STEEL CORPORATION OF THE PHILIPPINES: A VICTIM OF INJUSTICE

STEEL CORPORATION OF THE PHILIPPINES:

A VICTIM OF INJUSTICE

 

STEEL CORPORATION OF THE PHILIPPINES (SCP), THE COUNTRY’S ONLY REMAINING FULLY INTEGRATED STEEL PLANT, WAS FORCIBLY BROUGHT TO CORPORATE REHABILITATION BY BANCO DE ORO (BDO) IN 2006.

DESPITE THE PENDENCY OF SEVERAL APPEALS AT THE COURT OF APPEALS AND SUPREME COURT, THE REHAB COURT HAS, ALL OF A SUDDEN, ISSUED AN ORDER ON 19 SEPTEMBER 2012 CONVERTING THE REHABILITATION PROCEEDINGS INTO ONE OF LIQUIDATION BASED ON THE OUTDATED, ERRONEOUS, AND SPECULATIVE REPORT OF THE REHAB RECEIVER.  THIS ACTION OF THE REHAB COURT WAS IN UTTER DISREGARD OF JUDICIAL COURTESY, OF SCP’S FUNDAMENTAL RIGHT TO DUE PROCESS, AND OF ITS OWN ORDER SUSPENDING THE PROCEEDINGS AS WELL AS IN CLEAR VIOLATION OF THE LETTER AND SPIRIT OF THE NEW LAW THAT IT RETROACTIVELY APPLIED ON SCP.

 

ISSUE:  CAN SCP’S REHAB PROCEEDINGS BE CONVERTED INTO ONE OF LIQUIDATION UPON THE MERE RECOMMENDATION OF THE REHAB RECEIVER, WHOSE APPOINTMENT, EXPERIENCE AND QUALIFICATIONS ARE QUESTIONABLE?

 

FACTS: 

 THE REHAB COURT SHOULD NOT HAVE RELIED SOLELY ON THE RECEIVER’S GROSSLY INACCURATE, ILLOGICAL, SPECULATIVE AND RECKLESS RECOMMENDATION TO LIQUIDATE SCP.

  1. The Rehab Receiver based her recommendation to liquidate SCP on information which are false, grossly inaccurate and pure hearsay, and on conclusions which are erroneous, reckless, illogical, unfounded and prejudiced.
  2. CONTRARY TO THE REHAB RECEIVER’S FINDINGS, SCP HANDILY PASSED THE BALANCE SHEET AND CASH FLOW TESTS OF SOLVENCY PRESCRIBED UNDER BOTH THE OLD AND NEW LAW OF CORPORATE REHABILITATION. BASED ON SCP’S AUDITED FINANCIAL STATEMENTS FOR 2011, ITS TOTAL ASSETS EXCEEDED ITS TOTAL LIABILITIES BY PHP5.3 BILLION (“BALANCE SHEET TEST”) AND ITS CURRENT ASSETS EXCEEDED ITS CURRENT LIABILITIES BY PHP2.9 BILLION (“CASH FLOW TEST”).
  3. It is clear that the Rehab Receiver never truly intended to rehabilitate SCP but was just fishing for evidence to support her premeditated objective of liquidating SCP.
  4. The rehab receiver is clearly unqualified for a heavy manufacturing company like SCP having had only two previous experiences for companies which are less than 10% the size of SCP.
  5. SCP’s rehab receiver has been discharged twice as rehab receiver by two rehab courts in the past.
  6. SCP’s rehab receiver’s experience has been more of a liquidator whose apparent expertise is conducting “fire sale” of a debtor-company’s assets.

ISSUE:  CAN THE REHAB COURT APPLY THE NEW LAW IN CONVERTING SCP’S REHAB PROCEEDINGS INTO ONE OF LIQUIDATION?

     FACTS:  

THE LIQUIDATION ORDER IS VOID BECAUSE THE NEW LAW CANNOT AND MUST NOT BE APPLIED TO SCP FOR THE FOLLOWING REASONS:

  1. The Rehabilitation Case of SCP was filed under the old law, which does not authorize the rehab court to order the liquidation of a company undergoing rehabilitation.
  2. Even the New law states that its provisions cannot be applied to any pending rehab proceedings “if it would not be feasible, or would work injustice.” applying THE NEW LAW TO LIQUIDATE SCP HAS CLEARLY WORKED INJUSTICE ON SCP.
  3. Until the Supreme Court has issued the Implementing Rules and Regulations, particularly the standards  for determining whether ongoing rehabilitation proceedings can directly be converted to liquidation, the provision of the NEW LAW which the rehab court invoked in liquidating SCP cannot be applied.  CLEARLY, THE REHAB COURT CANNOT MAKE ITS OWN IMPLEMENTING RULES OR IMPOSE ITS OWN DISCRETION ON HOW THE LIQUIDATION PROVISIONS OF THE NEW LAW SHOULD BE APPLIED TO SCP.

ISSUE:  CAN THE REHAB COURT DIRECTLY CONVERT SCP’S REHAB PROCEEDINGS INTO  LIQUIDATION WITHOUT DUE PROCESS?

FACTS:

THE REHAB COURT VIOLATED THE RIGHT OF SCP AND OTHER INTERESTED PARTIES TO DUE PROCESS.

  1. The rehab court did not hear the side, not only of SCP, but also those of the creditors and the other interested parties before ordering the liquidation of SCP.  This is in violation of their Constitutional right to due process.
  2. The rehab court cannot issue the Liquidation Order against SCP under the NEW LAW upon the mere say-so of a rehab receiver, without giving all affected parties their day in court and without the Implementing Rules and Regulations.

ISSUE: CAN THE REHAB COURT ORDER THE LIQUIDATION OF SCP WITHOUT WAITING FOR THE RESOLUTION OF THE PENDING RELATED CASES FILED BY SCP AND SEVERAL CREDITORS AT THE COURT OF APPEALS AND THE SUPREME COURT?

FACTS:

THE REHAB COURT DISRESPECTED THE COURT OF APPEALS AND THE SUPREME COURT WHEN IT PREEMPTED THEIR DECISIONS ON RELATED CASES PENDING BEFORE THEM.

  1. The rehab court ignored the doctrine of judicial courtesy which requires that lower courts must await the decision of higher courts on matters related to cases before it; otherwise, the appeals may be rendered moot and academic, and useless, resulting in judicial anarchy.
  2.  The rehab court itself recognized this doctrine SEVERAL TIMES in the past when it issued orders SUSPENDING the rehab proceedings due to the pendency of related cases at the Court of Appeals and Supreme Court. WHILE THE REHAB PROCEEDINGS ARE STILL SUSPENDED, THE REHAB COURT CANNOT JUST SUDDENLY PRESCRIBE THE EXTREME AND IRREVERSIBLE PROCESS OF LIQUIDATION.
  3. In ordering the liquidation of SCP, the rehab court may have committed CONTEMPT OF COURT by preempting the pending decisions of the Court of Appeals and the Supreme Court. WHY CAN’T THE REHAB COURT WAIT FOR THE DECISIONS OF THE HIGHER COURTS AS IT HAS ALWAYS DONE IN THE PAST INSTEAD OF RISKING BEING CITED IN CONTEMPT?

BASED ON THE FOREGOING FACTS, SCP HAS ASKED THE COURT OF APPEALS AND THE SUPREME COURT TO NULLIFY THE REHAB COURT’S VOID AND CONTEMPTUOUS ORDER.  (visit www.steelcorp.ph)

 

SCP IS THE LAST FULLY INTEGRATED STEEL PLANT STILL STANDING IN THE COUNTRY.  IT MUST BE SAVED FROM PREDATORY TAKEOVER ATTEMPTS BY THOSE CASTING A MOIST EYE ON ITS BUSINESS FOR THEIR OWN SELFISH INTERESTS.

 

BECAUSE BDO FAILED TO TAKE OVER SCP AFTER FORCIBLY BRINGING IT TO CORPORATE REHABILITATION, SCP FEARS THAT IT NOW WANTS TO DO IT AGAIN BY USING THE LIQUIDATION ORDER AS AN EXCUSE TO USE SCP’S FUNDS TO SELECTIVELY BUY BACK SCP’S DEBTS HELD BY THE OTHER CREDITORS TO COMPLETE THE TAKEOVER.  

 

INJUSTICE ANYWHERE IS A THREAT TO JUSTICE EVERYWHERE (Martin Luther King, Jr.)

PLEADINGS: G.R. NO. 203498

REPUBLIC OF THE PHILIPPINES

SUPREME COURT

MANILA

STEEL CORPORATION OF THE

PHILIPPINES,

                                Petitioner,

 -      v e r s u s –                           G.R. NO. 203498

                                                         For:  CONTEMPT

 

JUDGE RUBEN A. GALVEZ, as the Presiding Judge of Branch 3 of the Regional Trial Court of Batangas, ATTY. NORMA SINGSON-DE LEON and SHERIFF IV NILO Q. VILLALOBOS of the Regional Trial Court of Batangas, Branch 3,

Respondents.

x——————————————–x

 

P E T I T I O N

 

 

        NOW COMES the petitioner in the above-entitled case and to this Honorable Court respectfully shows:

I

        The petitioner is a domestic corporation duly organized and doing business under and by virtue of the laws of the Philippines, having its principal offices at Munting Tubig, Balayan, Batangas, where it does business as a cold steeled manufacturing corporation, while –

The respondent, Judge Ruben A. Galvez (hereinafter referred to as respondent judge) is of legal age and is the judge presiding over Branch 3 of the Regional Trial Court of Batangas, holding offices as such  at the sala of Branch 3, Pallocan West, Batangas City, where he may be served with summons.

Atty. Norma Singson-De Leon (hereinafter referred to as respondent De Leon) is of legal age, a member of the Integrated Bar of the Philippines, and holding offices at Room 209, GSRC Building 2, 29 Mindanao Avenue, Pag-asa, Quezon City, where she may also be served with summons.

Sheriff IV Nilo Q. Villalobos (hereinafter referred to as respondent Sheriff) is also of legal age, and is the sheriff assigned to Branch 3 of the Regional Trial Court of Batangas and hold offices at the said Branch, Pallocan West, Batangas City, where he may likewise be served with summons.

II

        The respondent Judge, as the presiding judge of Branch 3 of the Regional Trial Court of Batangas,  is the one presiding over the rehabilitation proceedings of the petitioner in Sp. Proc. No. 06-7993, entitled “In the Matter of the Petition to have Steel Corporation of the Philippines Placed under Corporate Rehabilitation with Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, Inc.” where, on March 22, 2011,   appointed the respondent De Leon as the rehabilitation receiver in Sp. Proc. No. 06-7993 over the objections of the petitioner.

The signed duplicate original copy of the aforesaid order as served upon the petitioner is hereto attached marked as Annex “A” and made a part hereof.

III

        Prior to the appointment of respondent de Leon as receiver, there were already pending before the Court of Appeals several appeals from the decision of the rehabilitation seeking for reliefs therefrom but without any of the petitions for review seeking for the termination of proceedings for the rehabilitation of the petitioner.  These were CA-G.R. Nos. 101732 (Steel Corporation of the Philippines vs. Equitable PCI Bank, etc.), 101880 (DEG-Deutsche Investitions-Und Entwicklungsgesellschaft MBH vs. Steel Corporation of the Philippines, et al.), Equitable PCIBank, Inc., etc. vs. Steel Corporation of the Philippines) and Investments 2234 Philippines Fund (SPV-AMC), Inc. vs. Equitable PCI Bank, Inc., et al.) and assigned to several divisions of the said court.

IV

Sometime on  July 3, 2008, the Twelfth Division of the Court of Appeals, acting on CA-G.R. Sp No. 101881 (Equitable PCIBank, Inc., etc. vs. Steel Corporation of the Philippines), rendered a decision setting aside the decision of the rehabilitation court and terminating the rehabilitation proceedings of the petitioner, prompting the petitioner and DEG-Deutsche Investitions-Und Entwicklungsgesselschaft MBH to come to this Honorable Court in G.R. Nos. 202006-09 (Steel Corporation of the Philippines vs. Equitable PCIBank, Inc., et al.) and G.R. No. 190462 (DEG-Deutsche Investitions-Und Entwicklungsgesseslchaft mbH vs. Equitable PCI Bank, Inc., and Steel Corporation of the Philippines), where, after the said cases were consolidated, this Honorable Court rendered a decision on November 17, 2010, saying  that the Court of Appeals cannot motu proprio terminate the proceedings on the rehabilitation of the petitioner because none of the parties requested for such relief.  The dispositive portion of the decision of this Honorable Court reads as follows:

WHEREFORE, the petition in G.R. No. 190462 is PARTIALLY GRANTED and the petition in G.R. No. 190538 is GRANTED.  The July 3, 2008 Decision and December 3, 2009 Resolution of the CA in CA-G.R. SP No. 101881 are REVERSED and SET ASIDE.

Further, the Court hereby REMANDS these cases to the CA for consolidation with CA-G.R. SP No. 101732. Likewise, CA-G.R. SP No. 101880 is also ordered to be consolidated with CA-G.R. SP No. 101732.”[1]

V

After accepting the remand and having all the cases enumerated in paragraph III hereof, consolidated, the Court of Appeals, having rendered a decision in CA-G.R. SP Nos. 101732 (Steel Corporation of the Philippines vs. Equitable PCIBank, Inc. now Banco de Oro-EPCIB, Inc.) and 101913 (Investments 2234 Philippines Fund I (SPV-AMC), Inc. vs. Equitable PCIBank, Inc., et al.) during the pendency of G.R. Nos. 190462 and 190538 declaring the rehabilitation proceedings of the petitioner terminated, refused to reconsider its decision per its resolution dated May 25, 2012, thereby prompting the petitioner to come again to this Honorable Court in G.R. Nos. 202006-09 (Steel Corporation of the Philippines vs. Equitable PCIBank, Inc. now Banco de Oro-Epcib, Inc., DEG-Deutsche Investitions-und Entwicklungsgesselschaft mbH, and Investments 2234 Philippines Fund (SPV-AMC), Inc.) praying, as a consequence of the allegations in its aforesaid petition, that –

“x x x this Honorable Court give due course to this petition and, after hearing it on its merits, reverse, set aside and nullify the decision and resolution of the Court of Appeals and, in lieu thereof, render a new one directing the remand of the petitioner’s case to the rehabilitation court for the latter to consider on its merits the revised updated counter-rehabilitation plan submitted by the petitioner after the procedures required therefore shall have been duly complied with.

The petitioner also prays for costs and for such other measures of relief as this Honorable Court may deem just and proper in the premises.”

This Honorable Court has already issued a resolution in G.R. Nos. 202006-09 on July 30, 2012, requiring the parties to file their comments on the petition within ten (10) days from notice.

A copy of the resolution is hereto attached marked as Annex “B” and made a part hereof.

VI

        In the meantime that the petition in G.R. Nos. 202006-09 is pending with the Second Division of this Honorable Court[2], or under date of June 11, 2012, respondent De Leon submitted to the respondent judge her Receiver’s Report III recommending the conversion of the rehabilitation proceedings into a liquidation proceedings which the respondent judge, without hearing the parties on the factual and legal issues raised by the report,[3] rendered an order the dispositive portion of which reads as follows:

“WHEREFORE, IN VIEW OF THE FOREGOING, the instant corporate rehabilitation proceedings are hereby converted to liquidation proceedings.

Pursuant to Section 112 of the Financial Rehabilitation and Insolvency Act of 2010, this Liquidation Order is hereby issued: (a) declaring debtor Steel Corporation of the Philippines as insolvent; (b) declaring debtor Steel Corporation of the Philippines as dissolved; (c) ordering the sheriff of the Regional Trial Court Branch 3, Batangas City to take possession and control of all the properties of the debtor, except those that may be exempt from execution; (d) ordering the publication of the Receiver’s Report III in a newspaper of general circulation once a week for two (2) consecutive weeks; (e) directing payments of any claims and conveyance of any property due debtor Steel Corporation of the Philippines to the liquidator; (f) prohibiting payments, and transfer of any property, by debtor Steel Corporation of the Philippines; (g) directing all creditors to file their claims with the liquidator within the period set by the rules of procedure; (h) authorizing the payment of administrative expenses as they become due.

Let this case be set for hearing on (date shall not be less than thirty (3) days nor more than forty-five (45) days from the date of the last publication) for the election and appointment of the liquidator.  Debtor Steel Corporation of the Philippines and its creditors, who are not petitioners and its successors-in-interest, may submit the names of other nominees to the position of liquidator.

Pursuant to Section 113 of the Financial Rehabilitation and Insolvency Act of 2010; (a) debtor Steel Corporation of the Philippines is hereby deemed dissolved and its corporate or judicial existence terminated; (b) legal title to and control of all the assets of debtor Steel Corporation of the Philippines, except those that may be exempt from execution, are hereby deemed vested in the liquidator or, pending his election or appointment, with the court; (c) all contracts of debtor Steel Corporation of the Philippines are hereby deemed terminated and/or breached, unless the liquidator, within ninety (90) days from the date of his assumption of office, declares otherwise and the contracting party agrees; (d) no separate action for the collection of an unsecured claim shall be allowed, and all such actions already pending will be transferred to the Liquidator for him to accept and settle or contest.  If the liquidator contests of disputes the claim, the court shall allow, hear and resolve such contest except when the case is already on appeal.  In such a case, the suit may proceed to judgment, and any final and executory judgment therein for a claim against the debtor shall be filed and allowed in court, and (e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days from issuance of this Order.

Pursuant to Section 114 of the Financial Rehabilitation and Insolvency Act of 2010, this Liquidation Order shall not affect the rights of any secured creditor to enforce its lien against debtor Steel Corporation of the Philippines in accordance with applicable law.

