CLAIMS COVERED BY FRIA

1. A claim by the debtor against an insurance company is not a claim within the jurisdiction of
the rehabilitation court.

Steel Corporation of the Philippines vs. Mapfre Insular Insurance Corp., et. al. G.R. No.
201199, October 16, 2013

Facts: Steel Corporation of the Philippines obtained loans from several creditors and, as security,
mortgaged its assets in their favor. The creditors appointed Bank of the Philippine Islands (BPI) as
their trustee. On 17 December 1997, SCP and BPI entered into a Mortgage Trust Indenture (MTI)
requiring SCP to insure all of its assets until the loans are fully paid. Under the MTI, the insurance
policies were to be made payable to BPI.

During the course of its business, SCP suffered financial difficulties. On 11 September 2006, one of
the creditors, Equitable PCI Bank, Inc., now known as Banco de Oro-EPCI, Inc., filed with the RTC a
petition to have SCP placed under corporate rehabilitation. On 12 September 2006, the RTC issued
a stay order to defer all claims against SCP and appointed Atty. Santiago T. Gabionza, Jr. as
rehabilitation receiver. On 3 December 2007, the RTC rendered a Decision approving the modified
rehabilitation plan.

Fire broke out at 2 SCP-plants damaging its machineries. Invoking its right under the MTI, BPI
demanded and received from the insurers the insurance proceeds. SCP sought to collect the
insurance proceeds claiming that it shall be used to rehabilitate the corporation by having the
machineries repaired and to buy replacements for the heavily damaged machines and that the
assignment of the RTC as rehabilitation court did not divest it from being a court of general
jurisdiction. The insurance companies refused to pay SCP the insurance proceeds contending that
the fire was caused by several factors attributable to SCP such as arson and negligence and that the
rehabilitation court has no jurisdiction over the propriety of the payment or non-payment of the
insurance proceeds as the “claims” contemplated under the law do not cover the claims of the
distressed bank to its debtors. The RTC, acting as the rehabilitation court, ruled on the matter and
directed the insurance companies to pay the proceeds to SCP. In an appeal with the CA, the
appellate court reversed the decision of the trial court.

Hence, this instant petition.

Issue: Whether or not the rehabilitation court has jurisdiction over the issue of payment of the
insurance proceeds to a corporation under rehabilitation and

whether or not the claim of SCP for insurance proceeds is covered by the “claims” under the law

Ruling: No. The RTC, acting as rehabilitation court, has no jurisdiction over the subject matter of the
insurance claim of SCP against respondent insurers. SCP must file a separate action for collection
where respondent insurers can properly thresh out their defenses. SCP cannot simply file with the
RTC a motion to direct respondent insurers to pay insurance proceeds. Section 3 of Republic Act No.
10142 states that rehabilitation proceedings are "summary and non-adversarial" in nature. They do
not include adjudication of claims that require full trial on the merits, like SCP’s insurance claim
against respondent insurers.

In Advent Capital and Finance Corporation v. Alcantara, the Court held that: x x x Said insurance
claims cannot be considered as "claims" within the jurisdiction of the trial court functioning as a
rehabilitation court. Rehabilitation courts only have limited jurisdiction over the claims by
creditors against the distressed company, not on the claims of said distressed company against its
debtors. The interim rules define claim as referring to all claims or demands, of whatever nature or
character against a debtor or its property, whether for money or otherwise. Even under the new
Rules of Procedure on Corporate Rehabilitation, claim is defined under Section 1, Rule 2 as "all
claims or demands of whatever nature or character against a debtor or its property, whether for
money or otherwise." This is also the definition of a claim under Republic Act No. 10142. Section
4(c) thereof reads: "(c) Claim shall refer to all claims or demands of whatever nature or character
against the debtor or its property, whether for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not limited to:
(1) all claims of the government, whether national or local, including taxes, tariffs and customs
duties; and (2) claims against directors and officers of the debtor arising from the acts done in the
discharge of their functions falling within the scope of their authority: Provided, That, this inclusion
does not prohibit the creditors or third parties from filing cases against the directors and officers
acting in their personal capacities.”

Respondent insurers are not claiming or demanding any money or property from SCP. In other
words, respondent insurers are not creditors of SCP. Respondent insurers are contingent debtors of
SCP because they may possibly be, subject to proof during trial, liable to SCP. Thus, the RTC has no
jurisdiction over the insurance claim of SCP against respondent insurers. SCP must file a separate
action against respondent insurers to recover whatever claim it may have against them.

COMMENCEMENT ORDER

2. Property acquired by the creditor prior to the filing of the petition for rehabilitation and the
issuance of the stay order would no longer be subject to the rehabilitation proceedings.

