816 Phil. 422
LEONEN, J.:
Creditors | Peso debts | Dollar debts |
| P55,175.00 | N/A |
| P10,260,00.00 | US$1,638,669.00 |
| P9,000,000.00 | US$370,000.00 |
| P54,653,431.00 | N/A |
| N/A | US$340,000.00 |
TOTAL: | P73,968,606.00 | US$2,348,669,00[13] |
- The Singapore Stock Exchange has already deleted one of the petitioners. Yet, petitioners did not even bother to explain and/or inform this court the status of such deletion; or the steps being taken by the petitioners to resolve the incident.
It must be noted here, then and now, that listed corporations in the stock exchange has an easy access to the public for their contributions to the capital built up to finance corporate business transactions including CAPEX and working capital. Thus, the public is always a very good source of money for business ventures of corporations. Petitioners had lost such good source of cheap money.- Petitioners miserably failed to overcome the unqualified adverse opinions of their external auditors. Petitioners did not explain what had happened to those adverse observations of the auditors. Thus, petitioners submitted before this court unreliable financial statements amounting to non-compliance of the basic requirements of the Law and the Rules for rehabilitation purposes.
- Petitioners denied this court of its fair determination of the feasibility of the submitted rehabilitation plan by withholding from this court its basic assumptions of its rehabilitation plan.
- Petitioners miserably failed to demonstrate before this court that they will have a better future business financial results [sic] of operation after their failures to meet the various restructuring plans they have secured from these creditors' banks.
- The new way of doing business, i.e. niche manner of manufacturing its products or customers built design and needs, will be experimental, hence it will be completely and entirely dependent upon the number of customers petitioners may have. There is a great deal of competition in the petitioners' field of business, hence such new business venture becomes unreliable and uncertain. Thus, the possibility of success is quite uncertain, hence it is not feasible. There is [sic] no historical reliable facts and figures for this court to begin with for evaluation and study![26]
WHEREFORE, premises considered, the petition is hereby DISMISSED for unreliable facts and figures submitted for evaluation and study by this court, hence this court could not arrive at the feasibility that petitioners could be rehabilitated. Thus, the petition is being DISMISSED for reason that its attachments, i.e. the financial statements and balance sheets of the petitioners contained materially false and misleading facts and figures. (Section 25, (b), (3) of R.A. No. 10142).
Moreover, considering that the facts and figures submitted by petitioners are unreliable and not credible, this court could not also declare that petitioners be placed under liquidation.
SO ORDERED.[28]
WHEREFORE, the instant petition is GRANTED. The assailed issuance is REVERSED and SET ASIDE. The Joint Petition in SP Case No. M-7130 is REINSTATED and the Rehabilitation Plan attached thereto is APPROVED. Respondent Planters Development Bank is permanently ENJOINED from effecting the foreclosure of [the Fastech Corporations'] property during the pendency of the implementation of the Rehabilitation Plan.
The petition is REMANDED to the Regional Trial Court, National Capital Judicial Region, Br. 149, Makati City, for its supervision in the implementation of the Rehabilitation Plan.
SO ORDERED.[41] (Emphasis in the original)
II.
Rehabilitation is statutorily defined under Republic Act No. 10142, otherwise known as the "Financial Rehabilitation and Insolvency Act of 2010" (FRIA), as follows:Section 4. Definition of Terms. — As used in this Act, the term:
....
(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated. (Emphasis supplied)
Case law explains that corporate rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings. Thus, the basic issues in rehabilitation proceedings concern the viability and desirability of continuing the business operations of the distressed corporation, all with a view of effectively restoring it to a state of solvency or to its former healthy financial condition through the adoption of a rehabilitation plan.III.
