Republic v. PET Plans, Inc.

FIRST DIVISION

[G.R. No. 220782. December 5, 2018.]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE SECURITIES AND EXCHANGE COMMISSION, petitioner, vs.PET PLANS, INC., respondent.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, First Division, issued a Resolution dated December 5, 2018which reads as follows:

"G.R. No. 220782 (Republic of the Philippines, represented by the Securities and Exchange Commission v. PET Plans, Inc.)

This is a Petition for Review on Certiorari 1 assailing the Decision 2 dated October 31, 2014 of the Court of Appeals (CA) in CA-G.R. SP No. 123703, which upheld the Resolutions dated February 22, 2011 and December 9, 2011 of the Regional Trial Court (RTC) of Makati City, Branch 149 in Spec. Proc. Case No. M-6289, and the CA's Resolution 3 dated June 29, 2015, which denied petitioner's motion for reconsideration.

The RTC's February 22, 2011 Resolution 4 allowed respondent to make a singular contribution of over P5 Million in assets in lieu of its undertaking, under the approved rehabilitation plan, to infuse fifteen percent (15%) of its annual net income after tax (NIAT) for ten (10) years. The RTC's December 9, 2011 Resolution 5 denied petitioner's motion for reconsideration.

The Factual Antecedents

On June 22, 2006, respondent PET Plans, Inc., a pre-need corporation registered with the Securities and Exchange Commission (SEC), filed a Petition for Corporate Rehabilitation with Prayer for Suspension of Payments before the RTC, submitting therewith its proposed rehabilitation plan. The RTC subsequently enjoined the enforcement of all claims against respondent and appointed Atty. Danilo L. Concepcion as its rehabilitation receiver. 6

In a Resolution dated April 30, 2007, the RTC approved the rehabilitation receiver's Modified Rehabilitation Plan (MRP) dated March 12, 2007, the salient features of which are:

(1) The continuation of respondent PET's pre-need business;

(2) Unification of respondent PET's three [3] existing trust funds [for educational, pension and memorial plans] into a singular fund called the Enhanced Value Fund [EVF] to be managed by the BPI Trust Department;

(3) The present pre-need plans would be converted into the Enhanced Value Fund whose actual value would be enhanced by two [2] enhancers, namely: [a] the earnings and growth of the unified trust fund; and [b] PET's annual contribution to the unified trust fund of 15% of its net income after tax from the continuance of its pre-need business for a period of ten [10] years from approval of the MRP. 7

As of November 2007, the Enhanced Value Fund (EVF) was established and managed by the Bank of the Philippine Islands (BPI) Management Group, and the ownership thereof transferred to the planholders. 8 aScITE

On October 4, 2010, respondent filed an Omnibus Motion to revive and amend the MRP and to exit from rehabilitation. Respondent alleged that it failed to contribute 15% of its NIAT to the EVF because it was unable to generate any new sales or income from the pre-need business for lack of the necessary license from the SEC; that it ventured into non-pre-need business like insurance but its income was marginal over the last three (3) years; and that it was restricted from pursuing and developing new business because it was under rehabilitation. 9

The amendment sought would allow respondent to make an outright asset contribution to the EVF consisting of cash in the amount of P2 Million and real properties with a cumulative market value of P3,496,500, in place of the annual contribution to the EVF of the projected 15% of its NIAT for a period of ten (10) years from the approval of the MRP. 10

The rehabilitation receiver confirmed respondent's inability to generate income from its pre-need business due to lack of license from the SEC and the deteriorating market conditions since 2007. He recommended the approval of the proposed amendment, finding it more favorable to the planholders considering that the proposed amount was double the company's projected income contribution and its effect on the EVP would be immediate. Petitioner, however, opposed it, arguing that it was legally impermissible under the Rules on Corporate Rehabilitation since it entailed an alteration of a desired target under the MRP. Petitioner claimed that the modification allowed by said Rules is limited to the means by which targets may be achieved. 11

The Ruling of the RTC

In its Resolution dated February 22, 2011, the RTC granted respondent's Omnibus Motion insofar as it sought to revive and amend the MRP. The dispositive portion of the Resolution reads:

WHEREFORE, the omnibus motion is partially granted.

Accordingly, the Modified Rehabilitation Plan, as approved in the Resolution dated April 30, 2007, is hereby REVIVED and be [sic] modified to provide that the [respondent] shall contribute the amount of P2,000,000.00 cash and to transfer real property with market value of P3,496,500.00 or the total amount of P5,496,500.00 to the Enhanced Value Fund as of this approval, in lieu of the projected 15 [sic] net income after tax generated from the continuance of its pre-need business.

The [respondent] is hereby directed to inform this court of its compliance within thirty (30) days of its accomplishment.

The Rehabilitation Receiver is directed to render his report on [respondent]'s compliance within thirty (30) days.

