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THE
Court of Appeals (CA) has directed the Regional Trial
Court (RTC) in Batangas City to terminate the
proceedings for the rehabilitation of the Steel Corp. of
the Philippines (SCP), saying that it is unlikely that
the rehabilitation may still be implemented in
accordance with its terms.
In a
34-page ruling issued by the appellate court’s Twelfth
Division through Associate Justice Juan Enriquez Jr.,
the CA held that the termination is warranted pursuant
to Section 27, Rule 4 of the Interim Rules of Procedure
on Corporate Rehabilitation.
The said
provision states that “in case of the failure of the
debtor to submit the rehabilitation plan, or the
disapproval by the court, or the failure of the
rehabilitation of the debtor because of failure to
achieve the desired target or goals set forth therein,
or the failure of the said debtor to perform its
obligations under the said plan, or a determination that
the rehabilitation plan may no longer be implemented in
accordance with its terms, conditions, restrictions or
assumptions, the court shall upon motion, motu propio,
or upon the recommendation of the Rehabilitation
Receiver, terminate upon the successful implementation
of the rehabilitation plan.”
“After a
careful examination of the evidence on record, this
Court deems it wise to terminate the Rehabilitation
proceedings since the rehabilitation plan may no longer
be implemented in accordance with its terms, conditions,
restrictions, or assumptions,” the CA ruling said in
granting the petition of Banco de Oro-Equitable Bank.
Concurring with the ruling were Associate Justices
Isaias Dicdican and Ramon Garcia.
The bank
earlier asked the CA to annul and set aside the December
3, 2007 decision rendered by the Branch 2 of the RTC in
Batangas City, acting as a Special Commercial Court,
enjoining the petitioner and SCP to comply strictly with
provision of the approved “Rehabilitation Plan” of the
country’s pioneering steel company.
On the
other hand, in a decision on May 25, 2008, the CA
Eleventh Division also granted the separate petition of
SCP to permanently bar the RTC in Batangas from
constituting a management committee that will supposedly
supervise the takeover and operations of SCP, which has
an aggregate financial liabilities of more than P8
billion.
In its
petition filed on September 11, 2006, Banco de Oro-EPCI
Bank sought to place SCP under rehabilitation on account
of several factors, particularly the 1997 Asian
Financial Crisis, encountered and suffered from
financial difficulties and temporary illiquidity.
It said
the SCP was unable to service its principal payments
owing to shortage of working capital and reduced
operating capacity.
Based on
the Interim Financial Statement of SCP as of December
31, 2005, its total assets amount to P10.99 billion,
while its aggregate liabilities amount to P8.36 billion.
In its
ruling, the CA agreed with Banco de Oro that the
rehabilitation plan adopted by Judge Maria Cecilia
Austria, presiding judge of Branch 2 of the RTC in
Batangas City, may no longer be implemented in
accordance with the terms, conditions and assumptions
set forth in the approved rehabilitation plan
considering the heavy debt burden and business financial
status of SCP.
“There
being practically no ongoing implementation of
rehabilitation plan,” the CA stressed that the Interim
Rules never contemplated a stalemate situation, with
both the creditor and debtor locked in uncertain and
prolonged litigation that is prejudicial to the interest
of both parties.
Calling
the decision of the RTC as a “solomonic” resolution, the
CA, however, noted that the feasibility of the
rehabilitation plan is seriously put in issue
considering all relevant facts and circumstances.
The
Court also found that the RTC, “albeit out of the noble
intention to highlight SCP’s prospects for
rehabilitation given its strong market share and other
intangible assets, overlooked the fact that the
seemingly improved cash position, as per the 2006
financial statement, was merely due to the enforcement
of the Stay Order and not a reliable indication of
financial viability.”
The
appellate court observed that the strong objection of
the SCP to the equity conversion aspect of the
rehabilitation plan is anchored from its
misunderstanding of the concept of debt-to-equity
conversion.
The
debt-to-equity conversion, which is part of the
three-phase rehabilitation plan adopted by the RTC, is a
sort of compromise both for the stockholder of the
debtor corporation and the creditor, which results in a
change of the ownership structure.
The
appellate court said these are valid concerns that may
impel creditors to accept such repayment scheme for a
portion or whole of the debt, which represents
legitimate decision-making and certainly not the
“opportunistic” and malicious “corporate greed” imputed
by SCP.
“Indubitably, both parties admitted that requiring
stockholders of SCP to raise the amount of P2.672
billion, as fresh equity in a period of only 180 days,
is highly improbable, if not impossible. In fact, even
the RTC has observed in the first informal meeting held
on April 25, 2007, that raising an amount of that
magnitude and under the circumstances is impossible in
such a short period of time,” the CA noted.
Furthermore, the CA held that rehabilitation proceedings
are intended to give the company a new lease on life
and, at the same time, allow creditors to be paid their
claims for its earnings.
However,
it added that the approved rehabilitation plan of the
lower court will unlikely fulfill the said objectives.
Furthermore, the Court noted that the rehabilitation
case has already resulted in the adversarial proceeding
contrary to the explicit provision of the Interim Rules
that rehabilitation proceedings are summary and not
adversarial. |
