Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&amp;view=article&amp;id=84205:59655&amp;catid=1594&amp;Itemid=566
Timestamp: 2019-04-24 22:37:46+00:00

Document:
G.R. No. 205469, March 25, 2015 - BPI FAMILY SAVINGS BANK, INC., Petitioner, v. ST. MICHAEL MEDICAL CENTER, INC., Respondent.
BPI FAMILY SAVINGS BANK, INC., Petitioner, v. ST. MICHAEL MEDICAL CENTER, INC., Respondent.
Further, it was averred that while St. Michael Hospital – whose operations were to be eventually absorbed by SMMCI – was operating profitably, it was saddled with the burden of paying the loan obligation of SMMCI and Sps. Rodil to BPI Family, which it cannot service together with its current obligations to other persons and/or entities. The situation became even more difficult when the bank called the entire loan obligation which, as of November 16, 2009, amounted to P52,784,589.34 (net of unapplied payment), consisting of: (a) the principal of P23,700,000.00; (b) accrued interest of P7,048,152.74; and (c) late payment charges amounting to P23,510,400.00. While several persons approached Sps. Rodil signifying their interest to invest in the corporation, they needed enough time to complete their audit and due diligence of the company,22 hence, the Rehabilitation Petition.
The two-year moratorium period to pay the bank is not enough. The Court should seriously consider extending it by another three years or a total of five (5) years, at least. The bank, whose loan is secured by mortgages on three prime parcels of land with improvements should discuss restructuring the loan with the creditors with the end in view of stretching the term and allowing for more flexible rate.
Obligations to other creditors such as the suppliers and lenders can be serviced at once. Given the performance of the hospital, the undersigned reasonably believes that these obligations can be settled in next three (3) years. These accounts can be paid proportionately provided that [SMMCI] should be allowed to re-structure these accounts to allow for longer and more convenient payment terms.
[SMMCI] should be allowed to spend for the improvement of the building but not necessarily continuing with the planned 11-storey building. It should make do with what it has but should be permitted to spend reasonable part of the hospital’s revenues to improve the facilities. For instance, we recommend that the fifth floor of the building should be finished to provide for an intensive care unit or ICU with equipments (sic) and required facilities. [SMMCI] should also consider spending (sic) an elevator to make access to and from the higher floors convenient to patients, doctors, nurses and guests. Incidentally, these improvements should be programmed for the next two to three years. Given the budgetary constraints of the hospital, doing all these improvements all at once would be impossible.
Dissatisfied, BPI Family moved for reconsideration which was denied in a Resolution41 dated January 18, 2013, hence, this petition.
The essential issue in this case is whether or not the CA correctly affirmed SMMCI’s Rehabilitation Plan as approved by the RTC.
In other words, rehabilitation assumes that the corporation has been operational but for some reasons like economic crisis or mismanagement had become distressed or insolvent, i.e., that it is generally unable to pay its debts as they fall due in the ordinary course of business or has liability that are greater than its assets.45 Thus, the basic issues in rehabilitation proceedings concern the viability and desirability of continuing the business operations of the distressed corporation,46 all with a view of effectively restoring it to a state of solvency or to its former healthy financial condition through the adoption of a rehabilitation plan.
Note that this defect is not negated by the submission of the financial documents pertaining to St. Michael Hospital, which is a separate and distinct entity from SMMCI. While the CA gave considerable weight to St. Michael Hospital’s supposed “profitability,” as explicated in its own financial statements, as well as the feasibility study conducted by Mrs. Alibangbang,48 in affirming the RTC, it has unwittingly lost sight of the essential fact that SMMCI stands as the sole petitioning debtor in this case; as such, its rehabilitation should have been primarily examined from the lens of its own financial history. While SMMCI claims that it would absorb St. Michael Hospital’s operations, there was dearth of evidence to show that a merger was already agreed upon between them. Accordingly, St. Michael Hospital’s financials cannot be utilized as basis to determine the feasibility of SMMCI’s rehabilitation.
In fine, the petition should not have been given due course, nor should a Stay Order have been issued.
to Support the Rehabilitation Plan.
In the same manner, the fact that St. Michael Hospital had previously made payments for the benefit of SMMCI is not enough assurance that the arrangement would prospectively apply in the event that rehabilitation is granted. As case law intimates, nothing short of legally binding investment commitment/s from third parties is required to qualify as a material financial commitment.52 However, no such binding investment was presented in this case.
B. Lack of Liquidation Analysis.
SMMCI likewise failed to include any liquidation analysis in its Rehabilitation Plan. The Court observes that as of November 16, 2009, or about 9 months prior to the filing of the petition for rehabilitation, the loan with BPI Family had already amounted to P52,784,589.34, with interest at 10.25% p.a. or a daily interest of about P6,655.48 and late payment charge of 36% p.a.53 However, with no SMMCI financial statement on record, it is unclear to the Court what assets it possesses in order to determine the values to be derived if liquidation has to be had thereby. Accordingly, this prevents the Court from ascertaining if the petitioning debtor’s creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated, a crucial factor in a corporate rehabilitation case. Again, the financial records of St. Michael Hospital, being a separate and distinct entity whose merger with SMMCI only exists in the realm of probability, cannot be taken as a substitute to fulfill the requirement. What remains pertinent are the financial statements of SMMCI for it solely stands as the debtor to be rehabilitated, or liquidated in this case.
