G.R. No. 248675 - Baldovino-Torres vs. Torres

Respondent Basic Polyprinters and Packaging Corporation (Basic Polyprinters) is a domestic corporation engaged in printing greeting cards, calendars, gift wrappers, posters, labels, and other novelty items.
Petitioner Philippine Bank of Communications (PBCOM) is a creditor of Basic Polyprinters.

On February 27, 2004, Basic Polyprinters and eight other corporations filed a joint petition for suspension of payments with approval of a rehabilitation plan before the RTC (SEC Case No. 031-04).
The RTC issued a stay order and approved the rehabilitation plan.
The Court of Appeals (CA) reversed this approval on October 25, 2005, directing the corporations to file individual petitions.
Basic Polyprinters then filed an individual petition for suspension of payments and rehabilitation, alleging:

Its business was initially viable and profitable.
It had loans and accounts payable to various creditors.
Factors including the Asian currency crisis, peso devaluation, economic recession, high interest rates/penalties, declining demand due to cell phone use, competition from malls, and a warehouse fire destroying inventories worth P264 million, caused difficulty in meeting obligations.
Enforcement actions by creditors would hamper rehabilitation efforts.
The Rehabilitation Program included full payment of loans over 15 years with moratoriums, interest at 5% per annum, and dacion en pago of affiliated property in favor of one creditor.
Its assets were valued at approximately P15.37 million with liabilities around P13.03 million.

RTC issued a stay order on August 31, 2006, and appointed Manuel N. Cacho III as rehabilitation receiver.
After submissions and hearings, rehabilitation receiver submitted reports recommending approval of the rehabilitation plan on October 18 and December 19, 2007.
On January 11, 2008, the RTC approved the rehabilitation plan citing:

Improved financial condition of Basic Polyprinters but continuing indebtedness and slowed sales.
Ability to reduce debt to a manageable level through suspension of payments and dacion en pago.
Positive net worth and convertible inventory.
Plan ensures preservation of assets, orderly payment of debts, and restoration of profitability and solvency.
Rehabilitation would generate employment.
Endorsement by the rehabilitation receiver.

PBCOM appealed to the CA, which affirmed the RTC order on December 16, 2008.
The CA emphasized the equitable and rehabilitative purpose of rehabilitation—preserving assets of a foundering business as a going concern rather than pursuing liquidation.
CA stressed that rehabilitation aimed at enabling the company to gain a new lease on life and allow creditors to be paid from earnings.
PBCOM’s motion for reconsideration was denied.

The petition for rehabilitation presupposes that the corporation has sufficient property to cover all indebtedness; Basic Polyprinters was insolvent as its assets were less than obligations.
The rehabilitation plan lacked material financial commitments from Basic Polyprinters or investors.
Terms of rehabilitation (15-year term, waiver of interest/penalties) were too onerous and prejudicial to creditors.
Basic Polyprinters under-declared loan obligations and inflated asset values, citing an independent appraisal showing machinery values significantly lower than claimed.
Dacion en pago proposal was improper since property was mortgaged.
No capital infusion proposal to address competition and declining demand.

Claims of factual errors are improper under Rule 45; findings supported by substantial evidence are binding.
Independent appraisal was unauthorized by RTC.
Rehabilitation plan met requirements of the Interim Rules on corporate rehabilitation.

Whether the Court of Appeals erred in affirming the RTC’s approval of the rehabilitation plan despite claims that:

Basic Polyprinters was insolvent, having assets less than liabilities, thus failing the requirement that petitioning corporations have sufficient property to cover indebtedness.
The rehabilitation plan lacked material financial commitments from the debtor or from would-be investors.
The terms of the rehabilitation plan were onerous and prejudiced creditors, giving an effectively lengthy moratorium eliminating interest and penalties from 2004 until approval.