WONDER BOOK CORPORATION, Petitioner,

vs.
PHILIPPINE BANK OF COMMUNICATIONS, Respondent

Wonder Book Corporation (Wonder Book) is a corporation duly organized and existing under Philippine.
It operates the chain of stores known as the Diplomat Book Center.

On February 27, 2004, Wonder Book and eight (8) other corporations,3 collectively known as the Limtong
Group of Companies (LGC), filed a joint petition for rehabilitation with the RTC.

Stay Order4 was issued.

the Court hereby approves the Rehabilitation Plan of the LGC thereby granting the LGC a
moratorium of two (2) years from today in the payment of all its obligations, together with the
corresponding interests, to its creditor banks, subject to the modification that the interest charges
shall be reduced to 5% per annum. After the two-year grace period, the LGC shall commence to pay
its existing obligations with its creditor banks monthly within a period of fifteen (15) years.

LGC are enjoined to comply strictly with the provisions of the Rehabilitation Plan, perform its
obligations thereunder and take all actions necessary to carry out the Plan, failing which, the Court
shall either, upon motion, motu proprio or upon recommendation of the Rehabilitation Receiver,
terminate the proceedings pursuant to Section 27, Rule 1 of the Interim Rules of Procedure on
Corporate Rehabilitation.

The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit
a quarterly report on the progress thereof.

The foregoing was questioned by EPCI Bank and PBCOM before the CA by way of a petition for
review.Meantime, on September 5, 2006, Wonder Book filed a petition for Rehabilitation13 with the RTC.
Wonder Book cited the following as causes for its inability to pay its debts as they fall due: (a) high
interest rates, penalties and charges imposed by its creditors; (b) low demand for gift items and greeting
cards due to the widespread use of cellular phones and economic recession; (c) competition posed by
other stores; and (d) the fire on July 19, 2002 that destroyed its inventories worth P264 Million, which
are insured for P245 Million but yet to be collected.14
The RTC issued a Stay Order17 on September 5, 2006.
PBCOM filed an Opposition18 dated October 18, 2006 stating that: (a) Wonder Book’s petition cannot be
granted on the basis of proposals that are vague and anchored on baseless presumptions; (b) it is clear
from Wonder Book’s financial statements that it is insolvent and can no longer be rehabilitated; (c)
Wonder Book’s proposed capital infusion is speculative at best, as there is no reasonable expectation
that it will be paid under the insurance covering the inventory that was destroyed by fire on July 19,
2002; (d) Wonder Book failed to present an alternative funding for its capital infusion should its
insurance claim fail to materialize; (e) Wonder Book failed to specify how its proposed sales, marketing
and production strategies would be carried out; (f) Wonder Book failed to specify its underpinnings for
its claim that these strategies would certainly lead to its expected rate of profitability; and (g) Wonder
Book’s proposed payment program is too onerous.

The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit a
quarterly report on the progress thereof.
PBCOM filed a petition for review26 of the approval of Wonder Book’s rehabilitation plan,
The CA noted that Wonder Book failed to support its petition with reassuring "material financial
commitments", which is a requirement under Section 5 of the 2000 Interim Rules on Corporate
Rehabilitation.
We note, however, that the foregoing statements were mentioned in Wonder Book’s original
rehabilitation plan but were no longer restated in its detailed rehabilitation plan, which was the one
approved by the RTC. True enough, the commitment of Wonder Book to put up additional P10 Million as
working capital was not reflected in the projected balance sheet of Wonder Book. There was also no
mention about the expected insurance claim in the amount of P245 Million whereby 70% thereof or the
amount of P171,500,000.00 should be used to pay existing debts and the remaining 30% shall be used as
additional working capital. As a matter of fact, a full-allowance for non-recovery of said insurance claim
was already provided by Wonder Book because the latter believed that it could no longer be recovered.
It may be observed that the detailed rehabilitation plan merely provided for two management
commitments, such as, (1) all deposits for future subscriptions by the officers and directors will be
converted to common stock and (2) all liabilities (cash advances made by the stockholders’ (sic) to the
corporation) of the company from the officers and stockholders shall be treated just like trade payable.
But these could hardly be considered as "material financial commitments" that would support Wonder
Book’s rehabilitation plan. The first commitment was not even shown in the projected balance sheet of
Wonder Book. The subscribed and paid-up capital of Wonder Book remained at P4,500,000.00 even at
the end of the 15th year from the approval of the rehabilitation plan. Even so, the deposits for future
subscription is (sic) only P319,000.00, which is very significant vis-à-vis Wonder Book’s capital deficiency
of P161,219,121.00 as of August 2006.
CA also noted that Wonder Book’s expected profits during the rehabilitation period are not sufficient to
cover its liabilities and reverse its dismal financial state:
Our Ruling
CEPRI is not merely in the state of illiquidity, but in an apparent state of insolvency.
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
SARABIA MANOR HOTEL CORPORATION

