1. Title: METROPOLITAN BANK AND TRUST COMPANY vs. S.F. NAGUIAT ENTERPRISES, INC.

Case no. : G.R. No. 178407.

Date: March 18, 2015
Ponente: LEONEN, J.:
Act No. 1956 continued to remain in force and effect until its express repeal on July 18, 2010 when
Republic Act (RA) No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act of 2010,
took effect.— Republic Act No. 10142 now provides for court proceedings in the rehabilitation or
liquidation of debtors, both juridical and natural persons, in a “timely, fair, transparent, effective and
efficient” manner. The purpose of insolvency proceedings is “to encourage debtors . . . and their creditors
to collectively and realistically resolve and adjust competing claims and property rights” while
“maintain[ing] certainty and predictability in commercial affairs, preserv[ing] and maximiz[ing] the value
of the assets of these debtors, recogniz[ing] creditor rights and respect[ing] priority of claims, and
ensur[ing] equitable treatment of creditors who are similarly situated.” It has also been provided that
whenever rehabilitation is no longer feasible, “it is in the interest of the State to facilitate a speedy and
orderly liquidation of [the] debtors’ assets and the settlement of their obligations.”
Insolvency Proceedings; With the declaration of insolvency of the debtor, insolvency courts “obtain full
and complete jurisdiction over all property of the insolvent and of all claims by and against it.”—With the
declaration of insolvency of the debtor, insolvency courts “obtain full and complete jurisdiction over all
property of the insolvent and of all claims by and against [it.]” It follows that the insolvency court has
exclusive jurisdiction to deal with the property of the insolvent. Consequently, after the mortgagor-debtor
has been declared insolvent and the insolvency court has acquired control of his estate, a mortgagee may
not, without the permission of the insolvency court, institute proceedings to enforce its lien. In so doing,
it would interfere with the insolvency court’s possession and orderly administration of the insolvent’s
properties.
FACTS:
In 1997, Spouses Rommel Naguiat and Celestina Naguiat and S.F. Naguiat Enterprises, Inc. (S.F. Naguiat)
executed a real estate mortgage in favor of Metropolitan Bank and Trust Company (Metrobank) to secure
certain credit accommodations obtained from the latter amounting to P17 million.
On 2005, S.F. Naguiat represented by Celestina T. Naguiat, Eugene T. Naguiat, and Anna N. Africa obtained
another loan from Metrobank in the amount of P1,575,000.00 which was likewise secured by the 1997
real estate. During the same year, S.F. Naguiat filed a Petition for Voluntary Insolvency with Application
for the Appointment of a Receiver pursuant to Act No. 1956. Among the assets declared in the Petition
was the property covered by TCT No. 58676 (one of the properties mortgaged to Metrobank).
S.F. Naguiat was declared insolvent. Metrobank then informed the court of its decision to withdraw from
the insolvency proceedings because it intended to extrajudicially foreclose the mortgaged property to
satisfy its claim. The mortgaged property was sold at a public auction to Phoenix Global Energy, Inc.,
However, Executive Judge Gabitan-Erum denied the approval of the Certificate of Sale in view of the
decision by the insolvency court.
Aggrieved Metrobank filed for certiorari and mandamus before the Court of Appeals which dismissed the
Petition on the basis of Metrobank’s failure to “obtain the permission of the insolvency court to
extrajudicially foreclose the mortgaged property.” The Court of Appeals declared that “a suspension of
the foreclosure proceedings is in order, until an assignee [or receiver,] is elected or appointed [by the
insolvency court] so as to afford the insolvent debtor proper representation in the foreclosure
[proceedings].”
ISSUE:
Whether leave of court must be obtained from the insolvency court before a foreclosure suit can be
instituted judicially or extrajudicially?
RULING:
The first insolvency law, Act No. 1956, was enacted on May 20, 1909. It was derived from the Insolvency
Act of California (1895), with a few provisions taken from the United States Bankruptcy Act of 1898. Act
No. 1956 was entitled “An Act Providing for the Suspension of Payments, the Relief of Insolvent Debtors,
the Protection of Creditors, and the Punishment of Fraudulent Debtors.” The remedies under the law
were through a suspension of payment (for a debtor who was solvent but illiquid) or a discharge from
debts and liabilities through the voluntary or involuntary insolvency proceedings (for a debtor who was
insolvent).
Act No. 1956 was meant to be a complete law on insolvency, and debts were to be liquidated in
accordance with the order of priority set forth under Chapter VI, Sections 48 to 50 on “Classification and
Preference of Creditors”; and Sections 29 and 59 with respect to mortgage or pledge of real or personal
property, or lien thereon. Jurisdiction over suspension of payments and insolvency was vested in the
Courts of First Instance (now the Regional Trial Courts).
It was held that concurrence and preference of credits can only be ascertained in the context of a general
liquidation proceeding that is in rem, such as an insolvency proceeding, where properties of the debtor
are inventoried and liquidated and the claims of all the creditors may be bindingly
adjudicated. Conformably, it is the policy of Act No. 1956 to place all the assets and liabilities of the
insolvent debtor completely within the jurisdiction and control of the insolvency court without the
