Rehabilitation is the process of restoring "the debtor to a position of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation continues as a going concern that if it is immediately liquidated.".

G.R. No. 187581, October 20, 2014 

PHILIPPINE BANK OF COMMUNICATIONS, Petitioner,
vs. BASIC POLYPRINTERS AND PACKAGING CORPORATION, Respondent.

"x x x.

Liquidity was not an issue in a petition for rehabilitation

The petitioner contends that the sole issue in corporate rehabilitation is one of liquidity; hence, the petitioning corporation should have sufficient assets to cover all its indebtedness because it only foresees the impossibility of paying the indebtedness falling due. It claims that rehabilitation became inappropriate because Basic Polyprinters was insolvent due to its assets being inadequate to cover the outstanding obligations.20

We disagree with the contention of the petitioner.

Under the Interim Rules, rehabilitation is the process of restoring "the debtor to a position of successful operation and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can recover by way of the present value of payments projected in the plan more if the corporation continues as a going concern that if it is immediately liquidated."21 It contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency.22

In Asiatrust Development Bank v. First Aikka Development, Inc.,23 we said that rehabilitation proceedings have a two-pronged purpose, namely: (a) to efficiently and equitably distribute the assets of the insolvent debtor to its creditors; and (b) to provide the debtor with a fresh start, viz: Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative purposes. On the one hand, they attempt to provide for the efficient and equitable distribution ofan insolvent debtor's remaining assets to its creditors; and on the other, to provide debtors with a "fresh start" by relieving them of the weight of their outstanding debts and permitting them to reorganize their affairs. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paidtheir claims from its earnings.24

Consequently, the basic issues inrehabilitation proceedings concern the viability and desirability of continuing the business operations of the petitioning corporation. The determination of such issues was to be carried out by the court-appointed rehabilitation receiver,25 who was Cacho in this case.

Moreover, Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act (FRIA) of 2010), a law that is applicable hereto,26 has defined a corporate debtor as a corporation duly organized and existing under Philippine laws that has become insolvent.27 The term insolventis defined in Republic Act No. 10142 as "the financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its or his assets."28

As such, the contention that rehabilitation becomes inappropriate because of the perceived insolvency of BasicPolyprinters was incorrect.

x x x."