As to the motion to exit rehabilitation and to terminate rehabilitation proceedings, the same are denied for being premature and without basis.

The motion to exit pre-need business is likewise denied for non-observance of due process of law.

SO ORDERED.12

The RTC held that the modification of the MRP was allowed by the Rules on Corporate Rehabilitation as it was necessary to achieve the desired targets set forth in the rehabilitation plan. It noted that the substitute undertaking appeared more immediate and realizable, and would significantly augment the EVF, which is the underlying target or goal of respondent's rehabilitation." 13 HEITAD

Petitioner moved for reconsideration, insisting that the proposed modification of the MRP was impermissible. Assuming it was allowed, petitioner argued that the proposed infusion of cash and real properties should be made on top of the annual 15% NIAT contribution under the MRP. Petitioner further asserted that respondent must disclose the complete list of planholders, including the computation of their shares in the EVP and in the intended infusion. 14

In its December 9, 2011 Resolution, the RTC denied petitioner's motion for reconsideration. Considering that respondent already complied with its substitute undertaking to contribute a total of P5,496,500 worth of assets, the RTC also ordered respondent's release and exit from the rehabilitation proceeding. 15 The dispositive portion of the Resolution reads:

WHEREFORE, the motion for reconsideration filed by the Securities and Exchange Commission is hereby denied.

Finally, the reports of the Rehabilitation receiver have manifested that the petitioner could not comply with the 15% net income contribution; but instead made a front payment of P5,496,500.00 to the EVF in order that petitioner may now exit from rehabilitation proceedings; and considering the fact that petitioner may not be able to secure approval for a pre-need business, this court is constrained to order the release and exit of petitioner from this court rehabilitation proceedings.

SO ORDERED.16

The Ruling of the CA

Petitioner challenged the RTC's Resolutions before the CA in a special civil action for certiorari docketed as CA-G.R. SP No. 123703. 17 On October 31, 2014, the CA rendered the assailed Decision, the dispositive portion of which states:

WHEREFORE, the petition is DISMISSED. The resolutions dated February 22, 2011 and December 9, 2011, issued by public respondent Judge Cesar O. Untalan of the Regional Trial Court of Makati City, Branch 149 in S.P. Proc. No. M-6289 are AFFIRMED.

SO ORDERED.18

The CA denied petitioner's motion for reconsideration in its June 29, 2015 Resolution.

Hence, this petition.

The Ruling of the Court

The petition lacks merit.

Petitioner maintains that the amendment of the MRP, as approved by the RTC, was not allowed under the Rules on Corporate Rehabilitation because it modified a target specified in the rehabilitation plan and not merely the means of achieving such target.

The Court is not convinced.

Section 22, Rule 3 of A.M. No. 00-8-10-SC 19 or the Rules of Procedure on Corporate Rehabilitation reads:

Sec. 22. Alteration or Modification of Rehabilitation Plan. — An approved rehabilitation plan may, upon motion, be altered or modified, if, in the judgment of the court, such alteration or modification is necessary to achieve the desired targets or goals set forth therein. (Emphasis ours.)

In this case, the approved rehabilitation plan, or the MRP, provided:

Effectively, all the three (3) types of the present pre-need plans shall be converted into a single new type of plan which will be called the "Enhanced Value Plan" (EVP). The NPV 20 of each pre-need plan shall be the face value of the new plan. The actual value of this new plan is enhanced by two (2) enhancers namely:

(a) The earnings and growth of the assets of and investments of the unified trust fund. Such earnings, as already mentioned range from 8% to 12% per annum, and

(b) The annual contributions to the unified trust fund by [respondent] in the amount of fifteen percent (15%) of its net income after tax generated from the continuance of its pre-need business for a period of ten (10) years from the approval of the modified rehabilitation plan.

The first enhancer maker [sic] the EVP different from the traditional fixed value plan where the excess in the actual value of the trust fund over the face value of the plan goes to the pre-need company and not to the planholders. In the EVP, all the earnings of the unified trust fund will go to the EVP planholders.

The second enhancer makes it different from the ordinary trust investment where the investor's return is limited to the growth of the investment fund. In the EVP, the growth of the unified trust fund is enhanced further by sharing in the earnings of the business of [respondent]. 21 (Emphasis ours) ATICcS

It is clear from the MRP that its goals or targets are: first, the conversion of the three (3) existing types of pre-need plans into a single plan to be known as the EVF, and second, the enhancement or "financial growth" 22 of the EVF. As expressly described in the MRP, the annual contribution of 15% of petitioner's NIAT is merely one of two (2) enhancers of the EVF. Evidently, therefore, the NIAT contribution is but a means to achieve the goal of enhancing or augmenting the EVF.

