In The Matter of The Petition for Suspension of Payments

[SEC-SICD * CASE NO. 3827. November 9, 1990.] IN THE MATTER OF THE PETITION FOR SUSPENSION OF PAYMENTS RAMIE TEXTILES, INC. , petitioner . D E C I S I O N In a petition filed on July 13, 1990, petitioner Ramie Textiles, Inc. (RAMITEX, for brevity) prayed that it be declared in a state of suspension of payments and that an Order be issued confirming the suspension of all actions against RAMITEX; that an order be issued calling for a meeting of creditors of petitioner for the purpose of considering the petitioner's proposal for a deferment of payment of its liabilities to financial institutions, suppliers and creditors, as well as the creation of a management committee which shall exercise functions, subject to the control as may be required by this Commission. llcd The petition alleged that RAMITEX is engaged in the processing of ramie fiber and the manufacture of ramie fabrics. Its products are sold in the domestic market, as well as in the export market where it earned substantial foreign exchange. The company employs 2,000 workers and purchases its raw material, ramie fiber, from farmers in the southern areas of the country, particularly Davao. Its shares of stock, which are listed and traded in the Manila and Makati Stock Exchanges, are held by over 1,000 stockholders. The petition further alleges that since January 1989, there has been a softening in the ramie market, both domestic and export. RAMITEX's labor cost increased by at least P62 Million per annum, as a result of wage increases mandated by law and the Company's Collective Bargaining Agreement with its workers. These led to the financial difficulties for the Company. RAMITEX states that as of April 30, 1990, it had assets with a total book value of over P753 Million and an estimated sound realizable value of more than P1.174 Billion, as against total liabilities of only P414.676 Million. However, it faces serious liquidity problems and foresees the impossibility of meeting its obligations when they respectively fall due. RAMITEX, thus, petitioned to be declared in a state of suspension of payments, as it sought to avoid the possibility of paralization of business operations and the danger of dissipation, loss, wastage or destruction of its assets and properties which may occur if the company is beset with lawsuits from its creditors. RAMITEX proposed the creation of a management committee to preserve and/or protect its rights, and those of its creditors, stockholders, and the investing public, and to restructure and rehabilitate the Company. On July 19, 1990, this Hearing Panel issued an Order declaring that pursuant to Presidential Decree No. 902-A, as amended, all actions for claims against RAMITEX pending before any court, tribunal, board, or body shall be suspended. The company was prohibited from disposing of its property except in the ordinary course of its business and from making any payments outside of the legitimate expenses of its business during the pendency of the proceedings. A creditor's meeting to vote on the proposed Repayment Plan was scheduled for August 15, 1990. In the same Order of July 19, 1990 this Commission directed RAMITEX to cause the publication of said Order in a newspaper of general circulation, once a week for two (2) consecutive weeks, and to serve copies of the Order, the verified petition, including its annexes, to the creditors named and listed in the petition. From RAMITEX's Compliance dated August 15, 1990, it appears that the Company complied with the directive of this Hearing Panel. In its Manifestation of the same date, RAMITEX submitted updated financial statement, schedules and inventories as of July 13, 1990. The creditors' meeting was held as scheduled on August 15, 1990. Creditors representing at least three-fifths of the liabilities of RAMITEX were present. In fact, seven banks (Citibank, NA, Boston Bank of the Philippines, Far East Bank and Trust Company, The International Corporate Bank, Bank of America, NT & SA, Solidbank Corporation and the United Coconut Planters Bank), which were represented at the meeting by lawyers of the Law Offices of Sycip Salazar Hernandez & Gatmaitan, manifested that they hold and represent outstanding credits due and owing from RAMITEX amounting in the aggregate to more than P300 Million (inclusive of interest). The credits owing to these banks exceed 70% of RAMITEX's liabilities of P414.8 Million as of July 13, 1990. During the creditors' meeting, RAMITEX, thru its officers and counsel, explained its Proposed Repayment Plan (the "Plan"), the salient features of which are as follows: LibLex A. RESTRUCTURING 1. RAMITEX is engaged in two principal lines of business: (a) the processing of ramie combed tops for export; (b) the manufacture