G.R. No. 179558 , June 11, 2011
ASIATRUST DEVELOPMENT BANK, Petitioner, vs. FIRST AIKKA DEVELOPMENT, INC. and UNIVAC DEVELOPMENT, INC., Respondents.

FACTS

Respondents First Aikka Development, Inc. (FADI) and Univac Development, Inc. (UDI) are domestic corporations engaged in construction and real estate development. They obtained loans from petitioner Asiatrust Development Bank aggregating ₱114,000,000.00. Due to the Asian Financial Crisis, which adversely affected their industry, respondents could not pay in cash and negotiated with petitioner to assign receivables from their contracts to sell instead. Petitioner later insisted on collecting per the loan documents, claiming respondents were in default and demanding ₱145,830,220.95. Respondents denied default due to the assignment and demanded an accounting.
On May 10, 2006, respondents filed a consolidated Petition for Corporate Rehabilitation with Prayer for Suspension of Payments with the Regional Trial Court (RTC) of Baguio City. They alleged inability to pay petitioner’s claim, lack of liquidity despite sufficient assets, and threats of disruptive cases from petitioner. The RTC issued a Stay Order on May 16, 2006, which, among other things, stayed enforcement of all claims against the debtors and set the initial hearing for June 29, 2006. The order also stated that creditors had ten days before the initial hearing to file comments or opposition, and failure to do so would bar them from participating.
Petitioner encountered difficulties in securing a copy of the petition but eventually obtained one on June 9, 2006. On the day of the initial hearing (June 29, 2006), petitioner’s counsel appeared with a “Motion for Leave of Court to Admit Opposition to Rehabilitation Petition” and an attached Opposition. The RTC denied the motion in an Order dated July 17, 2006, ruling it partook of a motion for extension of time to file a pleading, which is a prohibited pleading under the Interim Rules of Procedure on Corporate Rehabilitation.
At a hearing on July 31, 2006, petitioner’s representative appeared because its counsel’s flight was cancelled due to bad weather. The court recognized the appearance only to note the counsel’s absence. With no other oppositors, the court terminated the initial hearing and directed the rehabilitation receiver to evaluate the plan.
The rehabilitation receiver later presented a draft report. Petitioner filed a manifestation and motion alleging the receiver refused to hear its side and asking for judicial assistance to participate. The receiver finalized his report, recommending approval of the rehabilitation plan.
On December 5, 2006, the RTC issued an Order denying petitioner’s motion to participate, stating it partook of a petition for relief (another prohibited pleading) and was essentially a motion for reconsideration of the denial of its opposition. The court approved the Rehabilitation Report and the Revised Rehabilitation Plan, finding the rehabilitation feasible.
Petitioner elevated the case to the Court of Appeals (CA) via a Petition for Review under Rule 43. The CA affirmed the RTC Orders in a Decision dated June 28, 2007. It held petitioner’s failure to participate was due to its own fault: (1) failure to timely file its opposition without good reason for belated admission; (2) counsel’s failure to attend the second hearing due to a cancelled flight, which was inexcusable; and (3) filing a motion to participate, a prohibited pleading, instead of a comment. The CA also opined that the Interim Rules contain no prohibition against a joint petition for rehabilitation and stressed that rehabilitation proceedings are non-adversarial. Petitioner’s motion for reconsideration was denied.

ISSUE

Whether the Court of Appeals erred in affirming the Regional Trial Court’s Orders which: (1) denied petitioner’s Motion for Leave to Admit its Opposition and subsequent motion to participate in the rehabilitation proceedings, effectively barring it from being heard; and (2) approved the rehabilitation plan.

RULING

The Supreme Court DENIED the petition and AFFIRMED the assailed Court of Appeals Decision and Resolution.
The Court held that the RTC did not commit grave abuse of discretion in denying petitioner’s motions and in approving the rehabilitation plan. Procedural rules in rehabilitation proceedings are designed for its summary and non-adversarial nature. The Stay Order explicitly gave creditors ten days before the initial hearing to file an opposition and warned that failure would bar participation. Petitioner received a copy of the petition on June 9, 2006, giving it ample time (20 days) to file a timely opposition before the June 29 hearing. Its filing of a motion for leave on the day of the hearing was correctly treated as a prohibited motion for extension.
The Court also found no merit in petitioner’s claim of denial of due process. Due process in rehabilitation proceedings is satisfied when a creditor is given the opportunity to be heard at the initial hearing. Petitioner was present at the initial hearing through counsel but chose to file a prohibited motion instead of presenting its opposition orally or in some other manner. Its subsequent motions were likewise correctly denied as prohibited pleadings. The rules are mandatory to prevent delay and ensure the swift resolution necessary for successful rehabilitation.
On the substantive issue, the Court found no reason to disturb the findings of the RTC and the rehabilitation receiver, affirmed by the CA, that the rehabilitation of the debtor corporations was feasible. The approval of the rehabilitation plan was based on the receiver’s evaluation and was within the court’s discretion. The overarching purpose of rehabilitation—to preserve and revitalize a financially distressed but potentially viable corporation—was served by the RTC’s orders.