FRIA Report Final

Group Report on FRIA 2010
2015
I. HISTORY:
The Philippines is facing a rosy economic outlook. Amidst slowdowns and
financial crises abroad, it has recently been dubbed as an emerging Asian tiger, a
star performer in Asia, and a truly remarkable hot spot in Asia that can become
one of the world's top economies by 2050.
Indeed, with the increasing investor confidence and the proliferation of small and
medium-scale local enterprises, the Philippines is a viable competitor in the race to
becoming a lead economy in South East Asia.
However, to win this race, it is crucial for the country to lay down its economic
fundamentals properly. One of the structural frameworks that need to be put in place is
a sound insolvency system.
The primary objective of an insolvency system is to reallocate resources and
distribute liabilities. Its ultimate goals are to increase the competitiveness of industries,
promote investor confidence, and achieve economic growth. It is imperative, therefore,
that the law, rules and supporting systems put in place by the government be able to
keep viable businesses operating. This means avoiding premature liquidation of
sustainable businesses.
Our first insolvency law, Act No. 1956 (Insolvency Law), was enacted on 20
May 1909. The Insolvency Law traces origin to American laws. Specifically, it was
derived from the Insolvency Act of California, with a few provisions taken from the
American Bankruptcy Law .
Under the Insolvency Law, jurisdiction over suspension of payments and
insolvency was vested in the Courts of First Instance (now the Regional Trial Courts).
This changed in 1981, when Presidential Decree No. 1758 amended Section 6 of
Presidential Decree No. 902-A (PD 902-A), otherwise known as the SEC
Reorganization Act which was promulgated by then President Ferdinand Marcos it
gave the SEC jurisdiction over suspension of payments cases filed by corporations,
partnerships or associations. For the first time in our legal history, P.D. 902-A, as
amended, introduced the remedy of rehabilitation.
FRIA adopted the best practices of ADB Insolvency Reform Guide
Since the ASIAN financial crisis in 1997, the Asian Development Bank was
extensively involved in helping ASEAN countries reform their insolvency systems. In
2002, it undertook a regional technical project (RETA No. 5975: Promoting Regional
Cooperation in the Development of Insolvency), which involved four ASEAN countries
(i.e., Indonesia, Korea, Philippines and Thailand) which suggests several principles that
should be taken into account in improving insolvency systems.
On 8 August 2000, Republic Act No. 8799, otherwise known as the Securities
Regulation Code, came into effect. It reverted jurisdiction over rehabilitation cases from
the SEC to the courts of general jurisdiction or the appropriate Regional Trial Courts.
1|Page
2015
On December 15 of the same year, the Supreme Courts Interim Rules of

Procedure on Corporate Rehabilitation became effective.
The Interim Rules laid down the guidelines for filing a petition for rehabilitation,
either by the debtor or the creditor(s), and outlined the powers and functions of the
rehabilitation receiver, among others.
On 16 January 2009, or more than eight (8) years after its promulgation, the
Supreme Court amended the Interim Rules. 41 The Insolvency Law, however,
continued to remain in force and effect.
It was only on 18 July 2010 that this century-old law was replaced by Republic
Act No. 10142, otherwise known as the Financial Rehabilitation Act (FRIA).
Prior to the enactment of the FRIA, rules and procedures on suspension of
payments, corporate rehabilitation, insolvency and liquidation were scattered and
embodied in different laws and Supreme Court issuances. The FRIA effectively
repealed the provisions found in the Insolvency Law.
2|Page
2015
II. The Law - Financial Rehabilitation and Insolvency Act of 2010

A. Modes of Rehabilitation
1. Court-supervised Rehabilitation
Diagram 1. Procedure in Court-supervised Rehabilitation

i.
Petition (Sec. 12 and 14)

BOTH INVOLUNTARY AND VOLUNTARY
Indentification of Debtor
Specific relief sought
Rehabilitation Plan
Names of atleast 3 nominees for Rehab Receiver
Other docs & info required under this act
VOLUNTARY
INVOLUNTARY
Statement of
cause
of
debtors Circumstances sufficient to
insolvency/inability to pay debts when petition
due
Grounds/ basis of petition
Schedule of debts, Creditor claims & list
of claims
Inventory of assets and receivables
Table 1 Contents of Petition
3|Page
support
2015
ii.
Commencement Order (Sec. 16)
The Commencement shall:
Identify Debtor and summarize grounds for initiating proceedings

Declare that the debtor is under rehabilitation;
Direct publication of the Order and notice to creditors;
Appoint a rehabilitation receiver;
Set the date of the initial hearing for the determination WON the debtor can be
rehabilitated;
Direct all creditors to file their claims at least 5 days from initial hearing;
Direct the govt through the BIR to either file its Comment to the Petition or
present its claims against the debtor.
Set case for hearing not more than 40 days from filing date
The imposition of all taxes and fees, including penalties interests and charges
thereof, due to the national government or to LGUs shall be considered waived
(sec 19);
Prohibit Debtors suppliers from withholding supply of goods. & services in
ordinary course of business
Copies of the petition be available for examination and copying, and location of
such documents;
Include a SUSPENSION or STAY ORDER
iii.
Suspension or Stay Order

Prohibits the sale or disposition of assets of the debtor except ordinary course
of business
Actions to enforce judgment, attachments or other provisional remedies
Ordering the suspension of all actions against the debtor and/or the debtors
estate.
EQUALITY IN EQUITY (Tsuneishi Inc. v Negros Navigation, GR No. 166845,
10 December 2008) but -- Section 60 (FRIA) issuance of Stay or Suspension
Order shall not be deemed in any way to diminish or impair the security or
lien of a secured creditor, or the value of his lien or security, except that his
right to enforce said security or lien may be suspended during the term of the
Stay Order
Exceptions to the Suspension or Stay Order (Sec. 18)

a. to cases already pending appeal in the Supreme Court as of
commencement date Provided, That any final and executory judgment
arising from such appeal shall be referred to the court for appropriate
action;
4|Page
2015
b. subject to the discretion of the court, to cases pending or filed at a

specialized court or quasi-judicial agency which, upon determination by
the court is capable of resolving the claim more quickly, fairly and
efficiently than the court: Provided, That any final and executory judgment
of such court or agency shall be referred to the court and shall be treated
as a non-disputed claim;
c. to the enforcement of claims against sureties and other persons solidarily
liable with the debtor, and third party or accommodation mortgagors as
well as issuers of letters of credit, unless the property subject of the third
party or accommodation mortgage is necessary for the rehabilitation of the
debtor as determined by the court upon recommendation by the
rehabilitation receiver;
d. to any form of action of customers or clients of a securities market
participant to recover or otherwise claim moneys and securities entrusted
to the latter in the ordinary course of the latter's business as well as any
action of such securities market participant or the appropriate regulatory
agency or self-regulatory organization to pay or settle such claims or
liabilities;
e. to the actions of a licensed broker or dealer to sell pledged securities of a
debtor pursuant to a securities pledge or margin agreement for the
settlement of securities transactions in accordance with the provisions of
the Securities Regulation Code and its implementing rules and
regulations;
f. the clearing and settlement of financial transactions through the facilities
of a clearing agency or similar entities duly authorized, registered and/or
recognized by the appropriate regulatory agency like the Bangko Sentral
ng Pilipinas (BSP) and the SEC as well as any form of actions of such
agencies or entities to reimburse themselves for any transactions settled
for the debtor; and
g. any criminal action against individual debtor or owner, partner, director or
officer of a debtor shall not be affected by any proceeding commenced
under this Act.
iv.
Avoidance Proceedings
Any transaction occurring prior to commencement date entered by the debtor, or

involving funds or assets may be rescinded or declared null and void on the ground that
the same was executed with intent to defraud creditor/s which constitutes undue
preference of creditors.
Disputable presumption when:
Provides reasonable inadequate consideration to the debtor and executed within

90 days prior to commencement date.
Involves accelerated payment of a claim to a creditor within 90 days prior to
commencement date
5|Page
2015
Creditors involving, or has obtained or received benefit MORE than its pro rata
share in the assets of debtor beyond reach of creditors or are prejudicial to
interests of creditors;
Intended to defeat, hinder, and delay creditors from collecting claims.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if the following cricumstances are present:
Rehab plan complies with requirements under this act.

Rehab receiver recommends confirmation of plan
Stockholders, owners, partners, lose at least their controlling interest as a result
of the plan
Likely provide objecting class of creditors compensation greater than they would
receive when debtor is under liquidation (Sec. 64)
Diagram 1
6|Page
2.
2015
Pre-negotiated Rehabilitation
Diagram 2
3.
Out of Court Rehabilitation (Sec.84)
Diagram 3
Debtor must agree with an out-of-court rehabilitation plan;

approved by creditors representing at least 67% of the secured obligations of the
debtor;
approved by creditors representing at least 75% of the unsecured obligations of
the debtor; AND
7|Page
2015
approved by creditors representing at least 85% of TOTAL liabilities, secured and

unsecured, of the debtor.
B. The Rehabilitation Receiver

i. Who may serve as a Rehabilitation Receiver?
Section 28: Any person qualified natural or juridical person may serve as a rehabilitation
receiver.
Section 29: enumerates the minimum qualifications of a rehabilitation receiver, to wit:
A citizen of the Philippines or a resident in the 6 months immediately preceding

his nomination;
Of good moral character and with acknowledged integrity, impartiality and
independence;
Has requisite knowledge of insolvency and other relevant commercial laws, rules
and procedures as well as other relevant training and education necessary to
enable him to properly discharge his duties and obligations;
No conflict of interest; such conflict may be waived, expressly or impliedly by a
party who may be prejudiced thereby.
Section 40 provides situations where an individual may be deemed to
have conflict of interest.
(a) He is a creditor, owner, partner or stockholder of the debtor;
(b) He is engaged in a line of business which competes with that of the
debtor;
(c) He is, or was, within 5 years from the filing of the petition, a director,
officer, owner, partner or employee of the debtor or any of the creditors, or
the auditor or the accountant of the debtor.
(d) He is, or was, within 2 years from the filing of a petition, an underwriter
of the outstanding securities of the debtor.
(e) He is related by consanguinity or affinity within the fourth civil degree to
any individual creditor, owners of a sole proprietorship-debtor, partners of
a partnership-debtor or to any stockholder, director, officer, employee or
underwriter of a corporation-debtor; or
(f) He has any other direct or indirect material interest in the debtor or any
of the creditors.
ii. Initial appointment of the Rehabilitation Receiver
8|Page
The court shall initially appoint the rehabilitation receiver, who may or may
not be from among the nominees.
However, at the initial hearing of the petition, the creditors and debtor who
2015
are not petitioners may nominate another person. The court may: 1.)
retain the person initially appointed, or 2.) appoint another who may or
may not be from among the nominees.
If the debtor is a securities market participant court gives priority to
nominee of the appropriate secured or investor protection fund.
If a qualified natural person is nominated by MORE THAN 50% of the
secured creditors and general unsecured creditors, with satisfactory
evidence, the court shall appoint the person nominated by the creditors.
iii. Powers, duties and responsibilities of the rehabilitation receiver

