[G.R. No.

206528, June 28, 2016]

PHILIPPINE ASSET GROWTH TWO, INC. (SUCCESSOR-IN-INTEREST OF

PLANTERS DEVELOPMENT BANK) AND PLANTERS DEVELOPMENT BANK
VS. FASTECH SYNERGY PHILIPPINES, INC.,

FACTS:

Respondents filed a verified Joint Petition for corporate rehabilitation, with prayer for
the issuance of a Stay or Suspension Order. They claimed that: (a) their business
operations and daily affairs are being managed by the same individuals; (b) they share a
majority of their common assets; and (c) they have common creditors and common
liabilities. Among the common creditors listed in the rehabilitation petition was
PDB, which had earlier filed a petition for extrajudicial foreclosure of mortgage over the
two (2) parcels of land, registered in the name of Fastech Properties listed as common
assets of respondents in the rehabilitation petition. PDB emerged as the highest bidder
in the foreclosure sale. Respondents claimed that this situation has impacted on their
chance to recover from the losses they have suffered over the years. Hence, respondents
submitted for the court's approval their proposed Rehabilitation Plan. RTC-Makati
issued a Commencement Order with Stay Order, and appointed a Rehabilitation
Receiver. After the creditors had filed their respective comments and/or oppositions to
the revised Rehabilitation Plan, and respondents had submitted their consolidated
reply thereto, the court-appointed Rehabilitation Receiver submitted her
comments, opining that respondents may be successfully rehabilitated, considering the
sufficiency of their assets to cover their liabilities and the underlying assumptions,
financial projections and procedures to accomplish said goals in their Rehabilitation
Plan.

The RTC-Makati dismissed the rehabilitation petition despite the favorable

recommendation of its appointed Rehabilitation Receiver. It found the facts and figures
submitted by respondents to be unreliable in view of the disclaimer of opinion of the
independent auditors who reviewed respondents' 2009 financial statements, which it
considered as amounting to a "straightforward unqualified adverse opinion." In the
same vein, it did not give credence to the unaudited 2010 financial statements as the
same were mere photocopied documents and unsigned by any of respondents'
responsible officers. It also observed that respondents added new accounts and/or
deleted/omitted certain accounts. Furthermore, it rejected the revised financial
projections as the bases for which were not submitted for its evaluation on the ground
of confidentiality. On appeal, the CA issued rendered a Decision, reversing and setting
aside the RTC-Makati ruling. The CA reinstated the rehabilitation petition, approved
respondents' Rehabilitation Plan, and remanded the case to the RTC-Makati to
supervise its implementation. Considering that respondents' creditors are placed in
equal footing as a necessary consequence, it permanently enjoined PDB from "effecting
the foreclosure" of the subject properties during the implementation of the
Rehabilitation Plan.

ISSUE:

Whether or not the Rehabilitation Plan is feasible.

RULING:

No. In the present case, the Rehabilitation Plan failed to comply with the minimum
requirements, i.e.: (a) material financial commitments to support the rehabilitation plan;
and (b) a proper liquidation analysis, under Section 18, Rule 3 of the 2008 Rules of
Procedure on Corporate Rehabilitation, which Rules were in force at the time
respondents' rehabilitation petition was filed on April 8, 2011.
A material financial commitment becomes significant in gauging the resolve,
determination, earnestness, and good faith of the distressed corporation in financing the
proposed rehabilitation plan. This commitment may include the voluntary
undertakings of the stockholders or the would-be investors of the debtor-corporation
indicating their readiness, willingness, and ability to contribute funds or property to
guarantee the continued successful operation of the debtor-corporation during the
period of rehabilitation.

Professor Stephanie V. Gomez of the University of the Philippines College of Law

suggests specific characteristics of an economically feasible rehabilitation plan:

a. The debtor has assets that can generate more cash if used in its daily operations than
if sold.

b. Liquidity issues can be addressed by a practicable business plan that will generate
enough cash to sustain daily operations.

c. The debtor has a definite source of financing for the proper and full implementation
of a Rehabilitation Plan that is anchored on realistic assumptions and goals.

These requirements put emphasis on liquidity: the cash flow that the distressed
corporation will obtain from rehabilitating its assets and operations. A corporation's
assets may be more than its current liabilities, but some assets may be in the form of
land or capital equipment, such as machinery or vessels. Rehabilitation sees to it that
these assets generate more value if used efficiently rather than if liquidated.

On the other hand, this court enumerated the characteristics of a rehabilitation plan that
is infeasible: (a) the absence of a sound and workable business plan; (b) baseless and
unexplained assumptions, targets and goals; (c) speculative capital infusion or complete
lack thereof for the execution of the business plan; (d) cash flow cannot sustain daily
operations; and (e) negative net worth and the assets are near full depreciation or fully
depreciated.

POINTS TO REMEMBER:

 The test in evaluating the economic feasibility of the plan was laid down in Bank
of the Philippine Islands v. Sarabia Manor Hotel Corporation, to wit: In order to
determine the feasibility of a proposed rehabilitation plan, it is imperative that a
thorough examination and analysis of the distressed corporation's financial data
must be conducted. If the results of such examination and analysis show that
there is a real opportunity to rehabilitate the corporation in view of the
assumptions made and financial goals stated in the proposed rehabilitation plan,
then it may be said that a rehabilitation is feasible. In this accord, the
rehabilitation court should not hesitate to allow the corporation to operate as an
on-going concern, albeit under the terms and conditions stated in the approved
rehabilitation plan. On the other hand, if the results of the financial examination
and analysis clearly indicate that there lies no reasonable probability that the
distressed corporation could be revived and that liquidation would, in fact,
better subserve the interests of its stakeholders, then it may be said that a
rehabilitation would not be feasible. In such case, the rehabilitation court may
convert the proceedings into one for liquidation.