G.R. NOS.

174457-59

EXPRESS INVESTMENTS III PRIVATE LTD. AND EXPORT DEVELOPMENT CANADA, Petitioner,

vs.
DAYAN TELECOMMUNICATIONS, INC., THE BANK OF NEW YORK (AS TRUSTEE FOR THE HOLDERS
OF THE US$200,000,000 13.5% SENIOR NOTES OF DAYAN TELECOMMUNICATIONS, INC.) AND ATTY.
REMIGIO A. NOVAL (AS THE COURT-APPOINTED REHABILITATION RECEIVER OF
BAYANTEL), Respondents.

x---------------x

G.R. Nos. 175418-20

IN THE MATTER OF:

THE CORPORATE REHABILITATION OF DAYAN TELECOMMUNICATIONS, INC. PURSUANT TO THE
INTERIM RULES OF PROCEDURE ON CORPORATE REHABILITATION (A.M. NO. 00-8-10-SC)
THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS OF THE US$200,000,000 13.5% SENIOR
NOTES OF DAYAN TELECOMMUNICATIONS, INC.
DUE 2006 ACTING ON THE INSTRUCTIONS OF THE INFORMAL STEERING COMMITTEE: AVENUE ASIA
INVESTMENTS, L.P., AVENUE ASIA INTERNATIONAL, LTD., AVENUE ASIA SPECIAL SITUATIONS FUND
II, L.P. AND AVENUE ASIA CAPITAL PARTNERS, L.P., Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents.

x---------------x

IN THE MATTER OF:

THE CORPORATE REHABILITATION OF BAY AN TELECOMMUNICATIONS, INC. PURSUANT TO THE
INTERIM RULES OF PROCEDURE ON CORPORATE REHABILITATION (A.M. NO. 00-8-10-SC)
AVENUE ASIA INVESTMENTS, L.P., AVENUE ASIA INTERNATIONAL, LTD., AVENUE ASIA SPECIAL
SITUATIONS FUND II, L.P., AVENUE ASIA CAPITAL PARTNERS, L.P. AND AVENUE ASIA SPECIAL
SITUATIONS FUND III, L.P., Petitioner,
vs.
DAYAN TELECOMMUNICATIONS, INC., Respondents.

x---------------x

G.R. No. 177270               December 5, 2012

THE BANK OF NEW YORK AS TRUSTEE FOR THE HOLDERS OF THE US$200,000,000 13.5% SENIOR
NOTES OF BAY AN TELECOMMUNICATIONS, INC., Petitioner,
vs.
BAY AN TELECOMMUNICATIONS, INC., Respondents.

DECISION

VILLARAMA, JR., J.:

Before us are seven consolidated petitions for review on certiorari filed m connection with the corporate
rehabilitation of Bayan Telecommunications, Inc. (Bayantel).

The Petition for Partial Review on Certiorari in G.R. Nos. 174457-59 was filed by Express Investments III Private
1 

Ltd. and Export Development Canada to assail the August 18, 2006 Decision of the Court of Appeals in CA-G.R.
2 

SP No. 87203.

On the other hand, the Petition for Review on Certiorari in G.R. Nos. 175418-20 was filed by The Bank of New
3 

York; Avenue Asia Investments, L.P.; Avenue Asia International, Ltd.; Avenue Asia Special Situations Fund II,
L.P.; Avenue Asia Capital Partners, L.P. and Avenue Asia Special Situations Fund III, L.P. Said petition
questions as well the said August 18, 2006 Court of Appeals Decision, and also the November 8, 2006
Resolution  of the Court of Appeals in CA-G.R. SP Nos. 87100 and 87111 affirming the June 28, 2004
4 

Decision of the Regional Trial Court (RTC) of Pasig City, Branch 158, in SEC Case No. 03-25.
5 
Meanwhile, the Petition for Review on Certiorari in G.R. No. 177270 was filed by The Bank of New York, in its
6 

capacity as trustee for the holders of the US$200 million 13.5% Senior Notes of Bayantel and upon the
instructions of the Informal Steering Committee, to contest the Decision and Resolution of the Court of Appeals
7  8 

in CA-G.R. SP No. 89894 which nullified the November 9, 2004 and March 15, 2005 Orders of the Pasig RTC,
Branch 158, in SEC Case No. 03-25 insofar as it defined the powers and functions of the Monitoring Committee.

The facts, as culled from the records of these cases, follow:

Respondent Bayantel is a duly organized domestic corporation engaged in the business of providing
telecommunication services. It is 98.6% owned by Bayan Telecommunications Holdings Corporation (BTHC),
which in turn is 85.4% owned by the Lopez Group of Companies and Benpres Holdings Corporation.

On various dates between the years 1995 and 2001, Bayantel entered into several credit agreements with
Express Investments III Private Ltd. And Export Development Canada (petitioners in G.R. Nos. 174457-59),
Asian Finance and Investment Corporation, Bayerische Landesbank (Singapore Branch) and Clearwater Capital
Partners Singapore Pte Ltd., as agent for Credit Industriel et Commercial (Singapore), Deutsche Bank AG,
Equitable PCI Bank, JP Morgan Chase Bank, Metropolitan Bank and Trust Co., P.T. Bank Negara Indonesia
(Persero), TBK, Hong Kong Branch, Rizal Commercial Banking Corporation and Standard Chartered Bank. To
secure said loans, Bayantel executed an Omnibus Agreement dated September 19, 1995 and an EVTELCO
Mortgage Trust Indenture9 dated December 12, 1997. 10

Pursuant to the Omnibus Agreement, Bayantel executed an Assignment Agreement in favor of the lenders under
the Omnibus Agreement (hereinafter, Omnibus Creditors, Bank Creditors, or secured creditors). In the
Assignment Agreement, Bayantel bound itself to assign, convey and transfer to the Collateral Agent, the
following properties as collateral security for the prompt and complete payment of its obligations to the Omnibus
Creditors:

(i) all monies payable to Bayantel under the Project Documents (as the term is defined by the Omnibus
Agreement);

(ii) all Project Documents and all Contract Rights arising thereunder;

(iii) all receivables;

(iv) all general intangibles;

(v) each of the Accounts (as the term is defined by the Omnibus Agreement);

(vi) all amounts maintained in the Accounts and all monies, securities and instruments deposited or
required to be deposited in the Accounts;

(vii) all other chattel paper and documents;

(viii) all other property, assets and revenues of Bayantel, whether tangible or intangible; and

(ix) all proceeds and products of any and all of the foregoing. 11

In July 1999, Bayantel issued US$200 million worth of 13.5% Senior Notes pursuant to an Indenture dated July
12 

22, 1999 that it entered into with The Bank of New York (petitioner in G.R. Nos. 175418-20) as trustee for the
holders of said notes. Pursuant to the said Indenture, the notes are due in 2006 and Bayantel shall pay interest
on them semi-annually. Bayantel managed to make two interest payments, on January 15, 2000 and July 15,
2000, before it defaulted on its obligation.

Foreseeing the impossibility of further meeting its obligations, Bayantel sent, in October 2001, a proposal for the
restructuring of its debts to the Bank Creditors and the Holders of Notes. To facilitate the negotiations between
Bayantel and its creditors, an Informal Steering Committee was formed composed of Avenue Asia Investments,
L.P., Avenue Asia International, Ltd., Avenue Asia Special Situations Fund II, L.P., Avenue Asia Capital
Partners, L.P. (petitioners in G.R. Nos. 175418-20) and Van Eck Global Opportunity Masterfund, Ltd. The
members of the Informal Steering Committee are the assignees of the unsecured credits extended to Bayantel
by J.P. Morgan Europe, Ltd., Bayerische Landesbank Singapore Branch and Deutsche Bank AG, London in the
total principal amount of US$13,637,485.20. They are holders, as well, of the Notes issued by Bayantel pursuant
to the Indenture dated July 22, 1999.

In its initial proposal called the "First Term Sheet," Bayantel suggested a 25% write-off of the principal owing to
the Holders of Notes. The Informal Steering Committee rejected the idea, but accepted Bayantel’s proposal to
pay the restructured debt, pari passu, out of its cash flow. This pari passu or equal treatment of debts, however,
13 

was opposed by the Bank Creditors who invoked their security interest under the Assignment Agreement.

Bayantel continued to pay reduced interest on its debt to the Bank Creditors but stopped paying the Holders of
Notes starting July 17, 2000. By May 31, 2003, Bayantel’s total indebtedness had reached US$674 million or
P35.928 billion in unpaid principal and interest, based on the prevailing conversion rate of US$1 = P53.282. Out
of its total liabilities, Bayantel allegedly owes 43.2% or US$291 million (P15.539 billion) to the Holders of the
Notes.

On July 25, 2003, The Bank of New York, as trustee for the Holders of the Notes, wrote Bayantel an
Acceleration Letter declaring immediately due and payable the principal, premium interest, and other monetary
obligations on all outstanding Notes. Then, on July 30, 2003, The Bank of New York filed a petition for the14 

corporate rehabilitation of Bayantel upon the instructions of the Informal Steering Committee.

On August 8, 2003, the Pasig RTC, Branch 158, issued a Stay Order which directed, among others, the
15 

suspension of all claims against Bayantel and required the latter’s creditors and other interested parties to file a
comment or opposition to the petition. The court appointed Dr. Conchita L. Manabat to act as rehabilitation
receiver but the latter declined. In her stead, the court appointed Atty. Remigio A. Noval (Atty. Noval) who took
16 

his oath and posted a bond on September 26, 2003. 17

On November 28, 2003, the Rehabilitation Court gave due course to the petition and directed the Rehabilitation
Receiver to submit his recommendations to the court within 120 days from the initial hearing. After several
18 

extensions, Atty. Noval filed on March 22, 2004 a Compliance and Submission of the Report as Compelling
Evidence that Bayantel may be Successfully Rehabilitated. 19

In his report, Atty. Noval classified Bayantel’s debts into three: (1) those owed to secured Bank Creditors
pursuant to the Omnibus Agreements (Omnibus Creditors) in the total amount of US$334 million or P17.781
billion; (2) those owed to Holders of the Senior Notes and Bank Creditors combined (Chattel Creditors),
comprising US$625 million, of which US$473 million (P25.214 billion) is principal and US$152 million (P8.106
billion) is accrued unpaid interest; and (3) those that Bayantel owed to persons other than Financial
Creditors/unsecured creditors in the amount of US$49 million or P2.608 billion.