The petitioner is hereby ordered to effect the publication of the Receiver’s Report III in a newspaper or general circulation once a week for two (2) consecutive weeks and inform this Court at the earliest possible time the date of the last publication thereof.[4]

The receiver will continue as such until election of liquidator.”

A certified true copy of the aforesaid order is hereto attached marked as Annex “C” and made a part hereof.

As a consequence of the aforesaid order, the respondent Sheriff issued a writ of garnishment, a certified true copy of which is hereto attached as Annex “D” and has proceeded, in the company of lawyers of creditors, proceeded to seal off the premises of the petitioner, detaining even properties of third persons inside the said premises.

VII

        When the respondent receiver submitted her report to the respondent judge and the latter acted favorably on it without hearing the petitioner thereon, despite the pendency of G.R. Nos. 202006-09, before the Second Division of this Honorable Court, they being both lawyers and officers of this Honorable Court, they went beyond the norms of what is proper and required and, therefore, committed contempt against this Honorable Court under Rule 71, Section 3 © and (d) of the Rules of Court which provide that acts of contempt may consist of:

“(c) Any abuse of or any unlawful interference with the processes or proceedings of a court not constituting direct contempt under section 1 of this Rule;

(d)  Any improper conduct tending, directly or indirectly, to impede, obstruct, or degrade the administration of justice;”

because with the pendency of G.R. Nos. 202006-09, where there both bound to defer to the proceedings and processes of this Honorable Court being the both lawyers and officers of this Honorable Court, their acts cannot be anything else but contempt of this Honorable Court.  In Corpus vs. Court of Appeals, et al.,[5] the judge and the lawyer would declare in contempt of court, this Honorable Court in the said case saying:

“WE find private respondent Juan T. David and Judge Jose H. Tecson, Presiding Judge of the Court of First Instance of Manila, Branch V, guilty of contempt of court.

Respondent David filed on or about September 13, 1978 a motion with the court a quo for the issuance of a writ of execution to enforce its decision in Civil Case No 61802, subject of the present petition, knowing fully well that it was then still pending appeal before this Court. In addition, no certification that the aforesaid decision is already deemed affirmed had as yet been issued by the Chief Justice pursuant to Section 11, paragraph 2, Article X of the New Constitution; because respondent David’s petitions filed with the Supreme Court on January 31, 1978 and on July 7, 1978 to remand the case to the trial court for execution and for the issuance of such certification had not yet been acted upon as the same were still pending consideration by this Court. In fact, this Court has not as of this time made any pronouncement on the aforesaid provision of the New Constitution.

This act of respondent David constitutes disrespect to, as well as disregard of, the authority of this Court as the final arbiter of all cases duly appealed to it, especially constitutional questions. It must be emphasized that as a member of the Philippine Bar he is required ‘to observe and maintain the respect due to the court of justice and judicial officers’ (Section 20 (b), 138 of the Revised Rules of Court). Likewise, Canon 1 of. the Canons of Professional Ethic expressly provide that: ‘It is the duty of the lawyer to maintain towards the Courts a respectful attitude, not for the sake of the temporary incumbent of the judgement office, but for the maintenance of its supreme importance.’ And this Court had stressed that ‘the duty of an attorney to the courts ‘can only be maintained by rendering no service involving any disrespect to the judicial office which he is bound to uphold’’ (Rheem of the Philippines v. Ferrer, 20 SCRA 441, 444 [1967] citing the case of Lualhati v. Albert, 67 Phil. 86, 92 [1932]).

Moreover, this Court takes judicial notice of the fact that herein respondent David, in the previous case of Integrated Construction Services, Inc. and Engineering Construction, Inc. v. Relova (65 SCRA 638 [1975]), had sent letters addressed to the then Chief Justice Querube C. Makalintal and later to the late Chief Justice Fred Ruiz Castro, requesting for the issuance of certification on the basis of the aforementioned provision of the New Constitution which were not given due consideration. And knowing this, respondent David should have been more prudent and cautious in g with the court a quo any motion for execution.

Furthermore, there was even a taint of arrogance and defiance on the part of respondent David in not filing his comment to the letter- complaint dated October 18, 1978 of petitioner Corpus, as required by this Court in its November 3, 1978 and December 4, 1978 resolutions which were duly received by him, and instead, he sent on December 13, 1978 a letter requesting to be excused from the filing of his comment on the lame excuse that petitioner’s letter-complaint was not verified.

On the part of Judge Jose H. Tecson, his presumptuous and precipitate act of granting the motion for execution of dent David likewise constitutes disrespect to, as well as of, the authority of this Court because he know for a that the case was still pending apply as the had not yet been remanded to it and that no certification has been issued by this Court. As a judicial officer, Judge Tecson is charged with the knowledge of the fact that this Court has yet to make a definite pronouncement on Section 11, paragraph 2, Article X of the New Constitution. Judge Tecson should know that only the Supreme Court can authoritatively interpret Section 11 (2) of Article X of the 1973 Constitution. Yet, Judge Tecson assumed the role of the Highest Court of the Land. He should be reminded of what Justice Laurel speaking for the Court, has said in People v. Vera (65 Phil 56, 82 [1937]):

A becoming modesty of inferior courts demands conscious realization of the position that they occupy in the interrelation and operation of the integrated judged system of the nation.

It may also be added that the improvident act of respondent David in firing the motion for execution and the precipitate act of Judge Tecson in issuing the writ of execution are intriguing as they invite suspicion that there was connivance between the two. Respondent David would seem to imply that his claim for attorney’s fees should be given preference over the other cams now pending in this Court. Certainly, such should not be the case because there are cases which by their nature require immediate or preferential attention by this Tribunal like habeas corpus cases, labor cases and c cases involving death sentence, let alone cases involving properties and property rights of poor litigants pending decision or resolution long before the New Constitution of 1973. Nobility and exempt forbearance were expected of Atty. David, who is old and experienced in the practice of the legal profession, from which he has derived a great measure of economic well-being and independence.

Consequently, the filing of the motion for immediate execution and the issuance of the writ of execution constitute a defiance and usurpation of the jurisdiction of the Supreme Court. As a disciplinary measure for the preservation and vindication of the dignity of this Supreme Tribunal respondent Atty. Juan T. David should be REPRIMANDED for his precipitate action of filing a motion for execution as well as Judge Jose H. Tecson for his improvident issuance of a writ of execution while the case is pending appeal before the Supreme Court, and a repetition of said acts would be dealt with more severely.”

In Sangguniang Panlungsod ng Baguio, et al., vs. Jadewell Parking Systems Corporation, et al.,[6] this Honorable Court also said:

“Contempt of court is disobedience to the court by acting in opposition to its authority, justice and dignity.  It signifies not only a willful disregard or defiance of the court’s orders but also such conduct as tends to bring the authority of the court and the administration of law into disrepute or in some manner to impede the due administration of justice.  Under the Rules of Court, contempt is classified into either direct or indirect contempt.  Direct contempt is committed in the presence of or so near a court or judge.  It can be punished summarily without hearing.”

In Bernas, et al. vs. Nuevo, et al.,[7] it was also held:

“We also find that the questioned orders of respondent Judge Leviste were issued without jurisdiction, notwithstanding the fact that the writ of possession was not in order. It was presumptuous on his part to grant the motion for reconsideration when he knew very well that the subject-matter of said motion was still pending with this Court in a petition for certiorari. The act of issuing the orders constituted disrespect and disregard of the authority and jurisdiction of this Court. (See Corpus v. Court Appeals, 98 SCRA 424). The respondent judge should have waited for this Court’s decision before acting on said motion for reconsideration and issuing the said orders.”

In Galman, et al. vs. Sandiganbayan, et al.,[8] it was also held:

“x x x.  Although no restraining order was issued anew, respondent Sandiganbayan should not have precipitately issued its decision of total absolution of all the accused pending the final action of this Court. This is the teaching of Valdez vs. Aquilizan, Wherein the court in setting aside the hasty convictions, ruled that “prudence dictated that (respondent judge) refrain from deciding the cases or at the very least to hold in abeyance the promulgation of his decision pending action by this Court. But prudence gave way to imprudence; the respondent judge acted precipitately by deciding the cases [hastily without awaiting this Court's action]. All of the acts of the respondent judge manifest grave abuse of discretion on his part amounting to lack of jurisdiction which substantively prejudiced the petitioner.”

VIII

        The contempt committed by the respondents judge and receiver becomes more blatant when we consider that the respondent receiver recommended liquidation pursuant to Republic Act No. 10142 and the respondent judge favorably acted on it.  Republic Act No. 10142 is however clear when it provided in its Section 146 that its provisions cannot be made applicable on pending rehabilitation cases when such application would not be feasible or would work injustice.  In such case, according to the said Section, “the procedures set forth in prior laws and regulations shall apply.”  More so when the rights of the party had already become vested.  In Balboa vs. Farrales,[9] it was held that:

“’ Rights are vested when the right to enjoyment, present or prospective, has become the property of some particular person or persons as a present interest. (12 C. J., sec. 485, p. 955.)

Vested right ‘is some right or interest in property which has become fixed and established and is no longer open to doubt or controversy.’ (Downs vs. Blount, 170 Fed. Rep., 15, 20.)”

Here, it cannot be denied that in Steel Corporation of the Philippines, et al. vs. Equitable PCIBank, Inc., et al.,[10] this Honorable Court has already declared that termination of the petitioner’s rehabilitation proceedings cannot be declared motu proprio by the Court of Appeals.  In G.R. Nos. 202006-09, pending before the Second Division of this Honorable Court, the petitioner has sought relief for the continuation of its rehabilitation by having the matter remanded to the rehabilitation court to consider its unresolved updated revised rehabilitation plan.  On several occasions, also, the respondent judge has applied effectively the provisions of the Interim Rules of Procedure on Corporate Rehabilitation.  All these, the petitioner respectfully submits that vested rights on the continuation of its rehabilitation now inheres with the petitioner and, therefore, Republic Act No. 10142 cannot be made effective against the said proceedings.  “We hold,” said this Honorable Court in Tan, Jr. vs. Court of Appeals, et al.,[11]

“x x x that  section 1, Rule 39 of the 1997 Revised Rules of  Procedure should not  be given retroactive effect in this case as it would result in great injustice to the petitioner.  Undoubtedly, petitioner has the right to redeem the subject lot and this right is a substantive right.  Petitioner followed the procedural rule then existing as well as the decisions of this Court governing the reckoning date of the period of redemption when he redeemed the subject lot.  Unfortunately for petitioner, the rule was changed by the 1997 Revised Rules of Procedure which if applied retroactively would result in his losing the right to redeem the subject lot.  It is difficult to reconcile the retroactive application of this procedural rule with the rule of fairness.  Petitioner cannot be penalized with the loss of the subject lot when he faithfully followed the laws and the rule on the period of redemption when he made the redemption.  The subject lot may only be 34,829 square meters but as petitioner claims, ‘it is the only property left behind by their father, a private law practitioner who was felled by an assassin’s bullet.’

Petitioner fought to recover this lot from 1988.  To lose it because of a change of procedure on the date of reckoning of the period of redemption is inequitous.  The manner of exercising the right cannot be changed and the change applied retroactively if to do so will defeat the right of redemption of the petitioner which is already vested.”

More so because, paraphrasing Tayag vs. Court of Appeals, et al.,[12]        the right of the petitioner for the continuation of the proceedings for its rehabilitation has become vested by the filing of its petition in G.R. Nos. 202006-09 because, to quote what this Honorable Court said:

“x x x.  We herein adopt our ruling in the recent case of Republic of the Philippines vs. Court of Appeals, et al. where we held that the fact of filing of the petition already vested in the petitioner her right to file it and to have the same proceed to final adjudication in accordance with the law in force at the time, and such right can no longer be prejudiced or impaired by the enactment of a new law.

Even assuming ex gratia argumenti that the provision of the Family Code in question is procedural in nature, the rule that a statutory change in matters of procedure may affect pending actions and proceedings, unless the language of the act excludes them from its operation, is not so pervasive that it may be used to validate or invalidate proceedings taken before it goes into effective, since procedure must be governed by the law regulating it at the time the question of procedure arises especially where vested rights may be prejudiced. x x x”

Application for Interim Reliefs

 

IX

        In view of the fact that the respondents have already began taking steps to implement the liquidation order[13] and, in fact, their actions has resulted in the detention of third parties and their properties from living the premises of the petitioner, to the petitioner’s gross prejudice, under the allegations hereinabove set out, the petitioner is entitled to the issuance of a writ of preliminary mandatory injunction directing the respondents to open the premises of the petitioner and to continuing its manufacturing business and allowing the third parties and their properties to move out from the petitioner’s premises and thereafter to a writ of preliminary prohibitory injunction restraining the respondents from enforcing the liquidation order in the meantime that the instant case is not heard on its merits.

X

        The petitioner is ready, willing and able to post such bond in such amount as this Honorable Court may fix conditioned to answer for any damages that the respondents may suffer should this Honorable Court later on adjudge that the petitioner is not entitled to any preliminary restraint.

P R A Y E R

 

 

        WHEREFORE, it is respectfully prayed that this Honorable Court order the respondents to show cause why should not be declared in contempt of court and after hearing them on their explanations, find them guilty of contempt and mete unto them appropriate penalties including but not limited to the nullification of the order of liquidation and removal of the rehabilitation receiver.

In the meantime that the issues as raised in this petition have not yet been resolved, the petitioner respectfully prays this Honorable Court upon such bond as it may fix and approve, to issue writs of temporary mandatory injunction directing the respondents to open the premises of the petitioner and temporary prohibitory injunction restraining and preventing them from implementing the liquidation order until the instant case shall have been heard on its merits.

The petitioner also prays for such other measures of relief as this Honorable Court may deem just and proper in the premises.

Pasig City for Manila, October 5, 2012.

MARCIAL O. T. BALGOS

Roll No. 11429

PTR No. 7040767, January 3, 2012, Pasig City

IBP No. 873729, January 3, 2012, Makati Chapter

MCLE Compliance No. III-0001576

January 7, 2009

- a n d -

BALGOS GUMARU & JALANDONI

Counsel for the Petitioner

1009 West Tektite Tower

Exchange Road, Ortigas Center,

Pasig City, Metro Manila

Tel Nos. 636-7526; 637-0376; 637-1477; 638-8732

email – bplaw85@yahoo.com

By:

 

XYRHA R. JAVIER-SALAZAR

Roll No. 53507

PTR No.  7040773, January 3, 2012, Pasig City

IBP No. 873736, January 3, 2012, Oriental Mindoro Chapter

MCLE Compliance No. III-0007983, February 4, 2010

        I, ABETO A. UY, after having been duly sworn to in accordance with law, depose and say that I am the Chairman and President of the petitioner in the above-entitled case and in my capacity as such caused the preparation of the foregoing Petition, the contents of which are true and correct of my own knowledge and based on authentic documents.

I hereby certify that while the instant case is related to G.R. Nos. 190462 and 190538 and G.R. Nos. 202006-09, of the Honorable Supreme Court, the issues of fact and law raised herein are not the same, but instead peculiarly applicable only to the respondent and that except for the two (2) cases, there is no other action or proceeding involving the same issue in the Supreme Court, the Court of Appeals, or any tribunal or agency, and to the best of his knowledge, no such action or proceeding is pending in the Supreme Court, the Court of Appeals or the different divisions thereof, or any tribunal or agency, and if hereafter learns that a similar action or proceedings was filed or is pending before the Supreme Court, the Court of Appeals, or any tribunal or agency, he undertakes to inform this Honorable Court of the pendency of such action within five (5) days from acquisition of such knowledge.

FURTHER I SAYETH NAUGHT.

ABETO A. UY

Affiant

 

        SUBSCRIBED AND SWORN to before me this 4th day of October 2012, the affiant exhibiting to me his Social Security System Identification No. 03-1764195-8.

ROBERT M. PANGANIBAN

Commission No. 132

Notary Public for Pasig City

Until December 31, 2013

1009 West Tektite Tower, PSEC Bldg.

Exchange Road, Ortigas Center, Pasig City

Roll No. 54208

PTR No. 7040771, January 3, 2012, Pasig City

IBP No. 873734, January 3, 2012, Rizal Chapter

MCLE Compliance No. III-009772, March 8, 2010

Doc. No.  115;

Page No.   24;

Book No.   VI;

Series of 2012.

COPY FURNISHED:

JUDGE RUBEN A. GALVEZ

Regional Trial Court of Batangas

Branch 3

Pallocan West, Batangas City

ATTY. NORMA SINGSON-DE LEON

GONONG, PAREDES, DE LEON & ASSOCIATES

Room 209, GSRC Building II

29 Mindanao Avenue

Pag-asa, Quezon City

SHERIFF IV NILO Q. VILLALOBOS

Regional Trial Court of Batangas

Branch 3

Pallocan West, Batangas City

CASTILLO LAMAN TAN PANTALEON & SAN JOSE

Counsel for DEG

                    2nd, 3rd, 4th, 5th, and 9th Floors, The Valero Tower

122 Valero Street, Salcedo Village

Makati City, Metro Manila

ATTYS. TAN ACUT LOPEZ & PISON

                    Counsel for the Bank of the Philippine Islands

23rd Floor, Philippine Stock Exchange Centre

Exchange Road, Ortigas Center

Pasig City 1604

LIM VIGILIA ALCALA DUMLAO ALAMEDA & CASIDING

Counsel for China Banking Corporation

11th Floor, China Bank Building

8745 Paseo de Roxas cor. Villar Sts., Makati City

LAND BANK OF THE PHILIPPINES SPECIAL LEGAL TEAM

                    Counsel for Land Bank of the Philippines

30/F Landbank Plaza, 1598 M.H. del Pilar cor.