In the present case, however, the Rehabilitation Plan failed to comply with the minimum requirements, i.e.: (a) material financial commitments to support the rehabilitation plan; and (b) a proper liquidation analysis, under Section 18, Rule 3 of the 2008 Rules of Procedure on Corporate Rehabilitation 80 (Rules), which Rules were in force at the time respondents' rehabilitation petition was filed on April 8, 2011:Section 18. Rehabilitation Plan. — The rehabilitation plan shall include (a) the desired business targets or goals and the duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation which shall include the manner of its implementation, giving due regard to the interests of secured creditors such as, but not limited, to the non-impairment of their security liens or interests; (c) the material financial commitments to support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may include debt to equity conversion, restructuring of the debts, dacion en pago or sale or exchange or any disposition of assets or of the interest of shareholders, partners or members; (e) a liquidation analysis setting out for each creditor that the present value of payments it would receive under the plan is more than that which it would receive if the assets of the debtor were sold by a liquidator within a six-month period from the estimated date of filing of the petition; and (f) such other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan. (Emphases supplied)
The Court expounds.A. Lack of Material Financial Commitment
to Support the Rehabilitation Plan.
A material financial commitment becomes significant in gauging the resolve, determination, earnestness, and good faith of the distressed corporation in financing the proposed rehabilitation plan. This commitment may include the voluntary undertakings of the stockholders or the would-be investors of the debtor-corporation indicating their readiness, willingness, and ability to contribute funds or property to guarantee the continued successful operation of the debtor-corporation during the period of rehabilitation.
In this case, respondents' Chief Operating Officer, Primo D. Mateo, Jr., in his executed Affidavit of General Financial Condition dated April 8, 2011, averred that respondents will not require the infusion of additional capital as he, instead, proposed to have all accrued penalties, charges, and interests waived, and a reduced interest rate prospectively applied to all respondents' obligations, in addition to the implementation of a two (2)-year grace period. Thus, there appears to be no concrete plan to build on respondents' beleaguered financial position through substantial investments as the plan for rehabilitation appears to be pegged merely on financial reprieves. Anathema to the true purpose of rehabilitation, a distressed corporation cannot be restored to its former position of successful operation and regain solvency by the sole strategy of delaying payments/waiving accrued interests and penalties at the expense of the creditors.
The Court also notes that while respondents have substantial total assets, a large portion of the assets of Fastech Synergy and Fastech Properties is comprised of noncurrent assets, such as advances to affiliates which include Fastech Microassembly, and investment properties which form part of the common assets of Fastech Properties, Fastech Electronique, and Fastech Microassembly. Moreover, while there is a claim that unnamed customers have made investments by way of consigning production equipment, and advancing money to fund procurement of various equipment intended to increase production capacity, this can hardly be construed as a material financial commitment which would inspire confidence that the rehabilitation would turn out to be successful. Case law holds that nothing short of legally binding investment commitment/s from third parties is required to qualify as a material financial commitment. Here, no such binding investment was presented.B. Lack of Liquidation Analysis.
Respondents likewise failed to include any liquidation analysis in their Rehabilitation Plan. The total liquidation assets and the estimated liquidation return to the creditors, as well as the fair market value vis-a-vis the forced liquidation value of the fixed assets were not shown. As such, the Court could not ascertain if the petitioning debtor's creditors can recover by way of the present value of payments projected in the plan, more if the debtor continues as a going concern than if it is immediately liquidated. This is a crucial factor in a corporate rehabilitation case, which the CA, unfortunately, failed to address.C. Effect of Non-Compliance.
The failure of the Rehabilitation Plan to state any material financial commitment to support rehabilitation, as well as to include a liquidation analysis, renders the CA's considerations for approving the same, i.e., that: (a) respondents would be able to meet their obligations to their creditors within their operating cash profits and other assets without disrupting their business operations; (b) the Rehabilitation Receiver's opinion carries great weight; and (c) rehabilitation will be beneficial for respondents' creditors, employees, stockholders, and the economy, as actually unsubstantiated, and hence, insufficient to decree the feasibility of respondents' rehabilitation. It is well to emphasize that the remedy of rehabilitation should be denied to corporations that do not qualify under the Rules. Neither should it be allowed to corporations whose sole purpose is to delay the enforcement of any of the rights of the creditors.
Even if the Court were to set aside the failure of the Rehabilitation Plan to comply with the fundamental requisites of material financial commitment to support the rehabilitation and an accompanying liquidation analysis, a review of the financial documents presented by respondents fails to convince the Court of the feasibility of the proposed plan.IV.
