Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=83752:58143&catid=1588&Itemid=566
Timestamp: 2019-04-21 04:08:49+00:00

Document:
PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, v. BASIC POLYPRINTERS AND PACKAGING CORPORATION, Respondent.
WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Order dated January 11, 2008 of the Regional Trial Court of Imus, Cavite, Branch 21, is hereby AFFIRMED.
On February 27, 2004, Basic Polyprinters, along with the eight other corporations belonging to the Limtong Group of Companies (namely: Cuisine Connection, Inc., Fine Arts International, Gibson HP Corporation, Gibson Mega Corporation, Harry U. Limtong Corporation, Main Pacific Features, Inc., T.O.L. Realty & Development Corp., and Wonder Book Corporation), filed a joint petition for suspension of payments with approval of the proposed rehabilitation in the RTC (docketed as SEC Case No. 031-04).4 The RTC issued a stay order, and eventually approved the rehabilitation plan, but the CA reversed the RTC on October 25, 2005,5 and directed the petitioning corporations to file their individual petitions for suspension of payments and rehabilitation in the appropriate courts.
Finding the petition sufficient in form and substance, the RTC issued the stay order dated August 31, 2006.8 It appointed Manuel N. Cacho III as the rehabilitation receiver, and required all creditors and interested parties, including the Securities and Exchange Commission (SEC), to file their comments.
Petitioner’s primary business is in the printing business. Based on its updated financial report, the financial condition has greatly improved.
The projected cash flow attached to the report and the repayment program demonstrates the ability of the company to settle its debt liability.
1. The petitioner has a positive net worth and inventory that can be converted into resources.
2. The Plan ensures preservation of assets, optimizes recovery of creditors’ claims and provides of an orderly payment of debts.
3. The plan will restore petitioner to profitability and solvency and maintain it as an on-going concern to the benefit of the stockholders, investors and creditors.
4. The rehabilitation and the continuous operation of the company will generate employment.
5. The plan is endorsed by the Rehabilitation Receiver.
CONSIDERING THE FOREGOING, the Court hereby approves the detailed Rehabilitation Plan including the Receiver’s Report and Recommendations and its clarifications and corrections and enjoins the petitioner to comply strictly with the provisions of the plan, perform its obligations thereunder and take all actions necessary to carry out the plan, failing which, the Court shall either, upon motion, motu proprio or upon the recommendation of the Rehabilitation Receiver, terminate the proceedings pursuant to Section 27, Rule 1 of the Interim Rules of Procedure on Corporate Rehabilitation.
The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit a quarterly report on the progress thereon.
PBCOM appealed to the CA in due course.
PBCOM moved for reconsideration,16 but its motion was denied.
Basic Polyprinters refutes the petitioner, saying that the petitioner raises factual issues improper under Rule 45 of the Rules of Court; that as long as the rehabilitation court found that the petitioning corporation could still be rehabilitated, its findings of fact should be binding when they were supported by substantial evidence; that the independent appraisal report by PAVI was unauthorized by the RTC; and that the validity of the rehabilitation plan could be upheld for its complete satisfaction of the requirements of Section 5, Rule 4 of the Interim Rules.
In fine, we shall determine whether the approval of the rehabilitation plan was proper despite: (a) the alleged insolvency of Basic Polyprinters; and (b) absence of a material financial commitment pursuant to Section 5, Rule 4 of the Interim Rules.
We reverse the judgment of the CA.
We disagree with the contention of the petitioner.
Consequently, the basic issues in rehabilitation proceedings concern the viability and desirability of continuing the business operations of the petitioning corporation. The determination of such issues was to be carried out by the court-appointed rehabilitation receiver,25cralawred who was Cacho in this case.
Moreover, Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act (FRIA) of 2010), a law that is applicable hereto,26 has defined a corporate debtor as a corporation duly organized and existing under Philippine laws that has become insolvent.27 The term insolvent is defined in Republic Act No. 10142 as “the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets.”28 As such, the contention that rehabilitation becomes inappropriate because of the perceived insolvency of Basic Polyprinters was incorrect.
The petitioner next argues that Basic Polyprinters did not present any material financial commitment in the rehabilitation plan, thereby violating Section 5, Rule 4 of the Interim Rules, the rule applicable at the time of the filing of the petition for rehabilitation. In that regard, Basic Polyprinters made no commitment in relation to the infusion of fresh capital by its stakeholders,29 and presented only a “lopsided” protracted repayment schedule that included the dacion en pago involving an asset mortgaged to the petitioner itself in favor of another creditor.
However, these financial commitments were insufficient for the purpose. We explain.
The commitment to add P10,000,000.00 working capital appeared to be doubtful considering that the insurance claim from which said working capital would be sourced had already been written-off by Basic Polyprinters’s affiliate, Wonder Book Corporation.34 A claim that has been written-off is considered a bad debt or a worthless asset,35 and cannot be deemed a material financial commitment for purposes of rehabilitation. At any rate, the proposed additional P10,000,000.00 working capital was insufficient to cover at least half of the shareholders’ deficit that amounted to P23,316,044.00 as of June 30, 2006.