The rehabilitation receiver shall be deemed an officer of the court with the
principal duty of:
1. PRESERVING and MAXIMIZING the assets of the debtor during the
rehabilitation proceedings;
2. DETERMINING the viability of the rehabilitation of the debtor;
3. PREPARING and RECOMMENDING a rehabilitation plan; and
4. IMPLEMENTING the approved rehabilitation plan.
The duties and responsibilities of the rehabilitation receiver shall include, but
shall not be limited to the following:
(a) To verify the accuracy of the factual allegations in the petition;
(b) To verify and correct, if necessary, the inventory of all the assets of the debtor
and their valuation;
(c) To verify and correct, if necessary, the schedule of the debts and liabilities of
the debtor;
(d) To evaluate the validity, genuineness and true amount of all the claims
against the debtor;
(e) To take possession, custody and control, and to preserve the value of all the
property of the debtor;
(f) To sue and recover, with the approval of the court, all amounts owed to, and
all properties pertaining to the debtor;
(g) To have access to all information necessary, proper or relevant to the
operations and business of the debtor and for its rehabilitation;
(h) To sue and recover, with approval of the court, all money or property of the
debtor paid, transferred or disbursed in fraud of creditors, or which constitute undue
preference of credit;
9|Page
2015
Initiate and prosecute any action to rescind, or declare null and void any
transaction done in fraud of creditors. (Section 59)
(i) To monitor the operations and the business of the debtor to ensure that no
payments or transfers of property are made other than in the ordinary course of
business;
May apply in court for authority to sell unencumbered property of the

debtor outside the ordinary course of business upon a showing that the property,
by its nature or because of other circumstance, is perishable, costly to maintain,
susceptible to devaluation or otherwise in jeopardy. (Section 49)
(j) With the courts approval, to engage the services of or to employ persons or
entities to assist him in the discharge of his functions;
(k) To determine the manner by which the debtor may best be rehabilitated;
(l) To implement the rehabilitation plan;
(m) To assume an exercise the powers of management of the debtor pursuant to
Section 36 hereof;
May be appointed and directed, upon motion of any interested party, to assume
the powers of management of the debtor upon clear and convincing evidence of the
following circumstances:
Actual or imminent danger of dissipation, loss, wastage or destruction of
debtor's assets or other properties;
Paralyzation of the business operations of the debtor; or
Gross mismanagement of the debtor (Section 36)
(n) To exercise such other powers as may, from time to time, be conferred upon
him by the court; and to submit a status report every quarter as may be required by the
court motu proprio, or upon motion of any creditor, or as may be provided in the
Rehabilitation Plan.
iv. Removal of the rehabilitation receiver
The rehabilitation receiver may be removed by the court AT ANY TIME either
motu proprio or upon motion by any creditor/s holding MORE THAN 50% of the total
obligation of the debtor on such grounds as the rules of procedure may provide which
shall include, but shall not be limited to the following:
1. Incompetence, gross negligence, failure to perform proper degree of diligence
in the performance of his duties.
2. Lack of particular competency required by the specific case.
3. Illegal acts in the performance of his duties.
4. Lack of qualifications and presence of any disqualification.
10 | P a g e
2015
5. Conflict of interest arises after his appointment.

6. Manifest lack of independence that is detrimental to the general body of the
stakeholders.
C. Liquidation Proceedings
This is the proceeding where claims are filed and the assets of the insolvent
debtor are disposed and the proceeds are divided among the creditors. Applies to
individual debtors, sole proprietorships, partnerships and corporation.
Liquidation of Juridical Debtors
A. Voluntary Liquidation (Sec. 90, FRIA)
An insolvent debtor may apply for liquidation by filing a petition for
liquidation with the court. The petition shall be verified, shall establish the
insolvency of the debtor and shall contain, whether as an attachment or as part
of the body of the petition:
a) schedule of debts & liabilities, list of creditors with their addresses,
amounts of claims and collaterals, or securities if any;
b) Inventory of all its assets including receivables and claims against
third parties; and
c) Names of at least three (3) nominees to the position of liquidator.
At any time during the pendency of court-supervised or pre negotiated
rehabilitation proceedings, the debtor may also initiate liquidation proceedings by
filing a motion in the same Court where the rehabilitation proceedings are
pending to convert the rehabilitation proceedings into liquidation proceedings.
If the petition or the motion, as the case may be, is sufficient in form and
substance, the court shall issue a Liquidation Order
B. Involuntary Liquidation (Sec. 91, FRIA)
Who may file a petition:
Three (3) or more creditors the aggregate of whose claims is at least
either One million pesos (1 Million Pesos) or at least twenty-five percent (25%) of
the subscribed capital stock or partner's contributions of the debtor, whichever is
higher. The petition must show that:
a) there is no genuine issue off act or law on the claim/s of the
petitioner/s, and that the due and demandable payments thereon
have not been made for at least one hundred eighty (180) days or
that the debtor has failed generally to meet its liabilities as they fall
due
11 | P a g e
2015
b) There is no substantial likelihood that the debtor may be

rehabilitated.
If the petition or the motion is sufficient in form and substance, the court
shall issue an order:
1. Directing the publication of the petition or motion in a newspaper of
general circulation once ,a week for two (2) consecutive weeks
2. Directing the debtor and all creditors who are not the petitioners to file
their comment on the petition or motion within fifteen (15) days from
the date of last publication
If, after considering the comments filed, the court determines that the petition or
motion is meritorious, it shall issue the Liquidation Order.
Liquidation of Individual Debtors
A. Voluntary Liquidation (Sec. 103, FRIA)
An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debs exceeding Five hundred thousand pesos
(Php500,000.00), may apply to be discharged from his debts and liabilities by
filing a verified petition with the court of the province or city in which he has
resided for 6 months prior to the filing of such petition.
He shall attach to his petition a schedule of debts and liabilities and an
inventory of assets. The filing of such petition shall be an act of insolvency.
B. Involuntary Liquidation (Sec. 105, FRIA)
Who may file a petition:
Any creditor or group of creditors with a claim of, or with claims
aggregating, at least Five hundred thousand pesos (Php500.00) may file a
verified petition for liquidation with the court of the province or city in which the
individual debtor resides.
Note: The petition for liquidation shall set forth or allege at least one Acts of
insolvency.
Acts of Insolvency (Sec. 105, FRIA)
1. That such person is about to depart or has departed from the Republic of
the Philippines, with intent to defraud his creditors;
2. That being absent from the Republic of the Philippines, with intent to
defraud his creditors, he remains absent
3. That he conceals himself to avoid the service of legal process for the
purpose of hindering or delaying the liquidation or of defrauding his
creditors
12 | P a g e
2015
4. That he conceals, or is removing, any of his property to avoid its being

attached or taken on legal process;
5. That he has suffered his property to remain under attachment or legal
process for three (3) days for the purpose of hindering or delaying the
liquidation or of defrauding his creditors
6. That he has confessed or offered to allow judgment in favor of any creditor
or claimant for the purpose of hindering or delaying the liquidation or of
defrauding any creditor or claimant
7. That he has willfully suffered judgment to be taken against him by default
for the purpose of hindering or delaying the liquidation or of defrauding his
creditors
8. That he has suffered or procured his property to be taken on legal process
with intent to give a preference to one or more of his creditors and thereby
hinder or delay the liquidation or defraud anyone of his creditors
9. That he has made any assignment, gift, sale, conveyance or transfer of
his estate, property, rights or credits with intent to hinder or delay the
liquidation or defraud his creditors;
10. That he has, in contemplation of insolvency, made any payment, gift,
grant, sale, conveyance or transfer of his estate, property, rights or credits;
11. That being a merchant or tradesman, he has generally defaulted in the
payment of his current obligations for a period of thirty (30) days;
12. That for a period of thirty (30) days, he has failed, after Demand, to pay
any moneys deposited with him or received by him in a fiduciary capacity;
and
13. That an execution having been issued against him on final judgment for
money, he shall have been found to be without sufficient property object to
execution to satisfy the judgment.
Individual Debtor to Show Cause (Sec. 106 & 107, FRIA)
Upon the filing of such creditors' petition, the court shall issue an
Order requiring the individual debtor to show cause, at a time and place to
be fixed by the said court, why he should not be adjudged an insolvent.
If the issues are found in favor of the petitioning creditors, the court
shall issue the Liquidation Order.
Liquidation Order (Sec. 112, FRIA).
The Court has Jurisdiction over the liquidation proceedings shall, in proper
case issue a Liquidation Order which includes:
a) declare the debtor insolvent;
b) order the liquidation of the debtor and, in the case of a juridical
debtor, declare it as dissolved;
c) order the sheriff to take possession and control of all the property of
the debtor, except those that may be exempt from execution;
13 | P a g e
2015
d) order the publication of the petition or motion in a newspaper of

general circulation once a week for two (2) consecutive weeks;
e) direct payments of any claims and conveyance of any property due
the debtor to the liquidator;
f) prohibit payments by the debtor and the transfer of any property by
the debtor;
g) direct all creditors to file their claims with the liquidator within the
period set by the rules of procedure;
h) authorize the payment of administrative expenses as they become
due;
Effects of the Liquidation Order (Sec. 113, FRIA)
a) the juridical debtor shall be deemed dissolved and its corporate or
juridical existence terminated;
b) legal title to and control of all the assets of the debtor, except those
that may be exempt from execution, shall be deemed vested in the
liquidator or, pending his election or appointment with the court;
c) all contracts of the debtor shall be deemed terminated and/or
breached, unless the liquidator, within ninety (90) days from the
date of his assumption of office, declares otherwise and the
contracting party agrees;
d) no separate action for the collection of an unsecured claim shall be
allowed Such actions already pending will be transferred to the
Liquidator;
e) No foreclosure proceeding shall be allowed for a period of one
hundred eighty (180) days.
Liquidator (Sec 115, FRIA)
Only creditors who have filed their claims within the period set by the
court, and whose claims are not barred by the statute, of limitations, will be
allowed to vote in the election of the liquidator. A secured creditor will not be
allowed to vote, unless: (a) he waives his security or lien; or (b) has the value of
the property subject of his security or lien fixed by agreement with the liquidator,
and is admitted for the balance of his claim. The nominee receiving the highest
number of votes and qualified under this law, shall be appointed as the
Liquidator.
Qualifications of the Liquidator (Sec. 118, FRIA)
The liquidator shall have the qualifications enumerated in Section 29
hereof. He may be removed at any time by the court for cause, either motu
proprio or upon motion of any creditor entitled to vote for the election of the
liquidator.
14 | P a g e
2015
Powers, Duties and Responsibilities of the Liquidator. (Sec. 119, FRIA)

