Metropolitan Bank vs. S.F. Nagulat, G.R. No.

178407, March 18, 2015

Facts:

Spouses Naguiat and S.F. Naguiat Enterprises, Inc. executed a REM in favor of Metrobank to secure
the P17 million loan. S.F. Naguiat filed a Petition for Voluntary Insolvency with Application for the
Appointment of a Receiver pursuant before the RTC Angeles City.Among the assets declared in the
Petition was the property mortgaged to Metrobank.

In lieu of a Comment, Metrobank filed a Manifestation and Motion to withdraw

from the insolvency proceedings because it intended to extrajudicially foreclose the mortgaged
property. The property was foreclosed and was sold to Phoenix Global Energy, Inc.However, the
Executive judge denied the application for the Certificate of Sale in view of the July 12, 2005 Order
issued by the insolvency court. MB appealed via certiorari.

CA dismissed the petition for Metrobank’s failure to “obtain the permission of the insolvency court to
extrajudicially foreclose the mortgaged property.”

Issue: Whether or not the approval and consent of the insolvency court is required under Act No.
1956, otherwise known as the Insolvency Law, before a secured creditor like petitioner Metropolitan
Bank and Trust Company can proceed with the extrajudicial foreclosure of the mortgaged property.

Ruling:

Yes, the approval is needed. With the declaration of insolvency of the debtor, insolvency courts
“obtain full and complete jurisdiction over all property of the insolvent and of all claims by and against
[it.]” It follows that the insolvency court has exclusive jurisdiction to deal with the property of the
insolvent. Consequently, after the mortgagor-debtor has been declared insolvent and the insolvency
court has acquired control of his estate, a mortgagee may not, without the permission of the
insolvency court, institute proceedings to enforce its lien. In so doing, it would interfere with the
insolvency court’s possession and orderly administration of the insolvent’s properties.

The purpose of insolvency proceedings is “to encourage debtors . . . and their creditors to collectively
and realistically resolve and adjust competing claims and property rights” while “maintain[ing] certainty
and predictability in commercial affairs, preserv[ing] and maximiz[ing] the value of the assets of these
debtors, recogniz[ing] creditor rights and respect[ing] priority of claims, and ensur[ing] equitable
treatment of creditors who are similarly situated.” It has also been provided that whenever
rehabilitation is no longer feasible, “it is in the interest of the State to facilitate a speedy and orderly
liquidation of [the] debtors’ assets and the settlement of their obligations.”

The relevant proceedings in this case took place prior to Republic Act No. 10142; hence, the issue will
be resolved Act No. 1956 impliedly requires a secured creditor to ask the permission of the insolvent
court before said creditor can foreclose the mortgaged property. When read together, the following
provisions of Act No. 1956 reveal the necessity for leave of the insolvency court:
Petitioner should have waited for the insolvency court to act on its Manifestation and Motion before
foreclosing the mortgaged property and its lien (assuming valid) would not be impaired or its claim in
any way jeopardized by any reasonable delay. There are mechanisms within Act No. 1956 such as
Section 59 that ensure that the interests of the secured creditor are adequately protected. Mortgage
liens are retained in insolvency proceedings. What is merely suspended until court approval is
obtained is the creditor’s enforcement of such preference.

Viva Shippin Lines vs. Keppel Phil. Mining, GR No. 177382, February 17, 2016

Facts:

Petitioner filed a Petition for Corporate Rehabilitation. Regional Trial Court found that respondents
Amended Petition to be “sufficient in form and substance,” and issued a stay order. Before the initial
hearing, the City of Batangas, Keppel Philippines Marine, Inc., and Metrobank filed their respective
comments and oppositions to Viva Shipping Lines’ Amended Petition.

Metrobank filed a Motion for Production or Inspection of relevant documents relating to Viva Shipping
Lines’ business operations.Viva Shipping Lines filed its opposition. RTC granted Metrobank’s Motion.
Viva Shipping Lines failed to comply with the Order to produce the documents, as well as with the
Regional Trial Court Order to submit a memorandum.

RTC lifted the stay order and dismissed Viva Shipping Lines Amended Petition for failure to show the
company’s viability and the feasibility of rehabilitation. RTC found that Viva Shipping Lines’ assets all
appeared to be nonperforming. Further, it noted that Viva Shipping Lines failed to show any evidence
of consent to sell real properties belonging to its sister company.

Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules of Court before the CA. It
only impleaded the Presiding Judge of the trial court that rendered the assailed decision. It did not
implead any of its creditors.