intervention of any other court in the insolvent debtor’s concerns or in the administration of the estate.
It was considered to be of prime importance that the insolvency proceedings follow their course as
speedily as possible in order that a discharge, if the insolvent debtor is entitled to it, should be decreed
without unreasonable delay. “Proceedings of [this] nature cannot proceed properly or with due dispatch
unless they are controlled absolutely by the court having charge thereof.”
In 1981, Presidential Decree No. 1758 amended Presidential Decree No. 902-A, the Securities and
Exchange Commission charter. Under its terms,74jurisdiction regarding corporations that sought
suspension of payments process was taken away from the regular courts and given to the Securities and
Exchange Commission.75 In addition, an alternative to suspension of payments — rehabilitation — was
introduced. It enables a corporation whose assets are not sufficient to cover its liabilities to apply to the
Securities and Exchange Commission for the appointment of a rehabilitation receiver and/or management
committee76 and then to develop a rehabilitation plan with a view to rejuvenating a financially distressed
corporation. However, the procedure to avail of the remedy was not spelled out until 20 years later when
the Securities and Exchange Commission finally adopted the Rules of Procedure on Corporate Recovery
on January 4, 2000.
Shortly thereafter, with the passage of Republic Act No. 8799 or The Securities Regulation Code on July
19, 2000, jurisdiction over corporation rehabilitation cases was reverted to the Regional Trial Courts
designated as commercial courts or rehabilitation courts.77 This legal development was implemented by
the Interim Rules of Procedure on Corporate Rehabilitation (made effective in December 2000), which
was later replaced by A.M. 00-810-SC or the Rules of Procedure on Corporate Rehabilitation of 2008.
This case happened during the effectivity of Act No. 1956 which impliedly requires a secured creditor to
ask the permission of the insolvent court before said creditor can foreclose the mortgaged property.
When read together, the following provisions of Act No. 1956 reveal the necessity for leave of the
insolvency court:
(A) Under Section 14, “[a]n insolvent debtor, owing debts exceeding in amount the sum of one thousand
pesos, may apply to be discharged from his debts and liabilities by petition to the Court of First Instance
of the province or city in which he has resided for six months next preceding the filing of such petition. In
his petition, he shall set forth his place of residence, the period of his residence therein immediately prior
to filing said petition, his inability to pay all his debts in full, his willingness to surrender all his property,
estate, and effects not exempt from execution for the benefit of his creditors, and an application to be
adjudged an insolvent. He shall annex to his petition a schedule and inventory in the form hereinafter
provided. The filing of such petition shall be an act of insolvency.”
(B) Under Section 16, “[the] inventory must contain, besides the creditors, an accurate description of all
the real and personal property, estate, and effects of the [insolvent], including his homestead, if any,
together with a statement of the value of each item of said property, estate, and effects and its location,
and a statement of the incumbrances thereon. All property exempt by law from execution shall be set out
in said inventory with a statement of its valuation, location, and the incumbrances thereon, if any. The
inventory shall contain an outline of the facts giving rises [sic], or which might give rise, to a right of action
in favor of the insolvent debtor.”
(C) Under Section 18, upon receipt of the petition, the court shall issue an order declaring the petitioner
insolvent, and directing the sheriff to take possession of, and safely keep, until the appointment of a
receiver or assignee, all the debtor’s real and personal property, except those exempt by law from
execution. The order also forbids the transfer of any property by the debtor.
(D) Under Section 32, once an assignee is elected and qualified, the clerk of court shall assign and convey
to the assignee all the real and personal property of the debtor, not exempt from execution, and
such assignment shall relate back to the commencement of the insolvency proceedings, and by operation
of law, shall vest the title to all such property in the assignee.
It is true that under Section 59 of Act No. 1956, the creditor is given the option to participate in the
insolvency proceedings by proving the balance of his debt, after deducting the value of the mortgaged
property as agreed upon with the receiver or determined by the court or by a sale of the property as
directed by the court; or proving his whole debt, after releasing his claim to the receiver/sheriff before
the election of an assignee, or to the assignee. However, Section 59 of Act No. 1956 proceeds to state that
when “the property is not sold or released, and delivered up, or its value fixed, the creditor [is] not allowed
to prove any part of his debt,” but the assignee shall deliver to the creditor the mortgaged property.
Hence, explicitly under Section 59 and as a necessary consequence flowing from the exclusive jurisdiction
of the insolvency court over the estate of the insolvent, the mortgaged property must first be formally
delivered by the court or the assignee (if one has already been elected) before a mortgagee-creditor can
initiate proceedings for foreclosure.

2. PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. BASIC POLYPRINTERS AND

PACKAGING CORPORATION, respondent.

BERSAMIN, J.:

Summary of the doctrines:

1. 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.

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

Facts: Basic Polyprinters filed an individual petition for a rehabilitation program. ) 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 interestand 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.

Finding the petition sufficient in form and substance, the RTC issued the stay order and appointed
Manuel Cacho as the rehabilitation receiver of the corporation for evaluation and
recommendation. The rehabilitation receiver submitted his report recommending his approval.
The RTC approved the rehabilitation plan, which was affirmed by the CA. However, Philippine
Bank of Commerce (PBCOM) appealed the case on the ground that the CA did not pass upon
Basic Polyprinters’ liquidity that was material in proceedings for corporate rehabilitation and that
the the rehabilitation plandid not contain the material financial commitments required by Section
5, Rule 4 of the Interim Rules of Procedure for Corporate Rehabilitation (Interim Rules); that,
accordingly, the proposed repayment scheme did not constitute a material financial
commitment. Hence, the petition.

Issue:

1. Whether or not liquidity should be resolved in a rehabitation proceeding

2. Whether or not the contents of the rehabilitation plan passed by Basic Polyprinters was
sufficient

Ruling:

1. No. Liquidity was not an issue in a petition for rehabilitation. 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 ofcorporate
life and activities in an effort to restore and reinstate the corporation to its former position of
successful operation and solvency.22

In Asiatrust Development Bank v. First Aikka Development, Inc.,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

Moreover, Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act (FRIA) of 2010), a
law that is applicable hereto,26 has defined a corporate debtor as a corporation duly organized
and existing under Philippine laws that has become insolvent.27 The term insolventis defined in
Republic Act No. 10142 as "the financial condition of a debtor that is generally unable to pay its
or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater
than its or his assets."28

As such, the contention that rehabilitation becomes inappropriate because of the perceived
insolvency of BasicPolyprinters was incorrect.

2. No. 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
filing of the petition for rehabilitation. 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.

Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it intended to
address the low demands for their products and the effect of direct competition. We observe,
too, 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.

As a result, as the Court observed in Wonder Book,37 the commitments by Basic Polyprinters could
not be considered as firm assurances that could convince creditors, future investors and the
general public of its financial and operational viability. 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.

3. BANK OF THE PHILIPPINE ISLANDS, as successor of Far East Bank and Trust
Company, Petitioner, - versus - CARPIO, AUSTRIA-MARTINEZ, CORONA, CARPIO-
MORALES, AZCUNA, SECURITIES AND EXCHANGE TINGA, COMMISSION,
REHABILITATION CHICO-NAZARIO, RECEIVER, ASB HOLDINGS, INC., VELASCO, JR., ASB
DEVELOPMENT CORPORATION, NACHURA, ASB LAND, INC., ASB FINANCE, REYES, and
INC., MAKATI HOPE CHRISTIAN LEONARDO DE CASTRO, JJ. SCHOOL, INC., BEL-AIR
HOLDINGS CORP., WINCHESTER TRADING, INC., VYL DEVELOPMENT CORP., ERRICK
HOLDINGS CORP., NEIGHBORHOOD HOLDINGS, INC., and THE COURT OF APPEALS,
Respondents.

Promulgated: December 20, 2007

G.R. No. 164641

TINGA, J.:

Topics: A. Purpose of Rehab B. Creditor approval C. Nature of proceedings

Facts:

BPI, through its predecessor-in- interest, Far East Bank and Trust Company (FEBTC),
extended credit accommodations to the ASB Group amounting to P86,800,000.00,
secured by a real estate mortgage over two properties in Greenhills, San Juan. ASB
Group filed a petition for rehabilitation and suspension of payments before the SEC. The
interim receiver submitted its Proposed Rehabilitation Plan which includes a dacion en
pago to BPI of one of the properties mortgaged to the latter at the ASB Group as selling
value of P84,000,000.00 (the rest of the amount shall be waived) and required the
release of the other property mortgaged to BPI. BPI opposed the Rehabilitation Plan
and moved for the dismissal of the petition but the SEC approved the proposed plan
and appointed Mr. Fortunato Cruz as rehabilitation receiver. BPI filed a petition for
review before the SEC en banc, imputing grave abuse of discretion and arbitrary
violation of BPIs freedom and right to contract since it compelled BPI to enter into a
dacion en pago agreement with the ASB Group. SEC en banc denied. BPI then filed a
petition for review in CA, and contended that the terms of the Rehabilitation Plan
would impair its freedom to contract, and that the dacion en pago was a mode of
payment beneficial to the ASB Group only. The CA dismissed the petition holding that
the dacion en pago transaction could proceed only upon the mutual agreement of
the parties and would not compel secured creditors such as BPI to agree to a
settlement agreement against their will. BPI could refuse to accept any arrangement
and assert its preferred right in the liquidation and distribution of the assets of the ASB
Group. Hence this petition.

Issue:
 WON the Rehabilitation Plan violate the rights of BPI

Held:

No the contention of BPI is incorrect. As held in the similar case of Metropolitan

Bank & Trust Company v. ASB Holdings, et al.where MBTC refused to enter into a dacion
en pago in ASBs proposed Rehabilitation contendi g the same, the Court ruled that
there is no impairment of contracts because the approval of the Rehabilitation Plan
and the appointment of a rehabilitation receiver merely suspends the action for claims
against the ASB Group, and the creditor may still enforce its preference when the assets
of the ASB Group will be liquidated. If the rehabilitation is found to be no longer
feasible, then the claims against the distressed corporation would have to be settled
eventually and the secured creditors shall enjoy preference over the unsecured ones.

(CREDITOR APPROVAL) There is no compulsion to enter into a dacion en pago

agreement, nor to waive the interests, penalties and related charges, since these are
merely proposals to creditors, such that in the event the secured creditors refuse the
dacion, the Rehabilitation Plan proposes to settle the obligations to secured creditors
with mortgaged properties at selling prices. (NATURE AND PURPOSE) Rehabilitation
proceedings in our jurisdiction, much like the bankruptcy laws of the United States, have
equitable and rehabilitative purposes. On the one hand, they attempt to provide for
the efficient and equitable distribution of an insolvent debtors 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
rationale of P.D. No. 902-A, as amended, is to effect a feasible and viable rehabilitation,
by preserving a foundering business as going concern, because the assets of a business
are often more valuable when so maintained than they would be when liquidated.

(CREDITOR APPROVAL) SECs approval of the Rehabilitation Plan did not impair
BPIs right to contract since the non-impairment clause is a limit on the exercise of
legislative power and not of judicial or quasi-judicial power. The SEC, through the
hearing panel that heard the petition for approval of the Rehabilitation Plan, was
acting as a quasi-judicial body and thus, its order approving the plan cannot constitute
an impairment of the right and the freedom to contract. The mere fact that the
Rehabilitation Plan proposes a dacion en pago approach does not render it defective
on the ground of impairment of the right to contract. Dacion en pago is a special
mode of payment where the debtor offers another thing to the creditor who accepts it
as equivalent of payment of an outstanding debt. The undertaking really partakes in a
sense of the nature of sale, that is, the creditor is really buying the thing or property of
the debtor, the payment for which is to be charged against the debtors debt. As such,
the essential elements of a contract of sale, namely; consent, object certain, and
cause or consideration must be present. Being a form of contract, the dacion en pago
agreement cannot be perfected without the consent of the parties involved. If BPI does
not find the dacion en pago modality acceptable, the ASB Group can propose to
settle its debts at such amount as is equivalent to the selling price of the mortgaged
properties. If BPI still refuses this option, it can assert its rights in the liquidation and
distribution of the ASB Groups assets. It will not lose its status as a secured creditor,
retaining its preference over unsecured creditors when the assets of the corporation are
finally liquidated.

Fallo:
 WHEREFORE, in view of the foregoing, the petition is
DENIED and the Decision dated 30 January 2004 of the Court of Appeals in CA-G.R. SP
No. 77309 is AFFIRMED. Costs against petitioner.

SO ORDERED.

4.METROPOLITAN BANK AND TRUST COMPANY, petitioner, vs. LIBERTY

CORRUGATED BOXES MANUFACTURING CORPORATION, respondent.
G.R. No. 184317. January 25, 2017.

LEONEN, J.:

DOCTRINE: A corporation that may seek corporate rehabilitation is characterized not by its
debt but by its capacity to pay this debt.

