Fria Cases
1 Steel Corp of the Philippines v. MAPFRE
Quick Facts:
Steel Corp files for collection from Respondent
insurers for claims over fire insurance. RTC allowed
the payment, but CA annulled the order saying that
RTC as rehabilitation court did not have jurisdiction
over the collection. SC agreed with CA and
distinguished and defined “claims” as claims by
creditors and not debtors.
Doctrine:
Jurisdiction over “Claims”
The jurisdiction over the rehabilitation courts is over
claims against the debtor that is under rehabilitation,
not over claims by the debtor against its own debtors
or against third parties.
2 BPI v. Sarabia Manor Hotel
Quick Facts:
Sarabia obtained a loan from FEBTC, which was
absorbed by BPI. Sarabia filed for corporate
rehabilitation after their contractor defaulted in the
construction of a new building. The RTC and CA
approved the rehabilitation plan that included
restructuring of its loan agreements. BPI opposed the
rehabilitation plan but was not able to prove its basis
for opposition on the 6.75% p.a. interest rate. SC
denied the petition.
Doctrine:
Rehabilitation v. Liquidation
Rehabilitation is available if there is viability that
liquidity issues can be addressed by a practicable
business plan that will generate enough cash to
sustain daily operations. It 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.
Cram Down Rule
A rehabilitation plan may be approved even over the
opposition of the creditors holding a majority of the
corporation’s total liabilities if there is a showing that:
1. Rehabilitation is feasible; and
2. The opposition of the creditors is manifestly
unreasonable.
3 Marilyn Victorio-Aquino v. Pacific Plans Inc.
Quick Facts:
Pacific Plans Inc, engaged in selling pre need plans,
entered into rehabilitation. An Alternative
Rehabilitation Plan (APR) was approved by the court.
Due to devaluation of the dollar, and considering that
the trust fund of PPI was mainly composed of
NAPOCOR Bonds which are denominated in such
currency, a Modified Rehabilitation Plan (MPR) was
presented to the court. The RTC and CA approved the
MPR, to which the Petitioner assails as ultra vires as
it reduces the original claim and the original amount
the petitioner was supposed to receive under the ARP.
Likewise, it is assailed that it is beyond the authority
of the Rehabilitation Court to sanction a plan or
modification when the essential feature of such plan
involve forcing creditors to reduce their claims. The
SC denies such petition based on the Cram Down
Rule.
Doctrines:
2 Fold Cram Down (approval and binding effect)
The Rules allow the approval of a rehabilitation
plan even over the opposition of creditors if the
rehabilitation of the debtor is feasible and the
opposition of the creditors is unreasonable.
Likewise, the rule provides that upon approval by the
court, the rehabilitation plan and its provisions shall
be binding upon the debtor and all persons who may
be affected by it.
Sec 64 FRIA – Creditor Approval of Rehab Plan
...xxx...
Notwithstanding the rejection of the rehabilitation
plan, the court may confirm the rehabilitation plan if
all of the circumstances are present:
a. Rehabilitation plan complies with the
requirements of this act
b. Receiver recommends the confirmation of the
rehabilitation plan
c. The shareholders, owners, or partners of the
juridical debtor lose at least their controlling
interest as a result of the plan
d. The 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
Sec 14, Rule 4 of the Interim Rules
The Rehabilitation Receiver shall closely monitor the
operations of the debtor during pendency, and may
recommend any modification of an approved plan as
he may deem appropriate.
Impairment of Contract is not available
The mere impairment of contract is not a justification
to question the modification of a rehabilitation plan
because the very nature of rehabilitation proceedings
sometimes necessitates such a course of action.
The non-impairment clause under the Constitution
applies only to the exercise of legislative power. It
does not apply to the Rehabilitation Court which
exercises judicial power over the rehabilitation
proceedings.
4 BPI Family v. St. Michael Medical Center
Quick Facts:
Spouses Rodil are owners of St Michael Hospital and
planned on constructing a new hospital building. They
incorporated St. Michael Medical Center Inc (SMMCI)
and applied loans with petitioner BPI. After suffering
financial loses and unable to pay its debts, SMMCI
filed for rehabilitation while it were neither
operational nor earning revenues. The plan included
the absorption of SMMCI of St Michael Hospital as
well as investments from a group of doctors. RTC and
CA approved the rehabilitation plan. SC granted the
petition citing that SMMCI and St Michael Hospital
are distinct entities, and that SMMCI cannot be
rehabilitated because it admits that it has not
formally operated nor earned income since its
incorporation. It also did not comply with the
requisites of the petition for rehabilitation.
Doctrines:
Definition of Rehabilitation
Rehabilitation is the restoration of the debtor to a
condition of successful operation and insolvency. It
assumes that the corporation has been
operational but for some reasons like had become
distressed or insolvent.
5 Viva Shipping Lines v. Keppel
Quick Facts:
Viva Shipping lines filed a petition for rehabilitation
wherein it underdeclared its assets but was allowed
by the RTC to amend its petition. In its rehabilitation
plan it enumerated possible sources as the sale of its
unserviceable vessels and a commercial lot owned by
its sister company. The RTC denied the petition for
failure to show the company’s viability for
