[G.R. NO. 172302 : February 4, 2008]
PRYCE CORPORATION, Petitioner, v. THE COURT OF APPEALS and CHINA BANKING CORPORATION, Respondents.
D E C I S I O N
For our resolution is a Petition for Review on Certiorari seeking to reverse the Decision1 of the Court of Appeals (Seventh Division) dated July 28, 2005 in CA-G.R. SP No. 88479.
Pryce Corporation, petitioner, was incorporated under Philippine laws on September 7, 1989. Its primary purpose was to develop real estate in Mindanao. It engaged in the development of memorial parks, operated a major hotel in Cagayan de Oro City, and produced industrial gases.
The 1997 Asian financial crisis, however, badly affected petitioner's operations, resulting in heavy losses. It could not meet its obligations as they became due. It incurred losses of
P943.09 million in 2001, P479.05 million in 2002, and P125.86 million in 2003.
Thus, on July 12, 2004, petitioner filed with the Regional Trial Court (RTC), Branch 138, Makati City, acting as Commercial Court, a petition for rehabilitation,2 docketed as Special Proceedings No. M-5901. Petitioner prayed for the appointment of a Rehabilitation Receiver from among the nominees named therein and the staying of the enforcement of all claims, monetary or otherwise against it. Petitioner also prayed that after due hearing, its proposed Rehabilitation Plan be approved. The salient features of the proposed Rehabilitation Plan3 are:
 the bank creditors will be paid through dacion en pago of assets already mortgaged to them, to the extent sufficient to pay off the outstanding obligations. The excess assets, if any, will be freed from liens and encumbrances and released to the petitioner.
 in case the value of the mortgaged assets for dacion is less than the amount of the obligation to be paid, the deficiency shall be settled by way of dacion of memorial park lots owned by the petitioner.
 pricing of the assets for dacion shall be based on the average of two valuation appraisals from independent third-party appraisers accredited with the Bangko Sentral ng Pilipinas (BSP) to be chosen by the creditors and acceptable to the petitioner, except for memorial park lots which shall be valued at
P16,000 per lot.
 all penalties shall be waived by the creditors.
 interest on the loans shall be accrued only up to June 30, 2003.
 titles of properties and sales documents held by the bank as additional security but without actual mortgage on the properties will also be released to the petitioner after the dacion.
 memorial park mother titles mortgaged to a creditor bank shall be priced based on the value of individual memorial lots comprising those titles, the mother titles shall be released to the petitioner.
 for purpose of the dacion, the foreign currency loan from China Banking Corporation, the only US Dollar-denominated obligation, will be converted to peso based on the average exchange rate for the year 2003 (
P54.2033 to US$1.00), being the mean of 12 monthly averages, as quoted on the statistics web page of the Bangko Sentral ng Pilipinas.
 the bank creditors will avail of the tax exemption and benefits offered under the Special Purpose Vehicle (SPV) Law or R.A. No. 9182 to minimize the dacion-related costs for all parties concerned. Any concerned bank or financial institution which does not avail of said tax exemption through its own fault will shoulder the applicable taxes and related fees for the dacion transaction.
 trade creditors will be paid through dacion of memorial park lots.
 any other debt not covered by mortgaged (sic) of assets or not falling under the aforementioned categories shall be paid through dacion of memorial park lots.
On July 13, 2004, the RTC issued a "Stay Order"4 directing that: all claims against petitioner be deferred; the initial hearing of the petition for rehabilitation be set on September 1, 2004; and all creditors and interested parties should file their respective comments/oppositions to the petition. In the same Order, the RTC then appointed Gener T. Mendoza as Rehabilitation Receiver.
The petition was opposed by petitioner's bank-creditors. The Bank of the Philippine Islands claimed that the petition and the proposed Rehabilitation Plan are coercive and violative of the contract. The Land Bank of the Philippines contended, among others, that the petition is unacceptable because of the unrealistic valuation of the properties subject of the dacion en pago.
