Panlilio vs Regional Trial Court Branch 51 City of Manila

G.R. No. 173846 February 2, 2011

Facts: On October 15, 2004, Jose Marcel Panlilio, Erlinda Panlilio, Nicole
Morris and Mario Cristobal (petitioners), as corporate officers of Silahis
International Hotel, Inc. (SIHI), filed with the Regional Trial Court (RTC) of
Manila, Branch 24, a petition for Suspension of Payments and Rehabilitation
in SEC Corp. Case No. 04-111180. On October 18, 2004, the RTC of Manila,
Branch 24, issued an Order staying all claims against SIHI upon finding the
petition sufficient in form and substance.

At the time, however, of the filing of the petition for rehabilitation, there
were a number of criminal charges pending against petitioners in Branch 51
of the RTC of Manila. These criminal charges were initiated by respondent
Social Security System (SSS) and involved charges of violations of Section
28 (h) of Republic Act 8282, or the Social Security Act of 1997 (SSS law), in
relation to Article 315 (1) (b) of the Revised Penal Code, or Estafa.
Consequently, petitioners filed with the RTC of Manila, Branch 51, a
Manifestation and Motion to Suspend Proceedings. Petitioners argued that
the stay order issued by Branch 24 should also apply to the criminal charges
pending in Branch 51. Petitioners, thus, prayed that Branch 51 suspend its
proceedings until the petition for rehabilitation was finally resolved.

Issue: Whether or not suspension of claims during corporate rehabilitation

include suspension of the criminal action against it.

Held: No. To begin with, 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. Section 6 (c) of Presidential Decree No.
902-A, as amended, provides for suspension of claims against corporations
undergoing rehabilitation, to wit:

Section 6 (c). . . . . . .

Provided, finally, that upon 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.

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.
G.R. No. 181126 June 15, 2011

LEONARDO S. UMALE, [deceased] represented by CLARISSA VICTORIA, JOHN LEO, GEORGE LEONARD, KRISTINE, MARGUERITA
ISABEL, AND MICHELLE ANGELIQUE, ALL SURNAMED UMALE, Petitioners,
vs.
ASB REALTY CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

Being placed under corporate rehabilitation and having a receiver appointed to carry out the rehabilitation plan do not ipso facto deprive a corporation
and its corporate officers of the power to recover its unlawfully detained property.

Petitioners filed this Petition for Review on Certiorari1 assailing the October 15, 2007 Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 91096, as
well as its January 2, 2008 Resolution.3 The dispositive portion of the assailed Decision reads:
WHEREFORE, the Decision dated March 28, 2005 of the trial court is affirmed in toto.

SO ORDERED.4

Factual Antecedents

This case involves a parcel of land identified as Lot 7, Block 5, Amethyst Street, Ortigas Center, Pasig City which was originally owned by Amethyst Pearl
Corporation (Amethyst Pearl), a company that is, in turn, wholly-owned by respondent ASB Realty Corporation (ASB Realty).

In 1996, Amethyst Pearl executed a Deed of Assignment in Liquidation of the subject premises in favor of ASB Realty in consideration of the full
redemption of Amethyst Pearl’s outstanding capital stock from ASB Realty.5 Thus, ASB Realty became the owner of the subject premises and obtained in
its name Transfer Certificate of Title No. PT-105797,6 which was registered in 1997 with the Registry of Deeds of Pasig City.

Sometime in 2003, ASB Realty commenced an action in the Metropolitan Trial Court (MTC) of Pasig City for unlawful detainer7 of the subject premises
against petitioner Leonardo S. Umale (Umale). ASB Realty alleged that it entered into a lease contract8 with Umale for the period June 1, 1999-May 31,
2000. Their agreement was for Umale to conduct a pay-parking business on the property and pay a monthly rent of ₱60,720.00 to ASB Realty.

Upon the contract’s expiration on May 31, 2000, Umale continued occupying the premises and paying rentals albeit at an increased monthly rent of
₱100,000.00. The last rental payment made by Umale to ASB Realty was for the June 2001 to May 2002 period, as evidenced by the Official Receipt No.
565119 dated November 19, 2001.

On June 23, 2003, ASB Realty served on Umale a Notice of Termination of Lease and Demand to Vacate and Pay.10 ASB Realty stated that it was
terminating the lease effective midnight of June 30, 2003; that Umale should vacate the premises, and pay to ASB Realty the rental arrears amounting
to ₱1.3 million by July 15, 2003. Umale failed to comply with ASB Realty’s demands and continued in possession of the subject premises, even
constructing commercial establishments thereon.

Umale admitted occupying the property since 1999 by virtue of a verbal lease contract but vehemently denied that ASB Realty was his lessor. He was
adamant that his lessor was the original owner, Amethyst Pearl. Since there was no contract between himself and ASB Realty, the latter had no cause of
action to file the unlawful detainer complaint against him.

In asserting his right to remain on the property based on the oral lease contract with Amethyst Pearl, Umale interposed that the lease period agreed
upon was "for a long period of time."11 He then allegedly paid ₱1.2 million in 1999 as one year advance rentals to Amethyst Pearl.12

Umale further claimed that when his oral lease contract with Amethyst Pearl ended in May 2000, they both agreed on an oral contract to sell. They
agreed that Umale did not have to pay rentals until the sale over the subject property had been perfected between them.13 Despite such agreement with
Amethyst Pearl regarding the waiver of rent payments, Umale maintained that he continued paying the annual rent of ₱1.2 million. He was thus
surprised when he received the Notice of Termination of Lease from ASB Realty.14

Umale also challenged ASB Realty’s personality to recover the subject premises considering that ASB Realty had been placed under receivership by the
Securities and Exchange Commission (SEC) and a rehabilitation receiver had been duly appointed. Under Section 14(s), Rule 4 of the Administrative
Memorandum No. 00-8-10SC, otherwise known as the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules), it is the rehabilitation
receiver that has the power to "take possession, control and custody of the debtor’s assets." Since ASB Realty claims that it owns the subject premises,
it is its duly-appointed receiver that should sue to recover possession of the same.15

ASB Realty replied that it was impossible for Umale to have entered into a Contract of Lease with Amethyst Pearl in 1999 because Amethyst Pearl had
been liquidated in 1996. ASB Realty insisted that, as evidenced by the written lease contract, Umale contracted with ASB Realty, not with Amethyst
Pearl. As further proof thereof, ASB Realty cited the official receipt evidencing the rent payments made by Umale to ASB Realty.

Ruling of the Metropolitan Trial Court

In its August 20, 2004 Decision,16 the MTC dismissed ASB Realty’s complaint against Umale without prejudice. It held that ASB Realty had no cause to
seek Umale’s ouster from the subject property because it was not Umale’s lessor. The trial court noted an inconsistency in the written lease contract
that was presented by ASB Realty as basis for its complaint. Its whereas clauses cited ASB Realty, with Eden C. Lin as its representative, as Umale’s
lessor; but its signatory page contained Eden C. Lin’s name under the heading Amethyst Pearl. The MTC then concluded from such inconsistency that
Amethyst Pearl was the real lessor, who can seek Umale’s ejectment from the subject property.17

Likewise, the MTC agreed with Umale that only the rehabilitation receiver could file suit to recover ASB Realty’s property.18 Having been placed under
receivership, ASB Realty had no more personality to file the complaint for unlawful detainer.

Ruling of the Regional Trial Court

ASB Realty appealed the adverse MTC Decision to the Regional Trial Court (RTC),19 which then reversed20 the MTC ruling.

The RTC held that the MTC erred in dismissing ASB Realty’s complaint for lack of cause of action. It found sufficient evidence to support the conclusion
that it was indeed ASB Realty that entered into a lease contract with Umale, hence, the proper party who can assert the corresponding right to seek
Umale’s ouster from the leased premises for violations of the lease terms. In addition to the written lease contract, the official receipt evidencing
Umale’s rental payments for the period June 2001 to May 2002 to ASB Realty adequately established that Umale was aware that his lessor, the one
entitled to receive his rent payments, was ASB Realty, not Amethyst Pearl.

ASB Realty’s positive assertions, supported as they are by credible evidence, are more compelling than Umale’s bare negative assertions. The RTC found
Umale’s version of the facts incredible. It was implausible that a businessman such as Umale would enter into several transactions with his alleged
lessor – a lease contract, payment of lease rentals, acceptance of an offer to sell from his alleged lessor, and an agreement to waive rentals – sans a
sliver of evidence.

With the lease contract between Umale and ASB Realty duly established and Umale’s failure to pay the monthly rentals since June 2002 despite due
demands from ASB Realty, the latter had the right to terminate the lease contract and seek his eviction from the leased premises. Thus, when the
contract expired on June 30, 2003 (as stated in the Notice of Termination of Lease), Umale lost his right to remain on the premises and his continued
refusal to vacate the same constituted sufficient cause of action for his ejectment.21

With respect to ASB Realty’s personality to file the unlawful detainer suit, the RTC ruled that ASB Realty retained all its corporate powers, including the
power to sue, despite the appointment of a rehabilitation receiver. Citing the Interim Rules, the RTC noted that the rehabilitation receiver was not
granted therein the power to file complaints on behalf of the corporation.22

Moreover, the retention of its corporate powers by the corporation under rehabilitation will advance the objective of corporate rehabilitation, which is to
conserve and administer the assets of the corporation in the hope that it may eventually be able to go from financial distress to solvency. The suit filed
by ASB Realty to recover its property and back rentals from Umale could only benefit ASB Realty.23

The dispositive portion of the RTC Decision reads as follows:

WHEREFORE, premises considered, the appealed decision is hereby reversed and set aside. Accordingly, judgment is hereby rendered in favor of the
plaintiff-appellant ordering defendant-appellee and all persons claiming rights under him:

1) To immediately vacate the subject leased premises located at Lot 7, Block 5, Amethyst St., Pearl Drive, Ortigas Center, Pasig City and
deliver possession thereof to the plaintiff-appellant;

2) To pay plaintiff-appellant the sum of ₱1,300,000.00 representing rentals in arrears from June 2002 to June 2003;

3) To pay plaintiff-appellant the amount of ₱100,000.00 a month starting from July 2003 and every month thereafter until they finally vacate
the subject premises as reasonable compensation for the continued use and occupancy of the same;

4) To pay plaintiff-appellant the sum of ₱200,000.00 as and by way of attorney’s fees; and the costs of suit.

SO ORDERED.24

Umale filed a Motion for Reconsideration25 while ASB Realty moved for the issuance of a writ of execution pursuant to Section 21 of the 1991 Revised
Rules on Summary Procedure.26

In its July 26, 2005 Order, the RTC denied reconsideration of its Decision and granted ASB Realty’s Motion for Issuance of a Writ of Execution.27

Umale then filed his appeal28 with the CA insisting that the parties did not enter into a lease contract.29 Assuming that there was a lease, it was at most
an implied lease. Hence its period depended on the rent payments. Since Umale paid rent annually, ASB Realty had to respect his lease for the entire
year. It cannot terminate the lease at the end of the month, as it did in its Notice of Termination of Lease.30 Lastly, Umale insisted that it was the
rehabilitation receiver, not ASB Realty, that was the real party-in-interest.31

Pending the resolution thereof, Umale died and was substituted by his
widow and legal heirs, per CA Resolution dated August 14, 2006.32

Ruling of the Court of Appeals

The CA affirmed the RTC Decision in toto.33

According to the appellate court, ASB Realty fully discharged its burden to prove the existence of a lease contract between ASB Realty and Umale,34 as
well as the grounds for eviction.35 The veracity of the terms of the lease contract presented by ASB Realty was further bolstered, instead of demolished,
by Umale’s admission that he paid monthly rents in accordance therewith.36

The CA found no merit in Umale’s claim that in light of Article 1687 of the Civil Code the lease should be extended until the end of the year. The said
provision stated that in cases where the lease period was not fixed by the parties, the lease period depended on the payment periods. In the case at
bar, the rent payments were made on a monthly basis, not annually; thus, Umale’s failure to pay the monthly rent gave ASB Realty the corresponding
right to terminate the lease at the end of the month.37
The CA then upheld ASB Realty’s, as well as its corporate officers’, personality to recover an unlawfully withheld corporate property. As expressly stated
in Section 14 of Rule 4 of the Interim Rules, the rehabilitation receiver does not take over the functions of the corporate officers.38

Petitioners filed a Motion for Reconsideration,39 which was denied in the

assailed January 2, 2008 Resolution.40

Issues

The petitioners raise the following issues for resolution:41

1. Can a corporate officer of ASB Realty (duly authorized by the Board of Directors) file suit to recover an unlawfully detained corporate
property despite the fact that the corporation had already been placed under rehabilitation?

2. Whether a contract of lease exists between ASB Realty and Umale; and

3. Whether Umale is entitled to avail of the lease periods provided in Article 1687 of the Civil Code.

Our Ruling

Petitioners ask for the dismissal of the complaint for unlawful detainer on the ground that it was not brought by the real party-in-interest.42 Petitioners
maintain that the appointment of a rehabilitation receiver for ASB Realty deprived its corporate officers of the power to recover corporate property and
transferred such power to the rehabilitation receiver. Section 6, Rule 59 of the Rules of Court states that a receiver has the power to bring actions in his
own name and to collect debts due to the corporation. Under Presidential Decree (PD) No. 902-A and the Interim Rules, the rehabilitation receiver has
the power to take custody and control of the assets of the corporation. Since the receiver for ASB Realty did not file the complaint for unlawful detainer,
the trial court did not acquire jurisdiction over the subject property.43

Petitioners cite Villanueva v. Court of Appeals,44 Yam v. Court of

Appeals,45 and Abacus Real Estate Development Center, Inc. v. The Manila Banking Corporation,46 as authorities for the rule that the appointment of a
receiver suspends the authority of the corporation and its officers over its property and effects.47

ASB Realty counters that there is no provision in PD 902-A, the Interim Rules, or in Rule 59 of the Rules of Court that divests corporate officers of their
power to sue upon the appointment of a rehabilitation receiver.48 In fact, Section 14 , Rule 4 of the Interim Rules expressly limits the receiver’s power
by providing that the rehabilitation receiver does not take over the management and control of the corporation but shall closely oversee and monitor the
operations of the debtor.49 Further, the SEC Rules of Procedure on Corporate Recovery (SEC Rules), the rules applicable to the instant case, do not
include among the receiver’s powers the exclusive right to file suits for the corporation.50

The Court resolves the issue in favor of ASB Realty and its officers.

There is no denying that ASB Realty, as the owner of the leased premises, is the real party-in-interest in the unlawful detainer suit.51 Real party-in-
interest is defined as "the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit."52

What petitioners argue is that the corporate officer of ASB Realty is incapacitated to file this suit to recover a corporate property because ASB Realty has
a duly-appointed rehabilitation receiver. Allegedly, this rehabilitation receiver is the only one that can file the instant suit.

Corporations, such as ASB Realty, are juridical entities that exist by operation of law.53 As a creature of law, the powers and attributes of a corporation
are those set out, expressly or impliedly, in the law. Among the general powers granted by law to a corporation is the power to sue in its own
name.54 This power is granted to a duly-organized corporation, unless specifically revoked by another law. The question becomes: Do the laws on
corporate rehabilitation – particularly PD 902-A, as amended,55 and its corresponding rules of procedure – forfeit the power to sue from the corporate
officers and Board of Directors?

Corporate rehabilitation is defined as "the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continuance
of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation
continues as a going concern than if it is immediately liquidated."56 It was first introduced in the Philippine legal system through PD 902-A, as
amended.57The intention of the law is "to effect a feasible and viable rehabilitation by preserving a floundering business as a going concern, because the
assets of a business are often more valuable when so maintained than they would be when liquidated."58 This concept of preserving the corporation’s
business as a going concern while it is undergoing rehabilitation is called debtor-in-possession or debtor-in-place. This means that the debtor
corporation (the corporation undergoing rehabilitation), through its Board of Directors and corporate officers, remains in control of its business and
properties, subject only to the monitoring of the appointed rehabilitation receiver.59 The concept of debtor-in-possession, is carried out more particularly
in the SEC Rules, the rule that is relevant to the instant case.60It states therein that the interim rehabilitation receiver of the debtor corporation "does
not take over the control and management of the debtor corporation."61 Likewise, the rehabilitation receiver that will replace the interim receiver is
tasked only to monitor the successful implementation of the rehabilitation plan.62 There is nothing in the concept of corporate rehabilitation that would
ipso facto deprive63 the Board of Directors and corporate officers of a debtor corporation, such as ASB Realty, of control such that it can no longer
enforce its right to recover its property from an errant lessee.
To be sure, corporate rehabilitation imposes several restrictions on the debtor corporation. The rules enumerate the prohibited corporate actions and
transactions64 (most of which involve some kind of disposition or encumbrance of the corporation’s assets) during the pendency of the rehabilitation
proceedings but none of which touch on the debtor corporation’s right to sue. The implication therefore is that our concept of rehabilitation does not
restrict this particular power, save for the caveat that all its actions are monitored closely by the receiver, who can seek an annulment of any prohibited
or anomalous transaction or agreement entered into by the officers of the debtor corporation.

Petitioners insist that the rehabilitation receiver has the power to bring and defend actions in his own name as this power is provided in Section 6 of
Rule 59 of the Rules of Court.

Indeed, PD 902-A, as amended, provides that the receiver shall have the powers enumerated under Rule 59 of the Rules of Court. But Rule 59 is a rule
of general application. It applies to different kinds of receivers – rehabilitation receivers, receivers of entities under management, ordinary receivers,
receivers in liquidation – and for different kinds of situations. While the SEC has the discretion65 to authorize the rehabilitation receiver, as the case may
warrant, to exercise the powers in Rule 59, the SEC’s exercise of such discretion cannot simply be assumed. There is no allegation whatsoever in this
case that the SEC gave ASB Realty’s rehabilitation receiver the exclusive right to sue.

Petitioners cite Villanueva,66 Yam,67 and Abacus Real Estate68 as authorities for their theory that the corporate officers of a corporation under
rehabilitation is incapacitated to act. In Villanueva,69 the Court nullified the sale contract entered into by the Philippine Veterans Bank on the ground that
the bank’s insolvency restricted its capacity to act. Yam,70 on the other hand, nullified the compromise agreement that Manphil Investment Corporation
entered into while it was under receivership by the Central Bank. In Abacus Real Estate,71 it was held that Manila Bank’s president had no authority to
execute an "option to purchase" contract while the bank was under liquidation.

These jurisprudence are inapplicable to the case at bar because they involve

banking and financial institutions that are governed by different laws.72 In the cited cases, the applicable banking law was Section 2973 of the Central
Bank Act.74 In stark contrast to rehabilitation where the corporation retains control and management of its affairs, Section 29 of the Central Bank Act, as
amended, expressly forbids the bank or the quasi-bank from doing business in the Philippines.

Moreover, the nullified transactions in the cited cases involve dispositions of assets and claims, which are prohibited transactions even for corporate
rehabilitation75 because these may be prejudicial to creditors and contrary to the rehabilitation plan. The instant case, however, involves the recovery of
assets and collection of receivables, for which there is no prohibition in PD 902-A.

While the Court rules that ASB Realty and its corporate officers retain their power to sue to recover its property and the back rentals from Umale, the
necessity of keeping the receiver apprised of the proceedings and its results is not lost upon this Court. Tasked to closely monitor the assets of ASB
Realty, the rehabilitation receiver has to be notified of the developments in the case, so that these assets would be managed in accordance with the
approved rehabilitation plan.

Coming to the second issue, petitioners maintain that ASB Realty has no

cause of action against them because it is not their lessor. They insist that Umale entered into a verbal lease agreement with Amethyst Pearl only. As
proof of this verbal agreement, petitioners cite their possession of the premises, and construction of buildings thereon, sans protest from Amethyst Pearl
or ASB Realty.76

Petitioners concede that they may have raised questions of fact but insist nevertheless on their review as the appellate court’s ruling is allegedly
grounded entirely on speculations, surmises, and conjectures and its conclusions regarding the termination of the lease contract are manifestly absurd,
mistaken, and impossible.77

Petitioners’ arguments have no merit. Ineluctably, the errors they raised involve factual findings,78 the review of which is not within the purview of the
Court’s functions under Rule 45, particularly when there is adequate evidentiary support on record.

While petitioners assail the authenticity of the written lease contract by pointing out the inconsistency in the name of the lessor in two separate pages,
they fail to account for Umale’s actions which are consistent with the terms of the contract – the payment of lease rentals to ASB Realty (instead of his
alleged lessor Amethyst Pearl) for a 12-month period. These matters cannot simply be brushed off as sheer happenstance especially when weighed
against Umale’s incredible version of the facts – that he entered into a verbal lease contract with Amethyst Pearl; that the term of the lease is for a
"very long period of time;" that Amethyst Pearl offered to sell the leased premises and Umale had accepted the offer, with both parties not demanding
any written documentation of the transaction and without any mention of the purchase price; and that finally, Amethyst Pearl agreed that Umale need
not pay rentals until the perfection of the sale. The Court is of the same mind as the appellate court that it is simply inconceivable that a businessman,
such as petitioners’ predecessor-in-interest, would enter into commercial transactions with and pay substantial rentals to a corporation nary a single
documentation.

Petitioners then try to turn the table on ASB Realty with their third argument. They say that under Article 1687 of the New Civil Code, the period for rent
payments determines the lease period. Judging by the official receipt presented by ASB Realty, which covers the 12-month period from June 2001 to
May 2002, the lease period should be annual because of the annual rent payments.79 Petitioners then conclude that ASB Realty violated Article 1687 of
the New Civil Code when it terminated the lease on June 30, 2003, at the beginning of the new period. They then implore the Court to extend the lease
to the end of the annual period, meaning until May 2004, in accordance with the annual rent payments.80

In arguing for an extension of lease under Article 1687, petitioners lost sight of the restriction provided in Article 1675 of the Civil Code. It states that a
lessee that commits any of the grounds for ejectment cited in Article 1673, including non-payment of lease rentals and devoting the leased premises to
uses other than those stipulated, cannot avail of the periods established in Article 1687.811âwphi1
Moreover, the extension in Article 1687 is granted only as a matter of equity. The law simply recognizes that there are instances when it would be unfair
to abruptly end the lease contract causing the eviction of the lessee. It is only for these clearly unjust situations that Article 1687 grants the court the
discretion to extend the lease.82

The particular circumstances of the instant case however, do not inspire granting equitable relief. Petitioners have not paid, much less offered to pay,
the rent for 14 months and even had the temerity to disregard the pay-and-vacate notice served on them. An extension will only benefit the wrongdoer
and punish the long-suffering property owner.83

WHEREFORE, the petition is DENIED. The October 15, 2007 Decision and January 2, 2008 Resolution of the Court of Appeals in CA-G.R. SP No. 91096
are hereby AFFIRMED. ASB Realty Corporation is ordered to FURNISH a copy of the Decision on its incumbent Rehabilitation Receiver and to INFORM
the Court of its compliance therewith within 10 days.

Bank of the Philippine Islands vs Sarabia Manor Hotel Corporation

G.R. No. 175844 July 29, 2013

J. Perlas-Bernabe

Facts: Sarabia is a corporation duly organized and existing under Philippine laws, with principal place of business at 101 General Luna Street, Iloilo City. It was
incorporated on February 22, 1982, with an authorized capital stock of P10,000,000.00, fully subscribed and paid-up, for the primary purpose of owning, leasing,
managing and/or operating hotels, restaurants, barber shops, beauty parlors, sauna and steam baths, massage parlors and such other businesses incident to or
necessary in the management or operation of hotels.

