1) Express Investments III Private Ltd. vs. Bayan Telecommunications, Inc.

,
687 SCRA 50, December 05, 2012
FACTS:
Respondent Bayantel is a duly organized domestic corporation engaged in the
business of providing telecommunication services. From 1995-2001, Bayantel entered
into several credit agreements with several creditors including Express Investments III
Private Ltd. and others. To secure said loans, Bayantel executed an Omnibus
Agreement and an EVTELCO Mortgage Trust Indenture.
Pursuant to the Omnibus Agreement, Bayantel executed an Assignment
Agreement in favor of the lenders under the Omnibus Agreement, binding itself to
assign, convey and transfer to the Collateral Agent, several properties as collateral
security for the prompt and complete payment of its obligations to the Omnibus
Creditors. Bayantel issued US$200 million worth of 13.5% Senior Notes pursuant to an
Indenture that it entered into with The Bank of New York as trustee for the holders of
said notes. Pursuant to the said Indenture, the notes are due in 2006 and Bayantel shall
pay interest on them semi-annually. Bayantel managed to make two interest payments
before it defaulted on its obligation.
Foreseeing the impossibility of further meeting its obligations, Bayantel sent a
proposal for the restructuring of its debts to the Bank Creditors and the Holders of
Notes. To facilitate the negotiations between Bayantel and its creditors, an Informal
Steering Committee was formed. Bayantel proposed to pay the restructured debt, pari
passu, out of its cash flow. However, this was opposed by the Bank Creditors who
invoked their security interest under the Assignment Agreement. Eventually, the Bank of
New York filed a petition for the corporate rehabilitation of Bayantel upon the
instructions of the Informal Steering Committee. The RTC issued a Stay Order which
directed, among others, the suspension of all claims against Bayantel and required the
latter's creditors and other interested parties to file a comment or opposition to the
petition.

ISSUE
WoN secured creditors may enforce preference in payment during rehabilitation by
virtue of a contractual agreement. [NO] (Page 41)
RULING:
The Court held in the NEGATIVE. The petitioners in this case invoked its right
based on their Assignment Agreement entered by both parties, particularly the
stipulation to the effect that Bayantel shall pay them in full and ahead of the other
creditors out of its cash flow during rehabilitation.
The Court explained that the prevailing principle governing the relationship
among creditors during rehabilitation is that the assets of the subject corporation or
entity are held in trust for the equal benefit of all creditors to prevent or preclude one
creditor from obtaining an advantage or preference over another by the expediency of
an attachment, execution or otherwise.
The key phrase is "equality is equity." When a corporation, threatened by
bankruptcy, is taken over by a receiver, all the creditors should stand on equal footing.
Not anyone of them should be given any preference by paying one or some of them
ahead of the others. This is precisely the reason for the suspension of all pending
claims against the corporation under receivership. Instead of creditors vexing the courts
with suits against the distressed firm, they are directed to file their claims with the
Rehabilitation Receiver. This principle has been the basis for placing the secured and
unsecured creditors in equal footing or in pari passu with each other during
rehabilitation. In legal parlance, pari passu is used especially of creditors who, in
marshaling assets, are entitled to receive out of the same fund without any precedence
over each other.
It was further explained that preferred creditors of distressed corporations shall
stand on equal footing with all other creditors only after a management committee or
rehabilitation receiver has been appointed. Once appointment has been done, no action
for claims may be initiated against the distressed corporation and those already pending
in court shall be suspended in whatever stage they may be. However, if the court later
determines that the rehabilitation is no longer feasible, and the assets are liquidated, the
secured creditors shall enjoy priority over the payment of their claims.

NOTES:

 [Corporate] Rehabilitation is an attempt to conserve and administer the assets of

