PHILIPPINE WIRELESS, INC. and REPUBLIC TELECOMMUNICATIONS vs. OPTIMUM DEVELOPMENT BANK (formerly CAPITOL DEVELOPMENT BANK); GR No. 208251; 10 NOV 2020
In August 1997, Philippine Wireless, Inc. (PWI) entered into a Credit Agreement with respondent Capitol Development Bank (CAPITOL), availing a ₱20,000,000.00 credit facility from CAPITOL secured by the corporate suretyship of Republic Telecommunications, Inc. (RETELCO). In the Continuing Suretyship Agreement (CSA) RETELCO executed, it undertook to jointly and severally pay with PWI the obligation PWI may incur pursuant to the Credit Agreement.
As of June 10, 1998, PWI’s unpaid loans amounted to ₱23,363,378.73. On June 15, 1998, CAPITOL demanded payment from PWI. CAPITOL also demanded payment from RETELCO pursuant to the CSA. Despite repeated demands, however, PWI and RETELCO failed to pay their outstanding obligations. Thus, CAPITOL instituted a Complaint for collection of a sum of money docketed as Civil Case No. 66906 in the Regional Trial Court of Pasig (RTC).
On September 15, 2008, the RTC rendered its Decision in favor of CAPITOL.
PWI and RETELCO filed an appeal under Rule 41 of the Rules seeking to reverse and set aside the RTC Decision. While the appeal was pending before the Court of Appeals (CA), PWI ad RETELCO instituted a petition for corporate rehabilitation with the RTC of Makati (REHABILITATION COURT). On August 24, 2009, the REHABILITATION COURT issued a Stay Order (STAY ORDER).
On February 12, 2010, PWI and RETELCO filed a Manifestation with Motion with the CA seeking suspension of the appellate proceedings in accordance with the 2008 Rules of Procedure on Corporate Rehabilitation (2008 REHABILITATION RULES) which was granted in a Resolution dated August 20, 2010.
Subsequently, the CA issued a Minute Resolution dated August 9, 2011 ordering the resumption of the appellate proceedings in the collection case and for PWI and RETELCO to submit their Appellants’ Brief.
On April 17, 2013, the CA rendered its Decision denying the appeal and affirming the RTC Decision.
Their Motion for Reconsideration having been denied, PWI and RETELCO filed a Petition for Review (PETITION) on Certiorari under Rule 45 of the Rules of Court before the Supreme Court.
In their PETITION, PWI and RETELCO argue that the STAY ORDER contemplated in Section 7, Rule 3 of the 2008 REHABILITATION RULES, which was carried over to Section 7(b) of Republic Act No. 10142 (RA 10142) or the Financial Rehabilitation and Insolvency Act of 2010, covers all actions for claims against a corporation pending before any court, tribunal or board. They emphasize that these claims shall be suspended in whatever stage they may be found upon the appointment of a rehabilitation receiver. Citing various jurisprudence, PWI and RETELCO maintain that all monetary claims against a distressed corporation, without distinction, are suspended pending the rehabilitation proceedings.
Whether the STAY ORDER issued by the REHABILITATION COURT suspended the appellate proceedings assailing the Decision of the RTC.
The collection case instituted by creditor against the principal debtor and its surety may proceed despite a stay order issued by the rehabilitation court.
At the time the petition for rehabilitation of PWI and RETELCO was initiated and the STAY ORDER dated August 24, 2009 was issued, the rules governing corporate rehabilitation was the 2008 REHABILITATION RULES. Section 7, Rule 3 of the 2008 REHABILITATION RULES which enumerates the consequences of the issuance of a stay order, in part, provides:
“The issuance of a stay order does not affect the right to commence actions or proceedings insofar as it is necessary to preserve a claim against the debtor.”
It is clear that the Court recognizes in the 2008 REHABILITATION RULES the right of creditors to commence actions or proceedings necessary to safeguard its claim against distressed corporations like PWI and RETELCO despite a stay order.