Sarabia is a corporation duly organized and existing under Philippine laws, with principal place of
business at 101 General Luna Street, Iloilo City.5 It was incorporated on February 22, 1982, with an
authorized capital stock of ₱10,000,000.00, fully subscribed and paid-up, for the primary purpose of
owning, leasing, managing and/or operating hotels, restaurants, barber shops, beauty parlors, sauna
and steam baths, massage parlors and such other businesses incident to or necessary in the
management or operation of hotels.
In 1997, Sarabia obtained a ₱150,000,000.00 special loan package from Far East Bank and Trust
Company (FEBTC) in order to finance the construction of a five-storey hotel building (New Building) for
the purpose of expanding its hotel business.
The foregoing debts were secured by real estate mortgages over several parcels of land8 owned by
Sarabia and a comprehensive surety agreement dated September 1, 1997 signed by its stockholders.9 By
virtue of a merger, Bank of the Philippine Islands (BPI) assumed all of FEBTC’s rights against Sarabia.
Sarabia started to pay interests on its loans as soon as the funds were released in October 1997.
However, largely because of the delayed completion of the New Building, Sarabia incurred various cash
flow problems.
despite the fact that it had more assets than liabilities at that time, a Petition12 for corporate
rehabilitation (rehabilitation petition) with prayer for the issuance of a stay order before the RTC as it
foresaw the impossibility to meet its maturing obligations to its creditors when they fall due.
said petition, Sarabia claimed that its cash position suffered when it was forced to take-over the
construction of the New Building due to the recurring default of its contractor, Santa Ana – AJ
Construction Corporation (contractor),13 and its subsequent abandonment of the said project.14
Accordingly, the New Building was completed only in the latter part of 2000, or two years past the
original target date of August 1998.
In its proposed rehabilitation plan,17 Sarabia sought for the restructuring of all its outstanding loans,
submitting that the interest payments on the same be pegged at a uniform escalating rate of: (a) 7% per
annum (p.a.) for the years 2002 to 2005; (b) 8% p.a. for the years 2006 to 2010; (c) 10% p.a. for the
years 2011 to 2013; (d) 12% p.a. for the years 2014 to 2015; and (e) 14% p.a. for the year 2018. Likewise,
Sarabia sought to make annual payments on the principal loans starting in 2004, also in escalating
amounts depending on cash flow. Further, it proposed that it should pay off its outstanding obligations
to the government and its suppliers on their respective due dates, for the sake of its day to day
operations.
Finding Sarabia’s rehabilitation petition sufficient in form and substance, the RTC issued a Stay Order
RTC
the RTC approved Sarabia’s rehabilitation plan as recommended by the Receiver, finding the same to be
feasible. In this accord, it observed that the rehabilitation plan was realistic since, based on Sarabia’s
financial history, it was shown that it has the inherent capacity to generate funds to pay its loan
obligations given the proper perspective.34 The recommended rehabilitation plan was also practical in
terms of the interest rate pegged at 6.75% p.a. since it is based on Sarabia’s ability to pay and the
creditors’ perceived cost of money.35 It was likewise found to be viable since, based on the
extrapolations made by the Receiver, Sarabia’s revenue projections, albeit projected to slow down,
remained to have a positive business/profit outlook altogether
CA
It held that the RTC’s conclusions as to the feasibility of Sarabia’s rehabilitation was well-supported by
the company’s financial statements, both internal and independent, which were properly analyzed and
examined by the Receiver.41 It also upheld the 6.75%. p.a. interest rate on Sarabia’s loans, finding the
said rate to be reasonable given that BPI’s interests as a creditor were properly accounted for.

Issue

BPI mainly argues that the approved rehabilitation plan did not give due regard to its interests as a
secured creditor in view of the imposition of a fixed interest rate of 6.75% p.a. and the extended loan
repayment period.45 It likewise avers that Sarabia’s misrepresentations in its rehabilitation petition
remain unresolved.

Supreme Court

The petition has no merit.

