Title
Philippine Asset Growth Two, Inc. vs. Fastech Synergy Philippines, Inc.
Case
G.R. No. 206528
Decision Date
Jun 28, 2016
A corporate rehabilitation petition by Fastech entities was dismissed due to unreliable financial data and lack of feasibility in the proposed plan, despite initial CA approval.
irreversible insolvency
corporate rehabilitation
financial statements

Case Summary (G.R. No. 206528)

Factual Background

Respondents filed a verified joint petition for corporate rehabilitation on April 8, 2011, alleging common management, common assets and common creditors; they listed PDB among their creditors and identified two parcels of land registered to Fastech Properties as common assets. PDB had earlier instituted extrajudicial foreclosure over those parcels and emerged as the highest bidder at the April 13, 2011 sale. Respondents asserted that the subject properties were essential to ongoing operations of Fastech Microassembly and Fastech Electronique and important revenue sources for Fastech Properties. Respondents proposed a Rehabilitation Plan that sought among other things waiver of accrued interests and penalties, a two-year grace period followed by amortization over twelve years, and reduced interest rates for secured and chattel-mortgage creditors.

RTC Proceedings

The RTC-Makati issued a Commencement Order with Stay Order on April 19, 2011 and appointed Atty. Rosario S. Bernaldo as Rehabilitation Receiver. After hearings and submission of reports, the Rehabilitation Receiver advised that respondents may be rehabilitated but reserved comment pending revisions to the plan. Respondents filed an amended plan and supporting documents, and the Rehabilitation Receiver ultimately recommended approval. Nevertheless, the RTC-Makati dismissed the rehabilitation petition by Resolution dated December 9, 2011, finding the submitted facts and figures unreliable because independent auditors issued a disclaimer of opinion on the 2009 financial statements, the 2010 statements were unsigned and unaudited, certain accounts were added or omitted without explanation, and revised financial projections were unsupported on grounds of confidentiality.

Proceedings and Ruling of the Court of Appeals

Respondents appealed to the Court of Appeals and obtained a TRO on January 24, 2012 and a writ of preliminary injunction on March 22, 2012 to preserve the status quo. The CA, in a Decision dated September 28, 2012, reversed the RTC-Makati, faulting the trial court for disregarding the Rehabilitation Receiver’s favorable report and for conflating a disclaimer of opinion with an adverse opinion. The CA found the Rehabilitation Plan feasible, concluded respondents could meet obligations from operating cash profits and other assets without disrupting business operations, declared rehabilitation beneficial to creditors and other stakeholders, approved the plan, enjoined PDB from effecting foreclosure during implementation, and remanded supervision to the RTC-Makati. The CA denied PDB’s motion for reconsideration in a Resolution dated March 5, 2013.

Petition for Review and Procedural Challenge

On April 18, 2013 petitioners filed a petition for review on certiorari before the Supreme Court. Respondents moved to dismiss the petition as time-barred, asserting that counsel Janda Asia & Associates, which remained as collaborating counsel for PDB, received a copy of the CA’s March 5, 2013 Resolution on March 12, 2013, thereby starting the fifteen-day period under Section 2, Rule 45 of the Rules of Court and rendering the April 18, 2013 filing late. Petitioners contended that only service upon lead counsel—DivinaLaw, which had entered appearance later—should start the appeal period, and relied on the proposition that service upon lead counsel is the reckoning point.

Issues Presented

The Supreme Court identified two essential issues: first, whether the petition for review on certiorari was timely filed; and second, whether the Rehabilitation Plan was feasible and thus properly approved by the CA.

Timeliness: the Supreme Court’s Determination

The Court applied the well-settled rule that notice to any one of several counsels of record is sufficient and binds the party, such that notice to one counsel starts the running of the period to appeal. Because Janda Asia & Associates remained a counsel of record and received the CA’s March 5, 2013 Resolution on March 12, 2013, the fifteen-day period began on that date and expired March 27, 2013. The petition filed on April 18, 2013 was therefore untimely. The Court observed that PAGTI’s motion for substitution had not been resolved by the CA at that time and thus PAGTI remained bound by the procedural status of its transferor, PDB.

Equitable Relaxation of Procedural Rule

Although the petition was filed out of time, the Court invoked its discretion to relax procedural finality doctrines in the higher interest of substantial justice, citing Barnes v. Padilla and articulating the factors that may justify such relaxation. The Court concluded that special and compelling circumstances existed to warrant consideration of the petition on the merits because permitting the CA’s approval to stand would result in an unjustified rehabilitation that threatened the rights of numerous stakeholders, including creditors and the public. The Court therefore proceeded to examine the substantive merits despite the procedural default.

Substantive Law of Rehabilitation

The Court reviewed the statutory definition of rehabilitation under Republic Act No. 10142, Section 4(gg), and reiterated that corporate rehabilitation is intended to restore a distressed corporation to successful operation and solvency when continuance as a going concern yields greater present-value recovery for creditors than immediate liquidation. The Court emphasized that the core issues are viability and desirability of continued operations under a rehabilitation plan that restores solvency and allows creditor recovery from earnings.

Deficiencies in the Rehabilitation Plan: Material Financial Commitment

Applying Section 18, Rule 3 of the 2008 Rules of Procedure on Corporate Rehabilitation, the Court held that respondents’ Rehabilitation Plan failed to show material financial commitments to support rehabilitation. The plan rested principally on waivers of accrued charges and delayed payment schedules rather than on legally binding capital infusions or investor commitments. The Court observed that respondents’ management affidavit expressly stated no additional capital infusion would be required, and that substantial portions of assets were noncurrent advances to affiliates and investment properties. The Court reiterated binding precedent that only legally binding third‑party investment commitments qualify as material financial commitments and found none presented.

Deficiencies in the Rehabilitation Plan: Lack of Liquidation Analysis

The Court further found that the Rehabilitation Plan omitted a liquidation analysis as required by Section 18, Rule 3, failing to present total liquidation assets, estimated liquidation return to creditors, or fair market versus forced liquidation values of fixed assets. Without such analysis, the Court could not determine whether creditors would obtain greater present-value recovery under the plan than under liquidation.

Financial Examination and Economic Feasibility

Invoking the test from Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation and subsequent elaborations in Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc., the Court examined respondents’ audited 2009 and unaudited 2010 financial statements and cash-flow indicators. The Court found respondents’ current assets

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