FACTS:Respondent Liberty is a domestic corporation that produces corrugated packaging boxes. It

obtained various credit accommodations and loan facilities from petitioner Metrobank. To secure its
loans, Liberty mortgaged to Metrobank 12 lots.Liberty defaulted on the loans. Thus, Liberty filed a
Petition for corporate rehabilitation before RTC. Liberty claimed that it could not meet its obligations
to Metrobank because of the Asian Financial Crisis, which resulted in a drastic decline in demand for
its goods, and the serious sickness of its Founder and President, Ki Kiao Koc.Liberty's rehabilitation
plan consisted of: (a) a debt moratorium; (b) renewal of marketing efforts; (c) resumption of
operations; and (d) entry into condominium development, a new business.10The Regional Trial Court,
finding the Petition sufficient in form and substance, issued a Stay Order11 and set an initial hearing
for the Petition.

Metrobank filed its opposition, argued that Liberty was not qualified for corporate rehabilitation; that
Liberty's Petition for rehabilitation and rehabilitation plan were defective; and that rehabilitation was
not feasible. It also claimed that Liberty filed the Petition solely to avoid its obligations to the bank.The
Regional Trial Court gave due course to the Petition and referred the rehabilitation plan to the
Rehabilitation Receiver.Rehabilitation Receiver Rafael Chris F. Teston recommended the approval of
the plan, provided that Liberty would initiate construction on the property in Valenzuela within 12
months from approval.

In its Order, the Regional Trial Court approved the rehabilitation plan. The trial court found that
Liberty was capable of being rehabilitated and that the rehabilitation plan was feasible and viable.

The Court of Appeals affirmed the Regional Trial Court's finding that debtor corporations could still
avail themselves of the remedy of rehabilitation under the Interim Rules of Procedure on Corporate
Rehabilitation (Interim Rules) even if they were already in default.17 It held that even insolvent
corporations could still file a petition for rehabilitation.18

The Court of Appeals stressed that the purpose of rehabilitation proceedings is to enable the distressed
company to gain a new lease on life and to allow the creditors to be paid their claims. It held that the
approval of the Regional Trial Court was precisely "'to effect a feasible and viable rehabilitation' of
ailing corporations[,]"20 as required by Presidential Decree No. 902-A.Metrobank moved for
reconsideration, but the Motion was denied..Hence, this Petition was filed.

ISSUES:Whether respondent, as a debtor in default, is qualified to file a petition for rehabilitation

under Presidential Decree No. 902-A and Rule 4, Section 1 of the Interim Rules;

RULING: Yes. A corporation that may seek corporate rehabilitation is characterized not by its debt
but by its capacity to pay this debt.

Rule 4, Section 1 of the Interim Rules provides:SECTION 1. Who May Petition. � Any debtor who
foresees the impossibility of meeting its debts when they respectively fall due, or any creditor or
creditors holding at least twenty-five percent (25%) of the debtor's total liabilities, may petition the
proper Regional Trial Court to have the debtor placed under rehabilitation.

Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation50 reiterates the purpose of
rehabilitation, which is to provide meritorious corporations an opportunity for recovery:

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.51 (Citations omitted)

As stated by the Court of Appeals in Philippine Bank of Communications, rehabilitation is in line with the
State's objective to promote a wider and more meaningful equitable distribution of wealth.52

In line with this objective, the Interim Rules provide for a liberal construction of its
provisions:SECTION 2. Construction. � These Rules shall be liberally construed to carry out the
objectives of Sections 5(d), 6(c) and 6(d) of Presidential Decree No. 902-A, as amended, and to assist
the parties in obtaining a just, expeditious, and inexpensive determination of cases. Where applicable,
the Rules of Court shall apply suppletorily to proceedings under these Rules.

To adopt petitioner's interpretation would undermine the purpose of the Interim Rules. There is no
reason why corporations with debts that may have already matured should not be given the
opportunity to recover and pay their debtors in an orderly fashion. The opportunity to rehabilitate the
affairs of an economic entity, regardless of the status of its debts, redounds to the benefit of its
creditors, owners, and to the economy in general. Rehabilitation, rather than collection of debts from
a company already near bankruptcy, is a better use of judicial rewards.

A.M. No. 08-8-10-SC53 further describes the remedy intitiated by a petition for rehabilitation:

[A] petition for rehabilitation, the procedure for which is provided in the Interim Rules of Procedure
on Corporate Recovery, should be considered as a special proceeding. It is one that seeks to establish
the status of a party or a particular fact. As provided in section 1, Rule 4 of the Interim Rules on
Corporate Recovery, the status or fact sought to be established is the inability of the corporate
debtor to pay its debts when they fall due so that a rehabilitation plan, containing the formula for
the successful recovery of the corporation, may be approved in the end. It does not seek a relief from
an injury caused by another party. (Emphasis supplied)

Thus, the condition that triggers rehabilitation proceedings is not the maturation of a corporation's
debts but the inability of the debtor to pay these

In this case, the phrase "any debtor who foresees the impossibility of meeting its debts when
they respectively fall due" in Rule 4, Section 1 of the Interim Rules need not refer to a specific period
or point in time when the debts mature. It may refer to the debtor corporation's general realization
that it will not be able to fulfill its obligations� a realization that may come before default.