We also declared in Wonder Book Corporation v. Philippine Bank of Communications (Wonder Book)36 that the conversion of all deposits for future subscriptions to common stock and the treatment of all payables to officers and stockholders as trade payables was hardly constituting material financial commitments. Such “conversion” of cash advances to trade payables was, in fact, a mere re-classification of the liability entry and had no effect on the shareholders’ deficit. On the other hand, we cannot determine the effect of the “conversion” of the directors’ and shareholders’ deposits for future subscription to common stock and substituted liabilities on the shareholders’ deficit because their amounts were not reflected in the financial statements contained in the rollo.
Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it intended to address the low demands for their products and the effect of direct competition from stores like SM, Gaisano, Robinsons, and other malls. Even the P245 million insurance claim that was supposed to cover the destroyed inventories worth P264 million appears to have been written-off with no probability of being realized later on.
We observe, too, that Basic Polyprinters’s proposal to enter into the dacion en pago to create a source of “fresh capital” was not feasible because the object thereof would not be its own property but one belonging to its affiliate, TOL Realty and Development Corporation, a corporation also undergoing rehabilitation. Moreover, the negotiations (for the return of books and magazines from Basic Polyprinters’s trade creditors) did not partake of a voluntary undertaking because no actual financial commitments had been made thereon.
Worthy of note here is that Wonder Book Corporation was a sister company of Basic Polyprinters, being one of the corporations that had filed the joint petition for suspension of payments and rehabilitation in SEC Case No. 031-04 adverted to earlier. Both of them submitted identical commitments in their respective rehabilitation plans. As a result, as the Court observed in Wonder Book,37 the commitments by Basic Polyprinters could not be considered as firm assurances that could convince creditors, future investors and the general public of its financial and operational viability.
Due to the rehabilitation plan being an indispensable requirement in corporate rehabilitation proceedings,38 Basic Polyprinters was expected to exert a conscious effort in formulating the same, for such plan would spell the future not only for itself but also for its creditors and the public in general. The contents and execution of the rehabilitation plan could not be taken lightly.
We are not oblivious to the plight of corporate debtors like Basic Polyprinters that have inevitably fallen prey to economic recession and unfortunate incidents in the course of their operations. However, we must endeavor to balance the interests of all the parties that had a stake in the success of rehabilitating the debtors. In doing so here, we cannot now find the rehabilitation plan for Basic Polyprinters to be genuine and in good faith, for it was, in fact, unilateral and detrimental to its creditors and the public.
ACCORDINGLY, the Court GRANTS the petition for review on certiorari; SETS ASIDE and REVERSES the decision promulgated on December 16, 2008 and the resolution promulgated on April 22, 2009, both by the Court of Appeals, as well as the order issued on January 11, 2008 by the Regional Trial Court approving the rehabilitation plan submitted by Basic Polyprinters and Packaging Corporation; DISMISSES the petition for suspension of payments and rehabilitation of Basic Polyprinters and Packaging Corporation; and DIRECTS Basic Polyprinters and Packaging Corporation to pay the costs of suit.
1Rollo, pp. 53-71; penned by Associate Justice Monina Arevalo-Zenarosa (retired), with Associate Justice Regalado E. Maambong (retired/deceased) and Associate Justice Arturo G. Tayag (retired), concurring.
21 Rule 2, Section 1 of the Rules of Procedure on Corporate Rehabilitation, effective January 19, 2009, supplanting the Interim Rules of Procedure on Corporate Rehabilitation (A.M. No. 00-8-10-SC, as amended).
22Philippine Veterans Bank Employees Union-N.U.B.E. v. Vega, G.R. No. 105364, June 28, 2001, 360 SCRA 33, 39; Ruby Industrial Corporation v. Court of Appeals, G.R. Nos. 124185-87, January 20, 1998, 284 SCRA 445, 460.
23 G.R. No. 179558, June 1, 2011, 650 SCRA 172.
25cralawred Section 12(e), A.M. No. 00-8-10-SC, as amended.
26 See Section 2, A.M. No. 12-12-11-SC, or the Financial Rehabilitation Rules of Procedure (2013).
27 Section 4(k) Debtor shall refer to, unless specifically excluded by a provision of this Act, a sole proprietorship duly registered with the Department of Trade and Industry (DTI), a partnership duly registered with the Securities and Exchange Commission (SEC), a corporation duly organized and existing under Philippine laws, or an individual debtor who has become insolvent as defined herein.
28 Section 4(p), R.A. No. 10142.
30Wonder Book Corporation v. Philippine Bank of Communications, G.R. No. 187316, July 16, 2012, 676 SCRA 489, 505.
31 Balgos, Interim Rules of Procedure on Corporate Rehabilitation (2006), p. 63.
34Wonder Book Corporation v. Philippine Bank of Communications, supra note 29, at 506-507.
35 Available at http://www.oxforddictionaries.com/us/definition/amerian_english/write-off (visited October 8, 2014.
38Siochi Fishery Enterprises, Inc. v. Bank of the Philippines Islands, G.R. No. 193872, October 19, 2011, 659 SCRA 817, 831.

References: v. 
In fine
 v. 
 v. 
 v. 
 v. 
 v. 
 v.