The China Banking Corporation, respondent herein, alleged in its opposition that petitioner is solvent and that it filed the petition to force its creditors to accept dacion payments. In effect, petitioner passed on to the creditors the burden of marketing and financing unwanted memorial lots, while exempting it (petitioner) from paying interests and penalties.
On September 13, 2004, the RTC issued an Order,5 the dispositive portion of which reads:
WHEREFORE, the Petition is given due course. Let the Rehabilitation Plan, Annex J, Petition, be referred to Mr. Gener Mendoza, Rehabilitation Receiver, for evaluation and recommendation to be submitted not later than December 15, 2004.
On December 6, 2004, the Rehabilitation Receiver, in compliance with the above Order, submitted an Amended Rehabilitation Plan, recommending the following:
1. Payment of all bank loans and long-term commercial papers (LTCP) through dacion en pago of PC's real estate assets;
2. Payment of all non-bank, trade and other payables amounting to at least
P500,000 each through a dacion of memorial park lots; andcralawlibrary
3. Payment in cash over a three-year period, without interest, of all non-bank, trade and other payables amounting to less than
P500,000 each. There are 290 of these creditors but their aggregate exposure to PC is only P7.64 million.
The Rehabilitation Receiver further proposed the following amendments with respect to the dacion payments to petitioner's bank creditors:
1. The asset base from which the creditors may choose to be paid has been broadened. Each creditor will no longer be limited to assets already mortgaged to it and may elect to be paid from the many other assets of the company, including even those mortgaged to other creditors. Any secured creditor, however, shall have priority to acquire the assets mortgaged to it.
2. A third appraiser has been added to the two proposed by PC to undertake valuation of assets earmarked for dacion. With three appraisers, more representative values are likely to be obtained.
3. Valuation of the memorial lots has been configured to dovetail with values approved in the corporate rehabilitation of Pryce Gases, Inc. (PGI), a subsidiary of PC. Thus, any memorial lot ceded to secured creditors shall be valued at
P13,125 per lot, and P17,500/lot for unsecured creditors.
On January 17, 2005, the RTC issued an Order approving the Amended Rehabilitation Plan and finding petitioner eligible to be placed in a state of corporate rehabilitation; and directing that its assets shall be held and disposed of and its liabilities paid and liquidated in the manner specified in the said Order.
Consequently, on February 23, 2005, respondent filed with the Court of Appeals a Petition for Review, docketed as CA-G.R. SP No. 88479. Respondent alleged that in approving the Amended Rehabilitation Plan, the RTC impaired the obligations of contracts, voided contractual stipulation and contravened the "avowed policy of the State" to maintain a competitive financial system.
On July 28, 2005, the Court of Appeals rendered its Decision granting respondent's petition and reversing the assailed Orders of the RTC, thus:
WHEREFORE, premises considered, petition is hereby GRANTED. The assailed July 13, 2004, September 13, 2004 and January 17, 2005 Orders of the Regional Trial Court of Makati City, Branch 138, are hereby REVERSED and SET ASIDE.
Petitioner herein seasonably filed a motion for reconsideration but it was denied by the appellate court in its Resolution dated April 12, 2006.
Hence, the instant recourse raising the sole issue of whether the Court of Appeals erred in denying the petition for rehabilitation of petitioner Pryce Corporation.
Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation6 provides:
SEC. 6. Stay Order. - If the court finds the petition to be sufficient in form and substance, it shall, not later than five (5) days from the filing of the petition, issue an Order (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 of the date of filing of the petition; (e) prohibiting the debtor's suppliers of goods or services from withholding supply of goods and services in the ordinary course of business for as long as the debtor makes payments for the services and goods supplied after the issuance of the stay order; (f) directing the payment in full of all administrative expenses incurred after the issuance of the stay order; (g) fixing the initial hearing on the petition not earlier than forty five (45) days but not later than sixty (60) days from the filing thereof; (h) directing the petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; (i) directing all creditors and all interested parties (including the Securities and Exchange Commission) to file and serve on the debtor a verified comment on or opposition to the petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial hearing and putting them on notice that their failure to do so will bar them from participating in the proceedings; and (j) directing the creditors and interested parties to secure from the court copies of the petition and its annexes within such time as to enable themselves to file their comment on or opposition to the petition and to prepare for the initial hearing of the petition.
