February 2011 Philippine Supreme Court Decisions on Commercial Law

Here are selected February 2011 rulings of the Supreme Court of the Philippines on commercial law:

Corporate rehabilitation; feature.  Corporate rehabilitation connotes the restoration of the debtor to a position of successful operation and solvency, if it is shown that its continued operation is economically feasible and its creditors can recover more, by way of the present value of payments projected in the rehabilitation plan, if the corporation continues as a going concern than if it is immediately liquidated.It contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency, the purpose being to enable the company to gain a new lease on life and allow its creditors to be paid their claims out of its earnings

A principal feature of corporate rehabilitation is the suspension of claims against the distressed corporation. Jose Marcel Panlilio, et al. vs. Regional Trial Court, et al., People of the Philippines and Social Security System, G.R. No. 173846, February 2, 2011

Corporate rehabilitation; suspension of criminal proceedings. The rehabilitation of SIHI and the settlement of claims against the corporation is not a legal ground for the extinction of petitioners’ criminal liabilities. There is no reason why criminal proceedings should be suspended during corporate rehabilitation, more so, since the prime purpose of the criminal action is to punish the offender in order to deter him and others from committing the same or similar offense, to isolate him from society, reform and rehabilitate him or, in general, to maintain social order. As correctly observed in Rosario, it would be absurd for one who has engaged in criminal conduct could escape punishment by the mere filing of a petition for rehabilitation by the corporation of which he is an officer.

The prosecution of the officers of the corporation has no bearing on the pending rehabilitation of the corporation, especially since they are charged in their individual capacities. Such being the case, the purpose of the law for the issuance of the stay order is not compromised, since the appointed rehabilitation receiver can still fully discharge his functions as mandated by law. It bears to stress that the rehabilitation receiver is not charged to defend the officers of the corporation. If there is anything that the rehabilitation receiver might be remotely interested in is whether the court also rules that petitioners are civilly liable. Such a scenario, however, is not a reason to suspend the criminal proceedings, because as aptly discussed in Rosario, should the court prosecuting the officers of the corporation find that an award or indemnification is warranted, such award would fall under the category of claims, the execution of which would be subject to the stay order issued by the rehabilitation court. The penal sanctions as a consequence of violation of the SSS law, in relation to the revised penal code can therefore be implemented if petitioners are found guilty after trial. However, any civil indemnity awarded as a result of their conviction would be subject to the stay order issued by the rehabilitation court. Only to this extent can the order of suspension be considered obligatory upon any court, tribunal, branch or body where there are pending actions for claims against the distressed corporation.

Congress has recently enacted Republic Act No. 10142, or the Financial Rehabilitation and Insolvency Act of 2010. Section 18 thereof explicitly provides that criminal actions against the individual officer of a corporation are not subject to the Stay or Suspension Order in rehabilitation proceedings.  Jose Marcel Panlilio, et al. vs. Regional Trial Court, et al., People of the Philippines and Social Security System, G.R. No. 173846, February 2, 2011.

Suspension of payments; properties owned by private individuals.  In Chung Ka Bio v. Intermediate Appellate Court, this Court resolved in the negative the issue of whether private individuals can file with the SEC petitions for declaration in a state of suspension of payments. We held that Sec. 5(d) of PD 902-A clearly does not allow a mere individual to file the petition, which is limited to “corporations, partnerships or associations.”  Besides, We pointed out that the SEC, being a mere administrative agency, is a tribunal of limited jurisdiction and, as such, can only exercise those powers, which are specifically granted to them by their enabling statutes.  We, thus, concluded that where no authority is granted to hear petitions of individuals for suspension of payments, such petitions are beyond the competence of the SEC.  In short, the SEC has no jurisdiction over private individuals relative to any petition for suspension of payments, whether the private individual is a petitioner or a co-petitioner.  We have said time and again that the SEC’s “jurisdiction is limited only to corporations and corporate assets;” it has no jurisdiction over the properties of private individuals or natural persons, even if they are the corporation’s officers or sureties.  We have, thus, consistently applied this ruling to the subsequent Ong v. Philippine Commercial International BankModern Paper Products, Inc. v. Court of Appeals, and Union Bank of the Philippines v. Court of Appeals.

Here, it is undisputed that the petition for suspension of payments was collectively filed by the five corporations owned by the Lee family.  It is likewise undisputed that together with the consolidated petition is a list of properties, which included the subject Antipolo properties owned by Samuel and Pauline Lee.  The fact, however, that the subject properties were included in the list submitted to the SEC does not confer jurisdiction on the SEC over such properties.  It is apparent that even if the members of the Lee family are joined as co-petitioners with the five corporations, still, this could not confer jurisdiction on the SEC over the Lee family members—as private individuals—nor could this affect their privately owned properties.

Further, the fact that the debts of MDEC and MHI to Bangkok Bank are secured by the Lee family through the guarantees will not likewise put the Lee family and their privately owned properties under the jurisdiction of the SEC through the consolidated petition for suspension of payments.

Therefore, the February 20, 1998 Suspension Order issued by the SEC did not and could not have included the subject properties. Samuel U. Lee, et al. vs. Bangkok Bank Public Company, Limited, G.R. No. 173349, February 9, 2011.

(Hector thanks Gerard Joseph M. Jumamil for his assistance to Lexoterica.)