rehabilitation. The CA denied the petition on
procedural grounds as petitioner failed to implead the
respondents under rule 43. The SC denied the petition
on grounds of procedural lapses and on grounds that
rehabilitation is no longer a viable option.
Doctrines:
Rehabilitation assumes that assets are still
serviceable to meet the purpose of the business.
Rehabilitation balances 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 purpose of corporate rehabilitation.
6 Philippine Bank v. Basic Polyprinters
Quick Facts:
Respondent Basic Polyprinters, a domestic
corporation engaged in business of printing, filed a
petition for rehabilitation. The RTC and CA approved
the rehabilitation plan. Petitioner raises 2 issues
namely that Basic Polyprinters is not liquid and that
there is absence of material financial commitment. SC
clarified that liquidity is not an issue in rehabilitation
but what is controlling is insolvency. As to the 2 nd
issues, SC found that the financial commitment was
lacking because respondent only presented P10M
additional working capital against a deficit of P23M,
likewise conversion of stock did have no effect on the
deficit. Finally, the proposed dacion en pago was not
feasible because the object was not its own property.
Doctrines:
Liquidity is not an issue in rehabilitation
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.
Material Financial Commitment is Significant
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 voluntary undertaking of
the stockholders and would be investors indicating
their willingness and ability to contribute funds to
guarantee the successful operation of the corporation.
7 New Frontier Sugar v. Equitable PCI
Quick Facts:
New Frontier Sugar filed a petition for rehabilitation,
however the respondent Equitable PCI opposed the
petition alleging that petitioner cannot operate
because it has no assets left and that its rehabilitation
plan is misleading since its properties have already
been foreclosed by the respondent bank. RTC
dismissed the petition. CA and SC affirmed saying
that foreclosure happened before rehabilitation, thus
there are no more assets belonging to petitioner.
Doctrine:
Effect of Stay Order
The suspension of the enforcement of all claims
against the corporation is subject to the rule that it
shall commence only from the time the Rehabilitation
Receiver is appointed.
8 Spouses Sobrejuanite v. ASB Dev. Corp
Quick Facts:
Spouses Sobrejuanite filed a complaint before the
HLURB for rescission of contract and damages
against ASBDC for failing to deliver a condominium
unit. ASBDC filed a petition for rehabilitation and
filed a motion to suspend proceedings in the HLURB.
The motion was denied and the HLURB rendered a
decision in favour of petitioner. The CA reversed the
petition. The SC ultimately denies this petition saying
that what involves is a claim within the
contemplation of the law which would call for its
suspension.
Doctrine:
Definition of claim
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 there are no distinctions or
exemptions.
9 Marilyn Victorio-Aquino v. Pacific Plans Inc
(Refer Above Case 3)
10 PNB v. CA, ASB Realty (St. Francis)
Quick Facts:
Petitioner acts as a trustee for a consortium of
creditor banks against ASBDC. Respondent filed with
the SEC a petition for rehabilitation with prayer for
suspension of actions and proceedings citing that
while they have sufficient properties to cover
obligations, they foresee the inability to pay them
within a period of one year. SEC Hearing Panel, SEC
en banc and CA all approved the rehabilitation over
the petitioner’s oppositions. SC denied and affirmed
the decision. (Issues and grounds in doctrine)
Doctrines:
I PETITION FOR SUSPENSION OF PAYMENT AND
PETITION FOR REHABILITATION; NOT INCOMPATIBLE
*on claims that both cannot be simultaneously filed*
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 Rule.
(Sec 3-1)
Technical Insolvency
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, that is, the
corporation becomes technically insolvent, the petition
shall be dismissed. (Sec 3-12)
This does not refer to a year-long waiting period but
merely refers to the corporation’s inability to pay its
obligations. This inability may be established from the
start by way of petition for rehabilitation, or it may be
proved during the proceedings for suspension of
payments if the latter was the first remedy chosen.
Supervening Technical Insolvency
If the corporation is shown or actually becomes
technically insolvent anytime during the pendency of
the proceedings, the SEC may either terminate the
proceedings or it may, upon motion, treat the petition
as one for rehabilitation. (Sec 3-13)
If from the start, a corporation which has enough
assets foresees its inability to meet its obligation for
more than one year, it may file a petition for
rehabilitation. (Rule IV, Sec 4-1) this rule
contemplates 2 kinds of insolvency, actual and
technical.
II APPOINTMENT OF AN INTERIM RECEIVER
*on claims that appointment is improper since the
requirements have been met, but as discussed above,
rehabilitation is proper on technical insolvency*
2 Kinds of Receiver
Rehabilitation receiver may only be appointed
when there is a showing that the receiver is necessary
in order to preserve the rights of the parties and in
order to protect the interest of the investing public
and creditors
Interim Receiver is automatic from the time the
petition for rehabilitation is filed; there are no other
standards to be met. It is a necessary and urgent step
to protect the interest of both creditors and
stockholders of petitioning corporations.
III MOTION TO OVERRIDE THE CREDITOR’S 12A Philippine Asset Growth Two Inc. v. Fastech
OBJECTION Synergy Phils

