Ruby Industrial Corp.
vs Court Appeals
286 SCRA 445
Facts:
Ruby Industrial Corporation (RUBY) is a domestic
corporation engaged in glass manufacturing.
Reeling from severe liquidity problems beginning in
1980, RUBY filed a petition for suspension of
payments with the Securities and Exchange
Commission. SEC issued an order declaring RUBY
under suspension of payments and enjoining the
disposition of its properties pending hearing of the
petition, except insofar as necessary in its ordinary
operations, and making payments outside of the
necessary or legitimate expenses of its business.
On August 10, 1984, the SEC Hearing
Panel created the management committee
(MANCOM) for RUBY, composed of
representatives from Allied Leasing and
Finacne Corporation (ALFC), Philippine Bank
of Communications (PBCOM), China Banking
Corporation (China Bank), Pilipinas Shell
Petroleum Corporation (Pilipinas Shell), and
RUBY represented by Mr. Yu Kim Giang.
Subsequently, two (2) rehabilitation plans
were submitted to the SEC: the BENHUR/RUBY
Rehabilitation Plan of the majority stockholders
led by Yu Kim Giang, and the Alternative Plan of
the minority stockholders represented by Miguel
Lim (Lim).
Notwithstanding the objections of the 90% of
RUBY's creditors and three members of the
MANCOM, the SEC Hearing Panel approved the
Revised BENHAR/RUBY Plan and dissolved the
existing management committee. It also created a
new management committee and appointed
BENHAR as one of its members. In addition to the
powers originally conferred to the management
committee under Presidential Decree (PD 902-A),
the new management committee was tasked to
oversee the implementation by the Board of
Directors of the revised rehabilitaion plan for
RUBY.
The Court of Appeals reversed SEC's approval.
●
Issue:
Whether or not BENHAR/RUBY Plan should be
declared null and void.
●
Held:
YES. Rehabilitation 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. When a distressed company is placed
under rehabilitation, the appointment of a
management committee follows to avoid
collusion between the previous management and
creditors it might favor, to the prejudice of the
other creditors.
All assets of a corporation under rehabilitation
receiivership are held in trust for the equal
benefit of all creditors to preclude one from
obtaining an advantage or preference over
another by the expediency of attachment,
execution or otherwise. As betweem the
creditors, the key phrase is equality in equity.
Once the corporation threatened by bankruptcy
is taken over by a receiver, all the creditors ought
to stand on equal footing. Not any one of them
should be paid ahead of the others. This is
precisely the reason for suspending all pending
claims against the corporation under
receivership.
Parenthetically, BENHAR is a domestic
corporation engaged in importing and selling
vehicle spare parts with an authorized capital
stock of thirty million pesos. Yet, it offered to lend
its credit facility in the amount of sixty to eighty
millions pesos to RUBY. It is to be noted that
BENHAR is not a lending or financing
corporation and lending its credit facilities, worth
more than double its authorized capitalization, is
not one of the powers granted to it under its
Articles of Incorporation.
Significantly, Henry Yu, a director and a
majority stockholder of RUBY is, at the same
time, a stockholder of BENHAR, a corporation
owned and controlled by his family. These
circumstances render the deals between
BENHAR and RUBY highly irregular.
To justify its appointment in the new
management committee and to dispute that it will
become a creditor of RUBY only on account of
the proposed assignment of its credit facility to
RUBY, BENHAR avers that as early as
December 27, 1988, it already lent one million
pesos (P1,000,000.00) to RUBY for the latter's
working capital
The submission deserves scant consideration.
To start with, this argument was raised by
BENHAR for the first time in its motion for
reconsideration before the Court of Appeals. The
settled rule is that issues not raised in the court
a quo cannot be raised for the first time on
appeal - in this case, in a motion for
reconsideration - for being offensive to the basic
rules of fair play, justice and due process.
Moreover, when RUBY initiated its petition
for suspension of payments with the SEC,
BENHAR was not listed as one of RUBY's
creditors. BENHAR is a total stranger to RUBY. If
at all, BENHAR only served as a conduit of
RUBY. As aptly stated in the challenged Court of
Appeals decision:
Benhar's role in the Revised Benhar/Ruby
Plan, as envisioned by the majority stockholders,
is to contract the loan for Ruby and, serving the
role of a financier, relend the same to Ruby.
Benhar is merely extending its credit line facility
with China Bank, under which the bank agrees to
advance funds to the company should the need
arise. This is unlikely a loan in which the entire
amount is made available to the borrower so that
it can be used and programmed for the benefit of
the company's financial and operational needs.
Thus, it is actually China Bank which will be
the source of the funds to be relent to Ruby.
Benhar will not shell out a single centavo of its
own funds. It is the assets of Ruby which will be
mortgaged in favor of Benhar. Benhar's
participation will only make the rehabilitation plan
more costly and, because of the mortgage of its
(Ruby's) assets to a new creditor, will create a
situation which is worse than the present.
