December 2012 Philippine Supreme Court Decisions on Commercial Law

Posted on January 7, 2013 by ector !" de Leon Jr # Posted in Commercial Law, Philippines $ Cases, Philippines $ Law #%a&&ed corporation, rehabilitation #

ere are select December 2012 rulin&s o' the Supreme Court o' the Philippines on commercial law( Corporations) liability o' corporate o''icers" Settled is the rule that debts incurred by directors, o''icers, and employees actin& as corporate a&ents are not their direct liability but o' the corporation they represent, e*cept i' they contractually a&ree+stipulate or assume to be personally liable 'or the corporation,s debts, as in this case" -lde'onso S" Crisolo&o .s" People o' the Philippines and China /an0in& Corporation, 1"2" 3o" 144561, December 3, 2012" 2ehabilitation) purpose" 2ehabilitation is an attempt to conser.e and administer the assets o' an insol.ent corporation in the hope o' its e.entual return 'rom 'inancial stress to sol.ency" -t contemplates the continuance o' corporate li'e and acti.ities in an e''ort to restore and reinstate the corporation to its 'ormer position o' success'ul operation and li7uidity" %he purpose o' rehabilitation proceedin&s is precisely to enable the company to &ain a new lease on li'e and thereby allow creditors to be paid their claims 'rom its earnin&s" 2ehabilitation shall be underta0en when it is shown that the continued operation o' the corporation is economically 'easible and its creditors can reco.er, by way o' the present .alue o' payments pro8ected in the plan, more, i' the corporation continues as a &oin& concern than i' it is immediately li7uidated" Express Investments III Private Ltd. and Export Development Canada Vs. Bayan Telecommunications, Inc., The Bank o !e" #ork $as trustee or holders o the %&'()),))),))) *+.,- &eniour notes o Bayan Telecommunications, Inc.. and /tty. 0emi1io /. !oval $as the Court2appointed 0eha3ilitation 0eceiver o Bayantel.. 4.0. !os. *566,52,784.0. !os. *5,6*92()84.0. !o. *55(5). Decem3er ,, ()*( 2ehabilitation) priority o' secured creditors" %he resolution o' the issue at hand rests on a determination o' whether secured creditors may en'orce pre'erence in payment durin& rehabilitation by .irtue o' a contractual a&reement" %he principle o' e7uality in e7uity has been cited as the basis 'or placin& secured and unsecured creditors in e7ual 'ootin& or in pari passu with each other durin& rehabilitation" -n le&al parlance, pari passu is used especially o' creditors who, in marshalin& assets, are entitled to recei.e out o' the same 'und without any precedence o.er each other" %he Court laid the &uidelines 'or the treatment o' claims a&ainst corporations under&oin& rehabilitation( 1" 9ll claims a&ainst corporations, partnerships, or associations that are pendin& be'ore any court, tribunal, or board, without distinction as to whether or not a creditor is secured or unsecured, shall be suspended e''ecti.e upon the appointment o' a mana&ement committee, rehabilitation recei.er, board, or body in accordance with the pro.isions o' Presidential Decree 3o" 402$9" 2" Secured creditors retain their preference over unsecured creditors, but enforcement of such preference is equally suspended upon the appointment of a management committee, rehabilitation receiver, board, or body" -n the e.ent that the assets o' the corporation, partnership, or association are 'inally li7uidated, howe.er, secured and pre'erred credits under the applicable pro.isions o' the Ci.il Code will de'initely ha.e pre'erence o.er unsecured ones"7: ;<mphasis supplied= Express Investments III Private Ltd. and Export Development Canada Vs. Bayan Telecommunications, Inc., The Bank o !e" #ork $as trustee or holders o the %&'()),))),))) *+.,- &eniour notes o Bayan Telecommunications, Inc.. and /tty. 0emi1io /. !oval $as the Court2appointed 0eha3ilitation 0eceiver o Bayantel.. 4.0. !os. *566,52,784.0. !os. *5,6*92 ()84.0. !o. *55(5). Decem3er ,, ()*( 2ehabilitation) constitutionality o' pari passu treatment" Petitioners submit that the pari passu treatment o' claims o''ends the Contract Clause under the 1467 Constitution" 9rticle ---, Section 10 o' the Constitution mandates that no law impairin& the obli&ation o' contracts shall be passed" 9ny law which enlar&es, abrid&es, or in any manner chan&es the

intention o' the parties, necessarily impairs the contract itsel'" 9nd e.en when the chan&e in the contract is done by indirection, there is impairment nonetheless" %he prohibition embraces enactments o' a &o.ernmental law$ma0in& body pertainin& to its le&islati.e 'unctions" Strictly spea0in&, it does not co.er the e*ercise by such law$ma0in& body o' 7uasi$8udicial power" >erily, the Decision dated June 26, 2005 o' the 2ehabilitation Court is not a proper sub8ect o' the 3on$impairment Clause" Express Investments III Private Ltd. and Export Development Canada Vs. Bayan Telecommunications, Inc., The Bank o !e" #ork $as trustee or holders o the %&'()),))),))) *+.,- &eniour notes o Bayan Telecommunications, Inc.. and /tty. 0emi1io /. !oval $as the Court2appointed 0eha3ilitation 0eceiver o Bayantel.. 4.0. !os. *566,52,784.0. !os. *5,6*92()84.0. !o. *55(5). Decem3er ,, ()*( 2ehabilitation) power o' !onitorin& Committee to mana&e operations" %he mana&ement committee or rehabilitation recei.er, board or body shall ha.e the 'ollowin& powers( ;1= to ta0e custody o', and control o.er, all the e*istin& assets and property o' the distressed corporation) ;2= to e.aluate the e*istin& assets and liabilities, earnin&s and operations o' the corporation) ;3= to determine the best way to sal.a&e and protect the interest o' the in.estors and creditors) ;5= to study, re.iew and e.aluate the 'easibility o' continuin& operations and restructure and rehabilitate such entities i' determined to be 'easible by the 2ehabilitation Court) and ;:= it may o.errule or re.o0e the actions o' the pre.ious mana&ement and board o' directors o' the entity or entities under mana&ement notwithstandin& any pro.ision o' law, articles o' incorporation or by$laws to the contrary" -n this case, petitioner neither 'iled a petition 'or the appointment o' a mana&ement committee nor presented e.idence to show that there is imminent dan&er o' dissipation, loss, wasta&e or destruction o' assets or other properties or paraly?ation o' business operations o' respondent corporation which may be pre8udicial to the interest o' the minority stoc0holders, the creditors or the public" @nless petitioner satis'ies these re7uisites, we cannot sanction the e*ercise by the !onitorin& Committee o' powers that will amount to mana&ement o' respondent,s operations"Express Investments III Private Ltd. and Export Development Canada Vs. Bayan Telecommunications, Inc., The Bank o !e" #ork $as trustee or holders o the %&'()),))),))) *+.,- &eniour notes o Bayan Telecommunications, Inc.. and /tty. 0emi1io /. !oval $as the Court2appointed 0eha3ilitation 0eceiver o Bayantel.. 4.0. !os. *566,52,784.0. !os. *5,6*92 ()84.0. !o. *55(5). Decem3er ,, ()*(