GR 172895; (July, 2008) (Digest)
G.R. No. 172895; July 30, 2008
Union Bank of the Philippines, Petitioner, vs. ASB Development Corporation, Respondent.
FACTS
Respondent ASB Development Corporation (ASBDC), along with affiliated companies (ASB Group), filed a Petition for Rehabilitation with the Securities and Exchange Commission (SEC) on May 2, 2000. The SEC Hearing Panel issued a suspension order on May 4, 2000, enjoining all actions for claims against the ASB Group. This order was subsequently extended. The SEC eventually approved the Group’s Rehabilitation Plan on April 26, 2001. Petitioner Union Bank of the Philippines (UBP), a creditor of ASBDC, had previously challenged the suspension order before the Court of Appeals and the Supreme Court, but its petitions were dismissed, with an Entry of Judgment issued on February 28, 2003.
Despite the pending rehabilitation proceedings and the subsisting suspension order, UBP extrajudicially foreclosed on its 10.32% participation in the mortgage securing ASBDC’s loan on August 24, 2001. The sale was approved by the Regional Trial Court. ASBDC challenged this foreclosure before the SEC, arguing it violated the suspension order. The SEC Hearing Panel, En Banc, and the Court of Appeals all ruled in favor of ASBDC, declaring the foreclosure sale null and void. UBP appealed to the Supreme Court.
ISSUE
Whether the extrajudicial foreclosure sale conducted by petitioner UBP during the pendency of the corporate rehabilitation proceedings and in violation of the SEC’s suspension order is valid.
RULING
No, the foreclosure sale is null and void. The Supreme Court affirmed the rulings of the lower bodies. The legal logic is anchored on the paramount purpose of rehabilitation proceedings, which is to preserve the debtor’s assets and allow for its equitable resuscitation for the benefit of all creditors. The suspension order issued by the SEC pursuant to its authority under Presidential Decree No. 902-A is mandatory and applies to all claims, whether against the debtor or its guarantors and sureties. This order creates a legal bar against any action that would diminish the debtor’s estate.
UBP’s act of foreclosing on the mortgage, an asset of the debtor ASBDC, was a clear violation of this suspension order. The Court emphasized that the approval of the Rehabilitation Plan did not lift the suspension; the order remains in effect to ensure the plan’s implementation. UBP’s separate challenge to the suspension order (G.R. No. 153830) had already been dismissed with finality. Consequently, UBP was bound by that final judgment and the legal effects of the suspension order it sought to nullify. Allowing a single creditor to unilaterally enforce its claim would defeat the very essence of rehabilitation, which requires a collective, orderly, and fair process for the settlement of debts. Therefore, the foreclosure, being in defiance of a valid court order issued within a pending quasi-judicial proceeding, has no legal effect.