RUBY INDUSTRIAL CORPORATION and BENHAR

INTERNATIONAL, INC. petitioners, vs. COURT OF

APPEALS, MIGUEL LIM, ALLIED LEASING and
FINANCE CORPORATION, and THE MANAGEMENT
COMMITTEE OF RUBY INDUSTRIAL
CORPORATION, respondents.

petitioner Benhar International, Inc. (BENHAR) is wholly-
owned by the Yu family and headed by Henry Yu who is also a
director and majority stockholder of RUBY(Ruby Industrial
Corporation).
RUBY suffered severe liquidity problems. it filed a
Petition for Suspension of Payments with the Securities and
Exchange Commission (SEC).
[2]

the SEC issued an Order
[3]
declaring RUBY under
suspension of payments. Pending hearing of its petition, the
SEC enjoined RUBY from disposing its property, except
insofar as necessary in its ordinary operations. It also
enjoined RUBY from making payments outside of the
necessary or legitimate expenses of its business.
the SEC Hearing Panel
[4]
created a management
committee
[5]
for RUBY. Subsequently, at RUBY's special
stockholders meeting, its majority stockholders presented
the BENHAR/RUBY Rehabilitation Plan to be submitted to
SEC.
Some 40% of the stockholders opposed the BENHAR/RUBY
Plan, including private respondent MIGUEL LIM, a minority
shareholder of RUBY. Private respondent Allied Leasing and
Finance Corporation, the biggest unsecured creditor of RUBY
and chairman of the management committee, also objected to
the plan as it would transfer RUBY's assets beyond the reach
and to the prejudice of its unsecured creditors. Despite the
oppositions, the majority stockholders still submitted the
BENHAR/RUBY Plan to the SEC for approval.
RUBY's minority stockholders, represented by private
respondent Lim, submitted their own rehabilitation plan (the
ALTERNATIVE PLAN) to the SEC
Both plans were endorsed by the SEC to RUBY's
management committee for evaluation.
the SEC Hearing Panel approved the BENHAR/RUBY
Plan.
[10]
The minority stockholders, thru private respondent
Lim, appealed the approval to the SEC en banc. the
SEC en banc granted the writ of preliminary injunction against
the enforcement of the BENHAR/RUBY Plan.
[11]

Thereafter, BENHAR and Henry Yu, later joined by RUBY
and Yu Kim Giang, appealed to the Court of Appeals (CA-G.R.
SP No. 16798) questioning the issuance of the writ. Their
appeal was denied.
[12]

BENHAR and company elevated the matter to this Court
and was denied the petition.However, it appears that before
the SEC Hearing Panel approved the BENHAR/RUBY Plan
BENHAR had already implemented part of the plan by paying
off Far East Bank & Trust Company (FEBTC), one of RUBY's
secured creditors. Thus, FEBTC had already executed a deed
of assignment of credit and mortgage rights in favor of
BENHAR. Moreover, despite the SECen banc's TRO and
injunction, BENHAR still paid RUBY's other secured creditors
who, in turn, assigned their credits in favor of BENHAR.
Hence, RUBY's biggest unsecured creditor, Allied Leasing
and Finance Corporation, and private respondent Lim moved
to nullify the deeds of assignment executed in favor of
BENHAR and cite the parties thereto in contempt for willful
violation of SEC Order enjoining RUBY from disposing its
properties and making payments pending the hearing of its
petition for suspension of payments. Private respondents Lim
and Allied Leasing charged that in paying off FEBTC's credits,
FEBTC was given undue preference over the other creditors of
RUBY.
the SEC Hearing Panel nullified the deeds of assignment
and declared the parties thereto guilty of indirect contempt.
[14]

Petitioners appealed to the SEC en banc. Their appeal
was denied. Petitioners appealed to the Court of Appeals (CA-
G.R. SP No. 18310). the Court of Appeals affirmed the SEC
ruling nullifying the deeds of assignment. This Court affirmed
the Court of Appeals' decision in G.R. No. 96675.
[17]