The liquidator shall be deemed an officer of the court with the principal
duty of preserving and maximizing the value and recovering the assets of the
debtor, with the end of liquidating them and discharging to the extent possible all
the claims against the debtor.
Suspension of payment (Sec. 94, FRIA)
Postponement of payment through a court order of an individual debtor who,
while possessing sufficient property to cover all his debts, foresees the
impossibility of meeting them when they respectfully fall due.
Requisites for filling petition:
a) Possessing sufficient property to cover all his debts
b) Foreseeing the impossibility of meeting them when they fall due
c) Petitioning that he be declared in a state of suspension of payments
d) Petition must be filed in the Court of the Province/City in which he resides
for 6months prior to the filling.
e) Petition must be verified
Attachment upon filling Petition:
a) Schedule of debts and liabilities
b) Inventory of its Assets
c) Proposed agreement with his creditor
Action on the Petition (Sec.95, FRIA).
a) Calling a meeting of all the creditors not less than fifteen (15) days nor
more than forty (40) days from the date of such Order & designating a
meeting. (creditors meeting)
b) Directing such creditors to prepare and present written evidence of their
claims.
c) Directing the publication of the said order in a newspaper of general
circulation.
d) Directing the clerk of court to cause the sending of a copy of the Order by
registered mail, postage prepaid, to all creditors.
PROHIBITED ACTS (Sec.95, FRIA).
The Individual debtor is prohibited (in the Order to be issued by the Court
after filling the Petition for Suspension of Payments) from:
1. Selling, transferring, encumbering or disposing in any manner of his
property, except those used in the ordinary operations of commerce or
of industry in which the petitioning individual debtor is engaged, so
long as the proceedings relative to the suspension of payments are
pending.
15 | P a g e
2015
2. Making any payment outside of the necessary or legitimate expenses

of his business or industry, so long as the proceedings relative to the
suspension of payments are pending.
Actions Suspended (Sec. 96, FRIA)
The properties held as security by secured creditors shall not be
the subject of such suspension order. The suspension order shall lapse
when three (3) months shall have passed without the proposed agreement
being accepted by the creditors or as soon as such agreement is denied.
No creditor shall sue or institute proceedings to collect claim from
the debtor from the time of the filing of the petition for suspension of
payments and for as long as proceedings are pending.
Creditors' Meeting. (Sec. 97, FRIA)
The presence of CREDITORS holding claims amounting to at least threefifths (3/5) of HIS liabilities shall be necessary for holding a meeting. The
commissioner appointed by the court shall preside over the meeting and the clerk
of court shall act as the secretary thereof, subject to the following rules:
a) The clerk shall record the creditors present and amount of their
respective claims;
b) The commissioner shall examine the written evidence of the claims. If
the creditors present hold at least three-fifths (3/5) of the liabilities of
the individual debtor, the commissioner shall declare the meeting open
for business;
c) The creditors and individual debtor shall discuss propositions in the
proposed agreement and put them to a vote;
d) To form a majority, it is necessary:
1) that two-thirds (2/3) of the creditors voting unite upon the same
proposition;
2) that the claims represented by said majority vote amount to at
least three-fifths (3/5) of the total liabilities of the debtor
mentioned in the petition; and
e) After the result of the voting has been announced, all protests made
against the majority vote shall be drawn up, and the commissioner and
the individual debtor together with all creditors taking part in the voting
shall sign the affirmed propositions.
D. Proceedings Ancillary to Other Insolvency or Rehabilitation

Section 137: Provides that the court shall issue orders, adjudicate claims and provide
other necessary assistance in the liquidation of a financial institution under rehabilitation
receivership established by a state-funded or state-mandated insurance system.
16 | P a g e
2015
Section 139: Provides for the adoption of the Model Law on Cross-Border Insolvency of
the United Nations Center for International Trade and Development as part of this Act.
The procedures in Cross-Border Insolvency Proceedings are as follows:
The court shall set a hearing in connection with an insolvency or

rehabilitation proceeding taking place in a foreign jurisdiction, upon the
submission of a petition by the representative of a foreign entity that is
the subject of the foreign proceeding.
The court may issue the following order:
1. Suspension of any action to enforce claims against the entity or
otherwise seize or foreclose on property of the foreign entity
located in the Philippines.
2. Requiring the surrender of property of the foreign entity to its
representative.
3. Other necessary relief.
These reliefs shall be granted upon the following considerations:

Protection of creditors n the Philippines and inconvenience of enforcing their
claim in a foreign proceeding.
The just treatment of all creditors through a unified insolvency or rehabilitation
proceeding.
Whether other jurisdictions have given recognition to the foreign proceeding.
The extent that the foreign proceeding recognizes the right of the creditors
and other interested parties.
The extent that the foreign proceeding has recognized and shown deference
to proceedings under this Act and previous legislations.
III. Cases
1.
Dissolution:
Aguirre vs. FQB 7 Inc.
G.R. No. 170770, January 9, 2013
Facts: On October 5, 2004, Aguirre filed in his individual capacity a complaint for intra
corporate dispute, injunction, inspection of corporate books and records, and damages
against respondent Nathaniel D. Bocobo, Priscila Bocobo and Antonio Bacobo.
The dispute springs from the GIS that Nathaniel and Priscila submitted to the
SEC on September 6, 2002 and the appointment of Antonio by Nathaniel as the
corporations attorney-in-fact, with the power of administration over the corporations
farm.The case, docketed as SEC Case No. 04-111077, was assigned to branch 24 of
the RTC of Manila.
Respondents failed, despite notice, to attend the hearing on Vitalianos application
for preliminary injunction. Thus the RTC granted the application based only on
Vitalianos testimonial and documentary evidence. The respondent filed a motion for an
17 | P a g e
2015
extension to file the pleadings warranted in response to the complaint. The RTC
subsequently denied this motion for being a prohibited pleading under Section 8, Rule 1
of the Interim Rules of Procedure Governing Intra-Corporate Controversies.
Aggrieved by the adverse decision, respondent filed a petition for certiorari in the
CA for the annulment of all the proceedings and issuances in the RTC of Manila on the
ground that it has no jurisdiction over the subject matter, which they defined as being an
agrarian dispute. They theorized that Vitalianos real goal in filing the Complaint was to
maintain custody of the corporate farm in Quezon Province. Since this land is
agricultural in nature, they claimed that jurisdiction belongs to the Department of
Agrarian Reform (DAR), not to the Manila RTC.
The Court of Appeals ruled that, the RTC committed a grave abuse of discretion
when it issued the preliminary injunction to remove the respondents from their positions
in the Board of Directors based only on Vitalianos self-serving and empty assertions.
The appellate court also held that the RTC does not have jurisdiction to entertain an
intra-corporate dispute when a corporation is already dissolved. Hence, this instant
petition.
Issue: Whether the RTC has jurisdiction over an intra-corporate dispute involving
dissolved corporation.
Ruling: The Supreme Court ruled in affirmative. They explained that Board of directors
of a dissolved corporation may continue to exercise its powers and act in behalf of the
corporation for the limited purpose of winding up and liquidating its corporate affairs. For
this reason, issues raised by the stockholder of the dissolved corporation against the
board are still covered by the summary rules on intra-corporate disputes. The nature of
the case as an intra-corporate dispute was not affected by the subsequent dissolution of
the corporation.
Jurisdiction over subject matter is conferred by law. RA 8799 conferred
Jurisdiction over intra-corporate controversies on courts of general jurisdiction or RTCs,
to be designated by the Supreme Court. Thus, as long as the nature of the controversy
is intra-corporate, the designated RTCs have the authority to exercise jurisdiction over
such cases.
In the case of Speed Distribution, Inc. vs. CA, the court used the TWO- TIER
Test to determine the nature of the dispute. In the said test two essential elements will
determine the nature of the dispute. The first element to consider is the Status or
relationship of the parties. The second element involves the nature of the question that
is subject to their controversy. The first element requires that the controversy must arise
out of intra-corporate or partnership relations between any or all of the parties and the
corporation, partnership, or association of which they are stockholders, members or
associates, between any or all of them and the corporation, partnership or association
of which they are stockholders, members or associates, respectively; and between such
corporation, partnership, or association and the State insofar as it concerns the
individual franchises. The second element requires that the dispute among the parties
be intrinsically connected with the regulation of the corporation. If the nature of the
controversy involves matters that are purely civil in character, necessarily, the case
does not involve an intra-corporate controversy.
18 | P a g e
2015
The Court further held that the nature of the case as an intra-corporate dispute
was not affected by the subsequent dissolution of the corporation.
Vigilla vs Philippine College of Criminology
G.R. No. 200094, June 10, 2013
Facts: PCC is a non-stock educational institution, while the petitioners were janitors,
janitresses and supervisor in the Maintenance Department of PCC under the
supervision and control of Atty. Florante A. Seril, PCC Senior Vice President for
Administration. However, the petitioners were made to understand upon application with
the respondent school that they were under MBMSI, a corporation engage in providing
janitorial services to clients, were Atty. Seril is also the president and General Manager
of the said corporation.
Sometime in 2008, The President of PCC, Mr. Gregory Bautista, discovered that
the Certificate of Incorporation of MBMSI had been revoked as of July 2, 2003. The
school then revoked and terminated their relationship with MBMSI, resulting to the
dismissal of the employees of MBMSI.
In September 2009, the dismissed employees filed their complaints for illegal
dismissal, reinstatement and demands for other benefits against MBMSI, Atty. Seril,
PCC and Bautista.
The Labor arbiter favored the petitioners contending that it is the PCC who was
actually the one which exercised control over the means and methods of the work of the
petitioners, thru Atty. Seril, who was acting, throughout the time in his capacity as
Senior VP of PCC, not as the President or GM of MBMSI.
In February 11, 2011 the NLRC affirmed the decision of LA after finding out that
MBMSI is just a labor only contractor. However, on April 28, 2011, it modified their
previous decision ruling that their award has been superseded by their respective
releases, waivers and quit claims. Aggrieved by the NLRC decision the petitioners
appealed in the CA. However, the appellate court denied the petition and affirm the
NLRC decisions in toto.
Issue: Whether their claims against the respondents were amicably settled by virtue of
the releases, waivers and quitclaims which they had executed in favor of MBMSI.
Sub-issue:
Whether the petitioners executed the said releases, waivers and quitclaims.
Whether a dissolved corporation can enter into an agreement such as
releases, waivers and quit-claims beyond the 3-year winding-up period under
section 122 of the Corporation Code.
Whether there is labor only contracting agreement.
Ruling: The executed releases, waivers and quitclaims are valid and binding
notwithstanding the revocation of a Certificate of Incorporation. The revocation does not
result in the termination of its liabilities. What is provided in Sec. 122 of the Corp. Law
is that the conveyance to the trustees must be made within the three-year period but
there is no time limit within which the trustees must complete a liquidation placed in
their hands. Even if no trustee is appointed or designated during the three-year period
of the liquidation of the corporation, the Court has held that the board of directors may
19 | P a g e
2015
be permitted to complete the corporate liquidation by continuing as "trustees" by legal

implication.
Furthermore, Sec. 145 of the same law provides that no liabilities, remedy or
right in favor of or against any corporation, its stockholders, members, directors,
trustees, or officers, shall be removed or impaired either by the subsequent dissolution
of said corporation.
2.
Liquidation
Barrameda vs. Rural Bank of Canaman
G.R. No. 176260, November 24 2010
Facts: Lucia Barrameda Vda. De Ballesteros filed a complaint for annulment of deed of
extrajudicial partition, Deed of Mortgage, and Damages with prayer for preliminary
injunction against her children and the Rural Bank of Canaman Inc. before the RTC of
Iriga.
During the pre-trial, RBCIs counsel filed a motion to withdraw after being
informed that PDIC would handle the case as RBCI had already been closed and
placed under receivership of the PDIC. Subsequently, The RBCI, through PDIC, filed a
motion to dismiss on the ground that the RTC of Iriga has no Jurisdiction over the
subject matter of the action. They quoted RA 7653 or the New Central Bank Act, which
constitutes the RTC of Makati as the liquidation court to assist PDIC in undertaking the
liquidation of RBCI.
The RTC of Iriga then issued an order granting the Motion to Dismiss based on
the case of Ong vs. CA wherein the SC held that the liquidation court shall have the
jurisdiction to adjudicate all claims against the bank whether they be against assets of
the insolvent bank, for Specific Performance, Breach of Contract, Damages or
whatever.
Not in conformity, Lucia appealed the ruling of the RTC in the CA. However, the
appellate court modified the RTC decision and ordered the consolidation of the Civil
case and the Liquidation case pending before the RTC of Makati.
Issue: Whether a liquidation court can take cognizance of a case wherein the main
cause of action is not a simple money claim against a bank ordered closed, placed
under receivership of the PDIC and undergoing liquidation proceeding.
Ruling: The liquidation court shall have jurisdiction to adjudicate all claims against the
bank whether they be against assets of the insolvent bank, for Specific Performance,
Breach of Contract, Damages or whatever.
The petitioner contends that the RTC court of Iriga already acquired jurisdiction
over the case and by applying the doctrine of the adherence of the jurisdiction the said
court must continue to exercise jurisdiction over the case until it is terminated. However
20 | P a g e
2015
the Court posited that such doctrine is not without any exception. In Garcia vs Martinez,
the court ruled that the rule on adherence of jurisdiction is not absolute and has
exceptions, one exception is that when the change in jurisdiction is curative in
character. RA 7650 is curative in nature since its main purpose is to prevent multiplicity
of actions, establish due process and orderliness in the liquidation of the bank. ( Ong vs
CA)
The Petitioner also questioned the validity of the consolidation of her civil case
and the liquidation case. The court upheld the validity of such consolidation considering
that Liquidation is defined as a single proceeding which consists of a number of cases
properly classified as claims.
Lucias Complaint involving annulment of deed of mortgage and damages falls
within the purview of a disputed claim in contemplation of section 30 of RA 7653. In the
case of Miranda vs PDIC, the Court explained that regular courts do not have
jurisdiction over actions filed by claimants against an insolvent bank unless there is a
clear showing that the action taken by BSP in the closure of the financial institutions
was in excess of jurisdiction or with grave abuse of discretion.
3.
Corporate Rehabilitation
Heirs of Santiago Divinagarcia vs. Ruiz
G.R. No. 172023, July 7 2010
Facts: Santiago alleged that he was then a stockholder of respondent CBS