The test in evaluating the economic feasibility of the plan was laid down in Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation (Bank of the Philippine Islands), to wit;In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough examination and analysis of the distressed corporation's financial data must be conducted. If the results of such examination and analysis show that there is a real opportunity to rehabilitate the corporation in view of the assumptions made and financial goals stated in the proposed rehabilitation plan, then it may be said that a rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to allow the corporation to operate as an on-going concern, albeit under the terms and conditions stated in the approved rehabilitation plan. On the other hand, if the results of the financial examination and analysis clearly indicate that there lies no reasonable probability that the distressed corporation could be revived and that liquidation would, in fact, better subserve the interests of its stakeholders, then it may be said that a rehabilitation would not be feasible. In such case, the rehabilitation court may convert the proceedings into one for liquidation.
In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc., the Court took note of the characteristics of an economically feasible rehabilitation plan as opposed to an infeasible rehabilitation plan:Professor Stephanie V. Gomez of the University of the Philippines College of Law suggests specific characteristics of an economically feasible rehabilitation plan:a. The debtor has assets that can generate more cash if used in its daily operations than if sold.
b. Liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations.
c. The debtor has a definite source of financing for the proper and full implementation of a Rehabilitation Plan that is anchored on realistic assumptions and goals.
These requirements put emphasis on liquidity: the cash flow that the distressed corporation will obtain from rehabilitating its assets and operations. A corporation's assets may be more than its current liabilities, but some assets may be in the form of land or capital equipment, such as machinery or vessels. Rehabilitation sees to it that these assets generate more value if used efficiently rather than if liquidated.
On the other hand, this court enumerated the characteristics of a rehabilitation plan that is infeasible:
(a) the absence of a sound and workable business plan; (b) baseless and unexplained assumptions, targets and goals; (c) speculative capital infusion or complete lack thereof for the execution of the business plan; (d) cash flow cannot sustain daily operations; and (e) negative net worth and the assets are near full depreciation or fully depreciated.
In addition to the tests of economic feasibility, Professor Stephanie V. Gomez also suggests that the Financial and Rehabilitation and Insolvency Act of 2010 emphasizes on rehabilitation that provides for better present value recovery for its creditors.
Present value recovery acknowledges that, in order to pave way for rehabilitation, the creditor will not be paid by the debtor when the credit falls due. The court may order a suspension of payments to set a rehabilitation plan in motion; in the meantime, the creditor remains unpaid. By the time the creditor is paid, the financial and economic conditions will have been changed. Money paid in the past has a different value in the future. It is unfair if the creditor merely receives the face value of the debt. Present value of the credit takes into account the interest that the amount of money would have earned if the creditor were paid on time.
Trial courts must ensure that the projected cash flow from a business' rehabilitation plan allows for the closest present value recovery for its creditors. If the projected cash flow is realistic and allows the corporation to meet all its obligations, then courts should favor rehabilitation over liquidation. However, if the projected cash flow is unrealistic, then courts should consider converting the proceedings into that for liquidation to protect the creditors.
A perusal of the 2009 audited financial statements shows that respondents' cash operating position was not even enough to meet their maturing obligations. Notably, their current assets were materially lower than their current liabilities, and consisted mostly of advances to related parties in the case of Fastech Microassembly, Fastech Electronique, and Fastech Properties. Moreover, the independent auditors recognized the absence of available historical or reliable market information to support the assumptions made by the management to determine the recoverable amount (value in use) of respondents' properties and equipment.
On the other hand, respondents' unaudited financial statements for the year 2010, and the months of February and March 2011 were unaccompanied by any notes or explanation on how the figures were arrived at. Besides, respondents' cash operating position remained insufficient to meet their maturing obligations as their current assets are still substantially lower than their current liabilities. The Court also notes the RTC-Makati's observation that respondents added new accounts and/or deleted/omitted certain accounts, but failed to explain or justify the same.
Verily, respondents' Rehabilitation Plan should have shown that they have enough serviceable assets to be able to continue its business operation. In fact, as opposed to this objective, the revised Rehabilitation Plan still requires "front load Capex spending" to replace common equipment and facility equipment to ensure sustainability of capacity and capacity robustness, thus, further sacrificing respondents' cash flow. In addition, the Court is hard-pressed to see the effects of the outcome of the streamlining of respondents' manufacturing operations on the carrying value of their existing properties and equipment.
In fine, the Rehabilitation Plan and the financial documents submitted in support thereof fail to show the feasibility of rehabilitating respondents' business.V.