In 1997, Sarabia obtained a P150,000,000.00 special loan package from Far East Bank and Trust Company (FEBTC) in order to finance the construction of a five-
storey hotel building (New Building) for the purpose of expanding its hotel business. An additional P20,000,000.00 stand-by credit line was approved by FEBTC in
the same year.

The foregoing debts were secured by real estate mortgages over several parcels of land owned by Sarabia and a comprehensive surety agreement dated
September 1, 1997 signed by its stockholders. By virtue of a merger, Bank of the Philippine Islands (BPI) assumed all of FEBTC’s rights against Sarabia. Sarabia
started to pay interests on its loans as soon as the funds were released in October 1997. However, largely because of the delayed completion of the New Building,
Sarabia incurred various cash flow problems. Thus, despite the fact that it had more assets than liabilities at that time, it, nevertheless, filed, on July 26, 2002, a
Petition for corporate rehabilitation (rehabilitation petition) with prayer for the issuance of a stay order before the RTC as it foresaw the impossibility to meet its
maturing obligations to its creditors when they fall due.

In its proposed rehabilitation plan, Sarabia sought for the restructuring of all its outstanding loans, submitting that the interest payments on the same be pegged
at a uniform escalating rate of: (a) 7% per annum (p.a.) for the years 2002 to 2005; (b) 8% p.a. for the years 2006 to 2010; (c) 10% p.a. for the years 2011 to
2013; (d) 12% p.a. for the years 2014 to 2015; and (e) 14% p.a. for the year 2018. Likewise, Sarabia sought to make annual payments on the principal loans
starting in 2004, also in escalating amounts depending on cash flow. Further, it proposed that it should pay off its outstanding obligations to the government and
its suppliers on their respective due dates, for the sake of its day to day operations.

Finding Sarabia’s rehabilitation petition sufficient in form and substance, the RTC issued a Stay Order on August 2, 2002. It also appointed Liberty B. Valderrama
as Sarabia’s rehabilitation receiver (Receiver). Thereafter, BPI filed its Opposition.

Issue: Whether or not the BPI’s opposition proper.

Held: No. Recognizing the volatile nature of every business, the rules on corporate rehabilitation have been crafted in order to give companies sufficient leeway to
deal with debilitating financial predicaments in the hope of restoring or reaching a sustainable operating form if only to best accommodate the various interests of
all its stakeholders, may it be the corporation’s stockholders, its creditors and even the general public. In this light, case law has defined corporate rehabilitation
as 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. Verily, 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. Thus, rehabilitation shall be undertaken when it is shown that the continued operation of the corporation is economically more 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.

Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules) states that 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
rehabilitation is feasible and the opposition of the creditors is manifestly unreasonable. Also known as the “cram-down” clause, this provision, which is currently
incorporated in the FRIA, is necessary to curb the majority creditors’ natural tendency to dictate their own terms and conditions to the rehabilitation, absent due
regard to the greater long-term benefit of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions of the rehabilitation plan,
preferring long-term viability over immediate but incomplete recovery.

In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough examination and analysis of the distressed corporation’s
financial data must be conducted. If the results of such examination and analysis show that there is a real opportunity to rehabilitate the corporation in view of the
assumptions made and financial goals stated in the proposed rehabilitation plan, then it may be said that a rehabilitation is feasible. In this accord, the
rehabilitation court should not hesitate to allow the corporation to operate as an on-going concern, albeit under the terms and conditions stated in the approved
rehabilitation plan. On the other hand, if the results of the financial examination and analysis clearly indicate that there lies no reasonable probability that the
distressed corporation could be revived and that liquidation would, in fact, better subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation court may convert the proceedings into one for liquidation. As further guidance on the matter,
the Court’s pronouncement in Wonder Book Corporation v. Philippine Bank of Communications proves instructive:
Rehabilitation… is proper and full implementation, and anchored on realistic assumptions and goals. 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: (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.

Although undefined in the Interim Rules, it may be said that the opposition of a distressed corporation’s majority creditor is manifestly unreasonable if it counter-
proposes unrealistic payment terms and conditions which would, more likely than not, impede rather than aid its rehabilitation. The unreasonableness becomes
further manifest if the rehabilitation plan, in fact, provides for adequate safeguards to fulfill the majority creditor’s claims, and yet the latter persists on speculative
or unfounded assumptions that his credit would remain unfulfilled.

While Section 23, Rule 4 of the Interim Rules states that the rehabilitation court shall consider certain incidents in determining whether the opposition is
manifestly unreasonable, BPI neither proposes Sarabia’s liquidation over its rehabilitation nor questions the controlling interest of Sarabia’s shareholders or
owners.

In this case, the Court finds BPI’s opposition on the approved interest rate to be manifestly unreasonable considering that: (a) the 6.75% p.a. interest rate already
constitutes a reasonable rate of interest which is concordant with Sarabia’s projected rehabilitation; and (b) on the contrary, BPI’s proposed escalating interest
rates remain hinged on the theoretical assumption of future fluctuations in the market, this notwithstanding the fact that its interests as a secured creditor remain
well-preserved.

G.R. No. 165571 January 20, 2009

PHILIPPINE NATIONAL BANK and EQUITABLE PCI BANK, Petitioners,

vs.
HONORABLE COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION EN BANC, ASB HOLDINGS, INC., ASB REALTY
CORPORATION, ASB DEVELOPMENT CORPORATION (formerly TIFFANY TOWER REALTY CORPORATION), ASB LAND INC., ASB
FINANCE, INC., MAKATI HOPE CHRISTIAN SCHOOL, INC., BEL-AIR HOLDINGS CORPORATION, WINCHESTER TRADING, INC., VYL
DEVELOPMENT CORPORATION, GERICK HOLDINGS CORPORATION, and NEIGHBORHOOD HOLDINGS, INC., Respondents.

DECISION

VELASCO, JR., J.:

This is a petition for review under Rule 45 which seeks the reversal of the July 16, 2004 Decision1 and October 1, 2004 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 82800. The CA upheld the November 11, 2003 en banc resolution3 of the Securities and Exchange Commission (SEC)
and the orders dated October 10, 20004and April 26, 20015 by the SEC Hearing Panel in SEC Case No. 05-00-6609, thus effectively affirming the
Rehabilitation Plan submitted by private respondents herein and the appointment of a rehabilitation receiver.

The 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) 6 dated May 29, 1989, as amended, by and between Rizal Commercial Banking Corporation-Trust and Investments
Division, acting as trustee for the consortium, and ASB Development Corporation (ASBDC, formerly Tiffany Tower Realty Corporation). Other members
of the consortium include Metropolitan Bank and Trust Company (Metrobank), Prudential Bank, Union Bank of the Philippines, and United Coconut
Planters Bank. Private respondents ASB Holdings, Inc., ASBDC, ASB Land, Inc., ASB Finance, Inc., Makati Hope Christian School, Inc., Bel-Air Holdings
Corporation, Winchester Trading, Inc., VYL Holdings Corporation, and Neighborhood Holdings, Inc. (ASB Group) are corporations engaged in real estate
development. The ASB Group is owned by Luke C. Roxas.7 Under the MTI, petitioners granted a loan of PhP 1,081,000,000 to ASBDC secured by a
mortgage of five parcels of land with improvements.8

On May 2, 2000, 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. (PD) 902-A, as amended. The case was docketed as SEC Case No. 05-00-6609. Private
respondents stated that they possess sufficient properties to cover their obligations but foresee inability to pay them within a period of one year. They
cited the sudden non-renewal and/or massive withdrawal by creditors of their loans to ASB Holdings, the glut in the real estate market, severe drop in
the sale of real properties, peso devaluation, 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. The ASB Group had assets worth PhP 19,410,000,000 and liabilities worth
PhP 12,700,000,000. Faced with at least 712 creditors, 317 contractors/suppliers, and 492 condominium unit buyers, and the prospect of having
secured and non-secured creditors press for payments and threaten to initiate foreclosure proceedings, the ASB Group pleaded for suspension of
payments while working for rehabilitation with the help of the SEC.9

Private respondents mentioned that in March 2000 and immediately after ASB Holdings incurred financial problems, they agreed to constitute a
Creditor’s Committee composed of representatives of individual creditors, and to appoint a Comptroller. Private respondents stated that the Comptroller,
upon instruction from the Creditor’s Committee, withheld approval of payments of obligations in the ordinary course of business such as those due to
contractors, unless Roxas agrees to the payment of interest and other arrangements. Private respondents believed that said conditions would eventually
harm the general body of their creditors. Private respondents prayed for the suspension of payments to creditors while working out the final terms of a
rehabilitation plan with all the parties concerned. Private respondents’ petition to the SEC was accompanied by documentary requirements in accordance
with Section 4-2 in relation to Sec. 3-2 of the Rules of Procedure on Corporate Recovery.10

Finding the petition sufficient in form and substance, the SEC Hearing Panel11 issued on May 4, 2000 an order suspending for 60 days all actions for
claims against the ASB Group, enjoining the latter from disposing its properties in any manner except in the ordinary course of business and from
paying outstanding liabilities, and appointing Atty. Monico V. Jacob as interim receiver of the ASB Group. Atty. Jacob was later replaced by Atty.
Fortunato Cruz as interim receiver. 12

The consortium of creditor banks, which included petitioners, filed their Comments/Opposition praying for the dismissal of the petition based on the
following grounds:

(a) Petitioners failed to state a valid cause of action;

(b) Petitioners failed to comply with the requirements of the Rules of Procedure on Corporate Recovery;

(c) The Rehabilitation Plan has no basis and offers no solution to address the financial difficulties of petitioners;

(d) There is no need for a Receiver as petitioners claim that they are solvent;

(e) The filing of the Petition does not warrant the issuance of a suspension order;

(f) The Petition should cover only one (1) corporation and should not include the affiliates and subsidiaries

(g) Petitioners are under the regulatory supervision of various governmental agencies and their respective consents to the filing of the instant
Petition have not been obtained;

(h) The circumstances surrounding the filing of the Petition are replete with evidence of fraud and bad faith; and

(i) Petitioners do not appear to have sufficient properties to cover their liabilities.13

On August 18, 2000, the ASB Group submitted a rehabilitation plan to enable it to meet all of its obligations. The consortium of creditor banks moved
for its disapproval on the ground that it is not viable; the proposals are unrealistic; and it collides with the freedom of contract and the constitutional
right against non-impairment of contracts, particularly the release of portions of mortgaged properties and waiver of interest, penalties, and other
charges. 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; it irregularly nets out inter-corporation transactions and offsets the receivables amounting to PhP 5.23 billion from Roxas; and it shows that
the ASB Group is insolvent and should be subjected to liquidation proceedings. The banks opposed the extension of the suspension order sought by the
ASB Group. The consortium also prayed for the early resolution of their opposition to the petition.

On October 10, 2000, the Hearing Panel denied the opposition of the banks and held that the ASB Group complied with the requirements of Sec. 4-1 of
the Rules of Procedure on Corporate Recovery, which allows debtors who are technically insolvent to file a petition for rehabilitation. Since the ASB
Group foresees its inability to meet its obligations within one year, it was considered technically insolvent and, thus, qualified for rehabilitation under
Sec. 4-1. The Panel further held that under Sec. 4-4, suspension of payments is necessarily an effect of the filing of the petition. The appointment of an
Interim Receiver as well as the issuance of a 60-day suspension order is mandatory under Sec. 4-4, Rule IV. The ASB corporations are not precluded
from jointly filing the petition for rehabilitation since these are beneficially owned by Roxas, their businesses and finances are intertwined such that they
made advances to each other and secured their obligations with each other’s properties. Joint filing of petition is allowed under Secs. 6 and 7, Rule 3 of
the 1997 Rules of Civil Procedure and under case law. As regards the regulatory jurisdiction of the Housing and Land Use Regulatory Board and the
Department of Education, Culture and Sports (now the Department of Education) over the business of selling real estate and academic activities of the
school, the Hearing Panel held that said jurisdiction does not extend to the petitioning corporations as juridical entities by themselves. With regard to
ASB Holdings, the consent of the Central Bank is not required since said corporation is not engaged in quasi-banking operations. Also, the Hearing Panel
held that the Creditors Committee was created to address the concerns of the investors of ASB Holdings and did not include the creditor banks. The
Hearing Panel found the filing of the petition for suspension of payments and rehabilitation as a sign of good faith on the part of private respondents to
settle their obligations.

Upon motion by the ASB Group, the suspension period was extended through an order dated October 27, 2000. The creditor banks appealed the
October 10 and 27, 2000 orders by filing before the SEC en banc a Petition for Review on Certiorari with application for a temporary restraining order.14

On April 26, 2001, the Hearing Panel approved the Rehabilitation Plan based on the following rationale:

After due deliberation, the Hearing Panel finds that the objections raised by the oppositors are unreasonable and rules to approve the rehabilitation
plan.

With regard to the contention of the secured creditors that the Plan infringes upon preference over secured property, the Panel finds this objection
unreasonable. According to the Supreme Court in the RCBC vs. IAC G.R. No. 74851 December 9, 1999, and we quote:

The majority ruling in our 1992 decision that preferred creditors of distressed corporations shall, in a way, stand on equal footing with all other
creditors, must be read and understood in the light of the foregoing rulings. All claims of both a secured or unsecured creditor, without distinction on
this score, are suspended once a management committee is appointed. Secured creditors, in the meantime, shall not be allowed to assert such
preference before the Securities and Exchange Commission. x x x
With our approval of the Plan and the appointment of a rehabilitation receiver, the secured creditors may not assert their preferred status while the case
is pending before the Commission. It is only when the assets of the corporation, partnership, or association are finally liquidated, that the secured and
preferred creditors under the applicable provisions of the Civil Code will apply.

As to the creditors’ contention that the plan did not explain or provide for the basis of the selling values and the net realizable values of the property, we
find the same untenable. A reading of the plan as well as the explanation made by the Petitioners, show that the computation was shown as to the
manner upon which the petitioners derived the Net Realizable Values. Moreover the Petitioners explained that these values are not much higher than
the Cuervo appraisals in 1997 and 2000.

The Interim Receiver appointed by the Commission recommended the approval of the Plan. According to him, the fixed assets of Petitioners are
mortgaged to banks and that the bank loans are mostly over collateralized. If the Plan is not approved, the secured creditors will foreclose on the
mortgages and will acquire these properties at a value much less than the fair market value. When the Petitioners lose these fixed property, it will not
be able to pay their obligation to the 172 individual unsecured creditors with an exposure of P3,951,216,266 and the 317 contractors with an exposure
of P58,116,903, and will not be able to deliver sold units to 725 buyers. Therefore, the disapproval of the Plan will greatly prejudice all the other
creditors who will be left unpaid.

The Panel agrees with the position taken by the Interim Receiver that we should look into the far-reaching effect of the Plan. The Panel should balance
the interests between the secured creditors and the unsecured who may not have any recourse if the Plan is not approved. In this manner we agree
with the argument of the individual creditors that we should consider the public interest aspect of this rehabilitation proceeding wherein there are about
725 individually affected creditors with a total stakes of P4 Billion, more than the stake of the bank creditors. The approval of the Plan will not deprive
the secured creditors of their right to the mortgaged assets. If there is a subsequent failure of rehabilitation, the availment of their suspended rights
over the mortgaged assets will be restored. On the other hand, as earlier stated, the unjustified disapproval of the Plan will greatly prejudice the
unsecured creditors who will be left unable to recover their investments or collect their claims.

The Panel however finds that adjustments and set off with regard to the advances made by Mr. Luke Roxas should not be allowed. This however, does
not in anyway affect the viability of the Plan.

Meanwhile, the resolution on the Motion for Exclusion of the ASB-Malayan Towers from the assets claimed by petitioners is hereby deferred.

PREMISES CONSIDERED, the objections to the rehabilitation plan raised by the creditors are hereby considered unreasonable.

Accordingly, the Rehabilitation Plan submitted by petitioners is hereby APPROVED, except those pertaining to Mr. Roxas’ advances, and the ASB-
Malayan Towers. Finally, Interim Receiver Mr. Fortunato Cruz is appointed as Rehabilitation Receiver.

SO ORDERED.15

The creditors filed a Supplemental Petition for Review on Certiorari with the SEC en banc to question the foregoing order. On November 11, 2003, the
SEC en banc dismissed the petition and its supplement, thus affirming the October 10, 2000 and April 26, 2001 orders of the Hearing Panel. The SEC en
banc held:

We rule against petitioner.

First, the Commission En Banc, in three separate cases, had affirmed the approval by the Hearing Panel of the Rehabilitation Plan of private
respondents. We declared that the Hearing Panel acted within its legal authority in resolving the petition for rehabilitation of private respondents.
Neither it overstepped its lawful authority nor acted whimsically in approving the subject Rehabilitation Plan. Hence, it could not be faulted of grave
abuse of discretion. We could not arrive at different conclusion in the instant case other than uphold the approval of private respondents’ Rehabilitation
Plan.

Second, it is noteworthy to mention that as of 31 December 2002, fifty-four percent (54%) of the total obligations of private respondents with creditor
banks have been settled. That constitutes majority of the total obligations owned by private respondents to secured creditors.

WHEREFORE, premises considered, the instant petition is DISMISSED. Accordingly, the assailed Orders are AFFIRMED.

SO ORDERED.16

The Ruling of the CA

Petitioners went to the CA via a petition for certiorari under Rule 65, 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. The SEC also allegedly did
not make its own independent findings much less come up with substantial evidence to support its resolution, thus violating petitioners’ right to due
process and ignoring the constitutional rights of the banks against non-impairment of contracts. 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. They maintained that the SEC should not
have approved the Rehabilitation Plan over the objection of the consortium of creditor banks.

The CA held that the Rules of Procedure on Corporate Recovery allows financially distressed corporations to file for either suspension of payments (Rule
III, Sec. 3-1) or rehabilitation (Rule IV, Sec. 4-1). The Rules, the CA said, does not preclude a solvent corporation, like the ASB Group, 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. 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. Also, according to the CA,
there was no grave abuse of discretion on the part of the Hearing Panel in appointing an interim receiver because such is prescribed by the Rules. As
regards the Rehabilitation Plan, the CA agreed with the Hearing Panel’s finding that the plan’s disapproval will greatly prejudice all the other creditors
who will be left unpaid. Moreover, the CA explained that the approval of the Rehabilitation Plan does not violate the right against impairment of
contracts since the legal consequence of rehabilitation proceedings is merely a temporary suspension of such payments of obligations falling due and
not cancellation or repudiation of those contractual obligations. The CA further held that petitioners were afforded the opportunity to be heard through
the comments and oppositions they filed. Lastly, the appellate court ruled that the SEC en banc may rely on the factual findings of the Hearing Officer;
thus, it need not make its own independent findings unless clear error has been committed.

The dispositive portion of the July 16, 2004 Decision of the CA reads:

WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and accordingly DISMISSED for lack of merit. The challenged
En Banc Resolution dated November 11, 2000 of the Securities and Exchange Commission, affirming the Orders dated October 10, 2000 and April 26,
2001 of the SEC Hearing Panel in SEC Case No. 05-00-609, is hereby AFFIRMED.17

Petitioners’ motion for reconsideration was denied through the October 1, 2004 CA Resolution. Hence, we have this petition.

The Issues

Petitioners assign the following errors18 on the appellate court:

Respondent court committed serious error in ruling that the Rules does not preclude a solvent corporation or debtor to file a petition for rehabilitation
instead of just a petition for suspension of payments.

II

Respondent court committed serious error in ruling that all the grounds for the opposition raised by the consortium of creditor banks have been duly
heard and resolved by the Hearing Panel in its October 10, 2000 order and that there is no grave abuse of discretion on the part of the Hearing Panel
when it appointed an interim receiver pursuant to Section 4-4.

III

Respondent court committed serious error in holding that the filing of a motion to override the objections against the Rehabilitation Plan by any class of
creditor is not an absolute requirement nor is it a precondition for the Commission to resolve the objections so filed by the creditors.

IV

Respondent court committed serious error in ruling that the legal consequence of rehabilitation proceedings is merely a temporary suspension of such
payments of obligations falling due by the distressed corporation and not cancellation or repudiation of those contractual obligations.

Respondent court committed serious error in ruling that the Commission correctly ruled on the issue of the alleged impairment of contracts arising from
the suspension order and approval of the Rehabilitation Plan.

VI

Respondent court committed serious error in finding that petitioners as creditors and mortgagees cannot, by contractual commitments imposed on their
borrowers-mortgagors, defeat the purpose of the legislation by rendering nugatory the supervisory and regulatory power of the SEC over private
corporations, partnerships and associations under existing laws.

VII

Respondent court committed serious error in ruling that the SEC in this case not only applied liberally the provisions of the rules of procedure on
corporate recovery, afforded sufficient opportunity to be heard on all the creditors, both secured and unsecured individual creditors, but also carefully
weighed their competing and conflicting interests with the end in view of maintaining the financial viability of the petitioning corporations and preserving
its assets for the protection of all creditors.

VIII
Respondent court committed serious error in ruling that the decision and resolution in question should be affirmed and that there is no delay,
arbitrariness, serious disregard of the law and rules, and whimsical or oppressive exercise of judgment on the part of the SEC en banc and the Hearing
Panel.

IX

It is error for respondent appellate court not to grant petitioners’ prayer to dismiss the petition for rehabilitation on the ground that the consent of the
administrative agencies concerned was not obtained before the filing of said petition.

On April 25, 2007, PNB sold the account of ASBDC to Golden Dragon Star Equities, Inc. and its assignee, Opal Portfolio Investments, Inc. (Opal). PNB
then requested this Court to be substituted by Opal. Meanwhile, respondents ASB Holdings, ASB Realty Corporation, ASB Development Corporation, and
ASB Land have changed their corporate names to St. Francis Square Holdings, Inc., St. Francis Square Realty Corporation, St. Francis Square
Development Corporation, and St. Francis Square Land, Inc., respectively.

On February 27, 2007, the First Division of this Court promulgated its Decision in Metropolitan Bank & Trust Company v. ASB Holdings, Inc. under G.R.
No. 166197.19 This case dealt with the petition filed by Metrobank, a member of the consortium of creditor banks.

The Court’s Ruling

We affirm the ruling of the appellate court.

Petition for Suspension of Payments vis-à-vis Petition for Rehabilitation

Anent the issue regarding the appropriate remedy available to private respondents, petitioners argue that a petition for rehabilitation and suspension of
payments cannot be filed without previously filing a petition for suspension of payments since these refer to different reliefs under the Rules which
provides:

RULE III, Section 3-1. Suspension of Payments.—Any debtor which possesses sufficient property to cover all its debts but foresees the impossibility of
meeting them when they respectively fall due may petition the Commission that it be declared in a state of suspension of payments.

RULE IV, Section 4-1. Who may petition.—A debtor which is insolvent because its assets are not sufficient to cover its liabilities, or which is technically
insolvent under Section 3-12 of these Rules, but which may still be rescued or revived through the institution of some changes in its management,
organization, policies, strategies, operations, or finances, may petition the Commission to be placed under rehabilitation.