Development Corporation, Inc. (CBSDC). He opposed to the proposal to authorize
respondent Rogelio Florete, in his capacity as President of CBSDC, to mortgage all or
substantially all of CBSDCs real properties to secure the loan obtained by Newsounds
Broadcasting Network, Inc. (NBN), Consolidated Broadcasting System (CBS), and
Peoples Broadcasting Services, Inc. (PBS). However, despite Santiagos and the other
stockholders protest, a majority, representing more than 2/3 of the outstanding capital
stock of CBSDC, voted and approved the grant of such authority to the Board.
Subsequently, Santiago, as a dissenting stockholder, wrote a letter objecting to
the mortgage and exercising his appraisal right under Section 81 of the Corporation
Code. In response, the corporate secretary informed Santiago that a majority of
CBSDCs Board of Directors approved the exercise of his appraisal right. Thereafter,
Santiago surrendered his stock certificates to CBSDC and then demanded an appraisal
of his shares. The Board indefinitely postponed action on Santiagos appraisal right, to
which Santiago protested.
The corporate secretary denied Santiagos protest and informed him that his
CBSDC shares, including those for which he was issued Certificates of Stock, were
declared delinquent and were to be sold on auction on 12 February 2002.
On 6 February 2002, Santiago filed with the Regional Trial Court of Iloilo City a
21 | P a g e
2015
Petition for Mandamus and Nullification of Delinquency Call and Issuance of

Unsubscribed Shares. However, on 12 February 2002, Santiagos CBSDC shares were
sold on auction to respondent Diamel, Inc. With this, Santiago then modified his petition
including Diamel as one of the respondents. The respondents filed an answer with
Compulsory Counterclaims.
On April 14, 2004, Santiago died and His Heirs substituted him in the case.
The RTC dismissed the petition filed by Santiago and give due course to the
Compulsory Counterclaims filed by the respondent. The court ordered the heirs of
Santiago to pay the respondents 200,000.00 pesos for exemplary damages and
attorneys fees.
Petitioners then filed a Notice of Appeal of the RTCs decision. On the other
hand, private respondents then filed motion for immediate execution of the trial courts
decision, which petitioners opposed. The RTC grants the respondents motion and
issued an ordered for the issuance of a writ of execution.
Petitioners subsequently filed a petition for certiorari with Prayers for TRO and
Writ of Injunction before the CA. However, the CA dismissed the said petition. The
dismissal is based on Section 4, Rule 1 of the interim Rules of Procedure for IntraCorporate Controversies which provides that all decision rendered in intra-corporate
controversies shall immediately be executory.
Issue: Whether the awards of exemplary damages and attorneys fees can be
immediately executed pending appeal of the corporate case.
Ruling: The Supreme court held in negative. The court issued an A.M. No. 01-2-04-SC
entitled Re: Amendment of Section 4, Rule 1 of the Interim Rules of Procedure
Governing Intra-Corporate Controversies. This said memorandum clarifies that
Decisions issued pursuant to said Rule are immediately executory except the awards
for moral damages, exemplary damages and attorneys fees, if any.
Even before the promulgation of the said memorandum, the Court in
International School, INC. vs. CA, ruled that the execution of any award for moral and
exemplary damages is dependent on the outcome of the main case for their exact
amounts remain uncertain and indefinite pending resolution by the CA or SC.
22 | P a g e
2015
Advent Capital and Finance Corporation vs. Roland Young

G.R. No. 183018, August 3, 2011
Facts: The present controversy stemmed from a replevin suit instituted by petitioner
Advent Capital and Finance Corporation (Advent) against respondent Roland Young to
recover the possession of a 1996 Mercedes Benz E230 which is registered in Advents
name.
Before institution of the replevin case which was filed on July 16, 2001 Advent
filed for corporate rehabilitation with the Regional Trial Court of Makati City, Branch 142.
On 27 August 2001, the rehabilitation court issued a stay order which states that
"the enforcement of all claims whether for money or otherwise, and whether such
enforcement is by court action or otherwise, against Advent, its guarantors and sureties
not solidarily liable with it, is to be stayed.
Young filed his Comment to the Petition for Rehabilitation that there are several
employee outstanding benefits allegedly due him as Advents former president and chief
executive officer.
The rehabilitation court approved the rehabilitation plan submitted by Advent.
Included in the inventory of Advents assets was the subject car which remained in
Youngs possession at the time.
Youngs obstinate refusal to return the subject car, after repeated demands,
prompted Advent to file the replevin case on 8 July 2003. The complaint was raffled to
the Regional Trial Court of Makati City, Branch 147 (trial court).
Advent filed a replevin case with the RTC and posted a P3,000,000 replevin
bond, the trial court issued a Writ of Seizure directing the Sheriff to seize the subject car
from Young. Upon receipt of the Writ of Seizure, Young turned over the car to Advent,
which delivered the same to the rehabilitation receiver.
On 28 April 2005, the trial court issued an Order dismissing the replevin case
without prejudice for Advents failure to prosecute and the possession of the vehicle
remain with Advent.
It appears that as of July 28, 2003, subject motor vehicle has been turned over to
the plaintiff, thru its authorized representative, and no action had been taken by the
plaintiff in the further prosecution of this case. Accordingly, this case is ordered
dismissed without prejudice on the ground of failure to prosecute.
Young alleged that the dismissal of the case resulted in the dissolution of the
writ. Nonetheless, the Court deems it proper to suspend the resolution of the return of
the subject vehicle. In this case, the subject vehicle was turned over to plaintiff by virtue
of a writ of replevin validly issued, the latter having sufficiently shown that it is the
absolute/registered owner thereof. This was not denied by the defendant. Plaintiffs
ownership includes its right of possession. The case has been dismissed without a
decision on the merits having been rendered.
23 | P a g e
2015
Young filed a petition for certiorari and mandamus with the Court of Appeals
seeking to annul the trial courts Orders. The Court of Appeals ruled in favor of Young
and annulled the assailed rulings of the trial court. The Court of Appeals held:
It is noteworthy that the case was dismissed by the court a quo for failure of
Advent to prosecute the same. Upon dismissal of the case, the writ of seizure issued as
an incident of the main action (for replevin) should have been recalled or lifted. Since
there was no adjudication on the merits of the case, the issue of who between Advent
and petitioner has the better right to possess the subject car was not determined. As
such, the parties should be restored to their status immediately before the institution of
the case.
Issue: Whether or not the seized car from the replevin case should remain with Advent
despite the failure to prosecute the case by virtue of stay order issued by the
rehabilitation court?
Ruling: No. The said vehicle should return the seized car to Young since this is the
necessary consequence of the dismissal of the replevin case for failure to prosecute
without prejudice. Upon the dismissal of the replevin case for failure to prosecute, the
writ of seizure, which is merely ancillary in nature should have been lifted. There was no
adjudication on the merits, which means that there was no determination of the issue
who has the better right to possess the subject car. Advent cannot therefore retain
possession of the subject car considering that it was not adjudged as the prevailing
party entitled to the remedy of replevin.
The dismissal of the replevin case, for failure to prosecute, results in the
restoration of the parties status prior to litigation, as if no complaint was filed at all. To
let the writ of seizure stand after the dismissal of the complaint would be adjudging
Advent as the prevailing party, when precisely no decision on the merits had been
rendered. Accordingly, the parties must be reverted to their status quo ante. Since
Young possessed the subject car before the filing of the replevin case, the same must
be returned to him, as if no complaint was filed at all.
Advents contention that returning the subject car to Young would constitute a
violation of the stay order issued by the rehabilitation court is untenable. As the Court of
Appeals correctly concluded, returning the seized vehicle to Young is not an
enforcement of a claim against Advent which must be suspended by virtue of the stay
order issued by the rehabilitation court pursuant to Section 6 of the Interim Rules on
Corporate Rehabilitation (Interim Rules).
The issue in the replevin case is who has better right to possession of the car,
and it was Advent that claimed a better right in filing the replevin case against Young. In
defense, Young claimed a better right to possession of the car arising from Advents car
plan to its executives, which he asserts entitles him to offset the value of the car against
the proceeds of his retirement pay and stock option plan.
Young cannot collect a money "claim" against Advent within the contemplation of
the Interim Rules. The term "claim" has been construed to refer to debts or demands of
24 | P a g e
2015
a pecuniary nature, or the assertion to have money paid by the company under
rehabilitation to its creditors. In the replevin case, Young cannot demand that Advent
pay him money because such payment, even if valid, has been "stayed" by order of the
rehabilitation court. However, in the replevin case, Young can raise Advents car plan,
coupled with his retirement pay and stock option plan, as giving him a better right to
possession of the car. To repeat, Young is entitled to recover the subject car as a
necessary consequence of the dismissal of the replevin case for failure to prosecute
without prejudice.
Manuel D. Yngson Jr. (in his capacity as the liquidator of ARCAM & Company,
inc.) vs. PNB
G.R. No. 171132, August 15, 2012
Facts: ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in
Pampanga. It applied for and was granted a loan by respondent Philippine National
Bank (PNB). To secure the loan, ARCAM executed a Real Estate Mortgage over a
350,004-square meter parcel of land and a Chattel Mortgage over various personal
properties consisting of machinery, generators, field transportation and heavy
equipment.
ARCAM, however, defaulted on its obligations to PNB.
On November 25, 1993, pursuant to the provisions of the Real Estate Mortgage
and Chattel Mortgage, PNB initiated extrajudicial foreclosure proceedings.
The public auction was scheduled on December 29, 1993 for the mortgaged real
properties and December 8, 1993 for the mortgaged personal properties.
On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of
Payments, Appointment of a Management or Rehabilitation Committee, and Approval of
Rehabilitation Plan, with application for issuance of a temporary restraining order (TRO)
and writ of preliminary injunction. The SEC issued a TRO and subsequently a writ of
preliminary injunction, enjoining PNB and the Sheriff from proceeding with the
foreclosure sale of the mortgaged properties.
On February 9, 2000, the SEC ruled that ARCAM can no longer be rehabilitated.
The SEC noted that the petition for suspension of payment was filed in December 1993
and six years had passed.
The SEC decreed that ARCAM be dissolved and placed under liquidation. The
SEC Hearing Panel also granted PNBs motion to dissolve the preliminary injunction
and appointed Atty. Manuel D. Yngson, Jr.& Associates as Liquidator for ARCAM.
PNB revived the foreclosure case and requested the RTC Clerk of Court to reschedule the sale at public auction of the mortgaged properties.
25 | P a g e
2015
On November 16, 2000, Yngson filed with the SEC a motion to nullify the auction
sale .He posited that all actions against companies which are under liquidation, like
ARCAM, are suspended because liquidation is a continuation of the petition for
suspension proceedings. He also asserted that the mortgaged assets should be
included in the liquidation and the proceeds shared with the unsecured creditors.
PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC
rules prohibits secured creditors from foreclosing on their mortgages to satisfy the
mortgagors debt after the termination of the rehabilitation proceedings and during
liquidation proceedings.
The SEC issued a Resolution denying petitioners motion to nullify the auction
sale. Holding that PNB was not legally barred from foreclosing on the mortgages.
Yngson filed a petition for review in the CA questioning the January 4, 2005
Resolution of the SEC and dismissed the petition.
Issue: Whether or not PNB, as a secured creditor, can foreclose on the mortgaged
properties of a corporation under liquidation without the knowledge and prior approval of
the liquidator or the SEC?
Ruling: No. PNB was not barred from foreclosing on the mortgages
If rehabilitation is no longer feasible and the assets of the corporation are finally
liquidated, secured creditors shall enjoy preference over unsecured creditors, subject
only to the provisions of the Civil Code on concurrence and preference of credits.
Creditors of secured obligations may pursue their security interest or lien, or they may
choose to abandon the preference and prove their credits as ordinary claims.
Moreover, Section 2248 of the Civil Code provides:
"Those credits which enjoy preference in relation to specific real property
or real rights, exclude all others to the extent of the value of the immovable or
real right to which the preference refers."
Under Section 2248 of the Civil Code. The creditor-mortgagee has the right to
foreclose the mortgage over a specific real property whether or not the debtormortgagor is under insolvency or liquidation proceedings. The right to foreclose such
mortgage is merely suspended upon the appointment of a management committee or
rehabilitation receiver or upon the issuance of a stay order by the trial court. However,
the creditor-mortgagee may exercise his right to foreclose the mortgage upon the
termination of the rehabilitation proceedings or upon the lifting of the stay order.
Under Republic Act No. 10142, otherwise known as the Financial Rehabilitation
and Insolvency Act (FRIA) of 2010, the right of a secured creditor to enforce his lien
during liquidation proceedings is retained. Section 114 of said law thus provides:
26 | P a g e
2015
SEC. 114. Rights of Secured Creditors. The Liquidation Order shall not affect
the right of a secured creditor to enforce his lien in accordance with the applicable
contract or law. A secured creditor may:
(a) waive his rights under the security or lien, prove his claim in the liquidation
proceedings and share in the distribution of the assets of the debtor; or
(b) maintain his rights under his security or lien;
If the secured creditor maintains his rights under the security or lien:
(1) the value of the property may be fixed in a manner agreed upon by the
creditor and the liquidator.1wphi1 When the value of the property is less than
the claim it secures, the liquidator may convey the property to the secured
creditor and the latter will be admitted in the liquidation proceedings as a creditor
for the balance; if its value exceeds the claim secured, the liquidator may convey
the property to the creditor and waive the debtors right of redemption upon
receiving the excess from the creditor;
(2) the liquidator may sell the property and satisfy the secured creditors entire
claim from the proceeds of the sale; or
(3) the secured creditor may enforce the lien or foreclose on the property
pursuant to applicable laws.
PNB elected to maintain its rights under the security or lien; hence, its right to
foreclose the mortgaged properties should be respected.
Equitable PCI Bank, Inc. vs. DNG Realty and Development Corporation
G.R. No. 168672, August 8, 2010
Facts: Respondent, DNG Realty and Development Corporation (DNG) obtained a loan
of P20M from Equitable PCI Bank (EPCIB) secured by a real estate mortgage
Due to the Asian Economic Crisis, DNG was not able to pay the loan. For this
reason, EPCIB sought the extrajudicial foreclosure of the said mortgage by filing a
petition for sale on 30 June 2003. On 4 September 2003, the mortgage property was
sold at public auction, which was eventually awarded to EPCIB as the highest bidder.
The Sheriff executed a Certificate of Sale in favor of EPCIB.
On October 21, 2003, DNG filed a petition for rehabilitation under Rule 4 of the
Interim Rules of Procedure on Corporate Rehabilitation before the Regional Trial Court,
Branch 28. A Stay Order was issued by RTC on 27 October 2003. The petition for
rehabilitation was then published in a newspaper of general circulation.
27 | P a g e
2015
EPCIB caused the recording of the Sheriff's Certificate of Sale on December 3,