Dr. Quintos Sts., Malate, Manila

BELO GOZON ELMA PAREL ASUNCION & LUCILA

Counsel for BDO Unibank, Inc.

15th Floor, Sagittarius Condominium

H. V. dela Costa St., Salcedo Village, Makati City

MUNICIPALITY OF BALAYAN, BATANGAS

Balayan, Batangas

SECURITIES AND EXCHANGE COMMISSION

EDSA, Corner Ortigas Avenue

Mandaluyong City 1550

ZAMORA POBLADOR VASQUEZ & BRETAÑA

Counsel for Asia United Bank      

5th Floor, Montepino Building

138 Amorsolo Street, Legaspi Village

Makati City

CLEOFE IBARRA RODRIGUEZ and SEGUNDERA

                    Counsel for Philippine Bank of Communications

8th Floor, PBCOM Tower

6795 Ayala Avenue cor. A. Rufino St., Makati City

PUYAT JACINTO & SANTOS

Counsel for IPFI

          12th Floor VGP Bldg.

6722 Ayala Avenue, Makati City

ATTY. MARIO C. LORENZO

Counsel for Asiatrust Development Bank

16th Floor, BDO Plaza, 8737 Paseo de Roxas

Makati City

ATTY. FRANCISCO GERARDO C. LLAMAS

          Counsel for Allied Banking Corporation

2nd Floor, Allied Bank Center

6754 Ayala Avenue, Makati City

CAYETANO SEBASTIAN ATA DADO & CRUZ

          Counsel for Pilipinas Shell Petroleum Corporation

12th Floor, NDC Building116 Tordesillas St.

Salcedo Village, Makati City

MACALINO & ASSOCIATES

          Counsel for International Exchange Bank

21st Floor, Union Bank Plaza

Meralco Avenue cor. Onyx

Ortigas Center, Pasig City

PONCE ENRILE REYES & MANALASTAS

          Counsel for Rizal Commercial Banking Corporation

3rd Floor Vernida IV Bldg. L.P. Leviste Street

Salcedo Village, Makati City

OFFICE OF THE LEGAL COUNSEL, DBP

Counsel for Development Bank of the Philippines

          10th Flr., DBP Building

Sen. Gil Puyat Avenue, Makati City

JANDA ASIA & ASSOCIATES

          Counsel for Planters Development Bank  

5/F Plantersbank Building,

314 Sen. Gil Puyat Avenue, Makati City

UY CLERIGO & DE GUZMAN LAW OFFICES

          Counsel for Consolidated Industrial Gases, Inc.

Unit 1208 Cityland Condominium 10 Tower II

H.V. Dela Costa corner Valero Streets

Salcedo Village, Makati City

PUNO AND PUNO

          Counsel for Rio Tinto Pte. Ltd.

12th Floor, East Tower

Philippine Stock Exchange Centre

Exchange Road, Ortigas, Pasig city

ATTY. ANGELITO W. CHUA

Blk. 14, Lot 1, G. Diaz Street

BF Resort Village, Talon 2, Las Pinas City 1740

FLORENTINO AND ESMAQUEL LAW OFFICE

Unit 1702, 17th Floor, Prestige Tower Condo.

Emerald Avenue, Ortigas Center, Pasig City

ATTY. JOSEPH SONGCO

Chemtall Phils. Co. Ltd., Inc.

W-12 Veterans Road, Veterans Center, Taguig City

QUISUMBING TORRES

12F, Net One Center, 26th St., cor. 3rd Avenue

Crescent Park, West Bonifacio, Global City, Taguig

ATTYS. NESTOR M. MEJIA

and DE GUZMAN SAN DIEGO MEJIA & HERNANDEZ

          Counsel for Panel of Insurers

The Penthouse, Paragon Tower

531 A. Flores St., Ermita, Manila

ANGARA ABELLO CONCEPCION REGALA & CRUZ

Counsel for Petitioner Deutsche Bank AG

ACCRA LAW Tower

22/F Second Ave. cor. 30th Street

Cresent Park, West Bonifacio

Global City, 1634 Taguig

CORPORATE COUNSELS PHILIPPINES

LAW OFFICES

Counsel for the Steel Corporation of the Philippines

Unit 3104 Antel Global Corporate Center

Doña Julia Vargas Ave., Ortigas Center, Pasig City

ATTY. SOCRATES A. VERAYO

          Counsel for movant Landmark Glory Limited

Unit D Millennium One Bldg.

911 San Antonio Valley I, Paranaque City  1715

COSTUNA & BAYHON LAW OFFICES

          Counsel for Chinatrust (Philippines)

Commercial Bank Corporation

12th Floor, Lepanto Bldg., Paseo de Roxas, Makati City

ATTY. JOANNE KAREN S. TATEL

Counsel for GE Money Bank

11th Floor, NET Cube, 30th St. cor. 3rd Avenue

Crescent Park, West Bonifacio, Global Taguig

ATTY. CARMELITA CRISOLOGO-ESCOLIN

          Counsel for CERJ Power Int’l. Brokerage Corp.

Suite 208 Criscor Bldg., 1258 Quezon Avenue, Quezon City

AVERILLA SALAZAR DEFENSOR & ENRILE

          Counsel for Philsteel Companies

Suite 1107 Tektite East Tower, PSE Center

Exchange Road, Ortigas Center, Pasig City

PHILIPPINE INVESTMENT ONE

1615 Ayala Tower One & Exchange Plaza

Ayala Avenue, 1200 Makati City

ESTELA S. REYES

CERJ Power Intl’ Brokerage Corp.

Suite 208 Criscor Bldg.,

1258 Quezon Avenue, Quezon City

GARAY CRUZ & ASSOCIATES

          Counsel for Atiko Trans. Inc.  

3rd Floor, ECI Building

Real cor Arzobispo Sts.  Intramuros, Manila

OFFICE OF THE INSURANCE COMMISSION

1071 United Nations Avenue

Ermita, Manila

1003steel_galvezpetition/motb/pleadings2012

 


[1] 635 SCRA 403, 420.

[2] Annex “B”. The pendency of the case is within the judicial notice of the respondents judge and receiver.

[3]  In Ysasi vs. Fernandez, etc., et al., 23 SCRA 1079, it was held that a party cannot be deprived of his properties by the simple expedient of a naked averment.  In the case of the respondents judge and receiver, only the naked assertions of “insolvency” based on mere conclusions of the respondent receiver appear in the report.  These naked assertions should have been the subject of a hearing where the parties could have been heard on their evidence.  Otherwise, the constitutional rights of the petitioner to due process and not to be deprived of its properties without just compensation would be violated.

[4]  Why the report of the receiver was the one which was ordered to be published and not the order of liquidation appears to be totally unwarranted. Section 2 of Rule 104 of the Rules of Court provides that order to be published should be the one disposing of the objections to the liquidation.  The Corporation Code follows the procedure prescribed by Rule 104 of the Rules of Court.

[5] 98 SCRA 424, 444-446.

[6] G.R. Nos. 160025, 163052, 164107, and 165564, Res. dated April 20, 2005.

[7] 127 SCRA 399, 403-404.

[8] 144 SCRA 43, 91.

[9] 51 Phil. 498, 502.

[10] Note 1, supra.

[11] 373 SCRA 524, 538.

[12] 209 SCRA 665, 675.  Underlines ours.

[13] Annex “C”.

PLEADINGS: CA-G.R. NO. 126882

REPUBLIC OF THE PHILIPPINES

COURT OF APPEALS

MANILA

 

STEEL CORPORATION OF THE  PHILIPPINES,Petitioner,– versus –EQUITABLE PCIBANK, INC. (now BDO UNIBANK, INC.),    CHINA BANKING CORPORATION, DEG-DEUTSCHE INVESTITIONS-UNDENTWICKLUNGSGESELLSCHAFT MBH, INVESTMENTS 2234 PHILIPPINES FUND I (SPV-AMC) INC., PLANTERS DEVELOPMENT BANK, ALLIED BANKING CORPORATION, ASIATRUST DEVELOPMENT BANK, PILIPINAS SHELL PETROLUEM CORPORATION, DEUTSCHE BANK AG, LANDMARK GLORY LIMITED, PHILSTEEL COMPANIES, UNIONBANK OF THE PHILS., RIO TINIO PTE. LTD., CHEMTALL PHILS. CO. LTD., INC., BIEC INTERNATIONAL, CERJ POWER INTERNATIONAL BROKERAGE CORP., PHILIPPINE BANK OF COMMUNICATION, LANDBANK OF THE PHILIPPINES, CONSOLIDATED INDUSTRIAL GASES, INC., ATIKO TRANS., INC., BLACK RIVER ASIA FUND LTD., LIQUIGAZ, QUAKER CHEMICALS,    MUNICIPALITY OF BALAYAN, AND SECURITIES AND EXCHANGE COMMISSION,

 

Respondents.

x——————————————x

 

 

CA-G.R. NO. 126882(Rule 43 to Review and Reverse the Liquidation Order dated 19 September 2012 of the Regional Trial Court Branch 3 of Batangas City in Spec. Proc. No. 06-7993)

 

 

 

PETITION FOR REVIEW

(Under Rule 43 of the Rules of Court)

– with –

URGENT APPLICATION FOR ISSUANCE OF

A TEMPORARY RESTRAINING ORDER

AND/OR WRIT OF PRELIMINARY

PROHIBITORY AND MANDATORY INJUNCTION

 

 

Petitioner STEEL CORPORATION OF THE PHILIPPINES (hereinafter “Steel Corp”), by counsel, respectfully states:

 

I

PREFATORY  STATEMENT

 

 

A liquidation order under the Financial Rehabilitation and Insolvency Act (FRIA) of 2010[1] is a guillotine that kills.  This is plain from Section 113 of the FRIA which provides that upon the mere issuance of the liquidation order the juridical debtor shall be deemed dissolved and its corporate or juridical existence terminated.

The import of a liquidation order cannot, therefore, be overemphasized — it spells the end for a corporation.  For this reason, a court should be exceptionally circumspect in its issuance.  In particular, it should not be issued without affording a party its day in court, and especially not solely on the recommendation by a rehabilitation receiver whose appointment is under cloud of doubt and who based the same on out-of-date financial documents, incomplete evidence, and speculative opinion and hearsay statements.

In this case, however, the death of Steel Corp was decreed by the Regional Trial Court (RTC) Branch 3 of Batangas City without even giving it a day in court.  There was no warning whatsoever of this grim fate. Steel Corp did not even know that the proceedings in Spec. Proc. No. 06-7993 have already been placed under the FRIA.  All of a sudden, the RTC came up with the liquidation order dated 19 September 2012 dissolving Steel Corp and terminating its juridical existence, and confiscating all its properties.  And all these were done on the basis of out-of-date financial documents and incomplete evidence, the speculative opinion of the rehabilitation receiver and the hearsay statements she has mustered.

Banking solely on the unlawful liquidation order, BDO lawyers and several sheriffs, with the aid of armed men, suddenly and without notice, swooped down on the Balayan plant of Steel Corp, invaded and took over the same, shutting down its operations and blocking all ingress and egress to the Balayan plant.  All these even before the liquidation order was served on Steel Corp.

This petition is thus coupled with an urgent application for the immediate issuance of a temporary restraining order to restore Steel Corp to possession of the Balayan plant, and to direct the Sheriff of the RTC to return all the documents and properties spirited away, as well as to restrain the rehabilitation court and sheriffs, the creditors, more particularly BDO from arbitrarily and illegally implementing the liquidation order to the irreparable damage and injury of petitioner, its numerous employees and workers, the unsecured and other creditors and parties who stand to lose if the petitioner is not rehabilitated but illegally liquidated.

II

NATURE OF THE PETITION

This is a petition for review under Rule 43 of the Rules of Court from the liquidation order dated 19 September 2012 issued by the Regional Trial Court (RTC), Branch 3, of Batangas City, in Spec. Proc. No. 06-7993 entitled “In the Matter of the Petition to Have Steel Corporation of the Philippines Placed Under Corporate Rehabilitation with a Prayer for the Approval of the Proposed Rehabilitation Plan, Equitable PCI Bank, Inc., Petitioner”.

 

 

III

TIMELINES AND

PROPRIETY OF THE PETITION

 

 

1.         Steel Corp through counsel received a copy of the liquidation order dated 19 September 2012 on 05 October 2012.  Under Rule 43 of the Rules of Court, in relation to A.M. No. 04-9-07-SC dated 14 September 2004, the petition for review shall be taken within fifteen (15) days from notice of the decision or final order of the Regional Trial Court.  Hence, Steel Corp has until 20 October 2012 within which to file the instant petition for review.  The instant petition is timely filed.

A certified true copy of the liquidation order is integrally attached as Annex “A” to the original of this petition for review while photocopies of the same are attached to the copies of this petition.

 

IV

THE PARTIES

 

 

  1. Steel Corp is a corporation organized and existing under the laws of the Republic of the Philippines, with principal office at Km. 104, Barangay Munting Tubig, Balayan, Batangas.  It is the debtor corporation whose rehabilitation had been sought in Spec. Proc. No. 06-7993.  It may be served with the processes of this Honorable Court through undersigned counsel.
  2. Private respondent, Banco De Oro Unibank, (“BDO”), formerly Equitable PCI Bank, Inc., is a banking corporation organized and existing under Philippine laws with principal office at San Miguel Avenue, Pasig City, Metro Manila, which may be served with the processes of this Court through its counsel-of-record in the court a quo, to wit:

                             

 

Belo Gozon Parel Asuncion & Lucila

Counsel for Respondent BDO

15th Floor, Sagittarius Condominium

H. Dela Costa Street, Salcedo Village, 1229 Makati City

 

 

  1. The creditors of petitioner and other parties directly affected by the outcome of this case, and who participated in the proceedings below, and may be served with the processes of this Court through their respective counsel in the court below, are the following:
LIM VIGILIA ALCALA DUMLAO

ALAMEDA & CASIDING

Counsel for China Banking Corporation

11/F, China Bank Bldg., 8745 Paseo de Roxas cor. Villar Sts.,

Makati City

PUYAT JACINTO AND SANTOS

Counsel for IPFI

12/F, TMBC Bldg., 6775 Ayala Avenue, Makati City

JANDA ASIA & ASSOCIATES

Counsel for Planters Development Bank

5/F Planters Bank Bldg.,

314 Se. Gil Puyat Avenue, Makati City

ATTY. VERNA LYNN V. ACEVEDA

Counsel for Allied Banking Corporation

2/F, Legal and Collection Department

Allied Banking Centre,

6754 Ayala Avenue 1226 Makati City

ATTY. MARIO C. LORENZO

Counsel for Asiatrust Development Bank

Nitura Malabanan Lagunilla Mendoza

& Gaddi Law Offices 16/F BDO Plaza,

8737 Paseo de Roxas 1226 Makati City

CAYETANO SEBASTIAN ATA DADO & CRUZ LAW OFFICES

Counsel for Pilipinas Shell Petroluem Corporation

12/F, NDC Bldg.,

116 Tordecillas St., Salcedo Village, Makati City

ANGARA ABELLO CONCEPCION REGALA & CRUZ

Counsel for Deutsche Bank AG

22/F, ACCRALAW Tower

2nd Ave., cor 30th St., Crescent Park West,

Bonifacio Global City 0399 Taguig City, Metro Manila

CASTILLO LAMAN TAN PANTALEON & SAN JOSE

Counsel for DEG-Deutsche Investitions-und entwicklungsgesellschaft mbH

2nd & 5th Flrs. The Valero Tower

122 Valero St., Salcedo Village, Makati City

 

 

 

ATTY. SOCRATES A. VERAYO

Counsel for Landmark Glory Limited

Millennium One Bldg., 9111 San Antonio Ave.,

San Antonio Valley I Paranaque City

AVERILLA DEFENSOR & ENRILE

Counsel for Philsteel Companies

Suite 1107 Tektite East Tower, PSE Center

Exchange Rd., Ortigas Center, Pasig City

MACALINO & ASSOCIATES

Counsel for UnionBank of the Phils.

21/F, Union Bank Plaza Meralco Ave. cor. Onyx St.,

Ortigas Center, 1605 Pasig City

PUNO AND PUNO

Counsel for Rio Tinio Pte. Ltd.

12/F, East Tower Philippine Stock Exchange Center

Exchange Rd., Ortigas Center Pasig City 1605

ATTY. JOSEPH SONGCO

Chemtall Phils. Co. Ltd., Inc.

w-12 Veterans Rd., Veterans Center, Taguig City

QUISUMBING TORRES

Counsel for BIEC International

12/F, Net One Center

26th St., cor. 3rd Ave., Crescent Park,

West Bonifacio Global City, Taguig

ATTY. CARMELITA CRISOLOGO-ESCOLIN

Counsel for CERJ Power International Brokerage Corp.

Suite 208 Criscor Bldg., 1258 Quezon Ave., 1100 Quezon City

IBARRA SEGUNDERA AND RODRIGUEZ-LASTIMOSA

Counsel for Philippine Bank of Communication

3rd & 6th Flrs., PBCom Tower,

6795 Ayala Ave. cor. V.A. Rufino St.,

1200 Makati City

LEGAL SERVICES GROUP (LITIGATION DEPARTMENT)

Counsel for Landbank of the Philippines

31/F Landbank Plaza,

1598 M.H. del Pilar cor. Dr. Quintos Sts.,

Malate, 1004 Manila

ATTY. JE FROILAN M. CLERIGO

Counsel for Consolidated Industrial Gases, Inc.

THE LAW OFFICE OF JE FROILAN M. CLERIGO

5/F Builder’s Center Bldg. 170 Salcedo St.,

Legaspi Village 1229 Makati City

GARAY CRUZ & ASSOCIATES

Counsel for Atiko Trans., Inc.

