Case Digest (G.R. No. 175844)
Facts:
The case involves the Bank of the Philippine Islands (BPI) as the petitioner and Sarabia Manor Hotel Corporation (Sarabia) as the respondent. Sarabia, a corporation established on February 22, 1982, operates in Iloilo City, primarily engaged in the hotel and restaurant business. In 1997, Sarabia secured a special loan package amounting to P150,000,000.00 from Far East Bank and Trust Company (FEBTC) to finance the construction of a new hotel building. An additional P20,000,000.00 standby credit line was also approved. These loans were secured by real estate mortgages on several parcels of land owned by Sarabia and a surety agreement signed by its stockholders. Following a merger, BPI assumed FEBTC's rights against Sarabia.
Despite having more assets than liabilities, Sarabia faced cash flow problems due to delays in the construction of the new building, which was completed two years behind schedule. This situation worsened with the end of the grace period for loan repaym...
Case Digest (G.R. No. 175844)
Facts:
Corporate Background:
- Sarabia Manor Hotel Corporation (Sarabia) is a corporation organized under Philippine laws, incorporated on February 22, 1982, with an authorized capital stock of P10,000,000.00. Its primary purpose is to own, lease, manage, and operate hotels and related businesses.
- In 1997, Sarabia obtained a P150,000,000.00 loan from Far East Bank and Trust Company (FEBTC) to finance the construction of a five-storey hotel building. An additional P20,000,000.00 standby credit line was approved.
- These loans were secured by real estate mortgages over Sarabia’s properties and a comprehensive surety agreement signed by its stockholders.
- After a merger, Bank of the Philippine Islands (BPI) assumed FEBTC’s rights against Sarabia.
Financial Difficulties:
- Sarabia faced cash flow problems due to delays in completing the new hotel building, caused by the default and abandonment of its contractor, Santa Ana AJ Construction Corporation.
- The building was completed in late 2000, two years behind schedule, leading to skewed revenue projections and cost overruns.
- External factors, such as the September 11, 2001 terrorist attacks and the Abu Sayyaf issue, further exacerbated Sarabia’s financial difficulties.
- Sarabia filed a petition for corporate rehabilitation on July 26, 2002, seeking to restructure its debts, which included obligations to BPI (P191,476,421.42), Rural Bank of Pavia (P2,500,000.00), Vic Imperial Appliance Corp. (P5,000,000.00), suppliers (P7,690,668.04), the government (P547,161.18), and stockholders (P18,748,306.35).
Rehabilitation Plan:
- Sarabia proposed a rehabilitation plan with escalating interest rates (7% to 14% p.a.) and annual principal payments starting in 2004.
- The Regional Trial Court (RTC) issued a Stay Order on August 2, 2002, and appointed a rehabilitation receiver, Liberty B. Valderrama.
- The receiver recommended restructuring Sarabia’s loans with a fixed interest rate of 6.75% p.a., extending the payment period to 17 years, and converting stockholders’ advances to equity.
- The RTC approved the rehabilitation plan on August 7, 2003, finding it feasible and practical.
Appeal to the Court of Appeals (CA):
- BPI opposed the rehabilitation plan, arguing that the fixed interest rate of 6.75% p.a. and extended repayment period were unfavorable.
- The CA affirmed the RTC’s decision but reinstated the surety obligations of Sarabia’s stockholders as an additional safeguard.
- BPI filed a petition for review on certiorari before the Supreme Court, challenging the CA’s decision.
Issue:
- Whether the Court of Appeals correctly affirmed Sarabia’s rehabilitation plan as approved by the RTC, with the modification of reinstating the surety obligations of Sarabia’s stockholders.
- Whether BPI’s opposition to the rehabilitation plan was manifestly unreasonable.
- Whether Sarabia’s rehabilitation plan adequately protected the interests of BPI as a secured creditor.
Ruling:
The Supreme Court denied BPI’s petition and affirmed the decision of the Court of Appeals. The Court held that:
Procedural Considerations:
- BPI’s petition raised questions of fact, which are not reviewable in a Rule 45 petition for review on certiorari. The Court found no exceptions to justify a review of factual issues.
- The findings of the RTC and CA, which are supported by evidence, are entitled to great weight and respect.
Substantive Considerations:
- Sarabia’s rehabilitation plan was found to be feasible based on its financial history, projected revenues, and ability to generate sustainable profits.
- The 6.75% p.a. interest rate was reasonable and higher than BPI’s cost of funds, as evidenced by BPI’s published time deposit rates and benchmark commercial paper rates.
- The rehabilitation plan provided adequate safeguards for BPI’s interests, including the reinstatement of the surety obligations of Sarabia’s stockholders and the maintenance of real estate mortgages as collateral.
- BPI’s opposition to the rehabilitation plan was manifestly unreasonable, as it proposed unrealistic interest rates and failed to substantiate its claims of misrepresentation by Sarabia.
Ratio:
Corporate Rehabilitation:
- Corporate rehabilitation aims to conserve and administer the assets of an insolvent corporation to restore it to solvency. It is designed to allow the company to continue operations and pay creditors from its earnings.
- A rehabilitation plan may be approved even over the opposition of majority creditors if it is feasible and the opposition is manifestly unreasonable. This is known as the “cram-down” clause, which ensures that the long-term viability of the corporation is prioritized over immediate but incomplete recovery by creditors.
Feasibility of Rehabilitation:
- The feasibility of a rehabilitation plan depends on the corporation’s ability to generate sustainable profits and repay its debts over time.
- Sarabia’s rehabilitation plan was deemed feasible due to its financial history, projected revenue growth, and the safeguards in place to protect creditors’ interests.
Interest Rates and Creditor Protection:
- The 6.75% p.a. interest rate was reasonable and aligned with Sarabia’s ability to pay. It was also higher than BPI’s cost of funds, ensuring that BPI’s interests were adequately protected.
- The reinstatement of the surety obligations of Sarabia’s stockholders and the maintenance of real estate mortgages provided additional security for BPI’s claims.
Manifest Unreasonableness of Creditor Opposition:
- BPI’s opposition was manifestly unreasonable because it proposed unrealistic interest rates and failed to substantiate its claims of misrepresentation by Sarabia.
- The Court emphasized that rehabilitation proceedings aim to minimize the expenses of the distressed corporation, and creditors should not impose terms that hinder the corporation’s recovery.
Conclusion:
The Supreme Court upheld the rehabilitation plan approved by the RTC and affirmed by the CA, finding it feasible and reasonable. The Court dismissed BPI’s petition, emphasizing that the rehabilitation plan adequately protected the interests of all stakeholders, including BPI, and that BPI’s opposition was manifestly unreasonable.