Courts are not always informed of the issuance of commencement orders involving party litigants in financial rehabilitation proceedings. Hence, to avoid delay in the consolidation of all legal proceedings in rehabilitation courts, the Supreme Court must formulate guidelines on the matter of actual notice to concerned courts or tribunals.
This was the ruling of the Supreme Court En Banc, in a Decision penned by Chief Justice Alexander G. Gesmundo, denying the petition for review on certiorari filed by Pacific Cement Company (Pacific Cement).
The petition challenged the rulings of the Court of Appeals (CA) which had affirmed the decision of the Regional Trial Court (RTC) upholding the validity of a foreign judgment to be enforced against Pacific Cement. This foreign judgment, in turn, was in relation to an arbitral award previously granted in favor of Oil and Natural Gas Commission (owned by the Government of India), but subject to the financial rehabilitation proceedings then ongoing involving Pacific Cement.
Pacific Cement claimed that the CA ruling upholding the validity of the foreign judgment must be rendered null and void as it was issued by the appellate court while Pacific Cement was under rehabilitation, pursuant to the commencement order issued by the RTC acting as a rehabilitation court. The commencement order directed that all actions or proceedings for the enforcement of claims against Pacific Cement be suspended.
Respondent Oil and Natural Gas Commission, however, argued that Pacific Cement failed to inform the CA of the ongoing rehabilitation case, including the commencement order issued by the rehabilitation court.
The CA, for its part, sustained its ruling on the validity of the foreign judgment against Pacific Cement, but ordered that the enforcement be suspended subject to the ongoing rehabilitation proceeding.
In affirming the CA, the Supreme Court first stressed that a vital function of rehabilitation proceedings is the mechanism of suspension of all actions and claims against the distressed corporation.
Reiterating its previous ruling in Veterans Philippine Scout Security Agency, Inc. v. First Dominion Prime Holdings, Inc., the Court held that the justification for the suspension of actions or claims pending rehabilitation proceedings is to enable the rehabilitation receiver to “effectively exercise his/her powers free from any judicial or extrajudicial interference that might unduly hinder or prevent the “rescue” of the debtor company.”
In the present case, however, while the commencement order had already been issued by the rehabilitation court by the time the CA resolved the case on the validity of the foreign judgment, the CA ruling cannot be rendered null and void because the appellate court had not been informed of the commencement order. The CA was thus not bound to take note of and consider the pendency of the rehabilitation proceedings, as the matter was not properly brought to its attention.
The Court found that there was no showing that Pacific Cement notified the Oil and Natural Gas Commission nor the CA of the commencement order during the pendency of the appeal before the CA. Rather, it was only after the CA had already promulgated its decision when it was apprised of the rehabilitation proceedings.
The Court further stressed that the Financial Rehabilitation and Insolvency Act of 2010 (FRIA) and the Financial Rehabilitation Rules of Procedure (FR Rules), require, in addition to publication, personal notice to certain classes of creditors and entities.
The Court likewise held that nowhere in the FRIA is it stated that any action taken on pending actions against the debtor, including rendition of judgment, is automatically voided on the ground that it was rendered or issued after the issuance of a commencement order. “The mandate of the law is to simply consolidate the resolution of all legal proceedings by and against the debtor to the rehabilitation Court.”
The Court added that a stay order likewise “simply suspends all actions for claims against a corporation undergoing rehabilitation; it does not work to oust a court of its jurisdiction over a case properly field before it” and that “the suspension is only for a temporary period to prevent the irreversible collapse of the corporation and give the management committee or the receiver the absolute tranquility to study the viability of the corporation.”
To avoid the possibility of separate suits or appeals questioning orders or judgments rendered in violation of a commencement/stay order, which will only delay the consolidation of all legal proceedings in the rehabilitation court, the Court thus set the following guidelines mandating the following procedure to be observed in the conduct of financial rehabilitation proceedings pursuant to the FRIA and the FR Rules:
- Upon the appointment of a rehabilitation receiver, the rehabilitation court shall instruct the former to notify all courts or tribunals before which the debtor has pending actions, by way of manifestation, of the following: the existence of the petition for rehabilitation; the court where the petition was filed; the date of filing; and the fact of the issuance of commencement and stay orders.
- In cases where the petitioner is the debtor, the courts to be notified shall be those indicated in the verified petition and affidavit of general financial condition, as required by Section 2(A)(7) and (10), Rule 2(A) of the FR Rules.
- In cases where the petitioner is the creditor, the rehabilitation court shall, together with the appointment of a rehabilitation receiver, instruct the latter to ascertain the existence of any pending actions or proceedings by or against the debtor.
- The rehabilitation court shall further require the rehabilitation receiver, should the latter learn of any other pending actions by or against the debtor, to notify such other court/tribunal of the following: the existence of the petition for rehabilitation, the court where the petition was filed; the date of its filing; and the fact of the issuance of commencement and stay orders, by way of manifestation within five calendar days from the rehabilitation receiver’s knowledge of such other actions. The rehabilitation receiver shall also report to the rehabilitation court of the former’s compliance within five calendar days.
The Court also directed the Office of the Court Administrator to disseminate copies of the Decision to all trial courts. [Courtesy of the Supreme Court Public Information Office]
Full text of G.R. No. 229471 (Pacific Cement Company v. Oil and Natural Gas Commission) at: https://sc.judiciary.gov.ph/229471-pacific-cement-company-vs-oil-and-natural-gas-commission/