Construing the phrase "when they respectively fall due" to mean that the debtor must already be in
default defeats the clear purpose of the lawmakers. It unjustly limits rehabilitation to corporations with
matured obligations.

6. NEGROS NAVIGATION CO., INC. vs. COURT OF APPEALS, SPECIAL TWELFTH

DIVISION AND TSUNEISHI HEAVY INDUSTRIES (CEBU), INC.
G.R. No. 163156

TSUNEISHI HEAVY INDUSTRIES (CEBU), INC. vs. NEGROS NAVIGATION CO.,

INC.,
SULFICIO O. TAGUD, JR., AND THE REHABILITATION RECEIVER FOR NEGROS
NAVIGATION CO., INC.
G.R. No. 166845, December 10, 2008,
J. Nachura

Topic:
Justification for Stay Order.

Statutory Construction; PD 902-A does not make any distinction as to what claims are covered by the
suspension of actions for claims against corporations under rehabilitation, no exception is made
therein in favor of maritime claims; The justification for the suspension of actions or claims,
without distinction, pending rehabilitation proceedings is to enable the management
committee or rehabilitation receiver to effectively exercise its/his powers free from any
judicial or extrajudicial interference that might unduly hinder or prevent the “rescue” of the
debtor company.

Facts:
NNC, a shipping company that is primarily engaged in the business of transporting through
shipping vessels, passengers and cargoes at various ports of call in the country, engaged the services
of THI for the repair of its vessels. Upon failure to pay the repairman’s lien, THI filed an action against
NNC and had several vessels attached to which the Regional Trial Court of Cebu granted. NNC filed
a petition for corporate rehabilitation with prayer of suspension of payments with the RTC of Manila
due to reverses experienced during the Asian Financial Crisis and the devaluation of peso. RTC Manila
granted the petition and issued a Stay Order stating that all claims against NNC were covered by the
order. In an appeal with the CA, THI claimed that the issuance of the stay order impaired its right to
collect the repairman’s lien from NNC, however, the appellate court dismissed the petition of THI
for lack of merit. Hence, the present petition.

Issue:
Whether or not the maritime liens may only be divested in admiralty proceedings, hence, in
conflict with a rehabilitation proceeding;
Whether or not the Stay Order impaired THI’s right to collect from NNC.

Ruling:

The Supreme Court found the contention of THI to be untenable.

THI maintains that its maritime liens against the vessels of NNC were impaired by the issuance
of the stay order. THI argues that the issuance of the stay order by the Manila RTC, acting as
rehabilitation court, was erroneous considering that maritime liens cannot be enforced, divested, and
otherwise affected or dealt with except by an admiralty court in an admiralty proceeding in rem. THI
cited various foreign jurisprudence to the effect that maritime liens are enforceable only by a suit in
rem. It further averred that the mere suspension of the in rem proceedings in the admiralty case
prejudiced its substantive rights under Presidential Decree (PD) 1521.

The argument of THI is misplaced. There is no conflict as to which law should apply to the
case at bench. THI wishes to impress the Supreme Court that its claim for repairman’s lien is a
maritime lien and, accordingly, may be enforced only in a proceeding in rem. The Supreme Court agrees
that PD 1521 is the governing law concerning its maritime lien for the services it rendered to NNC.
However, when NNC filed a petition for corporate rehabilitation and suspension of payments, and
the Manila RTC found that the petition was sufficient in form and in substance and appointed the
rehabilitation receiver, the admiralty proceeding was appropriately suspended in accordance with
Section 6 of the Interim Rules on Corporate Rehabilitation.

Rehabilitation contemplates continuance of corporate life and activities in an effort to restore

and reinstate the corporation to its former position of successful operation and solvency. The purpose
of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and thereby
allow creditors to be paid their claims from its earnings. The rehabilitation of a financially distressed
corporation benefits its employees, creditors, stockholders and, in a larger sense, the general public.

PD 902-A mandates that upon appointment of a management committee, rehabilitation

receiver, board or body, all actions for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or body shall be suspended.
PD 902-A does not make any distinction as to what claims are covered by the suspension of actions
for claims against corporations under rehabilitation. No exception is made therein in favor of maritime
claims. Thus, since the law does not make any exemptions or distinctions, neither should we. Ubi lex
non distinguit nec nos distinguere debemos.