According to The Bank of New York, out of the US$674 million that respondent owes its creditors under groups 2
and 3 above, the amount outstanding under the Senior Notes represent 43.2% of its liabilities as of May 31,
2003. Subsequently, negotiations for the restructuring of Bayantel’s debt reached an impasse when the Informal
Steering Committee insisted on a pari passu treatment of the claims of both secured and unsecured creditors.

Meanwhile, on January 20, 2004, Bayantel filed a "Motion to Include Radio Communications Philippines, Inc.
[RCPI] and Naga Telephone Company [Nagatel] as Debtor-Corporations for Rehabilitation x x x." 20

The Rehabilitation Court denied said motion in an Order dated April 19, 2004. The fallo of said order reads:
21 

WHEREFORE, the Court resolves the pending incidents as follows:

1. The Urgent Motion to Resolve of petitioner is hereby granted. The creditors of Bayantel, whether
secured or unsecured, should be treated equally and on the same footing or pari passu until the
rehabilitation proceedings is terminated in accordance with the Interim Rules;

2. The Motion of Bayantel to Include RCPI and Nagatel in the present rehabilitation proceedings as
debtor-corporations is denied;

3. The Motion of Bayantel to Exempt from the Stay Order the payment of the compensation package of
its former employees per Annex "A" attached to said motion is granted, subject to the verification and
confirmation of the items therein by the Rehabilitation Receiver;

4. The Motion of Petitioner to Strike Out the proposed rehabilitation plan of Bayantel is denied.
SO ORDERED. 22

On June 28, 2004, the Pasig RTC, Branch 158, acting as a Rehabilitation Court, approved the Report and
Recommendations attached by the Receiver to his "Submission with Prayer for Further Guidance from the
23 

Honorable Court," subject to the following clarifications and/or amendments:

24 

1. The ruling on the pari passu treatment of all creditors whose claims are subject to restructuring shall
be maintained and shall extend to all payment terms and treatment of past due interest.

2. Due regard shall be given to the rights of the secured creditors and no changes in the security
positions of the creditors shall be granted as a result of the rehabilitation plan as amended and approved
herein.

3. The level of sustainable debt of the rehabilitation plan, as amended, shall be reduced to the amount of
[US]$325,000,000 for a period of 19 years.

4. Unsustainable debt shall be converted into an appropriate instrument that shall not be a financial
burden for Bayantel.

5. All provisions relating to equity in the rehabilitation plan, as approved and amended, must strictly
conform to the requirements of the Constitution limiting foreign ownership to 40%.

6. A Monitoring Committee shall be formed composed of representatives from all classes of the
restructured debt. The Rehabilitation Receiver’s role shall be limited to the powers of monitoring and
oversight as provided in the Interim Rules.

All powers provided for in the Report and Recommendations, which exceed the monitoring and oversight
functions mandated by the Interim Rules shall be amended accordingly.

SO ORDERED. 25

Dissatisfied, The Bank of New York filed a Notice of Appeal on August 6, 2004. So did Avenue Asia
26 

Investments, L.P., Avenue Asia International, Ltd., Avenue Asia Special Situations Fund II, L.P., Avenue Asia
Capital Partners, L.P., and Avenue Asia Special Situations Fund III, L.P. which filed a Joint Record on
Appeal on August 9, 2004.
27 

On September 28, 2004, Bayantel submitted an Implementing Term Sheet to the Rehabilitation Court and the
Receiver. Claiming that said Term Sheet was inadequate to protect the interest of the creditors, The Bank of
New York (petitioner in G.R. No. 177270) filed a Manifestation dated October 15, 2004 praying for the
28 

constitution of a Monitoring Committee and the creation of a convertible debt instrument to cover the
unsustainable portion of the restructured debt.

On November 9, 2004, the Rehabilitation Court issued an Order directing the creation of a Monitoring
29 

Committee to be composed of one member each from the group of Omnibus Creditors and unsecured creditors,
and a third member to be chosen by the unanimous vote of the first two members. In the same Order, the court
defined the scope of the Monitoring Committee’s authority, as follows:

x x x The Monitoring Committee shall participate with the Receiver in monitoring and overseeing the actions of
the Board of Directors of Bayantel and may, by majority vote, adopt, modify, revise or substitute, any of the
following items:

(1) any proposed Annual OPEX Budgets;

(2) any proposed Annual CAPEX Budgets;

(3) any proposed Reschedule;

(4) any proposed actions by the Receiver on a payment default;

(5) terms of Management Incentivisation Scheme and Management Targets;

 (6) the EBITDA/Revenue ratios set by the Bayantel Board of Directors; and

(7) any other proposed actions by the Bayantel Board of Directors including, without limitation, issuance
of new shares, sale of core and noncore assets, change of business, etc. that will materially affect the
terms and conditions of the rehabilitation plan and its implementation.

In case of disagreement between the Monitoring Committee and the Board of Directors of Bayantel on any of the
foregoing matters, the same shall be submitted to the Court for resolution. 30

On November 16, 2004, The Bank of New York filed a Petition for Review before the Court of Appeals. The
31 

petition was docketed as CAG. R. SP No. 87100 in the Fifteenth Division of the Court of Appeals. On even date,
Avenue Asia Investments, L.P., Avenue Asia International, Ltd., Avenue Asia Special Situations Fund II, L.P.,
Avenue Asia Capital Partners, L.P., and Avenue Asia Special Situations Fund III, L.P (Avenue Asia Capital
Group) filed a similar petition which was docketed as CA-G.R. SP No. 87111 in the Second Division of the Court
32 

of Appeals. Both petitions contest the Rehabilitation Court’s June 28, 2004 Decision for, among others, fixing the
level of Bayantel’s sustainable debt at US$325 million to be paid in 19 years.

Thereafter, on November 30, 2004, petitioners Express Investments III Private Ltd. and Export Development
Canada along with Bayerische Landesbank (Singapore Branch), Credit Industriel et Commercial, Deutsche Bank
AG, P.T. Bank Negara Indonesia (Persero), TBK, Hong Kong Branch and Rizal Commercial Banking
Corporation filed a Petition for Review which was docketed as CA-G.R. No. 87203 in the Tenth Division of the
33 

Court of Appeals. The secured creditors likewise assailed the Rehabilitation Court’s June 28, 2004 Decision
insofar as it ordered the pari passu treatment of all claims against Bayantel. Said petitioners invoke a lien over
the cash flow and receivables of Bayantel by virtue of the Assignment Agreement.

On December 23, 2004, Bayantel filed an Omnibus Motion for the consolidation of CA-G.R. SP Nos. 87111 and
34 

CA-G.R. SP No. 87203 with CA-G.R. SP No. 87100, the lowest-numbered case.

In a Resolution dated January 20, 2005, the Court of Appeals, Fifteenth Division, ordered the consolidation of
CA-G.R. SP No. 87203 with CA-G.R. SP No. 87100. This was accepted by the Court of Appeals, Seventh
Division, in a Resolution dated March 29, 2005. Then, in the Resolution dated June 10, 2005, the Court of
35  36 

Appeals, First Division, ordered the consolidation of CA-G.R. SP No. 87111 with 87100 and the transmittal of the
records of the three cases to the Seventh Division.

Meanwhile, on January 10, 2005, Atty. Noval submitted to the Rehabilitation Court an Implementing Term
Sheet to serve as a guide for Bayantel’s Rehabilitation. The same was approved in an Order dated March 15,
37  38 

2005. In the same Order, the Rehabilitation Court appointed Avenue Asia Investments L.P. and Export
Development Canada to represent the unsecured and secured creditors, respectively, in the Monitoring
Committee.

On May 26, 2005, Bayantel filed a petition for certiorari and Prohibition docketed as CA-G.R. SP No. 89894 in
39 

the Court of Appeals. Said petition assailed the Rehabilitation Court’s Orders dated November 9, 2004 and
March 15, 2005, for purportedly conferring upon the Monitoring Committee, powers of management and control
over its operations.

The Court of Appeals Decision in CA-G.R. Nos. 87100, 87111 and 87203

In the assailed August 18, 2006 Decision, the Court of Appeals dismissed the petitions in CA-G.R. SP Nos.
87100, 87111 and 87203 for lack of merit. The appellate court upheld the Rehabilitation Court’s determination of
Bayantel’s sustainable debt at US$325 million payable in 19 years. It rejected the Receiver’s proposal to set the
sustainable debt at US$370 million payable in 15 years, and the proposal of the Avenue Asia Capital Group to
set it at US$471 million payable in 12 years.

The Court of Appeals agreed with the Rehabilitation Court that it is reasonable to adopt a level of sustainable
debt that approximates respondent Bayantel’s proposal because the latter is in the best position to determine the
level of sustainable debt that it can manage. It found Bayantel’s proposal more credible considering that it was
prepared using "updated financial information with realistic cash flow figures."[40] The appellate court noted that
Bayantel’s proposal was drafted without regard for its status as a "niche player" in the telecommunications
market and after factoring the cost of reorganization. In contrast, it expressed concern that the proposals
submitted by Avenue Asia Capital Group and the Receiver might eventually leave Bayantel with an unworkable
financial debt-to-revenue ratio.
The Court of Appeals also confirmed the Rehabilitation Court’s authority to approve, reject, substitute, or even
change the rehabilitation plans submitted by the Receiver and the parties. It upheld the trial court in adopting the
Receiver’s recommendation to limit the equity conversion of Bayantel’s unsustainable debt to 40% of its paid-up
capital. This percentage, the appellate court explains, is consistent with the constitutional limitation on the
allowable foreign equity in Filipino corporations. It also maintained the write-off of penalties and default interest
and recomputation of Bayantel’s past due interest, as a valid exercise of discretion by the Rehabilitation Court
under the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules). The appellate court negated
any violation of the pari passu principle with the use of these measures since they shall apply to all classes of
creditors.

As to the claim of the secured creditors in CA-G.R. SP No. 87203, the Court of Appeals ruled that while
rehabilitation is ongoing, the sole control over the security on the receivables and cash flow of Bayantel is vested
in the Rehabilitation Court. To allow otherwise would not only violate the Stay Order but interfere as well with the
duty of the Receiver to "take possession, control and custody of the debtor’s assets."  Ultimately, the Court of
41 

Appeals ruled that preference in payment cannot be accorded the secured creditors since preference applies
only in liquidation proceedings.