2003 with the Registry of Deeds of Cabanatuan City. EPCIB executed an Affidavit of
Consolidation of Ownership and had the same annotated on the title of DNG
This prompted DNG to file Civil Case No. 4631 with RTC-Br. 28 for annulment of
the foreclosure proceeding before the Office of the Ex-Officio Sheriff. This case was
dismissed for failure to prosecute.
In order to gain possession of the foreclosed property, EPCIB on 17 March 2004
filed an Ex-Parte Petition for Issuance of Writ of Possession which was subsequently
issued.
The Office of the Ex-Officio Sheriff issued the Notice to Vacate dated 6 October
2004.On October 15, 2004, respondent filed with the CA a petition for certiorari,
prohibition and mandamus with prayer for the issuance of temporary restraining order/
preliminary injunction.
On October 22, 2004, the CA issued a temporary restraining order and the
Notice to Vacate are all reversed and set aside.
The CA's decision in reversing the decision of the RTC was based on its
interpretation of Interim Rules of Procedure on Corporate Rehabilitation, that all
petitions for rehabilitation by corporations, partnerships and associations upon the
appointment of a rehabilitation receiver, all actions or claims against the corporations,
partnerships or associations under management or receivership pending before any
court shall be suspended accordingly.
The CA, relying in Bank of the Philippine Islands v. Court of Appeals, found no
merit to petitioner EPCIB's claim that the foreclosure sale of the property was made
prior to the issuance of the Stay Order with the consummation of the extrajudicial
foreclosure sale, all the valid and legal consequences of such could no longer be
stayed.
The CA ruled that after the issuance of the Stay Order, effective from the date of
its issuance, all subsequent actions pertaining to respondent DNG's Cabanatuan
property should have been held in abeyance.
Dissatisfied, petitioner EPCIB filed the instant petition before the Supreme Court.
Issue: Whether the CA correctly held that all subsequent actions pertaining to
respondent DNG's Cabanatuan property should have been held in abeyance after the
Stay Order was issued by the rehabilitation court?
Ruling: Respondent DNG's petition for rehabilitation filed in Branch 28 of the RTC of
Cabanatuan City on October 21, 2003 was made pursuant to the 2000 Interim Rules of
Procedure on Corporate Rehabilitation, which was the applicable law on rehabilitation
petitions filed by corporations, partnerships or associations, including rehabilitation
cases transferred from the SEC to the RTCs pursuant to RA 8799 or the Securities
Regulation Code.
28 | P a g e
2015
Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation provides:

Sec. 6. Stay Order. - If the court finds the petition to be sufficient in form and
substance, it shall, not later than five (5) days from the filing of the petition, issue
an Order:
(a) appointing a Rehabilitation Receiver and fixing his bond;
(b) staying enforcement of all claims, whether for money or otherwise and
whether such
enforcement is by court action or otherwise, against the
debtor, its guarantors and sureties
not solidarily liable with the debtor;
(c) prohibiting the debtor from selling, encumbering, transferring, or disposing in
any manner any of its properties except in the ordinary course of business;
(d) prohibiting the debtor from making any payment of its liabilities outstanding as
at the date of filing of the petition;
(e) prohibiting the debtor's suppliers of goods or services from withholding supply
of
goods and services in the ordinary course of business for as long as the
debtor makes
payments for the services and goods supplied after the
issuance of the stay order;
(f) directing the payment in full of all administrative expenses incurred after the
issuance
of the stay order;
(g) fixing the initial hearing on the petition not earlier than forty five (45) days but
not
later than sixty (60) days from the filing thereof;
(h) directing the petitioner to publish the Order in a newspaper of general of
general
circulation in the Philippines once a week for two (2) consecutive
weeks;
(i) directing all creditors and all interested parties (including the Securities and
Exchange
Commission) to file and serve on the debtor a verified comment on
or opposition to the petition, with supporting affidavits and documents, not later
than ten (10) days before the
date of the initial hearing and putting them on
notice that their failure to do so will bar them
from
participating
in
the
proceedings; and
(j) directing the creditors and interested parties to secure from the court copies of
the
petition and its annexes within such time as to enable themselves to file
their comment on or opposition to the petition and to prepare for the initial
hearing of the petition.
The suspension of the enforcement of all claims against the corporation is
subject to the rule that it shall commence only from the time the Rehabilitation Receiver
is appointed.
29 | P a g e
2015
The CA annulled the RTC Order dated September 6, 2004 directing the issuance
of a writ of possession, as well as the writ of possession issued pursuant thereto on
October 4, 2004, and the notice to vacate issued by the Sheriff for being premature and
untimely and ordered the cancellation of the TCT in the name of petitioner EPCIB as
they were all done after the Stay Order was issued on October 27, 2003 by the
rehabilitation court. In so ruling, the CA relied on BPI v. CA.
In the BPI, the action for judicial foreclosure of the real estate mortgage was still
pending with the RTC when the stay order was issued; thus, there was no judgment on
the foreclosure for payment and the sale of the mortgaged property at a public auction.
In contrast to this case, DNG's mortgaged property had already been extrajudicially
foreclosed and sold to petitioner as the highest bidder and a Certificate of Sale was
issued on September 4, 2003, which was prior to the issuance of the Stay Order on
October 27, 2003.
EPCIB's argument heavily relied on the decision in RCBC v. IAC, an en banc
case decided in 1999. The SC, in that case ruled that RCBC can rightfully move for the
extrajudicial foreclosure of the mortgage on the BF Home properties on October 16,
1984, because a management committee was not appointed by the SEC until March 18,
1985. Such ruling was a reversal to the court's earlier decision in the same case where
we found that the prohibition against foreclosure attaches as soon as a petition for
rehabilitation was filed.
In RCBC, it was upheld the extrajudicial foreclosure sale of the mortgage
properties of BF Homes wherein RCBC emerged as the highest bidder as it was done
before the appointment of the management committee.
Thus, applying RCBC v. IAC in the case, since the foreclosure of respondent
DNG's mortgage and the issuance of the certificate of sale in petitioner EPCIB's favor
were done prior to the appointment of a Rehabilitation Receiver and the Stay Order, all
the actions taken with respect to the foreclosed mortgage property which were
subsequent to the issuance of the Stay Order were not affected by the Stay Order.
Thus, after the redemption period expired without respondent redeeming the foreclosed
property, petitioner becomes the absolute owner of the property and it was within its
right to ask for the consolidation of title and the issuance of new title in its name as a
consequence of ownership; thus, it is entitled to the possession and enjoyment of the
property.
Town and Country Enterprises Inc. vs. Hon. Quisumbing