Furthermore, the rehabilitation receiver considered the substitute undertaking to be more favorable to respondent's rehabilitation, explaining that:

3. The second provision of [respondent's] rehabilitation (sic) Plan requires [respondent] to contribute for the next ten (10) years fifteen percent (15%) of its income after tax to the Enhanced Value Fund (EVF). The purpose of this contribution is to enhance the financial growth of the EVF.

4. [Respondent] now proposes to make an outright cash and asset contribution to the EVF in the total amount of Five Million Four Hundred Ninety-Six Thousand Five Hundred Pesos (Php5,496,500.00) in lieu of contributing a portion of its net income over a ten (10)-year period.

5. The reason for this proposal is because [respondent], due to reasons beyond its control, was unable generate [sic] any net income from its business operations for the past three (3) years, or since the approval of the Rehabilitation Plan in 2007. Thus, its commitment to contribute a portion of its net income to the EVF and enhance its financial growth has remained unfulfilled.

6. According to [respondent], it expects to become profitable only in the fourth quarter of 2012. For the periods 2012 to 2016, [respondent] expects a net income after tax of around Sixteen Million Pesos (Php16,000,000.00). If the approved Rehabilitation Plan was to be followed, that means, that from 2012 to 2016, the EVF will expect to get only Two Million Four Hundred Thousand Pesos (Php2,400,000.00) from [respondent] (Php16,000,000.00 x 15%).

7. The projected Php2,400,000.00 income contribution is not even guaranteed. As in any business endeavor, there are always inherent risks involved and there is no guarantee one will earn money.

8. An outright cash and asset contribution now clearly serves the purpose of the second key provision of the Rehabilitation Plan, which is the enhancement of the financial growth of the EVF. It is certainly better compared to waiting until 2016 for a miniscule income contribution that is not certain to happen.

9. This Honorable Court thus correctly approved the alteration and modification of the second key provision of [respondent's] Rehabilitation Plan since such alteration or modification is necessary to achieve the desired target or goal set forth in the rehabilitation plan. 23 (Emphasis ours)

As the CA noted, rehabilitation receivers are officers of the court, tasked to study the best way to rehabilitate the company and to implement the rehabilitation plan after its approval. 24 Their qualifications include "expertise and acumen to manage and operate a business similar in size and complexity to that of the debtor" and "knowledge in management, finance and rehabilitation of distressed companies." 25 Their recommendation bears much weight as it is one of the factors which must be considered by the court if it were to approve any modification of an approved rehabilitation plan. 26

In this case, the findings and assessment of the rehabilitation receiver were sustained by both the RTC and the CA. The RTC, in particular, held that:

[I]t was determined that [respondent's] net profits since the MRP was implemented were quite dismal, and that the undertaking to contribute 15% of its NIAT generated from its pre-need basis (sic) may not be realizable. Considering further the economic condition of the country in the next five (5) years, the 15% projected contribution could not be attained and it is quite not tenable. Hence, the resort to the modification of infusing cash and property to the EVF, which appears to be the immediate and significant compliance of the required enhancement of the EVF, and the compliance of the undertaking to contribute to the EVF as mandated under the MRP. x x x. 27 (Emphasis ours) TIADCc

It is settled that factual findings of courts a quo are entitled to great weight and respect and even accorded finality. This especially obtains in corporate rehabilitation proceedings to which special commercial courts have been designated by reason of their expertise and specialized knowledge of the subject matter. 28

In fine, the questioned amendment of the MRP satisfies the standard of Section 22, Rule 3 of the Rules of Procedure on Corporate Rehabilitation as it has been established to be "necessary to achieve the desired targets or goals set forth therein." Furthermore, as the CA observed, "(t)he fact that the substitute contribution was favorable to the planholders was bolstered by the record showing that the latter interposed no objection to the proposal by PET Plans and the approval of the proposal by the trial court." 29

Contrary to petitioner's assertion, the CA did address its supposed entitlement to an order directing respondent to disclose its planholders and their actual shares in the EVF. The CA held:

This Court also notes that respondent judge even conducted a Chamber Conference before resolving the motion for reconsideration, and required the attendance of [respondent's] finance officer, the portfolio officer of the trust funds, the rehabilitation receiver and all the stakeholders in the said conference. He also directed [respondent] and BPI to present the documents prayed for by SEC in its motion for reconsideration. Unfortunately, SEC failed to appear despite notice. Certainly, respondent judge cannot be charged with grave abuse of discretion for not requiring anew the submission of the document that had been presented by [respondent] in the conference.30 (Emphasis ours)

Petitioner argues that it could not be faulted for not attending the October 19, 2011 chamber conference set by the trial court because the RTC itself scheduled another hearing for said purpose on November 23, 2011, at its request, on which date it appeared with counsel. 31

The Court disagrees.

