VIVA SHIPPING LINES VS.

KEPPEL It does not make sense to hold, suspend, or continue to devalue

G.R. No. 177382, February 17, 2016 outstanding credits of a business that has no chance of recovery. In
such cases, the optimum economic welfare will be achieved if the
Corporate rehabilitation is a remedy for corporations, partnerships, and corporation is allowed to wind up its affairs in an orderly manner.
associations "who [foresee] the impossibility of meeting [their] debts Liquidation allows the corporation to wind up its affairs and equitably
when they respectively fall due." A corporation under rehabilitation distribute its assets among its creditors
continues with its corporate life and activities to achieve solvency, or a
position where the corporation is able to pay its obligations as they fall REHABILITATION VS LIQUIDATION
due in the ordinary course of business. Solvency is a state where the Liquidation is diametrically opposed to rehabilitation. Both cannot be
businesses’ liabilities are less than its assets. undertaken at the same time. In rehabilitation, corporations have to
maintain their assets to continue business operations. In liquidation, on
RATIONALE OF CORPORATE REHABILITATION: the other hand, corporations preserve their assets in order to sell them.
The rationale in corporate rehabilitation is to resuscitate businesses in Without these assets, business operations are effectively discontinued.
financial distress because "assets . . . are often more valuable when so The proceeds of the sale are distributed equitably among creditors, and
maintained than they would be when liquidated." Rehabilitation assumes surplus is divided or losses are re-allocated.
that assets are still serviceable to meet the purposes of the business.
The corporation receives assistance from the court and a disinterested CREDITORS ARE INDISPENSABLE PARTIES TO A REHABILITATION
rehabilitation receiver to balance the interest to recover and continue CASE, EVEN IF A REHABILITATION CASE IS NON-ADVERSARIAL.
ordinary business, all the while attending to the interest of its creditors to The first rule breached by petitioner is the failure to implead all the
be paid equitably. These interests are also referred to as indispensable parties. Petitioner did not even interpose reasons why it
the rehabilitative and the equitable purposes of corporate rehabilitation. should be excused from compliance with the rule to "state the full names
of the parties to the case, without impleading the court . . . as . . .
NATURE OF CORPORATE REHABILITATION: respondents." Petitioner did exactly the opposite. It failed to state the full
Philippine Bank of Communications v. Basic Polyprinters and Packaging names of its creditors as respondents. Instead, it impleaded the
Corporation reiterates that courts "must endeavor to balance the Presiding Judge of the originating court.
interests of all the parties that had a stake in the success of rehabilitating The Rules of Court requires petitioner to implead respondents as a
the debtors." These parties include the corporation seeking matter of due process. Under the Constitution, "[n]o person shall be
rehabilitation, its creditors, and the public in general. The public’s deprived of life, liberty or property without due process of the law." An
interest lies in the court’s ability to effectively ensure that the obligations appeal to a corporate rehabilitation case may deprive creditor-
of the debtor, who has experienced severe economic difficulties, are stakeholders of property. Due process dictates that these creditors be
fairly and equitably served. The alternative might be a chaotic rush by all impleaded to give them an opportunity to protect the property owed to
creditors to file separate cases with the possibility of different trial courts them.
issuing various writs competing for the same assets. Rehabilitation is a
means to temper the effect of a business downturn experienced for A corporate rehabilitation case cannot be decided without the creditors’
whatever reason. In the process, it gives entrepreneurs a second participation. The court’s role is to balance the interests of the
chance. Not only is it a humane and equitable relief, it encourages corporation, the creditors, and the general public. Impleading creditors
efficiency and maximizes welfare in the economy. as respondents on appeal will give them the opportunity to present their
Clearly then, there are instances when corporate rehabilitation can no legal arguments before the appellate court. The courts will not be able to
longer be achieved. When rehabilitation will not result in a better present balance these interests if the creditors are not parties to a case. Ruling
value recovery for the creditors, the more appropriate remedy is on petitioner’s appeal in the absence of its creditors will not result in
liquidation.106 judgment that is effective, complete, and equitable.