At any rate, records disclose that St. Michael Hospital’s current cash operating position54 is just enough to meet its own maturing obligations.55 While it has substantial total assets, a large portion thereof is comprised of fixed assets, while its current assets56 consist mostly of inventory.57 Still, the total liquidation assets and the estimated liquidation return to the creditors, as well as the fair market value vis-à-vis the forced liquidation value of the fixed assets that would guide the Court in assessing the feasibility of the Rehabilitation Plan were not shown.
The failure of the Rehabilitation Plan to state any material financial commitment to support rehabilitation, as well as to include a liquidation analysis, translates to the conclusion that the RTC’s stated considerations for approval, i.e., that (a) the plan provides for recovery rates on operating mode as opposed to liquidation values; (b) it contains details for a business plan which will restore profitability and solvency on petitioner; (c) the projected cash flow can support the continuous operation of the debtor as a going concern; and (d) the plan has provisions to ensure that future income will inure to the benefit of the creditors,58 are actually unsubstantiated, and hence, insufficient to decree SMMCI’s rehabilitation. It is well to emphasize that the remedy of rehabilitation should be denied to corporations that do not qualify under the Rules. Neither should it be allowed to corporations whose sole purpose is to delay the enforcement of any of the rights of the creditors, which is rendered obvious by: (a) the absence of a sound and workable business plan; (b) baseless and unexplained assumptions, targets, and goals; and (c) speculative capital infusion or complete lack thereof for the execution of the business plan.59 Unfortunately, these negative indicators have all surfaced to the fore, much to SMMCI’s chagrin.
While the Court recognizes the financial predicaments of upstart corporations under the prevailing economic climate, it must nonetheless remain forthright in limiting the remedy of rehabilitation only to meritorious cases. As above-mentioned, the purpose of rehabilitation proceedings is not only to enable the company to gain a new lease on life but also to allow creditors to be paid their claims from its earnings, when so rehabilitated. Hence, the remedy must be accorded only after a judicious regard of all stakeholders’ interests; it is not a one-sided tool that may be graciously invoked to escape every position of distress.
In this case, not only has the petitioning debtor failed to show that it has formally began its operations which would warrant restoration, but also it has failed to show compliance with the key requirements under the Rules, the purpose of which are vital in determining the propriety of rehabilitation. Thus, for all the reasons hereinabove explained, the Court is constrained to rule in favor of BPI Family and hereby dismiss SMMCI’s Rehabilitation Petition. With this pronouncement, it is now unnecessary to delve on the other ancillary issues raised herein.
WHEREFORE, the petition is GRANTED. The Decision dated August 30, 2012 and the Resolution dated January 18, 2013 of the Court of Appeals in CA-G.R. SP No. 121004 upholding the Order dated August 4, 2011 of the Regional Trial Court of Imus, Cavite, Branch 21 approving the Rehabilitation Plan of respondent St. Michael Medical Center, Inc. (SMMCI) are hereby REVERSED and SET ASIDE. Accordingly, SMMCI’s Petition for Corporate Rehabilitation is DISMISSED.
Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin, and Perez, JJ., concur.
2 Id. at 64-89. Penned by Associate Justice Mariflor P. Punzalan Castillo with Associate Justices Amy C. Lazaro-Javier and Leoncia R. Dimagiba concurring.
4 Id. at 240-258. Penned by Executive Judge Norberto J. Quisumbing, Jr.
9 Transfer Certificate of Title (TCT) No. T-1010611, TCT No. T-944976, and TCT No. T-1019947; id. at 138-143.
11 See Promissory Note (PN) Number 19408-6011803 000-99 dated November 30, 2006; id. at 144. The Court notes, however, that it is merely a renewal of PN # 19408-6011189.
12 Respondent alleged that the first contractor (i.e., M. Brucal Builders; id. at 249) pilfered or diverted the construction materials to its other projects. Hence, since it failed to restore the missing materials, its services were terminated, and CCG Construction took over six (6) months later as the new contractor; id. at 66 and 100.
13 See id. at 66-69.
14 See id. at 68-69 and 103-105.
15 Id. at 69 and 150.
16 Dated October 8, 2009. Id. at 151-152.
17 See id. at 69-70. See also Agreement to Postpone Sale dated December 8, 2009; id. at 154.
18 Dated August 8, 2010. Id. at 97-116.
20 See id. at 100-104.
21 See id. at 104-105.
22 See id. at 105-106.
25 See id. at 192.
27 Other than BPI Family, South East Star Enterprises and Lakeside Pharmaceuticals Phils., Inc. filed their respective comments to the Rehabilitation Petition; id. at 245.
29 See id. at 70-73 and 245-246.
37 See id. at 75-76.
40 See id. at 81-87.
42 (visited March 17, 2015).
43 Town and Country Enterprises, Inc. v. Quisumbing, Jr., G.R. No. 173610, October 1, 2012, 682 SCRA 128, 136.
45 See Section 4 (p) of the FRIA.
46 See Section 31 of the FRIA.
47 A.M. No. 00-8-10-SC dated December 2, 2008 which took effect on January 16, 2009.
48 See rollo, pp. 81-84.
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of the foregoing elements prevents [the application of the doctrine of piercing the corporate veil]. x x x.
50 See Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation, G.R. No. 187581, October 20, 2014.
52 See San Jose Timber Corporation v. Securities and Exchange Commission, G.R. No. 162196, February 27, 2012, 667 SCRA 13, 30.
53 See Statement of Account as of November 16, 2009; rollo, p. 155.
57 See St. Michael Hospital’s Balance Sheet for the Year Ending December 31, 2009; rollo, p. 158.
59Wonder Book Corporation v. Philippine Bank of Communications, G.R. No. 187316, July 16, 2012, 676 SCRA 489, 501.

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