Discontented, The Bank of New York and the Avenue Asia Capital Group (petitioners in CA-G.R. SP Nos. 87100
and 87111) filed a Motion for Partial Reconsideration. Said motion was, however, denied in the Resolution
42 

dated November 8, 2006.

In the meantime, Express Investments III Private Ltd. and Export Development Canada had filed before this
Court a Petition for Partial Review on Certiorari of the Court of Appeals Decision docketed as G.R. Nos. 174457-
59. According to petitioners, the other secured creditors who were also petitioners in CA-G.R. SP No. 87203 had
not remained in contact with them and had not authorized them to file further petitions on their behalf.

On December 28, 2006, The Bank of New York and the Avenue Asia Capital Group also filed their own Petition
for Review on Certiorari which was docketed as G.R. Nos. 175418-20.

The Court of Appeals Decision in CA-G.R. SP No. 89894

In CA-G.R. SP No. 89894, the Court of Appeals rendered the assailed Decision dated October 27, 2006
declaring null and void the November 9, 2004 and March 15, 2005 Orders of the Rehabilitation Court insofar as
they defined the powers and functions of the Monitoring Committee.

The appellate court found grave abuse of discretion on the part of the Rehabilitation Court for conferring upon
the Monitoring Committee the power to modify, reverse or overrule the proposals of Bayantel’s Board of
Directors relative to operations. It stressed that the Committee’s functions are confined to monitoring and
overseeing the operations of Bayantel to ensure its compliance with the terms and conditions of the
Rehabilitation Plan. To conform therewith, the appellate court restated the Committee’s powers as follows:

The Monitoring Committee shall participate with the Receiver in monitoring and overseeing the operations of
Bayantel to ensure compliance by Bayantel with the terms and conditions of the Rehabilitation Plan. In the event
Bayantel fails to meet any of the milestones under the Rehabilitation Plan or fails to comply with any material
provision thereunder, the Monitoring Committee may, by majority vote, recommend modifications, revisions and
substitutions of the following items:

x x x x (Emphasis supplied)
43 

The Court of Appeals likewise approved of the Implementing Term Sheet, clarifying that the same is not
intended to address every contingency that may arise in the implementation of the Plan. It assured that any
doubt in the interpretation of the Term Sheet shall be resolved by the Rehabilitation Court.

Lastly, the appellate court affirmed the creation of a convertible debt instrument to cover the unsustainable
portion of respondent’s debt. It perceives such instrument as a tool to generate surplus cash to satisfy Bayantel’s
debt under Tranche B. As well, it serves as a buy-back scheme for the assignment and transfer of credits by the
Financial Creditors in a manner that will not unduly burden Bayantel.

Issues
On October 19, 2006, Express Investments III Private Ltd. and Export Development Canada  filed a Petition for
44 

Partial Review on Certiorari which was docketed as G.R. Nos. 174457-59. Said petition, which seeks the
reversal of the August 18, 2006 Decision of the Court of Appeals insofar as it dismissed the petition of the
secured creditors in CA-G.R. SP No. 87203, essentially proffers the following issues for resolution: (1) whether
the claims of secured and unsecured creditors should be treated pari passu during rehabilitation; (2) whether
the pari passu treatment of creditors during rehabilitation impairs the Assignment Agreement between
respondent and petitioners; (3) whether an impairment in the security position of petitioners can be justified as a
valid exercise of police power.

On the other hand, The Bank of New York and the Avenue Asia Capital Group filed a Petition for Review on
Certiorari docketed as G.R. Nos. 175418-20, to question the appellate court’s August 18, 2006 Decision as well
as its November 8, 2006 Resolution in CA-G.R. SP Nos. 87100 and 87111. This second consolidated petition
raises the following issues: (1) whether the Court of Appeals erred in setting Bayantel’s sustainable debt at
US$325 million, payable in 19 years; (2) whether a debtor may submit a rehabilitation plan in a creditor-initiated
rehabilitation; (3) whether the conversion of debt to equity in excess of 40% of the outstanding capital stock in
favor of petitioners violates the constitutional limit on foreign ownership of a public utility; (4) whether the write-off
of respondent’s penalties and default interest and recomputation of its past due interest violate the pari
passu principle; and (5) whether petitioners are entitled to costs.

On February 22, 2007, respondent Bayantel moved for the consolidation of G.R. Nos. 174457-59 with G.R. Nos.
175418-20. In a Resolution dated April 23, 2007, we directed the Division Clerk of Court to study the feasibility
45 

of consolidating said cases. In a Memorandum Report dated May 17, 2007, the First Division Clerk of Court
46 

recommended the consolidation of G.R. Nos. 174457-59 with G.R. Nos. 175418-20.

On May 21, 2007, The Bank of New York, as trustee for the Holders of the Senior Notes, filed a Petition for
Review on Certiorari, docketed as G.R. No. 177270, to assail the October 27, 2006 Decision and March 23,
2007 Resolution of the Court of Appeals in CA-G.R. SP No. 89894. Amplified, the petition presents the lone
issue of whether the Monitoring Committee in this case may exercise control over Bayantel’s operations.

In a Resolution dated June 6, 2007, we directed the Division Clerk of Court to study the feasibility of
47 

consolidating G.R. No. 177270 with G.R. Nos. 174457-59 and G.R. Nos. 175418-20. To avoid conflicting
decisions on related cases, the Assistant Clerk of Court recommended the consolidation of the three cases. By
Resolution dated July 11, 2007, the Court ordered the consolidation of G.R. No. 177270 with G.R. Nos. 174457-
48 

59 and G.R. Nos. 175418-20.

The Parties’ Arguments

In G.R. Nos. 174457-59

The petitioners/secured creditors argue primarily that the pari passu treatment of creditors during rehabilitation
has no basis in law. According to petitioners, all that Presidential Decree No. 902-A (PD 902-A) provides is the
49 

suspension of all claims against the debtor corporation during rehabilitation so that the Receiver can exercise his
powers free from judicial or extrajudicial interference. If the equity policy is to be considered at all, they believe
that the equity policy should be construed to accord creditors with similar rights or uniform treatment. In line with
this, petitioners assert priority under the Assignment Agreement to receive from Bayantel’s surplus cash flow
and to be paid in full, ahead of all other creditors.

The petitioners/secured creditors contend that the pari passu treatment of claims impairs the Omnibus
Agreement and the Assignment Agreement. Such impairment, they posit, cannot be justified as a proper
exercise of police power for three reasons: first, there is no law which authorizes the equal treatment of
claims; second, there is no enabling law; and third, it is not reasonably necessary for the success of the
rehabilitation.

Petitioners point out that the Interim Rules mandates instead that the rehabilitation plan shall give due regard to
the interest of the secured creditors. For petitioners, the preservation of Bayantel’s chattels alone is inadequate
to meet said requirement since the value thereof depreciates over time. They go on to invoke international
practices on bankruptcy and rehabilitation which purportedly recognize the distinction between the rights of
secured and unsecured creditors. Petitioners warn of dire consequences to the international credit standing of
the Philippines, the financial market, and the influx of foreign investments if the pari passu principle would be
upheld. Finally, petitioners maintain that a "Trigger Event" had occurred which rendered respondent’s
50 

obligations due and demandable. Thus, despite their failure to notify respondent of the alleged Events of Default,
petitioners believe that they can rightfully proceed against the securities.
For its part, respondent Bayantel reasons that enforcing preference in payment at this stage of the rehabilitation
would only disrupt the progress it has made so far. It assures petitioners that their security rights are adequately
protected in case the collateral assets are disposed. Respondent adds that no single payment scheme is
applicable in all rehabilitation proceedings and the peculiar circumstances of its case warrant the pari
passu treatment of its creditors.

In G.R. Nos. 175418-20

Mainly, petitioners Bank of New York and Avenue Asia Capital Group impute error on the Court of Appeals for
affirming the Rehabilitation Court’s decision which adopted the sustainable debt level Bayantel proposed. The
court a quo fixed respondent’s sustainable debt at US$325 million payable within 19 years against the
Receiver’s proposal of US$370 million payable in 15 years. Petitioners dispute Bayantel’s financial projections
as unreliable and contrived, designed to bear out a reduced level of sustainable debt and justify a substantial
write-off of its debts. In order to arrive at a reasonable level of sustainable debt, they believe that the prospective
cash flow of Bayantel must be reckoned against industry standards. Petitioners point out that the Interim Rules
only allows the debtor, in a creditor-initiated petition for corporate rehabilitation, to file a comment or opposition
but not to submit its own rehabilitation plan. They warn that if the fulfillment of the obligation would be made to
depend on the sole will of Bayantel, the entire obligation would be void.

Petitioners fault the trial court for basing the sustainable debt on the state of the telecommunications industry in
the country rather than consulting the financial projections and business models submitted by petitioners and the
Receiver. They stress that the state of the telecommunications industry is not among those which the court may
take judicial notice of by discretion.

Petitioners maintain that converting the unsustainable debt to 77.7% equity in Bayantel will not violate the
nationality requirement of the 1987 Constitution. They aver that the debts to domestic bank creditors account is
51 

US$473 million or 70.18% of Bayantel’s total liabilities. Considering the substantial write-off of penalties and
default interest in the amount of US$34,044,553.00 and past due interest of US$25,243,381.07, petitioners
believe that it is only fair to accord the Financial Creditors greater equity in Bayantel to compensate for said
losses.

Moreover, it is the petitioners’ view that the write-off contravenes the pari passu principle because they would
suffer greater losses than the Omnibus Creditors. According to petitioners, approximately 82% of the penalties
and interests shall be borne by the unsecured creditors and the Holders of Notes. In the same vein, petitioners
protest the recomputation of past due interest in accordance with the rate proposed by the Receiver. They claim
that recomputation would result in the condonation of 89% of the accrued interest owing them. The Receiver’s
report shows that as of the filing of the present petition, the total accrued interest amounts to
US$106,054,197.66, of which, US$91,100,000 are due the Holders of Notes.

Finally, petitioners reiterate their claim for costs. In its Order dated March 15, 2005, the Rehabilitation Court
awarded costs of suit to petitioner Bank of New York. In particular, it granted the latter’s prayer for the payment
of filing fees, costs of publication and professional fees. Even then, petitioner bank claims that a huge amount of
its expenses for the professional fees of counsels and advisers remain unpaid. More importantly, it asserts
precedence in payment over the preferred creditors. In the alternative, the Bank of New York prays that the
costs of suit be incorporated in the award to the nonfinancial or trade creditors. Similarly, the Avenue Asia
Capital Group seeks reimbursement for the docket fees, publication expenses and the professional fees it has
paid its counsels and financial adviser. It invokes Article 2208 of the Civil Code and the provisions of the
Indenture as legal bases therefor.

