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BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. SARABIA MANOR HOTEL

CORPORATION, Respondent.

G.R. No. 175844, July 29, 2013

 PERLAS-BERNABE, J.:

FACTS: 

Sarabia Hotel obtained a special loan package from Far East Bank and Trust Company

(FEBTC) in order to finance the construction of a fivestorey hotel building (!e" Building) for the purpose of e#panding its hotel business$ %n additional credit in addition to the loan "as

approved by FEBTC in the same year$ The foregoing debts "ere secured by real estate

mortgages over several parcels of land o"ned by Sarabia and a comprehensive surety agreement

dated September &' & signed by its stockholders$ By virtue of a merger' Bank of the*hilippine +slands (B*+) assumed all of FEBTC,s rights against Sarabia$

Sarabia started to pay interests on its loans$ Ho"ever' largely because of the delayedcompletion of the !e" Building' Sarabia incurred various cash flo" problems$ Thus' despite the

fact that it had more assets than liabilities at that time' it' nevertheless' filed a *etition for 

corporate rehabilitation (rehabilitation petition) "ith prayer for the issuance of a stay order  before the -TC as it foresa" the impossibility to meet its maturing obligations to its creditors

"hen they fall due$

The -TC approved Sarabia,s rehabilitation plan as recommended by the -eceiver' findingthe same to be feasible$ +t observed that the recommended rehabilitation plan "as also practical

in terms of the interest rate pegged at .$/0 p$a$ since it is based on Sarabia,s ability to pay and

the creditors, perceived cost of money$ 1ore significantly' the -TC did not give credence toB*+,s opposition to the -eceiver,s recommended rehabilitation plan as neither B*+ nor the

-eceiver "as able to substantiate the claim that B*+,s cost of funds "as at the &20 p$a$

threshold$ +n this regard' the -TC gave more credence to the -eceiver,s determination of fi#ingthe interest rate at .$/0 p$a$

The C% affirmed the -TC,s ruling "ith the modification of reinstating the suretyobligations of Sarabia,s stockholders to B*+ as an additional safeguard for the effective

implementation of the approved rehabilitation plan$ +t also upheld the .$/0$ p$a$ interest rate on

Sarabia,s loans' finding the said rate to be reasonable given that B*+,s interests as a creditor "ere

 properly accounted for$

B*+ mainly argues that the approved rehabilitation plan did not give due regard to its

interests as a secured creditor in vie" of the imposition of a fi#ed interest rate of .$/0 p$a$ andthe e#tended loan repayment period$

ISSE:

3hether or not the C% correctly affirmed Sarabia,s rehabilitation plan as approved by the -TC'

"ith the modification on the reinstatement of the surety obligations of Sarabia,s stockholders$

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RLIN!:

4es$

-ecogni5ing the volatile nature of every business' the rules on corporate rehabilitationhave been crafted in order to give companies sufficient lee"ay to deal "ith debilitating financial

 predicaments in the hope of restoring or reaching a sustainable operating form if only to best

accommodate the various interests of all its stakeholders' may it be the corporation,sstockholders' its creditors and even the general public$ +n this light' case la" has defined

corporate rehabilitation as an attempt to conserve and administer the assets of an insolvent

corporation in the hope of its eventual return from financial stress to solvency$ +t contemplates

the continuance of corporate life and activities in an effort to restore and reinstate the corporationto its former position of successful operation and li6uidity$ 7erily' the purpose of rehabilitation

 proceedings is to enable the company to gain a ne" lease on life and thereby allo" creditors to

 be paid their claims from its earnings$ Thus' rehabilitation shall be undertaken "hen it is sho"n

that the continued operation of the corporation is economically more feasible and its creditorscan recover' by "ay of the present value of payments pro8ected in the plan' more' if the

corporation continues as a going concern than if it is immediately li6uidated$

%mong other rules that foster the foregoing policies' Section 9:' -ule ; of the +nterim

-ules of *rocedure on Corporate -ehabilitation (+nterim -ules) states that a rehabilitation planmay be approved even over the opposition of the creditors holding a ma8ority of the

corporation,s total liabilities if there is a sho"ing that rehabilitation is feasible and the opposition

of the creditors is manifestly unreasonable$ %lso kno"n as the ther"ise stated' it forces the

creditors to accept the terms and conditions of the rehabilitation plan' preferring longtermviability over immediate but incomplete recovery$

+t is "ithin the parameters of the aforesaid provision that the Court e#amines the approvalof Sarabia,s rehabilitation$

i$ Feasibility of Sarabia,s rehabilitation$

+n order to determine the feasibility of a proposed rehabilitation plan' it is imperative that

a thorough e#amination and analysis of the distressed corporation,s financial data must be

conducted$ +f the results of such e#amination and analysis sho" that there is a real opportunity torehabilitate the corporation in vie" of the assumptions made and financial goals stated in the

 proposed rehabilitation plan' then it may be said that a rehabilitation is feasible$ +n this accord'

the rehabilitation court should not hesitate to allo" the corporation to operate as an ongoingconcern' albeit under the terms and conditions stated in the approved rehabilitation plan$ >n the

other hand' if the results of the financial e#amination and analysis clearly indicate that there lies

no reasonable probability that the distressed corporation could be revived and that li6uidation

"ould' in fact' better subserve the interests of its stakeholders' then it may be said that a

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