Petitioners argue that Sec. 3-1 refers to debtors with sufficient property to cover its debts; thus, it refers to solvent debtors. Sec. 4-1, on the other
hand, refers to debtors with insufficient assets to cover its liabilities, that is, debtors who are insolvent or technically insolvent. The former falls under
the rules on suspension of payments while the latter falls under the rules on rehabilitation. Petitioners then conclude that a solvent corporation, such as
private respondents, cannot file a petition for rehabilitation. Also, the ASB Group cannot be considered technically insolvent under Secs. 3-12 and 3-13
which state:

Section 3-12. Technical insolvency of petitioner.—If it is established that the inability of the petitioner to pay, although temporary, will last for a period
longer than one (1) year from the filing of the petition, the petitioner shall be considered technically insolvent and the petition shall be dismissed
accordingly.

Section 3-13. Supervening insolvency or violation of Suspension Order.—If at anytime during the pendency of the proceedings, the petitioner has
become or is shown to be insolvent, whether actual or technical, or that it has violated any of the conditions of the suspension order or has failed to
make payments on its obligations in accordance with the approved Repayment Schedule, the Commission shall terminate the proceedings and dismiss
the petition. Instead of terminating the proceedings, however, the Commission may, upon motion, treat the petition as one for rehabilitation of the
debtor. Thereupon, the pertinent provisions of the succeeding Rule shall govern the proceedings.

Petitioners point out that the foregoing rules prescribe a determination by the SEC that the ailing corporation’s inability to pay will last more than one
year from the filing of the petition for suspension of payments. Petitioners conclude that technical insolvency only arises one year after the petition for
suspension of payments had been filed; therefore, the SEC committed a serious error when it entertained the ASB Group’s petition for rehabilitation
without a previous finding of technical insolvency.

To further support their theory, petitioners quoted Sec. 4-2(g) as follows:

Section 4-2. Contents of the petition.—The petition filed by the debtor must be verified and must set forth with sufficient particularity all the following
material facts:

xxxx

(g) the status of any Repayment Schedule if one has been approved by the Commission under the preceding Rule.

According to petitioners, the mere mention of a Repayment Schedule under Rule IV on Rehabilitation only proves that technical insolvency can only
arise from or initiated by the filing of a petition for suspension of payments under Rule III.
Such interpretation of the Rules deserves no merit.

Petitioners raise issues which mainly relate to technical insolvency; hence, we will limit our interpretation of the rules based on the aforequoted sections.
Based on the foregoing, we can deduce 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. 3-1);

(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, that is, the corporation becomes technically insolvent, the petition shall be dismissed (Sec. 3-12);

(3) If the corporation is shown or actually becomes technically insolvent anytime during the pendency of the proceedings (supervening
technical insolvency), the SEC may either terminate the proceedings or it may, upon motion, treat the petition as one for rehabilitation (Sec.
3-13); and

(4) If from the start, a corporation which has enough assets foresees its inability to meet its obligations for more than one year,
i.e., existing technical insolvency, it may file a petition for rehabilitation under Rule IV, Sec. 4-1.

A reading of Sec. 4-1 shows that there are two kinds of insolvency contemplated in it: (1) actual insolvency, i.e., the corporation’s assets are not enough
to cover its liabilities; and (2) technical insolvency defined under Sec. 3-12, i.e., the corporation has enough assets but it foresees its inability to pay its
obligations for more than one year.

In the case at bar, the ASB Group filed with the SEC a petition for rehabilitation with prayer for suspension of actions and proceedings pending
rehabilitation. Contrary to petitioners’ arguments, 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. A corporation may have considerable assets but if it foresees the
impossibility of meeting its obligations for more than one year, it is considered as technically insolvent. Thus, at the first instance, a corporation may file
a petition for rehabilitation—a remedy provided under Sec. 4-1.

When Sec. 4-1 mentioned technical insolvency under Sec. 3-12, it was referring to the definition of technical insolvency in the said section; it was not
requiring a previous filing of a petition for suspension of payments which petitioners would have us believe.

Petitioners harp on the SEC’s failure to examine whether the ASB Group is technically insolvent. 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. The period mentioned under
Sec. 3-12, "longer than one year from the filing of the petition," 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. The period referred to the corporation’s inability to pay its obligations; when such inability
extends beyond one year, the corporation is considered technically insolvent. Said inability may be established from the start by way of a petition for
rehabilitation, or it may be proved during the proceedings for suspension of payments, if the latter was the first remedy chosen by the ailing
corporation. If the corporation opts for a direct petition for rehabilitation on the ground of technical insolvency, 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.

As regards the status of the Repayment Schedule required to be attached to the petition for rehabilitation (Sec. 4-2[g]), this requirement is conditioned
on whether one was approved by the SEC in the first place. If there is none, as in the case of a petition for rehabilitation due to technical insolvency
directly filed under Rule IV, Sec. 4-1, then there is no status report to submit with the petition.

Appointment of an Interim Receiver

Petitioners impute error on the part of the SEC in appointing an interim receiver since, allegedly, the requirements for it have not been met. Petitioners,
however, assume that private respondents were not entitled to file a petition for rehabilitation. As previously discussed, private respondents may file a
petition for rehabilitation for being technically insolvent. Once the petition is filed, the appointment of an interim receiver becomes automatic. As
pertinently provided under the Rules:

Section 4-4. Effect of filing of the petition.—Immediately upon the filing of the petition, the Commission shall issue an Order (a) appointing an Interim
Receiver and fixing his bond; (b) suspending all actions and proceedings for claims against the debtor; (c) prohibiting the debtor from selling,
encumbering, transferring or disposing in any manner any of its properties except in the normal course of business in which the debtor is engaged; (d)
prohibiting the debtor from making any payment of its liabilities outstanding as of the date of filing of the petition; (e) directing the payment in full of all
administrative expenses incurred after the filing of the petition; (f) fixing the initial hearing on the petition not later than forty-five (45) days from the
filing thereof; (g) directing the debtor to publish the Order once a week for two consecutive weeks in a newspaper of general circulation in the
Philippines; and (h) directing the debtor to serve on each of the parties on the list of creditors the following documents at least ten days before the date
of the said hearing:

1. A copy of the Order;

2. A copy of the petition;

3. A copy of the Schedule of Debts and Liabilities; and

 4. A notification that copies of the other documents filed with the Commission may be obtained therefrom or from the Interim Receiver.

Petitioners assert that there two kinds of receivers that can be appointed: a rehabilitation receiver or an interim receiver. A rehabilitation receiver under
PD 902-A, Sec. 6 may only be appointed when there is a showing that (1) the receiver is necessary in order to preserve the rights of the parties-
litigants; and/or (2) in order to protect the interest of the investing public and creditors. In contrast, the appointment of an interim receiver is automatic
from the time the petition for rehabilitation is filed; there are no other standards that need to be met. According to Rizal Commercial Banking
Corporation v. Intermediate Appellate Court, a petition for rehabilitation does not necessarily result in the appointment of a rehabilitation
receiver.20 Prior to the appointment of a rehabilitation receiver or management committee, as the case may be, the right of secured creditors to
foreclose mortgages cannot be denied. Also, since PD 902-A does not provide for the appointment of an interim receiver, then the Rules of Procedure
on Corporate Recovery, an administrative issuance, went beyond the law it seeks to implement.

As found by the appellate court, the appointment of an interim receiver should be understood as a necessary and urgent step to protect the interests of
both creditors and stockholders of the petitioning corporations, particularly the assets and business operations during the pendency of the proceedings,
and to ensure the viability and success of the rehabilitation plan as eventually implemented.21

Motion to Override the Creditors’ Objections

Petitioners insist that the Rehabilitation Plan should not have been approved by the SEC over the objection by the secured creditors without the filing of
a motion to override the objections filed by private respondents. This is in accordance with Sec. 4-20 which provide:

Section 4-20. Approval of the Rehabilitation Plan.—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. The Rehabilitation Plan shall be
deemed ipso facto disapproved and the petition dismissed if the Commission fails to grant the motion to override within thirty (30) days from the time it
is submitted for resolution.

The CA held that the filing of a motion is not a precondition for the SEC to resolve the objections filed by the creditors, as evident in the word "may."
We disagree. The requirement of a motion by the petitioning corporation is essential in enabling the SEC to decide on the proposed rehabilitation plan.
The words "upon motion" were deliberately added to emphasize this requirement. In the case bar, while private respondents failed to file a motion to
override the creditors’ objections, nevertheless, they were able to file a reply to the opposition of the consortium of creditor banks. Presumably, this
reply addressed the objections of the consortium. Considering that procedural rules should be liberally interpreted, we find said pleading as tantamount
to filing a motion required by Sec. 4-20.

Right Against Non-Impairment of Contracts

Petitioners contend that the SEC’s approval of the Rehabilitation Plan impairs the MTI by forcing them to release the real properties secured in their
favor to become part of the asset pool. They argue that the SEC’s approval of the Rehabilitation Plan is a state action that impairs the remedies
available to petitioners under the MTI, which essentially abrogates the contract itself.

In the Metropolitan Bank & Trust Company Decision in G.R. No. 166197,22 Metrobank likewise questioned the approval of the Rehabilitation Plan by the
SEC and the CA, particularly the provisions relating to the payment by dacion en pago and waiver of interests and penalties. Metrobank asserted that
the Rehabilitation Plan compelled it to release part of the collateral and accept the mortgaged properties as payment by dacion en pago based on the
ASB Group’s transfer values, violating the constitutional right to non-impairment of contracts.

On this issue, we adopt the ruling of the First Division in Metropolitan Bank & Trust Company, to wit:

We are not convinced that the approval of the Rehabilitation Plan impairs petitioner bank’s lien over the mortgaged properties. Section 6 [c] of P.D. No.
902-A provides that "upon 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."

By that statutory provision, it is clear that the approval of the Rehabilitation Plan and the appointment of a rehabilitation receiver merely suspend the
actions for claims against respondent corporations. Petitioner bank’s preferred status over the unsecured creditors relative to the mortgage liens is
retained, but the enforcement of such preference is suspended. The loan agreements between the parties have not been set aside and petitioner bank
may still enforce its preference when the assets of ASB Group of Companies will be liquidated. Considering that the provisions of the loan agreements
are merely suspended, there is no impairment of contracts, specifically its lien in the mortgaged properties.

As we stressed in Rizal Commercial Banking Corporation v. Intermediate Appellate Court, such suspension "shall not prejudice or render ineffective the
status of a secured creditor as compared to a totally unsecured creditor," for what P.D. No. 902-A merely provides is that all actions for claims against
the distressed corporation, partnership or association shall be suspended. This arrangement provided by law is intended to give the receiver a chance to
rehabilitate the corporation if there should still be a possibility for doing so, without being unnecessarily disturbed by the creditors’ actions against the
distressed corporation. However, in the event that rehabilitation is no longer feasible and the claims against the distressed corporation would eventually
have to be settled, the secured creditors, like petitioner bank, shall enjoy preference over the unsecured creditors.23

Contrary to petitioners’ belief, they are not forced to accept the terms of the Rehabilitation Plan. As held in Metropolitan Bank & Trust Company, they
are merely proposals for the creditors to accept.

Due Process and the Regulatory Power of the SEC

Petitioners contend that private respondents were not entitled to the suspension order and its extension if opposed by a majority class of creditors. The
consortium, which has a total exposure of PhP 1.8 billion, was allegedly deprived of substantive due process when the SEC issued and extended the
suspension order despite the objection of the creditor banks. The right to due process was again allegedly violated when the Hearing Panel set the
Rehabilitation Plan for hearing without ruling on the issues raised in petitioners’ Comment/Opposition. Furthermore, according to private respondents,
ASBDC, the borrower in the MTI, is not insolvent; thus, its inclusion in the petition for rehabilitation was not proper. As regards the SEC en banc, private
respondents claimed that the three-year delay in acting on the petition for review filed by the consortium amounted to a denial of due process and
caused undue damage to the creditors.

Petitioners’ arguments have no merit. The appellate court correctly ruled that petitioners were given the opportunity to be heard. They filed their
Comment/Opposition and a petition for review before the SEC en banc. Due process is satisfied when the parties are afforded fair and reasonable
opportunity to explain their side of the controversy or an opportunity to move for a reconsideration of the action or ruling complained of.24 Also, the
SEC en banc is not required to come up with its own findings since findings of the Hearing Officer shall remain undisturbed unless the SEC en banc finds
manifest errors. Sec. 16-7 of the Rules also states that proceedings before the SEC en bancshall be summary in nature.

The purpose of rehabilitation proceedings is to enable the company to gain new lease on life and thereby 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. This is in consonance with the State’s objective to promote a wider and more
meaningful equitable distribution of wealth to protect investments and the general public.25 It is precisely based on these principles that the SEC decided
the petition for rehabilitation. We agree with the findings of the appellate court:

x x x In holding that the oppositions of the creditor banks are unreasonable, the SEC took into consideration the fact that compared to the creditor
banks who have existing mortgages with private respondents, the 725 individually affected unsecured creditors with a much higher stake in their
combined claims of P4 Billion, the SEC found it prejudicial to disapprove the Rehabilitation Plan and thereby allow the creditor banks to foreclose the
mortgages and sell the fixed assets at prices lower than the market value, a prospect that will deprive the unsecured creditors of any hope of being paid
while the corporations will eventually become insolvent unable to pay its obligations to the greater number of unsecured creditors.

In view of the urgency of the situation and the serious prejudice that will result to other investors and creditors and to the public in general, the SEC
opted to proceed decisively and promptly in approving the petition for rehabilitation filed by private respondents in order to continue the rehabilitation
process and keep the companies financial afloat, a measure ultimately aimed at protecting the interest of the larger number of unsecured creditors.
Under such factual scenario, delay is farthest from the minds of all those concerned particularly the Hearing Panel and the unsecured creditors. The
longer the approval of the rehabilitation plan is delayed, the greater the peril becomes that the assets of the corporations will be dissipated and their
business operations jeopardized. The view has been expressed that the power of the SEC to issue injunctive relief in these cases should be upheld by
the courts as otherwise "a distressed company would be exposed to grave danger that may precipitate its untimely demise, the very evil sought by a
suspension of payments."26

In the exercise of judicial review, the function of the court is to determine whether the administrative agency has not been arbitrary or whimsical in the
exercise of its power given the facts and the law. Absent such unreasonable or unlawful exercise of power, courts should not interfere. In this case,
such arbitrariness is absent.

WHEREFORE, this petition is DENIED. The July 16, 2004 Decision and October 1, 2004 Resolution of the CA in CA-G.R. SP No. 82800
are AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. 165887 June 6, 2011

MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Petitioners,

vs.
MIGUEL LIM, in his personal capacity as Stockholder of Ruby Industrial Corporation and representing the MINORITY STOCKHOLDERS
OF RUBY INDUSTRIAL CORPORATION and the MANAGEMENT COMMITTEE OF RUBY INDUSTRIAL CORPORATION, Respondents.

x-----------------------x

G.R. No. 165929

CHINA BANKING CORPORATION, Petitioner,

vs.
MIGUEL LIM, in his personal capacity as a stockholder of Ruby Industrial Corporation and representing the MINORITY
STOCKHOLDERS OF RUBY INDUSTRIAL CORPORATION, Respondent.

DECISION

VILLARAMA, JR., J.:

This case is brought to us on appeal for the fourth time, involving the same parties and interests litigating on issues arising from rehabilitation
proceedings initiated by Ruby Industrial Corporation wayback in 1983.
Following is the factual backdrop of the present controversy, as culled from the records and facts set forth in the ponencia of Chief Justice Reynato S.
Puno in Ruby Industrial Corporation v. Court of Appeals.1

The Antecedents

Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. Reeling from severe liquidity problems beginning in
1980, RUBY filed on December 13, 1983 a petition for suspension of payments with the Securities and Exchange Commission (SEC) docketed as SEC
Case No. 2556. On December 20, 1983, the SEC issued an order declaring RUBY under suspension of payments and enjoining the disposition of its
properties pending hearing of the petition, except insofar as necessary in its ordinary operations, and making payments outside of the necessary or
legitimate expenses of its business.

On August 10, 1984, the SEC Hearing Panel created the management committee (MANCOM) for RUBY, composed of representatives from Allied Leasing
and Finance Corporation (ALFC), Philippine Bank of Communications (PBCOM), China Banking Corporation (China Bank), Pilipinas Shell Petroleum
Corporation (Pilipinas Shell), and RUBY represented by Mr. Yu Kim Giang. The MANCOM was tasked to perform the following functions: (1) undertake
the management of RUBY; (2) take custody and control over all existing assets and liabilities of RUBY; (3) evaluate RUBY’s existing assets and liabilities,
earnings and operations; (4) determine the best way to salvage and protect the interest of its investors and creditors; and (5) study, review and
evaluate the proposed rehabilitation plan for RUBY.

Subsequently, two (2) rehabilitation plans were submitted to the SEC: the BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by Yu Kim
Giang, and the Alternative Plan of the minority stockholders represented by Miguel Lim (Lim).

Under the BENHAR/RUBY Plan, Benhar International, Inc. (BENHAR) -- a domestic corporation engaged in the importation and sale of vehicle spare
parts which is wholly owned by the Yu family and headed by Henry Yu, who is also a director and majority stockholder of RUBY -- shall lend its ₱60
million credit line in China Bank to RUBY, payable within ten (10) years. Moreover, BENHAR shall purchase the credits of RUBY’s creditors and mortgage
RUBY’s properties to obtain credit facilities for RUBY. Upon approval of the rehabilitation plan, BENHAR shall control and manage RUBY’s operations. For
its service, BENHAR shall receive a management fee equivalent to 7.5% of RUBY’s net sales.

The BENHAR/RUBY Plan was opposed by 40% of the stockholders, including Lim, a minority shareholder of RUBY. ALFC, the biggest unsecured creditor
of RUBY and chairman of the management committee, also objected to the plan as it would transfer RUBY’s assets beyond the reach and to the
prejudice of its unsecured creditors.

On the other hand, the Alternative Plan of RUBY’s minority stockholders proposed to: (1) pay all RUBY’s creditors without securing any bank loan; (2)
run and operate RUBY without charging management fees; (3) buy-out the majority shares or sell their shares to the majority stockholders; (4)
rehabilitate RUBY’s two plants; and (5) secure a loan at 25% interest, as against the 28% interest charged in the loan under the BENHAR/RUBY Plan.

Both plans were endorsed by the SEC to the MANCOM for evaluation.

On October 28, 1988, the SEC Hearing Panel approved the BENHAR/RUBY Plan. The minority stockholders thru Lim appealed to the SEC En Banc which,
in its November 15, 1988 Order, enjoined the implementation of the BENHAR/RUBY Plan. On December 20, 1988 after the expiration of the temporary
restraining order (TRO), the SEC En Banc granted the writ of preliminary injunction against the enforcement of the BENHAR/RUBY Plan. BENHAR, Henry
Yu, RUBY and Yu Kim Giang questioned the issuance of the writ in their petition filed in the Court of Appeals (CA), docketed as CA-G.R. SP No. 16798.
The CA denied their appeal.2 Upon elevation to this Court (G.R. No. L-88311), we issued a minute resolution dated February 28, 1990 denying the
petition and upholding the injunction against the implementation of the BENHAR/RUBY Plan.

Meanwhile, BENHAR paid off Far East Bank & Trust Company (FEBTC), one of RUBY’s secured creditors. By May 30, 1988, FEBTC had already executed
a deed of assignment of credit and mortgage rights in favor of BENHAR. BENHAR likewise paid the other secured creditors who, in turn, assigned their
rights in favor of BENHAR. These acts were done by BENHAR despite the SEC’s TRO and injunction and even before the SEC Hearing Panel approved
the BENHAR/RUBY Plan on October 28, 1988.

ALFC and Miguel Lim moved to nullify the deeds of assignment executed in favor of BENHAR and cite the parties thereto in contempt for willful violation
of the December 20, 1983 SEC order enjoining RUBY from disposing its properties and making payments pending the hearing of its petition for
suspension of payments. They also charged that in paying off FEBTC’s credits, FEBTC was given undue preference over the other creditors of RUBY.
Acting on the motions, the SEC Hearing Panel nullified the deeds of assignment executed by RUBY’s creditors in favor of BENHAR and declared the
parties thereto guilty of indirect contempt. BENHAR and RUBY appealed to the SEC En Banc which denied their appeal. BENHAR and RUBY joined by
Henry Yu and Yu Kim Giang appealed to the CA (CA-G.R. SP No. 18310). By Decision3 dated August 29, 1990, the CA affirmed the SEC ruling nullifying
the deeds of assignment. The CA also declared its decision final and executory as to RUBY and Yu Kim Giang for their failure to file their pleadings
within the reglementary period. By Resolution dated August 26, 1991 in G.R. No. 96675,4 this Court affirmed the CA’s decision.

Earlier, on May 29, 1990, after the SEC En Banc enjoined the implementation of BENHAR/RUBY Plan, RUBY filed with the SEC En Banc an ex parte
petition to create a new management committee and to approve its revised rehabilitation plan (Revised BENHAR/RUBY Plan). Under the revised plan,
BENHAR shall receive ₱34.068 million of the ₱60.437 Million credit facility to be extended to RUBY, as reimbursement for BENHAR’s payment to some of
RUBY’s creditors. The SEC En Banc directed RUBY to submit its revised rehabilitation plan to its creditors for comment and approval while the petition
for the creation of a new management committee was remanded for further proceedings to the SEC Hearing Panel. The Alternative Plan of RUBY’s
minority stockholders was also forwarded to the hearing panel for evaluation.

On April 26, 1991, over ninety percent (90%) of RUBY’s creditors objected to the Revised BENHAR/RUBY Plan and the creation of a new management
committee. Instead, they endorsed the minority stockholders’ Alternative Plan. At the hearing of the petition for the creation of a new management
committee, three (3) members of the original management committee (Lim, ALFC and Pilipinas Shell) opposed the Revised BENHAR/RUBY Plan on
grounds that: (1) it would legitimize the entry of BENHAR, a total stranger, to RUBY as BENHAR would become the biggest creditor of RUBY; (2) it
would put RUBY’s assets beyond the reach of the unsecured creditors and the minority stockholders; and (3) it was not approved by RUBY’s
stockholders in a meeting called for the purpose.

Notwithstanding the objections of 90% of RUBY’s creditors and three members of the MANCOM, the SEC Hearing Panel approved on September 18,
1991 the Revised BENHAR/RUBY Plan and dissolved the existing management committee. It also created a new management committee and appointed
BENHAR as one of its members. In addition to the powers originally conferred to the management committee under Presidential Decree (P.D.) No. 902-
A, the new management committee was tasked to oversee the implementation by the Board of Directors of the revised rehabilitation plan for RUBY.

The original management committee (MANCOM), Lim and ALFC appealed to the SEC En Banc which affirmed the approval of the Revised BENHAR/RUBY
Plan and the creation of a new management committee on July 30, 1993. To ensure that the management of RUBY will not be controlled by any group,
the SEC appointed SEC lawyers Ruben C. Ladia and Teresita R. Siao as additional members of the new management committee. Further, it declared that
BENHAR’s membership in the new management committee is subject to the condition that BENHAR will extend its credit facilities to RUBY without using
the latter’s assets as security or collateral.