A. Propriety of BPI’s petition;

It is fundamental that a petition for review on certiorari filed under Rule 45 of the Rules of Court
covers only questions of law.
Records show that Sarabia has been in the hotel business for over thirty years, tracing its operations
back to 1972. Its hotel building has been even considered a landmark in Iloilo, being one of its kind in
the province and having helped bring progress to the community.23 Since then, its expansion was
continuous which led to its decision to commence with the construction of a new hotel building.
Unfortunately, its contractor defaulted which impelled Sarabia to take-over the same. This significantly
skewed its projected revenues and led to various cash flow difficulties, resulting in its incapacity to meet
its maturing obligations.
case law has defined corporate rehabilitation as an attempt to conserve and administer the assets of an
insolvent corporation in the hope of its eventual return from financial stress to solvency. It contemplates
the continuance of corporate life and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and liquidity. rehabilitation shall be undertaken when it is shown
that the continued operation of the corporation is economically more feasible and its creditors can
recover, by way of the present value of payments projected in the plan, more, if the corporation
continues as a going concern than if it is immediately liquidated.
Section 23, Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation56 (Interim Rules) states
that a rehabilitation plan may be approved even over the opposition of the creditors holding a majority
of the corporation’s total liabilities if there is a showing that rehabilitation is feasible and the opposition
of the creditors is manifestly unreasonable. Also known as the "cram-down" clause, this provision, which
is currently incorporated in the FRIA,57 is necessary to curb the majority creditors’ natural tendency to
dictate their own terms and conditions to the rehabilitation, absent due regard to the greater long-term
benefit of all stakeholders. Otherwise stated, it forces the creditors to accept the terms and conditions
of the rehabilitation plan, preferring long-term viability over immediate but incomplete recovery.

It is within the parameters of the aforesaid provision that the Court examines the approval of
Sarabia’s rehabilitation.

i. Feasibility of Sarabia’s rehabilitation.

In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough
examination and analysis of the distressed corporation’s financial data must be conducted. If the results
of such examination and analysis show that there is a real opportunity to rehabilitate the corporation in
view of the assumptions made and financial goals stated in the proposed rehabilitation plan, then it may
be said that a rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to
allow the corporation to operate as an on-going concern, albeit under the terms and conditions stated in
the approved rehabilitation plan. On the other hand, if the results of the financial examination and
analysis clearly indicate that there lies no reasonable probability that the distressed corporation could
be revived and that liquidation would, in fact, better subserve the interests of its stakeholders, then it
may be said that a rehabilitation would not be feasible. In such case, the rehabilitation court may
convert the proceedings into one for liquidation.58 As further guidance on the matter, the Court’s
pronouncement in Wonder Book Corporation v. Philippine Bank of Communications59 proves instructive.
Suffice it to state that bare allegations of fact should not be entet1ained as they are bereft of any
probative value.
MARILYN VICTORIO-AQUINO, Petitioner,
vs.
PACIFIC PLANS, INC. and MAMERTO A. MARCELO, JR
Respondent Pacific Plans, Inc. (now Abundance Providers and Entrepreneurs Corporation or "APEC")3 is
engaged in the business of selling pre-need plans and educational plans, including traditional open-
ended educational plans (PEPTrads). PEPTrads are educational plans where respondent guarantees to
pay the planholder, without regard to the actual cost at the time of enrolment, the full amount of
tuition and other school fees of a designated beneficiary.4 Petitioner is a holder of two (2) units of
respondent’s PEPTrads.
foreseeing the impossibility of meeting its obligations to the availing planholders as they fall due,
respondent filed a Petition for Corporate Rehabilitation with the Regional Trial Court (Rehabilitation
Court), praying that it be placed under rehabilitation and suspension of payments pursuant to
Presidential Decree (P.D.) No. 902-A, as amended, in relation to the Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules).6 At the time of filing of the Petition for Corporate
Rehabilitation, respondent had more or less thirty four thousand (34,000) outstanding PEPTrads.
On April 12, 2005, the Rehabilitation Court issued a Stay Order, directing the suspension of payments
of the obligations of respondent and ordering all creditors and interested parties to file their
comments/oppositions,
Court
PWRDC’s contention that there is a violation of the impairment clause. Section 10, Article III of the
Constitution mandates that no law impairing the obligations of contract shall be passed. This case does
not involve a law or an executive issuance declaring the modification of the contract among debtor PALI,
its creditors and its accommodation mortgagors. Thus, the non-impairment clause may not be invoked.
Furthermore, as held in Oposa v. Factoran, Jr.even assuming that the same may be invoked, the non-
impairment clause must yield to the police power of the State. Property rights and contractual rights are
not absolute. The constitutional guaranty of nonimpairment of obligations is limited by the exercise of
the police power of the State for the common good of the general public.
Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees, and
the economy in general. The court may approve a rehabilitation plan evenover the opposition of
1âwphi1

creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of
the debtor isfeasible and the opposition of the creditors is manifestly unreasonable.
The Court reiterates that the SEC’s approval of the Rehabilitation Plan did not impair BPI’s right to
contract. As correctly contended by private respondents, the nonimpairment clause is a limit on the
exercise of legislative power and not of judicial or quasi-judicial power. The SEC, through the hearing
panel that heard the petition for approval of the Rehabilitation Plan, was acting as a quasi judicial body
and thus, its order approving the plan cannot constitute an impairment of the right and the freedom to
contract."