This court cannot exercise its equity jurisdiction and allow petitioner to the cash flow that the distressed corporation will obtain from
circumvent the requirement to implead its creditors as respondents. rehabilitating its assets and operations. A corporation’s assets may be
Tolerance of such failure will not only be unfair to the creditors, it is more than its current liabilities, but some assets may be in the form of
contrary to the goals of corporate rehabilitation, and will invalidate the land or capital equipment, such as machinery or vessels. Rehabilitation
cardinal principle of due process of law. sees to it that these assets generate more value if used efficiently rather
The failure of petitioner to implead its creditors as respondents cannot than if liquidated.
be cured by serving copies of the Petition on its creditors. Since the On the other hand, this court enumerated the characteristics of a
creditors were not impleaded as respondents, the copy of the Petition rehabilitation plan that is infeasible:
only serves to inform them that a petition has been filed before the (a) the absence of a sound and workable business plan;
appellate court. Their participation was still significantly truncated. (b) baseless and unexplained assumptions, targets and goals;
Petitioner’s failure to implead them deprived them of a fair hearing. The (c) speculative capital infusion or complete lack thereof for the execution
appellate court only serves court orders and processes on parties of the business plan;
formally named and identified by the petitioner. Since the creditors were (d) cash flow cannot sustain daily operations; and
not named as respondents, they could not receive court orders (e) negative net worth and the assets are near full depreciation or fully
prompting them to file remedies to protect their property rights. depreciated.
In addition to the tests of economic feasibility, Professor Stephanie V.
TEST TO HELP TRIAL COURTS EVALUATE THE ECONOMIC Gomez also suggests that the Financial and Rehabilitation and
FEASIBILITY OF A REHABILITATION PLAN: Insolvency Act of 2010 emphasizes on rehabilitation that provides for
In order to determine the feasibility of a proposed rehabilitation plan, it is better present value recovery for its creditors
imperative that a thorough examination and analysis of the distressed Present value recovery acknowledges that, in order to pave way for
corporation’s financial data must be conducted. If the results of such rehabilitation, the creditor will not be paid by the debtor when the credit
examination and analysis show that there is a real opportunity to falls due. The court may order a suspension of payments to set a
rehabilitate the corporation in view of the assumptions made and rehabilitation plan in motion; in the meantime, the creditor remains
financial goals stated in the proposed rehabilitation plan, then it may be unpaid. By the time the creditor is paid, the financial and economic
said that a rehabilitation is feasible. In this accord, the rehabilitation court conditions will have been changed. Money paid in the past has a
should not hesitate to allow the corporation to operate as an on-going different value in the future.150 It is unfair if the creditor merely receives
concern, albeit under the terms and conditions stated in the approved the face value of the debt. Present value of the credit takes into account
rehabilitation plan. On the other hand, if the results of the financial the interest that the amount of money would have earned if the creditor
examination and analysis clearly indicate that there lies no reasonable were paid on time.
probability that the distressed corporation could be revived and that Trial courts must ensure that the projected cash flow from a business’
liquidation would, in fact, better subserve the interests of its rehabilitation plan allows for the closest present value recovery for its
stakeholders, then it may be said that a rehabilitation would not be creditors. If the projected cash flow is realistic and allows the corporation
feasible. In such case, the rehabilitation court may convert the to meet all its obligations, then courts should favor rehabilitation over
proceedings into one for liquidation liquidation. However, if the projected cash flow is unrealistic, then courts
should consider converting the proceedings into that for liquidation to
a. The debtor has assets that can generate more cash if used in its daily protect the creditors.
