Title
Banco De Oro Unibank, Inc. vs. International Copra Export Corp.
Case
G.R. No. 218485-86
Decision Date
Apr 28, 2021
Multiple banks and corporations contested a rehabilitation plan under FRIA, with the Supreme Court ruling FRIA applicable, relaxing forum shopping rules, and reinstating the approved plan without remanding for creditors’ vote.
petitions
remanding the case
modified rehabilitation plan

Case Summary (G.R. No. 218485-86)

Factual Background

On September 9, 2010, INTERNATIONAL COPRA EXPORT CORPORATION, INTERCO MANUFACTURING CORPORATION, ICEC LAND CORPORATION, and KIMMEE REALTY CORPORATION (collectively, Interco, et al.) filed a joint Petition for Suspension of Payments and Rehabilitation alleging that they foresaw an inability to meet maturing debts due to a regional and global recession, higher short-term borrowing costs, rising fuel and production expenses, and the refusal of creditors to renew or restructure loans and to extend operating capital. The petition invoked the provisions of FRIA and asserted that group filing was warranted because the members were financially related and interdependent. After determining the petition sufficient in form and substance, the rehabilitation court issued a Stay Order, appointed Atty. Julio Elamparo as rehabilitation receiver, and set procedural deadlines, including a creditors’ meeting held on April 6, 2011.

Trial Court Proceedings and Orders

The rehabilitation court declared at the initial hearing that proceedings would be governed by the 2008 Rules on Corporate Rehabilitation subject to consistency with FRIA. The rehabilitation receiver convened creditors, requested supporting documents and proposed commercial terms, and thereafter submitted a Compliance with Recommendation and a modified rehabilitation plan stating the rehabilitation was viable. The trial court granted the petition and approved the modified rehabilitation plan in a July 8, 2011 Resolution, finding that continuation of the corporate life of Interco, et al. would be beneficial to creditors, employees, stockholders, and the public. The rehabilitation court also authorized disposition of non-core assets and later suspended implementation of the plan pending appellate review.

Appeals and Court of Appeals Ruling

Several creditor-claimants, including DEVELOPMENT BANK OF THE PHILIPPINES, BANCO DE ORO UNIBANK, INC., RIZAL COMMERCIAL BANKING CORPORATION, ALLIED BANKING CORPORATION, PHILIPPINE NATIONAL BANK, and BANK OF THE PHILIPPINE ISLANDS, filed petitions for review and certiorari before the Court of Appeals. In an November 18, 2014 Decision, the Court of Appeals found the petition sufficient in form and substance and held that FRIA applied to petitions filed after its effectivity; it also ruled that the absence of implementing rules did not defeat the rehabilitation court’s jurisdiction. Nonetheless, the Court of Appeals concluded that the rehabilitation court failed to comply with Section 64 of FRIA because the creditors had not been convened to vote on the rehabilitation plan as required, and it remanded the case with an order directing the rehabilitation receiver to convene creditors within twenty (20) days to vote on the plan and to report the outcome.

Issues Presented to the Supreme Court

This Court framed and resolved three principal issues: (1) whether Interco, et al. committed forum shopping; (2) whether the Court of Appeals erred in ruling that FRIA was applicable despite the absence of promulgated procedural rules; and (3) whether the Court of Appeals erred in remanding the case to the rehabilitation court for compliance with Section 64.

Parties’ Contentions

Interco, et al. maintained that the rehabilitation court’s prior decision to apply the 2008 Rules on Corporate Rehabilitation had become law of the case and that FRIA was inapplicable in the absence of implementing rules; they asserted that the Supreme Court’s mandated promulgation of procedural rules demonstrated that FRIA was not self-executory and argued that requiring creditor voting without rules violated due process. BANCO DE ORO UNIBANK, INC., RIZAL COMMERCIAL BANKING CORPORATION, PHILIPPINE NATIONAL BANK, and ALLIED BANKING CORPORATION countered that absence of implementing rules did not render FRIA inoperative and that the 2008 Rules were supplanted by the FR Rules, which have retroactive effect. DEVELOPMENT BANK OF THE PHILIPPINES argued that the rehabilitation court failed to issue a proper commencement order as required by Section 16 of FRIA, that several statutory requirements for claims registry and notice were not complied with, and that the petition and supporting documents contained inaccuracies amounting to a misuse of the rehabilitation remedy to delay creditors.