CA dismissed Viva Shipping Lines’ petition. Viva Shipping Lines failed to comply with procedural
requirements under Rule 43. CA 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.”

Issue:

Whether or not creditors need to be impleaded as respondents in the appeal (PROCEDURAL)

Whether petitioner can be rehabilitated (SUBSTANTIVE)

Ruling:

Procedural Issue

YES. 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.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, the more appropriate remedy is liquidation.
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.

Substantive issue

No.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.” 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.”

Petitioner’s RP 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.

Wonder Book Corp. Vs. Phil. Bank of Communications, GR No. 187316, July 16, 2012

Facts:

Wonder Book filed a petition for rehabilitation. Wonder Book cited the following as causes for its
inability to pay its debts as they fall due: (a) high interest rates, penalties and charges imposed by its
creditors; (b) low demand for gift items and greeting cards due to the widespread use of cellular
phones and economic recession; (c) competition posed by other stores; and (d) the fire on July 19,
2002 that destroyed its inventories worth P264 Million, which are insured for P245 Million but yet to be
collected. Wonder Book’s rehabilitation plan put forward a payment program that guaranteed full
payment of its loan from PBCOM after fifteen (15) years at a reduced interest.

RTC approved the RP.

PBCOM filed a petition for review of the approval of Wonder Book’s rehabilitation plan, which the CA
granted. According to the CA, Wonder Book’s financial statements reveal that it is not merely illiquid
but in a state of insolvency. The CA noted that Wonder Book failed to support its petition with
reassuring “material financial commitments”. The CA also noted that Wonder Book’s expected profits
during the rehabilitation period are not sufficient to cover its liabilities and reverse its dismal financial
state.

Issue:

Whether or not Wonder Book’s petition for rehabilitation is impressed with merit and this Court rules
in the negative.

Ruling:

NO. 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. 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. The rehabilitation of a financially distressed
corporation benefits its employees, creditors, stockholders and, in a larger sense, the general public.

Rehabilitation is therefore available to a corporation who, while illiquid, has assets that can generate
more cash if used in its daily operations than sold. Its liquidity issues can be addressed by a
practicable business plan that will generate enough cash to sustain daily operations, has a definite
source of financing for its proper and full implementation, and anchored on realistic assumptions and
goals.

The figures appearing on Wonder Book’s financial documents and the nature and value of its assets
are indeed discouraging 

BPI vs. Sarabia Manor Hotel, GR No. 175844, July 29, 2013

Facts:

Respondent Sarabia is a corporation duly organized 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.

Sarabia obtained a P150,000,000.00 special loan package from Far East Bank and Trust Company
(FEBTC), now merged with BPI. 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, for corporate rehabilitation.

RTC approved the rehabilitation petition. It found to be viable since, based on the extrapolations
made by the Receiver, Sarabia’s revenue projections, albeit projected to slow down, remained to
have a positive business/profit outlook altogether.

CA affirmed RTC with the modification of reinstating the surety obligations of Sarabia’s stockholders
to BPI as an additional safeguard for the effective implementation of the approved rehabilitation plan.

BPI mainly argues that the approved rehabilitation plan did not give due regard to its interests as a
secured creditor in view of the imposition of a fixed interest rate of 6.75% p.a. and the extended loan
repayment period. It likewise avers that Sarabia’s misrepresentations in its rehabilitation petition
remain unresolved.

On the contrary, Sarabia essentially maintains that: (a) the present petition improperly raises
questions of fact; (b) the approved rehabilitation plan takes into consideration all the interests of the
parties and the terms and conditions stated therein are more reasonable than what BPI proposes; and
(c) BPI’s allegations of misrepresentation are mere desperation moves to convince the Court to
overturn the rulings of the courts a quo.

Issue:

Whether or not the CA correctly affirmed Sarabia’s rehabilitation plan as approved by the RTC, with
the modification on the reinstatement of the surety obligations of Sarabia’s stockholders.

Ruling:

YES. Records show that Sarabia has been in the hotel business for over thirty years, tracing its
operations back to 1972. Its hotel building has been even considered a landmark in Iloilo, being one
of its kind in the province and having helped bring progress to the community. Since then, its
expansion was continuous which led to its decision to commence with the construction of a new hotel
building. Unfortunately, its contractor defaulted which impelled Sarabia to take-over the same. This
significantly skewed its projected revenues and led to various cash flow difficulties, resulting in its
incapacity to meet its maturing obligations.
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 bestaccommodate the various
interests of all its stakeholders, may it be the corporation’s stockholders, its creditors and even the
general public.