operations than if sold. The Regional Trial Court correctly dismissed petitioner’s rehabilitation
b. Liquidity issues can be addressed by a practicable business plan that plan. It found that petitioner’s assets are non-performing. Petitioner
will generate enough cash to sustain daily operations. admitted this in its Amended Petition when it stated that its vessels were
c. The debtor has a definite source of financing for the proper and full no longer serviceable. In Wonder Book Corporation v. Philippine Bank of
implementation of a Rehabilitation Plan that is anchored on realistic Communications, a rehabilitation plan is infeasible if the assets are
assumptions and goals. These requirements put emphasis on liquidity: nearly fully or fully depreciated. This reduces the probability that
rehabilitation may restore and reinstate petitioner to its former position of to efficiently and equitably distribute the assets of the insolvent debtor to
successful operation and solvency. its creditors; and (b) to provide the debtor with a fresh start, viz:
Petitioner’s rehabilitation plan should have shown that petitioner has Rehabilitation proceedings in our jurisdiction have equitable and
enough serviceable assets to be able to continue its business. Yet, the rehabilitative purposes. On the one hand, they attempt to provide for the
plan showed that the source of funding would be to sell petitioner’s old efficient and equitable distribution of an insolvent debtor's remaining
vessels. Disposing of the assets constituting petitioner’s main business assets to its creditors; and on the other, to provide debtors with a "fresh
cannot result in rehabilitation. A business primarily engaged as start" by relieving them of the weight of their outstanding debts and
a shipping line cannot operate without its ships. On the other hand, the permitting them to reorganize their affairs. The purpose of rehabilitation
plan to purchase new vessels sacrifices the corporation’s cash flow. This proceedings is to enable the company to gain a new lease on life and
is contrary to the goal of corporate rehabilitation, which is to allow thereby allow creditors to be paidtheir claims from its earnings.
present value recovery for creditors. The plan to buy new vessels after Consequently, the basic issues inrehabilitation proceedings concern the
selling the two vessels it currently owns is neither sound nor workable as viability and desirability of continuing the business operations of the
a business plan. petitioning corporation. The determination of such issues was to be
The other part of the rehabilitation plan entails selling properties of carried out by the court-appointed rehabilitation receiver, who was
petitioner’s sister company. As pointed out by the Regional Trial Court, Cacho in this case.
this plan requires conformity from the sister company. Even if the two Moreover, Republic Act No. 10142 (Financial Rehabilitation and
companies have the same directorship and ownership, they are still two Insolvency Act (FRIA) of 2010), a law that is applicable hereto, has
separate juridical entities. defined a corporate debtor as a corporation duly organized and existing
under Philippine laws that has become insolvent. The term insolventis
PHILIPPINE BANK OF COMMUNICATIONS V. BASIC defined in Republic Act No. 10142 as "the financial condition of a debtor
POLYPRINTERS AND PACKAGING CORPORATION that is generally unable to pay its or his liabilities as they fall due in the
G.R. No. 187581 October 20, 2014 ordinary course of business or has liabilities that are greater than its or
his assets."
As such, the contention that rehabilitation becomes inappropriate
Liquidity was not an issue in a petition for rehabilitation
because of the perceived insolvency of BasicPolyprinters was incorrect.
The petitioner contends that the sole issue in corporate rehabilitation is
one of liquidity; hence, the petitioning corporation should have sufficient
assets to cover all its indebtedness because it only foresees the
impossibility of paying the indebtedness falling due. It claims that STEEL CORPORATION OF THE PHILIPPINES VS. MAPFRE
rehabilitation became inappropriate because Basic Polyprinters was INSULAR INSURANCE CORPORAYION
insolvent due to its assets being inadequate to cover the outstanding G.R. No. 201199 October 16, 2013
obligations.
We disagree with the contention of the petitioner. SCP claims that the RTC has jurisdiction over the subject matter of the
Under the Interim Rules, rehabilitation is the process of restoring "the insurance claim. Thus, the Court of Appeals erred when it held that the
debtor to a position of successful operation and solvency, if it is shown RTC acted with grave abuse of discretion amounting to lack or excess of
that its continuance of operation is economically feasible and its jurisdiction in issuing the 1 June 2011 Order. The Court disagrees. The
creditors can recover by way of the present value of payments projected RTC, acting as rehabilitation court, has no jurisdiction over the subject
in the plan more if the corporation continues as a going concern that if it matter of the insurance claim of SCP against respondent insurers. SCP
is immediately liquidated." It contemplates a continuance ofcorporate life must file a separate action for collection where respondent insurers can
and activities in an effort to restore and reinstate the corporation to its properly thresh out their defenses. SCP cannot simply file with the RTC
former position of successful operation and solvency. a motion to direct respondent insurers to pay insurance proceeds.