G.R No. 173610, October 1, 2012
Facts: TCEI obtained a loan from Metrobank and secured the same through a real
estate mortgage over 20 parcels of land. These lands were registered in the name of its
corporate officers, Sps. Campos. TCEI failed to pay its obligations and so Metrobank
caused the extrajudicial foreclosure of the properties. Subsequently, the certificate of
sale was issued to Metrobank being the highest bidder in the auction sale. TCEI and
30 | P a g e
2015
Sps. Campos refused to turn over the possession of the properties to Metrobank, thus
the bank petitioned before the RTC for the issuance of a writ of possession. In the
meantime, TCEI, claiming difficulty due to the Asian financial crisis, petitioned for the
declaration of a state of suspension of payments with approval of the rehabilitation plan
before the same court. A stay order was issued in the rehabilitation case. Upon motion
of TCEI, the proceeding for the issuance of the writ of possession was suspended.
Aggrieved by the denial of its motion for reconsideration, Metrobank appealed to the CA
where it obtained favorable judgment. The CA directed respondent judge to continue
with the proceedings and eventually issue the writ of possession. On the other hand, the
rehabilitation court approved the rehabilitation plan filed by TCEI and gave to it a grace
period of 5 years after which it has to pay its obligations within 3 years. Meanwhile, the
RTC issued the writ of possession as ordered by the CA. With such issuance, TCEI and
Sps. Campos appealed to the CA. The CA affirmed the decision of the RTC in issuing
the said writ. Hence, this petition.
Issue: WON the issuance of the writ of possession is proper despite the fact that the
companys rehabilitation plan was approved.
Ruling: Yes.
The applicable law in the herein case is RA 8791 and not Act No. 3135. The
former provides the redemption period of 3 months or the period before the registration
of the certificate of sale, whichever is earlier. The properties were acquired on 7
November 2001 and the redemption period expired on 6 February 2002. TCEI failed to
redeem the properties within the threemonth period, thus Metrobank acquired
ownership over the properties. The mortgagor loses all interest over the foreclosed
property after the expiration of the redemption period and the purchaser becomes the
absolute owner thereof if no redemption is made.
Furthermore, although there was already a Stay Order dated 8 October 2002 and
approval of the rehabilitation court on 29 March 2004, these cannot be relied upon. An
essential function of a corporate rehabilitation is admittedly the stay order which is a
mechanism of suspension of all actions and claims against the distressed corporation
upon the due appointment of a management committee or rehabilitation receiver. It
should be noted that Metrobank has acquired ownership of the properties even before
the issuance of the stay order and approval of the rehabilitation plan.
While it is true that the issuance of a writ of possession ceases to be a ministerial
function if third parties claimed rights adverse to the judgment debtor, rehabilitation
receivers power to take possession, control and custody of TCEIs assets is not
adverse. A rehabilitation receiver is an officer of the court who is appointed for the
protection of interests of corporate investors and creditors. There is nothing in the
concept of corporate rehabilitation that would ipso facto deprive the officers of a debtor
corporation of control over its business or properties.
Metrobank would still own the property even if Act No. 3135 will be followed. The
properties, as mentioned, were purchased on 7 November 2001, the certificate of sale
was issued on 13 December 2001 and was registered on 10 April 2002, and the
31 | P a g e
2015
affidavit of consolidation of ownership was executed on 25 April 2003. It can be seen,

that the bank consolidated its ownership over the properties only after the lapse of oneyear period.
Finally, the argument of petitioners that the CA erroneously gave more premium
to the ex-parte proceedings for the issuance of the writ of possession over those in the
rehabilitation case which is being in rem, is untenable. Rehabilitation cases are
summary and non-adversarial and do not impair the debtors contracts or diminish the
status of preferred creditors. The issuance of a Stay Order suspends the enforcement of
all claims against the debtor, whether for money or otherwise and whether such
enforcement is by court action or otherwise, effective from the date of its issuance until
the dismissal of the petition or the termination of the rehabilitation proceedings.
However, this does not apply to Metrobank which has acquired ownership over the
properties before TCEI filed its petition for rehabilitation a quo.
Pryce Corporation vs. China Banking Corporation

G.R. No. 172302, February 18, 2014
Facts: The case originated from a petition for corporate rehabilitation filed by Pryce on
9 July 2004 with the RTC of Makati.
Gener T. Mendoza was appointed as rehabilitation receiver upon finding that the
petition was sufficient in form and substance. In not approving the rehabilitation plan, he
instead submitted an amendment thereof which was approved by the court on 17
January 2005. The order, provides among others that:
1. The indebtedness to China Bank and BPI as well as the long term commercial
paper will be paid through a dacion en pago of developed real estate assets of
petitioner.
4. All accrued penalties are waived
5. Interests shall accrue only up to July 13, 2004, the date of the issuance of the
stay order.
6. No interest will accrue during the pendency of the petitioners corporate
rehabilitation.
7. Dollar denominated loans will be converted to Philippine pesos on the date of the
issuance of this order using the reference rate of the Philippine Dealing System as of
this date.
China Bank questioned the order before the CA and argued that the plan
amounts to impairment of obligations of contracts which is not allowed in PD No. 902-A
nor the Interim Rules of Procedure on Corporate Rehabilitation. Moreover, it contended
that the payment through dacion en pago not only violated the mutuality of contracts
32 | P a g e
2015
and due process but also the policy of the state to maintain a competitive financial
system.
Another creditor, BPI, filed a separate petition and challenged the same order
based on a similar argument of the China Bank.
Meanwhile, the 7th Division of the CA granted China Banks petition and reversed
the courts order. The 1st Division of the CA, on the other hand, initially granted BPIs
petition but on a motion for reconsideration, the court set aside its original decision and
upheld the courts order. On appeal by the BPI, the petition was denied with finality.
With the final judgment of the SC, Pryce appealed to the Court assailing the 7 th
Divisions decision granting China Banks petition. However, on February 4, 2008 the
SC denied the appeal of Pryce and remanded the case to the RTC to determine the
merits of the petition for rehabilitation.
In a second motion for reconsideration of Pryce, SC gave due course to the
petition. While pending the resolution of the motion, Pryce and China Bank filed a joint
manifestation to suspend the proceedings to enable a possible mutual agreement
between them. The two-month period prayed and granted having elapsed, and still no
agreement was reached, the SC proceeded to resolve the second motion for
reconsideration.
Issues:
1. WON the decision in BPI vs. Pryce Corporation operates as res judicata in the
herein case.
2. WON the rehabilitation court is required to hold a hearing before issuing a stay
order.
Ruling:
1. Yes, the elements of res judicata being present in the case.
The elements of res judicata are:
a. former judgment was final;
b. the court that rendered it had jurisdiction over the subject matter and the
parties;
c. the judgment was based on the merits;
d. between the actions, there was identity of parties, subject matter and cause of
action.
The Court further explained that there are two concepts of res judicata:
1. barred by prior judgment when there is identity of parties, subject matter
and cause of action
2. conclusiveness of judgment where a fact or question has been squarely put
in issue, judicially passed upon and adjudged in a former suit by a court of
competent jurisdiction; identity of parties as well applies
33 | P a g e
2015
In the case at bar, the elements of res judicata barred by prior judgment is
present. Although the parties are not the very same parties in BPI vs. Pryce
Corporation, the substantial identity of the parties suffices to apply the principle of res
judicata. Substantial identity of parties refers to a community of interest between a party
in the first case and a party in the second case even if the latter is not impleaded in the
first case. In the herein case, both China Bank and BPI questioned the rehabilitation
courts approval of the amended rehabilitation plan, and both cases deal with the same
subject matter petitioners rehabilitation.
In addition to the Courts explanation, the Interim Rules allows the rehabilitation
court to approve a rehabilitation plan even over the opposition of the creditors holding
majority of the total liabilities of debtor if, in its judgment, the rehabilitation of debtor is
feasible and opposition of creditors are manifestly unreasonable. The same rules
provide that upon approval by the court of the rehabilitation plan, the same shall be
binding upon the debtor and all persons who may be affected by it, including creditors,
regardless of the absence or presence and participation of such persons in the
proceedings, and regardless if such persons claims were scheduled.
The principle of immutability and finality of judgment was likewise applied in this
case. Note that the decision in BPI vs. Pryce has become final and executory. The
decision can no longer be changed except for correction of clerical errors (nunc pro tunc
entries) which cause no prejudice to any party, void judgments, or whenever
circumstances transpire after the finality of decision. As a general rule, the later case is
abated applying the maxim qui prior est tempore (priority in time gives preference in
law). In our jurisdiction, however, the law does not specifically require that the pending
action which would hold in abatement the other must be a pending prior action. It is not
just a prior action but also an appropriate action taken in good faith. Consideration
must be taken as to the nature of controversy, comparative accessibility of the court to
parties and other similar factors. None of these situations is present in the case.
2. No.
Under the Interim Rules, if the court finds the petition to be sufficient in form and
substance, it shall, not later than 5 days from filing the petition, issue an order
appointing the rehabilitation receiver and staying enforcement of all claims. The petition
is said to be sufficient in form and substance if it alleges all material facts and includes
all documents required.
The rule does not require the holding of a hearing in issuing the order, but it does
not preclude in conducting one. The court, in its discretion may hold a hearing which
must be within the five-day period from filing the petition.
The intent of the Interim Rules is to promote a speedy disposition of corporate
rehabilitation cases. As said by the SC Committee on Interim Rules of Procedure on
Corporate Rehabilitation, the interim receiver was replaced with rehabilitation receiver to
justify immediate issuance of the stay order.
34 | P a g e
2015
The argument of China Bank that the non-holding of a hearing amounts to the
violation of the non-impairment clause must fail. The non-impairment clause must yield
to the States police power.
Admittedly, the cram down principle of the Interim Rules does dilute contracts.
But the Court said that rather than let struggling corporation slip and vanish, the better
option is to allow commercial courts to come in and apply the process of corporate
rehabilitation. Furthermore, the suspension of payment is based on the general theory
of second best one market imperfection will not necessarily be efficiency enhancing
unless theres simultaneous correction for all other market imperfection.
Veterans vs. FDPHI