Lim, ALFC and MANCOM moved for reconsideration while RUBY and BENHAR asked the SEC to reconsider the portion of its Order prohibiting BENHAR
from utilizing RUBY’s assets as collateral. On October 15, 1993, the SEC denied the motion of Lim, ALFC and the original management committee but
granted RUBY and BENHAR’s motion and allowed BENHAR to use RUBY’s assets as collateral for loans, subject to the approval of the majority of all the
members of the new management committee. Lim, ALFC and MANCOM appealed to the CA (CA-G.R. SP Nos. 32404, 32469 & 32483) which by
Decision5 dated March 31, 1995 set aside the SEC’s approval of the Revised BENHAR/RUBY Plan and remanded the case to the SEC for further
proceedings. The CA ruled that the revised plan circumvented its earlier decision (CA-G.R. SP No. 18310) nullifying the deeds of assignment executed by
RUBY’s creditors in favor of BENHAR. Since under the revised plan, BENHAR was to receive ₱34.068 Million of the ₱60.437 Million credit facility to be
extended to RUBY, as settlement for its advance payment to RUBY’s seven (7) secured creditors, such payments made by BENHAR under the void
Deeds of Assignment, in effect were recognized as payable to BENHAR under the revised plan. The motion for reconsideration filed by BENHAR and
RUBY was likewise denied by the CA.6

Undaunted, RUBY and BENHAR filed a petition for review in this Court (G.R. Nos. 124185-87 entitled Ruby Industrial Corporation v. Court of Appeals)
alleging that the CA gravely abused its discretion in substituting its judgment for that of the SEC, and in allowing Lim, ALFC and MANCOM to file
separate petitions prepared by lawyers representing themselves as belonging to different firms. By Decision7 dated January 20, 1998, we sustained the
CA’s ruling that the Revised BENHAR/RUBY Plan contained provisions which circumvented its final decision in CA-G.R. SP No. 18310, nullifying the deeds
of assignment of credits and mortgages executed by RUBY’s creditors in favor of BENHAR, as well as this Court’s Resolution in G.R. No. 96675, affirming
the said CA’s decision. We thus held:

…Specifically, the Revised BENHAR/RUBY Plan considered as valid the advance payments made by BENHAR in favor of some of RUBY’s creditors. The
nullity of BENHAR’s unauthorized dealings with RUBY’s creditors is settled. The deeds of assignment between BENHAR and RUBY’s creditors had been
categorically declared void by the SEC Hearing Panel in two (2) orders issued on January 12, 1989 and March 15, 1989. x x x

xxxx

These orders were upheld by the SEC en banc and the Court of Appeals. In CA-G.R. SP No. 18310, the Court of Appeals ruled as follows:

"x x x xxx xxx

"1) x x x when the Deed of Assignment was executed on May 30, 1988 by and between Ruby Industrial Corp., Benhar International, Inc., and
FEBTC, the Rehabilitation Plan proposed by petitioner Ruby Industrial Corp. for Benhar International, Inc. to assume all petitioner’s obligation
has not been approved by the SEC. The Rehabilitation Plan was not approved until October 28, 1988. There was a willful and blatant violation
of the SEC order dated December 20, 1983 on the part of petitioner Ruby Industrial Corp., represented by Yu Kim Giang, by Benhar
International, Inc., represented by Henry Yu and by FEBTC….

"2) The magnitude and coverage of the transactions involved were such that Yu Kim Giang and the other signatories cannot feign ignorance
or pretend lack of knowledge thereto in view of the fact that they were all signatories to the transaction and privy to all the negotiations
leading to the questioned transactions. In executing the Deeds of Assignment, the petitioners totally disregarded the mandate contained in
the SEC order not to dispose the properties of Ruby Industrial Corp. in any manner whatsoever pending the approval of the Rehabilitation
Plan and rendered illusory the SEC efforts to rehabilitate the petitioner corporation to the best interests of all the creditors.

"3) The assignments were made without prior approval of the Management Committee created by the SEC in an Order dated August 10,
1984. Under Sec. 6, par. d, sub. par. (2) of P.D. 902-A as amended by P.D. 1799, the Management Committee, rehabilitation receiver, board
or body shall have the power to take custody and control over all existing assets of such entities under management notwithstanding any
provision of law, articles of incorporation or by-law to the contrary. The SEC therefore has the power and authority, through a Management
Committee composed of petitioner’s creditors or through itself directly, to declare all assignment of assets of the petitioner Corporation
declared under suspension of payments, null and void, and to conserve the same in order to effect a fair, equitable and meaningful
rehabilitation of the insolvent corporation."

"4) x x x. The acts for which petitioners were held in indirect contempt by the SEC arose from the failure or willful refusal by petitioners to
obey the lawful order of the SEC not to dispose of any of its properties in any manner whatsoever without authority or approval of the SEC.
The execution of the Deeds of Assignment tend to defeat or obstruct the administration of justice. Such acts are offenses against the SEC
because they are calculated to embarrass, hinder and obstruct the tribunal in the administration of justice or lessen its authority.
 "x x x

Even the SEC en banc, in its July 30, 1993 Order affirming the approval of the Revised BENHAR/RUBY Plan, has acknowledged the invalidity of the
subject deeds of assignment. However, to justify it’s approval of the plan and the appointment of BENHAR to the new management committee, it gave
the lame excuse that BENHAR became RUBY’s creditor for having paid RUBY’s debts. x x x

xxxx

For its part, the Court of Appeals noted that the approved Revised BENHAR/RUBY Plan gave undue preference to BENHAR. The records, indeed, show
that BENHAR’s offer to lend its credit facility in favor of RUBY is conditioned upon the payment of the amount it advanced to RUBY’s creditors, x x x

xxxx

In fact, BENHAR shall receive P34.068 Million out of the P60.437 Million credit facility to be extended to RUBY for the latter’s 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. When a distressed company is placed under rehabilitation, the appointment of a management committee follows to
avoid collusion between the previous management and creditors it might favor, to the prejudice of the other creditors. All assets of a corporation under
rehabilitation receivership 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 attachment, execution or otherwise. As between the creditors, the key phrase is equality in equity. Once the corporation
threatened by bankruptcy is taken over by a receiver, all the creditors ought to stand on equal footing. Not any one of them should be paid ahead of the
others. This is precisely the reason for suspending all pending claims against the corporation under receivership.8(Additional emphasis supplied.)

Aside from the undue preference that would have been given to BENHAR under the Revised BENHAR/RUBY Plan, we also found RUBY’s dealing with
BENHAR highly irregular and its proposed financing scheme more costly and ultimately prejudicial to RUBY. Thus:

Parenthetically, BENHAR is a domestic corporation engaged in importing and selling vehicle spare parts with an authorized capital stock of thirty million
pesos. Yet, it offered to lend its credit facility in the amount of sixty to eighty million pesos to RUBY. It is to be noted that BENHAR is not a lending or
financing corporation and lending its credit facilities, worth more than double its authorized capitalization, is not one of the powers granted to it under
its Articles of Incorporation. Significantly, Henry Yu, a director and a majority stockholder of RUBY is, at the same time, a stockholder of BENHAR, a
corporation owned and controlled by his family. These circumstances render the deals between BENHAR and RUBY highly irregular.

xxxx

Moreover, when RUBY initiated its petition for suspension of payments with the SEC, BENHAR was not listed as one of RUBY’s creditors. BENHAR is a
total stranger to RUBY. If at all, BENHAR only served as a conduit of RUBY. As aptly stated in the challenged Court of Appeals decision:

"Benhar’s role in the Revised Benhar/Ruby Plan, as envisioned by the majority stockholders, is to contract the loan for Ruby and, serving the role of a
financier, relend the same to Ruby. Benhar is merely extending its credit line facility with China Bank, under which the bank agrees to advance funds to
the company should the need arise. This is unlikely a loan in which the entire amount is made available to the borrower so that it can be used and
programmed for the benefit of the company’s financial and operational needs. Thus, it is actually China Bank which will be the source of the funds to be
relent to Ruby. Benhar will not shell out a single centavo of its own funds. It is the assets of Ruby which will be mortgaged in favor of Benhar. Benhar’s
participation will only make the rehabilitation plan more costly and, because of the mortgage of its (Ruby’s) assets to a new creditor, will create a
situation which is worse than the present. x x x"

We need not say more.9 (Additional emphasis supplied.)

After the finality of the above decision, the SEC set the case for further proceedings.10 On March 14, 2000, Bank of the Philippine Islands (BPI), one of
RUBY’s secured creditors, filed a Motion to Vacate Suspension Order11 on grounds that there is no existing management committee and that no decision
has been rendered in the case for more than 16 years already, which is beyond the period mandated by Sec. 3-8 of the Rules of Procedure on Corporate
Recovery. RUBY filed its opposition,12 asserting that the MANCOM never relinquished its status as the duly appointed management committee as it
resisted the orders of the second and third management committees subsequently created, which have been nullified by the CA and later this Court. As
to the applicability of the cited rule under the Rules on Corporate Recovery, RUBY pointed out that this case was filed long before the effectivity of said
rules. It also pointed out that the undue delay in the approval of the rehabilitation plan being due to the numerous appeals taken by the minority
stockholders and MANCOM to the CA and this Court, from the SEC approval of the BENHAR/RUBY Plan. Since there have already been steps taken to
finally settle RUBY’s obligations with its creditors, it was contended that the application of the mandatory period under the cited provision would cause
prejudice and injustice to RUBY.

It appears that even earlier during the pendency of the appeals in the CA, BENHAR and RUBY have performed other acts in pursuance of the
BENHAR/RUBY Plan approved by the SEC.

On September 1, 1996, Lim received a Notice of Stockholders’ Meeting scheduled on September 3, 1996 signed by a certain Mr. Edgardo M. Magtalas,
the "Designated Secretary" of RUBY and stating the matters to be taken up in said meeting, which include the extension of RUBY’s corporate term for
another twenty-five (25) years and election of Directors.13 At the scheduled stockholders’ meeting of September 3, 1996, Lim together with other
minority stockholders, appeared in order to put on record their objections on the validity of holding thereof and the matters to be taken therein.
Specifically, they questioned the percentage of stockholders present in the meeting which the majority claimed stood at 74.75% of the outstanding
capital stock of RUBY.
The aforesaid stockholders meeting was the subject of the Motion to Cite For Contempt14 and Supplement to Motion to Cite For Contempt15 filed by Lim
before the CA where their petitions for review (CA-G.R. Nos. 32404, 32469 and 32483) were then pending. Lim argued that the majority stockholders
claimed to have increased their shares to 74.75% by subscribing to the unissued shares of the authorized capital stock (ACS). Lim pointed out that such
move of the majority was in implementation of the BENHAR/RUBY Plan which calls for capital infusion of ₱11.814 Million representing the unissued and
unsubscribed portion of the present ACS of ₱23.7 Million, and the Revised BENHAR/RUBY Plan which proposed an additional subscription of ₱30 Million.
Since the implementation of both majority plans have been enjoined by the SEC and CA, the calling of the special stockholders meeting by the majority
stockholders clearly violated the said injunction orders. This circumstance certainly affects the determination of quorum, the voting requirements for
corporate term extension, as well as the election of Directors pursuant to the July 30, 1993 Order and October 15, 1993 Resolution of the SEC enjoining
not only the implementation of the revised plan but also the doing of any act that may render the appeal from the approval of the said plan moot and
academic.

The aforementioned capital infusion was taken up by RUBY’s board of directors in a special meeting16 held on October 2, 1991 following the issuance by
the SEC of its Order dated September 18, 199117 approving the Revised BENHAR/RUBY Plan and creating a new management committee to oversee its
implementation. During the said meeting, the board asserted its authority and resolved to take over the management of RUBY’s funds, properties and
records and to demand an accounting from the MANCOM which was ordered dissolved by the SEC. The board thus resolved that:

The corporation be authorized to issue out of the unissued portion of the authorized capital stocks of the corporation in the form of common stocks
11.8134.00 [Million] after comparing this with the audited financial statement prepared by SGV as of December 31, 1982, to be subscribed and paid in
full by the present stockholders in proportion to their present stockholding in the corporation on staggered basis starting October 28, December 27 then
February 28 and April 28 as the last installment date at 25% for each period. It was also moved and seconded that should any of the stockholders fail to
exercise their rights to buy the number of shares they are qualified to buy by making the first installment payment of 25% on or before October 13,
1991, then the other stockholders may buy the same and that only when none of the present stockholders are interested in the shares may there be a
resort to selling them by public auction.18

As reflected in the Minutes of the special board meeting, a representative of the absent directors (Tan Chai, Tomas Lim, Miguel Lim and Yok Lim) came
to submit their letter addressed to the Chairman suggesting that said meeting be deferred until the September 18, 1991 SEC Order becomes final and
executory. The directors present nevertheless proceeded with the meeting upon their belief that neither appeal nor motion for reconsideration can stay
the SEC order.19

The resolution to extend RUBY’s corporate term, which was to expire on January 2, 1997, was approved during the September 3, 1996 stockholders
meeting, as recommended by the board of directors composed of Henry Yu (Chairman), James Yu, David Yukimteng, Harry L. Yu, Yu Kim Giang, Mary
L. Yu and Vivian L. Yu. The board certified that said resolution was approved by stockholders representing two-thirds (2/3) of RUBY’s outstanding capital
stock.20 Per Certification21 dated August 31, 1995 issued by Yu Kim Giang as Executive Vice-President of RUBY, the majority stockholders own 74.75% of
RUBY’s outstanding capital stock as of October 27, 1991. The Amended Articles of Incorporation was filed with the SEC on September 24, 1996.22

On March 17, 2000, Lim filed a Motion23 informing the SEC of acts being performed by BENHAR and RUBY through directors who were illegally elected,
despite the pendency of the appeal before this Court questioning the SEC approval of the BENHAR/RUBY Plan and creation of a new management
committee, and after this Court had denied their motion for reconsideration of the January 20, 1998 decision in G.R. Nos. 124185-87. Lim reiterated
that before the matter of extension of corporate life can be passed upon by the stockholders, it is necessary to determine the percentage ownership of
the outstanding shares of the corporation. The majority stockholders claimed that they have increased their shareholdings from 59.828% to 74.75% as
a result of the illegal and invalid stockholders’ meeting on September 3, 1996. The additional subscription of shares cannot be done as it implements the
BENHAR/RUBY Plan against which an existing injunction is still effective based on the SEC Order dated January 6, 1989, and which was struck down
under the final decision of this Court in G.R. Nos. 124185-87. Hence, the implementation of the new percentage stockholdings of the majority
stockholders and the calling of stockholders’ meeting and the subsequent resolution approving the extension of corporate life of RUBY for another
twenty-five (25) years, were all done in violation of the decisions of the CA and this Court, and without compliance with the legal requirements under
the Corporation Code. There being no valid extension of corporate term, RUBY’s corporate life had legally ceased. Consequently, Lim moved that the
SEC: (1) declare as null and void the infusion of additional capital made by the majority stockholders and restore the capital structure of RUBY to its
original structure prior to the time injunction was issued; and (2) declare as null and void the resolution of the majority stockholders extending the
corporate life of RUBY for another twenty-five (25) years.

The MANCOM concurred with Lim and made a similar manifestation/comment24 regarding the irregular and invalid capital infusion and extension of
RUBY’s corporate term approved by stockholders representing only 60% of RUBY’s outstanding capital stock. It further stated that the foregoing acts
were perpetrated by the majority stockholders without even consulting the MANCOM, which technically stepped into the shoes of RUBY’s board of
directors. Since RUBY was still under a state of suspension of payment at the time the special stockholders’ meeting was called, all corporate acts should
have been made in consultation and close coordination with the MANCOM.

Lim likewise filed an Opposition25 to BPI’s Motion to Vacate Suspension Order, asserting that the management committee originally created by the SEC
continues to control the corporate affairs and properties of RUBY. He also contended that the SEC Rules of Procedure on Corporate Recovery cannot
apply in this case which was filed long before the effectivity of said rules.

On the other hand, RUBY filed its Opposition26 to the Motion filed by Lim denying the allegation of Lim that RUBY’s corporate existence had ceased.
RUBY claimed that due notice were given to all stockholders of the October 2, 1991 special meeting in which the infusion of additional capital was
discussed. It further contended that the CA decision setting aside the SEC orders approving the Revised BENHAR/RUBY Plan, which was subsequently
affirmed by this Court on January 20, 1998, did not nullify the resolution of RUBY’s board of directors to issue the previously unissued shares. The
amendment of its articles of incorporation on the extension of RUBY’s corporate term was duly submitted with and approved by the SEC as per the
Certification dated September 24, 1996.

The MANCOM also filed its Opposition27 to BPI’s Motion to Vacate Suspension Order, stating that it has continuously performed its primary function of
preserving the assets of RUBY and undertaken the management of RUBY’s day-to-day affairs. It expressed belief that between chaotic foreclosure
proceedings and collection suits that would be triggered by the vacation of the suspension order and an orderly settlement of creditors’ claims before
the SEC, the latter path is the more prudent and logical course of action. On April 28, 2000, it submitted to the court copies of the minutes of meetings
held from January 18, 1999 to December 1, 1999 in pursuance of its mandate to preserve the assets and administer the business affairs of RUBY.28

On August 23, 2000, China Bank filed a Manifestation29 echoing the contentions of BPI that as there is no existing management committee and no
rehabilitation plan approved even after the 240-day period, warrants the application of Sec. 4-9 of the SEC Rules of Procedure on Corporate
Recovery such that the petition is "deemed ipso facto denied and dismissed." China Bank lamented that the length of time that has lapsed, as well as
the parties’ actuations, completely betrays a genuine attempt to rehabilitate RUBY’s moribund operations – all to the dismay, damage and prejudice of
RUBY’s creditors. It stressed that the proceedings cannot be prolonged nor used as a ploy to defer indefinitely the payment of long overdue obligations
of RUBY to its creditors. With the case having been ipso facto dismissed, there is no need of further action from the parties or an order from the SEC.
Consequently, RUBY’s creditors may now take whatever legal action they may deem appropriate to protect their rights including, but not limited to
extrajudicial foreclosure.

On September 11, 2000, the SEC granted Lim’s request for the issuance of subpoena duces tecum/ad testificandum to Ms. Jocelyn Sta. Ana of BPI for
the latter to testify and bring all documents and records pertaining to RUBY.30Earlier, Lim moved for a hearing to verify the information that China Bank
and BPI had separately executed deeds of assignment in favor of Greener Investment Corporation, a company owned by Yu Kim Giang, one of RUBY’s
majority stockholders.31 Said hearing, however, did not push through in view of RUBY’s proposal for a compromise agreement.32 Lim submitted his
comments on the Proposed Compromise Agreement, but there was no response from RUBY and the majority stockholders.33 The minority stockholders
likewise served a copy of the revised Compromise Agreement to the majority stockholders.34 Lim moved that the case be assigned to a new Panel of
Hearing Officers and the majority stockholders be made to declare in a hearing whether they accept the counterproposals of the minority in their draft
Amicable Settlement in order that the case can proceed immediately to liquidation.35

On January 25, 2001, the MANCOM filed with the SEC its Resolution unanimously adopted on January 19, 2001 affirming that: (1) MANCOM was never
informed nor advised of the supposed capital infusion by the majority stockholders in October 1991 and it never actually received any such additional
subscription nor signed any document attesting to or authorizing the said increase of RUBY’s capital stock or the extension of its corporate life; (2)
MANCOM continuously recognizes the 60%-40% ratio of shareholding profile between the majority and minority stockholders, with the majority having
59.828% while the minority holds 40.172% shareholding; (3) as there was no valid increase in the shareholding of the majority and consequently no
valid extension of corporate term, the liquidation of RUBY is thus in order; (4) to date, the majority stockholders or Yu Kim Giang have not complied
with the December 22, 1989 SEC order for them to turn over the cash including bank deposits, all other financial records and documents of RUBY
including transfer certificates of title over its real properties, and render an accounting of all the money received by RUBY; and (5) pursuant to this
Court’s ruling in G.R. No. 96675 dated August 26, 1991, the previous deeds of assignment made in favor of BENHAR by Florence Damon, Philippine
Bank of Communications, Philippine Commercial International Bank, Philippine Trust Company, PCI Leasing and Finance, Inc. and FEBTC, having been
earlier declared void by the SEC Hearing Panel, and the CA decision in CA-G.R. SP No. 18310 affirmed by this Court – have no legal effect and are
deemed void.36

On the other hand, Lim filed a Supplement (to Manifestation and Motion dated January 18, 2001)37 reiterating his pending motion filed on March 15,
2000 for the SEC to implement this Court’s January 20, 1998 Decision in G.R. Nos. 124185-87 which states in part that "[t]he SEC therefore has the
power and authority, directly to declare all assignment of assets of the petitioner Corporation declared under suspension of payments, null and void, and
to conserve the same in order to effect a fair, equitable and meaningful rehabilitation of the insolvent corporation." Lim contended that the SEC retains
jurisdiction over pending suspension of payment/rehabilitation cases filed as of June 30, 2000 until these are finally disposed, pursuant to Sec. 5.2 of
the Securities Regulation Code (Republic Act [R.A.] No. 8799). Considering that the Management Committee is intact, the majority stockholders cannot
act in an illegal manner with regard to RUBY’s assets. He thus concluded that the continued disobedience of the majority stockholders to the orders and
decisions of the SEC and CA, as affirmed by this Court, have certainly rendered any additional assignments, such as the Deeds of Assignment executed
by BPI and China Bank with BENHAR, Henry Yu or conduits of the majority stockholders, null and void.

The MANCOM manifested that it is adopting in toto the Manifestation and Motion dated January 18, 2001 filed by Lim. It also moved for the SEC to
conduct further proceedings as directed by this Court. Considering that there is no chance at all for the proposed rehabilitation of RUBY in light of strict
implementation by government authorities of environmental laws particularly on pollution control, and MANCOM’s assent to effect a liquidation, the
MANCOM asserted that a hearing should focus on the eventual liquidation of RUBY. It added that a dismissal under the circumstances would be
tantamount to a perceived shirking by the SEC of its mandate to afford all creditors ample opportunity to recover on their respective financial exposure
with RUBY.38

On May 15, 2001, the MANCOM submitted copies of minutes of meetings held from April 13, 2000 to December 29, 2000.39

On September 20, 2001, the SEC issued an Order directing the Management Committee to submit a detailed report – not mere minutes of meetings --
on the status of the rehabilitation process and financial condition of RUBY, which should contain a statement on the feasibility of the rehabilitation
plan.40 The MANCOM complied with the said order on February 15, 2002.41 The majority stockholders and RUBY moved to dismiss the petition and strike
from the records the Compliance/Report. MANCOM filed its omnibus opposition to the said motions. There was further exchange of pleadings by the
parties on the matter of whether the SEC should already dismiss the petition of RUBY as prayed for by the majority stockholders and RUBY, or proceed
with supervised liquidation of RUBY as proposed by the MANCOM and minority stockholders.

The SEC’s Ruling

On September 18, 2002, the SEC issued its Order42 denying the petition for suspension of payments, as follows:

WHEREFORE, in view of the foregoing, the Commission hereby resolves to terminate the proceedings and DENY the instant petition.

Accordingly, pursuant to Sec. 5-5 of the SEC’s Rules of Procedure on Corporate Recovery, which provides:

"Discharge of the Management Committee -- The Management Committee shall be discharged and dissolved under the following circumstances:
 a. Whenever the Commission, on motion or motu prop[r]io, has determined that the necessity for the Management Committee no longer
exists;

b. Upon the appointment of a liquidator under these Rules;

c. By agreement of the parties;

d. Upon termination of the proceedings.