of ramie fabrics for the domestic market. Studies show that while the tops business will remain depressed in the short term, the long term returns from this business will still be attractive given the better quality of Philippine ramie. Thus, RAMITEX proposes that the tops business be transferred or relocated to Davao, thereby bringing the processing facilities to the source of the raw materials. On the other hand, it appears that as regards the fabric business, a capital investment of more than P200 Million must be infused into the mill to make it competitive. Yet, even if such investment is made, the rate of return will be quite low and will not even cover cost of capital. Thus, RAMITEX proposes that the fabrics business be closed, and the assets related thereto be sold to pay off obligations. 2. RAMITEX proposes to process and sell off the inventories and to sell its land and building located in Valenzuela, Bulacan. 3. The restructuring is subject to such stockholders' approval as may be required by law. B. REPAYMENT TO CREDITORS 1. Trade Suppliers . RAMITEX proposes that trade suppliers be paid over two fiscal years in four equal installments, to wit: 25% on or before December 31, 1990; 25% on or before June 30, 1991; 25% on or before December 31, 1991; 25% on or before June 30, 1992; Within these limits, payment to trade suppliers may be in kind, i.e. in the form of fabrics, return of materials and transfer of tax credit certificates. Subject to availability of uncommitted cash, payments for trade suppliers may be accelerated. Amounts outstanding after June 30, 1991 will earn interest from that date at 18% per annum. 2. Bank Creditors . RAMITEX proposes that its outstanding debts to bank creditors be restructured. The restructured amount will include all promissory notes, un-negotiated letters of credit, import bills and trust receipts. The principal amount will be paid over a six (6) year term. Interest rate will be floating at 1-1/2% over average 91 day treasury bill rates; the accrued interest as of restructuring date will be paid. The obligations will be secured by mortgage over the Valenzuela land and buildings, pending the sale thereof. Alternative modes for the disposition of the proceeds from the sale, are provided for, depending on whether the sale is for cash or on installments. Installment sale is subject to bank creditors' approval. 3. Stockholders' Advances . RAMITEX proposes that advances made by its stockholders shall bear interest at the same rate as the restructured bank debts. The payment of such advances shall be subject to the availability of excess cash. C. LABOR The restructuring of RAMITEX calls for the termination of workers. RAMITEX is prepared to give ex-gratia payment to the terminated laborers, payable over a period of twelve (12) months, and subject to the lifting of pickets and other conditions to ensure the successful processing of remaining inventories. D. ADDITIONAL SHORT TERM LOANS If additional loans to be used as operating capital for the Company are secured, they will be paid in accordance with their terms. In the creditors' meeting, those opposing the Plan were allowed to voice out their objections. Indeed, some creditors filed their written oppositions. However, the majority of RAMITEX's creditors manifested orally and/or in writing that they agree to the Plan. Forming part of the records of this case are the Manifestation/Comment expressing conformity to the Plan filed by at least 156 out of RAMITEX's 233 creditors. The debts owing to the 156 creditors amount to more than P360 Million out of RAMITEX's total current liabilities of P414.8 Million as of July 13, 1990. In the consideration of the present Petition, this Hearing Panel is fully aware of the objectives for which it was created. It is cognizant of the policy of the Constitution and the present administration to encourage investments and private enterprises as a means of accelerating national economic development. Petitioner's Repayment Plan enjoys the requisite support of the Company's creditors and the Plan, in the considered opinion of this Hearing Panel, will work to the best interest of the Company, its stockholders, creditors, as well as the general public. WHEREFORE, RAMITEX's Proposed Repayment Plan as submitted and presented during the creditors' meeting on August 15, 1990, and which Plan shall form part of this Decision, is hereby declared APPROVED, subject to whatever amount that may be awarded to the terminated workers by the National Labor Relations Commission. RAMITEX and all its present creditors are enjoined to comply with the terms and conditions of the approved Repayment Plan. SO ORDERED. (SGD.) FELIPE S. TONGCO Hearing Officer (SGD.) JOLLY Y. ESTRADA (SGD.) YSOBEL YASAY-MURILLO Hearing Officer Hearing Officer