Facts:

This case involves the Allied Banking Corporation (ABC) as the petitioner, and Equitable PCI Bank, Inc. (EPCIB) in the matter of Steel Corporation of the Philippines (SCP) being placed under corporate rehabilitation. The events began on September 11, 2006, when EPCIB, as a creditor, filed a petition for the rehabilitation of SCP with the Regional Trial Court (RTC) of Batangas City. EPCIB described SCP’s financial decline as a result of the 1997 Asian Financial Crisis, which led to SCP defaulting on various loan obligations, including those under a December 2002 Omnibus Agreement and a revolving credit facility with ABC worth P100 million. As part of the arrangement with ABC, SCP executed a Trust Receipt (TR) which included provisions allowing ABC to charge SCP’s account in case of defaults or other financial troubles.

On September 12, 2006, the RTC granted EPCIB's petition and appointed Santiago T. Gabionza Jr. as the Rehabilitation Receiver. This order included a stay on al

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Facts:

Background of the Case

• Steel Corporation of the Philippines (SCP) experienced a financial downturn following the 1997 Asian Financial Crisis, prompting various financial institutions to extend term loan facilities and working capital lines despite its deteriorating condition.
• Equitable PCI Bank, Inc. (EPCIB), acting as creditor, filed a petition for corporate rehabilitation on 11 September 2006 before the Regional Trial Court (RTC) under Section 1, Rule 4 of the Interim Rules of Corporate Rehabilitation.
• The rehabilitation petition highlighted SCP’s failure to make timely payments on its term loans and defaults on obligations under a December 2002 Omnibus Agreement with several lenders.

Involvement of Allied Banking Corporation (ABC)

• Allied Banking Corporation had extended a revolving credit facility to SCP in the form of a letter of credit/trust receipt (TR) amounting to P100 million, to finance the importation of raw materials.
• The executed trust receipt contained a clause authorizing ABC to charge SCP’s account upon events such as bankruptcy, insolvency, or suspension of payment, thereby permitting the bank to set off SCP’s obligations.
• Despite SCP being subject to rehabilitation, on 15 September 2006 ABC applied the proceeds of SCP’s Current Account No. 1801-004-87-6 (amounting to P6,750,000.00) toward its outstanding obligations under the trust receipt.

RTC’s Order and Subsequent Proceedings

• On 12 September 2006, the RTC issued an order that:
• Granted EPCIB’s rehabilitation petition.
• Appointed a Rehabilitation Receiver to take possession, control, and custody of SCP’s assets.
• Imposed a stay order on all claims against SCP by creditors, thereby prohibiting transactions or set-offs involving SCP’s assets except in the ordinary course of business.
• SCP subsequently filed an urgent omnibus motion on 29 October 2006 alleging that ABC’s application of funds on 15 September 2006 violated the RTC’s stay order.
• The RTC, on 22 November 2006, issued a resolution directing ABC to restore SCP’s current account, crediting back the set-off amount, and ordered compliance with the stay order.

Court of Appeals (CA) and Petitioner’s Arguments

• The CA affirmed the RTC resolution, holding that:
• The stay order issued on 12 September 2006 was effective immediately as provided under the Interim Rules, rendering subsequent transactions on SCP’s account void.
• The subject account was under custodia legis, making ABC’s unilateral application of proceeds improper.
• ABC (petitioner) challenged the ruling on two main thrusts:
• It contended that it was not bound by the stay order when it applied the set-off on 15 September 2006 since jurisdiction over it had not yet been acquired by the rehabilitation court (the publication of the order occurred only on 16 September 2006).
• It argued that its action of offsetting the proceeds constituted legal compensation based on the TR’s provisions, as SCP had defaulted on its obligations.

Issue:

Due Process and Jurisdictional Timing

• Whether the Court of Appeals erred in holding that ABC was bound by the RTC’s 12 September 2006 stay order, thereby allegedly depriving ABC of its right to due process.
• Whether ABC could validly claim that it was not yet within the jurisdiction of the rehabilitation court at the time it applied the set-off, given that jurisdiction was acquired upon the publication of the commencement order.

Validity of the Set-off Provided the Stay Order

• Whether the RTC (and ultimately CA) erred in declaring ABC’s application of the proceeds from SCP’s deposit account void because these funds were already under custodia legis by virtue of the stay order.
• Whether the application of the Rehabilitation Rules (including retroactive effects of the commencement order) properly prohibits any act inconsistent with the stay order even if such acts occurred after the order’s issuance but prior to its publication.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)