G.R. No. 190907, August 23, 2012
Facts: Veterans Philippine Scout Security Agency, Inc (Veterans) is a corporation
engaged in providing security services. On the other hand, FDPHI (First Dominion
Prime Hodings, Inc) is a holding and management company which owns subsidiaries
and affiliates, among which is Clearwater Tuna Corporation (Clearwater). FDPHI and
some of its subsidiaries jointly filed before the RTC of Pasig a petition for rehabilitation.
Attached in the petition was a Schedule of Debts and liabilities showing that Clearwater
had an outstanding indebtedness to Veterans. This debt represents the security
services rendered by Veterans to Inglenook Food Corporation, Clearwaters former
name, pursuant to a contract of guard services. Upon finding that the petition was
sufficient in form and substance, the rehabilitation court issued a stay order with a
direction that the same be published to let interested and affected third parties give its
opposition or comment. At the same time, the rehabilitation court approved the
amended rehabilitation plan of FDPHI.
Following the pending rehabilitation proceeding, Veterans filed a collection case
against Clearwater and the appointed rehabilitation receiver before the MeTC of
Quezon City. The case was dismissed for failure of Veterans to prosecute but was later
reinstated upon a motion for reconsideration. Veterans filed an amended complaint
against FDPHI averring that Clearwater changed its name to FDPHI. FDPHI, on the
other hand, moved for the dismissal of the case invoking res judicata by virtue of the
approval of the rehabilitation plan. It further contended that the complaint constituted
forum shopping because petitioner was fully aware of the pending rehabilitation
proceeding. Moreover, it argued that the complaint failed to state a cause of action
since the contract was not executed by FDPHI but by Clearwater.
MeTC granted the motion to dismiss upholding the arguments of FPDHI. It
emphasized that Veterans should have had filed its comment or opposition in the
rehabilitation proceeding.
In its second motion for reconsideration with prayer that the dismissal be
declared without prejudice of filing a separate action, the same was still denied. In the
RTC, the court partially granted Veterans petition. It upheld the other reasoning of the
35 | P a g e
2015
lower court yet the dismissal was declared as without prejudice to petitioners
reinstitution of a separate action or enforcement of its claim. The stay order and the
approved amended rehabilitation plan, according to the RTC, cannot operate to deprive
petitioners right to present its own case.
On appeal, the CA reversed the RTCs decision and agreed with the MeTC. The
motion for reconsideration of Veterans was likewise denied.
Issue: WON Veterans action to enforce payment of the unpaid debt is covered by the
rehabilitation plan such that it can no longer institute a separate action to collect the
same.
Ruling: Yes.
The SC initially explained that Clearwater and FDPHI are two separate corporate
entities. The obligation sought to be enforced was not contracted by FDPHI but by
Clearwater under its old name. On this ground alone, the complaint was properly
dismissed.
Additionally, while respondent FDPHI is the parent company of Clearwater and
both jointly filed for a corporate rehabilitation, this must not be taken as an assumption
by FDPHI of any liability of Clearwater.
It should be remembered that the essential function of corporate rehabilitation is
its mechanism of suspension of allocations and claims against the distressed
corporation upon the appointment of management committee or rehabilitation receiver.
Sec. 6 of PD 902-A provides that all actions for claims against a corporation,
association, or partnerships under management or receivership pending before any
court, tribunal or board shall be suspended. It is likewise settled in jurisprudence that
suspension of proceedings refers to all actions or claims except only those expenses
incurred in the ordinary course of business. The stay order is effective to all creditors,
whether secured or unsecured.
In the case at bar, Veterans cannot be exempted from the order of suspension of
enforcement of claims. The suspension is without distinction (as to if it is secured or
unsecured) to enable the management committee or rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extrajudicial interference that might
hinder or prevent the rescue of the debtor company. Note that under Sec. 20-A of the
2008 Rules of Procedure on Corporate Rehabilitation provides that the rehabilitation
plan and its provisions shall be binding upon the debtor and all persons who may be
affected thereby, including the creditors, whether or not such persons have participated
in the proceedings or opposed the plan or whether or not their claims have been
scheduled.
36 | P a g e
2015
Steel Corporation of the Philippines vs. Mapfre Insular Insurance Corp., et. al.
G.R. No. 201199, October 16, 2013
Facts: Steel Corporation of the Philippines obtained loans from several creditors and,
as security, mortgaged its assets in their favor. The creditors appointed Bank of the
Philippine Islands (BPI) as their trustee. On 17 December 1997, SCP and BPI entered
into a Mortgage Trust Indenture (MTI) requiring SCP to insure all of its assets until the
loans are fully paid. Under the MTI, the insurance policies were to be made payable to
BPI.
During the course of its business, SCP suffered financial difficulties. On 11
September 2006, one of the creditors, Equitable PCI Bank, Inc., now known as Banco
de Oro-EPCI, Inc., filed with the RTC a petition to have SCP placed under corporate
rehabilitation. On 12 September 2006, the RTC issued a stay order to defer all claims
against SCP and appointed Atty. Santiago T. Gabionza, Jr. as rehabilitation receiver.
On 3 December 2007, the RTC rendered a Decision approving the modified
rehabilitation plan.
Fire broke out at 2 SCP-plants damaging its machineries. Invoking its right under
the MTI, BPI demanded and received from the insurers the insurance proceeds. SCP
sought to collect the insurance proceeds claiming that it shall be used to rehabilitate the
corporation by having the machineries repaired and to buy replacements for the heavily
damaged machines and that the assignment of the RTC as rehabilitation court did not
divest it from being a court of general jurisdiction. The insurance companies refused to
pay SCP the insurance proceeds contending that the fire was caused by several factors
attributable to SCP such as arson and negligence and that the rehabilitation court has
no jurisdiction over the propriety of the payment or non-payment of the insurance
proceeds as the claims contemplated under the law do not cover the claims of the
distressed bank to its debtors. The RTC, acting as the rehabilitation court, ruled on the
matter and directed the insurance companies to pay the proceeds to SCP. In an appeal
with the CA, the appellate court reversed the decision of the trial court.
Hence, this instant petition.
Issue: Whether or not the rehabilitation court has jurisdiction over the issue of payment
of the insurance proceeds to a corporation under rehabilitation and whether or not the
claim of SCP for insurance proceeds is covered by the claims under the law
Ruling: No. The RTC, acting as rehabilitation court, has no jurisdiction over the subject
matter of the insurance claim of SCP against respondent insurers. SCP must file a
separate action for collection where respondent insurers can properly thresh out their
defenses. SCP cannot simply file with the RTC a motion to direct respondent insurers to
pay insurance proceeds. Section 3 of Republic Act No. 10142 states that rehabilitation
proceedings are "summary and non-adversarial" in nature. They do not include
adjudication of claims that require full trial on the merits, like SCPs insurance claim
against respondent insurers.
37 | P a g e
2015
In Advent Capital and Finance Corporation v. Alcantara, the Court held that: x x x
Said insurance claims cannot be considered as "claims" within the jurisdiction of the trial
court functioning as a rehabilitation court. Rehabilitation courts only have limited
jurisdiction over the claims by creditors against the distressed company, not on the
claims of said distressed company against its debtors. The interim rules define claim as
referring to all claims or demands, of whatever nature or character against a debtor or
its property, whether for money or otherwise. Even under the new Rules of Procedure
on Corporate Rehabilitation, claim is defined under Section 1, Rule 2 as "all claims or
demands of whatever nature or character against a debtor or its property, whether for
money or otherwise." This is also the definition of a claim under Republic Act No.
10142. Section 4(c) thereof reads: "(c) Claim shall refer to all claims or demands of
whatever nature or character against the debtor or its property, whether for money or
otherwise, liquidated or unliquidated, fixed or contingent, matured or unmatured,
disputed or undisputed, including, but not limited to: (1) all claims of the government,
whether national or local, including taxes, tariffs and customs duties; and (2) claims
against directors and officers of the debtor arising from the acts done in the discharge of
their functions falling within the scope of their authority: Provided, That, this inclusion
does not prohibit the creditors or third parties from filing cases against the directors and
officers acting in their personal capacities.
Respondent insurers are not claiming or demanding any money or property from
SCP. In other words, respondent insurers are not creditors of SCP. Respondent
insurers are contingent debtors of SCP because they may possibly be, subject to proof
during trial, liable to SCP. Thus, the RTC has no jurisdiction over the insurance claim of
SCP against respondent insurers. SCP must file a separate action against respondent
insurers to recover whatever claim it may have against them.
BPI vs. Sarabia Manor Hotel Corp

G.R. No. 175844, July 29, 2013
Facts: 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 fivestorey 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 FEBTCs 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 with prayer for the issuance of a stay order before
38 | P a g e
2015
the RTC as it foresaw the impossibility to meet its maturing obligations to its creditors
when they fall due.
Sarabia claimed in its petition that its cash position suffered when it was forced to
take-over the construction of the New Building due to the recurring default of its
contractor, Santa Ana AJ Construction Corporation (contractor) and its subsequent
abandonment of the said project. Accordingly, the New Building was completed only in
the latter part of 2000, or two years past the original target date of August 1998, thereby
skewing Sarabias projected revenues. In addition, it was compelled to divert some of its
funds in order to cover cost overruns. The situation became even more difficult when
the grace period for the payment of the principal loan amounts ended in 2000 which
resulted in higher amortizations. Moreover, external events adversely affecting the hotel
industry, i.e., the September 11, 2001 terrorist attacks and the Abu Sayyaf issue, also
contributed to Sarabias financial difficulties. Owing to these circumstances, Sarabia
failed to generate enough cash flow to service its maturing obligations to its creditors,
namely: (a) BPI (in the amount of P191,476,421.42.
The RTC issued a Stay Order on August 2, 2002. It also appointed Liberty B.
Valderrama as Sarabias rehabilitation receiver (Receiver). Thereafter, BPI filed its
Opposition.
After several hearings, the RTC gave due course to the rehabilitation petition and
referred Sarabias proposed rehabilitation plan to the Receiver for evaluation. On July
10, 2003 the Receiver found that Sarabia may be rehabilitated.
RTC approved the rehabilitation plan of Sarabia. The lower court observed that
the rehabilitation plan was realistic since, based on Sarabias financial history, it was
shown that it has the inherent capacity to generate funds to pay its loan obligations
given the proper perspective.
CA affirmed the RTCs ruling with the modification of reinstating the surety
obligations of Sarabias stockholders to BPI as an additional safeguard for the effective
implementation of the approved rehabilitation plan.
Issue: Whether or not the CA correctly affirmed Sarabias rehabilitation plan as
approved by the RTC, with the modification on the reinstatement of the surety
obligations of Sarabias stockholders.
Ruling: Yes.
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. 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.
39 | P a g e
2015
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 corporations stockholders, its
creditors and even the general public.
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. 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.
Furthermore 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 corporations 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,57 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 corporations
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 Courts
pronouncement in Wonder Book Corporation v. Philippine Bank of Communications
proves instructive:
Rehabilitation is available to a corporation, 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. This remedy should be denied to
corporations whose insolvency appears to be irreversible and whose sole purpose is to
40 | P a g e
2015
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.
CA is correct. First, Sarabia has the financial capability to undergo rehabilitation.
Based on the Receivers Report, Sarabias financial history shows that it has the
inherent capacity to generate funds to repay its loan obligations if applied through the
proper financial framework. The Receivers examination and analysis of Sarabias
financial data reveals that the latters business is not only an on-going but also a
growing concern. Despite its financial constraints, Sarabia likewise continues to be
profitable with its hotelier business as its operations have not been disrupted. Hence,
given its current fiscal position, the prospect of substantial and continuous revenue
generation is a realistic goal.
Second, Sarabia has the ability to have sustainable profits over a long period of
time.
As concluded by the Receiver, Sarabias projected revenues shall have a steady
year-on-year growth from the time that it applied for rehabilitation until the end of its
rehabilitation plan in 2018, albeit with decreasing growth rates (growth rate is at 26% in
2003, 5% in 2004-2007, 3% in 2008-2018).62 Should such projections come through,
Sarabia would have the ability not just to pay off its existing debts but also to carry on
with its intended expansion. The projected sustainability of its business, as mapped out
in the approved rehabilitation plan, makes Sarabias rehabilitation a more viable option
to satisfy the interests of its stakeholders in the long run as compared to its immediate
liquidation. The interests of Sarabias creditors are well-protected.
Furthermore in the rehabilitation plan of Sarabia, it states that any deficiency in
the required minimum payments to creditors based on the presented amortization
schedule shall be paid personally by Sarabias stockholders.
Situs Development Corporation, et al. vs. Asiatrust Bank, et al.

