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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.
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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.
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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
Table 1 Contents of Petition
VOLUNTARY INVOLUNTARY
Statement of cause of debtors insolvency/inability to pay debts
when due
Circumstances sufficient to support petition
Grounds/ basis of petition
Schedule of debts, Creditor claims & list of claims
Inventory of assets and receivables
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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;
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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
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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
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2. 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
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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
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
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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;
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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.
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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
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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
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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;
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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.
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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.
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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
three-fifths (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.
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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
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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.
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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
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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
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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
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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 Intra-Corporate
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.
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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.
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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
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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 re-schedule the sale at public auction of the mortgaged
properties.
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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 debtor-mortgagor 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:
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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.
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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.
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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.
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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
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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
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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 one-year 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
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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 7th 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
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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.
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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
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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