Meanwhile, the secured creditors in G.R. Nos. 174457-59 filed a Memorandum dated April 30, 2009 with a
52 

prayer for the dismissal of the bondholders’ petition in G.R. Nos. 175418-20. For the secured creditors, the
sustainable debt set by the Courts of Appeals is a more manageable and realistic undertaking compared to
herein petitioners’ proposal. They add that the fact that Bayantel’s actual revenues are lower than its cash flow
projections belies any scheme to avoid paying its debts in full. The secured creditors agree with the appellate
court in limiting the conversion of the unsustainable debt to a maximum of 40% shares in Bayantel as more in
keeping with the Constitution.

Further, the secured creditors point out that there is nothing in the Interim Rules which prohibits a debtor
company from submitting an alternative rehabilitation plan in creditor-initiated proceedings. In support of this,
they cite Section 22, Rule 4 of said rules which permits the debtor to modify its proposed plan or submit a
53 

revised or substitute plan. According to them, Bayantel’s suggestion as to the terms of payment does not
constitute a potestative condition that would render the obligation void.
The secured creditors, however, join petitioners in protesting the condonation of penalties and default interest.
Rather than observing absolute equality, they insist that the pari passu principle should be applied such that
creditors within the same class are treated alike.

In response, respondent Bayantel submitted on May 21, 2009, a Consolidated Memorandum in G.R. Nos. 54 

175418-20 and G.R. No. 177270. It practically echoed the ratio decidendi of the Court of Appeals in dismissing
both petitions.

In G.R. Nos. 175418-20, Bayantel defends the Rehabilitation Court for adopting the sustainable debt level it
proposed. Such approval by the court alone, Bayantel reasons, did not make the payment of its debt a condition
whose fulfillment rests on its sole will, as to render the obligation void under Article 1182 of the Civil Code.
55 

Respondent maintains that among the stakeholders, it is in the best position to determine the level of debt that it
can pay. Moreover, it believes that a majority of the secured creditors are comfortable with the approved
sustainable debt since only two of them appealed. Respondent insists that altering the sustainable debt at this
point would be counterproductive.

Respondent equally opposes the Bondholders’ proposal to reduce the company’s capital expenditures to
between 9% and 11% to make more funds available for debt servicing. This approach, according to Bayantel,
ignores its need to make significant investments in new infrastructure in order to cope with competitors.
Respondent disputes the value of petitioners’ projections which were derived by benchmarking Bayantel’s
income, as a company under rehabilitation, against those of the major players, PLDT and Digitel.

Furthermore, respondent maintains that its rehabilitation plan was based on accurate financial data and
operation reports. It insists that the Interim Rules allows a debtor, in creditor-initiated rehabilitation proceedings,
to submit an alternative plan. It agrees with the Rehabilitation Court’s decision to restrict conversion of the
unsustainable debt to 40% of fully paid-up capital in Bayantel. Respondent believes that the waiver of penalties
and default interest and the recomputation of past due interest will not violate the pari passu principle because
said measures shall apply equally to all creditors. Lastly, respondent admits limited liability for costs pursuant to
the Assignment Agreement but not for those incurred by petitioners under "non-consensual scenarios."

In G.R. No. 177270

In this petition for review, the Bank of New York, as trustee for the holders of the 13.5% Senior Notes of
respondent Bayantel, challenges the Court of Appeals decision nullifying the Monitoring Committee’s power to
modify, reverse or overrule the decision of Bayantel’s Board of Directors on certain matters. It invokes Section
23, Rule 4 of the Interim Rules as legal basis to justify the Rehabilitation Court’s grant of extensive powers to
56 

the Monitoring Committee. The pertinent portion of said Rule states:

In approving the rehabilitation plan, the court shall issue the necessary orders or processes for its immediate
and successful implementation. It may impose such terms, conditions, or restrictions as the effective
implementation and monitoring thereof may reasonably require, or for the protection and preservation of the
interests of the creditors should the plan fail.

Petitioner contends that the magnitude and complexity of respondent’s business necessitate close monitoring of
its operations to ensure successful rehabilitation. Specifically, the Bank of New York expresses concern over
Bayantel’s taciturn disposition as regards its budget and expansion costs. Petitioner believes that such lack of
transparency can be addressed by empowering the Monitoring Committee to approve measures that will
ultimately affect respondent’s ability to settle its debts.

Moreover, petitioner assures that the Implementing Term Sheet provides safeguards against the improvident
disapproval by the Monitoring Committee of proposed measures. Petitioner is of the view that the functions of
the Monitoring Committee would be rendered illusory if all disagreements on key areas would have to be heard
by the Rehabilitation Court. Petitioner explains that the Monitoring Committee’s powers do not in any way
supplant those of the Board of Directors. The Bank of New York claims that it is customary to allow creditors to
monitor and supervise the debtor’s operations as demonstrated by the restructuring experiences of certain Asian
countries.

Petitioner submits that the Rehabilitation Court did not intend to give the Monitoring Committee powers that are
concurrent with those of the Receiver on account of the differing interests that they represent in rehabilitation. It
argues that if at all, the court a quo committed a mere error of judgment not correctible by certiorari. Petitioner
adds that even if a petition for certiorari was proper, the 60-day reglementary period provided by the Rules of
Court had already lapsed when Bayantel filed its petition on May 27, 2005. It contends that Bayantel’s
Manifestation and Motion for Clarification dated December 15, 2004 was in truth a motion for reconsideration
which is a prohibited pleading under Section 1, Rule 3 of the Interim Rules. Petitioner concludes that such
57 

pleadings did not toll the period for filing a petition and, therefore, the Rehabilitation Court’s decision had
become final.

In its Consolidated Memorandum dated May 21, 2009, Bayantel counters that Section 23, Rule 4 of the Interim
Rules should be understood as delineating the purpose of the court’s orders and processes to mere
implementation and monitoring of the plan. Respondent opposes any interpretation of said provision which
authorizes the Committee to substitute its judgment for those of the Board or vest it with powers greater than
those of the Receiver. It argues that vesting the Committee with veto power over certain decisions of the Board
would effectively give it control and management over Bayantel’s operations. The necessary effect, according to
Bayantel, is that every disagreement between the Committee and the Board would have to be settled in court.
Respondent points out that petitioner failed to cite proof of its claim that it is customary among Asian countries to
allow the Monitoring Committee active participation during rehabilitation.

Bayantel perceive the instant petition as an underhanded attempt by petitioner to create a Management
Committee without satisfying the requisites therefor. It reiterates that the functions of the Monitoring Committee
are confined to ensuring that Bayantel meets the debt reduction milestones under the plan. Respondent avers
that even without a Monitoring Committee, it is obliged under the Plan to comply with certain information
covenants and reportorial requirements. It adds that the Plan provides a mechanism for dispute resolution
through which creditors can enforce compliance.

Penultimately, respondent assails the validity of the Order dated November 9, 2004 for lack of notice. Allegedly,
Bayantel learned of said Order only after petitioner furnished it a copy of its Compliance to which the same was
made an attachment. Thus, respondent insists that the reglementary period to file an appeal or a petition for
certiorari did not run against it.

The Court’s Ruling

In G.R. Nos. 174457-59

Rehabilitation is 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
58 

in an effort to restore and reinstate the corporation to its former position of successful operation and liquidity.
The purpose of rehabilitation proceedings is precisely to enable the company to gain a new lease on life and
thereby allow creditors to be paid their claims from its earnings.
59

Rehabilitation shall be undertaken when it is shown that the continued operation of the corporation is
economically feasible and its creditors can recover, by way of the present value of payments projected in the
plan, more, if the corporation continues as a going concern than if it is immediately liquidated.60

The law governing rehabilitation and suspension of actions for claims against corporations is PD 902-A, as
amended. On December 15, 2000, the Court promulgated A.M. No. 00-8-10-SC or the Interim Rules of
Procedure on Corporate Rehabilitation, which applies to petitions for rehabilitation filed by corporations,
partnerships and associations pursuant to PD 902-A.

In January 2004, Republic Act No. 8799 (RA 8799), otherwise known as the Securities Regulation Code,
amended Section 5 of PD 902-A, and transferred to the Regional Trial Courts the jurisdiction of the Securities
and Exchange Commission (SEC) over petitions of corporations, partnerships or associations to be declared in
the state of suspension of payments in cases where the corporation, partnership or association possesses
property to cover all its debts but foresees the impossibility of meeting them when they respectively fall due or in
cases where the corporation, partnership or association has no sufficient assets to cover its liabilities, but is
under the management of a rehabilitation receiver or a management committee.

In order to effectively exercise such jurisdiction, Section 6(c), PD 902-A empowers the Regional Trial Court to
appoint one or more receivers of the property, real and personal, which is the subject of the pending action
before the Commission whenever necessary in order to preserve the rights of the parties-litigants and/or protect
the interest of the investing public and creditors.
Under Section 6, Rule 4 of the Interim Rules, if the court finds the petition to be sufficient in form and substance,
it shall issue, not later than five (5) days from the filing of the petition, an Order with the following pertinent
effects:

(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; x x x

(Emphasis supplied)

The stay order shall be effective from the date of its issuance until the dismissal of the petition or the termination
of the rehabilitation proceedings. Under the Interim Rules, the petition shall be dismissed if no rehabilitation plan
61 

is approved by the court upon the lapse of 180 days from the date of the initial hearing. The court may grant an
extension beyond this period only if it appears by convincing and compelling evidence that the debtor may
successfully be rehabilitated. In no instance, however, shall the period for approving or disapproving a
rehabilitation plan exceed 18 months from the date of filing of the petition.62

On the other hand, Section 27, Rule 4 of the Interim Rules provides when the rehabilitation proceedings is
deemed terminated:

SEC. 27. Termination of Proceedings. – In case of the failure of the debtor to submit the rehabilitation plan, or
the disapproval thereof by the court, or the failure of the rehabilitation of the debtor because of failure to achieve
the desired targets or goals as set forth therein, or the failure of the said debtor to perform its obligations under
the said plan, or a determination that the rehabilitation plan may no longer be implemented in accordance with
its terms, conditions, restrictions, or assumptions, the court shall upon motion, motu proprio, or upon the
recommendation of the Rehabilitation Receiver, terminate the proceedings. The proceedings shall also
terminate upon the successful implementation of the rehabilitation plan. (Emphasis supplied)

Hence, unless the petition is dismissed for any reason, the stay order shall be effective until the rehabilitation
plan has been successfully implemented. In the meantime, the debtor is prohibited from paying any of its
outstanding liabilities as of the date of the filing of the petition except those authorized in the plan under Section
24(c), Rule 4 of the Interim Rules.

