In The Matter of The Petition for Rehabilitation and for a Declaration In a State of Suspension of Payments

[SEC-SICD * CASE NO. 4109. November 27, 1992.] IN THE MATTER OF THE PETITION FOR REHABILITATION AND FOR A DECLARATION IN A STATE OF SUSPENSION OF PAYMENTS, BALIWAG MAHOGANY CORPORATION , petitioner . D E C I S I O N On November 22, 1991, petitioner Baliwag Mahogany Corporation (Baliwag for short) filed the instant petition for rehabilitation and for a declaration in a state of suspension of payments alleging, among other things, that it is a corporation duly organized and existing under the laws of the Republic of the Philippines, with office address at Room 406, Anita Bldg., 1300 Quezon Avenue, Quezon City; that it is engaged in the manufacture and export of solid doors made of Philippine Mahogany and imported oak lumber at its manufacturing plant complex at San Rafael, Bulacan; that it is registered with the Board of Investment as Export Producer of finished wood products and its main concern markets in Europe are the United Kingdom and Holland, and from there its products find their way to other countries like France, Germany, Belgium and Austria, and other main country is the United States; that recently, the company has also made inroads into the Japanese Markets where it sell new products of fulcata shelving; that from 1984 to the end of 1990, the company has been included in the listing of the Philippines' Top 1,000 Corporations, in terms of sales; that the company's products were the first wood products to be accredited and registered with the Products Standard Agency; that in 1988, the company was awarded the Golden Shell Award by the Department of Trade's International Trade Expositions and Missions, Inc. for sustained growth in its products; that the confluence of certain events, both external and internal have adversely affected the company such as the prohibitive increase in the cost of lumber, its main raw materials, astronomical increase in labor costs brought about by government mandated wages increases, increase in power and hauling rates, its being hit by illegal strikes, increasing competition from Indonesia, with its abundant and cheap lumber low fuel and power cost and lower labor cost, recession and slow recovery in its main country markets, like United Kingdom, the rest of Europe and the United States; that the most serious factor is the company's mounting debt burden and scaring interest costs which weigh down heavily on the company, causing it to suffer serious liquidity problems and threaten to negate the gains it has achieved; that as of September 30, 1991, the company's liabilities stand at P357,484 million, composed of P345,315 million owing to fifteen creditor banks, trade accounts payable of P11,064 million; that as of November 20, 1991, the liabilities to the banks totaled P351,234,993.70; that while the company has a total assets worth P533,523 million, as against its liabilities of P357,484 million, the company foresees the impossibility of meeting its debts when they respectively fall due, as in fact it had been unable to meet its currently maturing obligations, unless it is given a breathing spell through a declaration of a state of suspension of payments and be afforded a program of rehabilitation which will enable it to settle its just obligations; that petitioner's creditors have started to press for payments of currently maturing obligations, and there is a clear present and imminent danger that the creditors will institute extra-judicial and judicial foreclosure proceedings, and actions in courts unless restrained by the Commission that petitioner has come up with a fair and reasonable rehabilitation program and its projected Income Statement and Projected Cash Flow for the years 1992 to 2001 would show its ability to meet its liabilities given the time and with the support of its creditors; that it is in the best interest of the petitioner, its stockholders, and almost 1,000 employees and its creditors as well and in the interest of the public and the national interest of the country; that petitioner be allowed to continue its operations and be able to pursue its rehabilitation program, after a declaration of a state of suspension of payments, and that to provide the petitioner's creditors with the assurance that in the meantime the suspension of payments is in effect, the interest of said creditors are protected and the assets of petitioner are preserved and protected from dissipation or loss, the petitioner proposes the creation of a Management Committee and/or Rehabilitation Receiver, pursuant to PD 902-A, as Amended by P.D. 1653, 1758 and 1799, which shall review and evaluate the liability of the continued operation of the petitioner. cdll On December 4, 1991, this Commission gave due course to the petition and directed the publication of its Order setting for hearing the petitioner's application for the appointment of a Rehabilitation Receiver and/or Management Committee on December 27, 1991 at 9:30 in the morning. While the creditor-banks were not practically willing to join the petitioner in its petition for suspension of payments, they however, were not totally indifferent to petitioner's request that it be given a chance to be rehabilitated. On this score, the Hearing Panel found that there is a compelling need to rehabilitate the petitioner corporation and, therefore granted petitioner's application for the Appointment of a Rehabilitation Receiver and/or Management Committee in its Order of January 8, 1992 to take over the business operations of the petitioner corporation and at the same time try to work out effectively a more comprehensive rescue scheme for petitioner to be able to salvage itself from its tight financial fix. With the creation of the Management Committee, it was accordingly ordered that "all action for claims against petitioner pending before any court, tribunal, board or sheriff body are deemed suspended". In the same order creating the Management Committee, the latter was directed to submit its report and recommendation relative to the defined functions specified in the Order. In compliance with the Order of January 8, 1992 the Management Committee (MANCOM) through its individual members submitted to the Commission on October 30, 1992, an evaluation report on the rehabilitation plan of Baliwag duly signed by the majority of the creditor banks. The MANCOM, in submitting the Rehabilitation Plan as contained in the MEMORANDUM OF AGREEMENT (MOA) asked the Commission that the said Plan be APPROVED, and that Baliwag and