Bpi vs Sarabia Hotel

BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. SARABIA MANOR MANOR HOTEL CORPORATION, CORPORATION, Respondent. G.R. No. 175844, July 29, 2013

 PERLAS-BERNABE, J.: FACTS:

Sarabia Hotel obtained a special loan package from Far East Bank and Trust Company (FEBTC) in order to finance the construction of a fivestorey hotel building (!e" Building) for  the purpose of e#panding its hotel business$ %n additional credit in addition to the loan "as appr approv oved ed by FEBT FEBTC C in the the same same year year$$ The The fore foregoi going ng debts debts "ere "ere secur secured ed by real real esta estate te mortgages over several parcels of land o"ned by Sarabia and a comprehensive surety agreement dated September &' & signed by its stockholders$ By virtue of a merger' Bank of the *hilippine +slands (B*+) assumed all of FEBTC,s rights against Sarabia$ Sarabia started to pay interests on its loans$ Ho"ever' largely because of the delayed completion of the !e" Building' Sarabia incurred various cash flo" problems$ Thus' despite the fact that it had more assets than liabilities at that time' it' nevertheless' filed a *etition for  corporate rehabilitation (rehabilitation petition) "ith prayer for the issuance of a stay order   before the -TC -TC as it foresa" the impossibility to meet its maturing obligations to its creditors "hen they fall due$ The -TC approved Sarabia,s rehabilitation plan as recommended by the -eceiver' finding the same to be feasible$ +t observed that the recommended rehabilitation plan "as also practical in terms of the interest rate pegged at .$/0 p$a$ since it is based on Sarabia,s ability to pay and the creditors, perceived cost of money$ 1ore significantly' the -TC did not give credence to B*+,s opposition to the -eceiver,s recommended rehabilitation plan as neither B*+ nor the -eceiver "as able to substantiate the claim that B*+,s cost of funds "as at the &20 p$a$ threshold$ +n this regard' the -TC gave more credence to the -eceiver,s determination of fi#ing the interest rate at .$/0 p$a$ The C% affirme affirmed d the -TC, -TC,ss ruling ruling "ith "ith the modif modifica icatio tion n of reinst reinstati ating ng the surety surety obliga obligati tions ons of Sarabi Sarabia, a,ss stockh stockholde olders rs to B*+ as an additi additional onal safegu safeguard ard for the effect effective ive implementation of the approved rehabilitation plan$ +t also upheld the .$/0$ p$a$ interest rate on Sarabia,s loans' finding the said rate to be reasonable given that B*+,s interests as a creditor "ere  properly accounted for$ B*+ mainly argues that the approved rehabilitation plan did not give due regard to its interests as a secured creditor in vie" of the imposition of a fi#ed interest rate of .$/0 p$a$ and the e#tended loan repayment period$ ISSE:

3hether or not the C% correctly affirmed Sarabia,s rehabilitation plan as approved by the -TC' "ith the modification on the reinstatement of the surety obligations of Sarabia,s stockholders$

RLIN!:

4es$ -ecogni5ing the volatile nature of every business' the rules on corporate rehabilitation have been crafted in order to give companies sufficient lee"ay to deal "ith debilitating financial  predicaments in the hope of restoring or reaching a sustainable operating form if only to best accommodate the various interests of all its stakeholders' may it be the corporation,s stockholders' its creditors and even the general public$ +n this light' case la" has defined corporate rehabilitation as an attempt to conserve and administer the assets of an insolvent corporation in the hope of its eventual return from financial stress to solvency$ +t contemplates the continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and li6uidity$ 7erily' the purpose of rehabilitation  proceedings is to enable the company to gain a ne" lease on life and thereby allo" creditors to  be paid their claims from its earnings$ Thus' rehabilitation shall be undertaken "hen it is sho"n that the continued operation of the corporation is economically more feasible and its creditors can recover' by "ay of the present value of payments pro8ected in the plan' more' if the corporation continues as a going concern than if it is immediately li6uidated$ %mong other rules that foster the foregoing policies' Section 9:' -ule ; of the +nterim -ules of *rocedure on Corporate -ehabilitation (+nterim -ules) states that a rehabilitation plan may be approved even over the opposition of the creditors holding a ma8ority of the corporation,s total liabilities if there is a sho"ing that rehabilitation is feasible and the opposition of the creditors is manifestly unreasonable$ %lso kno"n as the ther"ise stated' it forces the creditors to accept the terms and conditions of the rehabilitation plan' preferring longterm viability over immediate but incomplete recovery$ +t is "ithin the parameters of the aforesaid provision that the Court e#amines the approval of Sarabia,s rehabilitation$ i$ Feasibility of Sarabia,s rehabilitation$ +n order to determine the feasibility of a proposed rehabilitation plan' it is imperative that a thorough e#amination and analysis of the distressed corporation,s financial data must be conducted$ +f the results of such e#amination and analysis sho" that there is a real opportunity to rehabilitate the corporation in vie" of the assumptions made and financial goals stated in the  proposed rehabilitation plan' then it may be said that a rehabilitation is feasible$ +n this accord' the rehabilitation court should not hesitate to allo" the corporation to operate as an ongoing concern' albeit under the terms and conditions stated in the approved rehabilitation plan$ >n the other hand' if the results of the financial e#amination and analysis clearly indicate that there lies no reasonable probability that the distressed corporation could be revived and that li6uidation "ould' in fact' better subserve the interests of its stakeholders' then it may be said that a

rehabilitation "ould not be feasible$ +n such case' the rehabilitation court may convert the  proceedings into one for li6uidation$ First' Sarabia has the financial capability to undergo rehabilitation$ ?espite its financial constraints' Sarabia like"ise continues to be profitable "ith its hotelier business as its operations have not been disrupted$ Second' Sarabia has the ability to have sustainable profits over a long  period of time$ Third' the interests of Sarabia,s creditors are "ellprotected$ Therefore' based on the abovestated reasons' the Court finds Sarabia,s rehabilitation to be feasible$ ii$ 1anifes unreasonableness of B*+ ,s opposition$ %nent the matter of th imposition .$/0 p$a$ interest rate' it must be pointed out that oppositions "hich push for high interests rates are generally fro"ned upon in rehabilitation  proceedings given that the inherent purpose of a rehabilitation is to find "ays and means to minimi5e the e#penses of the distressed corporation during the rehabilitation period$ +t is the ob8ective of a rehabilitation proceeding to provide the best possible frame"ork for the corporation to gradually regain or achieve a sustainable operating form$ Hence' if a creditor' "hose interests remain "ellpreserved under the e#isting rehabilitation plan' still declines to accept interests pegged at reasonable rates during the period of rehabilitation' and' in turn'  proposes rates "hich are largely counterproductive to the rehabilitation' then it may be said that the creditor,s opposition is manifestly unreasonable$ +n this case' the Court finds B*+,s opposition on the approved interest rate to be manifestly unreasonable considering that@ (a) the .$/0 p$a$ interest rate already constitutes a reasonable rate of interest "hich is concordant "ith Sarabia,s pro8ected rehabilitationA and (b) on the contrary' B*+,s proposed escalating interest rates remain hinged on the theoretical assumption of future fluctuations in the market' this not"ithstanding the fact that its interests as a secured creditor remain "ellpreserved$