Upon its discharge and dissolution, the Management Committee shall submit its final report and render an accounting of its management within such
reasonable time as the Commission may allow."

the Management Committee is hereby DISSOLVED. It is likewise ordered to:

(1) Make an inventory of the assets, funds and properties of the petitioner;

(2) Turn-over the aforementioned assets, funds and properties to the proper party(ies);

(3) Render an accounting of its management; and

(4) Submit its Final Report to the Commission.

The MANCOM is ordered to comply with the foregoing within a non-extendible period of thirty (30) days from receipt of this Order. Relative to any
compensation owing to the MANCOM, it is left to the determination of the parties concerned.

No pronouncement as to costs.

SO ORDERED.43

The SEC declared that since its order declaring RUBY under a state of suspension of payments was issued on December 20, 1983, the 180-day period
provided in Sec. 4-9 of the Rules of Procedure on Corporate Recovery had long lapsed. Being a remedial rule, said provision can be applied retroactively
in this case. The SEC also overruled the objections raised by the minority stockholders regarding the questionable issuance of shares of stock by the
majority stockholders and extension of RUBY’s corporate term, citing the presumption of regularity in the act of a government entity which obtains upon
the SEC’s approval of RUBY’s amendment of articles of incorporation. It pointed out that Lim raised the issue only in the year 2000. Moreover, the SEC
found that notwithstanding his allegations of fraud, Lim never proved the illegality of the additional infusion of the capitalization by RUBY so as to
warrant a finding that there was indeed an unlawful act.44

Lim, in his personal capacity and in representation of the minority stockholders of RUBY, filed a petition for review with prayer for a temporary
restraining order and/or writ of preliminary injunction before the CA (CA-G.R. SP No. 73195) assailing the SEC order dismissing the petition and
dissolving the MANCOM.

Ruling of the CA

On May 26, 2004, the CA rendered its Decision,45 the dispositive portion of which states:

WHEREFORE, the Questioned Order dated 18 September 2002 issued by the Securities and Exchange Commission in SEC Case No. 2556 entitled "In the
Matter of the Petition for Suspension of Payments, Ruby Industrial Corporation, Petitioner," is hereby SET ASIDE, and consequently:

(1) the infusion of additional capital made by the majority stockholders be declared null and void and restoring the capital structure of Ruby to
its original structure prior to the time the injunction was issued, that is, majority stockholders – 59.828% and the minority stockholders –
40.172% of the authorized capital stock of Ruby Industrial Corporation.

(2) the resolution of the majority stockholders, who represents only 59.828% of the outstanding capital stock of Ruby, extending the
corporate life of Ruby for another twenty-five (25) years which was made during the supposed stockholders’ meeting held on 03 September
1996 be declared null and void;

(3) implementing the invalidation of any and all illegal assignments of credit/purchase of credits and the cancellation of mortgages connected
therewith made by the creditors of Ruby Industrial Corporation during the effectivity of the suspension of payments order including that of
China Bank and BPI and to deliver to MANCOM or the Liquidator all the original of the Deeds of Assignments and the registered titles thereto
and any other documents related thereto; and order their unwinding and requiring the majority stockholders to account for all illegal
assignments (amounts, dates, interests, etc. and present the original documents supporting the same); and

(4) ordering the Securities and Exchange Commission to supervise the liquidation of Ruby Industrial Corporation after the foregoing steps
shall have been undertaken.
SO ORDERED.46

According to the CA, the SEC erred in not finding that the October 2, 1991 meeting held by RUBY’s board of directors was illegal because the MANCOM
was neither involved nor consulted in the resolution approving the issuance of additional shares of RUBY.

The CA further noted that the October 2, 1991 board meeting was conducted on the basis of the September 18, 1991 order of the SEC Hearing Panel
approving the Revised BENHAR/RUBY Plan, which plan was set aside under this Court’s January 20, 1998 Decision in G.R. Nos. 124185-87. The CA
pointed out that records confirmed the proposed infusion of additional capital for RUBY’s rehabilitation, approved during said meeting, as implementing
the Revised BENHAR/RUBY Plan. Necessarily then, such capital infusion is covered by the final injunction against the implementation of the revised plan.
It must be recalled that this Court affirmed the CA’s ruling that the revised plan not only recognized the void deeds of assignments entered into with
some of RUBY’s creditors in violation of the CA’s decision in CA-G.R. SP No. 18310, but also maintained a financing scheme which will just make the
rehabilitation plan more costly and create a worse situation for RUBY.

On the supposed delay of the minority stockholders in raising the issue of the validity of the infusion of additional capital effected by the board of
directors, the CA held that laches is inapplicable in this case. It noted that Lim sought relief while the case is still pending before the SEC. If ever there
was delay, the same is not fatal to the cause of the minority stockholders.

The CA likewise faulted the SEC in relying on the presumption of regularity on the matter of the extension of RUBY’s corporate term through the filing of
amended articles of incorporation. In doing so, the CA totally disregarded the evidence which rebutted said presumption, as demonstrated by Lim: (1) it
was the board of directors and not the stockholders which conducted the meeting without the approval of the MANCOM; (2) there was no written
waivers of the minority stockholders’ pre-emptive rights and thus it was irregular to merely notify them of the board of directors’ meeting and ask them
to exercise their option; (3) there was an existing permanent injunction against any additional capital infusion on the BENHAR/RUBY Plan, while the CA
and this Court both rejected the Revised BENHAR/RUBY Plan; (4) there was no General Information Sheet reports made to the SEC on the alleged
capital infusion, as per certification by the SEC; (5) the Certification stating the present percentage of majority shareholding, dated December 21, 1993
and signed by Yu Kim Giang -- which was not sworn to before a Notary Public -- was supposedly filed in 1996 with the SEC but it does not bear a
stamped date of receipt, and was only attached in a 2000 motion long after the October 1991 board meeting; (6) said Certification was contradicted by
the SEC list of all stockholders of RUBY, in which the majority remained at 59.828% and the minority shareholding at 40.172% as of October 27, 1991;
(7) certain receipts for the amount of ₱1.7 million was presented by the majority stockholders only in the year 2000, long after Lim questioned the
inclusion of extension of corporate term in the Notice of Meeting when Lim filed before the CA a motion to cite for contempt (CA-G.R. Nos. 32404,
32469 and 32483); and (8) this Court’s decisions in the cases elevated to it had recognized the 40% stockholding of the minority. Upon the foregoing
grounds, the CA said that the SEC should have invalidated the resolution extending the corporate term of RUBY for another twenty-five (25) years.

With the expiration of the RUBY’s corporate term, the CA ruled that it was error for the SEC in not commencing liquidation proceedings. As to the
dismissal of RUBY’s petition for suspension of payments, the CA held that the SEC erred when it retroactively applied Sec. 4-9 of the Rules of Procedure
on Corporate Recovery. Such retroactive application of procedural rules admits of exceptions, as when it would impair vested rights or cause injustice.
In this case, the CA emphasized that the two decisions of this Court still have to be implemented by the SEC, but to date the SEC has failed to unwound
the illegal assignments and order the assignees to surrender the Deeds of Assignment to the MANCOM.

On the issue of violation of the rule against forum shopping, the CA held that this is not applicable because the parties in CA-G.R. SP No. 73169 (filed by
MANCOM) and CA-G.R. SP No. 73195 (filed by Lim) are not the same and they do not have the same interest. This issue was in fact already resolved in
G.R. Nos. 124185-87 wherein this Court, citing Ramos, Sr. v. Court of Appeals47 declared that private respondents Lim, the unsecured creditors (ALFC)
and MANCOM cannot be considered to have engaged in forum shopping in filing separate petitions with the CA as each have distinct rights to protect.

The CA also found that the belated submission of the special power of attorney executed by the other minority stockholders representing 40.172% of
RUBY’s ownership has no bearing to the continuation of the petition filed with the appellate court. Moreover, since the petition is in the nature of a
derivative suit, Lim clearly can file the same not only in representation of the minority stockholders but also in behalf of the corporation itself which is
the real party in interest. Thus, notwithstanding that Lim’s ownership in RUBY comprises only 1.4% of the outstanding capital stock, as claimed by the
majority stockholders, his petition may not be dismissed on this ground.

The Consolidated Petitions

From the Decision of the CA, China Bank and the Majority Stockholder joined by RUBY, filed separate petitions before this Court.

In G.R. No. 165887, petitioners Majority Stockholders and RUBY raised the following grounds for the reversal of the assailed decision and the
reinstatement of the SEC’s September 18, 2002 Order:

First Reason

THE COURT OF APPEALS ERRED – AND WHEN IT DID, IT ACTED CONTRARY TO LAW AND PRECEDENTS – WHEN IT GAVE DUE COURSE TO,
AND, THEREAFTER, SUSTAINED, A FORMALLY AND SUBSTANTIALLY DEFECTIVE PETITION FOR REVIEW.

Second Reason

THE COURT OF APPEALS ERRED – AND WHEN IT DID, IT ACTED IN A MANNER AT WAR WITH ORDERLY PROCEDURE AND APPLICABLE
JURISPRUDENCE – WHEN IT REVERSED THE ORDER OF DISMISSAL OF THE SECURITIES AND EXCHANGE COMMISSION AND SUBSTITUTED
ITS JUDGMENT FOR THAT OF THE LATTER IN THE DETERMINATION OF ISSUES WELL WITHIN THE EXPERTISE OF THE COMMISSION.
 Third Reason

THE COURT OF APPEALS ERRED – AND WHEN IT DID, IT ACTED IN GRAVE ABUSE OF ITS DISCRETION AND, IN FACT, IN EXCESS OR LACK
OF JURISDICTION -- WHEN IT SUSTAINED COLLATERAL ATTACKS OF FINAL ADJUDICATIONS OF THE SECURITIES AND EXCHANGE
COMMISSION.48

On the other hand, petitioner China Bank in G.R. No. 165929 puts forth the argument that the principle of stare decisis cannot be given effect in this
case considering the prevailing factual circumstances, as to do so would result in manifest injustice. It contends that the reason for the declaration of
nullity of the Deed of Assignment pronounced more than a decade ago, has become legally inefficacious by its obsolescence. The creditors of RUBY
have the right to recover their credit. But when the CA ordered the nullification of China Bank’s Deed of Assignment in favor of Greener Investment
Corporation, it practically dashed its last hope for ever recovering its credit.

China Bank is of the view that the CA overstretched the import of this Court’s January 20, 1998 decision in G.R. Nos. 124185-87 when the SEC was
ordered to "conduct further proceedings," as to include the unwinding of the alleged illegal assignment of credits. The rehabilitation of RUBY, if it still
may be capable of, is not made dependent on the unwinding by the SEC of the illegal assignments, as the same concerns only the issue of who shall
now become the creditors of RUBY, and does not alter the fact that RUBY has hefty loan obligations and it has not enough cash flow to pay for the
same.

Deploring the principal parties’ penchant for prolonged litigation resulting considerably in irreversible losses to RUBY, China Bank maintains that from
the report submitted by the MANCOM to the SEC, it can be clearly seen that no attempt at rehabilitation whatsoever had been pursued. Given the
current situation, China Bank prays that the CA Decision be reversed and its Deed of Assignment in favor of Greener Investment Corporation be
recognized and given full legal effect.

In fine, main issues to be resolved are: (1) whether private respondents MANCOM and Lim engaged in forum shopping when they filed separate
petitions before the CA assailing the September 18, 2002 SEC Order; (2) whether the defects in the certification of non-forum shopping submitted by
Lim warrant the dismissal of his petition before the CA; (3) whether the CA was correct in reversing the SEC’s order dismissing the petition for
suspension of payment.

Our Ruling

The petitions have no merit.

On the charge of forum shopping, we have already ruled on the matter in G.R. Nos. 124185-87. Thus:

We hold that private respondents are not guilty of forum-shopping. In Ramos, Sr. v. Court of Appeals, we ruled:

"The private respondents can be considered to have engaged in forum shopping if all of them, acting as one group, filed identical special civil actions in
the Court of Appeals and in this Court. There must be identity of parties or interests represented, rights asserted and relief sought in different tribunals.
In the case at bar, two groups of private respondents appear to have acted independently of each other when they sought relief from the appellate
court. Both groups sought relief from the same tribunal.

"It would not matter even if there are several divisions in the Court of Appeals. The adverse party can always ask for the consolidation of the two cases.
x x x"

In the case at bar, private respondents represent different groups with different interests – the minority stockholders’ group, represented by private
respondent Lim; the unsecured creditors group, Allied Leasing & Finance Corporation; and the old management group. Each group has distinct rights to
protect. In line with our ruling in Ramos, the cases filed by private respondents should be consolidated. In fact, BENHAR and RUBY did just that – in
their urgent motions filed on December 1, 1993 and December 6, 1993, respectively, they prayed for the consolidation of the cases before the Court of
Appeals.49

In the present case, no consolidation of CA-G.R. SP Nos. 73169 (filed by MANCOM) which was earlier assigned to the Thirteenth Division and CA-G.R. SP
No. 73195 (filed by Lim) decided by the Second Division, took place. In their Comment filed before CA-G.R. SP No. 73169, the Majority Stockholders and
RUBY (private respondents therein) prayed for the dismissal of said case arguing that MANCOM, of which Lim is a member, circumvented the
proscription against forum shopping. The CA’s Thirteenth Division, however, disagreed with private respondents and granted the motion to withdraw
petition filed by MANCOM which manifested that the Second Division in CA-G.R. SP No. 73195 by Decision dated May 26, 2004 had granted the reliefs
similar to those prayed for in their petition, said decision being binding on MANCOM which was also impleaded in said case (CA-G.R. SP No. 73195). The
Thirteenth Division also cited our pronouncement in G.R. Nos. 124185-87 to the effect that there was no violation on the rule on forum shopping
because MANCOM and Lim or the minority shareholders of RUBY represent different interests.50

As to the alleged defects in the certificate of non-forum shopping submitted by Lim, we find no error committed by the CA in holding that the belated
submission of a special power of attorney executed in Lim’s favor by the minority stockholders has no bearing to the continuation of the case as
supported by ample jurisprudence. To appreciate the liberal stance adopted by the CA, one must take into account the previous history of the petitions
for review before the CA involving the SEC September 18, 2002 Order. It was actually the third time that Lim and/or MANCOM have challenged certain
acts perpetrated by the majority stockholders which are prejudicial to RUBY, such as the execution of deeds of assignment during the effectivity of the
suspension order in pursuit of two rehabilitation plans submitted by them together with BENHAR. The assignment of RUBY’s credits to BENHAR gave the
secured creditors undue advantage over RUBY’s prime properties and put these assets beyond the reach of the unsecured creditors. Each time they go
to court, Lim and MANCOM essentially advance the interest of the corporation itself. They have consistently taken the position that RUBY’s assets should
be preserved for the equal benefit of all its creditors, and vigorously resisted any attempt of the controlling stockholders to favor any or some of its
creditors by entering into questionable deals or financing schemes under two BENHAR/RUBY Plans. Viewed in this light, the CA was therefore correct in
recognizing Lim’s right to institute a stockholder’s action in which the real party in interest is the corporation itself.

A derivative action is a suit by a shareholder to enforce a corporate cause of action.51 It is a remedy designed by equity and has been the principal
defense of the minority shareholders against abuses by the majority.52 For this purpose, it is enough that a member or a minority of stockholders file a
derivative suit for and in behalf of a corporation.53 An individual stockholder is permitted to institute a derivative suit on behalf of the corporation
wherein he holds stock in order to protect or vindicate corporate rights, whenever officials of the corporation refuse to sue or are the ones to be sued or
hold the control of the corporation. In such actions, the suing stockholder is regarded as the nominal party, with the corporation as the party in
interest.54

Now, on the third and substantive issue concerning the SEC’s dismissal of RUBY’s petition for suspension of payment.

The SEC based its action on Sec. 4-9 of the Rules of Procedure on Corporate Recovery,55 which provides:

SEC. 4-9. Period of Suspension Order. – The suspension order shall be effective for a period of sixty (60) days from the date of its issuance. The order
shall be automatically vacated upon the lapse of the sixty-day period unless extended by the Commission. Upon motion, the Commission may grant an
extension thereof for a period of not more than sixty (60) days in each application if the Commission is satisfied that the debtor and its officers have
been acting in good faith and with due diligence, and that the debtor would likely be able to make a viable rehabilitation plan. After the lapse of one
hundred and eighty (180) days from the issuance of the suspension order, no extension of the said order shall be granted by the Commission if opposed
in writing by a majority of any class of creditors. The Commission may grant an extension beyond one hundred eighty (180) days only if it appears by
convincing evidence that there is a good chance for the successful rehabilitation of the debtor and the opposition thereto by the creditor appears
manifestly unreasonable.

In any event, the petition is deemed ipso facto denied and dismissed if no Rehabilitation Plan was approved by the Commission upon the lapse of the
order or the last extension thereof. In such case, the debtor shall come under the dissolution and liquidation proceedings of Rule V of these Rules.
(Emphasis supplied.)

According to the SEC, even if the 180 days maximum period of suspension order is counted from the finality of this Court’s decision in G.R. Nos.
124185-87 in December 1998, still this case had gone beyond the period mandated in the Rules for a corporation under suspension of payment to have
a rehabilitation plan approved by the Commission.

While it is true that the Rules of Procedure on Corporate Recovery authorizes the dismissal of a petition for suspension of payment where there is no
rehabilitation plan approved within the maximum period of the suspension order, it must be recalled that there was in fact not one, but two
rehabilitation plans (BENHAR/RUBY Plan and Revised BENHAR/RUBY Plan) submitted by the majority stockholders which were approved by the SEC.
The implementation of the first plan was enjoined when it was seriously challenged in the courts by the minority stockholders through Lim. The second
revised plan superseded the first plan, but eventually nullified by the CA and the CA decision declaring it void was affirmed by this Court in G.R. Nos.
124185-87. Given this factual milieu, the automatic application of the lifting of the suspension order as interpreted by the SEC in its September 18, 2002
Order would be unfair and highly prejudicial to the financially distressed corporation.

Moreover, records reveal that the delay in the proceedings after the case was set for hearing following this Court’s final judgment in G.R. Nos. 124185-
87, was not due to any fault or neglect on the part of MANCOM or the minority stockholders. The idea propounded by the petitioners majority
stockholders that this case is about a minority in a corporation holding hostage the majority indefinitely by simple assertion that the former’s rights have
been transgressed by the latter is, downright misleading.

First, the SEC did not even mention in its September 18, 2002 Order that when this Court remanded to it the case for further proceedings, there
remained only the Alternative Plan of RUBY’s minority stockholders which had earlier been forwarded to the SEC Hearing Panel. With the CA Decision
setting aside the SEC approval of the Revised BENHAR/RUBY Plan, as affirmed by this Court, it behooves on the SEC to recognize the fact that the
Alternative Plan was endorsed by 90% of the RUBY’s creditors who had objected to the Revised BENHAR/RUBY Plan. Yet, not a single step was taken by
the SEC to address those findings and conclusions made by the CA and this Court on the highly disadvantageous and onerous provisions of the Revised
BENHAR/RUBY Plan.

Moreover, the SEC failed to act on motions filed by Lim and MANCOM to implement this Court’s January 20, 1998 Decision in G.R. Nos. 124185-87, by
declaring all deeds of assignment with BENHAR and/or the conduits of Henry Yu of no force and legal effect, which of course necessitates the surrender
by the concerned creditors of those void deeds of assignment. Petitioner China Bank dismisses it as unnecessary and immaterial to the continued
inability of RUBY to settle its long overdue debts. However, the CA said that the foregoing acts should have been done by the SEC for proper
documentation and orderly settlement after proper accounting of the assignment transactions. The appellate court then concluded that dismissal of the
petition under Sec. 4-9 of the Rules of Procedure on Corporate Recovery would impair the vested rights of the minority stockholders under this Court’s
decision invalidating the aforesaid deeds of assignment, thus:

We agree with the observations of the petition that if the illegal assignments not having been unwound and the mortgages not canceled, the majority,
their alter ego, and/or cohorts will claim to be secured creditors and freely collect extra-judicially the obligations covered by the illegal assignments.
Ruby has very little money compared to the P200 Million probable liability to the illegal assignees as unilaterally stated by Ruby without audit (previously
merely totaled to P34 Million in 1998 as stated in the revised rehabilitation plan). Foreclosure of the mortgages by the illegal assignees will follow; Ruby
will lose all its prime properties; there will be no assets left for unsecured creditors; and there will be no residual P600 Million assets to divide.56

Evidently, the minority stockholders and MANCOM had already foreseen the impossibility of implementing a viable rehabilitation plan if the illegal
assignments made by its creditors with BENHAR and the majority stockholders, and subsequently, with conduits of RUBY or Henry Yu, are not properly
unwound and those directors responsible for the void transactions not required to make a full accounting. Contrary to petitioner China Bank’s insinuation
that the minority stockholders merely want to prolong the litigation to the great prejudice and damage to RUBY’s creditors, MANCOM and Lim had
determined and moved for SEC-supervised liquidation proceedings as the more prudent course of action for an orderly and equitable settlement of
RUBY’s liabilities.

Records likewise revealed that the SEC chose to keep silent and failed to assist the MANCOM and minority stockholders in their efforts to demand
compliance from the majority stockholders or Yu Kim Giang (who headed the first MANCOM) with the December 22, 1989 Order directing them to turn
over the cash, financial records and documents of RUBY, including certificates of title over RUBY’s real properties, and render an accounting of all
moneys received and payments made by RUBY. On January 18, 2002, the MANCOM even filed a Motion57 to require Yu Kim Giang to render
report/accounting of RUBY from 1983 to the 1st quarter of 1990, stating that despite a commitment from Mr. Giang, he has seemingly delayed his
compliance, hence frustrating the desire of MANCOM to submit a comprehensive and complete report for the whole period of 1983 up to the present. To
underscore the importance of making the said records available for scrutiny of the SEC and MANCOM, Lim manifested before the SEC that--

Indeed, the majority is actually unwilling (and not merely unable) to submit such records because these will show, among others:

(1) The majority to minority ratio in the corporate ownership is 59.828% :40.172%;

(2) The actual amounts of the bank loans paid off by Benhar International[,] Inc. and/or Henry Yu would be very low;

(3) The illegal payment of the bank loans and illegal assignments of the mortgages to Benhar/Henry Yu are contrary to the Honorable
Commission’s Order of 20 December 1983 for suspension of payments;

(4) The earnings of the corporation from 1983 to 1989 amounted to millions and cannot be accounted for by the majority and the first
Mancom;

(5) The money may have been spent to pay off some of the loans to the bank but Benhar and Henry Yu fraudulently claim credit therefor.58

It must be noted that MANCOM had rejected the two rehabilitation plans proposed by BENHAR and the majority stockholders. In shifting the blame to
the MANCOM and minority stockholders for the delay in the approval of a viable rehabilitation plan, the SEC apparently overlooked that from the time
the SEC approved the Revised BENHAR/RUBY Plan and dissolved the MANCOM, the majority stockholders has denied MANCOM access to corporate
papers, documents evidencing the amounts actually paid to creditor banks/assignors, financial statements and titles over RUBY’s real properties.

