Petitioners claim that the Interim Rules of Procedure are construed liberally; thus, the RTC may disregard the Rules. The Court disagrees. Indeed, the Rules are construed liberally. However, this does not mean that courts may disregard the Rules. In North Bulacan Corporation v. Philippine Bank of Communications,12 the Court held that, “These rules are to be construed liberally to obtain for the parties a just, expeditious, and inexpensive disposition of the case. The parties may not, however, invoke such liberality if it will result in the utter disregard of the rules.”13
In New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo City,14 the Court enumerated the basic procedure in corporate rehabilitation cases. The Court held:
As provided in the Interim Rules, the basic procedure is as follows:
1. The petition is filed with the appropriate Regional Trial Court;
2. If the petition is found to be sufficient in form and substance, the trial court shall issue a Stay Order, which shall provide, among others, for the appointment of a Rehabilitation Receiver; the fixing of the initial hearing on the petition; a directive to the petitioner to publish the Order in a newspaper of general circulation in the Philippines once a week for two (2) consecutive weeks; and a directive to 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[;]
3. Publication of the Stay Order;
4. Initial hearing on any matter relating to the petition or on any comment and/or opposition filed in connection therewith. If the trial court is satisfied that there is merit in the petition, it shall give due course to the petition;
5. Referral for evaluation of the rehabilitation plan to the rehabilitation receiver who shall submit his recommendations to the court;
6. Modifications or revisions of the rehabilitation plan as necessary;
7. Submission of final rehabilitation plan to the trial court for approval;
8. Approval/disapproval of rehabilitation plan by the trial court[.]15(Emphasis supplied)
In the present case, the RTC hastily approved the rehabilitation plan in the same order giving due course to the petition. The RTC confined the initial hearing to the issue of jurisdiction and failed to address other more important matters relating to the petition and comment. The RTC also failed to refer for evaluation the rehabilitation plan to the rehabilitation receiver. Thus, the rehabilitation receiver was unable to submit his recommendations and make modifications or revisions to the rehabilitation plan as necessary. Moreover, the RTC denied the rehabilitation receiver’s motion to issue an order directing petitioners and their creditors to attend a meeting. In its 20 October 2009 Decision, the Court of Appeals found:
The most glaring procedural infirmity committed by the court a quo, however, is its failure to refer respondent corporations’ petition for rehabilitation and Rehabilitation Plan to the rehabilitation receiver despite the explicit and clear mandate of the Interim Rules that if the court is satisfied that there is merit in the petition, it shall give due course to the petition and “immediately” refer the same and its annexes to the rehabilitation receiver x x x.
It is discernible from the foregoing that there are serious matters which should be determined before rehabilitation may be had. For this reason, the Interim Rules required the appointment of a rehabilitation receiver simultaneously with the issuance of the Stay Order and prescribed the following qualifications — expertise and acumen to manage and operate a business similar in size and complexity to that of the debtor, knowledge in management, finance, and rehabilitation of distressed companies, and general familiarity with the rights of creditors in rehabilitation, etc. to further emphasize the significance of the role of the rehabilitation receiver in rehabilitation proceedings, the Interim Rules directed the rehabilitation receiver to evaluate the rehabilitation plan and submit his recommendations to the court. In fact, his recommendation bears much weight as it is one of the factors which must be considered by the court if it were to approve the rehabilitation plan. More importantly, it must be emphasized that the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors. Thus, the court a quo committed serious error when it failed to refer the petition for rehabilitation and its annexes to the appointed receiver.
We have likewise observed that the court a quo made an unwarranted procedural shortcut as its finding that there was merit in respondent corporations’ petition for rehabilitation was made in the same Order approving their Rehabilitation Plan.16
As an officer of the court and an expert, the rehabilitation receiver plays an important role in corporate rehabilitation proceedings. In Pryce Corporation v. Court of Appeals,17 the Court held that, “the purpose of the law in directing the appointment of receivers is to protect the interests of the corporate investors and creditors.”18 Section 14 of the Interim Rules of Procedure on Corporate Rehabilitation enumerates the powers and functions of the rehabilitation receiver: (1) verify the accuracy of the petition, including its annexes such as the schedule of debts and liabilities and the inventory of assets submitted in support of the petition; (2) accept and incorporate, when justified, amendments to the schedule of debts and liabilities; (3) recommend to the court the disallowance of claims and rejection of amendments to the schedule of debts and liabilities that lack sufficient proof and justification; (4) submit to the court and make available for review by the creditors a revised schedule of debts and liabilities; (5) investigate the acts, conduct, properties, liabilities, and financial condition of the debtor, the operation of its business and the desirability of the continuance thereof, and any other matter relevant to the proceedings or to the formulation of a rehabilitation plan; (6) examine under oath the directors and officers of the debtor and any other witnesses that he may deem appropriate; (7) make available to the creditors documents and notices necessary for them to follow and participate in the proceedings; (8) report to the court any fact ascertained by him pertaining to the causes of the debtor’s problems, fraud, preferences, dispositions, encumbrances, misconduct, mismanagement, and irregularities committed by the stockholders, directors, management, or any other person; (9) employ such person or persons such as lawyers, accountants, appraisers, and staff as are necessary in performing his functions and duties as rehabilitation receiver; (10) monitor the operations of the debtor and to immediately report to the court any material adverse change in the debtor’s business; (11) evaluate the existing assets and liabilities, earnings and operations of the debtor; (12) determine and recommend to the court the best way to salvage and protect the interests of the creditors, stockholders, and the general public; (13) study the rehabilitation plan proposed by the debtor or any rehabilitation plan submitted during the proceedings, together with any comments made thereon; (14) prohibit and report to the court any encumbrance, transfer, or disposition of the debtor’s property outside of the ordinary course of business or what is allowed by the court; (15) prohibit and report to the court any payments outside of the ordinary course of business; (16) have unlimited access to the debtor’s employees, premises, books, records, and financial documents during business hours; (17) inspect, copy, photocopy, or photograph any document, paper, book, account, or letter, whether in the possession of the debtor or other persons; (18) gain entry into any property for the purpose of inspecting, measuring, surveying, or photographing it or any designated relevant object or operation thereon; (19) take possession, control, and custody of the debtor’s assets; (20) notify the parties and the court as to contracts that the debtor has decided to continue to perform or breach; (21) be notified of, and to attend all meetings of the board of directors and stockholders of the debtor; (22) recommend any modification of an approved rehabilitation plan as he may deem appropriate; (23) bring to the attention of the court any material change affecting the debtor’s ability to meet the obligations under the rehabilitation plan; (24) recommend the appointment of a management committee in the cases provided for under Presidential Decree No. 902-A, as amended; (25) recommend the termination of the proceedings and the dissolution of the debtor if he determines that the continuance in business of such entity is no longer feasible or profitable or no longer works to the best interest of the stockholders, parties-litigants, creditors, or the general public; and (26) apply to the court for any order or directive that he may deem necessary or desirable to aid him in the exercise of his powers.