In Asiatrust Development Bank v. First Aikka Development, Inc., we said Section 3 of Republic Act No. 10142 states that rehabilitation
that rehabilitation proceedings have a two-pronged purpose, namely: (a) proceedings are "summary and non-adversarial" in nature. They do not
include adjudication of claims that require full trial on the merits, like Even under the new Rules of Procedure on Corporate Rehabilitation,
SCP’s insurance claim against respondent insurers. claim is defined under Section 1, Rule 2 as "all claims or demands of
In Advent Capital and Finance Corporation v. Alcantara, the Court held whatever nature or character against a debtor or its property, whether for
that: money or otherwise." This is also the definition of a claim under Republic
Ultimately, the issue is what court has jurisdiction to hear and Act No. 10142. Section 4(c) thereof reads:
adjudicate the conflicting claims of the parties over the "(c) Claim shall refer to all claims or demands of whatever nature or
dividends that Belson held in trust for their owners. Certainly, character against the debtor or its property, whether for money or
not the rehabilitation court which has not been given the power otherwise, liquidated or unliquidated, fixed or contingent, matured or
to resolve ownership disputes between Advent Capital and third unmatured, disputed or undisputed, including, but not limited to: (1) all
parties. x x x. Advent Capital must file a separate action for claims of the government, whether national or local, including taxes,
collection to recover the trust fees that it allegedly earned and, tariffs and customs duties; and (2) claims against directors and officers
with the trial court’s authorization if warranted, put the money in of the debtor arising from the acts done in the discharge of their
escrow for payment to whoever it belongs. Having failed to functions falling within the scope of their authority: Provided, That, this
collect the trust fees at the end of each calendar quarter as inclusion does not prohibit the creditors or third parties from filing cases
stated in the contract, all it had against the Alcantaras was a against the directors and officers acting in their personal capacities."
claim for payment which is proper subject for an ordinary action
for collection. It cannot enforce its money claim by simply filing a
motion in the rehabilitation case for delivery of money belonging SITUS DEVELOPMENT CORPORATION, DAILY SUPERMARKET,
to the Alcantaras but in the possession of a third party. INC. and COLOR LITHOGRAPHIC PRESS, INC VS. ASIATRUST
Rehabilitation proceedings are summary and non-adversarial in nature, BANK, ALLIED BANKING CORPORATION, METROPOLITAN BANK
and do not contemplate adjudication of claims that must be threshed out AND TRUST COMPANY, and CAMERON GRANVILLE II ASSET
in ordinary court proceedings. Adversarial proceedings similar to that in MANAGEMENT, INC. (CAMERON)
ordinary courts are inconsistent with the commercial nature of a G.R. No. 180036 July 25, 2012
rehabilitation case. The latter must be resolved quickly and expeditiously
for the sake of the corporate debtor, its creditors and other interested WHETHER THE DISMISSAL OF THE PETITION FOR
parties. Thus, the Interim Rules "incorporate the concept of prohibited REHABILITATION IS IN ORDER
pleadings, affidavit evidence in lieu of oral testimony, clarificatory The Rules provide that "the petition shall be dismissed if no rehabilitation
hearings instead of the traditional approach of receiving evidence, and plan is approved by the court upon the lapse of one hundred eighty
the grant of authority to the court to decide the case, or any incident, on (180) days from the date of the initial hearing." While the Rules
the basis of affidavits and documentary evidence." expressly provide that the 180-day period may be extended, such
The Court agrees with the ruling of the Court of Appeals that the extension may be granted only "if it appears by convincing and
jurisdiction of the rehabilitation courts is over claims against the debtor compelling evidence that the debtor may successfully be rehabilitated."
