Case Summary (G.R. No. 228807)
Petition for Corporate Rehabilitation
Facing a P52.78 million obligation (principal, interest and late charges), SMMCI sought corporate rehabilitation in August 2010 to stay foreclosure and defer payment for two years pending new investments. The proposed plan relied on prospective investors and the eventual merger of St. Michael Hospital into SMMCI.
Rehabilitation Receiver’s Report
Appointed Receiver Dr. Uriel S. Halum endorsed feasibility based on a 2008 viability study showing St. Michael Hospital’s average revenue growth of 42.21% annually. He recommended extending the moratorium to five years, restructuring secured and unsecured obligations, completing limited facility improvements, and securing binding capital commitments from investors.
RTC’s Approval of Rehabilitation Plan
By order dated August 4, 2011, the RTC approved the plan with Receiver’s modifications:
(a) five-year moratorium on bank loan;
(b) restructuring of unsecured obligations;
(c) programmed spending on facility improvements over two to three years; and
(d) use of fresh investor capital to partly pay the bank and upgrade competitiveness.
CA’s Affirmation
In its August 30, 2012 decision, the CA upheld the RTC on grounds that rehabilitation was feasible, did not impair BPI Family’s security, did not require creditor consultation, and was based on valid considerations. A motion for reconsideration was denied in January 2013.
Issue Before the Supreme Court
Whether the CA correctly affirmed the RTC’s approval of SMMCI’s rehabilitation plan under the 1987 Constitution and pertinent rehabilitation statutes and rules.
Supreme Court Ruling: Inapplicability of Rehabilitation
The Court ruled that rehabilitation presupposes a distressed but once-operational corporation whose business may be “restored.” SMMCI had never formally commenced operations or generated income, thus lacking a viable going concern to rehabilitate.
Supreme Court Ruling: Procedural Defects
Under Section 2, Rule 4 of the 2008 Rules, SMMCI failed to file its own audited financial statements and interim reports. The Court rejected reliance on St. Michael Hospital’s separate records, noting no merger agreement existed at filing.
Supreme Court Ruling: Substantive Defects in the Plan
The plan omitted two critical elements of Section 18, Rule 3:
- Material financial commitm
Case Syllabus (G.R. No. 228807)
Case Background and Facts
- Spouses Virgilio and Yolanda Rodil owned and operated St. Michael Diagnostic and Skin Care Laboratory Services and Hospital (a 5-storey secondary level hospital) in Molino 2, Bacoor, Cavite.
- In May 2003, they incorporated St. Michael Medical Center, Inc. (SMMCI) to build an 11-storey tertiary hospital on two adjoining parcels; initial capital of ₱2 million, later raised to ₱53.5 million, 94.49% paid by the Rodils.
- Construction began in May 2004, estimated cost at least ₱100 million; personal funds advanced by the Rodils.
- To finance construction, SMMCI obtained a ₱35 million credit line from BPI Family Savings Bank, Inc. (BPI Family), secured by a real estate mortgage over three parcels owned by the Rodils; drawn amount ₱23.7 million at 10.25% p.a. interest plus 3% monthly late charges.
- Financial losses with the first contractor led to deferred full plans and a second contractor completed structural works only up to the 5th floor at an additional cost of ₱25 million (total ₱55 million spent).
- New building remained non-functional beyond two floors; SMMCI was not operational or earning revenue as of May 2006; paid only ₱3 million interest over two years from hospital income.
- On September 25, 2009, BPI Family demanded full payment (totaling ₱52,784,589.34 as of November 16, 2009) and filed for extrajudicial foreclosure; auction postponed with bank’s consent.
Rehabilitation Proceedings and Proposed Plan
- August 11, 2010: SMMCI filed a petition for corporate rehabilitation (SEC Case No. 086-10) before the RTC of Imus, Cavite, praying for a stay of foreclosure.
- SMMCI alleged construction delays, cost overruns, and inability to meet bank obligation; only two floors operational, ₱66 million spent from own and hospital funds, ₱20 million spent on equipment.
- Proposed Rehabilitation Plan:
- Defer bank foreclosure;
- Two-year moratorium on loan payments while settling other debts;
- After moratorium, restructure loan under new terms;
- Secure fresh investments to finish 3rd–5th floors, renovate old building, and partly pay bank.
RTC Decision
- August 16, 2010: RTC issued stay order; referred case to Rehabilitation Receiver Dr. Uriel S. Halum.
- February 17, 2011: Receiver’s Report endorsed feasibility study by Mrs. Nenita Alibangbang (CPA), found project viable based on St. Michael Hospital’s 42.21% annual revenue growth, but recommended:
- Extend moratorium to five years;
- Restructure bank loan and othe