Records show that the chamber conference was originally set on October 19, 2011. When petitioner's counsel moved that the conference be reset on November 23, 2011 "in view of an earlier scheduled hearing x x x involving another case," the RTC maintained the October 19, 2011 setting but added petitioner's requested date. On October 19, 2011, petitioner failed to appear at the scheduled chamber conference while respondent and representatives from the BPI, together with their counsel, as well as the rehabilitation receiver, were all present. Consequently, the RTC reset the chamber conference on November 16 and 23, 2011. At the November 16, 2011 chamber conference, only the rehabilitation receiver, respondent's President and Finance Officer and the representative of BPI were in attendance, and after a discussion on the interests and protection of the planholders, petitioner's motion for reconsideration was considered submitted for resolution. 32

It is readily apparent that petitioner's motion to reset the October 19, 2011 conference was not granted by the trial court. In fact, in addressing said motion, the RTC made it clear that "(t)he chamber conference scheduled on October 19, 2011 at 2:00 o'clock in the afternoon stays." 33 Notably, the Rules of Procedure on Corporate Rehabilitation considers rehabilitation proceedings as summary in nature and prohibits motions for postponement. 34 Even in cases which are not summary in nature, it is settled that postponements are generally addressed to the sound discretion of the court. 35

Petitioner, therefore, had the obligation to appear before the trial court on October 19, 2011 or at the very least, to determine the actions taken by the court during the scheduled conference, including any possible new settings made. Petitioner cannot simply decide to examine the requested documents on November 23, 2011 and altogether skip the October 19, 2011 conference or pay no regard to whatever transpired thereat.

As the CA noted, the RTC had directed respondent and BPI to present the documents requested by petitioner during the chamber conference, but the latter failed to appear at the conference despite notice. Petitioner, therefore, had no one to blame but itself for missing the opportunity to examine the documents it had requested.

It must be emphasized that the petition brought by petitioner before the CA was one for certiorari grounded on the RTC's supposed grave abuse of discretion. Time and again, this Court has held: AIDSTE

Grave abuse of discretion is the capricious or whimsical exercise of judgment that effectively brings the acting entity outside the exercise of its proper jurisdiction. The abuse of discretion must be grave, as when the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and the abuse must be so patent and gross so as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined, or to act at all in contemplation of law, as to be equivalent to having acted without jurisdiction. 36

The Court agrees with the CA that by this standard, the RTC did not commit grave abuse of discretion "for not requiring anew the submission of the document that had been presented by (respondent) in the conference." Mere error of judgment on the part of the RTC, if any, is an insufficient ground to reverse the CA's dismissal of petitioner's certiorari petition as such special civil action is for the correction of errors of jurisdiction (absence, or excess, or grave abuse, of discretion) and not errors of judgment. 37

WHEREFORE, the petition is DENIED. The Court of Appeals' Decision dated October 31, 2014 and Resolution dated June 29, 2015 in CA-G.R. SP No. 123703 are hereby AFFIRMED.

SO ORDERED."

Very truly yours,

(SGD.) LIBRADA C. BUENADivision Clerk of Court

 

Footnotes

1.Rollo, pp. 13-58.

2. Penned by Associate Justice Myra V. Garcia-Fernandez and concurred in by Associate Justices Fernanda Lampas Peralta and Francisco P. Acosta. Id. at 71-88.

3.Id. at 89-90.

4. Penned by Presiding Judge Cesar O. Untalan. Id. at 375-379.

5.Id. at 440-443.

6.Id. at 109-110.

7.Id. at 194-243.

8.Id. at 75-76.

9.Id. at 315-329.

10.Id. at 321-325.

11.Id. at 344-346.

12.Id. at 379.

13.Id. at 378.

14.Id. at 79-80.

15.Id. at 442-443.

16.Id.

17.Id. at 71-88.

18.Id. at 87.

19. Approved on December 2, 2008.

20. Net Plan Value. Rollo, p. 72.

21.Id. at 83.

22.Id.

23.Id. at 84-85.

24.Id. at 85. Section 12, Rule 3 of A.M. No. 00-8-10-SC.

25. Section 11 (a) (1) and (2), Rule 3 of A.M. No. 00-8-10-SC.

26.Siochi Fishery Enterprises, Inc., et al. v. BPI, 675 Phil. 916, 930 (2011).

27.Rollo, pp. 441-442.

28.BPI v. Sarabia Manor Hotel Corp., 715 Phil. 420, 434-435 (2013).

29.Rollo, p. 85.

30.Id. at 85-86.

31.Id. at 28-29.

32.Id. at 617.

33.Id. at 615.

34. Section 1, Rule 3 of A.M. No. 00-8-10-SC.

35. See Sibay v. Bermudez, G.R. No. 198196, July 17, 2017, 831 SCRA 191.

36.Biñan Rural Bank v. Carlos, et al., 759 Phil. 416, 421 (2015).

37.Id. at 422.