Town and Country Enterprises Inc. vs. Hon. Quisumbing G.R No. 173610, October 1, 2012

Facts: TCEI obtained a loan from Metrobank and secured the same through a real estate mortgage
over 20 parcels of land. These lands were registered in the name of its corporate officers, Sps.
Campos. TCEI failed to pay its obligations and so Metrobank caused the extrajudicial foreclosure of
the properties. Subsequently, the certificate of sale was issued to Metrobank being the highest
bidder in the auction sale. TCEI and Group Report on Sps. Campos refused to turn over the
possession of the properties to Metrobank, thus the bank petitioned before the RTC for the issuance
of a writ of possession. In the meantime, TCEI, claiming difficulty due to the Asian financial crisis,
petitioned for the declaration of a state of suspension of payments with approval of the
rehabilitation plan before the same court. A stay order was issued in the rehabilitation case. Upon
motion of TCEI, the proceeding for the issuance of the writ of possession was suspended. Aggrieved
by the denial of its motion for reconsideration, Metrobank appealed to the CA where it obtained
favorable judgment. The CA directed respondent judge to continue with the proceedings and
eventually issue the writ of possession. On the other hand, the rehabilitation court approved the
rehabilitation plan filed by TCEI and gave to it a grace period of 5 years after which it has to pay its
obligations within 3 years. Meanwhile, the RTC issued the writ of possession as ordered by the CA.
With such issuance, TCEI and Sps. Campos appealed to the CA. The CA affirmed the decision of the
RTC in issuing the said writ. Hence, this petition.

Issue: WON the issuance of the writ of possession is proper despite the fact that the company’s
rehabilitation plan was approved.

Ruling: Yes. The applicable law in the herein case is RA 8791 and not Act No. 3135. The former
provides the redemption period of 3 months or the period before the registration of the certificate
of sale, whichever is earlier. The properties were acquired on 7 November 2001 and the
redemption period expired on 6 February 2002. TCEI failed to redeem the properties within the
three–month period, thus Metrobank acquired ownership over the properties. The mortgagor loses
all interest over the foreclosed property after the expiration of the redemption period and the
purchaser becomes the absolute owner thereof if no redemption is made.

Furthermore, although there was already a Stay Order dated 8 October 2002 and approval of the
rehabilitation court on 29 March 2004, these cannot be relied upon. An essential function of a
corporate rehabilitation is admittedly the stay order which is a mechanism of suspension of all
actions and claims against the distressed corporation upon the due appointment of a management
committee or rehabilitation receiver. It should be noted that Metrobank has acquired ownership of
the properties even before the issuance of the stay order and approval of the rehabilitation plan.

While it is true that the issuance of a writ of possession ceases to be a ministerial function if third
parties claimed rights adverse to the judgment debtor, rehabilitation receiver’s power to take
possession, control and custody of TCEI’s assets is not adverse. A rehabilitation receiver is an
officer of the court who is appointed for the protection of interests of corporate investors and
creditors. There is nothing in the concept of corporate rehabilitation that would ipso facto deprive
the officers of a debtor corporation of control over its business or properties.

Metrobank would still own the property even if Act No. 3135 will be followed. The properties, as
mentioned, were purchased on 7 November 2001, the certificate of sale was issued on 13 December
2001 and was registered on 10 April 2002, and the affidavit of consolidation of ownership was
executed on 25 April 2003. It can be seen, that the bank consolidated its ownership over the
properties only after the lapse of oneyear period.

Finally, the argument of petitioners that the CA erroneously gave more premium to the ex-parte
proceedings for the issuance of the writ of possession over those in the rehabilitation case which is
being in rem, is untenable. Rehabilitation cases are summary and non-adversarial and do not
impair the debtor’s contracts or diminish the status of preferred creditors. The issuance of a Stay
Order suspends the enforcement of all claims against the debtor, whether for money or otherwise
and whether such enforcement is by court action or otherwise, effective from the date of its
issuance until the dismissal of the petition or the termination of the rehabilitation proceedings.
However, this does not apply to Metrobank which has acquired ownership over the properties
before TCEI filed its petition for rehabilitation a quo.

SUSPENSION ORDER

3. Money claim against the debtor under rehabilitation does not fall under the jurisdiction of
the quasi-judicial agency.

Sobrejuanite vs. ASB Development Corporation, 471 SCRA 763[2005]

4. The stay order does not cover drawing under a letter of credit

MWSS vs. Daway,432 SCRA 559[2004]

5. Stay order does not cover suspension of criminal charges against corporate officers

Panlilio vs. Regional Trial Court, 641 SCRA 438[2011]

6. Stay order does not cover cases pending with the Supreme Court.

De Castro vs. Liberty Broadcasting Network, Inc. ,629 SCRA 77[2010]

7. Stay order does not apply to sureties.

JPRL Development Corporation vs. Security bank Corporation, 650 SCRA 645[2011]

THE REHABILITAION PLAN

8. Rehabilitation plan approved notwithstanding opposition of creditor.

BPI vs. Sarabia Manor Hotel Corporation, 702 SCRA 432[2013]

Victorino – Aquino vs. Pacific Plans Inc., GR no. 193108, Dec. 10, 2014

RIGHTS OF SECURED CREDITORS UNDER LIQUIDATION ORDER AND LIQUIDATION PLAN

9. Secured creditor can foreclose during liquidation proceedings.

Manuel D. Yngson Jr. (in his capacity as the liquidator of ARCAM & Company, inc.) vs. PNB
G.R. No. 171132, August 15, 2012

Facts: ARCAM & Company, Inc. (ARCAM) is engaged in the operation of a sugar mill in Pampanga. It
applied for and was granted a loan by respondent Philippine National Bank (PNB). To secure the
loan, ARCAM executed a Real Estate Mortgage over a 350,004-square meter parcel of land and a
Chattel Mortgage over various personal properties consisting of machinery, generators, field
transportation and heavy equipment.

