GR 124185; (January 1998) (Digest)

G.R. No. 124185-87 January 20, 1998
Ruby Industrial Corporation and Benhar International, Inc. vs. Court of Appeals, Miguel Lim, Allied Leasing and Finance Corporation, and The Management Committee of Ruby Industrial Corporation

FACTS

Petitioner Ruby Industrial Corporation (RUBY) is a domestic corporation engaged in glass manufacturing. Petitioner Benhar International, Inc. (BENHAR) is a domestic corporation engaged in importation and sale of vehicle spare parts, wholly-owned by the Yu family and headed by Henry Yu, who is also a director and majority stockholder of RUBY. In 1983, RUBY suffered severe liquidity problems and filed a Petition for Suspension of Payments with the Securities and Exchange Commission (SEC). The SEC declared RUBY under suspension of payments and enjoined it from disposing of its property or making payments outside of necessary business expenses. A management committee was created for RUBY.
Majority stockholders, led by Yu Kim Giang, presented the BENHAR/RUBY Rehabilitation Plan, under which BENHAR would lend its P60 million credit line to RUBY, purchase the credits of RUBY’s creditors, and mortgage RUBY’s properties to obtain credit facilities. BENHAR would control and manage RUBY’s operations and receive a management fee. Minority stockholder Miguel Lim and the biggest unsecured creditor, Allied Leasing and Finance Corporation, objected. The minority stockholders submitted an Alternative Plan proposing to pay all creditors without a bank loan, operate without management fees, and rehabilitate the plants.
The SEC Hearing Panel initially approved the BENHAR/RUBY Plan on October 28, 1988, but the SEC en banc issued a writ of preliminary injunction against its enforcement. This Court ultimately upheld the injunction. However, before the SEC Hearing Panel’s approval, BENHAR had already implemented part of the plan by paying off some of RUBY’s secured creditors, including Far East Bank & Trust Company (FEBTC), and having credits assigned to it. This was done despite the SEC’s order enjoining payments. Acting on motions to nullify these deeds of assignment, the SEC Hearing Panel nullified them and declared the parties guilty of indirect contempt. This was affirmed by the SEC en banc, the Court of Appeals, and finally by this Court in G.R. No. 96675.
Subsequently, RUBY filed a petition to create a new management committee and to approve a Revised BENHAR/RUBY Plan. Under this revised plan, BENHAR would receive P34.068 Million of a P60.437 Million credit facility as reimbursement for its prior payments to RUBY’s creditors. Over ninety percent of RUBY’s creditors objected and endorsed the minority’s Alternative Plan. Three members of the original management committee also opposed. Despite this, the SEC Hearing Panel approved the revised plan, dissolved the existing management committee, and created a new one with BENHAR as a member. The SEC En Banc affirmed this approval on July 30, 1993, and in an October 15, 1993 Resolution, allowed BENHAR to use RUBY’s assets as collateral for loans, subject to committee approval. On appeal, the Court of Appeals set aside the SEC’s approval of the Revised BENHAR/RUBY Plan and remanded the case, ruling that the revised plan circumvented its earlier decision nullifying the deeds of assignment by recognizing the payments made by BENHAR under those void deeds as payable to BENHAR.

ISSUE

Whether the Court of Appeals committed reversible error or grave abuse of discretion in setting aside the SEC’s approval of the Revised BENHAR/RUBY Rehabilitation Plan.

RULING

The petition has no merit. The Court of Appeals did not err. The Revised BENHAR/RUBY Plan sought to legitimize the payments made by BENHAR to RUBY’s creditors under deeds of assignment that had been declared void by final and executory judgments of the SEC, the Court of Appeals, and this Court. The plan effectively recognized these void payments as payable to BENHAR, thereby circumventing the final rulings. The SEC’s approval of such a plan constituted grave abuse of discretion, as it disregarded the binding effect of these final judgments. While factual findings of administrative agencies like the SEC are generally respected, this deference does not apply when the agency has acted beyond its statutory authority, exercised unconstitutional powers, or committed grave abuse of discretion. The Court of Appeals correctly intervened to correct this legal error. The petition is denied, and the Decision of the Court of Appeals is affirmed.