Section 6 provides that the petition must be "sufficient in form and substance." In Rizal Commercial Banking Corporation v. Intermediate Appellate Court,7 this Court held that under Section 6(c) of P.D. No. 902-A,8 receivers may be appointed whenever: (1) necessary in order to preserve the rights of the parties-litigants; and/or (2) protect the interest of the investing public and creditors. The situations contemplated in these instances are serious in nature. There must exist a clear and imminent danger of losing the corporate assets if a receiver is not appointed. Absent such danger, such as where there are sufficient assets to sustain the rehabilitation plan and both investors and creditors are amply protected, the need for appointing a receiver does not exist. Simply put, the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors.
We agree with the Court of Appeals that the petition for rehabilitation does not allege that there is a clear and imminent danger that petitioner will lose its corporate assets if a receiver is not appointed. In other words, the "serious situation test" laid down by Rizal Commercial Banking Corporation has not been met or at least substantially complied with. Significantly, the Stay Order dated July 13, 2004 issued by the RTC does not state any serious situation affecting petitioner's corporate assets. We observe that in appointing Mr. Gener T. Mendoza as Rehabilitation Receiver, the only basis of the lower court was its finding that "the petition is sufficient in form and substance." However, it did not specify any reason or ground to sustain such finding. Clearly, the petition failed to comply with the "serious situation test."
As aptly held by the Court of Appeals:
There are serious requirements before rehabilitation can be ordered. That is why this stay order is issued only after a management committee or receiver is appointed. Before a management committee or receiver is appointed, the law expressly states the serious requirements that must first exist: (1) an imminent danger (National Development Company and New Agrix, Inc. v. Philippine Veterans Bank, G.R. NOS. 84132-33, December 10, 1990, 192 SCRA 257) of dissipation, loss, wastage or destruction of assets or of paralization of business operations of the liquid corporation which may be prejudicial to the interest of minority stockholders, parties-litigants or to the general public, or (2) there is a necessity to preserve the rights and interests of the parties-litigants, of the investing public and of creditors.
In the case at bench, when the commercial court appointed a rehabilitation receiver, the very next day after the filing of the Petition for Rehabilitation, it is highly doubtful and well-nigh impossible, that, without any hearing yet held, the commercial court could have already gathered enough evidence before it to determine whether there was any imminent danger of dissipation of assets or of paralization of business operations to warrant the appointment of a rehabilitation receiver.9
In determining whether petitioner's financial situation is serious and whether there is a clear and imminent danger that it will lose its corporate assets, the RTC, acting as commercial court, should conduct a hearing wherein both parties can present their respective evidence. Hence, a remand of the records of this case to the RTC is imperative.
WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 88479 is AFFIRMED with the modification discussed above. Let the records of this case be REMANDED to the RTC, Branch 138, Makati City, sitting as Commercial Court, for further proceedings with dispatch to determine the merits of the petition for rehabilitation. No costs.
Puno, C.J., Chairperson, Corona, Azcuna, Leonardo-de Castro, JJ., concur.
1 Rollo, Vol. I, pp. 55-70. Penned by Associate Justice Vicente Q. Roxas and concurred in by Associate Justices Portia AliÃ±o-Hormachuelos and Juan Q. Enriquez.
2 Rollo, Vol. II, pp. 1105-1119.
3 As summarized by the trial court in its Order dated September 13, 2004. See Rollo, Vol. I, p. 154.
4 Rollo, Vol. I, pp. 135-136.
5 Id.' pp. 153-155.
8 Entitled "Reorganization of the Securities and Exchange Commission with Additional Powers and Placing Said Agency Under the Administrative Supervision of the Office of the President." The Decree was subsequently amended by Presidential Decree Nos. 1653, 1758, and 1799, and by Republic Act No. 8799 (The Securities Regulation Code of 2000), which transferred jurisdiction over rehabilitation cases from the SEC to Regional Trial Courts sitting as Commercial Courts.
9 Rollo, pp. 66-67.