an insolvent corporation in the hope of its eventual return from financial stress to
solvency.
 It contemplates the continuance of corporate life and activities in an effort to
restore and reinstate the corporation to its former position of successful operation
and liquidity.
 The purpose of rehabilitation proceedings is precisely to enable the company to
gain a new lease on life and thereby allow creditors to be paid their claims from
its earnings.
 Rehabilitation shall be undertaken when it is shown that the continued
operation of the corporation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan, more, if
the corporation continues as a going concern than if it is immediately liquidated.
 Suspension of payments is a state where the corporation, partnership or
association (CPA):
o possesses property to cover all its debts but foresees the impossibility of
meeting them when they respectfully fall due; OR
o has no sufficient assets to cover its liabilities, but is under the
management of a rehabilitation receiver or a management committee.
 If the court finds the petition to be sufficient in form and in substance, it must
issue, within 5 days from the filing of the petition, an Order with the following
pertinent effects:
o Appointing a Rehabilitation Receiver and fixing his bond;
o Staying enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against the
debtor, its guarantors and sureties not solidarily liable with the debtor;
o Prohibiting the debtor from selling, encumbering, transferring, or disposing
in any manner any of its properties except in the ordinary course of
business;
o Prohibiting the debtor from making any payment of its liabilities
outstanding as at the date of filing of the petition.
 The stay order shall be effective from the date of its issuance until the dismissal
of the petition or the termination of the rehabilitation proceedings. Under the
Rules, the petition shall be dismissed if no rehabilitation plan is approved by the
court upon the lapse of 180 days from the date of initial hearing. It may be
extended, with leave of court, but only if it appears by convincing and compelling
evidence that the debtor may successfully be rehabilitated. However, in no
instance shall the period for approving or disapproving a rehabilitation exceed 18
months from the date of filing of the petition.
 PD 902-A provides that upon the appointment of a management committee,
rehabilitation receiver, board or body, all actions for claims against
corporations, partnerships or associations under management or receivership
pending before any court, tribunal, board or body shall be suspended
accordingly. Those already pending in court shall be suspended in
whatever stage they may be.
 During rehabilitation receivership, the assets are held in trust for the equal benefit
of all creditors to preclude one from obtaining an advantage or preference over
another by the expediency of an attachment, execution or otherwise.
 o For what would prevent an alert creditor, upon learning of the receivership,
from rushing posthaste to the courts to secure judgments for the
satisfaction of its claims to the prejudice of the less alert creditors.
o As between the creditors, the key phrase is “equality is equity.”
When a corporation threatened by bankruptcy is taken over by a
receiver, all the creditors should stand on equal footing. Not anyone
of them should be given any preference by paying one or some of
them ahead of the others.
o The principle of “equality is equity” has been cited as the basis for
placing secured and unsecured creditors in equal footing or in pari
passu with each other during rehabilitation. In legal parlance, pari
passu is used especially of creditors who, in marshaling assets, are
entitled to receive out of the same fund without any precedence over each
other.
 A creditor is regarded as lacking adequate protection if it can be shown
that:
o The debtor fails or refuses to honor a pre-existing agreement with
the creditor to keep the property insured;
o The debtor fails or refuses to take commercially reasonable steps to
maintain the property; or
o The property has depreciated to an extent that the creditor is
underscored.
 Debt restructuring is the conversion of the debts or any portion thereof to
equity, dacion en pago, or sale of assets or of the controlling interest. It
may involve conversion of the debt or any portion thereof to equity, sale of the
assets of the distressed company and application of the proceeds to the
obligation, dacion en pago, debt relief or reduction, modification of the terms of
the loan or a combination of these schemes.
 PRINCIPLE OF PARI PASSU – during rehabilitation, the assets of the distressed
corporation are held in trust for the equal benefit of all creditors to preclude one
from obtaining an advantage or preference over another. All creditors should
stand on equal footing.
o Under this principle, both secured and unsecured creditors shall suffer a
write-off of penalties and default interest and the escalating interest rates
shall be equally imposed on them.
o It must be stressed that the commitment embodied in this principle only
goes so far as to ensure that the assets of the distressed corporation are
held in trust for the equal benefit of all creditors. It does not espouse
absolute equality in all aspects of debt restructuring.
 The main thrust of rehabilitation is not to adjudicate opposing claims but to
restore the debtor to a position of successful operation and solvency.
 REHABILITATION RECEIVER (RR):
 o Has to study the best means to revive the debtor;
o To ensure that the value of the debtor’s property is reasonably maintained
pending the determination of whether or not the debtor should be
rehabilitated, as well as implement the rehabilitation plan after its
approval;
o Shall not take over the management and control of the debtor,
o But shall closely monitor its operations during the pendency of the
rehabilitation proceeding.
o He shall be considered an officer of the court.
 MANAGEMENT COMMITTEE (MC):
o Created and appointed by the Rehabilitation Court;
o To undertake the management of corporations when there is imminent
danger of dissipation, loss, wastage or destruction of assets or other
properties or paralyzation of business operations of such corporations
which may be prejudicial to the interest of minority stockholders, parties-
litigants or the general public.
 POWERS MC or RR:
o To take custody of, and control over all the existing assets and property of
the distressed corporation;
o To evaluate the existing assets and liabilities, earnings and operations of
the corporation;
o To determine the best way to salvage and protect the interest of the
investors and creditors;
o To study, review and evaluate the feasibility of continuing operations and
restructure and rehabilitate such entities if determined to be feasible by
the Rehabilitation Court; and
o It may overrule or revoke the actions of the previous management
and BOD of the entity or entities under management notwithstanding
any provision of law, AOI or By-Laws to the contrary.
 2) Steel Corp. of the Phils. vs. Mapfre Insular Insurance (707 SCRA 602 [2013])

FACTS:
SCP is a domestic corporation engaged in the manufacture and distribution of cold-
rolled and galvanized steel sheets and coils. It obtained loans from several creditors
and, as security, mortgaged its assets in their favor. The creditors appointed Bank of the
Philippine Islands (BPI) as their trustee. On 17 December 1997, SCP and BPI entered
into a Mortgage Trust Indenture (MTI) requiring SCP to insure all of its assets until the
loans are fully paid. Under the MTI, the insurance policies were to be made payable to
BPI.

During the course of its business, SCP suffered financial difficulties. On 11 September
2006, one of the creditors, Equitable PCI Bank, Inc., now known as Banco de Oro-
EPCI, Inc., filed with the RTC a petition to have SCP placed under corporate
rehabilitation. On 12 September 2006, the RTC issued a stay order to defer all claims
against SCP and appointed Atty. Santiago T. Gabionza, Jr. as rehabilitation receiver. On
3 December 2007, the RTC rendered a Decision approving the modified rehabilitation
plan. IAETDc

Under Collective Master Policy No. UCPB Gem HOF075089, SCP insured against
material damage and business interruption its assets located in Barangay Munting
Tubig, Balayan, Batangas, for the period 19 August 2007 to 19 August 2008. On 8 June
2008, a fire broke out at SCP’s plant damaging its machineries. Invoking its right under
the MTI, BPI demanded and received from the insurers $450,000 insurance proceeds.

On 13 October 2009, SCP filed with the RTC a motion to direct BPI to turn over the
$450,000 insurance proceeds in order for SCP to repair and replace the damaged
machineries. On 5 January 2010, the RTC issued an Order directing BPI to release the
insurance proceeds directly to the contractors and suppliers who will undertake the
repairs and replacements of the damaged machineries. BPI filed with the Court of
Appeals a petition for certiorari under Rule 65 of the Rules of Court and, in its 28
September 2010 Decision, 5 the Court of Appeals affirmed the RTC’s 5 January 2010
Order. However, in its 3 October 2012 Amended Decision, 6 the Court of Appeals
reversed itself and set aside the RTC’s 5 January 2010 Order. SCP filed with the Court
a petition for review on certiorari under Rule 45 and, in its 16 September 2013
Resolution, 7 the Court denied the petition.
ISSUE
WHETHER THE REHABILITATION COURT HAS THE POWER TO ORDER THE
INSURER TO RELEASE THE PROCEEDS TO THE INSURED CORPORATION
UNDER REHABILITATION.