G.R. No. 180036, July 25, 2012
Facts: In 1972, the Chua Family started a printing business and put up Color
Lithographic Press, Inc. (COLOR). On June 6, 1995, the Chua Family ventured into real
estate development/leasing by organizing Situs Development Corporation (SITUS) in
order to build a shopping mall complex, known as Metrolane Complex (COMPLEX). To
finance the construction of the COMPLEX, SITUS, COLOR and Tony Chua and his
wife, Siok Lu Chua, obtained several loans from ALLIED, ASIATRUST, METROBANK
secured by a real estate mortgages. The COMPLEX was built on said four (4) lots, all of
which are registered in the names of Tony Chua and his wife, Siok Lu Chua. On March
41 | P a g e
2015
21, 1996, the Chua Family expanded into retail merchandising and organized Daily
Supermarket, Inc. (DAILY). SITUS, COLOR and DAILY obtained additional loans from
ALLIED, ASIATRUST and METROBANK and their real estate mortgages were updated
and/or amended. Spouses Chua likewise executed five (5) Continuing
Guarantee/Comprehensive Surety in favor of ALLIED to guarantee the payment of the
loans of SITUS and DAILY.
However, SITUS, COLOR, DAILY and the spouses Chua failed to pay their
obligations as they fell due, despite demands.
ALLIED and Metrobank respectively filed on November 22, 2000 and on July 26,
2001 with the Office of the Clerk of Court and Ex-Officio Sheriff of Quezon City an
application for extrajudicial foreclosure of the mortgage on the properties of spouses
Chua wherein the said banks emerged as the highest bidders during the auction sales.
On May 16, 2002, ASIATRUST sent a demand letter to DAILY and COLOR for
the payment of their outstanding obligations.
On June 11, 2002, SITUS, DAILY and COLOR, herein petitioners, filed a petition
for the declaration of state of suspension of payments with approval of proposed
rehabilitation plan,
Petitioners alleged that due to the 1997 Asian financial crisis, peso devaluation
and high interest rate, their loan obligations ballooned and they foresee their inability to
meet their obligations as they fall due and that their assets are more than sufficient to
pay off their debts. Petitioners submitted a program of rehabilitation for the approval of
creditors and the court a quo.
In an Order dated August 2, 2002, the court a quo found prima facie merit in the
petition and gave due course thereto. The Rehabilitation Receiver was given forty-five
(45) days within which to submit his report on the proposed rehabilitation plan.
The court a quo appointed Mr. Antonio B. Garcia as the Rehabilitation Receiver,
set the initial hearing on the petition on August 2, 2002 and directed all creditors and
interested parties, including the Securities and Exchange Commission (SEC), to file
their comment on or opposition to the petition.
On January 8, 2003, petitioners filed a motion to admit Second Amended
Rehabilitation Program of Situs Development Corporation.
On August 14, 2003, the court a quo rendered an ADJUDICATION approving the
Second Amended Rehabilitation Program as SITUS deserves a sporting chance at
rehabilitation.
In approving the Second Amended Rehabilitation Program, the court a quo held:
The creditor banks are fully aware that the real property on which the building
structure of Situs Development sits is more than sufficient to answer for all the
outstanding obligations of petitioners. This fact alone should be enough to afford the
42 | P a g e
2015
petitioners a sporting chance at business resuscitation. That the realties are titled in the
name of Mr. Tony Chua is of no moment insofar as the rehabilitation is concerned, after
all, the creditor banks were fully aware of the real facts when they willingly extended
loans to the petitioners.
CA reversed the decision of lower court. The petition for the declaration of state
of suspension of payments with approval of proposed rehabilitation plan is DISMISSED
and the Stay Order dated June 17, 2002 is LIFTED.
Hence, this instant petition.
Issues: 1. Whether the dismissal of the Petition for Rehabilitation is in order;
2. Whether the Stay Order affects foreclosure proceedings involving properties
mortgaged by stockholders to secure corporate debts;
Ruling: 1. The dismissal of the Petition for Rehabilitation is in order.
The Rules provide that "the 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." While the Rules expressly provide that the 180-day period may be
extended, such extension may be granted only "if it appears by convincing and
compelling evidence that the debtor may successfully be rehabilitated." In this case, the
Second Amended Rehabilitation Program was approved by the trial court beyond the
180-day period counted from the date of the initial hearing.
The trial court erred in approving the Second Amended Rehabilitation Program
ruling that the creditor banks are fully aware that the real property on which the building
structure of Situs Development sits is more than sufficient to answer for all the
outstanding obligations of the petitioners.
Applying the doctrine of separate juridical personality, the mere fact that one is a
majority stockholder of a corporation does not make ones property that of the
corporation, since the stockholder and the corporation are separate entities. In this
case, the parcels of land mortgaged to respondent banks are owned not by petitioners,
but by spouses Chua.
Furthermore, the contention that the properties were mortgaged to secure
corporate debts is of no moment. In a third-party mortgage, the mortgaged property
stands as security for the loan obtained by the principal debtor; but until the mortgaged
property is foreclosed, ownership thereof remains with the third-party mortgagor.
Here, the properties owned by spouses Chua were mortgaged as security for the
debts contracted by petitioner corporations. However, ownership of these properties
remained with the spouses notwithstanding the fact that these were mortgaged to
secure corporate debts. We have ruled that "when a debtor mortgages his property, he
merely subjects it to a lien but ownership thereof is not parted with." This leads to no
other conclusion than that, notwithstanding the mortgage, the real properties in question
43 | P a g e
2015
belongs to spouses Chua; hence, these properties should not be considered as assets
of petitioner corporations.
Since the real properties in question cannot be considered as corporate assets,
the trial courts pronouncement that petitioners were susceptible of rehabilitation was
bereft of any basis.
2.
Based on a reading of the Rules, we rule that the Stay Order cannot
suspend foreclosure proceedings already commenced over properties belonging to
spouses Chua. The Stay Order can only cover those claims directed against petitioner
corporations or their properties, against petitioners guarantors, or against petitioners
sureties who are not solidarily liable with them. Spouses Chua may not be considered
as "debtors." The Interim Rules on Corporate Rehabilitation (the Rules) define the term
"debtor" as follows:
"Debtor" shall mean any corporation, partnership, or association, whether
supervised or regulated by the Securities and Exchange Commission or other
government agencies, on whose behalf a petition for rehabilitation has been filed under
these Rules.
Likewise, the enforcement of the mortgage lien cannot be considered as a claim
against a guarantor or a surety not solidarily liable with the debtor corporations. While
spouses Chua executed Continuing Guaranty and Comprehensive Surety undertakings
in favor of Allied Bank, the bank did not proceed against them as individual guarantors
or sureties. Rather, by initiating extrajudicial foreclosure proceedings, the bank was
directly proceeding against the property mortgaged to them by the spouses as security.
The Civil Code provides that the property upon which a mortgage is imposed directly
and immediately subjected to the fulfillment of the obligation for whose security the
mortgage was constituted. As such, a real estate mortgage is a lien on the property
itself, inseparable from the property upon which it was constituted.
In this case, we find that the undertaking of spouses Chua with respect to the
loans of petitioner corporations is the sale at public auction of certain real properties
belonging to them to satisfy the indebtedness of petitioner corporations in case of a
default by the latter. This undertaking is properly that of a third-party mortgagor or an
accommodation mortgagor, whereby one mortgages ones property to stand as security
for the indebtedness of another
Moreover, the intent of the Rules is to exclude from the scope of the Stay Order
the foreclosure of properties owned by accommodation mortgagors. The newly adopted
Rules of Procedure on Corporate Rehabilitation provides for one of the effects of a Stay
Order:
SEC. 7. Stay Order.
(b) staying enforcement of all claims, whether for money or otherwise and
whether such enforcement is by court action or otherwise, against the debtor, its
guarantors and persons not solidarily liable with the debtor; provided, that the
stay order shall not cover claims against letters of credit and similar security
44 | P a g e
2015
arrangements issued by a third party to secure the payment of the debtor's

obligations; provided, further, that the stay order shall not cover foreclosure by a
creditor of property not belonging to a debtor under corporate rehabilitation;
provided, however, that where the owner of such property sought to be
foreclosed is also a guarantor or one who is not solidarily liable, said owner shall
be entitled to the benefit of excussion as such guarantor.
In the case at bar, the auction sale for the parcels of land covered by TCT Nos.
RT-13620 and RT-13621 and mortgaged to respondent Allied Bank was conducted on 6
February 2001, while the foreclosure sale for the parcel of land covered by TCT No.
79916 and mortgaged to Metrobank was conducted on 18 September 2001. Clearly, the
foreclosure proceedings commenced and the auction sale was conducted before the
issuance of the Stay Order and the appointment of the Rehabilitation Receiver on 17
June 2002. In fact, the public auctions took place almost a year before petitioner
corporations filed the Petition for Rehabilitation with the court a quo on 11 June 2002.
Therefore, the execution of the Certificate of Sale may no longer be suspended by the
trial courts issuance of the Stay Order, even if the questioned properties are assumed
to fall under the ambit of the Stay Order, since the foreclosure proceedings and the
auction sale were conducted prior to the appointment of the Rehabilitation Receiver.
The decision of CA is hereby affirmed.
45 | P a g e

FRIA Report Final

Uploaded by

Copyright:

Available Formats

FRIA Report Final

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

FRIA Report Final

Uploaded by

Copyright:

Available Formats

Group Report on FRIA 2010

Group Report on FRIA 2010

On December 15 of the same year, the Supreme Courts Interim Rules of

Group Report on FRIA 2010

II. The Law - Financial Rehabilitation and Insolvency Act of 2010

Diagram 1. Procedure in Court-supervised Rehabilitation

Petition (Sec. 12 and 14)

Group Report on FRIA 2010

Identify Debtor and summarize grounds for initiating proceedings

Suspension or Stay Order

Exceptions to the Suspension or Stay Order (Sec. 18)

Group Report on FRIA 2010

b. subject to the discretion of the court, to cases pending or filed at a

Any transaction occurring prior to commencement date entered by the debtor, or

Provides reasonable inadequate consideration to the debtor and executed within

Group Report on FRIA 2010

Rehab plan complies with requirements under this act.

Group Report on FRIA 2010

Out of Court Rehabilitation (Sec.84)

Debtor must agree with an out-of-court rehabilitation plan;

Group Report on FRIA 2010

approved by creditors representing at least 85% of TOTAL liabilities, secured and

B. The Rehabilitation Receiver

A citizen of the Philippines or a resident in the 6 months immediately preceding

ii. Initial appointment of the Rehabilitation Receiver

Group Report on FRIA 2010

iii. Powers, duties and responsibilities of the rehabilitation receiver

Group Report on FRIA 2010

May apply in court for authority to sell unencumbered property of the

Group Report on FRIA 2010

5. Conflict of interest arises after his appointment.

Group Report on FRIA 2010

b) There is no substantial likelihood that the debtor may be

Group Report on FRIA 2010

4. That he conceals, or is removing, any of his property to avoid its being

Group Report on FRIA 2010

d) order the publication of the petition or motion in a newspaper of

Group Report on FRIA 2010

Powers, Duties and Responsibilities of the Liquidator. (Sec. 119, FRIA)

Group Report on FRIA 2010

2. Making any payment outside of the necessary or legitimate expenses

D. Proceedings Ancillary to Other Insolvency or Rehabilitation

Group Report on FRIA 2010

The court shall set a hearing in connection with an insolvency or

These reliefs shall be granted upon the following considerations:

Group Report on FRIA 2010

Group Report on FRIA 2010

Group Report on FRIA 2010

be permitted to complete the corporate liquidation by continuing as "trustees" by legal

Group Report on FRIA 2010

Facts: Santiago alleged that he was then a stockholder of respondent CBS

Group Report on FRIA 2010

Petition for Mandamus and Nullification of Delinquency Call and Issuance of

Group Report on FRIA 2010

Advent Capital and Finance Corporation vs. Roland Young

Group Report on FRIA 2010

Group Report on FRIA 2010

Group Report on FRIA 2010

Group Report on FRIA 2010