3/F, ECI Bldg., Real cor. Arzobispo Sts.,

Intramuros, Manila

 

 

 

 

SYCIP SALAZAR HERNANDEZ & GATMAITAN

Counsel for Black River Asia Fund Ltd.,

and Black River Emerging Markets Credit Fund Ltd.

7/F, SSHG Law Center

105 Paseo de Roxas, 1226 Makati City

ANGELITO W. CHUA LAW OFFICE

Counsel for Liquigaz

Blk. 14 Lot 1, G.Diaz St.

Cor. Aurora Pijuan (Cul-de-Sac)

BF Resort Village, Talon 2, Las Pinas City

FLORENTINO AND ESMAQUEL LAW OFFICE

Counsel for Quaker Chemicals

Unit 1706, 17/F Prestige Tower Condominium F. Ortigas, Jr. Rd., (Emerald Avenue) Ortigas Center, 1605 Pasig City

MUNICIPALITY OF BALAYAN

Balayan, 4213 Batangas

SECURITIES AND EXCHANGE COMMISSION

EDSA corner Ortigas Ave.,

Mandaluyong City 1550

V

STATEMENT OF FACTS

 

 

 

  1. Steel Corp is a 100% Filipino–owned corporation engaged in the manufacture and production of cold-rolled coils (CRC) and high quality steel sheets. It owns the most modern and biggest integrated flat steel mill in the country today, built in 1998 and located in Balayan, Batangas.
  2. While Steel Corp had some early successes, it also had some setbacks brought about by the 1997 Asian Financial Crisis and the sudden huge devaluation of the peso against the US dollar resulting in foreign exchange losses to Steel Corp of some PhP1.3 billion.
  3. By 2001, Steel Corp and its creditors, who had recognized the operating difficulties and the effects of external factors, agreed to reschedule the company’s loans in an Omnibus Agreement, dated 19 December 20022

 

8.         Unfortunately, because of several factors beyond the control of Steel Corp, foremost among which was the creditor banks’ reneging on their commitment to provide additional working capital under the Omnibus Agreement, the latter was not fully implemented, such that in June 2006 Steel Corp requested the creditor-banks for a new debt restructuring plan.

 

9.         On 11 September 2006, even while negotiations for restructuring were still ongoing, BDO suddenly filed a creditor-initiated petition[2] to place Steel Corp under corporate rehabilitation docketed as Spec. Proc. No. 06-7993.  The case was assigned to Branch 2 of the Regional Trial Court (RTC) of Batangas City, the designated special commercial court for the Province of Batangas, presided by Judge Maria Cecilia I. Austria.

 

10.       About 15 months later, in a Decision dated 03 December 2007[3], the RTC approved what it referred to as the “Recommended” Rehabilitation Plan of the then rehabilitation receiver. Several parties,  including Steel Corp, promptly challenged this Decision before the Court of Appeals in four (4) separate petitions for review under Rule 43, docketed as CA-G.R. Nos. 101732 (Steel Corporation of the Philippines vs. Equitable PCI Bank, etc.), 101880 (DEG-Deutsche etc. vs. Steel Corporation of the Philippines et al.), 101881 (Equitable PCIBank Inc. vs. Steel Corporation of the Philippines, and 101913 (Investments 2234 Philippines Inc. vs Equitable PCIBank Inc. et al.), which were assigned to different divisions of the Court of Appeals.[4]

 

11.       The original Judge, Hon. Ma. Cecilia Austria, inhibited herself and the case was re-raffled to Judge Albert Kalalo who issued the following orders:

11.1    Order dated 28 October 2009[5] compelling the creditor-assignors who assigned their credits and their respective assignees to disclose the actual assignment/transfer price pursuant to Article 1634 of the Civil Code, which allows a debtor to release himself from debt by returning to the assignee whatever the amount the latter paid to the original creditor/assignor for the acquisition of said debt.

 

11.2    Orders dated 12 November 2008[6], 07 January 2009[7] and 28 July 2010[8] suspending the rehabilitation proceedings due to the pendency of several appeals and the unresolved issue of Article 1634.

11.3    Order dated 05 January 2010[9] ordering BPI as MTI Trustee to pay directly the contractors/suppliers of Steel Corp for the replacement of damaged spare parts out of the insurance proceeds which BPI was holding.

12.       On 03 July 2008, the Twelfth Division of the Court of Appeals, acting on CA-G.R. No. 101881 (EPCIBank, Inc. vs. Steel Corp. of the Phils.), rendered a Decision[10] setting aside the decision of the rehabilitation court and terminating the rehabilitation proceedings.

 

13.       From this decision, Steel Corp and DEG both appealed to the Supreme Court in the consolidated cases of G.R. No. 190462 and 190538 where the Supreme Court rendered a Decision on 17 November 2010[11], holding that the Court of Appeals cannot motu proprio terminate the proceedings because none of the parties asked for such relief. The Supreme Court then remanded the cases back to the Court of Appeals to be consolidated with CA-G.R. Nos. 101732, 101880 and 101913.

 

14.       However, after accepting the remand and having all the appeals from the Decision dated 3 December 2007 consolidated, another Division of the Court of Appeals, in a Resolution[12] dated 25 May 2012, refused to reconsider its earlier Decision in CA-G.R. No. 101732 terminating the rehabilitation proceedings.

15.       Thus, Steel Corp was constrained to file another petition for review[13] with the Supreme Court in G.R. Nos. 202006-09 praying for the reversal of the termination order.  The said cases are still pending with the Supreme Court as shown by the Resolution dated 30 July 2012[14].

16.       On 09 December 2010,[15] Judge Kalalo inhibited himself from presiding over the case to dispel any appearance of bias and sustained his Order dated 28 June 2010 suspending the proceedings in the rehabilitation case.  

17.       Thereafter, the case was transferred to the RTC Branch 3 of Batangas City presided over by Judge Ruben Galvez. The RTC then issued the Order dated 22 March 2011[16] appointing Atty. Norma Singson-De Leon as the new rehabilitation receiver of Steel Corp.

18.       Immediately upon receipt of the foregoing Order, Steel Corp filed on 29 March 2011 an Urgent Manifestation and Motion[17] dated 28 March 2011, praying that the RTC enjoin Atty. Singson-De Leon from assuming and performing the duties and functions of receiver of Steel Corp in view of the pendency of the issue on the necessity of appointing a receiver as raised in the Motion to Conduct Hearing[18] it has previously filed.

19.       Subsequently, Judge Galvez issued an Order dated 04 May 2011[19], on Steel Corp’s Motion to Resolve Critical Pending Incidents[20], partially granting Steel Corp’s Motion to Enforce/Implement Order dated 28 October 2009[21] and directing the creditors of Steel Corp to disclose within fifteen (15) days the actual price or consideration paid by them for Steel Corp’s debts that were assigned, in connection with Article 1634 of the Civil Code.

20.       The following day, Judge Galvez issued an Order dated 05 May 2011[22] (Recall Order). In observance of judicial courtesy, Judge Galvez recalled the 04 May 2011 Order considering the pendency of certiorari cases[23] (CA-G.R. Nos. 111556, 111560 and 112175) on the applicability of Article 1634.

21.       Subsequently, Judge Galvez issued the Order dated 09 May 2011[24] confirming the appointment of Atty. Singson-De Leon as rehabilitation receiver and denying Steel Corp’s Urgent Manifestation and Motion.

22.       Naturally aggrieved by the issuance of the 09 May 2011 Order, Steel Corp was constrained to institute in the Court of Appeals a petition[25] for certiorari under Rule 65 of the Rules of Court to assail the Orders dated 09 May 2011 and 22 March 2011.  The case is docketed as CA-G.R. SP NO. 119840 and pending at present.

23.       Pending resolution by this Honorable Court of CA-G.R. SP NO. 119840, Atty. Singson-De Leon filed a Motion to Direct Steel Corporation of the Philippines to Comply with the Receiver’s Requests as Listed in her Letters dated 07 June 2011 and 01 July 2011[26] dated 18 July 2011 (“Motion to Direct”), praying that Steel Corp, thru its officers, be ordered to perform the following acts:

 

  1. Provide the receiver with an office space at Philsteel Tower;
  2. Submit to the receiver weekly reports of daily disbursements, daily collections and cash every Tuesday of the week covering the report;
  3. Furnish the receiver with copies of the following:
    1. Minutes of all Board of Directors meeting from year 2008 to the present as well as minutes of all future board meetings;
    2. Proof of adequate funds set aside by SCP for payment to creditors in accordance with the approved rehabilitation plan, or at least, the equivalent of the fund requirement in the amortization schedule of SCP in its proposed rehabilitation plan up to this date;
    3. List of creditors of SCP and the corresponding amount owed by SCP as of May 31, 2011;
    4. List of debtor (Accounts receivables and other nontrade receivables of SCP) and the corresponding amount of claim of SCP as of May 31, 2011’
    5. List of real estate properties of SCP and the corresponding encumbrances, if any and if covered by valid and existing insurance and the details of insurance coverage thereof as of May 31, 2011;
    6. Other assets of SCP as of May 31, 2011;
    7. List of properties/inventories/assets covered by existing insurance;
    8. Interim Income Statement, Balance Sheet and Cash Flow Statement of SCP as of May 31, 2011 or the latest available Financial Statements;
    9. Cash Flow Statement for the period January 1 to May 31, 2011;

10. Audited Income Statement, Balance Sheet and Cash Flow Statements of SCP as of December 31, 2010;

11. Approved Rehabilitation Plan, including projected income statement, balance sheet, cash flow statement and schedule of amortization of liabilities;

12. Implementation status of the approved Rehabilitation Plan;

13. Names of key corporate officers of SCP and their respective positions.

 

  1. Steel Corp filed its Opposition[27] thereto arguing, among others, that the aforesaid motion should be denied based on judicial courtesy due to the pendency of CA-G.R. SP NO. 119840, which directly puts in issue the legality of the appointment of the receiver.  Steel Corp also argued that the motion is premature due to various pending appeals of Steel Corp as well as of three (3) principal creditors assailing the Approved Rehabilitation Plan (ARP), which Atty. Singson-De Leon seeks to implement. More importantly, there are three (3) certiorari cases with this Honorable Court assailing the disclosure Order of the rehabilitation court issued on 28 October 2009.  Thereafter, Atty. Singson-De Leon filed her Reply[28]  to the Opposition.
  2. Acting on the Motion to Resolve Omnibus Motion with Supplemental Motion for Execution[29] of one of the creditor banks, DEG-Deutsche Investitutions-und Entwicklungsgesellschaft MBH (“DEG”) dated 13 July 2011 and the Motion to Resolve Motion for Partial Execution[30] dated 03 January 2011 filed by creditor China Banking Corporation on the same issue of ordering Steel Corp to continuously comply with its alleged obligation to pay interest and principal amortization, Judge Galvez  issued an Order dated 03 October 2011[31] denying the said motions for being premature and in deference to the higher tribunals decision and/or resolution. The pertinent portions of the 03 October 2011 Order are hereunder quoted:

 

The Court is not unmindful of the plight of herein movant as well as the other secured creditors of SCP, but this time, the Court cannot as yet, resolve the aforesaid pending motions, fully aware of the related petitions mainly assailing the Approved Rehabilitation Plan, the imposable interest rate and the disclosure of assigned credits still pending before the Court of Appeals and the Supreme Court. Judicial courtesy and prudence dictate that the parties including this Court must await for the final resolution by the Appellate courts. Otherwise, it will be but a futile exercise.”  (Emphasis supplied)

 

 

 

  1. A few days after, inexplicably diverging from his supposed observance of judicial courtesy and prudence, Judge Galvez issued an Order dated 24 October 2011[32] granting Atty. Singson-De Leon’s motion and directing Steel Corp to give her access to the premises as receiver and to furnish copies of documents listed in her previous letters.  The RTC also directed Steel Corp to negotiate with receiver the amount of the receiver’s monthly fee.
  2. Thus, Steel Corp was constrained anew to institute another certiorari case[33] under Rule 65 before the Court of Appeals assailing the Order dated 24 October 2011, docketed as CA G.R. SP No. 122710.
  3. Thereafter, in November 2011, Atty. Singson-De Leon reiterated her request to Steel Corp for financial records and entry in the Balayan plant for inspection purposes, invoking the dismissal by the Court of Appeals of Steel Corp’s Petition for Certiorari in CA-G.R. No. 119840. According to Atty. Singson-De Leon, her appointment as rehabilitation receiver was thus affirmed. The following month, December 2011, Steel Corp communicated to her that the decision in the aforesaid CA case has not yet attained finality and thus Steel Corp could not accede to her request.
  4. Moreover, Steel Corp consistently assailed the purpose for which Atty. Singson-De Leon was being appointed as receiver when there was nothing that the new receiver could have done because, in fact, there were pending prejudicial issues that have yet to be resolved by the Court of Appeals, such as: (a) the four (4) appeals questioning the approved rehabilitation plan, (b) the right of Steel Corp to avail of Article 1634 of the Civil Code in order to reduce its total debt level, and (c) the recovery of its insurance claims in order to replace burned machinery and equipment. These matters were made known to Atty. Singson-De Leon.

30.       Notwithstanding the foregoing, Atty. Singson-De Leon insisted on the immediate implementation of the approved rehabilitation plan despite her knowledge of the pendency of the four (4) appeals questioning the same.

31.       Without any participation of Steel Corp, Atty. Singson-De Leon gratuitously claimed that she performed her duty as receiver by conducting an alleged investigation over a period of five (5) months from December 2011 to April 2012. In doing so, she rendered a Receiver’s Report III dated 11 June 2012[34]  which was received by the RTC on 19 June 2012, recommending the termination of the instant rehabilitation proceedings and the conversion thereof to liquidation proceedings pursuant to Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act (FRIA) of 2010.

32.       Based on the foregoing premises, it was not at all surprising that in her Receiver’s Report III dated 11 June 2012, Atty. Singson-De Leon went all out to paint a picture of Steel Corp as an insolvent corporation that could no longer be rehabilitated and must, therefore, be liquidated.

33.       Steel Corp timely filed its Comment (re: Receiver’s Report dated 11 June 2012).[35] Creditors BDO-EPCIB, DEG, Land Bank of the Philippines, Chinabank and Planters Development Bank filed their respective Manifestations[36] in connection with Atty. Singson-De Leon’s Receiver Report III, expressing their agreement thereto. Even at this point, Steel Corp was not aware that the FRIA already governs the rehabilitation proceedings as it was not informed thereof by the RTC.

34.       On 19 September 2012, Judge Galvez, in utter disregard of Steel Corp’s fundamental right to due process and shrugging off his declared observance of judicial courtesy, believed the dubious Receiver’s Report III and issued the assailed Liquidation Order[37]. It declared Steel Corp as dissolved and its corporate existence terminated. It also confiscated all the assets of the corporation. The dispositive portion thereof reads:

WHEREFORE, IN VIEW OF THE FOREGOING, the instant corporate rehabilitation proceedings are hereby converted to liquidation proceedings.

Pursuant to Section 112 of the Financial Rehabilitation and Insolvency Act of 2010, this Liquidation Order is hereby issued: (a) declaring debtor Steel Corporation of the Philippines as insolvent; (b) declaring debtor Steel Corporation of the Philippines as dissolved; (c) ordering the sheriff of the Regional Trial Court Branch 3, Batangas City to take possession and control of all the properties of the debtor, except those that may be exempt from execution; (d) ordering the publication of the Receiver’s Report III in a newspaper of general circulation once a week for two (2) consecutive weeks; (e) directing payments of any claims and conveyance of any property due debtor Steel Corporation of the Philippines to the liquidator; (f) prohibiting payments, and transfer of ay property by debtor Steel Corporation of the Philippines; (g) directing all creditors to file their claims with the liquidator within the period set by the rules of procedure; (h) authorizing the payment of administrative expenses as they become due.

Let this case be set for hearing on (date shall not be less than thirty [30] days nor more than forty-five [45] days from the date of the last publication) for the election and appointment of the liquidator. Debtor Steel Corporation of the Philippines as its creditors, who are not petitioners and its successors-in-interest, may submit the names of other nominees to the position of liquidator.

Pursuant to Section 113 of the Financial Rehabilitation and Insolvency Act of 2010: (a) debtor Steel Corporation of the Philippines is hereby deemed dissolved and its corporate or juridical existence terminated; (b) legal title to and control of all the assets of debtor Steel Corporation of the Philippines, except those that may be exempt from execution, are hereby deemed vested in the liquidator or, pending his election or appointment, with the court; (c) all contracts of debtor Steel Corporation of the Philippines are hereby deemed terminated and/or breached, unless the liquidator, within ninety (90) days from the date of his assumption of office declares otherwise and the contracting parties agrees; (d) no separate action for the collection of an unsecured claim shall be allowed, and all such actions already pending will be transferred to the Liquidator for him to accept and settle or contest. If the liquidator contests or disputes the claim the court shall allow, hear and resolve such contest except when the case is already on appeal. In such case, the suit may proceed to judgment, and any final and executor judgment therein for a claim against the debtor shall be final and executory judgment therein for a claim against the debtor shall be filed and allowed in court; and (e) no foreclosure proceeding shall be allowed for a period of one hundred eighty (180) days from issuance of this Order. (Emphasis supplied)

35.       Immediately thereafter, the Sheriff of RTC Br. 3, Nilo Q. Villalobos proceeded to issue and serve Notices of Garnishment[38] implementing the liquidation order. Sheriff Villalobos, with BDO lawyers, forcibly gained entry at the Balayan plant of Steel Corp last October 01, 2012, thereby disturbing the peaceful and continuous occupation by Steel Corp of its Balayan, Batangas plant.  Enumerated herein are the events which transpired at the Balayan plant as chronicled by Mr. Noel Angel L. Ong, Steel Corp’s plant manager in Balayan in his Memo dated 03 October 2012 and Affidavit dated 05 October 2012.[39]

35.1    On 01 October 2012, Sheriff Villalobos with BDO lawyer Atty. S. Quiambao insisted on entry for the purpose of allegedly serving the liquidation order. Employing intimidation and threats, they were able to get the said Order received by Ms. Balbina Plata, an Accounting Supervisor who was rendering overtime work at that time and notably unauthorized to receive official documents for Steel Corp.