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.

Victorio-Aquino vs. Pacific Plans Inc., GR No. 193108, December 10, 2014

Facts:

Respondent Pacific Plans, Inc. Is engaged in the business of selling pre-need plans and educational
plans, including traditional open-ended educational plans (PEPTrads). Petitioner is a holder of two (2)
units of respondent’s PEPTrads. Respondent then filed a Petition for Corporate Rehabilitation. The
Rehabilitation Court issued a Stay Order, directing the suspension of payments of the obligations of
respondent and ordering all creditors and interested parties to file their comments/oppositions,
respectively, to the Petition for Corporate Rehabilitation.

Respondent proposed the implementation of a “Swap,” which will essentially give the planholder a
means to exit from the PEPTrads at terms and conditions relative to a termination value that is more
advantageous than those provided under the educational plan in case of voluntary termination.
Because of the appreciation of the value of Peso affecting the US denominated bonds of the
respondent, they submitted a Modified Rehabilitation Plan.Petitioner questioned the MRP.

CA dismissed petition for review : (a) petitioner did not pay the proper amount of docket fees; (b) a
Petition for Review under Rule 43 is an improper remedy to question the approval of a modified
rehabilitation plan; (c) contrary to petitioner’s claim, the alterations in the MRP are consistent with the
goals of the ARP; and (d) the approval of the MRP did not amount to an impairment of the contract
between petitioner and respondent.

Issue:

Whether or not it was beyond the authority of the Rehabilitation Court to sanction a rehabilitation plan,
or the modification thereof, when the essential feature of the plan involves forcing creditors to reduce
their claims against respondent.

Ruling:

No. Petitioner’s argument is misplaced. The “cram-down” power of the Rehabilitation Court has long
been established and even codified under Section 23, Rule 4 of the Interim Rules, to wit:

Section 23. Approval of the Rehabilitation Plan.—The court may approve a rehabilitation plan over the
opposition of creditors, holding a majority of the total liabilities of the debtor if, in its judgment, the
rehabilitation of the debtor 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.

This defense mechanism is reasonable because sustaining the current terms of the ARP would
render the trust fund of no value given the high probability of its dilution. Resultantly, the very
foundation of the rehabilitation plan, which is to minimize the loss of all stakeholders, would be
rendered in futile since the trust funds may no longer be sufficient to meet the basic terms of the ARP.

Phil. Bank of Communications vs. Basic Polyprinters, GR No. 187581, October 20, 2014

Facts:

Respondent was a domestic corporation engaged in the business of printing greeting cards, gift
wrappers, gift bags, calendars, posters, labels and other novelty items.

Respondent, along with the 8 other corporations belonging to the Limtong Group of Companies (along
with WonderBook Corp. in case no. 3) filed a joint petition for suspension of payments. The RTC
issued a stay order, and eventually approved the RP, but the CA reversed the RTC directed the
petitioning corporations to file their individual petitions for suspension of payments and rehabilitation
in the appropriate courts.

Basic Polyprinters brought its individual petition, averring that:.. (c) the Asian currency crisis,
devaluation of the Philippine peso, and the current state of affairs of the Philippine economy, coupled
with: (i) high interest rates, penalties and charges by its creditors; (ii) low demand for gift items and
cards due to the economic recession and the use of cellular phones; (iii) direct competition from
stores like SM, Gaisano, Robinsons, and other malls, fire etc.. (e) included in its overall

RP was the full payment of its outstanding loans in favor of petitioner, And other banks via repayment
over 15 years with moratorium of two years for the interest and five years for the principal at 5%
interest p.a.

RTC approved the RP. PBCOM appealed to the CA in due course. CA affirmed RTC.

The petitioner contends that the sole issue in corporate rehabilitation is one of liquidity; hence, the
petitioning corporation should have sufficient assets to cover all its indebtedness because it only
foresees the impossibility of paying the indebtedness falling due.

The petitioner also argues that respondent did not present any material financial commitment in the
rehabilitation plan, thereby violating Section 5, Rule 4 of the Interim Rules, the rule applicable at the
time of the filing of the petition for rehabilitation. In that regard, Basic Polyprinters made no
commitment in relation to the infusion of fresh capital by its stakeholders, and presented only a
“lopsided” protracted repayment schedule that included the dacion en pago involving an asset
mortgaged to the petitioner itself in favor of another creditor.