The justification for the suspension of actions or claims, without distinction, pending
rehabilitation proceedings is to enable the management committee or rehabilitation receiver to
effectively exercise its/his powers free from any judicial or extra-judicial interference that might
unduly hinder or prevent the "rescue" of the debtor company. To allow such other actions to continue
would only add to the burden of the management committee or rehabilitation receiver, whose time,
effort and resources would be wasted in defending claims against the corporation instead of being
directed toward its restructuring and rehabilitation.

It is undisputed that THI holds a preferred maritime lien over NNC’s assets by virtue of THI’s
unpaid services. The issuance of the stay order by the rehabilitation court does not impair or in any
way diminish THI’s preferred status as a creditor of NNC. The enforcement of its claim through court
action was merely suspended to give way to the speedy and effective rehabilitation of the distressed
shipping company. Upon termination of the rehabilitation proceedings or in the event of the
bankruptcy and consequent dissolution of the company, THI can still enforce its preferred claim upon
NNC.

When a distressed company is placed under rehabilitation, the appointment of a management

committee follows to avoid collusion between the previous management and creditors it might favor,
to the prejudice of the other creditors. The stay order is effective on all creditors of the corporation
without distinction, whether secured or unsecured. All assets of a corporation under rehabilitation
receivership are held in trust for the equal benefit of all creditors to preclude one from obtaining an
advantage or preference over another by the expediency of attachment, execution or otherwise.

Dispositive Portion:

WHEREFORE, in view of the foregoing disquisitions, judgment is rendered as follows:

(1) In G.R. No. 163156, the petition is DISMISSED for being moot and academic; and
(2) In G.R. No. 166845, the petition is DENIED for lack of merit.

SO ORDERED.

7. Title: JOSE MARCEL PANLILIO, ERLINDA PANLILIO, NICOLE MORRIS and MARIO T.
CRISTOBAL vs. REGIONAL TRIAL COURT, BRANCH 51, CITY OF MANILA, represented by HON. PRESIDING
JUDGE ANTONIO M. ROSALES; PEOPLE OF THE PHILIPPINES; and the SOCIAL SECURITY SYSTEM,

Case no. : G.R. No. 173846

Date: February 2, 2011

Ponente: PERALTA, J.:

There is no reason why criminal proceedings should be suspended during corporate rehabilitation.—
There is no reason why criminal proceedings should be suspended during corporate rehabilitation, more
so, since the prime purpose of the criminal action is to punish the offender in order to deter him and
others from committing the same or similar offense, to isolate him from society, reform and rehabilitate
him or, in general, to maintain social order. As correctly observed in Rosario, it would be absurd for one
who has engaged in criminal conduct could escape punishment by the mere filing of a petition for
rehabilitation by the corporation of which he is an officer.

The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the
corporation, especially since they are charged in their individual capacities.—The prosecution of the
officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially
since they are charged in their individual capacities. Such being the case, the purpose of the law for the
issuance of the stay order is not compromised, since the appointed rehabilitation receiver can still fully
discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not charged
to defend the officers of the corporation.

FACTS:

Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Marlo Cristobal (petitioners), as corporate officers
of Silahis International Hotel, Inc. (SIHI), filed a petition for Suspension of Payments and Rehabilitation.
Subsequently, an Order was issued staying 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, against SIHI upon finding the petition sufficient in form and substance.

At the time, however, of the filing of the petition for rehabilitation, there were a number of criminal
charges7pending against petitioners initiated by respondent Social Security System (SSS) for violations of
Republic Act 8282, or the Social Security Act of 1997 (SSS law) in relation to Article 315 (1) (b) of the
Revised Penal Code, or Estafa. Consequently, petitioners filed for a Motion to Suspend Proceedings but
the same was denied. It was affirmed by the CA ruling that violation of the provisions of the SSS law was
a criminal liability and was, thus, personal to the offender. As such, the criminal proceedings against the
petitioners should not be considered a claim against the corporation and, consequently, not covered by
the stay order for Corporate rehabilitation

ISSUE:

whether the stay order issued by the RTC commercial court, includes the above-captioned criminal cases?

RULING:

The Court shares the view of the private complainants and the SSS that the said stay order does not include
the prosecution of criminal offenses. Precisely, the law “criminalizes” the non-remittance of SSS
contributions by an employer to protect the employees from unscrupulous employers. Clearly, in these
cases, public interest requires that the said criminal acts be immediately investigated and prosecuted for
the protection of society. From the foregoing, the inescapable conclusion is that the stay order does not
include the above-captioned cases which are criminal in nature.