Forum Shopping Ruling

This Court explained the doctrine and Rule 7, Section 5 certification against forum shopping and observed that Interco, et al. filed multiple petitions raising the same arguments and prayers attacking the Court of Appeals decision. The Court concluded that the filing of three separate petitions with identical grounds constituted forum shopping under existing jurisprudence. The Court nevertheless invoked the equitable power to relax procedural rules where strict application would frustrate substantial justice and proceeded to resolve the merits of the core legal issues despite the procedural lapse.

Applicability of FRIA and Effect of Absence of Implementing Rules

The Court held that a law enacted and in effect is presumed valid and binding; absence of implementing rules does not, by itself, render the statute inoperative where a reasonable construction is possible and the statute contains sufficient standards for its execution. Citing Securities and Exchange Commission v. Interport Resources Corporation, the Court declared that FRIA governed all petitions filed after its effective date of August 31, 2010, by virtue of Section 146. The discretion afforded to courts to apply prior rules pertains only to petitions pending at the time FRIA took effect. The rehabilitation court therefore correctly applied FRIA and, suppletorily, the 2008 Rules on Corporate Rehabilitation to the extent they were not inconsistent with FRIA. The Court warned that treating procedural promulgation by the judiciary as a precondition to a statute’s effect would confer upon the judiciary a power to suspend legislative enactments.

Group of Debtors and the Status of Kimmee

On the factual question whether KIMMEE REALTY CORPORATION was financially related to the other petitioning debtors, the Court deferred to the factual findings supported by substantial evidence. It observed that reports of independent auditors categorized Kimmee as an affiliate of the parent company and concluded that questions of sufficiency of petition and viability of the plan were essentially factual determinations reserved to the trial and appellate courts, reviewable by this Court only on specified exceptions.

Commencement Order and Stay Order

Addressing the contention that the rehabilitation proceeding never commenced because a formal commencement order was not issued, the Court found that the rehabilitation court’s Stay Order effectuated the material elements of a commencement order required by Sections 15 and 16 of FRIA, including the appointment of a rehabilitation receiver, the stay of claims, and the setting of the initial hearing. The Court explained that nomenclature was immaterial for orders issued prior to the promulgation of the FR Rules, although strict designation is required after the promulgation. It further held that several alleged procedural deficiencies raised by Development Bank implicated questions of fact that could not be resolved in a Rule 45 petition.

Non-impairment Clause, Police Power, and the Rehabilitation Court’s Authority

The Court addressed creditors’ reliance on Article III, Section 9 (non-impairment of contract) and reaffirmed that the non-impairment clause yields to the State’s exercise of police power. It reiterated that the constitutional guaranty against impairment by legislation is distinct from the rehabilitation court’s exercise of judicial power in approving a rehabilitation plan, and that judicial confirmation of a plan that modifies contractual obligations does not, on its face, violate the non-impairment clause where the modification is justified by the public interest in rehabilitation and conforms to statutory safeguards.

Voting Requirement under Section 64 and the Cram-Down Power

The Court recognized that Section 64 of FRIA mandates that the rehabilitation receiver notify creditors when the plan is ready and convene creditors within twenty (20) days to vote, using the registry of claims prepared under Section 44. The Court explained that the cram-down power permits a court to confirm a plan over the rejection of a class of creditors only when specific statutory conditions are met; consequently, the convening and voting procedures safeguard creditors’ due process rights. The Court agreed with the Court of Appeals that voting is a mandatory element of the process.

Remand, Judicial Economy, and Final Disposi

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