G.R. No. 175844; July 29, 2013
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. SARABIA MANOR HOTEL CORPORATION, Respondent.

FACTS

Respondent Sarabia Manor Hotel Corporation, a hotel operator, obtained substantial loans from Far East Bank and Trust Company (FEBTC), later assumed by petitioner Bank of the Philippine Islands (BPI), to finance a new building. Due to the contractor’s default and abandonment, construction was delayed, causing cost overruns and cash flow problems. External factors like the 9/11 attacks further impacted the hotel industry. Consequently, Sarabia foresaw an inability to meet its obligations and filed a petition for corporate rehabilitation with the Regional Trial Court (RTC). The RTC issued a Stay Order and appointed a rehabilitation receiver.
The receiver evaluated Sarabia’s proposed plan and recommended approval with modifications, including a 17-year debt restructuring with a fixed 6.75% interest rate, waiver of penalties, and a two-year grace period on principal payments. The RTC approved this modified plan. BPI opposed, arguing the plan was not feasible and unfairly prejudicial to creditors. The Court of Appeals affirmed the RTC’s approval with slight modifications, prompting BPI’s appeal to the Supreme Court.

ISSUE

Whether the Court of Appeals erred in affirming the approval of Sarabia’s rehabilitation plan.

RULING

The Supreme Court denied the petition and affirmed the appellate court’s decision. The legal logic centers on the purpose and standards of corporate rehabilitation under the Interim Rules on Corporate Rehabilitation. Rehabilitation aims to conserve and administer the assets of an insolvent corporation during suspension of payments, with the goal of enabling continued operation and restoring debt-paying ability. The court’s approval of a rehabilitation plan is not contingent on the debtor’s current insolvency but on a finding of a substantial likelihood for successful rehabilitation.
The Court found that the approved plan, as recommended by the rehabilitation receiver, met this standard. The evidence showed Sarabia had more assets than liabilities, and the plan provided a reasonable path to solvency by restructuring debts with a manageable fixed interest rate, extending payment terms, and requiring capital infusion from stockholders. The opposition from BPI was deemed manifestly unreasonable as the plan offered creditors compensation greater than what they would receive in a liquidation scenario. The Court emphasized that rehabilitation proceedings are equitable and contemplative, prioritizing the preservation of the going concern over the strict enforcement of collection rights, provided the plan is fair, equitable, and feasible. The findings of the RTC and the Court of Appeals on the plan’s viability were accorded respect.