G.R. No. 190800, November 7, 2018
Metropolitan Bank & Trust Company, Petitioner, vs. Fortuna Paper Mill & Packaging Corporation, Respondent.

FACTS

Respondent Fortuna Paper Mill & Packaging Corporation filed a petition for corporate rehabilitation, alleging that 88% of its total obligations was owed to petitioner Metropolitan Bank & Trust Company (MBTC) and was overdue. Its proposed Rehabilitation Plan involved a two-year debt moratorium, an investment infusion from a foreign entity, and a shift to condominium development on a property owned by a sister company. The Regional Trial Court approved the plan, a decision affirmed by the Court of Appeals. MBTC elevated the case to the Supreme Court, arguing Fortuna was ineligible for rehabilitation and that the plan lacked material financial commitments. During the pendency of the appeal, the rehabilitation proceedings were terminated by the lower court, a fact MBTC brought to the Supreme Court’s attention, praying for the dismissal of the petition on the ground of mootness.

ISSUE

Whether the petition should be dismissed for being moot and academic, and if not, whether the substantive issues raised by MBTC regarding corporate rehabilitation have merit.

RULING

The petition is dismissed on the ground of mootness. A case becomes moot when a supervening event renders a resolution of the merits without practical legal effect. Here, the termination of the rehabilitation proceedings by the lower court removed any justiciable controversy. However, the Court, in its discretion, may still resolve moot cases to formulate guiding principles on issues of public interest. The concurring opinion of Justice Perlas-Bernabe, while agreeing with the dismissal, proceeded to address the substantive issues to provide guidance on corporate rehabilitation.
On the substantive issues, the concurring opinion held that Fortuna was qualified to file for rehabilitation. MBTC’s argument that only debtors who foresee future impossibility of payment, and not those already in default, may file was rejected. The legal logic is that the trigger for rehabilitation is the corporation’s inability to pay its obligations, not the mere maturity of its debts. The Interim Rules on Corporate Rehabilitation encompass both matured and unmatured claims, aiming to restore an economically feasible business for the benefit of all creditors.
Furthermore, the concurring opinion found the approved Rehabilitation Plan to be infirm. It lacked the required material financial commitments, as the promised equity infusion was highly contingent. The plan’s liquidation analysis was also deficient, as it undervalued secured assets by using book value instead of fair market value and omitted significant liabilities, thereby misrepresenting potential creditor recovery. Consequently, the plan was not feasible and should not have been approved, as it failed to demonstrate that creditors would recover more through rehabilitation than through immediate liquidation.