Although the SEC granted MANCOM and Lim’s request for a hearing and direct a representative from BPI to bring all documents relative to the
assignment of RUBY’s credit, said hearing did not materialize after the majority stockholders proposed a compromise agreement with the minority
stockholders. But as it turned out, this development only caused further delay because the majority stockholders were unwilling to turn over documents,
funds and properties in their possession, and would neither make a full accounting or disclosure of RUBY’s transactions, especially the actual amounts
paid and rates of interest on the loan assignments. In this state of things, the MANCOM and minority stockholders resolved that the more reasonable
and practical option is to move for a SEC-supervised liquidation proceedings.

The other ground invoked by Lim and MANCOM for the propriety of liquidation is the expiration of RUBY’s corporate term. The SEC, however, held that
the filing of the amendment of articles of incorporation by RUBY in 1996 complied with all the legal requisites and hence the presumption of regularity
stands. Records show that the validity of the infusion of additional capital which resulted in the alleged increase in the shareholdings of petitioners
majority stockholders in October 1991 was questioned by MANCOM and Lim even before the majority stockholders filed their motion to dismiss in the
year 2000.

A stock corporation is expressly granted the power to issue or sell stocks.59 The power to issue shares of stock in a corporation is lodged in the board of
directors and no stockholders’ meeting is required to consider it because additional issuances of shares of stock does not need approval of the
stockholders.60 What is only required is the board resolution approving the additional issuance of shares. The corporation shall also file the necessary
application with the SEC to exempt these from the registration requirements under the Revised Securities Act (now the Securities Regulation Code).

The new management committee created pursuant to SEC Order dated September 18, 1991 apparently had no participation in the October 2, 1991
board resolution approving the issuance of additional shares. The move was part of the board’s assertion of control over the management in RUBY
following the approval of the Revised BENHAR/RUBY Plan. The minority stockholders registered their objection during the said meeting by asking the
board to defer action as the SEC September 18, 1991 Order was still on appeal with the SEC En Banc. When the SEC En Banc denied their appeal and
motion for reconsideration under its July 30, 1993 and October 15, 1993 orders, Lim, MANCOM and ALFC filed petitions for review with the CA which set
aside the said orders. As already mentioned, this Court affirmed the CA ruling in G.R. Nos. 124185-87.

Contrary to the assertion of petitioners majority stockholders, our decision in G.R. Nos. 124185-87 nullified the deeds of assignment not solely on the
ground of violation of the injunction orders issued by the SEC and CA. As earlier mentioned, we affirmed the CA’s finding that the re-lending scheme
under the Revised BENHAR/RUBY Plan will not only make rehabilitation more costly for RUBY, but also worsen its financial condition because of the
mortgage of its assets to a new creditor. To better illumine this point, we quote from the CA decision in CA-G.R. SP Nos. 32404, 32469 and 32483
comparing the provisions of the rehabilitation proposals submitted by the majority stockholders (Revised BENHAR/RUBY Plan) and the minority
stockholders (Alternative Plan):

…there is no need for Benhar to act as financier, as Ruby itself can very well secure such credit accommodation using its assets as collateral. Verily,
Benhar’s pretext at magnanimity is deception of the highest order considering that: (1) as embodied in the heading Sources and Uses of Funds in the
Revised Benhar/Ruby Plan, the ₱80-Million loan/credit facility to be extended by Benhar will be used to pay ₱60.437-Million loans of Ruby. Of the
₱60.437-Million, ₱34.068-Million will be paid to Benhar as payment for the amounts it paid in consideration of the nullified assignments; (2) The Deed of
Assignment of Credit Facility will be executed by Benhar in favor of Ruby only upon payment of Ruby of such amount already advanced by Benhar, i.e.
the ₱34.068-Million credit assigned to Benhar by the seven (7) secured creditors.
The Revised Benhar/Ruby Plan, in fact, gives Benhar undue preference on the matter of repayment. Under the said plan, the creditors of Ruby will be
paid in accordance with the following schedules:

"Secured ₱17.022M To be paid in cash

Creditors with 12% interest
China Banking p.a.
Corp.
BPI
Philippine
Orient
Unsecured ₱ 9.347M To be paid in cash
Creditors Allied interest-f[r]ee
Leasing
Filcor Finance
Benhar ₱34.068M To be paid in cash
For having paid with interest charge
Ruby
obligations
to 7 creditors
Trade/Other ₱2.871M Totalling ₱8.614M to
Creditors (p.a. for be paid in 3- year
3 years) installment, interest-
free"

(Rollo, CA-G.R. SP No. 32404, p. 727)

Needless to state, the foregoing payment schedules as embodied in the said plan which gives Benhar undue advantage over the other creditors goes
against the very essence of rehabilitation, which requires that no creditor should be preferred over the other. Indeed, a comparison of the salient
features of the Revised Benhar/Ruby Plan and the Alternative Plan will readily show just how stacked in favor of Benhar are the provisions of the former
plan:

1âwphi1

Benhar/Ruby Plan Alternative Plan

1. Benhar plays a major 1. The original creditors are

role. It will be paid
₱34.068M out of ₱60.437 M
total amount due to
creditors but not explained
as to how arrived at.
the ones recognized. The
amount payable is lower
because interests are not
capitalized.

2. Benhar will not assign the 2. Direct credit of P80M loan

credit facility of ₱80M unless
the ₱34.068M above stated
is paid.
and will be borrowed from
the bank(s) like Allied,
UCPB, Metrobank or
Equitable Bank or even
China Bank.

3. The main assets are to be 3. Mortgaged

mortgaged to the creditor- to bank(s) directly.
assignor of Benhar and if
the illegal assignments are
recognized, then Benhar
shall have to be recognized
as mortgagee even when it
is a disqualified creditor
and/or mortgagee.

4. Start up cost ₱16,880 and 4. Plant B = ₱25,640

based on 1988 figures and
projections.
Year IV estimated ₱40. M

Plant A = 22.40

Year V estimated ₱30. M

5. Rehabilitation only of 5. Rehabilitation of both

Plant B. plants.
6. Recognition of Benhar re- 6. None
lender/financier.

7. Because of the SEC Order 7. Pilipinas Shell

he got an MC seat and and representative be retained.
the Pilipinas Shell
representative of trade
creditors was retained.

8. Credit facility is being 8. Credit facility directly to

assigned or re-lent by Ruby.
Benhar.

9. Authorized Benhar to 9. None going to the

mortgage assets of Ruby minority but to actual
itself. Only remaining lenders.
unencumbered asset is one
(1) real property. Two (2)
prime properties already
encumbered to Assignor of
Benhar.

10. Capacity of only one (1) 10. Capacity of two (2)

plant stated at 72% plants progressive to 75%
(overrated) or 80% with purchase of
new machines.

11. Projection figures based 11. Minority RP can be

on May, 1990 forex updated at current foreign
exchange rate. Cost of exchange rate.
importation and other local
supplier currently cannot be
met.

12. Market and economic 12. Taken into consideration

slow down not taken into so will upgrade to meet
consideration. competition.

13. Discriminatory to 13. Not discriminatory.

creditors Benhar-capitalized
with undisclosed rates of
interest.

14. Original Figures of 14. Original figures will be

illegally assigned loans from used original figures plans
FEBTC, PCIB, PTC which 12% interest only.
totaled to ₱11,419,036.87
but now entered as
₱21,378,002.71. The
interest is undisclosed and
may have been capitalized.
Figures for the other four
(4) secured lenders not
available individually. Total
of seven (7) secured lenders
given as ₱34.068 M.

15. Interest is 28% with 15. Interest is 25% payable

Benhar as conduit. to the bank. This is still
subject to current market
rates to be negotiated by
the minority.

16. Call on unissued shares 15. Additional subscription

for ₱11.814 M and if of ₱16M within 6 months by
minority will take up their the minority stockholders.
pre-emptive rights and
dilute minority
shareholdings.

x x x x61
Prior to the September 18, 1991 Order approving the Revised BENHAR/RUBY Plan and dissolving the MANCOM, majority of RUBY’s creditors (90%) have
already withdrawn their support to the revised plan and manifested that they were only lately informed about another plan submitted by the minority
stockholders. Hence, these creditors wrote individual letters to the SEC Hearing Panel expressing their agreement with and endorsement of the
Alternative Plan of the minority stockholders.62

The Revised BENHAR/RUBY Plan had proposed the calling for subscription of unissued shares through a Board Resolution from the ₱11.814 million of
the ₱23.7 million ACS "in order to allow the long overdue program of the REHAB Program." RUBY will offer for subscription 118,140 shares of stocks at
par value of ₱100 each to all stockholders on record, payable within 15 days, or within a reasonable period from SEC approval of the revised plan.63 This
was implemented by the October 2, 1991 meeting of the Board of Directors led by Yu Kim Giang. The minority directors claimed they were not notified
of said board meeting. At any rate, the CA decision nullifying the Revised BENHAR/RUBY Plan was affirmed by this Court on January 20, 1998. Hence,
the legitimate concerns of the minority stockholders and MANCOM who objected to the capital infusion which resulted in the dilution of their
shareholdings, the expiration of RUBY’s corporate term and the pending incidents on the void deeds of assignment of credit – all these should have
been duly considered and acted upon by the SEC when the case was remanded to it for further proceedings. With the final rejection of the courts of the
Revised BENHAR/RUBY Plan, it was grave error for the SEC not to act decisively on the motions filed by the minority stockholders who have maintained
that the issuance of additional shares did not help improve the situation of RUBY except to stifle the opposition coming from the MANCOM and minority
stockholders by diluting the latter’s shareholdings. Worse, the SEC ignored the evidence adduced by the minority stockholders indicating that the correct
amount of subscription of additional shares was not paid by the majority stockholders and that SEC official records still reflect the 60%-40% percentage
of ownership of RUBY.

The SEC remained indifferent to the reliefs sought by the minority stockholders, saying that the issue of the validity of the additional capital infusion was
belatedly raised. Even assuming the October 2, 1991 board meeting indeed took place, the SEC did nothing to ascertain whether indeed, as the minority
claimed: (1) the minority stockholders were not given notice as required and reasonable time to exercise their pre-emptive rights; and (2) the capital
infusion was not for the purpose of rehabilitation but a mere ploy to divest the minority stockholders of their 40.172% shareholding and reduce it to a
mere 25.25%.

The foregoing matters, along with the persistent refusal of the majority stockholders, led by Yu Kim Giang, to give a full accounting of their transactions
involving RUBY’s credits and properties, were extensively argued by the minority stockholders in their opposition to the motions to dismiss/vacate
suspension order filed by the majority stockholders and BPI, as follows:

Their receipts only show supposed payment by the majority of a total of P1,759,150.00 out of the correct amount of P7,068,079.92.00 (sic) (59.828%
of P11.814 million required capital infusion under the MRP and RRP) which should have been the amount paid by them under the RRP which requires
full payment. Thus, they sought to attain a 74.75% equity from a 59.828% original equity by playing more tricks and stating that, under the general
rule, they are supposedly allowed to pay-up only 25% of their subscription. Unfortunately for them, in a rehabilitation supervised by the SEC and with
an existing Mancom, the general rule does not apply. What is stated in the rehabilitation plan must be strictly followed provided the rehabilitation plan
has been finally approved.

It must be remembered that in October 2 to 17, 1991, the amounts owed by Ruby to the banks who illegally assigned their loans/credit was stated at
P34 Million. Operations needed another P20 Million plus. A capital infusion of P1,759,150.00 was so miniscule and clearly not for rehabilitation but was
intended to deprive the minority of its blocking position and property rights since distribution after liquidation is based on the percentage of
stockholdings. It is not only unfair, inequitable and not meaningful – it is clearly dishonest.

xxxx

Assuming arguendo that the Board of Directors could act independently and this did not violate any injunction, if the capital infusion was actually made,
the Board of Directors had the duty to report this to the Mancom because they would then fall under "existing assets" and would be part of the
evaluation of the proposed RRP, necessary for management and in the overall plan of rehabilitation. Nothing of this kind happened and the belated
proof cannot correct this situation.

xxxx

It is not true that there is benevolence on the part of the majority when they maneuvered the illegal assignments and paid the banks. The loan
obligations remain as accounts payable of Ruby and have even been bloated to gigantic proportions and yet the SEC does not even ask them to account
how much these obligations are now and the majority should have reported these to the Mancom, but the majority has not. These anomalous situations
have been made to continue long enough and, we pray, should be addressed by the Honorable Commission.

xxxx

…The SEC must understand that, being head of the first Mancom, YU KIM GIANG had the same obligation to render a report to the SEC as the present
Mancom now. To single out the present Mancom to do this when a complete report cannot be made without these starting records is discriminatory,
unfair and violates the rules of accountancy. For example, where is the report on the illegal assignments and mortgages complete with details? Where
did the rentals for the period from 1983 to 1989 go? This amounted to millions. There are no reports on these. By not requiring the first Mancom to
Report, the SEC is preventing the complete picture on the liabilities and finances of Ruby from being seen and is sheltering Ruby and the
majority.64 (Additional emphasis supplied.)

Pre-emptive right under Sec. 39 of the Corporation Code refers to the right of a stockholder of a stock corporation to subscribe to all issues or
disposition of shares of any class, in proportion to their respective shareholdings. The right may be restricted or denied under the articles of
incorporation, and subject to certain exceptions and limitations. The stockholder must be given a reasonable time within which to exercise their
preemptive rights. Upon the expiration of said period, any stockholder who has not exercised such right will be deemed to have waived it.65
The validity of issuance of additional shares may be questioned if done in breach of trust by the controlling stockholders. Thus, even if the pre-emptive
right does not exist, either because the issue comes within the exceptions in Section 39 or because it is denied or limited in the articles of incorporation,
an issue of shares may still be objectionable if the directors acted in breach of trust and their primary purpose is to perpetuate or shift control of the
corporation, or to "freeze out" the minority interest.66 In this case, the following relevant observations should have signaled greater circumspection on
the part of the SEC -- upon the third and last remand to it pursuant to our January 20, 1998 decision -- to demand transparency and accountability from
the majority stockholders, in view of the illegal assignments and objectionable features of the Revised BENHAR/RUBY Plan, as found by the CA and as
affirmed by this Court:

There can be no gainsaying the well-established rule in corporate practice and procedure that the will of the majority shall govern in all matters within
the limits of the act of incorporation and lawfully enacted by-laws not proscribed by law. It is, however, equally true that other stockholders are afforded
the right to intervene especially during critical periods in the life of a corporation like reorganization, or in this case, suspension of payments, more so,
when the majority seek to impose their will and through fraudulent means, attempt to siphon off Ruby’s valuable assets to the great prejudice of Ruby
itself, as well as the minority stockholders and the unsecured creditors.

Certainly, the minority stockholders and the unsecured creditors are given some measure of protection by the law from the abuses and impositions of
the majority, more so in this case, considering the give-away signs of private respondents’ perfidy strewn all over the factual landscape. Indeed, equity
cannot deprive the minority of a remedy against the abuses of the majority, and the present action has been instituted precisely for the purpose of
protecting the true and legitimate interests of Ruby against the Majority Stockholders. On this score, the Supreme Court, has ruled that:

"Generally speaking, the voice of the majority of the stockholders is the law of the corporation, but there are exceptions to this rule. There must
necessarily be a limit upon the power of the majority. Without such a limit the will of the majority will be absolute and irresistible and might easily
degenerate into absolute tyranny. x x x"67 (Additional emphasis supplied.)

Lamentably, the SEC refused to heed the plea of the minority stockholders and MANCOM for the SEC to order RUBY to commence liquidation
proceedings, which is allowed under Sec. 4-9 of the Rules on Corporate Recovery. Under the circumstances, liquidation was the only hope of the
minority stockholders for effecting an orderly and equitable settlement of RUBY’s obligations, and compelling the majority stockholders to account for all
funds, properties and documents in their possession, and make full disclosure on the nullified credit assignments. Oblivious to these pending incidents
so crucial to the protection of the interest of the majority of creditors and minority shareholders, the SEC simply stated that in the interim, RUBY’s
corporate term was validly extended, as if such extension would provide the solution to RUBY’s myriad problems.

Extension of corporate term requires the vote of 2/3 of the outstanding capital stock in a stockholders’ meeting called for the purpose.68 The actual
percentage of shareholdings in RUBY as of September 3, 1996 -- when the majority stockholders allegedly ratified the board resolution approving the
extension of RUBY’s corporate life to another 25 years – was seriously disputed by the minority stockholders, and we find the evidence of compliance
with the notice and quorum requirements submitted by the majority stockholders insufficient and doubtful. Consequently, the SEC had no basis for its
ruling denying the motion of the minority stockholders to declare as without force and effect the extension of RUBY’s corporate existence.

Liquidation, or the settlement of the affairs of the corporation, consists of adjusting the debts and claims, that is, of collecting all that is due the
corporation, the settlement and adjustment of claims against it and the payment of its just debts.69 It involves the winding up of the affairs of the
corporation, which means the collection of all assets, the payment of all its creditors, and the distribution of the remaining assets, if any, among the
stockholders thereof in accordance with their contracts, or if there be no special contract, on the basis of their respective interests.70

Section 122 of the Corporation Code, which is applicable to the present case, provides:

SEC. 122. Corporate liquidation. -- Every corporation whose charter expires by its own limitation or is annulled by forfeiture or otherwise, or whose
corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as a body corporate for three (3) years after
the time when it would have been so dissolved, for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its
affairs, to dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for which it was established.

At any time during said three (3) years, said corporation is authorized and empowered to convey all of its property to trustees for the benefit of
stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the corporation of its property in trust for the
benefit of its stockholders, members, creditors and others in interest, all interests which the corporation had in the property terminates, the legal
interest vests in the trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest.

Upon winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is unknown or cannot be found shall be
escheated to the city or municipality where such assets are located.

Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its assets or property except upon
lawful dissolution and after payment of all its debts and liabilities.

Since the corporate life of RUBY as stated in its articles of incorporation expired, without a valid extension having been effected, it was deemed
dissolved by such expiration without need of further action on the part of the corporation or the State. 71 With greater reason then should liquidation
ensue considering that the last paragraph of Sec. 4-9 of the Rules of Procedure on Corporate Recovery mandates the SEC to order the dissolution and
liquidation proceedings under Rule VI. Sec. 6-1, Rule VI likewise authorizes the SEC on motion or motu proprio, or upon recommendation of the
management committee, to order dissolution of the debtor corporation and the liquidation of its remaining assets, appointing a Liquidator for the
purpose, if "the continuance in business of the debtor is no longer feasible or profitable or no longer works to the best interest of the stockholders,
parties-litigants, creditors, or the general public."
It cannot be denied that with the current divisiveness, distrust and antagonism between the majority and minority stockholders, the long agony and
extreme prejudice caused by numerous litigations to the creditors, and the bleak prospects for business recovery in the light of problems with the local
government which are implementing more restrictions and anti-pollution measures that practically banned the operation of RUBY’s glass plant –
liquidation becomes the only viable course for RUBY to stave off any further losses and dissipation of its assets. Liquidation would also ensure an orderly
and equitable settlement of all creditors of RUBY, both secured and unsecured.

The SEC’s utter disregard of the rights of the minority in applying the provisions of the Rules of Procedure on Corporate Recovery is inconsistent with
the policy of liberal construction of the said rules "to assist the parties in obtaining a just, expeditious and inexpensive settlement of cases.72 Petitioners
majority stockholders, however, assert that the findings and conclusions of the SEC on the matter of the dismissal of RUBY’s petition are binding and
conclusive upon the CA and this Court. They contend that reviewing courts are not supposed to substitute their judgment for those made by
administrative bodies specifically clothed with authority to pass upon matters over which they have acquired expertise.73 Given our foregoing findings
clearly showing that the SEC acted arbitrarily and committed patent errors and grave abuse of discretion, this case falls under the exception to the
general rule.

As we held in Ruby Industrial Corporation v. Court of Appeals:

The settled doctrine is that factual findings of an administrative agency are accorded respect and, at times, finality for they have acquired the expertise
inasmuch as their jurisdiction is confined to specific matters. Nonetheless, these doctrines do not apply when the board or official has gone beyond his
statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion. In
Leongson vs. Court of Appeals, we held: "once the actuation of the administrative official or administrative board or agency is tainted by a failure to
abide by the command of the law, then it is incumbent on the courts of justice to set matters right, with this Tribunal having the last say on the
matter."74

Petitioners majority stockholders further insist that the minority stockholders were mistaken when they contended that the rehabilitation of RUBY is
dependent on the unwinding by the SEC of the illegal assignments and mortgages. They assert that aside from the fact that the SEC had nothing to
unwind because the alleged illegal assignments and mortgages were already declared null and void, the said assignments and mortgages will not affect
the rehabilitation of Ruby; the same affecting only the issue of how, as to who will be its creditors.

Such contention is untenable and contrary to our previous ruling in G.R. Nos. 124185-87. With the nullification of the deeds of assignments of credit
executed by some of Ruby’s secured creditors in favor of BENHAR, it logically follows that the assignors or the original bank creditors remain as the
creditors on record of RUBY. We have noted that BENHAR, which is controlled by the family of Henry Yu who is also a director and stockholder of RUBY,
was not listed as one of RUBY’s creditors at the time RUBY filed the petition for suspension of payment. Petitioners majority stockholders’ insinuation
that RUBY’s credits may have been assigned to third parties, if not referring to BENHAR or its conduits, implies two things: either the assignments
declared void by this Court’s January 20, 1998 decision continues to be recognized by the majority stockholders, in violation of the said decision, or
other third parties in connivance with BENHAR and/or the controlling stockholders had subsequently entered the picture, without approval of the SEC
and while the SEC December 20, 1983 Order enjoining the disposition of RUBY’s properties was in force.

The majority stockholders’ eagerness to have the suspension order lifted or vacated by the SEC without any order for its liquidation evinces a total
disregard of the mandate of Sec. 4-9 of the Rules of Procedure on Corporate Recovery, and their obvious lack of any intent to render an accounting of
all funds, properties and details of the unlawful assignment transactions to the prejudice of RUBY, minority stockholders and the majority of RUBY’s
creditors. The majority stockholders and BENHAR’s conduits must not be allowed to evade the duty to make such full disclosure and account any money
due to RUBY to enable the latter to effect a fair, orderly and equitable settlement of all its obligations, as well as distribution of any remaining assets
after paying all its debtors.

In fine, no error was committed by the CA when it set aside the September 18, 2002 Order of the SEC and declared the nullity of the acts of majority
stockholders in implementing capital infusion through issuance of additional shares in October 1991, the board resolution approving the extension of
RUBY’s corporate term for another 25 years, and any illegal assignment of credit executed by RUBY’s creditors in favor of third parties and/or conduits
of the controlling stockholders. The CA likewise correctly ordered the delivery of all documents relative to the said assignment of credits to the MANCOM
or the Liquidator, the unwinding of these void deeds of assignment, and their full accounting by the majority stockholders.