*on claims that there was no motion to override the Quick Facts:
objection*

No Rehabilitation Plan shall be approved by the

Commission if opposed by a majority of any class of
creditors. The Commission may, upon motion,
however, override said disapproval if such is
manifestly unreasonable. (Sec 4-20)

Motion is required
The words “upon motion” were deliberately added to
emphasize this requirement.

In the case, while there was no motion, the reply to the

opposition was treated as a motion considering that
procedural rules should be liberally interpreted.

IV NON-IMPAIRMENT OF CONTRACTS
Approval of the rehabilitation plan and the
appointment of a rehabilitation receiver merely
suspend the actions for claims. A creditor’s
preferred status over unsecured creditors relative to
mortgage liens is retained, but the enforcement of
such preference is suspended. Considering that they
are merely suspended, there is no impairment of
contracts.

11 BIR, Misajon v. Lepanto Ceramics

Quick Facts:

Lepanto Ceramics Inc (LCI) filed a petition for

rehabilitation. However, the BIR sent a formal letter
of demand requiring LCI to pay deficiency taxes
outside pending rehabilitation proceedings in spite of
the commencement order. RTC found Misajon guilty
of indirect contempt but not BIR which is a juridical
entity which can only act through its authorized
intermediaries. SC affirmed the decision

Doctrine:

Claims include Taxes

Claims include all claims of the government,
whether national or local, including taxes,
tariffs and custom duties and claims against
directors and officers of the debtor arising from acts
done within the scope of their authority: provided,
that this inclusion does not prohibit the creditors or
third parties from filing cases against directors and
officers acting in their personal capacities (Sec 4(c)
FRIA)

Creditors are not without remedy as they may submit

their claims to the rehabilitation court for proper
consideration so that they may participate.