that is under rehabilitation, not over claims by the debtor against its own In this case, the Second Amended Rehabilitation Program was approved
debtors or against third parties. In its 8 February 2012 Decision, the by the trial court beyond the 180-day period counted from the date of the
Court of Appeals held that: x x x Said insurance claims cannot be initial hearing. However, the evidence on record does not support the
considered as "claims" within the jurisdiction of the trial court functioning lower court’s finding that the debtor corporations may still be
as a rehabilitation court. Rehabilitation courts only have limited successfully rehabilitated.
jurisdiction over the claims by creditors against the distressed company, The trial court’s only justification for approving the Second Amended
not on the claims of said distressed company against its debtors. The Rehabilitation Program is that "the creditor banks are fully aware that the
interim rules define claim as referring to all claims or demands, of real property on which the building structure of Situs Development sits is
whatever nature or character against a debtor or its property, whether for more than sufficient to answer for all the outstanding obligations of the
money or otherwise. petitioners." It then went on to conclude that "[t]his fact alone should be
enough to afford the petitioners a sporting chance at business We take this opportunity to point out that rehabilitation contemplates a
resuscitation." continuance of corporate life and activities in an effort to restore and
We do not agree. It is a fundamental principle in corporate law that a reinstate the corporation to its former position of successful operation
corporation is a juridical entity with a legal personality separate and and solvency. However, if the continued existence of the corporation is
distinct from the people comprising it. Hence, the rule is that assets of no longer viable, rehabilitation can no longer be an option. The purpose
stockholders may not be considered as assets of the corporation, and of rehabilitation proceedings is to enable the company to gain a new
vice-versa. The mere fact that one is a majority stockholder of a lease on life, and not to prolong its inevitable demise.
corporation does not make one’s property that of the corporation, since
the stockholder and the corporation are separate entities. WHETHER THE STAY ORDER AFFECTS FORECLOSURE
In this case, the parcels of land mortgaged to respondent banks are PROCEEDINGS INVOLVING PROPERTIES MORTGAGED BY
owned not by petitioners, but by spouses Chua. Applying the doctrine of STOCKHOLDERS TO SECURE CORPORATE DEBTS
separate juridical personality, these properties cannot be considered as The Stay Order does not suspend the foreclosure of a mortgage
part of the corporate assets. Even if spouses Chua are the majority constituted over the property of a third-party mortgagor.
stockholders in petitioner corporations, they own these properties in their Petitioners insist that the Stay Order covers the mortgaged properties,
individual capacities. Thus, the parcels of land in question cannot be citing the Interim Rules on Corporate Rehabilitation (the Rules). Under
included in the inventory of assets of petitioner corporations. the Rules, one of the effects of a Stay Order is the stay of the
The fact that these properties were mortgaged to secure corporate debts "enforcement of all claims, whether for money or otherwise and whether
is of no moment. A mortgage is an accessory undertaking to secure the such enforcement is by court action or otherwise, against the debtor, its
fulfillment of a principal obligation. In a third-party mortgage, the guarantors and sureties not solidarily liable with the debtor."
mortgaged property stands as security for the loan obtained by the Based on a reading of the Rules, we rule that the Stay Order cannot
principal debtor; but until the mortgaged property is foreclosed, suspend foreclosure proceedings already commenced over properties
ownership thereof remains with the third-party mortgagor. belonging to spouses Chua. The Stay Order can only cover those claims
Here, the properties owned by spouses Chua were mortgaged as directed against petitioner corporations or their properties, against
security for the debts contracted by petitioner corporations. However, petitioners’ guarantors, or against petitioners’ sureties who are not
ownership of these properties remained with the spouses solidarily liable with them.