35.2    On the same day, Sheriff Eufemio Alea and another BDO lawyer Atty. B. Mayo followed inside the Administration Office. BDO’s Atty. S. Quiambao issued a written authority to BDO Security Agency (Force Base) Officer-in-Charge Mr. J. Fernandez and detailed security guards from said Security Agency to secure ingress and egress.

35.3    Sheriffs Villalobos and Alea disallowed any ingress and egress of deliveries within the plant.

35.4    The Sheriffs padlocked and chained the front gate headed by Sheriff Alea.

35.5    Force Base Guards assembled for positioning at the front gate.

35.6    On 02 October 2012, Balayan Police Chief Inspector G. Laylo conducted police visibility inspection within the plant.

35.7    All Sheriffs, namely: Nilo Villalobos, Felino Lacanlalay, Eufemio Alea, Alex Diaz and Ramon Caniedo and BDO lawyers, Atty. Stephen Quiambao, Atty. Paul San Juan, Atty. Regie San Agustin, Atty. Irvin Alzona, Atty. Mikee Villa and Atty. Bernard Mayo and a certain Engr. John Carlo Cruz went to the Administration Office in preparation for the conduct of physical inventory of all assets and properties per Sheriff Villalobos.

35.8    The same group insisted thru Sheriffs Villalobos and Diaz to secure accounting copy of Steel Corp’s list of assets/inventory and HR’s list of total manpower.

35.9    Steel Corp’s ordeal continued and turned for the worst in the following days. Sheriff Villalobos and his unauthorized entourage of sheriffs, together with the same group of BDO lawyers and in the company of an increased number of private security personnel barricaded the entire Balayan plant. They completely shut down the operations of the plant, blocking a total of one hundred eighty (180) to one hundred ninety (190) e employees manning three (3) shifts from entering the plant and from operating the critical machinery and inductors.

35.10 On 04 October 2012, the BDO led group refused to allow the employees and workers manning the night shift who were then inside the plant to leave the premises after the end of their shift the following morning, thereby deliberately and illegally detaining them for a number of hours. They were released only around 1:00 o’clock in the afternoon.

 

35.11  By the end of 04 October 2012, BDO and its cohorts completely, albeit illegally managed to wrist away the control and possession of the Balayan plant from Steel Corp and has taken illegal and full take-over of the same.

35.12  The Sheriff of the rehabilitation court likewise issued and served notices of garnishment to several depository banks and trade creditors of Steel Corp.

36.       Clearly, the rehabilitation court is bent on implementing its liquidation order and burying Steel Corp without due process.

 

Hence, this petition for review.

V

ISSUES

A.        WHETHER OR NOT THE FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA) OF 2010 IS APPLICABLE TO SPEC. PROC. NO. 06-7993.

B.         WHETHER OR NOT SECTION 92 OF THE FRIA, WHICH AUTHORIZES THE CONVERSION OF THE REHABILITATION PROCEEDINGS TO LIQUIDATION PROCEEDINGS UPON THE MERE RECOMMENDATION OF THE REHABILITATION RECEIVER, IS UNCONSTITUTIONAL FOR BEING VIOLATIVE OF DUE PROCESS.

C.        WHETHER OR NOT THE RTC COMMITTED ERRORS OF FACT AND LAW IN ISSUING THE LIQUIDATION ORDER DATED 19 SEPTEMBER 2012.

D.  WHETHER OR NOT THE RTC VIOLATED THE DOCTRINE OF JUDICIAL COURTESY IN PREEMPTING THE RESOLUTION OF THE SUPREME COURT ON THE ISSUE OF TERMINATION IN G.R. NOS. 202006-09.

E.         WHETHER OR NOT THE RTC ACTED WITH EXTREME GRAVE ABUSE OF DISCRETION WHEN IT ISSUED THE LIQUIDATION ORDER WHICH IS A COMPLETE REVERSAL OF ITS PREVIOUS ORDERS SUSPENDING THE REHABILITATION PROCEEDINGS AND DENYING THE MOTION FOR EXECUTION TO IMPLEMENT THE REHABILITATION PLAN DUE TO PENDENCY OF PREJUDICIAL ISSUES BEFORE THE APPELLATE COURTS.

VI

GROUNDS RELIED UPON FOR

THE ALLOWANCE OF THE PETITION

 

 

A.        THE FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA) OF 2010 IS NOT APPLICABLE TO SPEC. PROC. NO. 06-7993.

B.         SECTION 92 OF THE FRIA IS VOID FOR BEING PATENTLY VIOLATIVE OF CONSTITUTIONAL DUE PROCESS.

C.        AT ANY RATE, THE LIQUIDATION ORDER DATED 19 SEPTEMBER 2012 IS VOID FOR HAVING BEEN ISSUED IN OUTRAGEOUS VIOLATION OF STEEL CORP’S CONSTITUTIONAL RIGHT TO DUE PROCESS.

D.        A [RE]-DETERMINATION OF THE FEASIBILITY OF THE CORPORATE REHABILITATION OF STEEL CORP IS PREMATURE.

E.         THE EVIDENCE MUSTERED BY THE REHABILITATION RECEIVER AND ADOPTED IN TOTO BY THE REGIONAL TRIAL COURT (RTC) DOES NOT ESTABLISH A PREPONDERANCE OF EVIDENCE THAT THE REHABILITATION OF STEEL CORP IS NO LONGER FEASIBLE.

F.         STEEL CORP IS NOT INSOLVENT. HENCE, LIQUIDATION IS IMPROPER.

G.        THE RTC VIOLATED THE DOCTRINE OF JUDICIAL COURTESY, WHICH IT HAS REPEATEDLY INVOKED IN SEVERAL ORDERS, BY PREEMPTING THE RESOLUTION OF THE ISSUE ON TERMINATION PENDING IN G.R. NOS. 202006-09 AND THE ISSUE OF THE APPLICATION OF ARTICLE 1634 OF THE CIVIL CODE WHICH WOULD SUBSTANTIALLY REDUCE THE DEBT LEVEL AND SIGNIFICANTLY ENHANCE THE SUCCESS OF STEEL CORP’S REHABILITATION.

H.        THE RTC ACTED WITH EXTREME GRAVE ABUSE OF DISCRETION WHEN IT ISSUED THE LIQUIDATION ORDER WHICH IS A COMPLETE REVERSAL OF HIS PREVIOUS ORDERS SUSPENDING THE REHABILITATION PROCEEDINGS AND DENYING THE MOTION FOR EXECUTION TO IMPLEMENT THE REHABILITATION PLAN DUE TO PENDENCY OF PREJUDICIAL ISSUES BEFORE THE APPELLATE COURTS.

  1. ASSUMING ARGUENDO THAT SECTION  92 OF THE FRIA IS VALID, NEVERTHELESS, THE RTC COMMITTED A GRAVE ERROR WHEN IT MADE A LITERAL, PLAIN AND VERY SIMPLISTIC INTERPRETATION OF SECTION 92 IN VIOLATION OF THE ACCEPTED RULES ON STATUTORY CONSTRUCTION.

VII

ARGUMENTS/DISCUSSION

 

 

A.        THE FINANCIAL REHABILITATION AND INSOLVENCY ACT (FRIA) OF 2010 IS NOT APPLICABLE TO SPEC. PROC. NO. 06-7993.

 

 

37.       Section 146 of the FRIA provides:

 

Section 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. – This Act shall govern all petitions filed after it has taken effect. All further proceedings in insolvency, suspension of payments and rehabilitation cases then pending, except to the extent that in opinion of the court their application would not be feasible or would work injustice, in which event the procedures set forth in prior laws and regulations shall apply. (Emphasis supplied)

 

 

38.       Spec. Proc. No. 06-7993 has already gone so far in order to rehabilitate Steel Corp. Almost five (5) years have already been spent finding the best ways to rehabilitate the company. The RTC has already issued the Order dated 28 October 2009 finding Article 1634 of the Civil Code applicable to the assignments of Steel Corp’s debt papers and which results in the enormous reduction of Steel Corp’s total debt level. Rehabilitation may not even be necessary in view thereof. Suddenly the RTC issues the liquidation order killing Steel Corp and divesting it of all its assets? The injustice cannot be more pronounced. Applying the FRIA is no longer feasible in view of the Orders issued by the RTC itself which have far-reaching implications on the financial condition of Steel Corp.

39.       Significantly, the rules and regulations implementing the FRIA have yet to be issued by the Supreme Court. In this connection, the second paragraph of Section 3 of the FRIA states that “the proceedings shall be conducted in a summary and non-adversarial manner consistent with the declared policies of this Act and in accordance with the rules of procedure that the Supreme Court may promulgate”. How can anybody proceed under Section 92 of the FRIA, specifically on the conversion from rehabilitation direct to liquidation proceedings upon the mere recommendation of the rehabilitation receiver, in the absence of the implementing rules providing the guidelines, standards and parameters applicable?

40.       Considering that the Interim Rules of Procedure on Corporate Rehabilitation are still the rules applicable to Steel Corp and the same do not have any provision granting the rehabilitation court the power to convert rehabilitation to liquidation proceedings, it is clear that the RTC acted without jurisdiction in its issuance.  The only power vested in the rehabilitation court is to terminate rehabilitation proceedings on the grounds provided therein which does not include the power to dissolve the debtor because the court exercises only summary and limited jurisdiction.

41.       In other words, the RTC did not have the authority to apply the FRIA to the on-going rehabilitation of Steel Corp, terminate the proceedings and automatically convert it into one of liquidation. Steel Corp’s right to be covered by the Interim Rules has already ripened into a vested right.[40] The RTC cannot, therefore, even without the implementing rules of the FRIA and despite the pendency of the issue of termination before the Supreme Court in G.R. Nos. 202006-09, order the liquidation of the petitioner.

42.       Moreover, the FRIA is clear when it provided in its Section 146 that its provisions cannot be made applicable on pending rehabilitation cases when such application would not be feasible or would work injustice, in such case, according to such section “the procedures set forth in prior laws and regulation shall apply”.

 

B.         SECTION 92 OF THE FRIA IS VOID FOR BEING PATENTLY VIOLATIVE OF CONSTITUTIONAL DUE PROCESS.

 

43.       The constitutional safeguard of due process is embodied in the fiat that “[n]o person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws”.[41] It is a constitutional restraint on the legislative as well as on the executive and judicial powers of the government.[42]

  1. The purpose of the guaranty is to prevent governmental encroachment against the life, liberty and property of individuals; to secure the individual from the arbitrary exercise of the powers of the government, unrestrained by the established principles of private rights and distributive justice; to protect property from confiscation by legislative enactments, from seizure, forfeiture, and destruction without a trial and conviction by the ordinary mode of judicial procedure; and to secure to all persons equal and impartial justice and the benefit of the general law.[43]
  2. This clause has been interpreted as imposing two separate limits on government, usually called “procedural due process” and “substantive due process.” Procedural due process, as the phrase implies, refers to the procedures that the government must follow before it deprives a person of life, liberty, or property.[44] It “refers to the method or manner by which the law is enforced”. It consists of the two basic rights of notice and hearing, as well as the guarantee of being heard by an impartial and competent tribunal. Non-observance of these rights will invalidate the proceedings. Individuals are entitled to be notified of any pending case affecting their interests; and upon notice, they may claim the right to appear therein, present their side and refute the position of the opposing parties.[45]
  3. The effects of a liquidation order are devastating. It terminates a debtor’s juridical existence and divests it of legal title to and control of all its assets[46], among others. Section 92 of the FRIA, however, conditions its issuance upon the mere recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible. Thus:

Section 92. Conversion by the Court into Liquidation Proceedings. – During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof. (Emphasis supplied)

 

 

 

  1. A liquidation order kills a corporation and confiscates its properties, and yet it denies a debtor the right to contest the findings and conclusions of the rehabilitation receiver and the right to be heard. This unduly oppressive proviso of the FRIA is clearly unconstitutional.
  2. It is the duty of the courts to nullify laws that contravene the due process clause of the Bill of Rights. This task is at the heart not only of judicial review, but of the democratic system, for the fundamental guarantees in the Bill of Rights become merely hortatory if their judicial enforcement is unavailing.[47]

 

C.        AT ANY RATE, THE LIQUIDATION ORDER DATED 19 SEPTEMBER 2012 IS VOID FOR HAVING BEEN ISSUED IN OUTRAGEOUS VIOLATION OF PETITIONER’S CONSTITUTIONAL RIGHT TO DUE PROCESS.

 

 

  1. To begin with, the due process guaranty serves as a protection against arbitrary regulation, and private corporations and partnerships are “persons” within the scope of the guaranty insofar as their property is concerned.[48]
  2. According to the RTC, its task is “to determine if the rehabilitation of SCP is no longer feasible”.[49] This task is, without question, grave considering its potential unsettling impact, especially to Steel Corp. But the RTC completed this task without even affording Steel Corp a day in court. No evidentiary hearing was called by the RTC prior to the issuance of the liquidation order. It swallowed hook, line and sinker, so to speak, the comments and observations and findings and conclusions of the rehabilitation receiver in her Receiver’s Report III. This is clear from its following declarations:

 

SCP, rather than refuting the factual comments and observations of Atty. Singson-de Leon in her Report, chose to question her methodology and, to some extent, her integrity. But The Rehabilitation Receiver, being a court-appointed rehabilitation receiver, is first and foremost an officer of the court (Section 14, Rule 4, Interim Rules; Section 31, the FRIA). As an officer of the court, she has in her favor the presumption of regularity in the performance of her sworn duties and responsibilities (People v. Del Rosario) and her opinion deserves utmost consideration by this Court.

x          x          x          x          x

           As it stands, the following factual findings and conclusions of the Rehabilitation Receiver have not been satisfactorily refuted by contrary evidence:

x          x          x          x          x

 

. . . This Court finds the Rehabilitation Receiver’s Report to be reliable, credible and convincing.

x          x          x          x          x

 

This Court is not unmindful of its Order dated October 3, 2011, but with the submission of the Report recommending conversion to liquidation proceedings based on findings that are supported by credible and convincing evidence, this Court is duty-bound to urgently act on her recommendation, pursuant to the declared policy of the FRIA under Section 2 thereof that “when rehabilitation is not feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation of the debtor’s assets and the settlement of their obligations. (Emphasis supplied)

 

 

  1. The RTC states, citing the case of San Jose Timber et al. v. Securities and Exchange Commission[50], that “the burden of demonstrating, by convincing and compelling evidence, that rehabilitation can be successful lies with the debtor”[51], and that the factual findings and conclusions of the rehabilitation receiver in her Report have not been satisfactorily refuted by contrary evidence.[52] It also faults Steel Corp for not refuting the factual comments and observations of the rehabilitation receiver. It seems to be oblivious of the fact that the Receiver’s Report III was not set for hearing and it has not given Steel Corp a day in court to present its own evidence to refute the patently baseless conclusions of the rehabilitation receiver.
  2. The consequence of a liquidation order is outright deprivation of corporate life and confiscation of Steel Corp’s property based solely on the recommendation of the rehabilitation receiver. And yet the RTC did not set the Receiver’s Report III for hearing, accepting her comments and observations as gospel-truth and, on the basis thereof, decreed the death of Steel Corp.
  3. It does not suffice that Steel Corp was given the opportunity to file, as it did file, a Comment on the Receiver’s Report III. A day in court is a matter of right in judicial proceedings. [53] In criminal cases where a constitutional presumption of innocence exists, procedural judicial due process requires that judgment be rendered upon lawful hearing where factual issues are tested through direct and cross-examination of witnesses to arrive at proof beyond reasonable doubt. In civil cases, evidentiary hearings are likewise a must to establish the required preponderance of evidence. [54]
  4. A.M. No. 00-8-10-SC promulgated by the Supreme Court on 04 September 2001 provides that a petition for rehabilitation is considered a special proceeding given that it seeks to establish the status of a party or a particular fact. The burden of proof in special proceedings is likewise preponderance of evidence.[55] At any rate, since rehabilitation proceedings are judicial proceedings, Steel Corp has the right to an evidentiary hearing, of which it was denied by the RTC.
  5. Doctrinally, a decision rendered in disregard of the fundamental right of due process is void.[56]

 

D.        A [RE]-DETERMINATION OF THE FEASIBILITY OF THE CORPORATE REHABILITATION OF STEEL CORP IS PREMATURE.

 

 

  1. Steel Corp has filed a Petition for Review on 09 January 2008 docketed as CA-G.R. No. 101732, asking the Court of Appeals to set aside, revoke or annul the Decision of 03 December 2007 which contains the Approved Rehabilitation Plan (ARP) or, in the alternative, to approve its Updated Counter Rehabilitation Plan, or in the alternative, to modify the Decision dated 03 December 2007. It has also filed a Supplemental Petition for Review asking for the reduction of the amount of its sustainable debt by PhP896 million, the conversion of the unsustainable debt of PhP2.180 billion into non-interest bearing promissory notes payable over three (3) years, instead of converting the same into equity, the confirmation of the total Steel Corp debt at PhP6.945 billion by using the dollar-peso exchange rate prevailing when the rehabilitation was approved on December 3, 2007 (or PhP42.759:US$1), and the approval of its Revised Updated Counter Rehabilitation Plan.
  2. At least three (3) other petitions were filed before the Court of Appeals, namely, CA-G.R. SP. No. 101880 which was filed by DEG, CA-G.R. No. 101881 which was filed by BDO and CA-GR. No. 101913 which was filed by Investments 2234 Philippines Fund (SPV-AMC), Inc., all of which are asking for the modification of the Decision dated December 3, 2007. [BDO subsequently asked for the termination of the rehabilitation proceedings in CA-G.R. No. 101881]. All of said cases are still pending.
  3. In addition, the RTC has issued the Order dated 28 October 2009 declaring that the debts assigned to Deutsche Bank AG London (by RCBC), BDO (by Equitable PCI Bank, Inc.), Black River Emerging Market Credit Fund Ltd. (by Deutsche Bank, AFIC Labuan Ltd.) and Creditor Investments 2234 Philippines Fund, Inc. (by BPI, Chinatrust Phils., Commercial Banking Corporation) are debts in litigation and hence Article 1634 of the Civil Code applies to the assignment.