RULING:
NO, SCP claims that the RTC has jurisdiction over the subject matter of the insurance
claim. Thus, the Court of Appeals erred when it held that the RTC acted with grave
abuse of discretion amounting to lack or excess of jurisdiction in issuing the 1 June
2011 Order.

The Court disagrees. The RTC, acting as rehabilitation court, has no jurisdiction over
the subject matter of the insurance claim of SCP against respondent insurers. SCP
must file a separate action for collection where respondent insurers can properly thresh
out their defenses. SCP cannot simply file with the RTC a motion to direct respondent
insurers to pay insurance proceeds. Section 3 of Republic Act No. 10142 states that
rehabilitation proceedings are “summary and non-adversarial” in nature. They do not
include adjudication of claims that require full trial on the merits, like SCP’s insurance
claim against respondent insurers. In Advent Capital and Finance Corporation v.
Alcantara, the Court held that:

Ultimately, 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.
Certainly, not the rehabilitation court which has not been given the power to resolve
ownership disputes between Advent Capital and third parties.

Advent Capital must file a separate action for collection to recover the trust fees that it
allegedly earned and, with the trial court’s authorization if warranted, put the money in
escrow for payment to whoever it belongs. Having failed to collect the trust fees at the
end of each calendar quarter as stated in the contract, all it had against the Alcantaras
was a claim for payment which is proper subject for an ordinary action for collection. 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.
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. Adversarial proceedings similar to that in ordinary courts are inconsistent
with the commercial nature of a rehabilitation case. The latter must be resolved quickly
and expeditiously for the sake of the corporate debtor, its creditors and other interested
parties. Thus, the Interim Rules “incorporate the concept of prohibited pleadings,
affidavit evidence in lieu of oral testimony, clarificatory hearings instead of the traditional
approach of receiving evidence, and the grant of authority to the court to decide the
case, or any incident, on the basis of affidavits and documentary evidence.”

Here, Advent Capital’s claim is disputed and requires a full trial on the merits. It must be
resolved in a separate action where the Alcantaras’ claim and defenses may also be
presented and heard.

The Court agrees with the ruling of the Court of Appeals that the jurisdiction of 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. In its 8
February 2012 Decision, the Court of Appeals held that:

Said insurance claims cannot be considered as “claims” within the jurisdiction of the trial
court functioning as a rehabilitation court. Rehabilitation courts only have limited
jurisdiction over the claims by creditors against the distressed company, not on the
claims of said distressed company against its debtors. The interim rules define claim as
referring to all claims or demands, of whatever nature or character against a debtor or
its property, whether for money or otherwise.

Even under the new Rules of Procedure on Corporate Rehabilitation, claim is defined
under Section 1, Rule 2 as “all claims or demands of whatever nature or character
against a debtor or its property, whether for money or otherwise.” This is also the
definition of a claim under Republic Act No. 10142. Section 4(c) thereof reads:

“(c) Claim shall refer to all claims or demands of whatever nature or character against
the debtor or its property, whether for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not
limited to[:] (1) all claims of the government, whether national or local, including taxes,
tariffs and customs duties; and (2) claims against directors and officers of the debtor
arising from the acts done in the discharge of their functions falling within the scope of
their authority: Provided, That, this inclusion does not prohibit the creditors or third
parties from filing cases against the directors and officers acting in their personal
capacities.”

Respondent insurers are not claiming or demanding any money or property from SCP.
In other words, respondent insurers are not creditors of SCP. Respondent insurers are
contingent debtors of SCP because they may possibly be, subject to proof during trial,
liable to SCP. Thus, the RTC has no jurisdiction over the insurance claim of SCP
against respondent insurers. SCP must file a separate action against respondent
insurers to recover whatever claim it may have against them.
 3) North Bulacan Corp vs. PB Communications
G.R. No. 75414. June 4, 1990.183140, August 02, 2010
FACTS
This case is about the need for petitioners in corporate rehabilitation cases to
consistently abide by the rules governing the same and to meet the creditors'
substantial opposition to their petitions.
Petitioner North Bulacan Corporation (NBC) is engaged in the business of developing
low and medium-cost housing projects. It’s parent company, Centro Ville, Inc. (CVI),
entered into a joint venture agreement (JVA) with First Sarmiento Property Holdings,
Inc. (FSPHI) to develop the latter's 15.5-hectare property into low and medium-cost
housing projects. FSPHI will supply the land and CVI will develop it.
Landbank of the Philippines offered P100 million to finance construction however,
respondent PBComm offered to finance the whole project and immediately provide NBC
a P100 million loan facility on the condition that the Pag-IBIG/Home Development
Mutual Fund (Pag-IBIG) directly paid PBCom for the houses upon completion of
construction, whether or not these had been sold.
NBC accepted the bank's offer. On July 11, 2003 NBC executed a deed of assignment,
assigning to PBCom its rights and interests over all payments that may be due it 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. NBC's
construction eventually stopped for lack of funds.
On December 28, 2006 NBC filed a petition for corporate rehabilitation with the
Mandaluyong Regional Trial Court (RTC). On June 15, 2007 NBC filed with the court a
manifestation and urgent motions a) to order PBCom to release 12 Transfer Certificates
of Title of finished housing units, b) to order Pag-IBIG to issue Letters of Guaranty to
PBCom representing the take-out value of the finished units, and c) to allow NBC to use
the proceeds to make emergency repairs and restoration works. However, PBComm
refused to comply. Meantime, Judge Villarante retired and Judge Edwin Sorongon took
over. The new judged then issued an order giving due course to NBC’s rehabilitation.
The case was elevated to the CA and reversed the decision. Hence, this petition.
Issue
Whether or not the NBC’s petition for corporate rehabilitation should be exercised. [No.]