In this case, in an Order dated April 19, 2004, the Rehabilitation Court held that "[t]he creditors of Bayantel,
whether secured or unsecured, should be treated equally and on the same footing or pari passu until the
rehabilitation proceedings is terminated in accordance with the Interim Rules." The court reiterated this
63 

pronouncement in its Decision dated June 28, 2004.

Before us, petitioners contend that such pari passu treatment of claims violates not only the "due regard"
provision in the Interim Rules but also the Contract Clause in the 1987 Constitution. Petitioners assert
precedence in the payment of claims during rehabilitation by virtue of the Assignment Agreement dated
September 19, 1995. Under said Agreement, Bayantel assigned, charged, conveyed and transferred to a
Collateral Agent, the following properties as collateral for the prompt and complete payment of its obligations to
secured creditors:

(i) All land, buildings, machinery and equipment currently owned, and to be acquired in the future by
Bayantel;

(ii) All monies payable to Bayantel under the Project Documents (as the term is defined by the Omnibus
Agreement);

(iii) All Project Documents and all Contract Rights arising thereunder;
 (iv) All receivables;

(v) Each of the Accounts (as the term is defined by the Omnibus Agreement);

(vi) All amounts maintained in the Accounts and all monies, securities and instruments deposited or
required to be deposited in the Accounts;

(vii) All other Chattel Paper and Documents;

(viii) All other property, assets and revenues of Bayantel, whether tangible or intangible;

(ix) All General Intangibles; and

(x) All proceeds and products of any and all of the foregoing. 64

In particular, petitioners refer to Section 4.02 of the Assignment Agreement as basis for demanding full payment,
ahead of other creditors, out of respondent’s revenue from operations during rehabilitation. The relevant
provision reads:

Section 4.02. Payments Under Contracts and Receivables.

If during the continuance of a Trigger Event the Company shall receive directly from any party to any Assigned
Agreement or from any account debtor or other obligor under any Receivable, any payments under such
agreements or the Receivables, the Company shall receive such payments in a constructive trust for the
benefit of the Secured Parties, shall segregate such payments from its other funds, and shall forthwith transmit
and deliver such payments to the Collateral Agent in the same form as so received (with any necessary
endorsement) along with a description of the sources of such payments. All amounts received by the Collateral
Agent pursuant to this Section 4.02 shall be applied as set forth in Part L and in the [Inter-creditor]
Agreement. (Underscoring in the original; emphasis supplied)
65 

The resolution of the issue at hand rests on a determination of whether secured creditors may enforce
preference in payment during rehabilitation by virtue of a contractual agreement.

Section 6(c), PD 902-A provides that upon the appointment of a management committee, rehabilitation receiver,
board or body, all actions for claims against corporations, partnerships or associations under management or
receivership pending before any court, tribunal, board or body shall be suspended accordingly. The suspension
66 

of action for claims against the corporation under a rehabilitation receiver or management committee embraces
all phases of the suit, be it before the trial court or any tribunal or before this Court.
67

The justification for suspension of actions for claims is to enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extrajudicial interference that might unduly
hinder or prevent the "rescue" of the debtor company.  It is intended to give enough breathing space for the
68 

management committee or rehabilitation receiver to make the business viable again without having to divert
attention and resources to litigation in various fora.
69

In the 1990 case of Alemar’s Sibal & Sons, Inc. v. Judge Elbinias, the Court first enunciated the prevailing
70 

principle which governs the relationship among creditors during rehabilitation. In said case, G.A. Yupangco
sought the issuance of a writ of execution to implement a final and executory default judgment in its favor and
after Alemar’s Sibal & Sons, Inc. was placed under rehabilitation. In ordering the stay of execution, the Court
held:

During rehabilitation receivership, the assets are held in trust for the equal benefit of all creditors to
preclude one from obtaining an advantage or preference over another by the expediency of an
attachment, execution or otherwise. For what would prevent an alert creditor, upon learning of the
receivership, from rushing posthaste to the courts to secure judgments for the satisfaction of its claims to the
prejudice of the less alert creditors.

As between the creditors, the key phrase is "equality is equity." When a corporation threatened by
bankruptcy is taken over by a receiver, all the creditors should stand on equal footing. Not anyone of
them should be given any preference by paying one or some of them ahead of the others. This is
precisely the reason for the suspension of all pending claims against the corporation under receivership. Instead
of creditors vexing the courts with suits against the distressed firm, they are directed to file their claims with the
receiver who is a duly appointed officer of the SEC. (Emphasis supplied)
71 

Since then, the principle of equality in equity has been cited as the basis for placing secured and unsecured
creditors in equal footing or in pari passu with each other during rehabilitation. In legal parlance, pari passu is
used especially of creditors who, in marshaling assets, are entitled to receive out of the same fund without any
precedence over each other. 72

In Rizal Commercial Banking Corporation v. Intermediate Appellate Court,  the Court disallowed the foreclosure
73 

of the debtor company’s property after the latter had filed a Petition for Rehabilitation and Declaration of
Suspension of Payments with the SEC. We ruled that whenever a distressed corporation asks the SEC for
rehabilitation and suspension of payments, preferred creditors may no longer assert preference but shall stand
on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or
cause discrimination among them. In 1999, the Court qualified this ruling by stating that preferred creditors of
distressed corporations shall stand on equal footing with all other creditors only after a rehabilitation receiver or
management committee has been appointed.  More importantly, the Court laid the guidelines for the treatment
74 

of claims against corporations undergoing rehabilitation:

1. All claims against corporations, partnerships, or associations that are pending before any court,
tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured, shall be
suspended effective upon the appointment of a management committee, rehabilitation receiver, board,
or body in accordance with the provisions of Presidential Decree No. 902-A.

2. Secured creditors retain their preference over unsecured creditors, but enforcement of such
preference is equally suspended upon the appointment of a management committee,
rehabilitation receiver, board, or body. In the event that the assets of the corporation, partnership, or
association are finally liquidated, however, secured and preferred credits under the applicable provisions
of the Civil Code will definitely have preference over unsecured ones. (Emphasis supplied)
75 

Basically, once a management committee or rehabilitation receiver has been appointed in accordance with PD
902-A, no action for claims may be initiated against a distressed corporation and those already pending in court
shall be suspended in whatever stage they may be. Notwithstanding, secured creditors shall continue to have
preferred status but the enforcement thereof is likewise held in abeyance. However, if the court later determines
that the rehabilitation of the distressed corporation is no longer feasible and its assets are liquidated, secured
claims shall enjoy priority in payment.

We perceive no good reason to depart from established jurisprudence. While Section 24(d), Rule 4 of the Interim
Rules states that contracts and other arrangements between the debtor and its creditors shall be interpreted as
continuing to apply, this holds true only to the extent that they do not conflict with the provisions of the plan.

Here, the stipulation in the Assignment Agreement to the effect that respondent Bayantel shall pay petitioners in
full and ahead of other creditors out of its cash flow during rehabilitation directly impinges on the provision of the
approved Rehabilitation Plan that "[t]he creditors of Bayantel, whether secured or unsecured, should be treated
equally and on the same footing or pari passu until the rehabilitation proceedings is terminated in accordance
with the Interim Rules."

During rehabilitation, the only payments sanctioned by the Interim Rules are those made to creditors in
accordance with the provisions of the plan. Pertinent to this is Section 5(b), Rule 4 of the Interim Rules which
states that the terms and conditions of the rehabilitation plan shall include the manner of its
implementation, giving due regard to the interests of secured creditors. This very phrase is what petitioners
invoke as basis for demanding priority in payment out of respondent’s cash flow.

But petitioners’ reliance thereon is misplaced.

By definition, due regard means consideration in a degree appropriate to the demands of a particular case. On 76 

the other hand, security interest is a form of interest in property which provides that the property may be sold on
default in order to satisfy the obligation for which the security interest is given. Often, the term "lien" is used as a
synonym, although lien most commonly refers only to interests providing security that are created by operation
of law, not through agreement of the debtor and creditor. In contrast, the term "security interest" means any
interest in property acquired by contract for the purpose of securing payment or performance of an obligation or
indemnifying against loss or liability.
77
Under the Interim Rules, the only pertinent reference to creditor security is found in Section 12, Rule 4 on relief
from, modification or termination of stay order. Said provision states that the creditor is regarded as lacking
adequate protection if it can be shown that: (a) the debtor fails or refuses to honor a pre-existing agreement with
the creditor to keep the property insured; (b) the debtor fails or refuses to take commercially reasonable steps to
maintain the property; or (c) the property has depreciated to an extent that the creditor is undersecured.

Upon a showing that the creditor is lacking in protection, the court shall order the rehabilitation receiver to take
steps to ensure that the property is insured or maintained or to make payment or provide replacement security
such that the obligation is fully secured. If such arrangements are not feasible, the court may allow the secured
creditor to enforce its claim against the debtor. Nonetheless, the court may deny the creditor the foregoing
remedies if allowing so would prevent the continuation of the debtor as a going concern or otherwise prevent the
approval and implementation of a rehabilitation plan. 78

In the context of the foregoing provisions, "giving due regard to the interests of secured creditors" primarily
entails ensuring that the property comprising the collateral is insured, maintained or replacement security is
provided such that the obligation is fully secured. The reason for this rule is simple, in the event that the court
terminates the proceedings for reasons other than the successful implementation of the plan, the secured
creditors may foreclose the securities and the proceeds thereof applied to the satisfaction of their preferred
claims.