Issue:
Whether or not the approval of the rehabilitation plan was proper despite: (a) the alleged insolvency of
Basic Polyprinters; and (b) absence of a material financial commitment pursuant to Section 5, Rule 4
of the Interim Rules.

Ruling:

No. The approval was improper, but liquidity was not an issue in a petition for rehabilitation. 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.24 Consequently, the basic issues in
rehabilitation proceedings concern the viability and desirability of continuing the business operations
of the petitioning corporation.

Moreover, FRIA has defined a corporate debtor as a corporation duly organized and existing under
Philippine laws that has become insolvent.The term insolvent is defined in R.A.No. 10142 as “the
financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the
ordinary course of business or has liabilities that are greater than its or his assets.”28 As such, the
contention that rehabilitation becomes inappropriate because of the perceived insolvency of Basic
Polyprinters was incorrect.

A material financial commitment is significant in a rehabilitation plan. A material financial commitment

becomes significant in gauging the resolve, determination, earnestness and good faith of the
distressed corporation in financing the proposed rehabilitation plan.

The commitment to add P10,000,000.00 working capital appeared to be doubtful considering that the
insurance claim from which said working capital would be sourced had already been written off by
Basic Polyprinters’s affiliate, Wonder Book Corporation.34 A claim that has been written off is
considered a bad debt or a worthless asset,35 and cannot be deemed a material financial
commitment for purposes of rehabilitation.

Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it intended to
address the low demands for their products and the effect of direct competition from stores like SM,
Gaisano, Robinsons, and other malls. Even the P245 million insurance claim that was supposed to
cover the destroyed inventories worth P264 million appears to have been written off with no
probability of being realized later on.

Phil. Asset Growth and Planters Development Bank vs. Fastech Synergy Phil., GR No. 206528, June
28, 2016

Facts:

Respondents filed a verified Joint Petition for corporate rehabilitation. Among the common creditors
listed in the rehabilitation petition was Planters Development Bank (PDB), which had earlier filed a
petition for extrajudicial foreclosure of mortgage over the two (2) parcels of land and registered in the
name of Fastech Properties (subject properties), listed as common assets of respondents in the
rehabilitation petition. PDB was the highest bidder. Respondents claimed that this situation has
impacted on their chance to recover from the losses they have suffered over the years, since the said
properties are being used by Fastech Microassembly and Fastech Electronique17 in their business
operations, and a source of significant revenue for their owner-lessor, Fastech Properties.
RTC Makati dismissed the rehabilitation petition despite the favourable recommendation of its
appointed Rehabilitation Receiver. It found the facts and figures submitted by respondents to be
unreliable in view of the disclaimer of opinion of the independent auditors who reviewed respondents’
2009 financial statements, which it considered as amounting to a “straightforward unqualified adverse
opinion.

CA reversed RTC. It ruled that the RTC-Makati grievously erred in disregarding the report/opinion of
the Rehabilitation Receiver that respondents may be successfully rehabilitated, despite being highly
qualified to make an opinion on accounting in relation to rehabilitation matters.

Considering that respondents’ creditors are placed in equal footing as a necessary consequence, it
permanently enjoined PDB from “effecting the foreclosure” of the subject properties during the
implementation of the Rehabilitation Plan.

Petitioners are now claiming that the CA erred in not upholding the dismissal of the rehabilitation
petition despite the insufficiency of the RP which was based on financial statements that contained
misleading statements, and financial projections that are mere unfounded assumptions/speculations
Issue:

Whether or not the Rehabilitation Plan is feasible.

Ruling:

No. Rehabilitation shall refer to the restoration of the debtor to a condition of successful
operation and solvency, if it is shown that its continuance of operation is economically feasible and
its creditors can recover by way of the present value of payments projected in the plan, more if the
debtor continues as a going concern than if it is immediately liquidated. Thus, the basic issues in
rehabilitation proceedings concern the viability and desirability of continuing the business operations
of the distressed corporation,79 all with a view of effectively restoring it to a state of solvency or to its
former healthy financial condition through the adoption of a rehabilitation plan.

