G.R. No. 184317, 25 January 2017


Respondent Liberty Corrugated Boxes Manufacturing Corp. (Liberty) is a domestic corporation that produces corrugated packaging boxes. It obtained various credit accommodations and loan facilities from petitioner Metropolitan Bank and Trust Company (Metrobank) amounting to ₱19,940,000.00. To secure its loans, Liberty mortgaged to Metrobank 12 lots in Valenzuela City.

Liberty defaulted on the loans. On June 21, 2007, Liberty filed a Petition for corporate rehabilitation before Branch 74 of the Regional Trial Court of Malabon City. Liberty claimed that it could not meet its obligations to Metrobank because of the Asian Financial Crisis, which resulted in a drastic decline in demand for its goods, and the serious sickness of its Founder and President, Ki Kiao Koc.

Liberty’s rehabilitation plan consisted of:

(a) a debt moratorium;
(b) renewal of marketing efforts;
(c) resumption of operations; and
(d) entry into condominium development, a new business.

On June 27, 2007, the Regional Trial Court, finding the Petition sufficient in form and substance, issued a Stay Order and set an initial hearing for the Petition.

On August 6, 2007, Metro bank filed its Comment/Opposition. It argued that Liberty was not qualified for corporate rehabilitation; that Liberty’s Petition for rehabilitation and rehabilitation plan were defective; and that rehabilitation was not feasible. It also claimed that Liberty filed the Petition solely to avoid its obligations to the bank.

In its September 20, 2007 Order, 12 the Regional Trial Court gave due course to the Petition and referred the rehabilitation plan to the Rehabilitation Receiver. Rehabilitation Receiver Rafael Chris F. Teston recommended the approval of the plan, provided that Liberty would initiate construction on the property in Valenzuela within 12 months from approval.

In its December 21, 2007 Order, the Regional Trial Court approved the rehabilitation plan. The trial court found that Liberty was capable of being rehabilitated and that the rehabilitation plan was feasible and viable. Metrobank appealed to the Court of Appeals. On June 13, 2008, the Court of Appeals issued the Decision denying the Petition and affirming the Regional Trial Court’s December 21, 2007 Order.

The Court of Appeals affirmed the Regional Trial Court’s finding that debtor corporations could still avail themselves of the remedy of rehabilitation under the Interim Rules of Procedure on Corporate Rehabilitation (Interim Rules) even if they were already in default. It held that even insolvent corporations could still file a petition for rehabilitation. The Court of Appeals also found that the trial court correctly approved the rehabilitation plan over Metrobank’s Opposition upon the recommendation of the Rehabilitation Receiver, who had carefully considered and addressed Metrobank’s criticism on the plan’s viability.

The Court of Appeals stressed that the purpose of rehabilitation proceedings is to enable the distressed company to gain a new lease on life and to allow the creditors to be paid their claims. It held that the approval of the Regional Trial Court was precisely “‘to effect a feasible and viable rehabilitation’ of ailing corporations[,]”as required by Presidential Decree No. 902-A. Metrobank moved for reconsideration, but the Motion was denied21 on August 20, 2008.


Whether or not the respondent, as a debtor in default, is qualified to a petition for rehabilitation?


Yes. Petitioner argues that respondent can no longer file a petition for corporate rehabilitation. It claims that Rule 4, Section 1 of the Interim Rules restricts the kind of debtor who can file petitions for corporate rehabilitation. Petitioner insists that the phrase “who fore sees the impossibility of meeting its debts when they respectively fall due” must be construed plainly to mean that an element of foresight is required.30 Because foresight is required, the debts of the corporation should not have matured.

To adopt petitioner’s interpretation would undermine the purpose of the Interim Rules. There is no reason why corporations with debts that may have already matured should not be given the opportunity to recover and pay their debtors in an orderly fashion. The opportunity to rehabilitate the affairs of an economic entity, regardless of the status of its debts, redounds to the benefit of its creditors, owners, and to the economy in general.

Rehabilitation, rather than collection of debts from a company already near bankruptcy, is a better use of judicial rewards.

A.M. No. 08-8-1 O-SC further describes the remedy initiated by a petition for rehabilitation:

[A] petition for rehabilitation, the procedure for which is provided in the Interim Rules of Procedure on Corporate Recovery, should be considered as a special proceeding. It is one that seeks to establish the status of a party or a particular fact. As provided in section 1, Rule 4 of the Interim Rules on Corporate Recovery, the status or fact sought to be established is the inability of the corporate debtor to pay its debts when they fall due so that a rehabilitation plan, containing the formula for the successful recovery of the corporation, may be approved in the end. It does not seek a relief from an injury caused by another party. (Emphasis supplied)

Thus, the condition that triggers rehabilitation proceedings is not the maturation of a corporation’s debts but the inability of the debtor to pay these. Where the law does not distinguish, neither should this Court. Because the definition under the Interim Rules is encompassing, there should be no distinction whether a claim has matured or otherwise.

Petitioner’s proposed interpretation contradicts provisions of the Interim Rules, which contemplate situations where a debtor corporation may already be in default. As correctly pointed out by respondent, a creditor may possibly petition for the debtor’s rehabilitation for default on debts already owed.

Respondent, as a debtor corporation, may file for rehabilitation despite having defaulted on its obligations to petitioner. As its Petition for rehabilitation was sufficient and its rehabilitation plan was feasible, respondent’s rehabilitation should proceed.

*Case Digest by Mary Tweetie Antonette G. Semprun, JD – IV, Andres Bonifacio College, SY 2019 – 2020