When the Rules of Procedure on Corporate Rehabilitation took effect on January 16, 2009, the "due regard"
provision was amended to read:

SEC. 18. Rehabilitation Plan. – The rehabilitation plan shall include (a) the desired business targets or goals and
the duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall
include the manner of its implementation, giving due regard to the interests of secured creditors such as, but not
limited, to the non-impairment of their security liens or interests; x x x. (Emphasis supplied)

Despite the additional phrase, however, it is our view that the amendment simply amplifies the meaning of the
"due regard provision" in the Interim Rules. First, the amendment exemplifies what giving "due regard to the
interests of secured creditors" contemplates, mainly, the nonimpairment of securities. At the same time, the
specific reference to "security liens" and "interests," separated by the disjunctive "or," describes what "the
interests of secured creditors" consist of. Again, lien pertains only to interests providing security that are created
by operation of law while security interests include those acquired by contract for the purpose of securing
payment or performance of an obligation or indemnifying against loss or liability. Lastly, the addition of the
phrase "but not limited" in the amendment shuns a rigid application of the provision by recognizing that "giving
due regard to the interest of secured creditors" may be rendered in other ways than taking care that the security
liens and interests of secured creditors are adequately protected.

In this case, petitioners Express Investments III Private Ltd. And Export Development Canada are concerned,
not so much with the adequacy of the securities offered by respondent, but with the devaluation of such
securities over time. Petitioners fear that the proceeds of respondent’s collateral would be insufficient to cover
their claims in the event of liquidation.

On this point, suffice it to state that petitioners are not without any remedy to address a deficiency in securities, if
and when it comes about. Under Section 12, Rule 4 of the Interim Rules, a secured creditor may file a motion
with the Rehabilitation Court for the modification or termination of the stay order. If petitioners can show that
arrangements to insure or maintain the property or to make payment or provide additional security therefor is not
feasible, the court shall modify the stay order to allow petitioners to enforce their claim − that is, to foreclose the
mortgage and apply the proceeds thereof to their claims. Be that as it may, the court may deny the creditor this
remedy if allowing so would prevent the continuation of the debtor as a going concern or otherwise prevent the
approval and implementation of a rehabilitation plan.

Indeed, neither the "due regard provision" nor contractual arrangements can shackle the Rehabilitation Court in
determining the best means of rehabilitating a distressed corporation. Truth be told, the Rehabilitation Court may
approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the
debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is
manifestly unreasonable. In determining whether or not the opposition of the creditors is manifestly
unreasonable, the court shall consider the following: (a) That the plan would likely provide the objecting class of
creditors with compensation greater than that which they would have received if the assets of the debtor were
sold by a liquidator within a three-month period; (b) That the shareholders or owners of the debtor lose at least
their controlling interest as a result of the plan; and (c) The Rehabilitation Receiver has recommended approval
of the plan.
79

According to the Liquidation Analysis prepared by KPMG at the request of the Receiver, the Fair Market Value
80 

of respondent’s fixed assets is P18.7 billion while its Forced Liquidation Value is P9.3 billion. Together with cash
and receivables in the amount of P911 million, respondent’s total liquidation assets are valued at P10.2 billion.
From this amount, the estimated liquidation return to the Omnibus Creditors is P6,102,150,000 or approximately
52.9% of their claims in the amount of P11,539,776,000. Meanwhile, Chattel Creditors can recoup 61% of its
claims. As regards the Unsecured Creditors, they will share in the pool of assets that respondents have acquired
since 1998, which were not specifically registered under the Omnibus Agreement Mortgage Supplements. Said
assets are estimated to have a value of P3.5 Billion. This accounts for 10.7% of the Unsecured Creditors’ claims.

Reckoned from these figures, the Receiver concluded that the shareholders shall receive nothing on
respondent’s liquidation while the latter’s creditors can expect significantly less than full repayment. Moreover,
regardless of whether the shareholders will lose at least their controlling interest as a result of the plan,
petitioners, in their Memorandum dated April 30, 2009, have signified their conformity with the Court of Appeals
decision to limit the conversion of the unsustainable debt to a maximum of 40% of the fully-paid up capital of
respondent corporation. Lastly, the Receiver not only recommended the approval of the Plan by the
Rehabilitation Court, he, himself, prepared it. The concurrence of these conditions renders the opposition of
petitioners manifestly unreasonable.

As regards the second issue, petitioners submit that the pari passu treatment of claims offends the Contract
Clause under the 1987 Constitution. Article III, Section 10 of the Constitution mandates that no law impairing the
obligation of contracts shall be passed. Any law which enlarges, abridges, or in any manner changes the
intention of the parties, necessarily impairs the contract itself. And even when the change in the contract is done
by indirection, there is impairment nonetheless. 81

At this point, it bears stressing that the non-impairment clause is a limitation on the exercise of legislative power
and not of judicial or quasijudicial power. In Lim, Sr. v. Secretary of Agriculture & Natural Resources, et al., we
82 

held:

x x x. For it is well-settled that a law within the meaning of this constitutional provision has reference primarily to
statutes and ordinances of municipal corporations. Executive orders issued by the President whether derived
from his constitutional powers or valid statutes may likewise be considered as such. It does not cover, therefore,
the exercise of the quasi-judicial power of a department head even if affirmed by the President. The
administrative process in such a case partakes more of an adjudicatory character. It is bereft of any legislative
significance. It falls outside the scope of the non-impairment clause. x x x. 83

The prohibition embraces enactments of a governmental law-making body pertaining to its legislative functions.
Strictly speaking, it does not cover the exercise by such law-making body of quasi-judicial power.

Verily, the Decision dated June 28, 2004 of the Rehabilitation Court is not a proper subject of the Non-
impairment Clause.

In view of the foregoing, we find no need to discuss the third issue posed in this petition

In G.R. Nos. 175418-20

Prefatorily, we restate the time honored principle that in a petition for review on certiorari under Rule 45 of the
Rules of Court, only questions of law may be raised. Thus, in a petition for review on certiorari, the scope of the
Supreme Court's judicial review is limited to reviewing only errors of law, not of fact. It is not our function to
84 

weigh all over again evidence already considered in the proceedings below, our jurisdiction is limited to
reviewing only errors of law that may have been committed by the lower court. 85

Before us, petitioners Bank of New York and Avenue Asia Capital Group raise a question of fact which is not
proper in a petition for review on certiorari. A question of law arises when there is doubt as to what the law is on
a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the
alleged facts. For a question to be one of law, the same must not involve an examination of the probative value
of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. 86
Whether the Court of Appeals erred in affirming the sustainable debt fixed by the Rehabilitation Court is a
question of fact that calls for a recalibration of the evidence presented by the parties before the trial court. In
order to resolve said issue, petitioners would have this Court reassess the state of respondent Bayantel’s
finances at the onset of rehabilitation and gauge the practical value of the plans submitted by the parties vis-à-
vis the financial models prepared by the experts engaged by them. These tasks are certainly not for this Court to
accomplish. The resolution of factual issues is the function of lower courts, whose findings on these matters are
received with respect. This is especially true in rehabilitation proceedings where certain courts are designated to
87 

hear the case on account of their expertise and specialized knowledge on the subject matter. Though this
doctrine admits of several exceptions, none is applicable in the case at bar
88 

Notably, the Interim Rules is silent on the manner by which the sustainable debt of the debtor shall be
determined. Yet, Section 2 of the Interim Rules prescribe that the Rules shall be liberally construed to carry out
the objectives of Sections 5(d), 6(c) and 6(d) of PD 902-A.
89  90  91 

Section 5(d), PD 902-A vested jurisdiction upon the SEC over petitions for rehabilitation. Later, RA 8799 or the
Securities Regulation Code, amended Section 5(d) of PD 902-A by transferring SEC’s jurisdiction over said
petitions to the RTC. Meanwhile, Section 6(c) of PD 902-A provides for the appointment of a receiver of the
subject property whenever necessary in order to preserve the rights of the parties and to protect the interest of
the investing public and the creditors. Upon the appointment of such receiver, all actions for claims against the
corporation pending before any court, tribunal, board or body shall be suspended accordingly. On the other
hand, Section 5(d), PD 902-A expands the power of the Commission to allow the creation and appointment of a
management committee to undertake the management of the corporation when there is imminent danger of
dissipation, loss, wastage or destruction of assets or other properties or paralyzation of the business of the
corporation which may be prejudicial to the interest of minority stockholders, parties-litigants or the general
public.

The underlying objective behind these provisions is to foster the rehabilitation of the debtor by insulating it
against claims, preserving its assets and taking steps to ensure that the rights of all parties concerned are
adequately protected.

This Court is convinced that the Court of Appeals ruled in accord with this policy when it upheld the
Rehabilitation Court’s determination of respondent’s sustainable debt. We find the sustainable debt of US$325
million, spread over 19 years, to be a more realistically achievable amount considering respondent’s modest
revenue projections. Bayantel projected a constant rise in its revenues at the range of 1.16%-4.91% with
periodic reverses every two years. On the other hand, petitioner’s proposal of a sustainable debt of US$471
92 

million to be paid in 12 years and the Receiver’s proposal of US$370 million to be paid in 15 years betray an
over optimism that could leave Bayantel with nothing to spend for its operations.

Next, petitioners contest the admission of respondent’s rehabilitation plan for being filed in violation of the Interim
Rules. It is petitioner’s view that in a creditor-initiated petition for rehabilitation, the debtor may only submit either
a comment or opposition but not its own rehabilitation plan.

We cannot agree.

Rule 4 of the Interim Rules treats of rehabilitation in general, without distinction as to who between the debtor
and the creditor initiated the petition. Nowhere in said Rule is there any provision that prohibits the debtor in a
creditor-initiated petition to file its own rehabilitation plan for consideration by the court. Quite the reverse, one of
the functions and powers of the rehabilitation receiver under Section 14(m) of said Rule is to study the
rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together
with any comments made thereon. This provision makes particular reference to a debtor-initiated proceeding in
which the debtor principally files a rehabilitation plan. In such case, the receiver is tasked, among other things, to
study the rehabilitation plan presented by the debtor along with any rehabilitation plan submitted during the
proceedings. This implies that the creditors of the distressed corporation, and even the receiver, may file their
respective rehabilitation plans. We perceive no good reason why the same option should not be available, by
analogy, to a debtor in creditor-initiated proceedings, which is also found in Rule 4 of the Interim Rules.

Third, petitioners fault the Court of Appeals for ruling that the debt-toequity conversion rate of 77.7%, as
proposed by The Bank of New York, violates the Filipinization provision of the Constitution. Petitioners explain
that the acquisition of shares by foreign Omnibus and Financial Creditors shall be done, both directly and
indirectly in order to meet the control test principle under RA 7042 or the Foreign Investments Act of 1991.
93 

Under the proposed structure, said creditors shall own 40% of the outstanding capital stock of the
telecommunications company on a direct basis, while the remaining 40% of shares shall be registered to a
holding company that shall retain, on a direct basis, the other 60% equity reserved for Filipino citizens.