59.       At least three (3) other petitions were filed with the Court of Appeals in connection with the Order dated 28 October 2009: CA-GR. No. 111556 which was filed by Deutsche Bank AG, CA-G.R. No. 111560 which was filed by Investments 2234 Philippines Fund, Inc. and CA-GR. No. 112175 which was filed by BDO. All the said cases are still pending with the Court of Appeals.

60.       The RTC itself has recognized the significance of the aforesaid cases. Hence, in the Order dated 28 July 2010, it stated:

 

 

The overriding importance of the disclosures sought in the Order of 28th October 2009 cannot be overemphasized as confirmed by the fact that three of the largest assignees/creditors have questioned before the Court of Appeals, by way of certiorari in C.A. Nos. 111560, 111560 and 112175 the correctness of the said Order and the applicability of Article 1634 of the Civil Code in this proceeding. The decisions in these latter cases would surely affect and have a great impact on the present proceedings and therefore would render nugatory any action that this Court may take under the premises. Otherwise stated, there is clear danger that a precipitate action by this Court on the issues now obtaining in this proceeding will render any decision by the appellate courts, in the aforesaid appeals, moot and academic.

 

x          x          x          x          x

 

This Court had in fact earlier invoked the same consideration of judicial courtesy as basis for its Orders dated November 12, 2008 and January 7, 2009. Moreover for practical reconsideration likewise, it would be impractical to continue with the implementation of the approved rehabilitation plan when the amount of the total debt and the interests rate applicable thereon are still pending resolution with the Court of Appeals and the fate of the rehabilitation of SCP still pending with the Supreme Court.

PREMISES CONSIDERED, the proceedings in this rehabilitation case are suspended until the final outcome of all certiorari cases with the Court of Appeals and the appeal pending with the Supreme Court. (Emphasis supplied)

 

 

 

61.       The RTC has also previously suspended the rehabilitation proceedings in the Orders dated 12 November 2008 and 07 January 2009. These Orders were subsequently reiterated in the Order dated 3 October 2011, where the RTC denied the Motions for Execution to implement the ARP filed by DEG and Chinabank, and where it said:

The Court is not unmindful of the plight of herein movant as well as the other secured creditors of SCP but this time, the Court cannot, as yet, resolve the aforesaid pending motions, fully aware of the related petitions mainly assailing the Approved Rehabilitation Plans, the imposable interest rate and the disclosure of assigned credits still pending with the Court of Appeals and the Supreme Court. Judicial courtesy and prudence dictate that the parties including this Court must await for the final resolution by the appellate courts. Otherwise, it will be but a futile exercise.”  (Emphasis supplied)

 

 

 

62.       Given the pendency of the foregoing cases, from the very fact that the creditors themselves have been assailing the ARP and since a final ruling on the applicability of Article 1634 of the Civil Code is determinative, inter alia, of the total debt level of Steel Corp, any judgment on the feasibility of the rehabilitation of Steel Corp is clearly premature.

 

E.         THERE IS NO PREPONDERANCE OF EVIDENCE THAT THE REHABILITATION OF STEEL CORP IS NO LONGER FEASIBLE.

 

 

63.       The RTC states:

 

 

 

All told, there is strong and sufficient basis to convert the present rehabilitation proceedings to liquidation proceedings pursuant to Section 92 of the FRIA, to wit:

 

Section 92. Conversion by the Court into Liquidation Proceedings. – During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act; or at any other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof. (Emphasis supplied)

 

 

This Court is not unmindful of its Order dated October 3, 2011, but with the submission of the Report recommending conversion to liquidation proceedings based on findings that are supported by credible and convincing evidence, this Court is duty-bound to urgently act on her recommendation, pursuant to the declared policy of the FRIA under Section 2 thereof that “when rehabilitation is not feasible, it is in the interest of the State to facilitate a speedy and orderly liquidation of the debtor’s assets and the settlement of their obligations. The Court cannot close its eyes to the alarming and irreversible financial quagmire that SCP is now in. Thus, the Court is called upon to intervene in order to preserve the assets of SCP to the benefit of all its stake holders. (Emphasis supplied)

 

64.       Again, it is clear that the only basis for the RTC’s issuance of the liquidation order is the recommendation of the rehabilitation receiver. Indeed, it mentions no other evidence in the liquidation order.

65.       First of all, it must be stated that the rehabilitation receiver already have preconceived notions about Steel Corp even before she conducted activities leading to the Receiver’s Report III. This became evident in her 5 September 2011 Reply (to Steel Corp’s Opposition to her Motion to Direct Steel Corp to comply with her letter requests) where she expressly admitted that the purpose of her Motion to Direct was to find out if Steel “can still be rehabilitated” or whether it should be “immediately liquidated”, to wit:

 

 

The receiver is aware of the pending issues such as the insurance claims, the disclosure order, the repayment scheme and interest rates, among others. Given these issues and with the documents requested, the receiver aims to find out if SCP can still be rehabilitated especially because it already defaulted in its obligations in the approved rehabilitation plan”. . . .

x x x    Hence, at any and all times during the pendency of the rehabilitation proceedings, the corporation must be evaluated and monitored to show if indeed it can pay and extinguish the present value of its indebtedness as a going concern rather than having it immediately liquidated. . . . (Emphasis supplied)

 

 

66.       From the foregoing, it is clear that the rehabilitation receiver never truly intended the rehabilitation of Steel Corp and was just fishing for evidence to support her premeditated objective of terminating the rehabilitation proceedings and liquidating the corporation.  It is difficult to see how she could still be impartial and objective regarding Steel Corp’s capability of being rehabilitated considering that she had concluded that it “already defaulted in its obligations in the approved rehabilitation plan”. This prejudgment was made despite her avowed knowledge of the pending issues in the appellate courts, such as the “insurance claims, the disclosure order, the repayment scheme and interest rates, among others” which if finally decided in favor of Steel Corp, would clearly contradict her premature conclusion that Steel Corp already “defaulted in its obligations in the approved rehabilitation plan”. Besides, the rehabilitation receiver simply glossed over the fact that there is no rehabilitation plan to implement in the first place considering that the RTC has suspended the proceedings since November 2008.

67.       It is a basic rule of evidence that a party has the burden of proving his own affirmative allegations.[57] The rehabilitation receiver must thus establish her case by a preponderance of evidence, relying on the strength of her own evidence.[58] But it is obvious that her much vaunted “credible and convincing evidence” is merely based on outdated and incomplete evidence and her own speculative opinion and hearsay statements.

68.       The RTC declares:

 

Since all these findings and conclusions are supported by official records submitted by SCP itself to various government agencies, i.e., Bureau of Internal Revenue, Securities and Exchange Commission, permits and License Division of the Municipality of Balayan, Batangas, and Office of the Provincial Treasurer of Batangas, this Court is bound to rely on these official records. Thus, this Court finds the Rehabilitation Receiver’s Report to be reliable, credible and convincing.[59]

 

 

69.       The rehabilitation receiver’s report on the financial status of Steel Corp is largely based on its 2010 unaudited financial statements. It is already 2012. In short, her speculative opinion is based on an out-of-date financial statement that is no longer reflective of Steel Corp’s current financial condition. This is very significant considering that, as noted by the RTC, much of her report was based on data she gathered from various government agencies and third party sources.[60] The only financial document she mentions coming from these agencies that represents the financial condition of Steel is the 2010 unaudited financial statements.

70.       The rehabilitation receiver herself states in the Receiver’s Report III that there are no available data on the EBITDA (earnings before interest, tax, depreciation and amortization) for 2010 and 2011, and that there are also no available actual gross profit figures in 2011. She merely speculated that the gross profit of Steel Corp for 2011 will only be PhP258M (as against the projected profit of PhP786M for the same year) based on a 10% historical gross profit margin.

71.       It is plain that any judgment on the feasibility of Steel Corp’s rehabilitation cannot be made without information as to its current financial condition. The question then is simple — how in the world can anyone make a competent judgment as to the current financial condition of Steel Corp on the basis of incomplete and outdated evidence? It goes without saying that Atty. Singson-De Leon merely based her assessment on sheer conjecture.

72.       The rehabilitation receiver claims that Steel Corp has not complied with the provisions of the ARP, that it failed to achieve the desired targets or goals in the plan, that the amortization schedule of the plan cannot be supported by Steel Corp’s financial condition, and that the capital assets of Steel Corp cannot support the plan, and hence the plan cannot be implemented in accordance with its terms, conditions, restrictions or assumptions.  In essence, her observation is that Steel Corp has not complied with the terms and conditions of the ARP. Precisely, Steel Corp (and three other parties) has assailed this Approved Rehabilitation Plan because it is not feasible or workable and was mainly designed to ensure its failure in order to achieve the take-over objective of BDO. Thus, her observations on this matter merely stress the obvious and confirm the position of Steel Corp which, to reiterate, wanted the RTC to adopt and approve instead, its Revised Updated Counter Rehabilitation Plan. Therefore, it would be futile and utterly baseless and unfair to conclude that Steel Corp cannot be rehabilitated using the ARP as the sole standard because Steel Corp (and three other parties) is precisely questioning the said plan. To reiterate, there is no ARP to implement in the first place because the RTC has suspended the proceedings since November 2008.

73.       Other than the 2010 unaudited financial statements, the rehabilitation receiver has apparently foisted as evidence hearsay statements as basis for her recommendation.

74.       From December 2011 up to April 2012, the rehabilitation receiver reports that she and her team undertook five trips to Balayan, Batangas, to verify if the Steel Corp plant has ceased operations.  She claims that she arrived at the conclusion that Steel Corp was “not fully operating, if operating at all” (and should therefore be liquidated) as a result of the following information she obtained during those five memorable and exciting sightseeing trips which she dubbed the “highlights” of her activities:

  1. On the two occasions she visited Steel Corp’s Balayan plant on November 9 and December 19, 2011, she alleged to have “noticed that about half of the very spacious Administrative Building was unoccupied despite the numerous employees’ tables and chairs” and that “the lights in the unoccupied area were turned off”.[61]
  2. She misquoted one of Steel Corp’s employees by the name of Mr. Abet Ramos whom she claimed to have told her “that the plant has ceased operations a long time ago and that the equipment were only being mothballed to maintain them in running condition”.[62]
  3. She alleged to have interviewed “a person manning a small store adjacent to the plant premises” and was able to elicit the following information, i.e., “that after the fire, the plant would only operate once or twice a month and that operations used to be 24 hours daily with three shifts but this practice also ceased after the fire.”[63]
  4. After observing Steel Corp’s plant activity from outside the plant “for about 2 hours” on January 6, 2012 and then again on January 10, 2012, she claimed that her team “did not see smoke emanating from the chimneys and did not hear any noise coming from the plant”.[64]
  5. She alleged that, on February 3, 2012, she interviewed one of the guards in Steel Corp’s plant who informed her that “there was activity at the CGL only” and that “most of the time, the plant was not operating”.[65]
  6. She admitted to have illegally/improperly obtained confidential and privileged information on Steel Corp when she reported that she “took pictures of the time cards of plant personnel and counted the same” and that “(t)here were 111 time cards in the ‘time-in’ racks and 86 in the ‘time-out’ racks”.[66]
  7. She admitted to have obtained other information on Steel Corp by engaging in gossip and rumor mongering when she reported that she interviewed “some repairmen who requested to inspect and conduct maintenance and repairs on the NCL machine which, according to the said repairmen, vibrates and needs repairs”.[67]
  8. She admitted to have illegally/improperly obtained other confidential and privileged information on Steel Corp from the offices and personnel of the Social Security System, the Bureau of Internal Revenue, the Provincial Government of Batangas, and the Municipal Government of Balayan.[68]

75.       It is crystal clear that the rehabilitation receiver has absolutely no understanding and appreciation of how a manufacturing company, in general, and Steel Corp, in particular, operates when she erroneously concluded that (i) Steel Corp’s plant operations must not be going well because “about half of the very spacious Administrative Building was unoccupied”; and that (ii) Steel Corp’s Balayan plant is not operating whenever there was no smoke coming out of the chimneys and noise coming from the plant.  She obviously is unaware that Steel Corp’s products are produced on the production floors and not in the Administrative Building and that not all production activities at Steel Corp’s Balayan plant produces smoke and noise. In fact, the plant’s finishing lines, which are always in operation, do not produce any smoke at all nor any noise that is audible outside the plant.

 

76.       She, and by transitivity the RTC, obviously gave so much credence and weight to the statements of people who are obviously as uninformed and nescient as she is about Steel Corp’s business and operations, such as, (i) the “person manning a small store adjacent to the plant premises;”[69] (ii) a security guard at the plant who even admitted to the receiver that he did not know what the CGL was;[70] and (iii) to “some repairmen”[71] she coincidentally encountered at the plant’s gate talking about an “NCL machine” that does not even exist in Steel Corp’s plant.

77.       She deliberately misquoted Steel Corp’s Mr. Abet Ramos in her desperate attempt to justify her unfounded claim that Steel Corp was “not fully operating, if operating at all”.[72] The proof that she knowingly misquoted Mr. Ramos is her own report that, when she went to Steel Corp’s Balayan plant on 19 December 2011, “there was noise coming from the plant and smoke emanating from the large chimneys” and that she also “noticed a few delivery trucks leave the premises”.[73] These are all indications that the plant has not “ceased operations a long time ago and that the equipment were only being mothballed to maintain them in running condition” as she claimed Mr. Ramos told her.

78.       Additionally, the comments/observations denominated as E, F and H of the Receiver’s Report III are merely based on speculative opinion and analysis of the rehabilitation receiver. Paragraph E, concerning the fire insurance proceeds and the acquisition cost of assigned debts, are admittedly the subject of pending cases or litigations, the outcome of which can either be in favor of or against Steel Corp.  However, Steel Corp cannot be faulted for relying on the opinions of its legal counsels who have pointed out that there are strong grounds under the law for taking such a position.  Steel Corp is certainly acting within its rights by initiating legal actions to recover the insurance proceeds from its insurers to replace damaged machineries and equipment, as well as to reduce its total debt level by invoking Article 1634 of the Civil Code in order to make its Revised Updated Counter-Rehabilitation Plan more feasible and, lastly, to avail of the tax waiver privilege granted under the FRIA to conserve its cash position. These actions are all designed to make the Revised Updated Counter-Rehabilitation Plan workable and feasible and the creditors cannot in good faith begrudge Steel Corp for filing these actions in order to protect its interest and avail of legal remedies to which it is entitled under the law.

79.       The more important point to emphasize about the information gathered by the rehabilitation receiver during those memorable sightseeing trips is that they are pure hearsay and would not be admissible in evidence in a court of law.  And yet, this is the very same type of information which she “highlights” and which she offers as evidence for her preconceived conclusions in her report.  The report simply has no basis.

F.         STEEL CORP IS NOT INSOLVENT. HENCE, LIQUIDATION IS IMPROPER AND BASELESS.

80.       It is clear from Chapter V of the FRIA, on “Liquidation of Insolvent Juridical Debtors”, that Steel Corp may only be liquidated if it is insolvent.

81.       Atty. Singson-De Leon opined that Steel Corp’s assets as reflected in its 2010 financial statements “appear to be overstated”. She arrived at this conclusion by stating that the PhP3.97 billion in revaluation surplus was not sufficiently explained in the financial statements, and which should therefore be fully deducted from the total assets of P12.2 billion.  She thus surmised that “it would appear that the adjusted value of the SCP assets as of December 31, 2010 would only be P8,302,670,186”.

82.       She also concluded that Steel Corp’s total debt level stated in the 2010 financial statements are “understated” by adjusting (i.e., increasing) the debt level determined in the approved rehabilitation plan, i.e., PhP7,076,468,905.00, by adding to the amount the unpaid interest on bank loans totalling PhP528,482,191. Doing thus, she surmised that the “adjusted total liabilities of SCP as of December 31, 2010 should be P8,928,199,367”.

83.       Based on her foregoing arbitrary “adjustments”, she immediately concluded that “it would appear that SCP’s total liabilities are now greater than its assets, or a difference of P625,529,181  which only signifies that SCP is now in a state of insolvency”.

84.       Firstly, it is important to reiterate that Atty. Singson-De Leon’s conclusion of the supposed insolvency of Steel Corp is founded on unaudited 2010 financial statements. At any rate, the methodology she employed in arriving at her conclusion of insolvency is simply appalling.

85.       It is clear that she totally disregarded the amount of revaluation surplus which were already recognized by the previous auditors who signed the previous Audited Financial Statements. Why she disregarded the audit reports/opinions of those auditors and/or totally ignored them, is indicative either of bad faith in disregarding audit reports that contradict her position, or simple bewilderment for being incapable of recognizing relevant financial data.