In the present case, however, the Rehabilitation Plan failed to comply with the minimum requirements,
i.e.: (a) material financial commitments (same with Basic Polyprinters case) to support the
rehabilitation plan; and (b) a proper liquidation analysis. Section 18, Rule 3 of the 2008 Rules of
Procedure on Corporate Rehabilitation80 (Rules)- The rehabilitation plan shall include (c) the
material financial commitments to support the rehabilitation plan;

The Court also notes that while respondents have substantial total assets, a large portion of the
assets of Fastech Synergy and Fastech Properties is comprised of noncurrent assets. Respondents
likewise failed to include any liquidation analysis in their Rehabilitation Plan. The total liquidation
assets and the estimated liquidation return to the creditors, as well as the fair market value vis-à-vis
the forced liquidation value of the fixed assets were not shown. As such, the Court could not ascertain
if the petitioning debtor’s creditors can recover by way of the present value of payments projected in
the plan, more if the debtor continues as a going concern than if it is immediately liquidated. This is a
crucial factor in a corporate rehabilitation case, which the CA, unfortunately, failed to address.

(The test in evaluating the economic feasibility was mentioned; it was laid down in BPI v. Sarabia
Manor Hotel Corporation, case no. 4) 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.

Bustos vs, Millians Shoe Inc., GR No. 185024, April 4, 2017

Facts:
Spouses Cruz owned a 464- square-meter lot. The City Government of Marikina levied the property
for nonpayment of real estate taxes. The Notice of Levy was annotated on the title on. On 14 October
2004, the City Treasurer of Marikina auctioned off the property, with petitioner emerging as the
winning bidder.

Petitioner then applied for the cancellation of TCT. The RTC Marikina ordered the cancellation of the
previous title and the issuance of a new one under the name of petitioner. Meanwhile, notices of lis
pendens were annotated on the TCT. It involved the rehabilitation proceedings for MSI, covered the
subject property and included it in the Stay Order issued by the RTC dated 25 October 2004.

Petitioner moved for the exclusion of the subject property from the Stay Order. He claimed that the lot
belonged to Spouses Cruz who were mere stockholders and officers of MSI. He further argued that
since he had won the bidding of the property on 14 October 2004, or before the annotation of the title
on 9 February 2005, the auctioned property could no longer be part of the Stay Order.

RTC denied the entreaty of petitioner: the period of redemption up to 15 October 2005 had not yet
lapsed at the time of the issuance of the Stay Order on 25 October 2004, the ownership thereof had
not yet been transferred to petitioner.

CA : The Cruz Spouses were still the owners of the land at the time of the issuance of the stay order.
The said parcel of land which secured several mortgage liens for the account of MSI remains to be an
asset of the Cruz Spouses, who are the stockholders and/or officers of MSI, a close corporation. As
an exception to the general rule, in a close corporation, the stockholders and/or officers usually
manage the business of the corporation and are subject to all liabilities of directors, i.e., personally
liable for corporate debts and obligations. Thus, the Cruz Spouses being stockholders of MSI are
personally liable for the latter’s debt and obligations.

Issue:

Whether or not the CA correctly considered the properties of Spouses Cruz answerable for the
obligations of MSI. If yes, then it is properly included in the Stay Order.
Ruling:

NO. In rehabilitation proceedings, claims of creditors are limited to demands of whatever nature or
character against a debtor or its property, whether for money or otherwise. In several cases, we
have already held that stay orders should only cover those claims directed against corporations or
their properties, against their guarantors, or their sureties who are not solidarily liable with them, to the
exclusion of accommodation mortgagors.

Properties merely owned by stockholders cannot be included in the inventory of assets of a

corporation under rehabilitation. Given that the true owner the subject property is not the corporation,
petitioner cannot be considered a creditor of MSI but a holder of a claim against respondent spouses.

Allied Banking Corp. vs. Equitable PCI Bank, GR No. 191939, March 14, 2018

Facts:

Respondent Equitable PCI Bank, Inc., as creditor, filed a petition for the corporate rehabilitation of
its debtor Steel Corporation of the Phil. with the RTC. It alleged that due to the onslaught of the 1997
Asian Financial Crisis, ....; that SCP also defaulted on its loan obligations and that the petition for
corporate rehabilitation is grounded on the Interim Rules of Corporate Rehabilitation, which provides
that “.....or any creditor or creditors holding at least 25% of the debtor’s total liabilities, may petition the
proper Regional Trial Court to have the debtor placed under rehabilitation.”

On the other hand, petitionerAllied Banking Corporation (ABC) granted SCP with a revolving credit
facility denominated as a letter of credit/trust receipt line in the amount of P100 million, which SCP
availed of to finance the importation of its raw materials.
RTC issued an Order granted EPCIB’s petition.