Moreover, petitioners maintain that it is only fair to impose upon the Omnibus and Financial Creditors a bigger
equity conversion in Bayantel considering that petitioners will bear the bulk of the accrued interests and
penalties to be written off. Initially, the Rehabilitation Court approved the Receiver’s recommendation to write-off
interests and penalties in the amount of US$34,044,553.00. The Rehabilitation Court likewise ordered a re-
computation of past due interest in accordance with the rate proposed by the Receiver. Following this,
petitioners estimate the total unpaid accrued interest of Bayantel as of July 30, 2003 to be at
US$140,098,750.66 while the Rehabilitation Court arrived at the total amount of past due interest and penalties
of US$114,855,369.59 upon recomputation. This makes for a difference of US$25,243,381.07 which, petitioners
claim, represents an additional write-off to be borne by them for a total write-off of US$59,287,934.07.

The provision adverted to is Article XII, Section 11 of the 1987 Constitution which states:

SEC. 11. No franchise, certificate, or any other form of authorization for the operation of a public utility shall be
granted except to citizens of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens, nor shall such franchise,
certificate or authorization be exclusive in character or for a longer period than fifty years. Neither shall any such
franchise or right be granted except under the condition that it shall be subject to amendment, alteration, or
repeal by the Congress when the common good so requires. The State shall encourage equity participation in
public utilities by the general public. The participation of foreign investors in the governing body of any public
utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managing
officers of such corporation or association must be citizens of the Philippines.

This provision explicitly reserves to Filipino citizens control over public utilities, pursuant to an overriding
economic goal of the 1987 Constitution: to "conserve and develop our patrimony" and ensure "a selfreliant and
independent national economy effectively controlled by Filipinos." 94

In the recent case of Gamboa v. Teves, the Court settled once and for all the meaning of "capital" in the above-
95 

quoted Constitutional provision limiting foreign ownership in public utilities. In said case, we held that considering
that common shares have voting rights which translate to control as opposed to preferred shares which usually
have no voting rights, the term "capital" in Section 11, Article XII of the Constitution refers only to common
shares. However, if the preferred shares also have the right to vote in the election of directors, then the term
"capital" shall include such preferred shares because the right to participate in the control or management of the
corporation is exercised through the right to vote in the election of directors. In short, the term "capital" in Section
11, Article XII of the Constitution refers only to shares of stock that can vote in the election of directors.

Applying this, two steps must be followed in order to determine whether the conversion of debt to equity in
excess of 40% of the outstanding capital stock violates the constitutional limit on foreign ownership of a public
utility: First, identify into which class of shares the debt shall be converted, whether common shares, preferred
shares that have the right to vote in the election of directors or non-voting preferred shares; Second, determine
the number of shares with voting right held by foreign entities prior to conversion. If upon conversion, the total
number of shares held by foreign entities exceeds 40% of the capital stock with voting rights, the constitutional
limit on foreign ownership is violated. Otherwise, the conversion shall be respected.

In its Rehabilitation Plan, among the material financial commitments made by respondent Bayantel is that its
96 

shareholders shall "relinquish the agreed-upon amount of common stock[s] as payment to Unsecured Creditors
as per the Term Sheet."  Evidently, the parties intend to convert the unsustainable portion of respondent's debt
97 

into common stocks, which have voting rights. If we indulge petitioners on their proposal, the Omnibus Creditors
which are foreign corporations, shall have control over 77.7% of Bayantel, a public utility company. This is
precisely the scenario proscribed by the Filipinization provision of the Constitution. Therefore, the Court of
Appeals acted correctly in sustaining the 40% debt-to-equity ceiling on conversion.

As to the fourth issue, petitioners insist that the write-off of the default interest and penalties along with the re-
computation of past due interest violate the pari passu treatment of creditors.

Petitioner’s argument lacks merit.

Section 5(d), Rule 4 of the Interim Rules provides that the rehabilitation plan shall include the means for the
execution of the rehabilitation plan, which may include conversion of the debts or any portion thereof to equity,
restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest.
Debt restructuring may involve conversion of the debt or any portion thereof to equity, sale of the assets of the
distressed company and application of the proceeds to the obligation, dacion en pago, debt relief or reduction,
modification of the terms of the loan or a combination of these schemes.

In this case, the approved Rehabilitation Plan provided for a longer period of payment, the conversion of debt to
40% equity in respondent company, modification of interest rates on the restructured debt and accrued interest
and a write-off or relief from penalties and default interest. These recommendations by the Receiver are
perfectly within the powers of the Rehabilitation Court to adopt and approve, as it did adopt and approve. In so
doing, no reversible error can be attributed to the Rehabilitation Court.

The pertinent portion of the fallo of said court’s Decision dated June 28, 2004 states:

1. The ruling on the pari passu treatment of all creditors whose claims are subject to restructuring shall be
maintained and shall extend to all payment terms and treatment of past due interest.[98 (Emphasis
supplied)

Thus, the court a quo provided for a uniform application of the pari passu principle among creditor claims and
the terms by which they shall be paid, including past due interest. This is consistent with the interpretation
accorded by jurisprudence to the pari passu principle that during rehabilitation, the assets of the distressed
corporation are held in trust for the equal benefit of all creditors to preclude one from obtaining an advantage or
preference over another. All creditors should stand on equal footing. Not any one of them should be given
preference by paying one or some of them ahead of the others. 99

As applied to this case, the pari passu treatment of claims during rehabilitation entitles all creditors, whether
secured or unsecured, to receive payment out of Bayantel’s cash flow. Despite their preferred position,
therefore, the secured creditors shall not be paid ahead of the unsecured creditors but shall receive payment
only in the proportion owing to them.

In any event, the debt restructuring schemes complained of shall be implemented among all creditors regardless
of class. Both secured and unsecured creditors shall suffer a write-off of penalties and default interest and the
escalating interest rates shall be equally imposed on them. We repeat, the commitment embodied in the pari
passu principle only goes so far as to ensure that the assets of the distressed corporation are held in trust for
the equal benefit of all creditors. It does not espouse absolute equality in all aspects of debt restructuring.

As regards petitioners’ claims for costs, petitioner Bank of New York filed before the Rehabilitation Court a
Notice of Claim dated February 19, 2004 for the payment of US$1,255,851.30, representing filing fee, deposit
100 

for expenses and the professional fees of its counsels and financial advisers. Earlier, said bank had filed a claim
for the payment of US$863,829.98 for professional fees of its counsels and professional advisers and
P2,850,305.00 for docket fees and publication expenses. On its end, the Avenue Asia Capital Group claims a
total of US$535,075.64 to defray the professional fees of its financial adviser, Price Waterhouse & Cooper and
the Bondholder Communications Group.

In an Order dated March 15, 2005, the Rehabilitation Court approved the claims for costs of petitioner Bank of
101 

New York as follows:

i. filing fees of P2,701,750.00 as evidenced by O.R. Nos. 18463998, 18466286 and 0480246 all dated
August 13, 2003 of the Regional Trial Court (of Pasig City);

ii. costs of publication of the Stay Order in the amount of P47,550.00 as evidenced by O.R. No. 86384
dated August 13, 2003 of the Peoples Independent Media, Inc., the same being judicial costs authorized
under Sec. 1, Rule 142 of the Rules of Court;

iii. payments of professional fees to its Philippine Counsel, Belo Gozon Elma Parel Asuncion & Lucila, in
the total amount of US$152,784.32 as evidenced by the Affidavit of Atty. Roberto Rafael V. Lucila and
the Statements of Account attached thereto;

which the Court considers to be reasonable and finds authorized under Sec. 6.11 and 6.12 of the Indenture
attached as Annex "E" to the Petition;

The Receiver is hereby directed to cause the settlement of payment of the accounts within a period of sixteen
(16) months from receipt of this Order.102
The trial court made no pronouncement on the claims for cost of petitioner Avenue Asia Capital Group, either in
the same Order or in a subsequent order.

Before us, petitioners reiterate their claims for costs based on Sections 6.11 and 6.12 of the Indenture dated
103  104  105 

July 22, 1999, which was executed by respondent in their favor.

It bears stressing at this point that the subject of petitioners’ appeal before the Court of Appeals was the
Rehabilitation Court’s Decision dated June 28, 2004. Said Decision, however, bore no discussion on either
petitioners’ claim for costs from which they may appeal. Notably, the assailed Order of the Rehabilitation Court
was promulgated on March 15, 2005 or four (4) months after petitioners had appealed the Decision dated June
28, 2004 to the Court of Appeals on November 16, 2004. Evidently, the appellate court could not have acquired
jurisdiction to review said Order.

Nonetheless, we doubt the propriety of the Rehabilitation Court’s award for costs. A perusal of the Order dated
March 15, 2005 reveals that the award to petitioner Bank of New York was made pursuant to Section 1, Rule
142 of the Rules of Court, which states:

SECTION 1. Costs ordinarily follow results of suit.- Unless otherwise provided in these Rules, costs shall be
allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to
adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No
costs shall be allowed against the Republic of the Philippines unless otherwise provided by law. (Emphasis
supplied)

However, there is no prevailing party in rehabilitation proceedings which is non-adversarial in nature. Unlike in
106 

adversarial proceedings, the court in rehabilitation proceedings appoints a receiver to study the best means to
revive the debtor and to ensure that the value of the debtor’s property is reasonably maintained pending the
determination of whether or not the debtor should be rehabilitated, as well as implement the rehabilitation plan
after its approval. The main thrust of rehabilitation is not to adjudicate opposing claims but to restore the debtor
107 

to a position of successful operation and solvency. Under the Interim Rules, reasonable fees and expenses are
allowed the Receiver and the persons hired by him, for those expenses incurred in the ordinary course of
108 

business of the debtor after the issuance of the stay order but excluding interest to creditors.109

Moreover, while it is true that the Indenture between petitioners and respondent corporation authorizes the
Trustee to file proofs of claim for the payment of reasonable expenses and disbursements of the Trustee, its
agents and counsel, accountants and experts, such remedy is available only in cases where the Trustee files a
collection suit against respondent company. Indubitably, the rehabilitation proceedings in the case at bar is not a
collection suit, which is adversarial in nature.

In G.R. No. 177270

At issue in this petition for review on certiorari is the extent of power that the Monitoring Committee can exercise.