The petitioners majority stockholders and China Bank cannot be permitted to raise any issue again regarding the validity of any assignment of credit
made during the effectivity of the suspension order and before the finality of the September 18, 2002 Order lifting the same. While China Bank is not
precluded from questioning the validity of the December 20, 1983 suspension order on the basis of res judicata, it is, however, barred from doing so by
the principle of law of the case. We have held that when the validity of an interlocutory order has already been passed upon on appeal, the Decision of
the Court on appeal becomes the law of the case between the same parties. Law of the case has been defined as "the opinion delivered on a former
appeal. More specifically, it means that whatever is once irrevocably established as the controlling legal rule of decision between the same parties in the
same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated
continue to be the facts of the case before the court."75

The unwinding process of all such illegal assignment of RUBY’s credits is critical and necessary, in keeping with good faith and as a matter of fairness
and justice to all parties affected, particularly the unsecured creditors who stands to suffer most if left with nothing of the assets of RUBY, and the
minority stockholders who waged legal battles to defend the interest of RUBY and protect the rights of the minority from the abuses of the controlling
stockholders. As correctly stated by the CA:

Liquidation is imperative because the unsecured creditor must negotiate the amount of the imputable interest rate on its long unpaid credit, the decision
on which assets are to be sold to liquidate the illegally assigned credits must be made, the other secured credits and the trade credits must be
determined, and most importantly, the restoration of the 40.172% minority percentage of ownership must be done.76

However, we do not agree that it is the SEC which has the authority to supervise RUBY’s liquidation.
In the case of Union Bank of the Philippines v. Concepcion,77 the Court is presented with the issue of whether the SEC had jurisdiction to proceed with
insolvency proceedings after it was shown that the debtor corporation can no longer be rehabilitated. We held that although jurisdiction over a petition
to declare a corporation in a state of insolvency strictly lies with regular courts, the SEC possessed ample power under P.D. No. 902-A, as amended, to
declare a corporation insolvent as an incident of and in continuation of its already acquired jurisdiction over the petition to be declared in a state of
suspension of payments in the two instances provided in Sec. 5 (d)78 thereof.

Subsequently, in Consuelo Metal Corporation v. Planters Development Bank79 the Court was again confronted with the same issue. The original petition
filed by the debtor corporation was for suspension of payment, rehabilitation and appointment of a rehabilitation receiver or management committee.
Finding the petition sufficient in form and substance, the SEC issued an order suspending immediately all actions for claims against the petitioner
pending before any court, tribunal or body until further orders from the court. It also created a management committee to undertake petitioner’s
rehabilitation. Four years later, upon the management committee’s recommendation, the SEC issued an omnibus order directing the dissolution and
liquidation of the petitioner, and that the proceedings on and implementation of the order of liquidation be commenced at the Regional Trial Court to
which the case was transferred. However, the trial court refused to act on the motion filed by the petitioner who requested for the issuance of a TRO
against the extrajudicial foreclosure initiated by one of its creditors. The trial court ruled that since the SEC had already terminated and decided on the
merits the petition for suspension of payment, the trial court no longer had legal basis to act on petitioner’s motion. It likewise denied the motion for
reconsideration stating that petition for suspension of payment could not be converted into a petition for dissolution and liquidation because they
covered different subject matters and were governed by different rules. Petitioner’s remedy thus was to file a new petition for dissolution and liquidation
either with the SEC or the trial court.

When the case was elevated to the CA, the petition was dismissed affirming that under Sec. 121 of the Corporation Code, the SEC had jurisdiction to
hear the petition for dissolution and liquidation. On motion for reconsideration, the CA remanded the case to the SEC for proceedings under Sec. 121 of
the Corporation Code. The CA denied the motion for reconsideration filed by the respondent creditor, who then filed a petition for review with this
Court.1âwphi1

We ruled that the SEC observed the correct procedure under the present law, in cases where it merely retained jurisdiction over pending cases for
suspension of payments/rehabilitation, thus:

Republic Act No. 8799 (RA 8799) transferred to the appropriate regional trial courts the SEC’s jurisdiction defined under Section 5(d) of Presidential
Decree No. 902-A. Section 5.2 of RA 8799 provides:

The Commission’s jurisdiction over all cases enumerated under Sec. 5 of Presidential Decree No. 902-A is hereby transferred to the Courts of general
jurisdiction or the appropriate Regional Trial Court: Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial
Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. (Emphasis
supplied)

The SEC assumed jurisdiction over CMC’s petition for suspension of payment and issued a suspension order on 2 April 1996 after it found CMC’s petition
to be sufficient in form and substance. While CMC’s petition was still pending with the SEC as of 30 June 2000, it was finally disposed of on 29
November 2000 when the SEC issued its Omnibus Order directing the dissolution of CMC and the transfer of the liquidation proceedings before the
appropriate trial court. The SEC finally disposed of CMC’s petition for suspension of payment when it determined that CMC could no longer be
successfully rehabilitated.

However, the SEC’s jurisdiction does not extend to the liquidation of a corporation. While the SEC has jurisdiction to order the dissolution of a
corporation, jurisdiction over the liquidation of the corporation now pertains to the appropriate regional trial courts. This is the reason why the SEC, in
its 29 November 2000 Omnibus Order, directed that "the proceedings on and implementation of the order of liquidation be commenced at the Regional
Trial Court to which this case shall be transferred." This is the correct procedure because the liquidation of a corporation requires the settlement of
claims for and against the corporation, which clearly falls under the jurisdiction of the regular courts. The trial court is in the best position to convene all
the creditors of the corporation, ascertain their claims, and determine their preferences.80 (Additional emphasis supplied.)

In view of the foregoing, the SEC should now be directed to transfer this case to the proper RTC which shall supervise the liquidation proceedings under
Sec. 122 of the Corporation Code. Under Sec. 6 (d) of P.D. 902-A, the SEC is empowered, on the basis of the findings and recommendations of the
management committee or rehabilitation receiver, or on its own findings, to determine that the continuance in business of a debtor corporation under
suspension of payment or rehabilitation would not be feasible or profitable nor work to the best interest of the stockholders, parties-litigants, creditors,
or the general public, order the dissolution of such corporation and its remaining assets liquidated accordingly. As mentioned earlier, the procedure is
governed by Rule VI of the SEC Rules of Procedure on Corporate Recovery.

However, R.A. No. 1014281 otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010, now provides for court proceedings in
the rehabilitation or liquidation of debtors, both juridical and natural persons, in a manner that will "ensure or maintain certainty and predictability in
commercial affairs, preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure
equitable treatment of creditors who are similarly situated." Considering that this case was still pending when the new law took effect last year, the RTC
to which this case will be transferred shall be guided by Sec. 146 of said law, which states:

SEC. 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. – This Act shall govern all petitions filed after it has
taken effect. All further proceedings in insolvency, suspension of payments and rehabilitation cases then pending, except to the extent that in opinion of
the court their application would not be feasible or would work injustice, in which event the procedures set forth in prior laws and regulations shall
apply.
WHEREFORE, the petitions for review on certiorari are DENIED. The Decision dated May 26, 2004 and Resolution dated November 4, 2004 of the Court
of Appeals in CA-G.R. SP No. 73195 are hereby AFFIRMED with MODIFICATION in that the Securities and Exchange Commission is hereby ordered to
TRANSFER SEC Case No. 2556 to the appropriate Regional Trial Court which is hereby DIRECTED to supervise the liquidation of Ruby Industrial
Corporation under the provisions of R.A. No. 10142.

With costs against the petitioners.

SO ORDERED.

G.R. No. 177382 February 17, 2016

VIVA SHIPPING LINES, INC., Petitioner,

vs.
KEPPEL PHILIPPINES MINING, INC., METROPOLITAN BANK & TRUST COMPANY, PILIPINAS SHELL PETROLEUM CORPORATION, CITY
OF BATANGAS, CITY OF LUCENA, PROVINCE OF QUEZON, ALEJANDRO OLIT, NIDA MONTILLA, PIO HERNANDEZ, EUGENIO BACULO,
and HARLAN BACALTOS,Respondents.

DECISION

LEONEN, J.:

Rule 43 of the Rules of Court prescribes the procedure to assail the final orders and decisions in corporate rehabilitation cases filed under the Interim
Rules of Procedure on Corporate Rehabilitation. 1 Liberality in the application of the rules is not an end in itself. It must be pleaded with factual basis
and must be allowed for equitable ends. There must be no indication that the violation of the rule is due to negligence or design. Liberality is an
extreme exception, justifiable only when equity exists.

On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping Lines) filed a Petition for Corporate Rehabilitation before the Regional Trial Court of Lucena
City.2 The Regional Trial Court initially denied the Petition for failure to comply with the requirements in Rule 4, Sections 2 and 3 of the Interim Rules of
Procedure on Corporate Rehabilitation.3 On October 17, 2005, Viva Shipping Lines filed an Amended Petition.4

In the Amended Petition, Viva Shipping Lines claimed to own and operate 19 maritime vessels5 and Ocean Palace Mall, a shopping mall in downtown
Lucena City.6 Viva Shipping Lines also declared its total properties’ assessed value at about ₱45,172,790.00.7 However, these allegations were contrary
to the attached documents in the Amended Petition.

One of the attachments, the Property Inventory List, showed that Viva Shipping Lines owned only two (2) maritime vessels: M/V Viva Peñafrancia V and
M/V Marian Queen.8 The list also stated that the fair market value of all of Viva Shipping Lines’ assets amounted to ₱447,860,000.00,9 ₱400 million more
than what was alleged in its Amended Petition. Some of the properties listed in the Property Inventory List were already marked as "encumbered" by its
creditors;10 hence, only ₱147,630,000.00 of real property and its vessels were marked as "free assets."11

Viva Shipping Lines also declared the following debts:

Nature of Amount of
Name of Creditor
Debts Obligation
Loan secured by
(1) Metropolitan Bank Real Estate
& Trust Company Mortgage ₱176,428,745.50
Charges for
(2) Keppel Philippines Repair of
Marine, Inc. Vessels 9,000,000.00+
(3) Province of
Quezon, Lucena City,
and Province of Realty Taxes
Batangas, Batangas and
City Assessments 35,000,000.00+
TOTAL 12
₱220,428,745.50+

According to Viva Shipping Lines, the devaluation of the Philippine peso, increased competition, and mismanagement of its businesses made it difficult
to pay its debts as they became due.13 It also stated that "almost all [its] vessels were rendered unserviceable either because of age and deterioration
that [it] can no longer compete with modern made vessels owned by other operators."14

In its Company Rehabilitation Plan, Viva Shipping Lines enumerated possible sources of funding such as the sale of old vessels and commercial lots of its
sister company, Sto. Domingo Shipping Lines.15 It also proposed the conversion of the Ocean Palace Mall into a hotel, the acquisition of two (2) new
vessels for shipping operations, and the "re-operation"16 of an oil mill in Buenavista, Quezon.17
Viva Shipping Lines nominated two individuals to be appointed as rehabilitation receiver: Armando F. Ragudo, a businessman from Tayabas, Quezon,
and Atty. Calixto Ferdinand B. Dauz III, a lawyer from Lucena City.18 A day after filing the Amended Petition, Viva Shipping Lines submitted the name of
a third nominee, Former Judge Jose F. Mendoza (Judge Mendoza).19

On October 19, 2005, the Regional Trial Court found that Viva Shipping Lines’ Amended Petition to be "sufficient in form and substance," and issued a
stay order.20 It stayed the enforcement of all monetary and judicial claims against Viva Shipping Lines, and prohibited Viva Shipping Lines from selling,
encumbering, transferring, or disposing of any of its properties except in the ordinary course of business.21 The Regional Trial Court also appointed
Judge Mendoza as rehabilitation receiver.

Before the initial hearing scheduled on December 5, 2005, the City of Batangas, Keppel Philippines Marine, Inc., and Metropolitan Bank and Trust
Company (Metrobank) filed their respective comments and oppositions to Viva Shipping Lines’ Amended Petition.22

During the initial hearing, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) moved for additional time to write its opposition to Viva Shipping Lines’
Amended Petition.23 Pilipinas Shell later filed its Comment/Opposition with Formal Notice of Claim.24

Luzviminda C. Cueto, a former employee of Viva Shipping Lines, also filed a Manifestation and Registration of Monetary Claim stating that Viva Shipping
Lines owes her ₱232,000.00 as separation and 13th month pay.25 The Securities and Exchange Commission filed a Comment informing the Regional Trial
Court that Viva Shipping Lines violated certain laws and rules of the Commission.26

On March 24, 2006, Judge Mendoza withdrew his acceptance of appointment as rehabilitation receiver.27 As replacement, Viva Shipping Lines nominated
Atty. Antonio Acyatan, while Metrobank nominated Atty. Rosario S. Bernaldo.28 Keppel Philippines Marine, Inc.1âwphi1 adopted Metrobank’s nomination.29

On April 4, 2006, Metrobank filed a Motion for Production or Inspection of relevant documents relating to Viva Shipping Lines’ business operations such
as board resolutions, tax returns, accounting ledgers, bank accounts, and contracts.30 Viva Shipping Lines filed its opposition. However, the Regional
Trial Court granted Metrobank’s Motion.31 Viva Shipping Lines failed to comply with the Order to produce the documents,32 as well as with the Regional
Trial Court Order to submit a memorandum.33

On September 27, 2006, Viva Shipping Lines’ former employees Alejandro Olit, Nida Montilla, Pio Hernandez, Eugenio Baculo, and Harlan
Bacaltos34 (Alejandro Olit, et al.) filed their comment on the Amended Petition, informing the Regional Trial Court of their pending complaint against Viva
Shipping Lines before the National Labor Relations Commission.35

In the Order dated October 30, 2006,36 the Regional Trial Court lifted the stay order and dismissed Viva Shipping Lines’ Amended Petition for failure to
show the company’s viability and the feasibility of rehabilitation. The Regional Trial Court summarized Viva Shipping Lines’ creditors and debts:37

Amount of
Name of Creditor Nature of Debts38
Obligation
1 Batangas City Real Estate Taxes ₱264,006.52
2 Keppel Philippines Charges for Repair
Marine, Inc. of Vessels 20,054,977.84
Loan secured by
3 Metropolitan Bank Real Estate
& Trust Company Mortgage 191,963,465.79
4 Pilipinas Shell
Petroleum Corp. Supply Agreement 20,546,797.74
5 Luzviminda C.
Cueto Labor 232,000.00
TOTAL ₱233,061,247.89

The Regional Trial Court also noted the following as Viva Shipping Lines’ free assets:39

Assessed
Nature of Property Market Value
Value
1. Agricultural/Industrial
Lot in San Narciso, Quezon
covered by TCT No. T- ₱
155423 16,493,050.00 ₱ 40,000,000.00
2. Agricultural Lot located
at San Andres, Quezon
covered by TCT No. T-
215549 1,235,010.00 47,630,000.00
3. MV Viva Peñafrancia 5 30,000,000.00
4. MV Marian Queen 40
30,000,000.00
₱
TOTAL 147,630,000.00
The Regional Trial Court found that Viva Shipping Lines’ assets all appeared to be non-performing. Further, it noted that Viva Shipping Lines failed to
show any evidence of consent to sell real properties belonging to its sister company.41

Aggrieved, Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules of Court before the Court of Appeals.42 It only impleaded Hon.
Adolfo V. Encomienda, the Presiding Judge of the trial court that rendered the assailed decision. It did not implead any of its creditors, but served copies
of the Petition on counsels for Metrobank, Keppel Philippines Marine, Inc., Pilipinas Shell, City of Batangas, Province of Quezon, and City of
Lucena.43 Viva Shipping Lines neither impleaded nor served a copy of the Petition on its former employees or their counsels.

The Court of Appeals dismissed Viva Shipping Lines’ Petition for Review in the Resolution dated January 5, 2007.44It found that Viva Shipping Lines failed
to comply with procedural requirements under Rule 43.45 The Court of Appeals ruled that due to the failure of Viva Shipping Lines to implead its
creditors as respondents, "there are no respondents who may be required to file a comment on the petition, pursuant to Section 8 of Rule 43."46

Viva Shipping Lines moved for reconsideration.47 It argued that its procedural misstep was cured when it served copies of the Petition on the Regional
Trial Court and on its former employees.48 In the Resolution dated March 30, 2007, the Court of Appeals denied Viva Shipping Lines’ Motion for
Reconsideration.49

Viva Shipping Lines filed before this court a Petition for Review on Certiorari assailing the January 5, 2007 and March 30, 2007 Court of Appeals
Resolutions.50 It prayed that the case be remanded to the Court of Appeals for adjudication on the merits.51

Without necessarily giving due course to the Petition, this court required respondents to comment.52 Keppel Philippines Marine, Inc.,53 Pilipinas
Shell,54 Metrobank,55 former employees Alejandro Olit et al.,56 the City of Batangas,57 the City Treasurer of Lucena,58 and the Provincial Treasurer of
Quezon59 filed their respective Comments.

On September 17, 2008,60 December 10, 2008,61 and July 20, 2009,62 this court required Viva Shipping Lines to file replies to respondents’ comments.
Viva Shipping Lines’ counsel, Abesamis Law Office, withdrew its representation, which was accepted by this court.63 Viva Shipping Lines was unable to
file its consolidated reply; hence, this court resolved that Viva Shipping Lines’ right to file a consolidated reply was deemed waived.64

On September 1, 2011, Atty. Vicente M. Joyas (Atty. Joyas) entered his appearance as Viva Shipping Lines’ new counsel.65 Atty. Joyas moved for several
extensions of time to comply with this court’s order to file a consolidated reply. This court allowed Atty. Joyas’ Motions, and Viva Shipping Lines’
consolidated reply was noted in our Resolution dated December 7, 2011.66 This court then ordered the parties to submit their respective memoranda.67

Viva Shipping Lines, Inc.68 and respondents Pilipinas Shell,69 Keppel Philippines Marine, Inc.,70 and Metrobank71submitted their respective memoranda.
This court dispensed with the filing of the other respondents’ memoranda.72

We resolve the following issues:

First, whether the Court of Appeals erred in dismissing petitioner Viva Shipping Lines’ Petition for Review on procedural grounds; and

Second, whether petitioner was denied substantial justice when the Court of Appeals did not give due course to its petition.

Petitioner argues that the Court of Appeals should have given due course to its Petition and excused its non-compliance with procedural rules.73 For
petitioner, the Interim Rules of Procedure on Corporate Rehabilitation mandates a liberal construction of procedural rules, which must prevail over the
strict application of Rule 43 of the Rules of Court.74

According to petitioner, this court disfavors dismissals based on pure technicalities and adopts a policy stating that rules on appeal are "not iron-clad
and must yield to loftier demands of substantial [j]ustice and equity."75 For petitioner, the immediate dismissal of its Petition for Review is contrary to
the purpose of corporate rehabilitation to rescue and rehabilitate financially distressed companies.76

Respondents, on the other hand, argue that the dismissal of petitioner’s Petition for Review was proper for its failure to implead any of its creditors.
Petitioner’s procedural misstep resulted in the denial of the creditors’ right to due process as they could not file a comment on the Petition.77 Respondent
Pilipinas Shell points out that petitioner did not even try to explain why it failed to implead its creditors in its Petition.78

Respondents cite Rule 43, Section 7, which states that non-compliance with any of the requirements of proof of service of the Petition, and the required
contents, shall be sufficient ground for the dismissal of the Petition.79Compliance with Rule 43 is required under the Interim Rules of Procedure on
Corporate Rehabilitation because it is the prescribed mode of appealing trial court decisions and final orders in corporate rehabilitation cases.80 According
to respondent Metrobank, contrary to the views of petitioner, the policy of liberality in construction of the Interim Rules of Procedure on Corporate
Rehabilitation are limited to proceedings in the Regional Trial Court, and not with respect to procedural rules in elevating appeals relating to corporate
rehabilitation.81

Respondents note that because petitioner repeatedly defied procedural rules, it therefore was no longer entitled to the relaxation of these
rules.82 Respondent Pilipinas Shell also points out the defects in the verification, certification of non-forum shopping, and attachments of petitioner in its
Petition before this court.83

Respondent City of Batangas emphasizes that the Rules of Court are promulgated to facilitate the adjudication of cases. It argues that petitioner should
not be afforded equitable considerations as it acted in bad faith by concealing material information during the rehabilitation proceedings.84
Respondents further argue that even if the Court of Appeals gave due course to the Petition, it would still have dismissed the case on the merits.
Respondents cite petitioner’s failure to provide material facts with sufficient particularity in its Amended Petition for Corporate Rehabilitation.85 Petitioner
also failed to disclose some of its creditors, as well as the several pending cases relating to its financial liabilities.86 It failed to describe with specificity
the cause of its inability to pay its debts.87 It also failed to clarify which vessels were still under its ownership, and which vessels had maritime
liens.88 Petitioner merely estimated its liabilities against its creditors.89 Respondents also allege that petitioner nominated rehabilitators who are
professionally connected with its counsel despite the existence of conflict of interest.90

Respondents point out that petitioner’s admission that almost all its vessels are rendered unserviceable suggests that rehabilitation is no longer
viable.91 Former employees also mention that despite petitioner’s desire to rehabilitate, after the Regional Trial Court’s final order, petitioner began
disposing of some of its assets.92Respondents also cannot rely on the plan to sell some of petitioner’s sister company’s properties. They also express
doubts regarding petitioner’s plan of converting its mall to a hotel/restaurant because it had no such experience. Respondents thus characterize Viva
Shipping Lines’ rehabilitation plan as "unrealistic, untested, and improbable."93

We deny the Petition.

Corporate rehabilitation is a remedy for corporations, partnerships, and associations "who [foresee] the impossibility of meeting [their] debts when they
respectively fall due."94 A corporation under rehabilitation continues with its corporate life and activities to achieve solvency,95 or a position where the
corporation is able to pay its obligations as they fall due in the ordinary course of business. Solvency is a state where the businesses’ liabilities are less
than its assets.96

Corporate rehabilitation is a type of proceeding available to a business that is insolvent. In general, insolvency proceedings provide for predictability that
commercial obligations will be met despite business downturns. Stability in the economy results when there is assurance to the investing public that
obligations will be reasonably paid. It is considered state policy

to encourage debtors, both juridical and natural persons, and their creditors to collectively and realistically resolve and adjust competing claims and
property rights[.] . . . [R]ehabilitation or liquidation shall be made with a view to ensure or maintain certainty and predictability in commercial affairs,
preserve and maximize the value of the assets of these debtors, recognize creditor rights and respect priority of claims, and ensure equitable treatment
of creditors who are similarly situated. When rehabilitation is not feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation of
these debtors’ assets and the settlement of their obligations.97 (Emphasis supplied)

The rationale in corporate rehabilitation is to resuscitate businesses in financial distress because "assets . . . are often more valuable when so
maintained than they would be when liquidated."98 Rehabilitation assumes that assets are still serviceable to meet the purposes of the business. The
corporation receives assistance from the court and a disinterested rehabilitation receiver to balance the interest to recover and continue ordinary
business, all the while attending to the interest of its creditors to be paid equitably. These interests are also referred to as the rehabilitative and
the equitable purposes of corporate rehabilitation.99

The nature of corporate rehabilitation was thoroughly discussed in Pryce Corporation v. China Banking Corporation:100

Corporate rehabilitation is one of many statutorily provided remedies for businesses that experience a downturn. Rather than leave the various creditors
unprotected, legislation now provides for an orderly procedure of equitably and fairly addressing their concerns. Corporate rehabilitation allows a court-
supervised process to rejuvenate a corporation. . . . It provides a corporation’s owners a sound chance to re-engage the market, hopefully with more
vigor and enlightened services, having learned from a painful experience.

Necessarily, a business in the red and about to incur tremendous losses may not be able to pay all its creditors. Rather than leave it to the strongest or
most resourceful amongst all of them, the state steps in to equitably distribute the corporation’s limited resources.

....