The rehabilitation plan is an indispensable requirement in corporate rehabilitation proceedings.19 Section 5 of the Rules enumerates the essential requisites of a 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; (c) the material financial commitments to support the rehabilitation plan; (d) 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; (e) a liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would receive if the debtor’s properties were liquidated; and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan. (Emphasis supplied)
The Court notes that petitioners failed to include a liquidation analysis in their rehabilitation plan.
Petitioners claim that the RTC had factual basis in giving due course to the petition for corporate rehabilitation, and in approving the rehabilitation plan. The Court disagrees. In its 9 January 2006 Order, the RTC stated:
Based on the Consolidated Schedule of Debts and Liabilities x x x the total principal liability of the petitioners is Seventy Nine Million, Eight Hundred Forty Eight [sic] Nine Hundred Twenty and 23/100 (P79,848,920.23) Pesos. On the other hand, the petitioning corporations own properties among which are titled lands located in Malabon City, Navotas, Obando, Bulacan and Iloilo Province with an estimated value of Three Hundred Ninety Three Million Nine Hundred Twenty Two Thousand and 00/100 (P393,922,000.00) Pesos, as appraised by the Philippine Appraisal Co., Inc. x x x. Accordingly, the petitioning corporations could still be considered net worthy, capable of being rehabilitated.
As regards the rehabilitation plan, the Court, contrary to BPI and ALAI’s stand, finds the same feasible, and viable. A moratorium period of five (5) years on the payment of its loans/obligations will enable said petitioners to generate additional capital/funds to continue its [sic] business operations. This is in line with the petitioners’ intention to source fund from its [sic] internal operations, the growth of which is expected to favorably expand. x x x
Further, petitioners, thru its [sic] President, is [sic] in the process of negotiating with prospective investors to put up additional capital and diversifying its [sic] operation and, if still necessary, funds can still be generated from the real estate properties of the petitioners mentioned in Exhibit “I” whose value has not been exposed to the limit of their loan value.20
The Court notes that, contrary to the factual finding of the RTC, petitioners do not own all of the properties with a total estimated value of P393,922,000. Some of the properties are owned by Ferdinand, Gerald and Jose PatrickSiochi, and Mario Siochi, Jr., not by petitioners. A corporation has a legal personality distinct from its stockholders and directors. In Santos v. NationalLabor Relations Commission,21 the Court held that, “A corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it.”22 In its 20 October 2009 Decision, the Court of Appeals found:
With respect to the Appraisal Report, it bears to stress that the same was commissioned by respondent corporations and petitioner was not afforded the opportunity to contest the same. Also, it is extant from the records that some of the properties included therein do not belong to respondent corporations but to their officers, namely, Ferdinand Siochi, Mario Siochi, Jr., GeraldSiochi and Jose Patrick Siochi. Thus, these properties should not be considered as part of respondent corporations’ assets as their officers have a separate personality from the corporation itself. In turn, this renders doubtful their declaration in their Rehabilitation Plan that they have “sufficient collaterals to back-up their bank loans.”23 (Emphasis supplied)
The Court of Appeals also found:
Firstly, the sourcing of funds from their internal operations is based on a mere expectancy. Respondent corporations did not even allege in their Rehabilitation Plan their operational plan or definite management which would bring about growth and expansion in their internal operations. In their Consolidated Cash Flow Statement for the 15-year reahibilitation period, respondent corporations allocated a fund of P30 million for a modernization program. But they did not sufficiently describe and adequately explain as to how the alleged modernization program would translate to a growth in or expansion of their internal operations. In fact, petitioner correctly contends that inspite of the supposed modernization program on the 5th year of the rehabilitation period, the sales projection of respondent corporations was constantly pegged at 5%.
Secondly, respondent corporations failed to give the specific details regarding their prospective investors who will supposedly put up additional fresh capital. This should have been considered by the court a quo considering that in their respective Affidavits of General Financial Condition, respondent corporations uniformly answered that none, so far, has expressed interest in investing new money into respondent corporations’ business.24
Incidentally, since the time of filing on 15 July 2004 of the petition for corporate rehabilitation, there has been no showing that petitioners’ situation has improved or that they have complied faithfully with the terms of the rehabilitation plan.
WHEREFORE, the Court DENIES the petition and AFFIRMS the 20 October 2009 Decision and 22 September 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 93278.
SO ORDERED.
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