Petitioner applied the remaining proceeds of SCP’s Current Account in the amount of P6,750,000.00,
maintained with its Aguirre Branch, to its obligations under the TR. SCP filed an urgent omnibus
motion alleging that petitioner violated the rehabilitation
court’s stay order when it applied the proceeds of its current account to the payment of obligations
covered by the stay order. Petitioner ABC filed an opposition, mainly contending that SCP’s
obligations with it had become due and demandable, rendering legal compensation valid and proper;

RTC granted SCP’motion. CA affirmed RTC and further ruled that the subject account was already
under custodia legis by virtue of the stay order, rendering ABC’s unilateral application of the proceeds
in the subject account improper.

Issue:

Whether or not the rehabilitation court can reverse or invalidate acts that are inconsistent with its stay
order and are made after its issuance but prior to its publication.

Ruling:

YES. The petition itself, when granted by the court, is already a recognition of the debtor’s distressed
financial status not only at the time the order is issued, but also at the time the petition is filed. It is,
therefore, more consistent with the objectives of rehabilitation to recognize that the effects of an order
commencing rehabilitation proceedings and staying claims against the debtor should retroact to the
date the petition is filed.

The immediate effectivity of the stay order means that the RTC, through an order commencing
rehabilitation and staying claims against the debtor, acknowledges that the debtor requires
rehabilitation immediately and therefore it can not only prohibit but also nullify acts made after its
effectivity, when such acts are violative of the stay order, to prevent any irreparable detriment to the
debtor’s successful restoration.

Metropolitan Bank vs. Fortuna Paper Mill, GR No. 190800, November 7, 2018

Facts:

MBTC extended various credit accommodations and loan facilities to Fortuna. Fortuna, before the
closure of its business and cessation of its operations in 2006, was organized to manufacture special
and craft papers from, waste and scrap materials, and which it used to sell its products principally to
manufacturers of corrugated boxes, cement paper bags, and other stationary paper products.

Fortuna mortgaged to MBTC its real and movable properties as well as several pieces of realty owned
by several sister companies. Fortuna defaulted on its obligations to MBTC, and failed to pay said
indebtedness despite repeated demands on the part of MBTC.

Instead of paying the overdue obligations to MBTC, Fortuna filed a Petition for Corporate
Rehabilitation. Attached therein was Fortuna's proposed RP, which consisted mainly of (i) the
resumption and continuance of its business, to be made possible by the entry of a supposed investor
and a debt moratorium on principal interest, and (ii) entry into the business condominium
development.

RTC approved the RP. The CA affirmed RTC as it found that the rehabilitation was feasible, and the
opposition of the petitioning creditors was manifestly unreasonable.

MBTC argues that a corporation may petition that it be placed under rehabilitation only if it is in the
financial condition of a debtor who foresees the majority of its debts and its failure to meet them.
Issue:

Whether or not the CA erred in affirming the Rehabilitation Plan approved by the RTC.
Ruling:

YES, BUT CASE WAS DISMISSED FOR BEING MOOT AND ACADEMIC. The RTC's Order
terminating the rehabilitation proceedings effectively puts an end to the judicial controversy between
the parties. Nonetheless, this Court still considers it necessary to touch on the question of whether or
not a corporation in debt may qualify for coiporate rehabilitation, Fortuna in this case, despite the
finding of the lower court, belatedly brought to this Court's attention. Ruling on the merits despite a
ruling of the lower court rendering the case moot and academic, is not novel.

Fortuna is qualified to file for corporate rehabilitation. Rehabilitation refers to the restoration of the
debtor to a condition of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the present value of
payments projected in the plan, more if the debtor continues as a going concern than if it is
immediately liquidated.

A plain reading of the provision shows that the Interim Rules does not make any distinction between a
corporation which is already in debt and a corporation which foresees the possibility of debt, or which
would eventually yet surely fall into the same, but may at present be free from any financial liability.

Upon cursory reading of the report and recommendation of Atty. Teston, it can be seen that Fortuna
maintains a status of solvency, having more assets than its liabilities with a 71M margin. However,
even hypothetically granting that Fortuna is already in a state of insolvency, the Court finds that is not
precluded from filing its Rehabilitation Petition to facilitate its restoration to its former business'
stability. Fortuna is seeking a fresh start to lift itself from its present financial predicament. Thus, the
foreseen viable rehabilitation of Fortuna would be more advantageous to the business community and
its creditors rather than proceed with its liquidation which may possibly lead to its eventual corporate
death.