Ruling: NO.
The Court enacted the Interim Rules of Procedure on Corporate Rehabilitation to
provide a remedy for summary and non-adversarial rehabilitation proceedings of
distressed but viable corporations. The intent is consistent with the commercial nature
of rehabilitation, which seeks to expedite its resolution for the benefit, not only of the
petitioner-corporation, but of all the parties involved and the economy in general. These
rules are to be construed liberally to obtain for the parties a just, expeditious, and
inexpensive disposition of the case. The parties may not, however, invoke such
liberality if it will result in the utter disregard of the rules or cause needless delay in the
administration of justice.
Here, NBC violated several rules on corporate rehabilitation like filing numerous
prohibited pleadings. Further, the documents that accompanied NBC's petition fell short
of what the rules required.
Largely because of NBC's numerous prohibited pleadings, nearly a year had passed
since the petition's initial hearing on February 15, 2007 and still the RTC had not
approved a rehabilitation plan for the company. Under the Rehabilitation Rules, if upon
the lapse of 180 days from the date of the initial hearing there is still no approved
rehabilitation plan, the RTC must dismiss the petition.
 (4) Rubberworld vs NLRC
Presidential Decree 902-A, as amended, provides that "upon the appointment of a
management committee, rehabilitation receiver board or body pursuant to this Decree,
all actions for claims against corporations, partnerships, or associations under
management or receivership pending, before any court, tribunal, board or body shall be
suspended accordingly."1 Such suspension is intended to give enough breathing space
for the management committee or rehabilitation receiver to make the business viable
again, without having to divert attention and resources to litigations in various fora.
Among, the actions suspended are those for money claims before labor tribunals, like
the National Labor Relation Commission (NLRC) and the Labor arbiters.

FACTS

 Petitioner xxx, a domestic corporation, filed for suspension of payments with the
Securities and Exchange Commission (SEC) on November 24, 1994.
 The SEC granted the petition, creating a management committee and
suspending all actions for claims against the corporation.
 Private respondents, claiming to be employees of the corporation, filed
complaints for various labor-related issues between April and July 1995.
 Petitioners sought to suspend proceedings in the labor cases citing the SEC
order and relevant legal precedents.
 The Labor Arbiter denied the motion, stating that the SEC order only applied to
the enforcement of established rights and did not cover claims yet to be
determined.
 Petitioners appealed to the public respondent, which upheld the Labor Arbiter's
decision.
 Petitioners' motion for reconsideration was denied.
 Now, a petition has been filed concerning these rulings.

ISSUE
whether or not the Department of Labor and Employment, the Labor Arbiter and the
National Labor Relations Commission may legally act on the claims of respondents
despite the order of the Securities and Exchange Commission suspending all actions
against a company under rehabilitation by a management committee created by the
Securities and Exchange Commission.

RULING NO.
Presidential Decree No. 902-A is clear that "all actions for claims against corporations,
partnerships or associations under management or receivership pending before any
court, tribunal, board or body shall be suspended accordingly." The law did not make
any exception in favor of labor claims.[8]

"The justification for the automatic stay of all pending actions for claims is to enable the
management committee or the rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extra judicial interference that might unduly hinder or
prevent the 'rescue' of the debtor company. To allow such other actions to continue
would only add to the burden of the management committee or rehabilitation receiver,
whose time, effort and resources would be wasted in defending claims against the
corporation instead of being directed toward its restructuring and rehabilitation."[9]

Thus, the labor case would defeat the purpose of an automatic stay. To rule otherwise
would open the floodgates to numerous claims and would defeat the rescue efforts of
the management committee.

Besides, even if an award is given to private respondents, the ruling could not be
enforced as long as petitioner is under management committee. This finds ratiocination
in that the power to hear and decide labor disputes is deemed suspended when the
Securities and Exchange Commission puts the corporation under rehabilitation.

Thus, when NLRC proceeded to decide the case despite the SEC suspension order, the
NLRC acted without or in excess of its jurisdiction to hear and decide cases. As a
consequence, any resolution, decision or order that it rendered or issued without
jurisdiction is a nullity.
WHEREFORE, the petition is hereby GRANTED. The decision of the labor arbiter dated
December 10, 1995 and the NLRC resolution dated August 30, 1996, are SET ASIDE.

5) Wonder Book Corporation vs. Philippine Bank of Communications, 676

SCRA 489, July 16, 2012

FACTS:
Wonder Book Corp. filed a petition for rehabilitation because of its inability to pay its
debts as they fall due. In its rehabilitation plan, Wonder Book put forward a payment
program that guaranteed the full payment of its loan from PBCOM, one of its creditors,
after 15 years at a reduced interest rate of 5% per annum with a waiver of all penalties
for 2 years and moratorium on interest and principal payments for 5 years, that will be
counted from the court’s approval. Wonder Book also proposed, among others, to infuse
an additional capital of P10M and use 70% of its unpaid insurance claim for the
payment of its debts, and the remaining 30% for capital infusion.
However, this was opposed by PBCOM stating that: (a) the petition cannot be granted
on the basis of vague proposals and baseless presumptions; (b) it is clear from the
financial statements of Wonder Books that it is insolvent and can no longer be
rehabilitated; (c) there is no reasonable expectation that it will be paid of its insurance
claim; (d) there was no alternative funding for capital infusion should its insurance claim
fail to materialize; and (e) no specific actions to take for its proposed sales, marketing
and production strategies would be carried out.
Upon submission of a detailed rehabilitation plan, the RTC issued an Order approving
Wonder Book’s rehabilitation plan. PBCOM filed a petition for review with the CA, which
was granted. According to the CA, the financial statements of Wonder Book reveal that
it is not merely having liquidity problems, but it is actually in a state of serious
insolvency.