  1. While she claims that the revaluation surplus was not sufficiently explained, the following is very clear under Note 10 of the Notes to the 2011 Audited Financial Statements, prepared by Steel Corp’s external auditors:

An independent valuation of the Company’s revalued property, plant and equipment was performed by Asian Appraisal Company, Inc. to determine the fair value of the revalued property, plant and equipment. The valuation was determined by reference to Market Data and Cost Approach. The effective date of the valuation is December 31, 2005. The revaluation surplus is disclosed in Note 16.

  1. Note 16 of the Notes to the 2011 Audited Financial Statements prepared by Steel Corp’s external auditors states:

The revaluation surplus arises on the revaluation of property, plant and equipment as disclosed in Note 10. When revalued property, plant and equipment are sold, the revaluation surplus that relates to the property, plant and equipment sold is effectively realized and transferred directly to retained earnings. When revalued property, plant and equipment are depreciated, the difference between the depreciation based on the revalued carrying amount of the property, plant and equipment and depreciation based on the property, plant and equipment’s original cost is the amount of revaluation surplus to be transferred directly to equity.

  1. It must be noted that Asian Appraisal Company which appraised Steel Corp’s fixed assets is an independent and reputable appraisal company.

89.       Anent the “unpaid interest on bank loans”, adding the said amounts, which are still under litigation in the pending appeals, to the total liabilities of Steel Corp clearly smacks of bias and prejudice or simple incapacity to understand consistent with her preconceived objective to liquidate Steel Corp. The rehabilitation receiver is aware of the fact that the RTC has denied DEG’s Supplemental Motion for Execution which computed the interest due on the sustainable debt at PhP528,000,000 as of June 2, 2011 because she herself reported this in her Receiver’s Report II dated November 18, 2011.

90.       The apparent inconsistency in treating the aforesaid “adjustments” is not totally unexpected coming as it does from someone whose track record of receivership is replete with liquidations that tend to confirm her apparent bias towards liquidation and not rehabilitation.

91.       More importantly, the conclusion of insolvency cannot be made to depend on the incomplete and unaudited 2010 financial statements gathered by the rehabilitation receiver, especially when the current and Audited Financial Statements confirm that Steel Corp is not at all insolvent.

92.       Page 12 of the Receiver’s Report III states “As shown above, the total assets of SCP decreased in 2010 by P90M, from the P12.364B it posted in 2009 to P12.274B in 2010.” The total assets of Steel Corp as of 31 December 2010, as mentioned by Atty. Singson-de Leon, were based on Steel Corp’s tentative financial statements filed together with its tentative Income Tax Returns. The fact that it is not audited is admitted by Atty. Singson-De Leon herself in page 11 of her Receiver’s Report III. In fact, Steel Corp’s total assets as of 31 December 2010 based on its Audited Financial Statements[74] amounted to PhP12,327,710,769 (or Ph12.328B), which were lower by only PhP36M and not by PhP90M than those in 2009, as claimed by Atty. Singson-de Leon.[75]

  1. Steel Corp’s total assets as of 31 December 2011 based on its Audited Financial Statements[76] amounted to PhP12,402,056,635 (or PhP12.402B), which amount is higher than Steel Corp’s total assets in 2009 by PhP38M. Steel Corp’s total assets as of 30 June 2012 based on its interim financial statements[77] amounted to PhP12,912,690,972 (or PhP12.913B), which amount is very much higher than its total assets in 2009 by PhP549M. All in all, between 31 December 2008 and 30 June 2012, Steel Corp’s total assets increased significantly by PhP891,852,293 (or PhP892M).

94.       Atty. Singson-De Leon stated on page 12 of the Receiver’s Report III: “A significant decrease in 2010 can be seen in ‘cash and cash equivalent’ account in the amount of P158M . . .” She makes it appear that this is disastrous for Steel Corp. But she herself notes the reason for this on page 13 of the same Receiver’s Report thus: “Corollary to the decrease in the assets of SCP is the decrease of its total liabilities in the amount of P129M”. In other words, Steel Corp paid off its maturing liabilities.

95.       As of 31 December 2011, Steel Corp’s “cash and cash equivalent” balance based on its Audited Financial Statements amounted to PhP2,001,054,956 (or PhP2.001B), which amount is higher than its “cash and cash equivalent” balance in 2009 of PhP1.681B by PhP320M. As of 30 June 2012, Steel Corp’s “cash and cash equivalent” balance based on its interim financial statements amounted to PhP2,445,170,203.00 (or PhP2.445B), which is higher than its “cash and cash equivalent” balance in 2009 of PhP1.681B by PhP764M. Between 31 December 2008 and 30 June 2012, Steel Corp’s “cash and cash equivalent” balance thus increased significantly by PhP1,919,773,584 (or PhP1.920B).

96.       Page 12 of the Receiver’s Report III also mentions: “A significant decrease in 2010 can be seen in . . . ‘Plant, Property and Equipment’ account in the amount of P260M.” This is understandable as this is accounted for by the recording of annual depreciation in the amount of PhP305,942,364 (PhP306M). This was, in fact, partly offset by new plant, property and equipment acquisitions.

97.       On page 13 of her Receiver’s Report III, Atty. Singson-De Leon stated: “The revenue of SCP in the amount of P2.444B decreased by a staggering P1.563B or by 41% in 2010 compared to the P3.807B figure it posted in 2009.  Although there was an increase in ‘other income’ account by P137M in 2010, the resultant profit of SCP posted only P39M, which is a material and significant fall of 87% from the P311M profit it posted in 2009.” Steel Corp’s revenues in 2010 decreased on account of its cold rolling mill having been totally destroyed by fire.  Said property is, however, fully covered by insurance against fire for which Steel Corp has outstanding property damage claim of US$33,882,393 and business interruption losses of US$8,000,000 (or a total of US$41,882,393) plus interest at 24% per annum counting from the time the proofs of loss for the said claims were filed with the insurers up to the date of actual settlement by the latter pursuant to Section 243 of the Insurance Code.

98.       Although the Court of Appeals has ruled that the RTC has no jurisdiction to rule on Steel Corp’s insurance claims, such ruling was only on the issue of jurisdiction and not on the merits of the RTC’s order which directed the insurers to pay Steel Corp’s insurance claims.

99.       The more appropriate measure of the profitability of a company like Steel Corp is not total revenues realized or net profit earned but Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).  This is because the EBITDA of a company gives an indication of its core or operational profitability, i.e., how much profit it earns with its present assets and its operations on the products it produces and sells, taking into account possible provisions that need to be done. Phrased differently, a positive EBITDA means that the company is generating cash from its business or operations.  The higher a company’s positive EBITDA is, the higher is the amount of cash it is generating from its operations.

100.    Notably, between 2009 and 30 June 2012, Steel Corp earned total accumulated EBITDA of PhP1,786,034,137 (or PhP1.786B) based on its Audited Financial Statements for 2009 to 2011 and interim financial statements as of 30 June 2012.  

101.    Steel Corp is not insolvent whether under the “cash flow test” or the “balance sheet test”.

102.    Under the “cash flow test”, a company is said to be insolvent when its current liabilities exceed its current assets. The difference between a company’s current assets and its current liabilities is referred to as its net working capital. Based on its Audited Financial Statements for 2008 and interim financial statements as of 30 June 2012, Steel Corp’s net working capital increased from PhP1,515,847,964.00 to PhP3,050,911,419.00 or by PhP1,535,063,455.00 (or PhP1.535B).

103.    Under the “balance sheet test”, a company is said to be insolvent when its total liabilities exceed its total assets. The difference between a company’s total assets and its total liabilities is referred to as its stockholders’ equity. Based on its Audited Financial Statements for 2008 and interim financial statements as of 30 June 2012, Steel Corp’s stockholders’ equity increased from PhP5,011,062,874.00 to PhP5,386,844,623.00 or by PhP375,781,749.00 (or PhP376M).

104.    In summary, between 2008 and 30 June 2012, SCP’s financial position improved significantly, as follows:

104.1        Total Assets increased by PhP892M;

104.2        Cash & Cash Equivalent account increased by PhP1.920B;

104.3        Total accumulated EBITDA amounted to PhP1.786B (2009 to 30 June 2012);

104.4        Net Working Capital increased by PhP1.535B; and

104.5        Stockholders’ Equity increased by PhP376M.

  1. Clearly, based on competent and reliable evidence, evidence which Atty. Singson-De Leon unfortunately did not present, Steel Corp is not insolvent. Not being insolvent, Steel Corp may not be placed in liquidation.
  2. THE RTC VIOLATED THE DOCTRINE OF JUDICIAL COURTESY.

 

 

 

106.    The RTC in an Order dated 05 May 2011[78] (Recall Order) has invoked the principle of judicial courtesy. In said Order, he recalled the 04 May 2011 Order considering the pendency of certiorari cases (CA-G.R. No. 111556, CA-G.R. No. 111560 and CA-G.R. No. 112175) on the applicability of Article 1634 of the Civil Code.

107.    The issuance of the liquidation order has the effect of preempting and rendering moot and academic, if not immediately restraining, reversing and nullifying, the existing and pending cases before the Supreme Court involving the issues of termination and applicability of Art. 1634 of the Civil Code, and other issues bearing on the feasibility of the rehabilitation of Steel Corp.

108.    The RTC’s act is in violation of the well-entrenched doctrine of judicial courtesy enunciated in a long line of jurisprudence, including the case of Eternal Gardens Memorial Corp. vs. Court of Appeals[79] which held that:

Although this Court did not issue any restraining order against the Intermediate Appellate Court to prevent it from taking any action with regard to its resolutions respectively granting respondents’ motion to expunge from the records the petitioner’s motion to dismiss and denying the latter’s motion to reconsider such order, upon learning of the petition, the appellate court should have refrained from ruling thereon because its jurisdiction was necessarily limited upon the filing of a petition for certiorari with this Court questioning the propriety of the issuance of the abovementioned resolutions. Due respect to the Supreme Court and practical and ethical considerations should have prompted the appellate court to wait for the final determination of the petition before taking cognizance of the case and trying to render moot exactly what was before this Court.

109.    Clearly, the RTC in the instant case exceeded its limited jurisdiction in issuing the liquidation order while certiorari cases are still pending before this Honorable Court and the Supreme Court.

H.        THE RTC ACTED WITH EXTREME GRAVE ABUSE OF DISCRETION WHEN IT ISSUED THE LIQUIDATION ORDER, WHICH IS A COMPLETE REVERSAL OF ITS PREVIOUS ORDERS SUSPENDING THE REHABILITATION PROCEEDINGS AND DENYING THE MOTION FOR EXECUTION TO IMPLEMENT THE REHABILITATION PLAN DUE TO PENDENCY OF PREJUDICIAL ISSUES BEFORE THE APPELLATE COURTS.

  1. Acting on the Motion to Resolve Omnibus Motion with Supplemental Motion for Execution  of one of the creditor banks, DEG, dated 13 July 2011 and the Motion to Resolve Motion for Partial Execution dated 03 January 2011 filed by creditor China Banking Corporation on the same issue of ordering Steel Corp to continuously comply with its alleged obligation to pay interest and principal amortization, the RTC issued an Order dated 03 October 2011[80], denying the said motions for being premature and in deference to the higher tribunals decision and/or resolution. The pertinent portions of the 03 October 2011 Order are hereunder quoted:

The Court is not unmindful of the plight of herein movant as well as the other secured creditors of SCP, but this time, the Court cannot as yet, resolve the aforesaid pending motions, fully aware of the related petitions mainly assailing the Approved Rehabilitation Plan, the imposable interest rate and the disclosure of assigned credits still pending before the Court of Appeals and the Supreme Court. Judicial courtesy and prudence dictate that the parties including this Court must await for the final resolution by the Appellate courts. Otherwise, it will be but a futile exercise.”  (Emphasis supplied)

111.    The RTC completely ignored the three (3) previous Orders previously issued suspending the proceedings as well as the above cited Order with a similar tenor invoking the pendency of prejudicial issues as a ground to suspend. In a sudden and complete turnaround, it now issued the termination and liquidation order in complete reversal of its previous position to await the resolution of the pending prejudicial issues in the Court of Appeals and Supreme Court.

112.    The liquidation order is clearly a reconsideration of the previous Orders of the RTC suspending the proceedings. It is respectfully submitted that since a party is prohibited from filing a motion for reconsideration under the Interim Rules of Procedure on Corporate Rehabilitation, it follows that the rehabilitation court cannot on its own reconsider the previous Orders it has issued, especially so since such authority is not granted by the Interim Rules.

113.    Definitely, the pending issues in the Court of Appeals and in the Supreme Court on the termination of rehabilitation, the applicability of Article 1634 of the Civil Code that would drastically reduce the debt level of Steel Corp if sustained by the appellate courts, and the claims for insurance, would significantly impact the feasibility and success of the rehabilitation of Steel Corp.

I.          ASSUMING ARGUENDO THAT SECTION 92 OF THE FRIA IS VALID, THE RTC, NEVERTHELESS, COMMITTED A GRAVE ERROR WHEN IT MADE A LITERAL, PLAIN AND VERY SIMPLISTIC INTERPRETATION OF SECTION 92 IN VIOLATION OF THE ACCEPTED RULES ON STATUTORY CONSTRUCTION.

114.    “Legis constructio non facit injuriam-” The construction of the law will not be such as to work injury or injustice…. a long accepted legal maxim which was completely thrown away by the RTC in interpreting Sec. 92 of the FRIA.

115.    Assuming without conceding that the FRIA is applicable in Spec. Proc. No. 06-7993 and further assuming that Section 92 thereof is valid, nonetheless, the RTC’s interpretation of Section 92 of the FRIA is logically flawed. The RTC’s interpretation is not only capricious and draconian but most of all, it is not in conformity with accepted rules on statutory construction in the interpretation of statutes. The RTC’s interpretation of Section 92 is constitutionally repulsive and fatally corrosive of the bedrock of due process.

  1. It is a basic canon of statutory construction that in interpreting a statute, care should be taken that every part thereof be given effect, on the theory that it was enacted as an integrated measure and not as a hodge-podge of conflicting provisions.[81]

117.    The law must not be read in truncated parts. Every part thereof must be considered together with other parts, and kept subservient to the general intent of the whole enactment.[82]

118.    The RTC failed to appreciate that in interpreting the provision of Section 92 of the FRIA, it should have considered the other parts of the statute. It cannot be read in isolation or independent of the other phrases therein. It bears stressing that the sense and meaning of the law is collected by viewing all the parts together as one whole and not of one part only by itself.

119.    For better understanding, Section 92 of the FRIA is again herein quoted:

Section 92. Conversion by the Court into Liquidation Proceedings. – During the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the court may order the conversion of rehabilitation proceedings to liquidation proceedings pursuant to (a) Section 25(c) of this Act; or (b) Section 72 of this Act; or (c) Section 75 of this Act; or (d) Section 90 of this Act, or at any other time upon the recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible. Thereupon, the court shall issue the Liquidation Order mentioned in Section 112 hereof.

120.    It should be noted that Sec 92 of the FRIA stipulates five (5) justifications for the conversion by the rehabilitation court of pending rehabilitation proceedings into one of liquidation.  The first four (4) justifications all provided safeguards against possible abuse by the rehabilitation court in the exercise of its authority under Section 92 by allowing the rehabilitation court to do so only (i) upon filing by the debtor of a petition or motion to that effect pursuant to Section 90; or (ii) after the termination of the rehabilitation proceedings due to failure of rehabilitation pursuant to Section 75; or (iii) after prior consultations with the debtor and creditors, and hearings pursuant to Section 72; or (iv) after the promulgation by the Supreme Court of the rules for determining if there is no substantial likelihood for the debtor to be successfully rehabilitated pursuant to Section 25(c), to wit:

120.1    Under Section 25(c),[83] the rehabilitation court may convert pending rehabilitation proceedings into one of liquidation only after the promulgation by the Supreme Court of the rules for determining if there is no substantial likelihood for the debtor to be successfully rehabilitated.

120.2    Under Section 72,[84] the rehabilitation court may convert pending rehabilitation proceedings into one of liquidation only if no rehabilitation plan is confirmed within one (1) year from date of filing of the petition and, before any rehabilitation plan may be submitted for confirmation, there must first be consultations with the debtor and creditors, and hearings on any objections thereto.

120.3    Under Section 75,[85] the rehabilitation court may convert pending rehabilitation proceedings into one of liquidation only after termination thereof and only if such termination is due to failure of rehabilitation or dismissal of the petition for reasons other than technical grounds.

120.4    Under Section 90,[86] which deals with voluntary liquidation, the rehabilitation court may convert pending rehabilitation proceedings into one of liquidation only upon the filing by the debtor of a petition or motion to that effect and only upon finding by the rehabilitation court that the said petition or the motion is sufficient in form and substance.

121.    While none of the above-described safeguards against possible abuse by the rehabilitation court in the exercise of its authority under Section 92 is specifically stipulated for the fifth justification,[87] such safeguards must be deemed written in it, particularly those invoking the principles of equity and due process which are enshrined in the Constitution.

122.    Thus, before the rehabilitation court may convert pending rehabilitation proceedings into one of liquidation, it must either wait for the pending rehabilitation proceedings to be terminated first (i.e., wait for the Supreme Court to resolve the issue of termination still pending therewith) before it may convert it into one of liquidation pursuant to Section 75 or for the Supreme Court to first promulgate the rules for determining whether or not the rehabilitation of the debtor is no longer feasible pursuant to Section 25.

123.    The other two justifications under Sections 72 and 75 do not apply in the instant case.

124.    In fine, the RTC gravely erred in making a very narrow interpretation of Section 92, which would justify its authority to convert Steel Corp’s rehabilitation proceedings directly into one of liquidation.

