Due process in creation of management committee in corporate rehabilitation proceedings.

ANTONIO M. LORENZANA vs. JUDGE MA. CECILIA I. AUSTRIA, Regional Trial Court, Branch 2, Batangas City, A.M. No. RTJ-09-2200, April 2, 2014 (formerly OCA I.P.I. No. 08-2834-RTJ)

“x x x.

With respect to the action of the respondent in ordering the creation of a management committee without first conducting an evidentiary hearing for the purpose, however, we find the error to be so egregious as to amount to bad faith, leading to the conclusion of gross ignorance of the law, as charged.

Due process and fair play are basic requirements that no less than the Constitution demands. In rehabilitation proceedings, the parties must first be given an opportunity to prove (or disprove) the existence of an imminent danger of dissipation, loss, wastage or destruction of the debtor-company’s assets and properties that are or may be prejudicial to the interest of minority stockholders, parties-litigants or the general public.33 The rehabilitation court should hear both sides, allow them to present proof and conscientiously deliberate, based on their submissions, on whether the appointment of a management receiver is justified. This is a very basic requirement in every adversarial proceeding that no judge or magistrate can disregard.

In SCP’s rehabilitation proceedings, SCP was not given at all the opportunity to present its evidence, nor to confront the EPCIB witnesses. Significantly, the CA, in its May 16, 2006 decision, found that the respondent’s act of denying SCP the opportunity to disprove the grounds for the appointment of a management committee was tantamount to grave abuse of discretion. As aptly observed by Justice Gonzales-Sison:

[T]he acts of the respondent judge (Judge Austria) in creating a MANCOM without observing the procedures prescribed under the IRPGICC clearly constitute grave abuse of discretion amounting to excess of jurisdiction.34

Indeed, while a judge may not be held liable for gross ignorance of the law for every erroneous order that he renders, this does not mean that a judge need not observe due care in the performance of his/her official functions.35 When a basic principle of law is involved and when an error is so gross and patent, error can produce an inference of bad faith, making the judge liable for gross ignorance of the law.36 On this basis, we conclude that the respondent’s act of promptly ordering the creation of a management committee, without the benefit of a hearing and despite the demand for one, was tantamount to punishable professional incompetence and gross ignorance of the law.

X x x.”