notwithstanding the fact that these were mortgaged to secure corporate Spouses Chua may not be considered as "debtors." The Interim Rules
debts. We have ruled that "when a debtor mortgages his property, he on Corporate Rehabilitation (the Rules) define the term "debtor" as
merely subjects it to a lien but ownership thereof is not parted with." This follows:
leads to no other conclusion than that, notwithstanding the mortgage, "Debtor" shall mean any corporation, partnership, or association,
the real properties in question belong to spouses Chua; hence, these whether supervised or regulated by the Securities and Exchange
properties should not be considered as assets of petitioner corporations. Commission or other government agencies, on whose behalf a petition
Since the real properties in question cannot be considered as corporate for rehabilitation has been filed under these Rules.
assets, the trial court’s pronouncement that petitioners were susceptible Likewise, the enforcement of the mortgage lien cannot be considered as
of rehabilitation was bereft of any basis. Based on the rehabilitation a claim against a guarantor or a surety not solidarily liable with the
court’s narration of facts, Situs Development Corporation has total debtor corporations. While spouses Chua executed Continuing Guaranty
assets of P54,176,149.22 with total liabilities of P74,304,188.01; Daily and Comprehensive Surety undertakings in favor of Allied Bank, the
Supermarket, Inc. has total assets of P43,986,412.33 with total liabilities bank did not proceed against them as individual guarantors or sureties.
of P114,219,462.00; and Color Lithographic Press, Inc. has total assets Rather, by initiating extrajudicial foreclosure proceedings, the bank was
of P7,618,006.69 and total liabilities of P6,588,534.99. 17 Clearly, the directly proceeding against the property mortgaged to them by the
aggregate total liabilities of petitioner corporations far exceed their spouses as security. The Civil Code provides that the property upon
aggregate total assets. which a mortgage is imposed directly and immediately subjected to the
fulfillment of the obligation for whose security the mortgage was
constituted. As such, a real estate mortgage is a lien on the property appointment of a management committee and during the pendency of
itself, inseparable from the property upon which it was constituted. the case, the mortgagee-bank foreclosed on the real estate mortgage
In this case, we find that the undertaking of spouses Chua with respect over some of the corporation’s mortgaged properties. An auction sale
to the loans of petitioner corporations is the sale at public auction of was conducted, and the mortgagee-bank emerged as the highest bidder.
certain real properties belonging to them to satisfy the indebtedness of However, because of the pendency of the rehabilitation case before the
petitioner corporations in case of a default by the latter. This undertaking SEC, the Sheriff withheld the delivery of the Certificate of Sale. Ruling
is properly that of a third-party mortgagor or an accommodation on the validity of the foreclosure proceedings, we held that the conduct
mortgagor, whereby one mortgages one’s property to stand as security of the foreclosure sale was valid, because it was carried out prior to the
for the indebtedness of another. issuance of the SEC’s order appointing a management committee. We
In Pacific Wide Realty and Development Corporation v. Puerto Azul held that the appointment of a management committee, rehabilitation
Land, Inc., we ruled that the issuance of a Stay Order cannot suspend receiver, board or body pursuant to Presidential Decree No. 902-A is the
the foreclosure of accommodation mortgages, because the Stay Order operative act that suspends all actions or claims against a distressed
may only cover the suspension of the enforcement of all claims against corporation.
