Jurisprudence says –

Rehabilitation is “the restoration of the debtor to a condition of successful operation and solvency, if it is
shown that its continuance of operation is economically feasible and its creditors can recover by way of
the present value of payments projected in the plan, more if the debtor continues as a going concern
than if it is immediately liquidated.” Rehabilitation proceedings are in rem in nature. and conducted in a
summary and non-adversarial manner. Due to its commercial nature, rehabilitation proceedings must be
resolved expeditiously for the benefit of all the parties concerned and the economy in general.||| (City
Government of Taguig v. Shoppers Paradise Realty Development Corp., G.R. No. 246179, [July 14, 2021])

In case of Court-supervised Rehabilitation, shareholder approval is required to commence such

proceedings. When approved by the owner in case of a sole proprietorship, or by a majority of the
partners in case of a partnership, or, in case of a corporation, by a majority vote of the board of
directors or trustees and authorized by the vote of the stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least two-
thirds (2/3) of the members, in a stockholder’s or member’s meeting duly called for the purpose, an
insolvent debtor may initiate voluntary proceedings by filing a petition for rehabilitation with the court
and on the grounds hereinafter specifically provided.

Shareholder approval is also required to commence voluntary liquidation proceedings. The filing of the
petition should be approved by stockholders representing at least two-thirds (2/3) of the outstanding
capital stock, or in case of nonstock corporation, by the vote of at least two-thirds (2/3) of the members.
(Section 12, FRIA) But in case of Pre Negotiated Rehabilitation and Out-of-Court Restructuring
Agreements, shareholder approval is not applicable.
City Government of Taguig vs. Shoppers Paradise Realty Development Corp.

A dispute between the City Government of Taguig and Shoppers Paradise Realty Development Corp.
over unpaid rentals in a mall leads to a Supreme Court ruling affirming the jurisdiction of rehabilitation
courts and the validity of transactions made during rehabilitation proceedings.

Background of the Case

The case involves a dispute over unpaid rentals, fees, and utilities in the Sunshine Plaza Mall.

Shoppers Paradise Realty & Development Corporation (SPRDC) and Shoppers Paradise FTI Corporation
(SPFC) experienced financial setbacks due to the 1997 Asian Financial Crisis.

They filed a joint Petition for Rehabilitation, and the Regional Trial Court of Makati (RTC-Makati) acted as
the rehabilitation court.

The City Government of Taguig (CGT) claimed unpaid realty taxes from the operation of the mall as one
of the creditors.

Orders and Agreements

The RTC-Makati ordered the CGT to issue individual tax declarations for each stall owner in the mall,
with SPRDC and SPFC jointly and severally liable for payment.

The CGT entered into a Memorandum of Agreement (MOA) with SPFC, leasing out unoccupied units of
the mall and applying the rentals to the realty tax credit due to the CGT.

The CGT also leased portions of the mall to operate the Pamantasan ng Lungsod ng Taguig (PLT) and its
canteen.

There was an arrangement for the CGT to lease additional areas of the mall to establish and operate a
government satellite office, although there was no definitive agreement for this lease.

Urgent Motion for Collection and Jurisdiction Challenge

SPFC filed an Urgent Motion for Collection, seeking payment for unpaid rentals, fees, and utilities,
believing that its realty tax delinquencies had already been offset by the accrued rentals.

The RTC-Makati granted the motion and ordered the CGT to pay SPFC.

The CGT challenged the jurisdiction of the RTC-Makati, but the Court of Appeals affirmed its jurisdiction.

Supreme Court Decision

The Supreme Court held that the RTC-Makati had jurisdiction to act on the Urgent Motion for Collection.

The transactions between the CGT and SPFC were part of the rehabilitation proceedings and were
covered by the Revised Rehabilitation Plan approved by the RTC-Makati.

The Court emphasized the purpose of rehabilitation to minimize expenses and find ways to regain
solvency.
The CGT voluntarily appeared as a creditor in the rehabilitation proceedings and was bound by the
implementation of the plan.

The Court distinguished this case from previous jurisprudence, particularly the Steel Corporation case,
which involved claims unrelated to the rehabilitation proceedings.

Ruling in favor of the CGT would encourage multiplicity of suits and defeat the purpose of rehabilitation
proceedings.

Remand for Recomputation of Liability

The Court noted that a considerable amount of time had elapsed since the filing of the Urgent Motion
for Collection.

The interest and penalties components of the amount claimed needed adjustment.

The Court remanded the case to the RTC-Makati for recomputation of the CGT's liability.

Supreme Court Decision

The Supreme Court affirmed the jurisdiction of the RTC-Makati to resolve the dispute over unpaid
rentals, fees, and utilities in the Sunshine Plaza Mall.

The Court denied the CGT's petition and remanded the case for recomputation of liability.