Though the petition for rehabilitation of PWI and RETELCO was filed under the 2008 REHABILITATION RULES, the significant changes incorporated in RA 10142 or the FRIA of 2010 may be applied to resolve the PETITION. To integrate the changes introduced in the FRIA, the Court enacted the Financial Rehabilitation Rules of Procedure (2013 FRIA RULES) on August 27, 2013. Section 2, Rule 1 of 2013 FRIA RULES provides that it shall govern rehabilitation cases already pending, except when its application would not be feasible or would work injustice.
Therefore, the retroactive application of the application of the pertinent provisions of the 2013 FRIA RULES is permitted in resolving the issue on the non-suspension of the appellate proceedings in the CA despite the issuance by the rehabilitation court of a stay order during the pendency of the appeal.
In Allied Banking Corp. v. Equitable PCI Bank, Inc. (828 Phil 64), the Court found that the application of the 2013 FRIA RULES was proper in resolving a rehabilitation case instituted under the 2000 Rehabilitation Rules “insofar as it clarifies the effect of an order staying claims against a debtor sought to be rehabilitated.
A creditor’s right to commence actions or proceedings under Section 7, Rule 3 of the 2008 REHABILITATION RULES was carried over in the last paragraph of Section 8, Rule 2 of the 2013 FRIA RULES, the pertinent portion of which states:
“The issuance of a stay order does not affect the right to commence actions or proceedings in order to preserve ad cautelam a claim against the debtor and to toll the running of the prescriptive period to file the claim.”
The STAY ORDER issued by the REHABILITATION COURT, which effectively started the rehabilitation proceedings, together with its order suspending all claims against PWI and RETELCO, is akin to a commencement order under Section 8, Rule 2 of the 2013 FRIA RULES. The quoted provision clearly recognizes the right of creditors to commence actions or proceedings against a corporation undergoing rehabilitation.
Accordingly, the collection case instituted by the creditor against the principal debtor and its surety may proceed despite a stay order issued by the rehabilitation court. The CA was correct in resuming the appellate proceedings of the collection case CAPITOL filed against PWI and RETELCO despite the STAY ORDER issued by the REHABILITATION COURT in relation to PWI and RETELCO’s rehabilitation. Regardless of the date the petition for rehabilitation was initiated, the issuance of a stay order no longer bars the court from making a determination of rights and liabilities in a collection case involving distressed corporations.
Undoubtedly, the objective in undergoing rehabilitation “is to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings.” Nevertheless, allowing the continuation of the collection case against distressed corporations under rehabilitation is not inconsistent with the inherent objective of rehabilitation proceedings. What Section 7, Rule 3 of the 2008 Rehabilitation Rules and Section 8, Rule 2 of the 2013 FRIA Rules disallow is the enforcement of claims against the distressed corporation through the execution of money judgment which will undermine efforts to preserve its assets and restore its economic viability.
It is apparent that the Court, in formulating the 2008 Rehabilitation Rules and the 2013 FRIA Rules, did not intend to bar creditors from filing actions and instituting proceedings necessary to preserve their claim against distressed corporations and to toll the running of the prescriptive period. In construing Section 7, Rule 3 of the 2008 Rehabilitation Rules and Section 8, Rule 2 of the 2013 FRIA Rules, these provisions must be harmonized and taken as a whole, giving effect to each word. The Court is clear in enacting the 2008 Rehabilitation Rules and the 2013 FRIA Rules. Insofar as creditors’ claims are concerned, what was sought to be suspended in a stay order issued pursuant to Section 7, Rule 3 of the 2008 Rehabilitation Rules or a commencement order issued under Section 8, Rule 2 of the FRIA Rules is the execution and satisfaction of judgments against corporations under rehabilitation.
Therefore, while a stay order is immediately executory, the CA was correct in continuing the proceedings in the appellate level because it is allowed under the FRIA Rules.