Case Summary (G.R. No. 175844)

1. Case Overview

This document summarizes the Supreme Court's decision regarding a petition for review on certiorari filed by the Bank of the Philippine Islands (BPI) against Sarabia Manor Hotel Corporation (Sarabia). The petition challenged the Court of Appeals' (CA) affirmation, with modification, of Sarabia's rehabilitation plan approved by the Regional Trial Court (RTC) of Iloilo City.

2. Background of the Case

• Parties Involved:
  • Petitioner: Bank of the Philippine Islands (BPI)
  • Respondent: Sarabia Manor Hotel Corporation (Sarabia)
• Nature of Business: Sarabia operates hotels and related services, incorporated in 1982 with a capital stock of P10,000,000.00.
• Financial Difficulties: Incurred debts due to cash flow problems exacerbated by construction delays and adverse external events.

3. Rehabilitation Petition

• Filing Date: July 26, 2002.
• Purpose: Sarabia filed for corporate rehabilitation to restructure debts due to financial incapacity.
• Key Issues: Delayed construction of a new hotel building and external factors affecting revenue generation.

4. Proposed Rehabilitation Plan

• Debt Restructuring: Sarabia proposed a structured repayment plan with escalating interest rates over several years.
• Key Provisions:
  • Interest rates pegged at various percentages from 7% to 14% over the rehabilitation period.
  • Gradual principal repayments starting in 2004.
  • Immediate payment obligations to government and suppliers to maintain operations.

5. RTC and CA Rulings

• RTC Approval: The RTC approved the rehabilitation plan on August 7, 2003, observing Sarabia's capacity to generate funds to meet obligations.
• CA Decision: On April 24, 2006, the CA affirmed the RTC ruling but reinstated surety obligations for Sarabia’s stockholders as a safeguard.

6. Supreme Court's Analysis

• Legal Framework: The Court examined the feasibility of Sarabia’s rehabilitation under corporate rehabilitation law.
• Findings:
  • Sarabia demonstrated the capability for rehabilitation through financial projections and operational continuity.
  • The interest rate of 6.75% was determined to be reasonable.
  • BPI's opposition was deemed manifestly unreasonable, as it proposed terms detrimental to Sarabia's rehabilitation.

7. Key Legal Principles

• Corporate Rehabilitation: Aimed at allowing insolvent corporations to continue operations while restructuring debts.
• Feasibility Requirement: A rehabilitation plan must show potential for the corporation's return to solvency.
• Creditor Interests: Creditor opposition must not impede rehabilitation if the plan is reasonable and safeguards their interests.

8. Conclusion and Court's Decision

• The Supreme Court dismissed BPI’s petition, affirming the CA's decision to uphold Sarabia’s rehabilitation plan.
• The ruling emphasized the importance of providing distressed businesses a chance for recovery and the adequacy of protections for creditors within the approved plan.

Key Takeaways

• Affirmation of Rehabilitation Plans: Courts may approve rehabilitation plans even against creditor opposition if deemed feasible.
• Reasonable Interest Rates: Interest rates set in ...continue reading

Case Syllabus (G.R. No. 175844)

Background of the Case

• The case is a petition for review on certiorari filed by Bank of the Philippine Islands (BPI) against Sarabia Manor Hotel Corporation (Sarabia).
• The petition challenges the Decision dated April 24, 2006, and Resolution dated December 6, 2006, from the Court of Appeals (CA) in CA-G.R. CV. No. 81596, which affirmed the rehabilitation plan of Sarabia as approved by the Regional Trial Court (RTC) of Iloilo City on August 7, 2003.

Overview of Sarabia Manor Hotel Corporation

• Sarabia was incorporated on February 22, 1982, with an authorized capital stock of P10,000,000.00, mainly to manage hotels and related businesses.
• In 1997, Sarabia secured a P150,000,000.00 loan from Far East Bank and Trust Company (FEBTC) to finance a new hotel building, along with a P20,000,000.00 standby credit line.
• Following a merger, BPI assumed FEBTC's rights against Sarabia.

Financial Struggles Leading to Rehabilitation

• Sarabia faced cash flow issues due to delayed construction of the new building, which was completed two years late, causing revenue projections to skew.
• External factors, such as the September 11 attacks and local security issues, further strained Sarabia's financial viability.
• On July 26, 2002, Sarabia filed a petition for corporate rehabilitation with the RTC, anticipating an inability to meet maturing obligations.

Proposed Rehabilitation Plan

• Sarabia's rehabilitation plan included restructuring loans with creditors, establishing a uniform escalating interest rate, and setting annual principal payments beginning in 2004.
• The plan aimed to...continue reading