ARCAM, however, defaulted on its obligations to PNB.

On November 25, 1993, pursuant to the provisions of the Real Estate Mortgage and Chattel
Mortgage, PNB initiated extrajudicial foreclosure proceedings.

The public auction was scheduled on December 29, 1993 for the mortgaged real properties and
December 8, 1993 for the mortgaged personal properties.

On December 7, 1993, ARCAM filed before the SEC a Petition for Suspension of Payments,
Appointment of a Management or Rehabilitation Committee, and Approval of Rehabilitation Plan,
with application for issuance of a temporary restraining order (TRO) and writ of preliminary
injunction. The SEC issued a TRO and subsequently a writ of preliminary injunction, enjoining PNB
and the Sheriff from proceeding with the foreclosure sale of the mortgaged properties.

On February 9, 2000, the SEC ruled that ARCAM can no longer be rehabilitated. The SEC noted that
the petition for suspension of payment was filed in December 1993 and six years had passed.

The SEC decreed that ARCAM be dissolved and placed under liquidation. The SEC Hearing Panel
also granted PNB’s motion to dissolve the preliminary injunction and appointed Atty. Manuel D.
Yngson, Jr.& Associates as Liquidator for ARCAM.

PNB revived the foreclosure case and requested the RTC Clerk of Court to reschedule the sale at
public auction of the mortgaged properties.

On November 16, 2000, Yngson filed with the SEC a motion to nullify the auction sale .He posited
that all actions against companies which are under liquidation, like ARCAM, are suspended because
liquidation is a continuation of the petition for suspension proceedings. He also asserted that the
mortgaged assets should be included in the liquidation and the proceeds shared with the unsecured
creditors.

PNB asserted that neither Presidential Decree (P.D.) No. 902-A nor the SEC rules prohibits secured
creditors from foreclosing on their mortgages to satisfy the mortgagor’s debt after the termination
of the rehabilitation proceedings and during liquidation proceedings. The SEC issued a Resolution
denying petitioner’s motion to nullify the auction sale. Holding that PNB was not legally barred
from foreclosing on the mortgages.

Yngson filed a petition for review in the CA questioning the January 4, 2005 Resolution of the SEC
and dismissed the petition.

Issue: Whether or not PNB, as a secured creditor, can foreclose on the mortgaged properties of a
corporation under liquidation without the knowledge and prior approval of the liquidator or the
SEC?

Ruling: No. PNB was not barred from foreclosing on the mortgages

If rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured
creditors shall enjoy preference over unsecured creditors, subject only to the provisions of the Civil
Code on concurrence and preference of credits. Creditors of secured obligations may pursue their
security interest or lien, or they may choose to abandon the preference and prove their credits as
ordinary claims

. Moreover, Section 2248 of the Civil Code provides:

"Those credits which enjoy preference in relation to specific real property or real rights, exclude all
others to the extent of the value of the immovable or real right to which the preference refers."

Under Section 2248 of the Civil Code. The creditor-mortgagee has the right to foreclose the
mortgage over a specific real property whether or not the debtormortgagor is under insolvency or
liquidation proceedings. The right to foreclose such mortgage is merely suspended upon the
appointment of a management committee or rehabilitation receiver or upon the issuance of a stay
order by the trial court. However, the creditor-mortgagee may exercise his right to foreclose the
mortgage upon the termination of the rehabilitation proceedings or upon the lifting of the stay
order.

Under Republic Act No. 10142, otherwise known as the Financial Rehabilitation and Insolvency Act
(FRIA) of 2010, the right of a secured creditor to enforce his lien during liquidation proceedings is
retained. Section 114 of said law thus provides:

Rights of Secured Creditors. – The Liquidation Order shall not affect the right of a secured creditor
to enforce his lien in accordance with the applicable contract or law. A secured creditor may:

(a) waive his rights under the security or lien, prove his claim in the liquidation proceedings and
share in the distribution of the assets of the debtor; or

(b) maintain his rights under his security or lien; If the secured creditor maintains his rights under
the security or lien:

(1) the value of the property may be fixed in a manner agreed upon by the creditor and the
liquidator. When the value of the property is less than the claim it secures, the liquidator may
convey the property to the secured creditor and the latter will be admitted in the liquidation
proceedings as a creditor for the balance; if its value exceeds the claim secured, the liquidator may
convey the property to the creditor and waive the debtor’s right of redemption upon receiving the
excess from the creditor;

(2) the liquidator may sell the property and satisfy the secured creditor’s entire claim from the
proceeds of the sale; or

(3) the secured creditor may enforce the lien or foreclose on the property pursuant to applicable
laws.

PNB elected to maintain its rights under the security or lien; hence, its right to foreclose the
mortgaged properties should be respected.