Outcome:

The Supreme Court remanded the case back to the rehabilitation court to convene the creditors for purposes of complying with the voting requirement under Section 64 of the Financial Rehabilitation and Insolvency Act (FRIA), partially granting the petition of petitioners, and reinstating the decision of the Regional Trial Court.

Facts:

In September 2010, International Copra Export Corporation (Interco), Interco Manufacturing Corporation (Interco Manufacturing), ICEC Land Corporation (ICEC Land), and Kimee Realty Corporation (Kimee) filed a Petition for Suspension of Payments and Rehabilitation before the Regional Trial Court (RTC), anticipating the impossibility of meeting their debts as they become due.

Interco, et al. cited as reasons for their liquidity problem the "unforeseen regional and global recession and worldwide economic meltdown, high financial costs for short term loans, increases in fuel costs and costs of production."

The RTC declared that the proceedings shall be governed by the 2008 Rules on Corporate Rehabilitation, provided that they are not contrary to the FRIA.

It later granted Interco, et al.'s Petition and approved their modified rehabilitation plan, decreeing that the continuance of Interco, et al.'s corporate life would be more beneficial not only to its creditors, but also to its employees, stockholders, and the general public.

Allied Banking and Philippine National Bank, Rizal Commercial Banking, BDO, BPI, and Development Bank filed a Petition for Review with the Court of Appeals (CA).

The CA partially granted the Petitions of BDO and Rizal Commercial Banking, and remanded the case to the rehabilitation court. It ruled that while the rehabilitation court erred in declaring that the proceedings would be governed by the 2008 Rules on Corporate Rehabilitation, only acts performed contrary to the FRIA should be nullified, while those consistent with FRIA should be sustained.

Interco, et al., BDO, and Development Bank each moved for reconsideration, but all of them were denied by the CA.

The rehabilitation court held in abeyance all actions relating to the rehabilitation plan pending the finality of CA’s decision.

The parties elevated the case to the Supreme Court through their separate Petitions for Review on Certiorari.

The Supreme Court partially granted the petitions.

Decision:

The Supreme Court dismissed Interco, et al.’s claim that FRIA cannot apply absent the law’s implementing rules even though the Petition for Suspension of Payments and Rehabilitation was filed before the rehabilitation court after FRIA had taken effect.

The absence of an implementing rule alone cannot render a law inoperative. Every law is presumed valid, until and unless judicially declared invalid.

The Court held that the discretion given to rehabilitation courts in applying the 2008 Rules on Corporate Rehabilitation instead of FRIA pertains only to petitions for rehabilitation filed before and are pending at the time FRIA took effect.

In cases involving petitions for rehabilitation filed after FRIA's effectivity, the rehabilitation court has no option and is mandated to apply the provisions of FRIA.

The Court found that the rehabilitation court correctly applied FRIA and, suppletorily, the 2008 Rules on Corporate Rehabilitation in Interco, et al.'s Petition for Suspension of Payments and Rehabilitation. The 2008 Rules shall apply to the Petition, provided that it is not inconsistent with FRIA.

The Court found that contrary to BDO’s contention that Kimmee is not financially related to the other petitioning debtors, Kimmee is an affiliate of the parent company Interco.

The issuance of the “Stay Order” by the rehabilitation court and not a “commencement order” is enough as it provided the basic requirements of a commencement order required by FRIA. This liberality in the nomenclature of the commencement order should apply only in cases where such order was issued before the rules' promulgation.

The Court further held that the non-impairment clause found in Article III, Section 9 of the Constitution yields to the State's police power.

Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees, and the economy in general. The court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable.

The rehabilitation plan, once approved, is binding upon the debtor and all persons who may be affected by it, including the creditors, whether or not such persons have participated in the proceedings or have opposed the plan or whether or not their claims have been scheduled.

The Court decreed that "[t]he non-impairment clause under the Constitution applies only to the exercise of legislative power. It does not apply to the Rehabilitation Court which exercises judicial power over the rehabilitation proceedings."

The Court further held that if the rehabilitation plan is rejected by the creditors, the rehabilitation court may still confirm the rehabilitation plan, subject to certain conditions provided under Section 64 of the FRIA, otherwise known as the "cram-down" power.

One of the requirements provided under Section 64 is the rehabilitation receiver's act of convening the creditors for purposes of voting on the proposed rehabilitation plan.

The Court found that the rehabilitation court confirmed the rehabilitation plan despite the creditors' failure to vote. The confirmation was premature.

The Court reversed the Decision of CA and directed the rehabilitation court to convene the creditors for purposes of complying with the voting requirement.