Facts:

The case at hand is Bank of the Philippine Islands vs. Shemberg Biotech Corporation and Benson Dakay, represented in G.R. No. 162291, decided on August 11, 2010. The setting involves a petition for review on certiorari filed by the petitioner, Bank of the Philippine Islands (BPI), seeking to overturn the decision of the Court of Appeals (CA) dated September 24, 2003, which dismissed BPI's petition challenging the October 12, 2001 and December 26, 2001 Orders of the Regional Trial Court (RTC) of Cebu City, Branch 11, in Civil Case No. CEB-26481-SRC.

The respondent, Shemberg Biotech Corporation (SBC), is involved in the manufacturing of carrageenan derived from seaweeds. Upon facing financial difficulties, SBC filed for the approval of its rehabilitation plan and the appointment of a rehabilitation receiver with the RTC. Following the filing, the RTC issued a stay order, leading BPI to oppose SBC's rehabilitation petition. In the October 12, 2001 Order, the RTC granted SB

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Facts:

Background and Initiation

• Respondent Shemberg Biotech Corporation (SBC), a domestic corporation engaged in manufacturing carrageenan from seaweeds, filed a petition before the Regional Trial Court (RTC) for the approval of its rehabilitation plan and the appointment of a rehabilitation receiver.
• The petitioner, Bank of the Philippine Islands (BPI), opposed SBC’s petition by filing its opposition after the RTC issued a stay order on the petition.

RTC Proceedings and Orders

• After initial hearings, the RTC issued the October 12, 2001 Order which:
• Gave due course to SBC’s petition for rehabilitation.
• Referred the rehabilitation plan to the appointed Rehabilitation Receiver for evaluation.
• Ordered the submission of a recommendation from the Rehabilitation Receiver.
• Recalled the appointment of the initially designated Rehabilitation Receiver and appointed Atty. Pio Y. Go as the new Rehabilitation Receiver.
• The RTC found that SBC complied with the necessary conditions to give due course to its petition and noted the apparent viability of SBC’s business, emphasizing that a sufficient breathing spell could help settle its debts.
• The RTC indicated that it would reflect on certain issues—particularly those raised by SBC’s creditors regarding the feasibility of the plan—once the receiver’s recommendation was submitted.

Post-RTC Developments

• BPI filed a motion for reconsideration, which the RTC denied on December 26, 2001, upholding its earlier orders.
• Subsequently, BPI escalated the matter by filing a petition for certiorari, prohibition, and mandamus before the Court of Appeals (CA), challenging the RTC’s orders.

Court of Appeals Involvement

• The CA dismissed BPI’s petition on grounds that the issue had become moot due to the RTC Decision dated April 22, 2002, in Civil Case No. CEB-26481-SRC, which approved (with modifications) SBC’s rehabilitation plan.
• The CA ruled that any substantive issues concerning the rehabilitation plan should have been raised in BPI’s appeal from the RTC Decision rather than on the petition for certiorari.
• The CA also denied BPI’s motion for reconsideration on February 3, 2004.

Contentions Raised by BPI

• BPI contended that the CA disproportionately focused on procedural matters, particularly the petition for certiorari, instead of addressing substantial and jurisdictional issues.
• BPI argued that:
• The rehabilitation plan did not require an “infusion of new capital from its guarantors and sureties.”
• Forcing creditors to convert their debt to equity constituted an illegal taking of private property without just compensation and due process.
• The RTC exercised its rehabilitation power arbitrarily and despotically by eliminating penalties and reducing interests amounting to millions.
• BPI further challenged the constitutionality of the Interim Rules of Procedure on Corporate Rehabilitation, asserting that these rules improperly modified substantive rights and expanded the existing law contrary to the principle that procedural rules cannot alter substantive rights.
• In addition, BPI’s prayer included a request to declare the petition for rehabilitation dismissed and terminated.

Subsequent Party Substitution

• A motion for substitution was filed by Investments 2234 Philippines Fund I (SPV-AMC), Inc., seeking to be substituted as the new party-petitioner.
• Investments 2234 subsequently informed the court that the RTC had already substituted them for BPI in the rehabilitation proceedings, rendering further action on the matter unnecessary.

Issue:

• Whether the RTC committed grave abuse of discretion in issuing the October 12, 2001 and December 26, 2001 Orders.
• Whether the issues raised by BPI have become moot given that the RTC’s Decision dated April 22, 2002, which approved SBC’s rehabilitation plan (with modifications), has since been implemented.
• Whether BPI’s arguments regarding the necessity of infusion of new capital and the constitutionality of debt-to-equity conversion are valid and substantiated.
• Whether the challenge to the constitutionality of the Interim Rules of Procedure on Corporate Rehabilitation was properly raised and pleaded, considering it was a new and belated theory not raised before the CA.
• Whether it is proper to dismiss the petition for rehabilitation and terminate the proceedings on the basis of the allegations of arbitrary and despotically exercised rehabilitation power.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)