the debtor, its guarantors, and sureties not solidarily liable with the In the case at bar, the auction sale for the parcels of land covered by
debtor. Thus, the suspension of enforcement of claims does not extend TCT Nos. RT-13620 and RT-13621 and mortgaged to respondent Allied
to the foreclosure of accommodation mortgages. Bank was conducted on 6 February 2001, while the foreclosure sale for
Moreover, the intent of the Rules is to exclude from the scope of the the parcel of land covered by TCT No. 79916 and mortgaged to
Stay Order the foreclosure of properties owned by accommodation Metrobank was conducted on 18 September 2001. Clearly, the
mortgagors. The newly adopted Rules of Procedure on Corporate foreclosure proceedings commenced and the auction sale was
Rehabilitation provides for one of the effects of a Stay Order: conducted before the issuance of the Stay Order and the appointment of
SEC. 7. Stay Order. – the Rehabilitation Receiver on 17 June 2002. In fact, the public auctions
(b) staying enforcement of all claims, whether for money or otherwise took place almost a year before petitioner corporations filed the Petition
and whether such enforcement is by court action or otherwise, against for Rehabilitation with the court a quo on 11 June 2002. Therefore, the
the debtor, its guarantors and persons not solidarily liable with the execution of the Certificate of Sale may no longer be suspended by the
debtor; provided, that the stay order shall not cover claims against letters trial court’s issuance of the Stay Order, even if the questioned properties
of credit and similar security arrangements issued by a third party to are assumed to fall under the ambit of the Stay Order, since the
secure the payment of the debtor's obligations; provided, further, that the foreclosure proceedings and the auction sale were conducted prior to
stay order shall not cover foreclosure by a creditor of property not the appointment of the Rehabilitation Receiver.
belonging to a debtor under corporate rehabilitation; provided, however,
that where the owner of such property sought to be foreclosed is also a
guarantor or one who is not solidarily liable, said owner shall be entitled JOSE MARCEL PANLILIO VS. REGIONAL TRIAL COURT, BRANCH
to the benefit of excussion as such guarantor. 51, CITY OF MANILA, represented by HON. PRESIDING JUDGE
From the foregoing, we therefore hold that foreclosure proceedings over ANTONIO M. ROSALES; PEOPLE OF THE PHILIPPINES; and the
the properties in question are not suspended by the trial court’s issuance SOCIAL SECURITY SYSTEM
of the Stay Order. G.R. No. 173846 February 2, 2011
Furthermore, even assuming that the properties in question fall under
the ambit of the Stay Order, the issuance thereof should not affect the WHETHER THE STAY ORDER ISSUED BY THE RTC COMMERCIAL
execution of the Certificate of Sale. COURT, BRANCH 24 INCLUDES CRIMINAL CASES (violations of
In Rizal Commercial Banking Corporation v. Intermediate Appellate Section 28 (h) of Republic Act 8282, or the Social Security Act of 1997
Court and BF Homes, Inc., the debtor corporation filed a Petition for (SSS law), in relation to Article 315 (1) (b) of the Revised Penal Code, or
Rehabilitation and Declaration of Suspension of Payments before the Estafa)
Securities and Exchange Commission (SEC). Prior to the SEC’s
The Court shares the view of the private complainants and the SSS that x x x the gravamen of the offense punished by B.P. Blg. 22 is
the said stay order does not include the prosecution of criminal offenses. the act of making and issuing a worthless check; that is, a check
Precisely, the law "criminalizes" the non-remittance of SSS contributions that is dishonored upon its presentation for payment. It is
by an employer to protect the employees from unscrupulous employers. designed to prevent damage to trade, commerce, and banking
Clearly, in these cases, public interest requires that the said criminal acts caused by worthless checks. In Lozano v. Martinez, this Court
be immediately investigated and prosecuted for the protection of society. declared that it is not the nonpayment of an obligation which the
From the foregoing, the inescapable conclusion is that the stay order law punishes. The law is not intended or designed to coerce a
issued by RTC Branch 24 does not include the above-captioned cases debtor to pay his debt. The thrust of the law is to prohibit, under
which are criminal in nature corporate rehabilitation connotes the pain of penal sanctions, the making and circulation of worthless
restoration of the debtor to a position of successful operation and checks. Because of its deleterious effects on the public interest,
solvency, if it is shown that its continued operation is economically the practice is proscribed by the law. The law punishes the act
feasible and its creditors can recover more, by way of the present value not as an offense against property, but an offense against public
of payments projected in the rehabilitation plan, if the corporation order. The prime purpose of the criminal action is to punish the
continues as a going concern than if it is immediately liquidated. 17 It offender in order to deter him and others from committing the
contemplates a continuance of corporate life and activities in an effort to same or similar offense, to isolate him from society, to reform
restore and reinstate the corporation to its former position of successful and rehabilitate him or, in general, to maintain social order.