ISSUE:
WoN rehabilitation is the proper remedy for an insolvent corporation.

RULING:
 The Supreme Court ruled in the NEGATIVE and explained that rehabilitation
contemplates a continuance of corporate life and activities, with the aim of restoring and
reinstating the subject corporation to its former position of successful operation and
solvency. In effect, it will allow the creditors to be paid with their claims.
Rehabilitation is available to a corporation whose liquidity issues can be
addressed by a practicable business plan that will generate enough cash to sustain its
daily operations, has a definite source of financing for its proper and full implementation,
and anchored on realistic assumptions and goals.
HOWEVER, the Court stressed that rehabilitation 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, which is
rendered obvious by the following:
A) The absence of a sound and workable business plan;
B) Baseless and unexplained assumptions, targets, and goals;
C) Speculative capital infusion or complete lack thereof for the execution of the
business plan;
D) Cash flow cannot sustain daily operations; and
E) Negative net worth and the assets are near full depreciation or fully depreciated.
In the case at hand, the Court finds the financial status of Wonder Books
discouraging. First, its total liabilities are more than double of its total assets, and the
Court finds this as a clear evidence of the actual insolvency of Wonder Book, not mere
illiquidity. Second, 72% of its current assets are inventories whose average turnover
rate is 73 days, signifying that it cannot be relied on for a quick cash flow. Third, 77% of
its non-current assets is deferred tax asset, which cannot be used to increase the
capital. Fourth, Wonder Book’s property and equipment comprise only 2% of its non-
current assets.
Furthermore, Wonder Books also failed to explain its favorable assumptions
relative to its future market share and ability to contend with the large-scale corporations
in its industry. Wonder Books also projected a 10% annual growth rate of its earnings,
but this was belied by a plunge in its earnings for 2 consecutive years. Considering all
these and other unfavorable factors, the Supreme Court is of the opinion that Wonder
Book can no longer rise from its financial debacles. Therefore, petition was denied.

NOTES:

 Corporate 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.
 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. The following are to be considered to determine
if such is reasonable or otherwise:
o That the opposing creditors would receive greater compensation under the
rehabilitation plan than if the corporate assets would be sold;
o That the shareholders would lose their controlling interest as a result of
the plan; and
o That the receiver has recommended approval.
 Rehabilitation is available to a corporation who, while illiquid, has assets that can
generate more cash if used in its daily operations than sold. However, 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, which is rendered obvious by the following:
o The absence of a sound and workable business plan;
o Baseless and unexplained assumptions, targets and goals;
o Speculative capital infusion or complete lack thereof for the execution of
the business plan;
o Cash flow cannot sustain daily operations; and
o Negative net worth and the assets are near full depreciation or fully
depreciated.
 There is no reason why criminal proceedings should be suspended during
corporate rehabilitation. (Panlilio vs. RTC, Br. 51, City of Manila, 641 SCRA 438
[2011])
 6) BIR vs. Lepanto Ceramics, Inc. (G.R. No. 224764, April 24, 2017)

FACTS:
Lepanto Ceramics, Inc. (LCI) filled a petition for corporate rehabilitation under RA 10142
(FRIA) with the RTC in Calamba City. Aside from financial difficulties, the petition for
rehab also alleged LCI's tax liability at 6.3 million pesos. The Rehabilitation (Rehab
Court) issued a Commencement
Order (Order)

The Order declared LCI under rehab and suspended all actions or proceedings, in court
or otherwise, for the enforcement of claims against LCI. It also directed the BIR to file
and serve on LCI its comment or opposition to the petition, or its claims against LCI.

Despite this, petitioners, acting as Assistant Commissioner, Group

Supervisor, and Examiner, sent LCI a notice of informal conference,
informing the latter of its tax liabilities for the fiscal year ending June 30,
2010. Despite receiving LCI's letter-reply regarding the pendency of a rehab
proceeding, the BIR sent LCI a Formal Letter of Demand.

A petition for indirect contempt of court was filed by LCI against petitioners for defying
the Order. In their defense, petitioners insist that the issue has already become moot
and academic because, in the meantime, LCI had already been declared rehabilitated.
Also, petitioners argue that their acts do not amount to a defiance of the
Commencement Order as it was done merely to toll the prescriptive period in collecting
deficiency taxes, that their acts of sending a Notice of Informal Conference and Formal
Letter of Demand do not amount to a "legal action or other recourse" against LCI
outside of the rehabilitation proceedings and that the indirect contempt proceedings
interferes with the exercise of their functions to collect taxes due to the government
ISSUE: Whether the actions of BIR representatives, despite a Commencement Order
suspending proceedings, constitute defiance and interference with Lepanto Ceramics,
Inc.'s rehabilitation process.

RULING:
Yes, they are guilty of indirect contempt.

According to RA 10142, upon the issuance of a commencement order, the distressed

corporation shall be temporarily immune from the enforcement of all claims against it,
including all claims of the government, whether national or local, including taxes, tariffs
and customs duties.

To clarify, however, creditors of the distressed corporation are not without remedy as
they may still submit their claims to the rehabilitation court for proper consideration so
that they may participate in the proceedings, keeping in mind the general policy of the
law.

Petitioners' act of issuing a notice of informal conference and later a formal letter of
demand, all despite the written reminder by LCI regarding the pendency of the rehab
proceeding, is in clear defiance of the Commencement Order

As aptly put by the RTC Br. 35, they could have easily tolled the running of such
prescriptive period, and at the same time, perform their functions as officers of the BIR,
without defying the Commencement Order and without
violating the laudable purpose of RA 10142 by simply ventilating their claim before the
Rehabilitation Court.
 7) Alemar's Sibal & Sons, Inc. vs. Judge Elbinias
G.R. No. 75414. June 4, 1990.
Facts:
On December 11,1984, private respondent G.A. Yupangco and Co. Inc. filed an action
with respondent trial court for collection of a sum of money with prayer for damages and
preliminary attachment against Alemar’s Bookstore, a business entity owned and
managed by petitioner Alemar’s Sibal & Sons, Inc. (Alemar’s).
The respondent court ruled in favor of the plaintiff ordering them to pay P39,502.57
representing the unpaid obligation, interest, attorney’s fees and the cost of suit.
Subsequently, Ledesma, Saludo and Associates, an intervenor-movant, filed and
omnibus motion informing the trial court that the petitioner has been placed under
rehabilitation receivership by SEC and that movant has been appointed as its receiver.
G. A. Yupangco opposed that it only received the notice of the receivership on January
10, 1985 or after one month after the collection suit. G.A Yupangco urged the issuance
of writ of execution to implement the August 30, 1985 default judgment which had
become final and executory, there being no motion for reconsideration or appeal.
The manager of the Bank of Philippine Islands allowed encashment of previously
stopped check and compensated GA Yupangco for delay in payment. The petitioner
filed a supplement to its motion to discharge the writ of execution praying that the
aforesaid payment be returned to petitioner or to its account with the BPI. Denied,
hence the appeal.

Issue:
Whether or not the respondent court can validly proceed with the execution of a final
decision for the payment of a sum of money despite the fact that the judgment debtor
has been placed under receivership. [No.]
Ratio:
In the instant case, the stay of execution is warranted by the fact that petitioner Alemar’s
has been placed under “rehabilitation receivership”. During rehabilitation receivership,
the assets are held in trust for the equal benefit of all creditors to preclude one from
obtaining an advantage or preference over another by the expediency of an attachment,
execution or otherwise. For what would prevent an alert creditor, upon learning of the
receivership, from rushing posthaste to the courts to secure judgments for the
satisfaction of its claims to the prejudice of the less alert creditors.

As between creditors, the key phrase is “equality is equity” When a corporation

threatened by bankruptcy is taken over by a receiver, all the creditors should stand on
an equal footing. Not anyone of them should be given any preference by paying one or
some of them ahead of the others. This is precisely the reason for the suspension of all
pending claims against the corporation under receivership. Instead of creditors vexing
the courts with suits against the distressed firm, they are directed to file their claims with
the receiver who is a duly appointed officer of the SEC.
 (8) TYSON’S SUPER CONCRETE v. CA

FACTS

 Romana Dela Cruz is the registered owner of several parcels of land in Caloocan
City.
 In October 1992, Dela Cruz entered into a 20-year lease agreement with Tyson's
Super Concrete, Inc. (Tyson's) for the occupancy of her property.
 Tyson's made permanent improvements on the property during the lease period.
 Internal disputes among Tyson's major stockholders led to a motion filed with the
Securities and Exchange Commission (SEC) for the appointment of a receiver to
manage the corporation.
 The SEC appointed a Management Committee to oversee Tyson's affairs, with
Francis Chua and Genaro Hao initially appointed as members.
 Subsequently, Nancy Hao replaced Genaro Hao on the Management Committee.
 In February 1996, Dela Cruz filed a complaint for ejectment against Tyson's for
failure to pay rent.
 The Metropolitan Trial Court (MeTC) ruled in favor of Dela Cruz in April 1996.
 Tyson's attempted to contest the judgment, but its motions were denied by the
MeTC.
 Tyson's then filed a petition with the Regional Trial Court (RTC) seeking to stop
the enforcement of the MeTC judgment, but the RTC dismissed the petition.
 Tyson's appealed to the Court of Appeals (CA) via a special civil action for
certiorari.
 The CA initially declared the MeTC's judgment null and void due to improper
service of summons.
 Upon reconsideration, the CA reversed its decision and reinstated the MeTC and
RTC rulings, holding that service of summons upon a member of the
Management Committee was valid.
 Dela Cruz filed a motion for reconsideration, which was granted by the CA.
 Tyson's joint motion for reconsideration was denied by the CA in September
1999.
ISSUE
Whether or not the service of summons upon a member of the Management Committee
of Tyson's Super Concrete, Inc., as appointed by the Securities and Exchange
Commission (SEC), was valid for the ejectment case filed by Romana Dela Cruz
against Tyson's.

RULING YES.
The Court of Appeals (CA) initially declared the Metropolitan Trial Court's (MeTC)
judgment null and void due to improper service of summons. However, upon
reconsideration, the CA reversed its decision and reinstated the MeTC and Regional
Trial Court (RTC) rulings. The CA held that the service of summons upon a member of
the Management Committee, who was also a corporate officer, was valid. The CA
emphasized that the Management Committee effectively replaced the regular Board of
Directors of Tyson's and its members were responsible officers of the corporation.
Therefore, service of summons upon a member of the Management Committee was
proper, and the judgments rendered by the lower courts were upheld.
 9) Molina vs. Pacific Plans, Inc., 655 SCRA 356, August 15, 2011
FACTS:
This resolution involves a labor case which found petitioner Molina illegally dismissed
and respondent Pacific Plans was ordered to reinstate Molina to his former position as
Asst. VP. The case was remanded to the NLRC for the computation of the monetary
awards. After several re-computation of the monetary awards, the ruling was already
final and executory, and the Labor Arbiter issued an Alias Writ of Execution pursuant to
a Supreme Court order.
However, Respondent Pacific Plans, Inc. is contending that since it is still undergoing
corporate rehabilitation, the execution of the judgment in the instant case should be
suspended, especially in view of the fact that a Stay Order was issued by the RTC
Makati and it has not yet been lifted. Petitioner does not dispute this claim of
respondent, neither does he question the existence and validity of the Stay Order
issued by the RTC. The only point he raises is that Rules on corporate rehabilitation,
upon which the Stay Order was based, applies only to claims or cases which are
pending before any court, tribunal, or board but not to cases which have already been
adjudicated, much less to those where there is already an entry of judgment, as in the
present case.