The pertinent portion of the fallo of the Decision dated June 28, 2004 provides:

6. A Monitoring Committee shall be formed composed of representatives from all classes of the restructured
debt. The Rehabilitation Receiver’s role shall be limited to the powers of monitoring and oversight as provided in
the Interim Rules. All powers provided for in the Report and Recommendations, which exceed the monitoring
and oversight functions mandated by the Interim Rules shall be amended accordingly. 110

On October 15, 2004, petitioner Bank of New York filed a Manifestation with the Rehabilitation Court for the
creation of a monitoring committee in accordance with the aforequoted pronouncement. Petitioner espouses the
view that it is essential to "provide for a strong and effective Monitoring Committee x x x which gives the
Financial Creditors meaningful and substantial participation in Bayantel." It went on to propose the powers that
111 

the Monitoring Committee should possess, specifically:

The role of the Monitoring Committee shall be to work with the Receiver (on precise terms to be agreed as
discussed below) to Oversee the actions of the BTI New Board of Directors, making key Decisions
and approving, amongst other things,

(i) Any proposed Events of Rescheduling;

 (ii) Any other proposed actions by the receiver on a payment default;

(iii) Operating Expenses Budgets;

(iv) Capital Expenditure Budgets;

(v) Asset Sales Programs; and

(vi) Terms of Incentive Scheme for New Management and Management Targets. 112

Subsequently, in an Order dated November 9, 2004, the Rehabilitation Court adopted petitioner’s proposal by
113 

constituting a Monitoring Committee that

shall participate with the Receiver in monitoring and overseeing the actions of the Board of Directors of Bayantel
and may, by majority vote, adopt, modify, revise or substitute any of the following items:

(1) any proposed Annual OPEX Budgets;

(2) any proposed Annual CAPEX Budgets;

(3) any proposed Reschedule;

(4) any proposed actions by the Receiver on a payment default;

(5) terms of Management Incentivisation Scheme and Management Targets;

(6) the EBITDA/Revenue ratios set by the Bayantel Board of Directors; and,

(7) any other proposed actions by the Bayantel Board of Directors including, without limitation,
issuance of new shares, sale of core and non-core assets, change of business, etc. that will
materially affect the terms and conditions of the rehabilitation plan and its
implementation. (Emphasis supplied)
114 

From said Order, respondent Bayantel filed a Manifestation and Motion for Clarification while the secured
creditors moved for an increase in the membership of the monitoring committee from three to five members. For
his part, the Receiver submitted a Compliance and Manifestation dated January 10, 2005.

In an Order dated March 15, 2005, the Rehabilitation Court affirmed the creation of a monitoring committee but
115 

denied the motion for the appointment of additional members therein. It also made the following dispositions
relative to the functions of the Monitoring Committee:

(d) to approve the Implementing Term Sheet submitted by the Receiver subject to the following conditions:

xxxx

ii. the Receiver shall design and formulate with the participation of the Monitoring Committee and
Bayantel the convertible debt instrument, as directed of him in the earlier Order of November 9, 2004, for the
unsustainable portion of the restructured debt of Bayantel and submit the same to the Court within thirty (30)
days from receipt of this Order. Costs, expenses and taxes that may be due on the execution of the convertible
debt instrument shall be charged to Bayantel as costs of the rehabilitation proceedings;

xxxx

iv. the Receiver shall devise a mode or procedure whereby the Monitoring Committee can have immediate
and direct access to any information that the Receiver has obtained or received from Bayantel or the
Monitoring Accountant in regard to the management and business operations of Bayantel;

v. the trading of debt mentioned in the Implementing Term Sheet shall be governed by the pre-petition
documents which do not conflict with the Decision of this Court and provided that no transfer shall be made to
the Bayantel Group Companies, or any controlling shareholders thereof including Bayan Telecommunications
Holdings Corporation ("BTHC"); however, any "buy back" scheme as may be approved by the Monitoring
Committee and Bayantel shall be open to all creditors whether secured or unsecured; (Emphasis supplied)
116 

On appeal, the Court of Appeals nullified the Orders dated November 9, 2004 and March 15, 2005 insofar as
they defined the powers and functions of the Monitoring Committee. The appellate court ruled that the
Rehabilitation Court committed grave abuse of discretion in vesting the Monitoring Committee with powers
beyond monitoring and overseeing Bayantel’s operations.

Before us, petitioner contends that the Rehabilitation Court intended for the Monitoring Committee to exercise
powers greater than those of the Receiver.

We find no merit in petitioner’s argument.

In the Decision dated June 28, 2004, the Rehabilitation Court discussed the circumstances surrounding the
creation of the monitoring committee, thus:

Both Bayantel and the Opposing Creditors contend that the Rehabilitation Receiver, under his Report and
Recommendations, appear to be vested with too much discretion in the implementation of his proposed
rehabilitation plan. Bayantel and the Opposing Creditors for one, argue against the power of the Rehabilitation
Receiver to be able to further restructure Restructured Debt as well as the Rehabilitation Receiver's power
relating to matters of Bayantel’s budget.

The [c]ourt wishes to stress that the Interim Rules prohibit the Rehabilitation Receiver from taking over the
management and control of the company under rehabilitation, and limit his role to merely overseeing and
monitoring the operations of the company (Section 14, Rule 4, Interim Rules). However, the [c]ourt also
appreciates that the Rehabilitation Receiver must oversee the implementation of the rehabilitation plan as
approved by the [c]ourt. In line with petitioner’s proposal, the creation of a Monitoring Committee composed
of representatives from all classes of the restructured debt addresses the concerns raised by the
creditors. (Emphasis supplied)
117 

It can be gleaned from the foregoing that the Rehabilitation Court’s decision to form a monitoring committee was
borne out of creditors’ concerns over the possession of vast powers by the Receiver. While the Rehabilitation
Court was quick to delineate the Receiver’s authority, it nevertheless, underscored the value of his role in
overseeing the implementation of the Plan. It was on this premise that the Rehabilitation Court appointed the
Monitoring Committee - to "[address] the concerns raised by the creditors." Yet, in its Orders dated November 9,
2004 and March 15, 2005, the Rehabilitation Court equipped the Monitoring Committee with powers well beyond
those of the Receiver’s. Apart from control over respondent’s budget, the Monitoring Committee may also adopt,
modify, revise or even substitute any other proposed actions by respondent’s Board of Directors, including,
without limitation issuance of new shares, sale of core and non-core assets, change of business and others that
will materially affect the terms and conditions of the rehabilitation plan and its implementation. Ironically, the
court a quo diluted the seeming concentration of power in the hands of the Receiver but appointed a Committee
possessed of even wider discretion over respondent’s operations.

From all indications, however, the tenor of the Rehabilitation Court’s Decision dated June 28, 2004 does not
contemplate the creation of a Monitoring Committee with broader powers than the Receiver. As the name of the
Monitoring Committee itself suggests, its job is "to watch, observe or check especially for a special purpose." In
118 

the context of the Decision dated June 28, 2004, the fundamental task of the Monitoring Committee herein is to
oversee the implementation of the rehabilitation plan as approved by the court. This should not be confused with
the functions of the Receiver under the Interim Rules or a management committee under PD 902-A.

Under Section 14, Rule 4 of the Interim Rules, the Receiver shall not take over the management and control of
the debtor but shall closely oversee and monitor its operations during the pendency of the rehabilitation
proceeding. The Rehabilitation Receiver shall be considered an officer of the court and his core duty is to assess
how best to rehabilitate the debtor and to preserve its assets pending the determination of whether or not it
should be rehabilitated and to implement the approved plan.

It is a basic precept in Corporation Law that the corporate powers of all corporations formed under Batas
Pambansa Blg. 68 or the Corporation Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees. Nonetheless, PD 902-A presents an
exception to this rule.
Section 6(d) of PD 902-A empowers the Rehabilitation Court to create and appoint a management committee
119 

to undertake the management of corporations when there is imminent danger of dissipation, loss, wastage or
destruction of assets or other properties or paralyzation of business operations of such corporations which may
be prejudicial to the interest of minority stockholders, parties-litigants or the general public. In the case of
corporations supervised or regulated by government agencies, such as banks and insurance companies, the
appointment shall be made upon the request of the government agency concerned. Otherwise, the
Rehabilitation Court may, upon petition or motu proprio, appoint such management committee.

The management committee or rehabilitation receiver, board or body shall have the following powers: (1) to take
custody of, and control over, all the existing assets and property of the distressed corporation; (2) to evaluate the
existing assets and liabilities, earnings and operations of the corporation; (3) to determine the best way to
salvage and protect the interest of the investors and creditors; (4) to study, review and evaluate the feasibility of
continuing operations and restructure and rehabilitate such entities if determined to be feasible by the
Rehabilitation Court; and (5) it may overrule or revoke the actions of the previous management and board of
directors of the entity or entities under management notwithstanding any provision of law, articles of
incorporation or by-laws to the contrary.1âwphi1

In this case, petitioner neither filed a petition for the appointment of a management committee nor presented
evidence to show that there is imminent danger of dissipation, loss, wastage or destruction of assets or other
properties or paralyzation of business operations of respondent corporation which may be prejudicial to the
interest of the minority stockholders, the creditors or the public. Unless petitioner satisfies these requisites, we
cannot sanction the exercise by the Monitoring Committee of powers that will amount to management of
respondent’s operations.

WHEREFORE, the Court hereby RESOLVES to dispose of these consolidated petitions, as follows:

(1) The petition for review on certiorari in G.R. Nos. 174457-59 is DENIED. The Decision dated August
18, 2006 of the Court of Appeals in CA-G.R. SP No. 87203 is AFFIRMED;

(2) The petition for review on certiorari in G.R. Nos. 175418-20 is DENIED. The Decision dated August
18, 2006 and Resolution dated November 8, 2006 of the Court of Appeals in CA-G.R. SP Nos. 87100
and 87111 are AFFIRMED; and

(3) The petition for review on certiorari in G.R. No. 177270 is DENIED. The Decision dated October 27,
2006 and Resolution dated March 23, 2007 of the Court of Appeals in CA-G.R. SP No. 89894
are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

MARTIN S. VILLARAMA, JR.

Associate Justice

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
Acting Chairperson

LUCAS P. BERSAMIN JOSE PORTUGAL PEREZ*

Associate Justice Associate Justice

BIENVENIDO L. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice
Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Acting Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Acting Chief Justice