, after the SEC en banc enjoined the implementation of
BENHAR/RUBY Plan, RUBY filed with the SEC en
banc an ex-parte petition to create a new management
committee and to approve its revised rehabilitation plan
(Revised BENHAR/RUBY Plan). Under the revised plan,
BENHAR shall receive P34.068 Million of the P60.437 Million
credit facility to be extended to RUBY, as reimbursement for
BENHAR's payment to some of RUBY's creditors.
On April 26, 1991, over ninety (90%) percent of RUBY's
creditors objected to the Revised BENHAR/RUBY Plan and
the creation of a new management committee. Instead, they
endorsed the minority stockholders' Alternative Plan.
At the hearing of the petition for the creation of a new
management committee, three (3) members of the original
management committee
[18]
opposed the Revised
BENHAR/RUBY Plan on the following grounds:
(1) the Revised BENHAR/RUBY Plan would legitimize the
entry of BENHAR, a total stranger, to RUBY as BENHAR
would become the biggest creditor of RUBY;
(2) the revised plan would put RUBY's assets beyond the
reach of the unsecured creditors and the minority
stockholders; and,
(3) the revised plan was not approved by RUBY's
stockholders in a meeting called for the purpose.
the SEC Hearing Panel approved the revised plan and
dissolved the existing management committee. It also created
a new management committee and appointed BENHAR as
one of its members.
[19]
In addition to the powers originally
conferred to the management committee under P.D. No. 902-
A, the new management committee was tasked to oversee the
implementation by the Board of Directors of the revised
rehabilitation plan for RUBY.
the original management committee, Lim, and the Allied
Leasing Corporation appealed to the SEC en banc. the
SEC En Banc affirmed the approval of the Revised
BENHAR/RUBY Plan and the creation of a new management
committee. Private respondents Lim, Allied Leasing
Corporation and the original management committee moved
for reconsideration. Petitioners, on the other hand, asked the
SEC to reconsider the portion of its Order prohibiting BENHAR
from utilizing RUBY's assets as collateral.
the SEC denied private respondents' motions for
reconsideration. However, it granted petitioners' motion and
allowed BENHAR to use RUBY's assets as collateral for loans,
subject to the approval of the majority of all the members of
the new management committee.
[21]

the Court of Appeals set aside
[22]
SEC's approval of the
Revised BENHAR/RUBY plan
Hence, this petition where petitioners aver that:
"I. THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR, GRAVELY ABUSED ITS
DISCRETION AND EXCEEDED ITS JURISDICTION
WHEN IT WENT AGAINST THE FACTS AS FOUND BY
THE SEC AND, THEREAFTER, SUBSTITUTED ITS
JUDGMENT FOR THAT OF THE SEC.
"II. THE COURT OF APPEALS COMMITTED AN
ERROR REVIEWABLE ON APPEAL AND ALSO A
PROPER SUBJECT OF CERTIORARI WHEN IT
ALLOWED PRIVATE RESPONDENTS TO FILE
SEPARATE PETITIONS PREPARED BY LAWYERS
REPRESENTING THEMSELVES AS BELONGING TO
DIFFERENT LAW FIRMS."
We find no merit in the petition.
We hold that the SEC acted arbitrarily when it approved
the Revised BENHAR/RUBY Plan. As found by the Court of
Appeals, the plan contained provisions which circumvented its
final decision
[27]
in CA-G.R. SP No. 18310, nullifying the deeds
of assignment of credits and mortgages executed by RUBY's
creditors in favor of BENHAR, as well as this Court's
resolution in G.R. No. 96675, affirming said Court of Appeals'
decision. Specifically, the Revised BENHAR/RUBY Plan
considered as valid the advance payments made by BENHAR
in favor of some of RUBY'S creditors. The nullity of
BENHAR's unauthorized dealings with RUBY's creditors is
settled. The deeds of assignment between BENHAR and
RUBY's creditors had been categorically declared void by the
SEC Hearing Panel in two (2) orders
These orders were upheld by the SEC en banc
[29]
and the
Court of Appeals.
Even the SEC en banc, in its July 30, 1993 Order
affirming the approval of the Revised BENHAR/RUBY Plan,
has acknowledged the invalidity of the subject deeds of
assignment. However, to justify its approval of the plan and
the appointment of BENHAR to the new management
committee, it gave the lame excuse that BENHAR became
RUBY's creditor for having paid RUBY's debts.
For its part, the Court of Appeals noted that the approved
Revised BENHAR/RUBY Plan gave undue preference to
BENHAR. The records, indeed, show that BENHAR's offer to
lend its credit facility in favor of RUBY is conditioned upon the
payment of the amount it advanced to RUBY's creditors,
In fact, BENHAR shall receive P34.068 Million out of
the P60.437 Million credit facility to be extended to RUBY for
the latter's rehabilitation.
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.
[34]
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
receivership 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 between 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.
[35]

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.
IN VIEW OF THE FOREGOING, the instant petition is
DISMISSED for lack of merit.