Rather than let struggling corporations slip and vanish, the better option is to allow commercial courts to come in and apply the process for corporate
rehabilitation.101

Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation102 reiterates that courts "must endeavor to balance the interests of
all the parties that had a stake in the success of rehabilitating the debtors."103These parties include the corporation seeking rehabilitation, its creditors,
and the public in general.104

The public’s interest lies in the court’s ability to effectively ensure that the obligations of the debtor, who has experienced severe economic difficulties,
are fairly and equitably served. The alternative might be a chaotic rush by all creditors to file separate cases with the possibility of different trial courts
issuing various writs competing for the same assets. Rehabilitation is a means to temper the effect of a business downturn experienced for whatever
reason. In the process, it gives entrepreneurs a second chance. Not only is it a humane and equitable relief, it encourages efficiency and maximizes
welfare in the economy.

Clearly then, there are instances when corporate rehabilitation can no longer be achieved. When rehabilitation will not result in a better present value
recovery for the creditors,105 the more appropriate remedy is liquidation.106
It does not make sense to hold, suspend, or continue to devalue outstanding credits of a business that has no chance of recovery. In such cases, the
optimum economic welfare will be achieved if the corporation is allowed to wind up its affairs in an orderly manner. Liquidation allows the corporation to
wind up its affairs and equitably distribute its assets among its creditors.107

Liquidation is diametrically opposed to rehabilitation. Both cannot be undertaken at the same time.108 In rehabilitation, corporations have to maintain
their assets to continue business operations. In liquidation, on the other hand, corporations preserve their assets in order to sell them. Without these
assets, business operations are effectively discontinued. The proceeds of the sale are distributed equitably among creditors, and surplus is divided or
losses are re-allocated.109

Proceedings in case of insolvency are not limited to rehabilitation. Our laws have evolved to provide for different procedures where a debtor can
undergo judicially supervised reorganization or liquidation of its assets.110

Corporate rehabilitation traces its roots to Act No. 1956, otherwise known as the Insolvency Law of 1909. Under the Insolvency Law, a debtor in
possession of sufficient properties to cover all its debts but foresees the impossibility of meeting them when they fall due may file a petition before the
court to be declared in a state of suspension of payments.111 This allows time for the debtor to organize its affairs in order to achieve a state where it
can comply with its obligations.

The relief was also provided in the amendatory provisions of Presidential Decree No. 902-A. Section 5 of Presidential Decree No. 902-A states that the
Securities and Exchange Commission has jurisdiction to decide:

d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where the corporation,
partnership or association possesses sufficient property to cover all its debts but foresees the impossibility of meeting them when they respectively fall
due or in cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is under the management of a
Rehabilitation Receiver or Management Committee created pursuant to this Decree.112 (Emphasis supplied).

In 2000, the jurisdiction of the Securities and Exchange Commission over these cases was transferred to the Regional Trial Court,113 by operation of
Section 5.2 of the Securities Regulation Code.114 In the same year, this court approved the Interim Rules of Procedure on Corporate Rehabilitation. The
Interim Rules of Procedure on Corporate Rehabilitation provides a summary and non-adversarial proceeding to expedite the resolution of cases for the
benefit of the corporation in need of rehabilitation, its creditors, and the public in general.115

Currently, the prevailing law and procedure for corporate rehabilitation is the Financial Rehabilitation and Insolvency Act of 2010 (FRIA).116 FRIA provides
procedures for the different types of rehabilitation and liquidation proceedings. The Financial Rehabilitation Rules of Procedure was issued by this court
on August 27, 2013.117

However, since the Regional Trial Court acted on petitioner’s Amended Petition before FRIA was enacted, Presidential Decree No. 902-A and the Interim
Rules of Procedure on Corporate Rehabilitation were applied to this case.118

II

The controversy in this case arose from petitioner’s failure to comply with appellate procedural rules in corporate rehabilitation cases. Petitioner now
pleads this court to apply the policy of liberality in constructing the rules of procedure.119

We observe that during the corporate rehabilitation proceedings, the Regional Trial Court already exercised the liberality contemplated by the Interim
Rules of Procedure on Corporate Rehabilitation. The Regional Trial Court initially dismissed Viva Shipping Lines’ Petition but allowed the filing of an
amended petition. Later on, the same court issued a stay order when there were sufficient grounds to believe that the Amended Petition complied with
Rule 4, Section 2 of the Interim Rules of Procedure on Corporate Rehabilitation. Petitioner was not penalized for its non-compliance with the court’s
order to produce relevant documents or for its non-submission of a memorandum.120

Even with these accommodations, the trial court still found basis to dismiss the plea for rehabilitation.

Any final order or decision of the Regional Trial Court may be subject of an appeal.121 In Re: Mode of Appeal in Cases Formerly Cognizable by the
Securities and Exchange Commission,122 this court clarified that all decisions and final orders falling under the Interim Rules of Procedure on Corporate
Rehabilitation shall be appealable to the Court of Appeals through a petition for review under Rule 43 of the Rules of Court. 123

New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo City124 clarifies that an appeal from a final order or decision in corporate
rehabilitation proceedings may be dismissed for being filed under the wrong mode of appeal.125

New Frontier Sugar doctrinally requires compliance with the procedural rules for appealing corporate rehabilitation decisions. It is true that Rule 1,
Section 6 of the Rules of Court provides that the "[r]ules shall be liberally construed in order to promote their objective of securing a just, speedy and
inexpensive disposition of every action and proceeding." However, this provision does not negate the entire Rules of Court by providing a license to
disregard all the other provisions. Resort to liberal construction must be rational and well-grounded, and its factual bases must be so clear such that
they outweigh the intent or purpose of an apparent reading of the rules.

Rule 43 prescribes the mode of appeal for corporate rehabilitation cases:

Sec. 5. How appeal taken. – Appeal shall be taken by filing a verified petition for review in seven (7) legible copies with the Court of Appeals, with proof
of service of a copy thereof on the adverse party and on the court or agency a quo. The original copy of the petition intended for the Court of Appeals
shall be indicated as such by the petitioner.

....

Sec. 6. Contents of the petition. – The petition for review shall (a) state the full names of the parties to the case, without impleading the court or
agencies either as petitioners or respondents; (b) contain a concise statement of the facts and issues involved and the grounds relied upon for the
review; (c) be accompanied by a clearly legible duplicate original or a certified true copy of the award, judgment, final order or resolution appealed
from, together with certified true copies of such material portions of the record referred to therein and other supporting papers; and (d) contain a sworn
certification against forum shopping as provided in the last paragraph of section 2, Rule 42. The petition shall state the specific material dates showing
that it was filed within the period fixed herein. (Emphasis supplied)

Petitioner did not comply with some of these requirements. First, it did not implead its creditors as respondents. Instead, petitioner only impleaded the
Presiding Judge of the Regional Trial Court, contrary to Section 6(a) of Rule 43. Second, it did not serve a copy of the Petition on some of its creditors,
specifically, its former employees. Finally, it did not serve a copy of the Petition on the Regional Trial Court.

Petitioner justified its failure to furnish its former employees with copies of the Petition by stating that the former employees were late in filing their
opposition before the trial court.126 It also stated that its failure to furnish the Regional Trial Court with a copy of the Petition was unintentional.127

The Court of Appeals correctly dismissed petitioner’s Rule 43 Petition as a consequence of non-compliance with procedural rules. Rule 43, Section 7 of
the Rules of Court states:

Sec. 7. Effect of failure to comply with requirements. – The failure of the petitioner to comply with any of the foregoing requirements regarding the
payment of the docket and other lawful fees, the deposit of costs, proof of service of the petition, and the contents of and the documents which should
accompany the petition shall be sufficient ground for the dismissal thereof.

Petitioner admitted its failure to comply with the rules. It begs the indulgence of the court to give due course to its Petition based on their belated
compliance with some of these procedural rules and the policy on the liberal construction of procedural rules.

There are two kinds of "liberality" with respect to the construction of provisions of law. The first requires ambiguity in the text of the provision and
usually pertains to a situation where there can be two or more viable meanings given the factual context presented by a case. Liberality here means a
presumption or predilection to interpret the text in favor of the cause of the party requesting for "liberality."

Then there is the "liberality" that actually means a request for the suspension of the operation of a provision of law, whether substantive or procedural.
This liberality requires equity. There may be some rights that are not recognized in law, and if courts refuse to recognize these rights, an unfair situation
may arise.128 Specifically, the case may be a situation that was not contemplated on or was not possible at the time the legal norm was drafted or
promulgated.

It is in the second sense that petitioner pleads this court.

III

Our courts are not only courts of law, but are also courts of equity.129 Equity is justice outside legal provisions, and must be exercised in the absence of
law, not against it.130 In Reyes v. Lim:131 Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to
the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction. Equity is the principle by which substantial justice may
be attained in cases where the prescribed or customary forms of ordinary law are inadequate.132 (Citation omitted)

Liberality lies within the bounded discretion of a court to allow an equitable result when the proven circumstances require it. Liberality acknowledges a
lacuna in the text of a provision of law. This may be because those who promulgated the rule may not have foreseen the unique circumstances of a
case at bar. Human foresight as laws and rules are prepared is powerful, but not perfect.

Liberality is not an end in itself. Otherwise, it becomes a backdoor disguising the arbitrariness or despotism of judges and justices. In North Bulacan
Corp. v. PBCom,133 the Regional Trial Court ignored several procedural rules violated by the petitioning corporation and allowed rehabilitation in the guise
of liberality. This court found that the Regional Trial Court grossly abused its authority when it allowed rehabilitation despite the corporation’s blatant
non-compliance with the rules.

The factual antecedents of a plea for the exercise of liberality must be clear. There must also be a showing that the factual basis for a plea for liberality
is not one that is due to the negligence or design of the party requesting the suspension of the rules. Likewise, the basis for claiming an equitable
result—for all the parties—must be clearly and sufficiently pleaded and argued. Courts exercise liberality in line with their equity jurisdiction; hence, it
may only be exercised if it will result in fairness and justice.

IV

The first rule breached by petitioner is the failure to implead all the indispensable parties. Petitioner did not even interpose reasons why it should be
excused from compliance with the rule to "state the full names of the parties to the case, without impleading the court . . . as . . . respondents."
Petitioner did exactly the opposite. It failed to state the full names of its creditors as respondents. Instead, it impleaded the Presiding Judge of the
originating court.

The Rules of Court requires petitioner to implead respondents as a matter of due process. Under the Constitution, "[n]o person shall be deprived of life,
liberty or property without due process of the law."134 An appeal to a corporate rehabilitation case may deprive creditor-stakeholders of property. Due
process dictates that these creditors be impleaded to give them an opportunity to protect the property owed to them.

Creditors are indispensable parties to a rehabilitation case, even if a rehabilitation case is non-adversarial. In Boston Equity Resources, Inc. v. Court of
Appeals:135

An indispensable party is one who has such an interest in the controversy or subject matter of a case that a final adjudication cannot be made in his or
her absence, without injuring or affecting that interest. He or she is a party who has not only an interest in the subject matter of the controversy, but
"an interest of such nature that a final decree cannot be made without affecting [that] interest or leaving the controversy in such a condition that its
final determination may be wholly inconsistent with equity and good conscience. It has also been considered that an indispensable party is a person in
whose absence there cannot be a determination between the parties already before the court which is effective, complete or equitable." Further, an
indispensable party is one who must be included in an action before it may properly proceed.136

A corporate rehabilitation case cannot be decided without the creditors’ participation. The court’s role is to balance the interests of the corporation, the
creditors, and the general public. Impleading creditors as respondents on appeal will give them the opportunity to present their legal arguments before
the appellate court. The courts will not be able to balance these interests if the creditors are not parties to a case. Ruling on petitioner’s appeal in the
absence of its creditors will not result in judgment that is effective, complete, and equitable.

This court cannot exercise its equity jurisdiction and allow petitioner to circumvent the requirement to implead its creditors as respondents. Tolerance of
such failure will not only be unfair to the creditors, it is contrary to the goals of corporate rehabilitation, and will invalidate the cardinal principle of due
process of law.

The failure of petitioner to implead its creditors as respondents cannot be cured by serving copies of the Petition on its creditors. Since the creditors
were not impleaded as respondents, the copy of the Petition only serves to inform them that a petition has been filed before the appellate court. Their
participation was still significantly truncated. Petitioner’s failure to implead them deprived them of a fair hearing. The appellate court only serves court
orders and processes on parties formally named and identified by the petitioner. Since the creditors were not named as respondents, they could not
receive court orders prompting them to file remedies to protect their property rights.

The next procedural rule that petitioner pleaded to suspend is the rule requiring it to furnish all parties with copies of the Rule 43 Petition. Petitioner
admitted its failure to furnish its former employees with copies of the Petition because they belatedly filed their claims before the Regional Trial Court.

This argument is specious at best; at worst, it foists a fraud on this court. The former employees were unable to raise their claims on time because
petitioner did not declare them as creditors. The Amended Petition did not contain any information regarding pending litigation between petitioner and
its former employees. The only way the former employees could become aware of the corporate rehabilitation proceedings was either through the
required publication or through news informally circulated among their colleagues. Clearly, it was petitioner who caused the belated filing of its former
employees’ claims when it failed to notify its employees of the corporate rehabilitation proceedings. Petitioner’s failure was conveniently and
disreputably hidden from this court.

Former employee Luzviminda C. Cueto filed her Manifestation and Registration of Monetary Claim as early as November 25, 2005. Alejandro Olit, et al.,
the other employees, filed their Comment on September 27, 2006. By the time petitioner filed its Petition for Review dated November 21, 2006 before
the Court of Appeals, it was well aware that these individuals had expressed their interest in the corporate rehabilitation proceedings. Petitioner and its
counsel had no excuse to exclude these former employees as respondents on appeal.

Petitioner’s belated compliance with the requirement to serve the Petition for Review on its former employees did not cure the procedural lapse. There
were two sets of employees with claims against petitioner: Luzviminda C. Cueto and Alejandro Olit, et al. When the Court of Appeals dismissed
petitioner’s appeal, petitioner only served a copy on Alejandro Olit, et al. Petitioner still did not serve a copy on Luzviminda C. Cueto.

We do not see how it will be in the interest of justice to allow a petition that fails to inform some of its creditors that the final order of the corporate
rehabilitation proceeding was appealed. By not declaring its former employees as creditors in the Amended Petition for Corporate Rehabilitation and by
not notifying the same employees that an appeal had been filed, petitioner consistently denied the due process rights of these employees.

This court cannot be a party to the inequitable way that petitioner’s employees were treated.

Petitioner also pleaded to be excused from the requirement under Rule 6, Section 5 of the Rules of Court to serve a copy of the Petition on the
originating court. According to petitioner, the annexes for the Petition for Review filed before the Court of Appeals arrived from Lucena City on the last
day of filing the petition. Petitioner’s representative from Lucena City and petitioner’s counsel rushed to compile and reproduce all the documents, and
in such rush, failed to send a copy to the Regional Trial Court. When petitioner realized that it failed to furnish the originating court with a copy of the
Petition, a copy was immediately sent by registered mail.137

Again, petitioner’s excuse is unacceptable. Petitioner had 15 days to file a Rule 43 petition, which should include the proof of service to the originating
court. Rushing the compilation of the pleading with the annexes has nothing to do with being able to comply with the requirement to submit a proof of
service of the copy of the petition for review to the originating court. If at all, it further reflects the unprofessional way that petitioner and its counsel
treated our rules.
As this court has consistently ruled, "[t]he right to appeal is not a natural right[,] nor a part of due process; it is merely a statutory privilege, and may
be exercised only in the manner and in accordance with the provisions of the law."138

In line with this, liberality in corporate rehabilitation procedure only generally refers to the trial court, not to the proceedings before the appellate court.
The Interim Rules of Procedure on Corporate Rehabilitation covers petitions for rehabilitation filed before the Regional Trial Court. Thus, Rule 2, Section
2 of the Interim Rules of Procedure on Corporate Rehabilitation, which refers to liberal construction, is limited to the Regional Trial Court. The liberality
was given "to assist the parties in obtaining a just, expeditious, and inexpensive disposition of the case."139

In Spouses Ortiz v. Court of Appeals,140 the petitioners made a procedural mistake with the attachments of the petition before the Court of Appeals. The
petitioners subsequently provided the correct attachments; however, this court still upheld the Court of Appeals’ dismissal:

The party who seeks to avail [itself] of [an appeal] must comply with the requirements of the rules. Failing to do so, the right to appeal is lost. Rules of
procedure are required to be followed, except only when for the most persuasive of reasons, they may be relaxed to relieve a litigant of an injustice not
commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed.141

Petitioner’s excuses do not trigger the application of the policy of liberality in construing procedural rules. For the courts to exercise liberality, petitioner
must show that it is suffering from an injustice not commensurate to the thoughtlessness of its procedural mistakes. Not only did petitioner exercise
injustice towards its creditors, its Rule 43 Petition for Review did not show that the Regional Trial Court erred in dismissing its Amended Petition for
Corporate Rehabilitation.

Petitioner’s main argument for the continuation of corporate rehabilitation proceedings is that the Regional Trial Court should have allowed petitioner to
clarify its Amended Petition with respect to details regarding its assets and its liabilities to its creditors instead of dismissing the Petition outright.142

The Regional Trial Court correctly dismissed the Amended Petition for Corporate Rehabilitation. The dismissal of the Amended Petition did not emanate
from petitioner’s failure to provide complete details on its assets and liabilities but on the trial court’s finding that rehabilitation is no longer viable for
petitioner. Under the Interim Rules of Procedure on Corporate Rehabilitation, a "petition shall be dismissed if no rehabilitation plan is approved by the
court upon the lapse of one hundred eighty (180) days from the date of the initial hearing."143 The proceedings are also deemed terminated upon the
trial court’s disapproval of a rehabilitation plan, "or a determination that the rehabilitation plan may no longer be implemented in accordance with its
terms, conditions, restrictions, or assumptions."144

Bank of the Philippine Islands v. Sarabia Manor Hotel Corp.145 provides the test to help trial courts evaluate the economic feasibility of a rehabilitation
plan:

In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough examination and analysis of the distressed
corporation’s financial data must be conducted. If the results of such examination and analysis show that there is a real opportunity to rehabilitate the
corporation in view of the assumptions made and financial goals stated in the proposed rehabilitation plan, then it may be said that a rehabilitation is
feasible. In this accord, the rehabilitation court should not hesitate to allow the corporation to operate as an on-going concern, albeit under the terms
and conditions stated in the approved rehabilitation plan. On the other hand, if the results of the financial examination and analysis clearly indicate that
there lies no reasonable probability that the distressed corporation could be revived and that liquidation would, in fact, better subserve the interests of
its stakeholders, then it may be said that a rehabilitation would not be feasible. In such case, the rehabilitation court may convert the proceedings into
one for liquidation.146 (Emphasis supplied)

Professor Stephanie V. Gomez of the University of the Philippines College of Law suggests specific characteristics of an economically feasible
rehabilitation plan:

a. The debtor has assets that can generate more cash if used in its daily operations than if sold.

b. Liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations.

c. The debtor has a definite source of financing for the proper and full implementation of a Rehabilitation Plan that is anchored on realistic
assumptions and goals.147 (Emhasis supplied)

These requirements put emphasis on liquidity: the cash flow that the distressed corporation will obtain from rehabilitating its assets and operations. A
corporation’s assets may be more than its current liabilities, but some assets may be in the form of land or capital equipment, such as machinery or
vessels. Rehabilitation sees to it that these assets generate more value if used efficiently rather than if liquidated.

On the other hand, this court enumerated the characteristics of a rehabilitation plan that is infeasible:

(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.148

In addition to the tests of economic feasibility, Professor Stephanie V. Gomez also suggests that the Financial and Rehabilitation and Insolvency Act of
2010 emphasizes on rehabilitation that provides for better present value recovery for its creditors.149

Present value recovery acknowledges that, in order to pave way for rehabilitation, the creditor will not be paid by the debtor when the credit falls due.
The court may order a suspension of payments to set a rehabilitation plan in motion; in the meantime, the creditor remains unpaid. By the time the
creditor is paid, the financial and economic conditions will have been changed. Money paid in the past has a different value in the future.150 It is unfair if
the creditor merely receives the face value of the debt. Present value of the credit takes into account the interest that the amount of money would have
earned if the creditor were paid on time.151

Trial courts must ensure that the projected cash flow from a business’ rehabilitation plan allows for the closest present value recovery for its creditors. If
the projected cash flow is realistic and allows the corporation to meet all its obligations, then courts should favor rehabilitation over liquidation.
However, if the projected cash flow is unrealistic, then courts should consider converting the proceedings into that for liquidation to protect the
creditors.

The Regional Trial Court correctly dismissed petitioner’s rehabilitation plan. It found that petitioner’s assets are non-performing.152 Petitioner admitted
this in its Amended Petition when it stated that its vessels were no longer serviceable.153 In Wonder Book Corporation v. Philippine Bank of
Communications,154 a rehabilitation plan is infeasible if the assets are nearly fully or fully depreciated. This reduces the probability that rehabilitation may
restore and reinstate petitioner to its former position of successful operation and solvency.

Petitioner’s rehabilitation plan should have shown that petitioner has enough serviceable assets to be able to continue its business. Yet, the plan showed
that the source of funding would be to sell petitioner’s old vessels. Disposing of the assets constituting petitioner’s main business cannot result in
rehabilitation. A business primarily engaged as a shipping line cannot operate without its ships. On the other hand, the plan to purchase new vessels
sacrifices the corporation’s cash flow. This is contrary to the goal of corporate rehabilitation, which is to allow present value recovery for creditors. The
plan to buy new vessels after selling the two vessels it currently owns is neither sound nor workable as a business plan.

The other part of the rehabilitation plan entails selling properties of petitioner’s sister company.1âwphi1 As pointed out by the Regional Trial Court, this plan
requires conformity from the sister company. Even if the two companies have the same directorship and ownership, they are still two separate juridical
entities. In BPI Family Savings Bank v. St. Michael Medical Center,155 this court refused to include in the financial and liquidity assessment the financial
statements of another corporation that the petitioning-corporation plans to merge with.

As pointed out by respondents, petitioner’s rehabilitation plan is almost impossible to implement. Even an ordinary individual with no business acumen
can discern the groundlessness of petitioner’s rehabilitation plan. Petitioner should have presented a more realistic and practicable rehabilitation plan
within the time periods allotted after initiatory hearing, or otherwise, should have opted for liquidation.

Finally, petitioner argues that after Judge Mendoza’s withdrawal as rehabilitation receiver, the Regional Trial Court should have appointed a new
rehabilitation receiver to evaluate the rehabilitation plan. We rule otherwise. It is not solely the responsibility of the rehabilitation receiver to determine
the validity of the rehabilitation plan. The Interim Rules of Procedure on Corporate Rehabilitation allows the trial court to disapprove a rehabilitation
plan156 and terminate proceedings or, should the instances warrant, to allow modifications to a rehabilitation plan.157

The Regional Trial Court rendered a decision in accordance with facts and law. Thus, we deny the plea for liberalization of procedural rules. To grant the
plea would cause more economic hardship and injustice to all those concerned.

WHEREFORE, the Petition is DENIED. The Court of Appeals Resolutions dated January 7, 2007 and March 30, 2007 in CA-G.R. SP No. 96974
are AFFIRMED.

SO ORDERED.