ISSUE:
WoN the execution of a judgment against the corporation undergoing rehabilitation can
proceed notwithstanding the undergoing rehabilitation proceedings.

RULING:
The Court ruled in the NEGATIVE and held that including the execution of the
judgment in favor of petitioner-creditor, all pending actions or claims against the
corporation undergoing rehabilitation proceedings should be SUSPENDED pending the
termination of the rehabilitation proceedings.
The Court explained, by citing the case of Castillo v. Uniwide Warehouse Club,
Inc., that the governing law in corporate rehabilitation mandates that, upon appointment
of a management committee or rehabilitation receiver, board or body, all actions for
claims against the corporation under management or receivership pending before any
court, tribunal, board or body shall be suspended. The term “claim” has been construed
to refer to all claims or demands of whatever nature or character against a debtor or its
property, whether for money or otherwise. The term refers to debts or demands of a
pecuniary nature to have a money paid; it also referred to an action involving monetary
considerations.
Jurisprudence further provides that suspension of proceedings referred to in the
law uniformly applies to “all actions for claims” filed against the corporation under
management or receivership, without distinction, except only those expenses incurred in
the ordinary course of business. The automatic suspension embraces all phases of the
suit, that is, the entire proceedings of an action or suit, and not just the payment of
claims. The reason behind the imperative nature of suspension in relation to the
creditor’s claims intends to expedite the rehabilitation of the distressed corporation by
enabling the management committee or rehabilitation receiver to effectively exercise its
powers free from any judicial or extrajudicial interference that might unduly hinder or
prevent the rescue of the debtor company.

NOTES:

 All pending actions including execution of the judgment should be

SUSPENDED pending termination of the rehabilitation proceedings.
 Payment of legal interest becomes a necessary consequence of the finality of the
Court’s Decision, because reckoned from that time the said Decision becomes a
judgment for money which, under established jurisprudence, earns interest at the
rate of 12% per annum.
 10) Siochi Fishery Enterprises, Inc. vs. Bank of P.I. (659 SCRA 817 [2011])

FACTS:
Petitioners Siochi Fishery Enterprises, Inc., Jun-Jun Fishing Corporation, Dede Fishing
Corporation, Blue Crest Aqua-Farms, Inc., and Iloilo Property Ventures, Inc. filed for
corporate rehabilitation with the RTC, seeking to address their combined
₱85,362,262.05 debt to respondent Bank of the Philippine Islands and Ayala Life
Assurance, Inc. The RTC granted their petition, appointing a rehabilitation receiver and
approving a rehabilitation plan that included a five-year moratorium on loan payments
and potential asset sales. However, BPI contested the order, alleging procedural flaws
and questioning the feasibility of the plan. The Court of Appeals ultimately overturned
the RTC's decision, citing procedural irregularities, insufficient financial commitments,
and undue leniency in interest rate reduction, thus safeguarding the interests of the
banking sector and denying the motion for reconsideration, prompting the current
petition.

ISSUE:
Whether the petition for corporate rehabilitation complied with procedural requirements
and if the proposed rehabilitation plan was financially viable.

