Fria Digest | Insolvency | Lawsuit

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   1 1. PHILIPPINE BANK OF COMMUNICATIONS,  Petitioner, vs. BASIC POLYPRINTERS AND PACKAGING CORPORATION,  Respondent. G.R. No. 187581 October 20, 2014 Facts: Respondent Basic Polyprinters and Packaging Corporation (Basic Polyprinters) was a domestic corporation engaged in the business of printing greeting cards, gift wrappers, gift bags, calendars, posters, labels and other novelty items. 3  On February 27, 2004, Basic Polyprinters, along with the eight other corporations belonging to the Limtong Group of Companies (namely: Cuisine Connection, Inc., Fine Arts International, Gibson HP Corporation, Gibson Mega Corporation, Harry U. Limtong Corporation, Main Pacific Features, Inc., T.O.L. Realty & Development Corp., and Wonder Book Corporation), filed a joint petition for suspension of paymentswith approval of the proposed rehabilitation in the RTC (docketed as SEC Case No. 031-04). 4  The RTC issued a stay order, and eventually approved the rehabilitation plan, but the CA reversed the RTC on October 25, 2005, 5  and directed the petitioning corporations tofile their individual petitions for suspension of payments and rehabilitation in the appropriate courts.  Accordingly, Basic Polyprinters brought its individual petition, 6  averring therein that: (a) its business since incorporation had been very viable and financially profitable; (b) it had obtained loans from various banks, and had owed accounts payable to various creditors; (c) the Asian currency crisis, devaluation of the Philippine peso, and the current state of affairs of the Philippine economy, coupled with: (i) high interest rates, penalties and charges by its creditors; (ii) low demand for gift items and cards due to the economic recession and the use of cellular phones; (iii) direct competition from stores like SM, Gaisano, Robinson and other malls; and (iv) the fire of July 19, 2002 that had destroyed its warehouse containing inventories worth ₱264,000,000.00, resulting in difficulty of meeting its obligations; (d) its operations would be hampered and would render rehabilitation difficult should its creditors enforce their claims through legal actions, including foreclosure proceedings; (e) included in its overall Rehabilitation Program was the full payment of its outstanding loans in favor of petitioner Philippine Bank of Communications (PBCOM), RCBC, Land Bank, EPCI Bank and  AUB via repayment over 15 years with moratorium of two-years for the interest and five years for the principal at 5% interest per annumand a dacion en pagoof its affiliate property in favor of EPCI Bank; and (f) its assets worth ₱15,374,654.00 with net liabilities amounting to ₱ 13,031,438.00. 7  Finding the petition sufficient in form and substance, the RTC issued the stay order dated August 31, 2006. 8  It appointed Manuel N. Cacho III as the rehabilitation receiver, and required all creditors and interested parties, including the Securities and Exchange Commission (SEC), to file their comments.  After the initial hearing and evaluation of the comments and opposition of the creditors, including PBCOM, the RTC gave due course to the petition and referred it to the rehabilitation receiver for evaluation and recommendation. 9  On October 18, 2007, the rehabilitation receiver submitted his report recommending the approval of the rehabilitation plan. On December 19, 2007, the rehabilitation receiver submitted his clarifications and corrections to his report and recommendations. RTC: approved the rehabilitation Plan. PBCOM Appealed CA: Affirmed the order of RTC Contention-PBCOM: -that the sole issue in corporate rehabilitation is one of liquidity; hence, the petitioning corporation should have sufficient assets to cover all its indebtedness because it only foresees the impossibility of paying the indebtedness falling due. It claims that rehabilitation became inappropriate because Basic Poly printers was insolvent due to its assets being inadequate to cover the outstanding obligations - The petitioner next argues that Basic Polyprinters did not present any material financial commitment in the rehabilitation plan, thereby violating Section 5, Rule 4 of the Interim Rules, the rule applicable at the time of the   2 filing of the petition for rehabilitation. In that regard, Basic Polyprinters made no commitment in relation to the infusion of fresh capital by its stakeholders, 29  and presented only a lopsided protracted repayment schedule that included the dacion en pago involving an asset mortgaged to the petitioner itself in favor of another creditor. ISSUE/S: Is the approval of rehabilitation plan proper despite (a) the alleged insolvency of Basic Polyprinters; and (b) absence of a material financial commitment pursuant to Section 5, Rule 4 of the Interim Rules. HELD: CA Judgement reversed. I. Under the Interim Rules, rehabilitation is the process of restoring the debtor to a position of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation continues as a going concern that if it is immediately liquidated.   It contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. In Asiatrust Development Bank v. First Aikka Development, Inc., 23  we said that rehabilitation proceedings have a two-pronged purpose, namely: (a) to efficiently and equitably distribute the assets of the insolvent debtor to its creditors; and (b) to provide the debtor with a fresh start, viz: Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative purposes. On the one hand, they attempt to provide for the efficient and equitable distribution ofan insolvent debtor's remaining assets to its creditors; and on the other, to provide debtors with a fresh start by relieving them of the weight of their outstanding debts and permitting them to reorganize their affairs. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paidtheir claims from its earnings. 24  Consequently, the basic issues inrehabilitation proceedings concern the viability and desirability of continuing the business operations of the petitioning corporation. The determination of such issues was to be carried out by the court-appointed rehabilitation receiver , 25  who was Cacho in this case. II. A material financial commitment is significant in a rehabilitation plan.  A material financial commitment becomes significant in gauging the resolve, determination, earnestness and good faith ofthe distressed corporation in financing the proposed rehabilitation plan. 30  This commitment may include the voluntary undertakings ofthe stockholders or the would-be investors of the debtor-corporation indicating their readiness, willingness and ability to contribute funds or property to guarantee the continued successful operation of the debtor corporation during the period of rehabilitation. 31  Basic Polyprinter financial commitments were insufficient o   commitment to add ₱10,000,000.00 working capital appeared to be doubtful considering that the insurance claim from which said working capital would be sourced had already been written-off by Basic Polyprinters’s affiliate, Wonder Book Corporation.  A claim that has been written-off is considered a bad debt or a worthless asset, 35  and cannot be deemed a material financial commitment for purposes of rehabilitation. At any rate, the proposed additional ₱10,000,000.00 working capital was insufficient to cover at least half ofthe shareholders’ deficit that amounted to ₱23,316,044.00 as of June 30, 2006. o  that the conversion of all deposits for future subscriptions to common stock and the treatment of all payables to officers and stockholders as trade payables was hardly constituting material financial commitments. Such conversion of cash advances to trade payables was, in fact, a mere re-classification of the liability entry and had no effect on the shareholders’ deficit.   o   we cannot determine the effect of the conversion of the directors’ and shareholders’ deposits for future subscription to common stock and substituted liabilities on the shareholders’ deficit because their amounts were not reflected in the financial statements contained in the rollo. o  rehabilitation plan likewise failed to offer any proposal on how it intended to address the low demands for their products and the   3 effect of direct competition from stores like SM, Gaisano, Robinsons, and other malls. o   that Basic Polyprinters’s proposal to enter into the dacion en pagoto create a source of fresh capital was not feasible because the object thereof would not be its own property but one belonging to its affiliate, TOL Realty and Development Corporation, a corporation also undergoing rehabilitation. Due to the rehabilitation plan being an indispensable requirement in corporate rehabilitation proceedings, 38  Basic Polyprinters was expected to exert a conscious effort in formulating the same, for such plan would spell the future not only for itself but also for its creditors and the public in general. The contents and execution of the rehabilitation plan could not be taken lightly. 2. VIVA SHIPPING LINES, INC.,  Petitioner, vs. KEPPEL PHILIPPINES MINING, INC., METROPOLITAN BANK & TRUST COMPANY, PILIPINAS SHELL PETROLEUM CORPORATION, CITY OF BATANGAS, CITY OF LUCENA, PROVINCE OF QUEZON, ALEJANDRO OLIT, NIDA MONTILLA, PIO HERNANDEZ, EUGENIO BACULO, and HARLAN BACALTOS, Respondents. G.R. No. 177382 FACTS: On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping Lines) filed a Petition for Corporate Rehabilitation before the Regional Trial Court of Lucena City. 2  The Regional Trial Court initially denied the Petition for failure to comply with the requirements in Rule 4, Sections 2 and 3 of the Interim Rules of Procedure on Corporate Rehabilitation. 3  On October 17, 2005, Viva Shipping Lines filed an Amended Petition. 4  In the Amended Petition, Viva Shipping Lines claimed to own and operate 19 maritime vessels 5  and Ocean Palace Mall, a shopping mall in downtown Lucena City. 6   Viva Shipping Lines also declared its total properties’ assessed value at about ₱45,172,790.00. 7  However, these allegations were contrary to the attached documents in the Amended Petition. On October 19, 2005, the Regional Trial Court found that Viva Shipping Lines’ Amended Petition to be sufficient in form and substance, and issued a stay order . 20  It stayed the enforcement of all monetary and judicial claims against Viva Shipping Lines, and prohibited Viva Shipping Lines from selling, encumbering, transferring, or disposing of any of its properties except in the ordinary course of business. 