all creditor-banks be ordered to comply strictly with the terms and conditions of the MOA. Except for Union Bank and the Bank of the Philippine Islands, majority of the other 12 creditor-banks have already approved the Rehabilitation Plan by signing the MOA dated October 13, 1992. the other remaining creditor-banks have informed the MANCOM that their approval are forthcoming. We have reviewed and considered the documents submitted in this case, particularly the evaluation report and the Memorandum of Agreement, wherein the Rehabilitation Plan of petitioner corporation have been discussed and agreed, and we are of the conclusion that such plan is feasible and viable under the circumstances. Appropriate it is to state that beside seeing petitioner corporation being rehabilitated, our other primary concern is the protection of the rights and interest of creditors. This concern stems from the highest level of public interest to promote initiatives and efforts to resuscitate distressed corporation so that it may again be an ongoing business concern. Given this impetus, we are now driven by the highest sense of responsibility to see to it that petitioner be afforded a program of rehabilitation which will enable it to satisfy its outstanding obligations. It is undisputed that petitioner's business is profitable and viable and given a sufficient breathing spell petitioner may be able to meet and settle its just obligations. As we have previously ruled in the case of Philippine Blooming Mills, Inc., the plan for rehabilitation is always premised on a desire to save the corporation and its creditors from liquidation and to continue operation. Thus, P.D. 1758 has been held as having been "enacted precisely to help distressed corporations" (Bagong Bayan Corporation, etc. vs. Executive Judge of the Regional Trial Court of Makati, et al., A.C. G.R. No. SP-05616) because (a) distressed corporation may be worth more as going concern than it is in liquidation (Jordan and Warren Bankruptcy, p. 680) for the simple reason, that assets used for production in the industry for which they were designed are more valuable than if sold for scrap". (Poorman, Bankruptcy Reform Act of 1978 OKL. Law Review, Vol. 32; 583, p. 617). The Commission's concern for the interest and protection of the petitioner's creditors, particularly the 14 creditor-banks, both secured and unsecured is answered under the Rehabilitation Plan. TSDHCc Thus, the salient features of the said plan are as follows: 1. Rescheduling of Existing Credits and Reduction of Interest rates as follows: DBP Loan Other Lenders Principal P64,171 million P305,951 million as of 12/31/92 as of 12/31/92 Terms 5 years inclusive 7 years inclusive of 1 year grace of 2 years grace period period Interest Rate 16% per annum 14% per annum starting 1993 starting 1992 Repayment Schedule A Schedule B Schedule Default 16% per annum 14% per annum Charges Collateral Land, building Land, building and improvement and improvement (Senior mortgage) (junior mortgage, parri-passu CM on certain CM on certain equipment equipment inventory and other properties JSS of spouses JSS of spouses Alfredo and Alfredo and Susana Ong Susana Ong 2. Waiver of all default charges as of December 31, 1992. 3. All unpaid interest as of December 31, 1992 shall be payable within a period of not more than three (3) years in equal quarterly amortization without interest after full payment of the principal obligation per attached Schedules A and B. 4. Highlights of the terms and conditions of the rehabilitation proposal agreed upon by Baliwag with its creditor banks embodied in the Memorandum of Agreement are as follows: a. Mr. and Mrs. Alfredo Ong shall infuse fresh equity contribution by way of common stocks in the amount of not less than P25 million of which P11.0 million has already been paid in 1992. The remaining balance of P14.0 million shall be paid as follows: P4.0 Million On or before October 5, 1992 P2.0 Million On or before October 30, 1992. P8.0 Million payable in equal monthly installments of P500,000 each commencing January 4, 1993 and every end of the month thereafter until paid. Said 8.0 Million to be covered by postdated checks. P14.0 Million 5. Baliwag shall allow six (6) representatives of the lenders to sit as voting directors in the Board of Directors of the borrower which shall have to be increased to seven (7) members. 6. MANCOM shall have the option to designate in Baliwag a Chief Operation Officer and/or a Comptroller whose compensation shall at the sole expense and account of Baliwag. 7. Baliwag shall not incur additional loans except in the ordinary course of the business without the written consent of majority of the creditor-banks. 8. Baliwag banking operations shall be done only with any of its creditor banks. 9. However, rescheduling package is conditional subject to the faithful compliance of the terms and conditions embodied in the MOA. Baliwag's failure to comply with the terms thereof shall constrain DBP and the other creditor banks to enforce its right under the existing mortgage/loan documents. The Memorandum of Agreement thoroughly discussed with Baliwag and its 14 creditor banks embodies the terms and conditions of the rehabilitation proposal. As we have ruled in B.F. Homes, Inc. "we are now impelled by a practical sense of urgency to authorize and pursue the rehabilitation of petitioner, pursuant to the mandate of P.D. 902-A, as amended, to give ample protection not only to the business activities and investment of its creditors and to the interest of its affected public and related enterprises." WHEREFORE, the Rehabilitation Plan of Baliwag as contained in the Memorandum of Agreement dated 13 October 1992 and the said agreement including all the attachments therein are hereby APPROVED. Accordingly, judgment is hereby rendered declaring petitioner Baliwag Mahogany Corporation to be in a state of suspension of payments. EaCSHI The Management Committee is hereby directed to implement the Rehabilitation Plan and to submit its report to this Commission on the business operations of Baliwag six (6) months from date of notice hereof and every first Monday of each month thereafter so that the Commission can evaluate whether petitioner has complied with the requirements as herein mandated. Petitioner is directed to furnish all its creditors with a copy of the Decision and to submit to this Commission the corresponding proof of service within thirty (30) days from receipt hereof. SO ORDERED. (SGD.) ENRIQUE L. FLORES, JR. (SGD.) JUANITO B. ALMOSA, JR. Hearing Officer Hearing Officer