RULING:
In its ruling on the petition for corporate rehabilitation, the court found that while the
Interim Rules of Procedure are to be construed liberally to facilitate a just and expedient
resolution of cases, such liberality cannot lead to the outright disregard of the rules. The
court emphasized the importance of following the prescribed procedures, including the
appointment of a rehabilitation receiver, evaluation of the rehabilitation plan, and
submission of recommendations to the court. Failure to adhere to these procedures
constitutes a serious procedural flaw. Additionally, the court scrutinized the financial
viability of the rehabilitation plan, noting discrepancies in property ownership and
insufficient details regarding funding sources and operational plans. Ultimately, the court
denied the petition for corporate rehabilitation, affirming the decision of the Court of
Appeals, as there was no evidence of improved financial conditions or faithful
compliance with the rehabilitation plan since its inception. This ruling underscores the
significance of procedural adherence and the need for comprehensive and feasible
rehabilitation plans under the Financial Rehabilitation and Insolvency Act.
 11. VETERANS PHILIPPINE SCOUT SECURITY AGENCY, INC., vs. FIRST
DOMINION PRIMEHOLDINGS, INC.
Facts:
Petitioner Veterans Philippine Scout Security Agency, Inc. (Veterans) is a corporation
duly organized and existing under Philippine laws. It is engaged in the business of
providing security services.
Respondent First Dominion Prime Holdings, Inc.(FDPHI), on the other hand, is a
holding investment and management company which owns and operates various
subsidiaries and affiliates.
Respondent FDPHI and its subsidiaries jointly filed before the RTC of Pasig City, a
Petition for Rehabilitation. After finding the petition sufficient in form and substance, the
Rehabilitation Court issued a Stay Order on February 22, 2001.
The FDPHI Group of Companies caused the publication of the stay order to give notice
to the whole world of the filing and pendency of the rehabilitation proceedings.
Thereafter, after due proceedings, the Rehabilitation Court approved the rehabilitation
plan submitted by FDPHI and its subsidiaries. On October 24, 2003, the
RehabilitationCourt likewise issued an Order approving the Amended Rehabilitation
Plan for the FDPHI Group of Companies.
Subsequently, petitioner filed a Complaint for Sum of Money and Damages against
Clearwater and/or Atty. Jacob in his capacity as appointed Receiver before the MeTC of
Quezon City. The MeTC dismissed the complaint for failure to prosecute, but later
reinstated the same upon motion for reconsideration by petitioner.
On October 20, 2005, petitioner filed an Amended Complaint for Sum of Money and
Damages against herein respondent FDPHI averring that Clearwater had changed its
business name to First Dominion Prime Holdings, Inc.
On April 23, 2007, the MeTC issued a Resolution granting respondent's motion to
dismiss. In dismissing the amended complaint, the trial court noted that despite the
publication and notice of the petition for rehabilitation, petitioner had not filed any
comment or opposition to the petition nor participated in the proceedings. Hence,
petitioner was bound by the Rehabilitation Court's February 22, 2001 stay order staying
enforcement of all claims against the FDPHI Group of Companies as well as the
October 24, 2003 Order approving the Amended Rehabilitation Plan which had already
become final.
The CA agreed with the ruling of the MeTC that the issuance of a stay order and the
appointment of a rehabilitation receiver in the petition for rehabilitation jointly filed by
FDPHI and its subsidiaries including Clearwater stayed the enforcement of all claims,
including petitioner's money claim.
Issue
Whether or not petitioner can enforce the payment of the unpaid security services is
covered by the Amended Rehabilitation Plan such that petitioner can no longer institute
a separate action to collect
Ruling NO.
An essential function of corporate rehabilitation is the mechanism of suspension of all
actions and claims against the distressed corporation upon the due appointment of a
management committee or rehabilitation receiver. Section 6(c) of PD 902-A mandates
that upon appointment of a management committee, rehabilitation receiver, board, or
body, all actions for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board, or body shall be
suspended.
The actions to be suspended cover all claims against a distressed corporation whether
for damages founded on a breach of contract of carriage, labor cases, collection suits or
any other claims of pecuniary nature. Jurisprudence is settled that the suspension of
proceedings referred to in the law uniformly applies to "all actions for claims" filed
against the corporation, partnership or association under management or receivership,
without distinction, except only those expenses incurred in the ordinary course of
business.
The stay order is effective on all creditors of the corporation without distinction, whether
secured or unsecured. Thus, petitioner’s action to collect the sum owed to it is not
exempted from the coverage of the stay order. The enforcement of petitioner’s claim
through court action is likewise suspended to give way to the speedy and effective
rehabilitation of the FDPHI Group of Companies.
It is worthy to note that the stay order remains effective during the duration of the
rehabilitation proceedings. However, in an attempt to exempt its money claim from the
coverage of the rehabilitation proceedings, petitioner claims that Clearwater was denied
rehabilitation and asserts that the Amended Rehabilitation Plan did not include
Clearwater’s obligation to petitioner.
To stress, the rehabilitation plan, once approved, is binding upon the debtor and all
persons who may be affected by it, including the creditors, whether such persons have
or have plan or whether their claims have or have not been scheduled.
Notes.
―The purpose of rehabilitation proceedings is to enable the company to gain new lease
on life and there by allows creditors to be paid their claims from its earnings—
rehabilitation contemplates a continuance of corporate life and activities in an effort to
restore and reinstate the financially distressed corporation to its former position of
successful operation and solvency. (Philippine National Bank vs. Court of Appeals, 576
SCRA 537 [2009])
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.
(Equitable PCI Bank, Inc. vs. DNG Realty and Development Corporation , 627 SCRA
125 [2010])
 (12) Metrobank vs. S.F. Naguiat Enterprises, Inc. (753 SCRA 474 [2015])

FACTS:
Sometime in April 1997, Spouses Rommel Naguiat and Celestina Naguiat and S.F.
Naguiat Enterprises, Inc. (S.F. Naguiat) executed a real estate mortgage6 in favor of
Metropolitan Bank and Trust Company (Metrobank) to secure certain credit
accommodations obtained from the latter amounting to P17 million.

Subsequently, S.F. Naguiat defaulted in paying its loan. On November 8, 2005,

Metrobank instituted an extrajudicial foreclosure proceeding against the mortgaged and
sold the property at a public auction held on December.

Metropolitan Bank and Trust Company (Metrobank) seeking to reverse the Court of
Appeals' decision dismissing its petition regarding the extrajudicial foreclosure of
properties mortgaged to it by S.F. Naguiat. S.F. Naguiat had filed for voluntary
insolvency, and Metrobank initiated foreclosure proceedings without seeking permission
from the insolvency court. The Court of Appeals ruled that Metrobank should have
obtained permission from the insolvency court before proceeding with the foreclosure to
ensure proper representation of the insolvent debtor's estate. Metrobank contested this
decision, leading to the current Petition for Review

ISSUE: Whether the approval and consent of the insolvency court are required before a
secured creditor can foreclose on mortgaged property in the context of an insolvent
debtor's estate.

RULING:
Yes, under Act No. 1956, the approval and consent of the insolvency court were
typically required before a secured creditor could foreclose on mortgaged property in
the context of an insolvent debtor's estate. This requirement ensured that the insolvency
court maintained jurisdiction and control over the assets and liabilities of the debtor's
estate, facilitating equitable distribution among creditors and proper representation of
the debtor's interests. In the case described, Metropolitan Bank and Trust Company
(Metrobank) initiated extrajudicial foreclosure proceedings without obtaining permission
from the insolvency court overseeing S.F. Naguiat's insolvency proceedings.
Consequently, the Court of Appeals ruled against Metrobank, emphasizing the necessity
of seeking permission from the insolvency court before proceeding with foreclosure to
ensure proper representation of the insolvent debtor's estate. Therefore, based on the
historical background and the proceedings outlined, approval from the insolvency court
was indeed required before Metrobank could foreclose on the mortgaged property
under Act No. 1956.