operation and solvency, the purpose being to enable the company to Hence, the criminal prosecution is designed to promote the
gain a new lease on life and allow its creditors to be paid their claims out public welfare by punishing offenders and deterring others.
of its earnings. Consequently, the filing of the case for violation of B.P. Blg. 22
is not a "claim" that can be enjoined within the purview of P.D.
the Interim Rules of Procedure on Corporate Rehabilitation, Section 6, No. 902-A. True, although conviction of the accused for the
Rule 4 of which provides a stay order on all claims against the alleged crime could result in the restitution, reparation or
corporation, thus: indemnification of the private offended party for the damage or
Stay Order. - If the court finds the petition to be sufficient in form and injury he sustained by reason of the felonious act of the
substance, it shall, not later than five (5) days from the filing of the accused, nevertheless, prosecution for violation of B.P. Blg. 22
petition, issue an Order x x x; (b) staying enforcement of all claims, is a criminal action.
whether for money or otherwise and whether such enforcement is by A criminal action has a dual purpose, namely, the punishment of the
court action or otherwise, against the debtor, its guarantors and sureties offender and indemnity to the offended party. The dominant and
not solidarily liable with the debtor; x x x primordial objective of the criminal action is the punishment of the
In Finasia Investments and Finance Corporation v. Court of Appeals, the offender. The civil action is merely incidental to and consequent to the
term "claim" has been construed to refer to debts or demands of a conviction of the accused. The reason for this is that criminal actions are
pecuniary nature, or the assertion to have money paid. The purpose for primarily intended to vindicate an outrage against the sovereignty of the
suspending actions for claims against the corporation in a rehabilitation state and to impose the appropriate penalty for the vindication of the
proceeding is to enable the management committee or rehabilitation disturbance to the social order caused by the offender. On the other
receiver to effectively exercise its/his powers free from any judicial or hand, the action between the private complainant and the accused is
extrajudicial interference that might unduly hinder or prevent the rescue intended solely to indemnify the former.
of the debtor company. Rosario is at fours with the case at bar. Petitioners are charged with
In Rosario v. Co, a case of recent vintage, the issue resolved by this violations of Section 28 (h) of the SSS law, in relation to Article 315 (1)
Court was whether or not during the pendency of rehabilitation (b) of the Revised Penal Code, or Estafa. The SSS law clearly
proceedings, criminal charges for violation of Batas Pambansa Bilang 22 "criminalizes" the non-remittance of SSS contributions by an employer to
should be suspended, was disposed of as follows: protect the employees from unscrupulous employers. Therefore, public
interest requires that the said criminal acts be immediately investigated xxxx
and prosecuted for the protection of society. (g) any criminal action against individual debtor or owner, partner,
The rehabilitation of SIHI and the settlement of claims against the director or officer of a debtor shall not be affected by any proceeding
corporation is not a legal ground for the extinction of petitioners’ criminal commenced under this Act.
liabilities. 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. 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. If there is anything
that the rehabilitation receiver might be remotely interested in is whether
the court also rules that petitioners are civilly liable. Such a scenario,
however, is not a reason to suspend the criminal proceedings, because
as aptly discussed in Rosario, should the court prosecuting the officers
of the corporation find that an award or indemnification is warranted,
such award would fall under the category of claims, the execution of
which would be subject to the stay order issued by the rehabilitation
court. The penal sanctions as a consequence of violation of the SSS
law, in relation to the revised penal code can therefore be implemented if
petitioners are found guilty after trial. 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.
On a final note, this Court would like to point out that Congress has
recently enacted Republic Act No. 10142, or the Financial Rehabilitation
and Insolvency Act of 2010. Section 18 thereof explicitly provides that
criminal actions against the individual officer of a corporation are not
subject to the Stay or Suspension Order in rehabilitation proceedings, to
wit:
The Stay or Suspension Order shall not apply: