St. Francis Square Holdings, Inc., et al. vs. The SEC Hearing Panel, et al.

April 4, 2013 SEC EN BANC CASE NO. 10-08-146 (SEC Case No. 05-00-6609) ST. FRANCIS SQUARE HOLDINGS, INC.,ST. FRANCIS SQUARE DEVELOPMENT, INC.,ST. FRANCIS SQUARE REALTY CORPORATION, including other petitioning corporations in SEC CASE NO. 05-00-6609 under the St. Francis Square Group of Companies (formerly ASB Group of Companies) , petitioners , vs. THE SEC HEARING PANEL and DEUTSCHE BANK AG LONDON , respondents . DECISION This petition for review on certiorari seeks to annul and set aside the 3 October 2008 Order 1 of respondent SEC Hearing Panel in SEC Case No. 05-00-6609, 2 which decrees as follows: "IN VIEW OF THE FOREGOING, the motion to substitute Deutsche Bank AG London in place of Metropolitan Bank & Trust Company, Inc. is hereby GRANTED. Further, petitioners are hereby directed to implement the Rehabilitation Plan strictly subject to alterations or modifications thereof which are approved by the Commission." This proceeding covers one incident in the continuing saga involving the rehabilitation of ASB Development Corporation (ASBDC) and its affiliates ASB Realty, ASB Holdings, ASB Land, ASB Finance, Makati Hope Christian School, Bel-Air Holdings, Winchester Trading, VYL Development, Gerick Holdings, and Neighborhood Holdings collectively, the ASB Group of Companies (ASBGC). ACIDTE In February 2008, Deutsche Bank AG London (Deutsche Bank),a foreign corporation, filed an Omnibus Motion 3 with a prayer to substitute Deutsche Bank in place of Metropolitan Bank & Trust Company, Inc. (Metrobank) as creditor of ASBDC and ASBGC, as well as to implement strictly the terms and conditions of the Rehabilitation Plan, in light of the 27 February 2007 Supreme Court decision in G.R. No. 166197. 4 In its Omnibus Motion, Deutsche Bank alleges that Metrobank assigned all its rights, title and interest in the ASBDC credit amounting to more than P1.5 billion, including the mortgages and security interests guaranteeing payment of ASBGC's loans to Asia Recovery Corporation (ARC);that ARC, in turn, assigned the ASBDC credit to Cameron Granville 3 Asset Management, Inc. (Cameron);that in March 2007, through an Assignment Agreement and Deed of Assignment, Cameron assigned the ASBDC credit to Deutsche Bank for an undisclosed amount; and that ASBDC and ASBGC were duly notified of this assignment. Deutsche Bank prays, in the Omnibus Motion, to be substituted in place of Metrobank, as creditor, and thus participate in the rehabilitation proceedings. In addition, it prays that the Rehabilitation Plan be strictly adhered to amid reports that certain ASBDC and ASBGC properties are being indiscriminately sold in contravention of the Rehabilitation Plan; particularly, even those properties which are supposed to be the subject of dacion en pago in favor of creditors under the Rehabilitation Plan are being disposed of or placed in the asset pool. In its Comment, the ASB Group (ASBDC and ASBGC) raised the following issues in opposition to the Omnibus Motion: EHaASD 1. Deutsche Bank must, pursuant to Article 1634 of the Civil Code, 5 disclose how much it paid to acquire the Metrobank credit, so that it (the ASB Group) could make the corresponding offer to pay, by way of redemption, the same amount in final settlement of the Metrobank obligation. The ASB Group proceeds from the notion that Deutsche Bank paid, as consideration for the assignment, considerably less than the actual amount and value of the Metrobank credit, which at the time stood at more than P1.5 Billion; thus, it should be allowed to effect the sanctioned redemption under Article 1634, the tender to be made at the same discounted amount; 2. Since Deutsche Bank may have acquired the Metrobank credit for a lesser consideration, it cannot compel the ASB Group to pay or answer for the entire original Metrobank credit, or more than what the bank paid by virtue of the assignment; 3. If the Rehabilitation Plan is strictly implemented as prayed for by Deutsche Bank, then this would allow it to recover more than what it paid to acquire the Metrobank credit; 4. In view of pending cases in the Supreme Court where the validity of the Rehabilitation Plan has been squarely put in issue, Deutsche Bank's Omnibus Motion seeking its strict implementation must be adjudged premature; 5. As far as the Metrobank credit is concerned, the Rehabilitation Plan must be modified and adjusted to reflect the appreciation in real property values; and EaCSHI 6. The Supreme Court affirmed the ruling which nullified the BSA Twin Towers mortgage, which security Metrobank a mortgagee therein included in the assignment to Deutsche Bank. Thus, the Rehabilitation Plan must be correspondingly modified to address this supervening event. Deutsche Bank filed its 8 April 2008 Reply, therein stating that Article 1634 of the Civil Code is not applicable in rehabilitation proceedings; that as an assignee, it steps into the shoes of its predecessor-in-interest, Metrobank, and is thus entitled to the latter's rights under the Rehabilitation Plan (Plan); and that the Plan is immediately executory, and could not be barred, much less suspended, by cases pending in the appellate courts. Other creditors as well filed their respective comments to the motion. In its Rejoinder, the ASB Group stresses that Article 1634 should be made applicable to it because, by virtue of the said provision, it would be allowed to redeem or tender what Deutsche Bank actually paid for the Metrobank Credit, which is less than its original debt and, its debt burden would consequently be lightened. It further alleges that Deutsche Bank is estopped from arguing otherwise, having itself alleged in its Omnibus Motion that "substitution of parties is proper if an assignment of rights is effected pendente lite ". To this, Deutsche Bank in a Sur-rejoinder insists that Article 1634 applies only in adversarial proceedings, a class to which rehabilitation proceedings do not belong; that it has the right to question the manner by which the Rehabilitation Plan is implemented; that the Plan is immediately executory; and that the ASB Group's effort to have the Plan modified at this stage lacks merit. DHCSTa On 3 October 2008, the SEC Hearing Panel issued the questioned Order granting the Omnibus Motion. It held that, as assignee of Metrobank's credit, Deutsche Bank acquired all of Metrobank's rights, title and interest in the loans, as well as the right to require payment or satisfaction thereof, subject to the terms of the Rehabilitation Plan. On the issue of the Plan's implementation, the Hearing Panel acknowledged that circumstances might warrant modification of the Plan, but this does not detract from the need to implement the same strictly. If any alteration is to be made, it must be proposed and submitted to the panel for proper evaluation and approval before it can take effect. Petitioner now comes to the En Banc on Petition for Review on Certiorari assigning the following errors: "I. The Hearing Panel gravely abused its discretion and/or erred in holding that petitioners have the duty to pay its obligations and to honor the right and interests of the assignee of the loans obtained from Metrobank, thereby denying the petitioners' exercise of the right to legal redemption in accordance with Article 1634 of the New Civil Code of the Philippines. II. The Hearing Panel gravely abused its discretion and/or erred in directing the petitioners to strictly implement the Rehabilitation Plan, as this contravenes the constitutional provision, as far as Deutsche Bank AG London is concerned, prohibiting foreigners from owning lands in the Philippines. CIaDTE III. The Hearing Panel gravely abused its discretion and/or erred in directing the strict implementation of the Rehabilitation Plan knowing the pendency of cases filed by creditor banks in the Supreme Court questioning the validity of its approval. IV. The Hearing Panel gravely abused its discretion and/or erred in directing the strict implementation of the Rehabilitation Plan notwithstanding the presence of supervening events and circumstances warranting the modification or alteration of the Rehabilitation Plan." 6 Petitioner likewise prays for the following remedies: " The assailed Order dated 03 October 2008 be annulled and set aside, and a new one be rendered: Directing Deutsche Bank to disclose in writing, as certified by a reputable accounting firm, and under oath, the amount it had paid Cameron Granville in acquiring the Metrobank credit of petitioners[;] Declaring the dacion of properties to Deutsche Bank as contrary to the constitution; Allowing petitioners, in due time and in accordance with the rehabilitation proceedings, to exercise legal redemption pursuant to article 1634 of the New Civil Code[;] Allowing petitioners to submit proposed modifications or alterations of the Rehabilitation Plan, and to approve the same as warranted." 7 TaCDcE ISSUE The paramount issue in this appeal is: Was the questioned Order of the SEC Hearing Panel rendered with grave abuse of discretion tantamount to excess and/or lack of jurisdiction? The petition is without merit. The Supreme Court's decision in Rombe Eximtrade (Phils.), Inc. and Spouses Romeo Peralta and Marionette Peralta, Petitioners, vs. Asiatrust Development Bank 8 is instructive in this point. "...[T]he rehabilitation case is a special proceeding. Initially, there was a difference in opinion as to what is the nature of a petition for rehabilitation. The Court, on September 4, 2001, issued a Resolution in A.M. No. 00-8-10-SC to clarify the ambiguity, thus: On the other hand, a petition for rehabilitation, the procedure for which is provided in the Interim Rules of Procedure on Corporate Recovery, should be considered as a special proceeding. It is one that seeks to establish the status of a party or a particular fact [underscoring ours]. As provided in Section 1, Rule 4 of the Interim rules on Corporate Recovery, the status or fact sought to be established is the inability of the corporate debtor to pay its debts when they fall due so that a rehabilitation plan, containing the formula for the successful recovery of the corporation, may be approved in the end. It does not seek a relief from an injury caused by another party." 9 When the SEC Hearing Panel allowed the motion of respondent Deutsche Bank, it merely acknowledged the fact that Deutsche is presently the assignee of credit emanating from Metrobank, through Cameron Granville, who, in turn, obtained it from Asia Recovery Corporation, who obtained it from Metrobank. The effect therefore, is confined to allowing Deutsche to have standing to participate in the rehabilitation proceedings. If at all, any disqualification of Deutsche Bank to receive real properties in dacion en pago should be considered as a supervening event or circumstance which requires modification or alteration of the Rehabilitation Plan. TCADEc It is further noted that what Deutsche Bank seeks when it moved for the strict implementation of the Rehabilitation Plan is to prevent alleged dissipation of the assets of ASB Group. The Omnibus Motion was filed to prevent the ASB Group from disposing of properties contrary to the provisions of the Rehabilitation Plan, and not to gain possession of the properties subject of the Rehabilitation Plan. The ASB Group fears that with the implementation of the Plan, Deutsche Bank will own and possess land through dacion en pago in contravention of Section 7, in relation to Section 3, Article XII of the 1987 Constitution. Such fear, however, could be satisfactorily remedied by an amendment of the Rehabilitation Plan to the effect that the assignee or transferee of credit, Deutsche Bank in this case, must comply with the constitutional and statutory requirements; otherwise, the same shall not be given effect. Moreover, it was the ASB Group which drafted the Rehabilitation Plan. It may not have foreseen the possibility that those land and other real properties made subject of dacion en pago may be transferred subsequently by the original creditor to an assignee not be qualified to own these properties. That being the case, ASB Group's remedy is to file a motion before the SEC Hearing panel for the amendment of the Plan to ensure that no violation of such constitutional proscription occurs, and not raise the matter before the Commission En Banc through this Petition for Review on Certiorari . What then is the effect of supervening events and circumstances which require modification or alteration of the Rehabilitation Plan? SEACTH As correctly held by the Hearing Panel, circumstances may arise which will necessitate the alteration or modification of the Rehabilitation Plan. In such event, those matters must be pleaded to the Commission, through the Hearing Panel, in a proper motion. It is provided: Section 4-23. Alteration or modification of the Rehabilitation Plan. An approved Rehabilitation Plan may, on motion, be altered or modified if, in the judgment of the Commission, such modification is necessary to achieve the desired targets or goals set forth therein . No alteration or modification of an approved Rehabilitation Plan shall be allowed if opposed by a majority of any class of creditors unless such opposition is manifestly unreasonable. 10 (Emphasis supplied.) If it is true, as represented by the ASB Group, that the properties have increased in value which would require a review of the Plan, then, the proper procedure must still be observed, i.e. ,by filing a motion to amend the Rehabilitation Plan. The Commission En Banc cannot motu proprio intervene in this regard; it is not the proper forum to determine alterations or modifications to the Plan. First of all, not all of the ASB Group creditors are privy to the proceedings herein; they will therefore be deprived of the opportunity to be heard on the proposed alterations to the Plan. Secondly, the SEC Hearing Panel cannot be pre-empted in this respect: it alone possesses the expertise and detailed knowledge of the case which should permit an informed judgment to be made on the issue. Finally, a determination on this matter requires the presentation of evidence, which is wanting at this stage. Again, this should have been (or should be pursued) at the level of the SEC Hearing Panel. SACEca Should the Rehabilitation Plan be strictly implemented? What is the effect of the pending cases in the appellate courts which precisely raise the Plan's validity? To emphasize, what Deutsche Bank seeks in pursuing the strict implementation or full compliance with the Rehabilitation Plan is to restrain the reported indiscriminate disposition of properties by the ASB Group. The matter of abiding by the Rehabilitation Plan strictly is a non-issue; on the contrary, it is a given. The purpose of the Rehabilitation Plan is to provide this Commission and the creditors of ASB with a plan to pay and/or restructure its obligations in a manner which may permit ASB to continue its operations. Thus, the latter will suffer no prejudice from a faithful compliance with the terms of the Plan, vis--vis Deutsche Bank. The Plan has been the subject of constant attack, against which ASB ferociously defended against the courts, resulting in no less than four final dispositions of the Supreme Court which affirmed its validity. 11 Just as the rulings of the Court bind the ASB Group's creditors who questioned the Plan's validity, then so should the ASB Group adhere thereto: if not faithfully, then by estoppel. It cannot represent in the Courts that the Plan is creditable, meritorious, and must be adhered to, and then here turn its back on a creditor's appeal for observance of its terms and restraint in the indiscriminate disposition of properties. Besides, if Deutsche Bank seeks as one relief in its Omnibus Motion that the Rehabilitation Plan be strictly adhered to, then it follows as a matter of course that it does not demand immediate payment of the Metrobank credit ahead of the other creditors. HTCIcE WHEREFORE, finding no abuse of discretion on the part of the SEC Hearing Panel amounting to excess or lack of jurisdiction, the petition is DENIED. The 03 October 2008 Order of respondent SEC Hearing Panel in SEC Case No. 05-00-6609 is hereby AFFIRMED. The other reliefs prayed for are within the competent jurisdiction of the SEC Hearing Panel and beyond the Commission En Banc to grant in this Petition for Review on Certiorari . SO ORDERED. Mandaluyong City, __ March 2013. * aCASEH (SGD.) TERESITA J. HERBOSA Chairperson (SGD.) MA. JUANITA E. CUETO Commissioner (SGD.) MANUEL HUBERTO B. GAITE Commissioner (SGD.) ELADIO M. JALA Commissioner (SGD.) ANTONIETA F. IBE Commissioner Footnotes 1. Record, pp. 64-69; with Hearing Panel Members Attys. Vernette G. Umali-Paco, Chairperson, and Ellen Grace O. Lamanilao-de Dios and Melvelyn S. Barrozo concurring unanimously. 2. Entitled "In the Matter of Petition for Rehabilitation with Prayer for Suspension of Action and Proceedings Against Petitioners ASB Holdings, Inc.,et al." 3. Record, pp. 43-62. 4. Entitled "Metrobank v. ASB Holdings, Inc., et al." 5. Art. 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest on the price from the day on which the same was paid. A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the same is answered. The debtor may exercise his right within thirty days from the date the assignee demands payment from him. 6. Pages 090-091, Record, Vol. I. 7. Pages 076-077, Record, Vol. I. 8. G.R. No. 164479, Feb. 13, 2008. 9. Ibid. 10. Rules of Procedure on Corporate Recovery. 11. Metrobank v. ASB Holdings, Inc. ,G.R. No. 166197, February 27, 2007; BPI v. SEC, G.R. No. 164641, December 20, 2007; Union Bank of the Philippines v. ASB Development Corporation ,G.R. No. 172895, July 30, 2008; and China Banking Corporation v. ASB Holdings, Inc. ,G.R. No. 172192, December 23, 2008. * Presented and signed by the commission En Banc on 04 April 2013.