21  The Regional Trial Court also appointed Judge Mendoza as rehabilitation receiver. Before the initial hearing scheduled on December 5, 2005, the City of Batangas, Keppel Philippines Marine, Inc., and Metropolitan Bank and Trust Company (Metrobank) filed their respective comments and oppositions to Viva Shipping Lines’ Amended Petition. 22  During the initial hearing, Pilipinas Shell Petroleum Corporation (Pilipinas Shell) moved for additional time to write its opposition to Viva Shipping Lines’ Amended Petition. 23  Pilipinas Shell later filed its Comment/Opposition with Formal Notice of Claim. 24  Luzviminda C. Cueto, a former employee of Viva Shipping Lines, also filed a Manifestation and Registration of Monetary Claim stating that Viva Shipping Lines owes her ₱232,000.00 as separation and 13th month pay. 25  The Securities and Exchange Commission filed a Comment informing the Regional Trial Court that Viva Shipping Lines violated certain laws and rules of the Commission. 26  RTC:In the Order dated October 30, 2006 - lifted the stay order and dismissed Viva Shipping Lines’ Amended Petition for failure to show the company’s viability and the feasibility of rehabilitation.   4 - found that Viva Shipping Lines’ assets all appeared to be non -performing. Further, it noted that Viva Shipping Lines failed to show any evidence of consent to sell real properties belonging to its sister company. Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules of Court before the Court of Appeals. 42  It only impleaded Hon. Adolfo V. Encomienda, the Presiding Judge of the trial court that rendered the assailed decision. It did not implead any of its creditors, but served copies of the Petition on counsels for Metrobank, Keppel Philippines Marine, Inc., Pilipinas Shell, City of Batangas, Province of Quezon, and City of Lucena. 43  Viva Shipping Lines neither impleaded nor served a copy of the Petition on its former employees or their counsels. Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules of Court before the Court of Appeals. 42  It only impleaded Hon. Adolfo V. Encomienda, the Presiding Judge of the trial court that rendered the assailed decision. It did not implead any of its creditors, but served copies of the Petition on counsels for Metrobank, Keppel Philippines Marine, Inc., Pilipinas Shell, City of Batangas, Province of Quezon, and City of Lucena. 43  Viva Shipping Lines neither impleaded nor served a copy of the Petition on its former employees or their counsels. ISSUES: First, whether the Court of Appeals erred in dismissing petitioner Viva Shipping Lines’ Petition for Review on procedural grounds; and  Second, whether petitioner was denied substantial justice when the Court of Appeals did not give due course to its petition. HELD: 1. New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo Cit y  124  clarifies that an appeal from a final order or decision in corporate rehabilitation proceedings may be dismissed for being filed under the wrong mode of appeal. 125   New Frontier Sugar doctrinally requires compliance with the procedural rules for appealing corporate rehabilitation decisions. It is true that Rule 1, Section 6 of the Rules of Court provides that the [r]ules shall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding. However, this provision does not negate the entire Rules of Court by providing a license to disregard all the other provisions. Resort to liberal construction must be rational and well-grounded, and its factual bases must be so clear such that they outweigh the intent or purpose of an apparent reading of the rules. Rule 43 prescribes the mode of appeal for corporate rehabilitation cases: Sec. 5. How appeal taken.  –    Appeal shall be taken by filing a verified petition for review in seven (7) legible copies with the Court of  Appeals, with proof of service of a copy thereof on the adverse party and on the court or agency a quo. The srcinal copy of the petition intended for the Court of Appeals shall be indicated as such by the petitioner. . . . . Sec. 6. Contents of the petition.  –   The petition for review shall (a) state the full names of the parties to the case, without impleading the court or agencies either as petitioners or respondents; (b) contain a concise statement of the facts and issues involved and the grounds relied upon for the review; (c) be accompanied by a clearly legible duplicate srcinal or a certified true copy of the award, judgment, final order or resolution appealed from, together with certified true copies of such material portions of the record referred to therein and other supporting papers; and (d) contain a sworn certification against forum shopping as provided in the last paragraph of section 2, Rule 42. The petition shall state the specific material dates showing that it was filed within the period fixed herein. (Emphasis supplied) Petitioner did not comply with some of these requirements. First, it did not implead its creditors as respondents. Instead, petitioner only impleaded the Presiding Judge of the Regional Trial Court, contrary to Section 6(a) of Rule 43. Second, it did not serve a copy of the Petition on some of its creditors, specifically, its former employees. Finally, it did not serve a copy of the Petition on the Regional Trial Court.
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