STEEL CORP IS ENTITLED TO THE ISSUANCE

OF A TEMPORARY RESTRAINING ORDER

AND A WRIT OF PRELIMINARY PROHIBITORY

AND MANDATORY INJUNCTION

125.    Steel Corp repleads by reference the foregoing allegations.

126.    For the Temporary Restraining Order (TRO) and the Writ of Preliminary Injunction (Writ) to issue, the following requisites must concur: 1) The right of complainant (petitioner) is clear and unmistakable, 2) The invasion of the right is material and substantial, 3) There is an urgent and paramount necessity for the writ to prevent serious damage.[88]

127.    A preliminary mandatory injunction may be issued pendente lite in cases of “extreme urgency, where the right to the possession, during the pendency of the main case, of the property involved is very clear; where considerations of relative inconvenience bear strongly in favor of the complainant seeking the possession of the property pendente lite; where there was willful and unlawful invasion on plaintiff’s right, over his protest and remonstrance, the injury being a continuing one.[89]

128.    Steel Corp has the right to property, the right to a juridical existence and the right to constitutional due process. All these rights have been flagrantly violated by the RTC with the issuance of the liquidation order, which terminated the corporate existence of Steel Corp and confiscated all its assets without being heard in court.

129.    As of this writing, several Sheriffs from the RTC of Batangas City, led by lawyers from BDO and a horde of private security personnel have forcibly entered and completely closed down the plant in Balayan, Batangas. Intimidating and threatening the safety of the personnel and employees of Steel Corp, they have padlocked and chained the front gate. Employing intimidation and threats, they have taken over the Balayan plant owned by Steel Corp and controlled the same with their own force of security guards/hooligans. They have secured its ingress and egress and disallowed any deliveries within the plant. As a matter of fact, there were Steel Corp employees trapped inside the plant who were illegally detained by BDO and the sheriffs for a number of hours before finally deciding to release them.

130.    The BDO party has not shown any writ of execution from the RTC. Steel Corp was not even given the three (3)-day period within which to comply with the liquidation order as provided for in Section 10, paragraph c, Rule 39 of the Rules of Court.

131.    The sheriffs who barged into the Balayan plant, and who are from Batangas City, have no special appointment from the court. They were clearly taking orders from BDO lawyers who had no authority from the rehabilitation court whatsoever to be at the Balayan plant.

132.    The Sheriffs were also assisted by private security guards of BDO and the Philippine National Police (PNP), both of whom have no authority from the RTC and the PNP Regional Command, respectively, to provide such assistance.

133.    The Sheriff of the rehabilitation court issued and served notices of garnishment to several depository banks and trade creditors of Steel Corp without being specifically authorized to do so in the liquidation order.

134.    As no writ of execution has been issued, it is clear that BDO and the sheriffs have taken the law into their own hands. They clearly believe that they are above the law.

135.    As a result of the assault by BDO and its cohorts, Steel Corp could no longer run its operations, which is crucial to its corporate existence. It must be emphasized that Steel Corp is under corporate rehabilitation and the continued operation of its Balayan plant is essential to its continued recovery. Worse, hundreds of employees of Steel Corp have been rendered jobless and without a source of income. It is not unlikely that the next lawless attempt by the BDO party to rid the Balayan plant of the personnel of Steel Corp will end in a bloodbath, as Steel Corp intends to vigorously defend its lawful rights against these unlawful incursions.

136.    The slaughter may even come sooner than expected. The machinery inside the plant, including the inductors, are maintained by trained mechanics of Steel Corp. These inductors have to be maintained under certain proper and safe conditions since the operations of the main machinery were totally shut down. Otherwise, it will surely entail more expense to repair the same and will likewise pose a safety risk for those inside and outside the plant. As of this writing, BDO and the sheriff only allowed fourteen (14) technicians of Steel Corp,  seven (7) per shift, to enter the plant and maintain said inductors.  These Steel Corp technicians are on restricted duty and are being closely monitored by the private security personnel of BDO.

137.    The issuance of the TRO and the Writ is clearly of urgent and paramount necessity to prevent an injustice against Steel Corp.

138.    Steel Corp is entitled to the final reliefs prayed for in the instant petition and part of these reliefs consists in: (a) immediately restoring Steel Corp to possession and control of the Balayan plant and all its assets and properties; (b) immediately directing the Sheriff of the RTC and BDO to return all the documents and properties spirited away from the Balayan plant; (c) restraining the RTC Br. 3 of Batangas City and the sheriffs, the creditors, more particularly BDO, from arbitrarily and illegally implementing the liquidation order dated 19 September 2012 by proceeding to “liquidate” Steel Corp and dissolving its juridical existence to the irreparable damage and injury of petitioner, its numerous employees and workers, the unsecured and other creditors and parties who stand to lose if the petitioner is not rehabilitated but illegally liquidated.

139.    Steel Corp has no other plain, speedy and adequate remedy in the ordinary course of law except through this petition.

140.    Steel Corp is ready and able to post a bond in such amount as this Honorable Court may fix, conditioned to answer for whatever damages that may be suffered by the creditors by the issuance of the TRO and Writ, should it be finally adjudged that Steel Corp was not entitled thereto.

RELIEFS

WHEREFORE, premises considered, Steel Corporation of the Philippines respectfully prays that:

1.         Immediately upon the filing of this petition, the Honorable Court issue ex-parte a Temporary Restraining Order, effective for sixty (60) days, (a) restoring Steel Corp to possession and control of the Balayan, Batangas plant and all its assets and properties; (b) directing the Sheriff of the RTC and private respondent BDO to return all the documents and properties spirited away from the Balayan plant; (c) restraining, enjoining and prohibiting the RTC Br. 3 of Batangas City, the rehabilitation receiver, the Sheriff of the RTC Br. 3 of Batangas City, the other sheriffs of Batangas City, and the other creditors of Steel Corp particularly BDO, their agents or any person acting in their behalf, from implementing the liquidation order dated 19 September 2012.

2.         After hearing, issue a Writ of Preliminary Prohibitory and Mandatory Injunction (a) restoring Steel Corp to possession and control of the Balayan plant and all its assets and properties; (b) directing the Sheriff of the RTC and private respondent BDO to return all the documents and properties spirited away from the Balayan plant; (c) restraining, enjoining and prohibiting the RTC Br. 3 of Batangas City, the rehabilitation receiver, the Sheriff of the RTC Br. 3 of Batangas City, the other sheriffs of Batangas City, and the other creditors of Steel Corp particularly BDO,  their agents or any person acting in their behalf, from implementing the liquidation order dated 19 September 2012.

3.         After trial on the merits, judgment be rendered:

a.         Making the writ of preliminary prohibitory and mandatory injunction permanent;

b.         Granting the instant petition and SETTING ASIDE, REVERSING, REVOKING or ANNULLING the Liquidation Order dated 19 September 2012 issued by the RTC Branch 3 of Batangas City for being violative of due process and for lack of factual and legal basis.

Petitioner prays for such further or other just and equitable reliefs.


[1] Republic Act No. 10142.

2 A copy of the Omnibus Agreement is integrally attached hereto as Annex “B”.

[2] A copy of the petition for rehabilitation, sans annexes, is integrally attached hereto as Annex “C”.

[3] A copy of the Order dated 03 December 2007 is integrally attached hereto as Annex “D”.

[4] Copies of the petitions in CA-G.R. No. 101732, CA-G.R. SP. No. 101880, CA-G.R. No. 101881 and CA-G.R. No. 101913 are integrally attached hereto as Annexes “E”, “F,”  “G” and “H”.

[5] A copy of the Order dated 28 October 2009 is integrally attached hereto as Annex “I“.

[6] A copy of the Order dated 12 November 2008 is integrally attached as Annex “J“.

[7] A copy of the Order dated 07 January 2009 is integrally attached as Annex “K“.

[8] A copy of the Order dated 28 July 2010 is integrally attached as Annex “L“.

[9] A copy of the Order dated 05 January 2010 is integrally attached as Annex “M“.

[10] A copy of the Decision in CA-G.R. SP No. 101881 dated 03 July 2008 is integrally attached hereto as Annex “N“.

[11] A copy of the said Decision dated 17 November 2010 in G.R. Nos. 190462 and 190538 is integrally attached hereto as Annex “O“.

[12] A copy of the Resolution dated 25 May 2012 is integrally attached hereto as Annex “P“.

[13] A copy of the petition for review in G.R. Nos. 202006-09 is integrally attached hereto as Annex “Q“.

[14] A copy of the Resolution dated 30 July 2012 is integrally attached hereto as Annex “R”.

[15] A copy of the Order dated 09 December 2010 is integrally attached hereto as Annex “S.”

[16] A copy of the Order dated 22 March 2011 is integrally attached hereto as Annex “T”.

[17] A copy of the Urgent Manifestation and Motion dated 28 March 2011 is integrally attached as Annex “U” of this petition.

[18] A copy of the Motion to Conduct Hearing is integrally attached as Annex “V” of this petition.

[19] A copy of the Order dated 04 May 2011 is integrally attached as Annex “W “.

[20] A copy of the Motion to Resolve Critical Pending Incidents is integrally attached as Annex “X“.

[21] A copy of the Motion to Enforce/Implement Order dated 28 October 2009 is integrally attached as Annex “Y “.

[22] A copy of the Order dated 05 May 2011 is integrally attached as Annex “Z”.

[23] Copies of the petitions in C.A.-GR. SP. No. 111556, C.A.-GR. No. 111560 and C.A.-GR. No. 112175 are integrally attached hereto as Annexes  “AA,” “BB,” “CC”.

[24] A copy of the Order dated 09 May 2011, is integrally attached as Annex “DD”.

[25] A copy of the petition, sans annexes, in CA-G.R. SP NO. 119840 is integrally attached hereto as Annex “EE”.

[26] A copy of the Motion to Direct Steel Corporation of the Philippines to Comply with the Receiver’s Requests is integrally attached hereto as Annex “FF”.

[27] A copy of the Opposition is integrally attached hereto as Annex “GG”.

[28] A copy of the aforesaid Reply is integrally attached hereto as Annex “HH”.

[29] A copy of the Motion to Resolve Omnibus Motion with Supplemental Motion for Execution filed by DEG dated 13 July 2011 is integrally attached hereto as Annex “II”.

[30] A copy of the Motion to Resolve Motion for Partial Execution filed by China Bank dated 3 January 2011 is integrally attached hereto as Annex “JJ”.

[31] A copy of the Order dated 03 October 2011 is integrally attached as Annex “KK”.

[32] A copy of the Order dated 24 October 2011 is integrally attached as Annex “LL”.

[33] A copy of the petition for certiorari in CA G.R. SP No. 122710 is integrally attached as Annex “MM”.

[34] A copy of the Receiver’s Report III dated 11 June 2012 is integrally attached as Annex “NN”.

[35] A copy of Steel Corp’s Comment (re: Receiver’s Report III dated 11 June 2012) is integrally attached as Annex “OO”.

[36] Copies of the Manifestations of BDO-EPCIB, DEG, Landbank, Chinabank and Plantersbank are integrally attached hereto as Annexes “PP,””QQ,” “RR,” “SS,” “TT”.

[37] See Annex “A”.

[38] A copy of the Notice of Garnishment addressed to Philippine Steel Coating Corporation dated 01 October 2012 is integrally attached hereto as Annex “UU”.

[39] A copy of the Memo and Affidavit of Mr. Nilo Angel L. Ong are integrally attached as Annex “VV” and “WW””.

[40] Balbo vs. Farrales, (51 Phil. 498, 502) where it was held that “Rights are vested when the right to enjoyment, present or prospective, has become the property of some particular person or persons as a present interest.  (12 C. J., sec. 485, p. 955.)

[41] Article III, Section 1 of the 1987 Constitution, cited in City of Manila, et al. v. Hon. Laguio, Jr., et al., G.R. No. 118127, 12  April 2005.

[42] Agabon v. National Labor Relations Commission, G.R. No. 158693, 17 November 2004.

[43] City of Manila, et al. v. Hon. Laguio, Jr., et al., G.R. No. 118127, 12 April 2005.

[44] Id.

[45] China Banking Corporation v. Spouses Lozada et al., G.R. No. 164919, 4 July 2008.

[46] See Section 113 of the FRIA.

[47] Citing Justice Tinga’s Dissenting Opinion in ABAKADA Guro Partylist Officers Alacantara and Albano v. The Hon. Executive Secretary Eduard Ermita, et al., G.R. No. 168056.

[48] City of Manila, et al. v. Hon. Laguio, Jr., et al., G.R. No. 118127, 12 April 2005.

[49] See page 3 of the liquidation order.

[50] G.R. No. 162196, 27 February 2012.

[51] See page 11 of the liquidation order.

[52] See page 4 of the liquidation order.

[53] Velez v. de Vera, A.C. No. 6697, 25 July 2006.

[54] See People v. Dapitan, G.R. No. 90625, May 23, 1991, 197 SCRA 378, citing People v. Castillo, 76 Phil. 72 (1946); Banco Español de Filipino v. Palanca, 37 Phil. 921 (1918); Macabingkil v. Yatco, 21 SCRA 150 (1967); Apurillo v. Garciano, 28 SCRA 1054 (1969); Shell Company of the Philippines, Ltd. v. Enage, 49 SCRA 416 (1973); Lorenzana v. Cayetano, 68 SCRA 485 (1975).

[55] Section 2 of Rule 72 of the Rules of Court provides that “[i]n the absence of special provisions, the rules provided for in ordinary actions shall be, as far as practicable, applicable in special proceedings.”

[56] Galman, et al. vs. Sandiganbayan, 144 SCRA 43 (1986).

[57] Alcaraz v. Court of Appeals, et al., G.R. No. 152202, July 28, 2006.

[58] Buduhan v. Pakurao, et al., G.R. No. 168237, February 22, 2006.

[59] See page 8 of the liquidation order.

[60] See page 2 of the liquidation order.

[61] See the Receiver’s Report III, par. d, p. 2.

[62] Id., par. d, pp. 2-3.

[63] Id., par. e.1, p. 3.

[64] Id., pars. e.2 & e.3, p. 3.

[65] Id., pr. e.4, p. 4.

[66] Id., par. e.5, p. 4.

[67] Id., par. e.5, p. 4.

[68] Id., pars. f to i, pp. 4-5; par. m, p. 9.

[69] Id., par. e.1, p. 3

[70] Id., par. e.4, p. 4

[71] Id., par. e.5, p. 4

[72] Id., par. G.c), p. 24

[73] Id., par. e.1, p. 3

[74] A copy of Steel Corp’s 31 December 2010 Audited Financial Statements is integrally attached hereto as Annex “XX”.

[75] See page 12 of the Receiver’s Report III.

[76] A copy of Steel Corp’s 31 December 2011 Audited Financial Statements is integrally attached hereto as Annex “YY”.

[77] A copy of Steel Corp’s interim financial statements as of 30 June 2012 is integrally attached hereto as Annex “ZZ”.

[78] A copy of the Order dated 05 May 2011, is integrally attached as Annex “Y”.

[79] 164 SCRA 421

[80] A copy of the Order dated 03 October 2011, is integrally attached as Annex “JJ.”

[81] Malaria Employees vs. Executive Secretary, G.R. No. 160093, 31 July 2007, 528 SCRA 673, 682.

[82] PITC  vs. COA, G.R. No. 183517, 22 June 2010, 621 SCRA 461.

[83] “Section 25(c). Giving Due Course to or Dismissal of Petition, or Conversion of Proceedings. – Within ten (10) days from receipt of the report of the rehabilitation receiver mentioned in Section 24 hereof the court may: (a) xxx; (b) xxx; (c) convert the proceedings into one for the liquidation of the debtor upon a finding that: (1) the debtor is insolvent; and (2) there is no substantial likelihood for the debtor to be successfully rehabilitated as determined in accordance with the rules to be promulgated by the Supreme Court.”

 

[84] Section 72. Period for Confirmation of the Rehabilitation Plan. – The court shall have a maximum period of one (1) year from the date of the filing of the petition to confirm a Rehabilitation Plan.  If no Rehabilitation Plan is confirmed within the said period, the proceedings may upon motion or motu proprio, be converted into one for the liquidation of the debtor.”

 

[85] “Section 75. Effects of Termination. – Termination of the proceedings shall result in the following: (a) The discharge of the rehabilitation receiver subject to his submission of a final accounting; and (b) The lifting of the Stay Order and any other court order holding in abeyance any action for the enforcement of a claim against the debtor.  Provided, however, That if the termination of proceedings is due to failure of rehabilitation or dismissal of the petition for reasons other than technical grounds, the proceedings shall be immediately converted to liquidation as provided in Section 92 of this Act.”

 

[86] “Section 90. Voluntary Liquidation. – xxxx

 

“At any time during the pendency of court-supervised or pre-negotiated rehabilitation proceedings, the debtor may also initiate liquidation proceedings by filing a motion in the same court where the rehabilitation proceedings are pending to convert the rehabilitation proceedings into liquidation proceedings. The motion shall be verified, shall contain or set forth the same matters required in the preceding paragraph, and state that the debtor is seeking immediate dissolution and termination of its corporate existence.”

 

“If the petition or the motion, as the case may be, is sufficient in form and substance, the court shall issue a Liquidation Order mentioned in Section 112 hereof.”

 

[87] i.e., upon the mere recommendation of the rehabilitation receiver that the rehabilitation of the debtor is not feasible

[88] Los Banos Rural Bank, Inc. v. Africa, et al., G.R. No. 143994, 11 July 2002; Spouses Arcega v. Court of Appeals and RCBC, G.R. No. 122206, 7 July 1997.

[89]Felix De Guzman de Ocampo v. Alicia Sison Vda. De Fernandez, G.R. No. 164529, June 19, 2007

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