the Insolvent's "free property" in accordance with the order of preference embodied in Article 2244 of the Civil Code. Customs duties and taxes which remain unsatisfied after levy upon the imported articles on which such duties and taxes are due. taxes. The trial court held that the claims of the labor unions (i. Neither can it be assumed casually that Article 110 intended to subsume the sovereign itself within the term "other creditors" in stating that "unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of employer. Rather. L-56568 May 20. The first tier includes only taxes. cannot be viewed in isolation. It cannot be assumedsimpliciter that the legislative authority. No. Article 110 of the Labor Code. Said Article 110 reads. may be adjudicated in a binding manner. under Articles 2241 No. 1." Insistent considerations of public policy prevent us from giving to "other creditors" a linguistically unlimited scope that would embrace the universe of creditors save only unpaid employees. fees and other charges legally accruing. the liability of an importer for duties. Article 110 of the Labor Code did not sweep away the overriding preference accorded under the scheme of the Civil Code to tax claims of the government or any subdivision thereof which constitute a lien upon properties of the Insolvent. Bearing in mind the overriding precedence given to taxes. duties and fees by the Civil Code and the fact that the Labor Code does not impress any lien on the property of an employer. penalties and costs. movable and immovable. No. an unpaid "internal revenue tax. in determining the reach of its terms. "upon all property and rights to property belonging to the taxpayer. 2242 No.” Issue: Whether or not separation pays are preferred liabilities over taxes in insolvency cases Held: The Supreme Court ruled on the negative. Clearly. 9. Under Section 1204 of the Tariff and Customs Code. in respect of any and all properties of the Insolvent. 1. Article 110 must be read in relation to the provisions of the Civil Code concerning the classification. With respect the claims for tobacco inspection fees. establish a two-tier order of preference. out of any residual value of the specific property to which such other credits relate.112 Republic of the Philippines v. and which are still in the custody or subject to the control of the Bureau of Customs. The effective collection of taxes is a task of highest importance for the sovereign. of the Insolvent as taxpayer. duties and fees due on specific movable or immovable property. of the Civil Code and hence would be ninth in priority.R. taxes and fees and other charges attaching on importation constitute a personal debt due from the importer to the government which can be discharged only by payment in full of all duties. any provision of law to the contrary notwithstanding. USTC Association of Employees and Federacion de la Industria Tabaquera y Otros Trabajadores de Filipinas) for separation pay of their respective members embodied in final awards of the National Labor Relations Commission were to be preferred over the claims of the Bureau of Customs and Bureau of Internal Revenue for customs duties and inspection fees relying on Article 110 of the Labor Code. The goods imported on one occasion are not subject to a lien for customs duties and taxes assessed upon other importations though also effected by the Insolvent. It is critical indeed for its own survival. later reenacted in Identical terms as Section 301 of the Tax Code of 1977. this tax claim must be given preference over any other claim of any other creditor. all of the Civil Code. which provisions find particular application in insolvency proceedings where the claims of all creditors. and 2246-2249 of the Civil Code. the claim of the Bureau of Customs for unpaid customs duties and taxes enjoys the status of a specially preferred credit under Article 2241. It is frequently said that taxes are the very lifeblood of government. concurrence and preference of credits. It also constitutes a lien upon the articles imported which may be enforced while such articles are in the custody or subject to the control of the government. by using in Article 110 the words "first preference" and "any provision of law to the contrary notwithstanding" intended to disrupt the elaborate and symmetrical structure set up in the Civil Code. . All other special preferred credits stand on the same second tier to be satisfied. as we have seen. Thus. and (b) secondly. number 2. Article 110 of the Labor Code establishes "first preference" for services rendered "during the period prior to the bankruptcy or liquidation." a period not limited to the year immediately prior to the bankruptcy or liquidation. to property of the Insolvent that is not burdened with the liens or encumbrances created or recognized by Articles 2241 and 2242. that Article 110 of the Labor Code has modified Article 2244 of the Civil Code in two respects: (a) firstly. by moving up claims for unpaid wages of laborers or workers of the Insolvent from second priority to first priority in the order of preference established I by Article 2244. . very substantial effect may be given to the provisions of Article 110 without grievously distorting the framework established in the Civil Code by holding.113 which order relates. by removing the one year limitation found in Article 2244.