The CA's reliance on the expertise of the court-appointed Rehabilitation Receiver, who opined that respondents' rehabilitation is viable, in order to justify its finding that the financial statements submitted were reliable, overlooks the fact that the determination of the validity and the approval of the rehabilitation plan is not the responsibility of the rehabilitation receiver, but remains the function of the court. The rehabilitation receiver's duty prior to the court's approval of the plan is to study the best way to rehabilitate the debtor, and to ensure that the value of the debtor's properties is reasonably maintained; and after approval, to implement the rehabilitation plan. Notwithstanding the credentials of the court-appointed rehabilitation receiver, the duty to determine the feasibility of the rehabilitation of the debtor rests with the court. While the court may consider the receiver's report favorably recommending the debtor's rehabilitation, it is not bound thereby if, in its judgment, the debtor's rehabilitation is not feasible.
The purpose of rehabilitation proceedings is not only to enable the company to gain a new lease on life, but also to allow creditors to be paid their claims from its earnings when so rehabilitated. Hence, the remedy must be accorded only after a judicious regard of all stakeholders' interests; it is not a one-sided tool that may be graciously invoked to escape every position of distress. Thus, the remedy of rehabilitation should be denied to corporations whose insolvency appears to be irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors, which is rendered obvious by: (a) the absence of a sound and workable business plan; (b) baseless and unexplained assumptions, targets, and goals; and (c) speculative capital infusion or complete lack thereof for the execution of the business plan, as in this case.VI.
In view of all the foregoing, the Court is therefore constrained to grant the instant petition, notwithstanding the preliminary technical error as above-discussed. A distressed corporation should not be rehabilitated when the results of the financial examination and analysis clearly indicate that there lies no reasonable probability that it may be revived, to the detriment of its numerous stakeholders which include not only the corporation's creditors but also the public at large. In Bank of the Philippine Islands;Recognizing the volatile nature of every business, the rules on corporate rehabilitation have been crafted in order to give companies sufficient leeway to deal with debilitating financial predicaments in the hope of restoring or reaching a sustainable operating form if only to best accommodate the various interests of all its stakeholders, may it be the corporation's stockholders, its creditors, and even the general public.
Thus, the higher interest of substantial justice will be better subserved by the reversal of the CA Decision. Since the rehabilitation petition should not have been granted in the first place, it is of no moment that the Rehabilitation Plan is currently under implementation. While payments in accordance with the Rehabilitation Plan were already made, the same were only possible because of the financial reprieves and protracted payment schedule accorded to respondents, which, as above-intimated, only works at the expense of the creditors and ultimately, do not meet the true purpose of rehabilitation.[70] (Emphasis in the original, citations omitted)
WHEREFORE, the petition is GRANTED. The Decision dated September 28, 2012 and the Resolution dated March 5, 2013 of the Court of Appeals in CA-G.R. SP No. 122836 are hereby REVERSED and SET ASIDE. Accordingly, the Joint Petition for corporate rehabilitation filed by respondents Fastech Synergy Philippines, Inc. (formerly First Asia System Technology, Inc.), Fastech Microassembly & Test, Inc., Fastech Electronique, Inc., and Fastech Properties, Inc., before the Regional Trial Court of Makati City, Branch 149 in SP Case No. M-7130 is DISMISSED.
SO ORDERED.[71]
A case is moot and academic if it "ceases to present a justiciable controversy because of supervening events so that a declaration thereon would be of no practical use or value." When a case is moot and academic, this court generally declines jurisdiction over it.
There are recognized exceptions to this rule. This court has taken cognizance of moot and academic cases when:(1) there was a grave violation of the Constitution; (2) the case involved a situation of exceptional character and was of paramount public interest; (3) the issues raised required the formulation of controlling principles to guide the Bench, the Bar and the public; and (4) the case was capable of repetition yet evading review.[73] (Citations omitted)
A case becomes moot and academic when, by virtue of supervening events, the conflicting issue that may be resolved by the court ceases to exist. There is no longer any justiciable controversy that may be resolved by the court. This court refuses to render advisory opinions and resolve issues that would provide no practical use or value. Thus, courts generally "decline jurisdiction over such case or dismiss it on ground of mootness."[75]
ARTICLE VIII
Judicial Department
SECTION 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government.