The prime purpose of the criminal action is to punish the offender in order to deter him and others from
committing the same or similar offense, to isolate him from society, to reform and rehabilitate him or, in
general, to maintain social order. Hence, the criminal prosecution is designed to promote the public
welfare by punishing offenders and deterring others. The civil action is merely incidental to and
consequent to the conviction of the accused.

However, any civil indemnity awarded as a result of their conviction would be subject to the stay order
issued by the rehabilitation court. Only to this extent can the order of suspension be considered obligatory
upon any court, tribunal, branch or body where there are pending actions for claims against the distressed
corporation.

To begin with, corporate rehabilitation connotes the restoration of the debtor to a position of successful
operation and solvency, if it is shown that its continued operation is economically feasible and its creditors
can recover more, by way of the present value of payments projected in the rehabilitation plan, if the
corporation continues as a going concern than if it is immediately liquidated. It contemplates a
continuance of corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency, the purpose being to enable the company to gain a
new lease on life and allow its creditors to be paid their claims out of its earnings.

A principal feature of corporate rehabilitation is the suspension of claims against the distressed
corporation. Section 6 (c) of Presidential Decree No. 902-A, as amended, provides that all actions for
claims against corporations, partnerships or associations under management or receivership pending
before any court, tribunal, board or body, shall be suspended accordingly. The Court En Banc promulgated
the Interim Rules of Procedure on Corporate Rehabilitation, Section 6, Rule 4 of which provides a stay
order on all claims against the corporation, 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.

10. MANUEL D. YNGSON, JR. (in his capacity as the Liquidator of ARCAM & COMPANY,
INC.), petitioner, vs. PHILIPPINE NATIONAL BANK, respondent.
G.R. No. 171132. August 15, 2012.*

VILLARAMA, JR., J.:

DOCTRINE: 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.

FACTS: ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill. ARCAM
applied for and was granted a loan by respondent Philippine National Bank (PNB). To secure the loan,
ARCAM executed a Real Estate Mortgage and a Chattel Mortgage over various personal
properties.ARCAM defaulted on its obligations to PNB. Thus, PNB initiated extrajudicial foreclosure
proceedings. The public auction was scheduled.

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
aTRO 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.8 An interim management committee was also created.

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 but the potential white
knight" investor had not infused the much needed capital to bail out ARCAM from its financial
difficulties.9 Thus, the SEC decreed that ARCAM be dissolved and placed under liquidation. 10 The
SEC Hearing Panel also granted PNB’s motion to dissolve the preliminary injunction and appointed
Atty. Manuel D. Yngson, Jr. & Associates as Liquidator forARCAM.11 With this development, PNB
revived the foreclosure case and requested the RTC Clerk of Court to re-schedule the sale at public
auction of the mortgaged properties.

Petitioner filed with the SEC a Motion for the Issuance of a Temporary Restraining Order and/or
Writ of Preliminary Injunction to enjoin the foreclosure sale of ARCAM’s assets. The SEC en banc
issued a TRO effective for seventy-two (72) hours, but said TRO lapsed without any writ of
preliminary injunction being issued by the SEC. Consequently, on July 28, 2000, PNB resumed the
proceedings for the extrajudicial foreclosure sale of the mortgaged properties.12 PNB emerged as the
highest winning bidder in the auction sale, and certificates of sale were issued in its favor.

Then, petitioner filed with the SEC a motion to nullify the auction sale. Petitioner 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. Petitioner argued that the
prohibition against foreclosure subsisted during liquidation because payment of all of ARCAM’s
obligations was proscribed except those authorized by the Commission. Moreover, petitioner asserted
that the mortgaged assets should be included in the liquidation and the proceeds shared with the
unsecured creditors.

The SEC issued a Resolution denying petitioner’s motion to nullify the auction sale. It held that PNB
was not legally barred from foreclosing on the mortgages. Aggrieved, petitioner filed a petition for
review in the CA questioning the Resolution of the SEC.16CA dismissed the petition.Hence this
petition

ISSUE: Did the SEC then err in ruling that PNB was not barred from foreclosing on the mortgages?

RULING: No, It is worth mentioning that 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:

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.1âwphi1When 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 debtor’s right of redemption upon receiving the
excess from the creditor;

(2) the liquidator may sell the property and satisfy the secured creditor’s 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.
(Emphasis supplied)

In this case, PNB elected to maintain its rights under the security or lien; hence, its right to foreclose
the mortgaged properties should be respected, in line with our pronouncement in Consuelo Metal
Corporation.